The Value and Scarcity of Big Bets

Warren Buffett and the dozen decisions that defined him

The business world owes all its ideas on strategy to the military, but the military mind can learn a lot from the non-violent pinstripe-suiters. Like Warren Buffett.

He's one of the few folks in the world that doesn't really need an introduction. And he's recently released his annual letter, which includes a variety of subjects, including his year-in-review of performance, as well as some other thoughts.

This year's letter included a few observations that the strategy-interested must consider.

Buffett mentioned that his 58-year career netted eye-popping returns: 3,787,464%.

Then, he suggested the power behind these returns: "Our satisfactory results have been the products of about a dozen truly good decisions - that would be about one every five years." As he put it, "the weeds wither away in significance as the flowers bloom. Over time, it takes just a few winners to work wonders. And, yes, it helps to start early and live into your 90s."

Wall Street Journal writer Ben Cohen has also noted that Buffett tells investors to "imagine they are holding a punch card with 20 slots for the total number of investments they can make over their lifetimes. If you knew that you would be limited to 20 punches, you would maximize your chances of making each one count. You would be patient. You would be picky. You would only act on your strongest convictions."

Of course, according to Buffett, 20 punches may actually be a little too many.

There's a meta-lesson here for the wide variety of strategic scenarios readers may encounter. The number of truly significant decisions is likely smaller than you think.

When I wrote my dissertation on three high-stakes military campaigns during the American Revolution, US Civil War, and Second World War, I found that the military supreme commanders on each side only had a handful of key decisions to make. And the ones that tended to do better, on balance, were the one that were victorious. There weren't that many (though it's fair to acknowledge that each decision included many, many, many details that required subsequent supporting decisions).

Regarding the pace Buffett observed - roughly every five years - in my own personal life, I can recall life-altering circumstances that followed that pattern. Where to go to college, ending a relationship, choosing graduate school(s), and deciding to donate a kidney to a stranger - they all spaced out at about five year intervals.

That's not scientific at all. But I think it is good to have in mind that we should acknowledge big opportunities and big "bets" only come along so often and we've got to be prepared to leverage them to the fullest extent when we can.

When the time comes - like a patient hitter waiting for the right pitch - we can turn on the right fastball and knock it out of the park.