Quote of the Day by Warren Buffett: ‘You judge management by two yardsticks. How well…’

Berkshire Hathaway founder and chairman, Warren Buffett has offered a wealth of investment advice over the years. Known for his long-term approach to stocks, sticking to fundamentals, and taking calculated but thoughtful risks, the so-called ‘Oracle of Omaha's’ wisdom often makes the rounds online.

Buffett and his long-time business partner and friend, the late Charlie Munger, are known for their no-nonsense approach to doing business. Keep things simple and don't be swayed by alarmist tendencies. Buffett in fact, once extolled the benefits of looking at a company's balance sheet instead of its income statement before making an investment decision, as it is “harder to hide or play games”.

He further noted that Wall Street often disregards the document, adding: “You do learn more from balance sheets, than most people give them credit for…”

Quote of the Day by Warren Buffett

“You judge management by two yardsticks: how well they run the business and how well they treat shareholders.”

What does Warren Buffett's quote mean?

At the Berkshire Hathaway annual general meeting in 1994, Buffett explained to the audience why he buys corporations with “good management”, and what he means by the qualifier. The question on how to identify good management was asked by an “average investor” in the audience.

According to the ace investor, you can judge if a business has good management by reading about what they and their competitors have accomplished, and how much capital they have allocated to their successes over time. “You have to have some understanding of the hand they were dealt when they themselves got a chance to play the hand,” he added.

Further, he noted to make these conclusions, you must also have an understanding of the business the company is in and look at how well the management “have been doing in playing the hand”.

On the second parameter — how they treat their shareholders, Buffett noted that while this may be a bit more difficult to determine, there are some examples. “I think you can usually figure it out… Bill Gates, or Tom Murphy, or Don Keough, or people like that, are really outstanding managers. And it’s not hard to figure out who they’re working for,” he stated.

He added that most will not be able to make a judgement about managers on a personal basis but can form some opinion by reading the company reports. “So, you know, read the proxy statements, see what they think, how they treat themselves versus how they treat the shareholders, look at what they have accomplished, considering what the hand was that they were dealt when they took over compared to what is going on in the industry. And I think you can figure it out sometimes,” he added.

Buffett and Munger consistently expressed that they placed trust high on their list of requirements when making business decisions. In a 2021 interview with CNBC Buffett told the channel that you can't make a good deal with a bad person.

Who is Warren Buffet — the ‘Oracle of Omaha’?

Warren Buffett, alongside friend and business partner Charlie Munger were the architects who over nearly 60 years transformed Berkshire Hathaway Inc. from a failing textile maker into an empire, worth billions. Decades of compounded returns made the pair billionaires and folk heroes to adoring investors.

Notably, in January this year, Buffett handed over the reins and CEO position to successor Greg Abel. But his “bull run” with Berkshire has been legendary — gaining more than 55,00,000% returns over 60 years (1964-2024), to building the group to $1.2 trillion, and expanding Class A shares to worth $167 billion.

Known as the ‘Oracle of Omaha’ for his uncanny prediction on stocks, Buffett gained fame and investor confidence for handpicking companies (Apple, Bank of America, Coca-Cola, etc.) that exploded and now account for 70% of Berkshire's $263 billion stock portfolio. He termed this as “one wonderful business can offset the many mediocre decisions that are inevitable”.

Buffett's net worth is estimated at $152 billion, making him the 10th richest person in the world, according to the Bloomberg Billionaire Index.