Warren Buffett's risk filter: Why he likes ‘to deal with people where 1-page contract will do the job’

Warren Buffett, billionaire investor and Chairman of Berkshire Hathaway, has been vocal about his business mantras and investing guidelines over the years. Notably, when it comes to dealing with people, there is one quality he places high trust in. Here's why and how he navigates this requirement.

Speaking to an interviewer in 2014, when he shared the one-page contract he used to buy National Indemnity in Berkshire's annual report, Buffett explained that while times have changed, he still prefers one-page deals.

Warren Buffett prefers one-page contracts: Here's why

“We had one-page contracts for other companies (besides National Indemnity), but I can't seem to pull this off anymore. I mean, I send out these one-pagers out to our lawyers and say let's get down to this, let's get this done by… but the world seems to have changed on that,” the ace investor explained.

Adding, “I still would go for the one-page contract. I like to deal with people where I feel a one-page contract will do the job. If I have to have 50 pages in there to protect me against the guy I’m dealing with, I’ll always wonder whether I needed 51.” 

Notably, the now 95-year-old has stepped down as CEO of Berkshire Hathaway. The Oracle of Omaha handed over the reins to Greg Abel, his long-time designated successor, who took over as chief executive on 1 January. 

Why Warren Buffett says, ‘Can’t make a good deal with a bad person’

The logic has been consistent with Buffett, where he places trust high on his list of requirements when making a business decision. In a 2021 interview with CNBC alongside late business partner Charlie Munger, Buffett told the channel that you can't make a good deal with a bad person. The duo was on the channel to discuss their company and their six-decade-long friendship.

“You can't make a good deal with a bad person. Just forget it. Now, if you think you can drop a contract that is going to work against a bad person, they're going to win. For one thing, they probably enjoy litigation, but Berkshire Hathaway as an entity or me personally, I think we don't want to spend our life doing that sort of thing. And besides, the bad guys win. They know more games. They may lose eventually in the but it's no way to spend your life.”

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Key money lessons from Warren Buffett

• Warren Buffett believes in doing his own research by reading all financial statements. He also holds onto stock he buys for the long term and says that you should buy companies that even a fool can run because someday a fool will.
• The billionaire investor also often suggests investing in the stocks of companies which have an “economic moat” around them or companies with a strong competitive advantage and growth prospects in the long run.
• The Oracle of Omaha believes that investing should not be complicated, and one should stick to the fundamental rules while ignoring the noise that comes.
• Buffett is a big advocate of thinking long and hard and asking the right questions before choosing to invest in a stock. And feels that by questioning every investment and stock, you will make better investing choices in the long run.
• Ignoring the noise is imperative, believes Buffett. Instead of blindly following the market, making objective decisions while ignoring the noise is advisable. Investing rationally should be the prime, instead of being swayed by either extreme — euphoria or scepticism.