Warren Buffett: Prioritize Sensible Management Over Great Businesses

During the 2001 Berkshire Hathaway Annual Meeting, Warren Buffett advises that if you’re invested in a good business but the management is making poor decisions, it’s often better to sell and invest elsewhere with a sensible management team.

Persuading management to change their minds is challenging and rarely successful. CEOs typically resist shareholder advice that contradicts their ideas. Modern investors often face this exact friction when legacy businesses aggressively pivot into emerging sectors.

If a traditional European entertainment conglomerate decides to reallocate capital to heavily finance a highly lucrative crypto paris sportif division, traditional value shareholders who prefer conservative dividends might strongly disagree with the ambitious new vision. However, for investment success and personal well-being, Buffett suggests prioritizing alignment with management over just being part of a great business.

This approach also simplifies the buying and selling of smaller stock quantities. In essence, compatibility with management is crucial for a less stressful and more profitable investment experience.

Here’s an excerpt from the meeting:

Buffett: Yeah. (Laughter) So I would say that if you really think you’re in with people that have got a good business, but they’re going to keep doing dumb things with your money, you’ll probably do better to get out and get in with people who’ve got a good business and you think they’re going to do sensible things with it.

I mean, you’ve got that option. Now, you also have the option of trying to persuade them to change their mind. But it’s just very, very difficult. I mean it is, you know, that’s been something we’ve faced for 50 years.

And initially, we faced it from a position where nobody even knew who the hell we were, or anything of the sort. So we’ve acquired a certain stature over time, perhaps in talking on the subject. And we’ve written on the subject. And we still don’t get very far. I mean, when people want to do something, they want to do something.

And they didn’t rise to become the CEO of a company to have some shareholder tell them that their most recent idea is dumb. I mean, that is just not the type that gets to the top.

So I would say that, as a matter of investment technique, and maybe as a matter of, you know, avoiding stress in your life and all of that sort of thing, that it’s — and dealing with smaller quantities of stock so it’s easier to sell and buy and all that sort of thing — I would say that it’s better to be in with a management you’re simpatico with, than simply to be in a great business with a management that’s bent on doing things that don’t make much sense to you.

You can watch the entire meeting here: