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Tap Dancing to Work

Tap Dancing to Work

Warren Buffett on Practically Everything, 1966-2012
by Carol J. Loomis 2011 368 pages
3.98
2k+ ratings
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Key Takeaways

1. Warren Buffett's investment philosophy: Focus on intrinsic value and long-term growth

"I will not make an investment where I can't figure out the value of the thing."

Value-based investing. Buffett's core investment strategy revolves around identifying undervalued companies with strong fundamentals and holding them for the long term. He focuses on businesses with:

  • Consistent earnings and high return on equity
  • Strong competitive advantages or "moats"
  • Competent and trustworthy management
  • Predictable and sustainable business models

Circle of competence. Buffett emphasizes staying within one's area of expertise and avoiding investments in industries or technologies that are difficult to understand or predict. This approach has led him to largely avoid tech stocks and focus on more traditional industries like insurance, consumer goods, and utilities.

2. The power of compounding and patience in wealth creation

"Someone's sitting in the shade today because someone planted a tree a long time ago."

Long-term perspective. Buffett's success is largely attributed to his patience and willingness to hold investments for decades, allowing the power of compounding to work its magic. This approach contrasts sharply with short-term trading strategies prevalent in the market.

Compounding in action:

  • Berkshire Hathaway's book value grew at a compound annual rate of 23.8% over 36 years
  • $10,000 invested in Berkshire in 1965 would have grown to over $51 million by 2003

Avoiding unnecessary turnover. Buffett famously stated that his favorite holding period is "forever," emphasizing the importance of reducing transaction costs and tax implications associated with frequent trading.

3. Berkshire Hathaway: A unique conglomerate built on value investing principles

"I just buy the businesses and get out of the way."

Decentralized management. Berkshire's success is partly due to its unique structure, where subsidiary companies are given significant autonomy. Buffett focuses on capital allocation while trusting skilled managers to run their businesses effectively.

Diverse portfolio:

  • Insurance: GEICO, Gen Re, National Indemnity
  • Utilities and Energy: MidAmerican Energy, PacifiCorp
  • Manufacturing: See's Candies, Fruit of the Loom, Benjamin Moore
  • Services: NetJets, FlightSafety International
  • Retail: Nebraska Furniture Mart, Borsheims

Float utilization. Berkshire's insurance operations generate substantial "float" – premiums collected but not yet paid out as claims. This float is then invested in other businesses and securities, creating a virtuous cycle of capital generation and deployment.

4. Buffett's approach to risk management and avoiding financial pitfalls

"Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1."

Margin of safety. Buffett emphasizes the importance of buying assets at a significant discount to their intrinsic value, providing a cushion against potential losses and unforeseen circumstances.

Risk mitigation strategies:

  • Avoiding excessive leverage
  • Maintaining ample liquidity
  • Diversifying across industries and geographies
  • Focusing on businesses with predictable cash flows

Skepticism towards complex financial instruments. Buffett has been critical of derivatives, famously calling them "financial weapons of mass destruction" due to their potential to amplify systemic risks in the financial system.

5. The importance of ethical leadership and corporate governance

"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Integrity as a cornerstone. Buffett places a high value on ethical behavior and transparency in business dealings, both for himself and the companies he invests in.

Corporate governance principles:

  • Alignment of management and shareholder interests
  • Clear and honest communication with stakeholders
  • Appropriate executive compensation structures
  • Strong internal controls and risk management systems

Leading by example. Buffett's modest lifestyle and commitment to philanthropy have set a standard for ethical leadership in the business world, influencing many other executives and investors.

6. Buffett's views on market efficiency and behavioral finance

"The stock market is a device for transferring money from the impatient to the patient."

Market inefficiencies. While Buffett acknowledges that markets are generally efficient, he believes that periodic mispricings create opportunities for astute investors to generate above-average returns.

Behavioral biases:

  • Herd mentality and fear of missing out (FOMO)
  • Overconfidence and overreaction to short-term news
  • Anchoring to past prices or experiences
  • Loss aversion and reluctance to admit mistakes

Contrarian approach. Buffett often takes positions that go against prevailing market sentiment, famously advising to "be fearful when others are greedy and greedy when others are fearful."

7. Adapting to changing markets while maintaining core principles

"The most important quality for an investor is temperament, not intellect."

Flexibility within boundaries. While Buffett's core investment philosophy has remained consistent, he has shown the ability to adapt to changing market conditions and new opportunities.

Examples of adaptation:

  • Expanding into technology investments (e.g., IBM, Apple) in recent years
  • Engaging in more complex deals, such as preferred stock investments during the 2008 financial crisis
  • Increasing international investments, particularly in emerging markets

Maintaining discipline. Despite adapting to new opportunities, Buffett has remained disciplined in avoiding areas outside his circle of competence or that violate his core investment principles.

8. The role of emotional intelligence and rationality in successful investing

"The most important thing to do if you find yourself in a hole is to stop digging."

Emotional control. Buffett emphasizes the importance of maintaining a level head during market volatility and avoiding impulsive decisions based on fear or greed.

Rational decision-making:

  • Focusing on fundamental business factors rather than short-term price movements
  • Avoiding the temptation to time the market
  • Maintaining a long-term perspective even during periods of underperformance

Learning from mistakes. Buffett is known for his willingness to admit and learn from his investment mistakes, viewing them as opportunities for growth and improvement.

9. Buffett's philanthropic vision and approach to wealth distribution

"If you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%."

Giving Pledge. Buffett, along with Bill and Melinda Gates, initiated the Giving Pledge, encouraging billionaires to commit to giving away the majority of their wealth to philanthropic causes.

Strategic philanthropy:

  • Focus on high-impact, scalable solutions to global problems
  • Emphasis on effective measurement and evaluation of charitable efforts
  • Leveraging business principles to maximize philanthropic impact

Legacy planning. Buffett plans to give away 99% of his wealth during his lifetime or upon death, primarily through the Bill & Melinda Gates Foundation and his children's foundations.

10. Learning from mistakes and continuous improvement in investing

"In the business world, the rearview mirror is always clearer than the windshield."

Self-reflection. Buffett regularly analyzes his investment decisions, both successes and failures, to refine his approach and avoid repeating mistakes.

Notable mistakes and lessons:

  • Dexter Shoe Company acquisition (using Berkshire stock)
  • Underestimating the potential of technology companies in their early stages
  • Delayed response to the 2008 financial crisis

Continuous learning. Despite his success, Buffett maintains a voracious appetite for knowledge, reading extensively and seeking insights from a wide range of sources to improve his investment acumen.

Last updated:

FAQ

What's Tap Dancing to Work about?

  • Compilation of Articles: Tap Dancing to Work is a collection of articles and writings about Warren Buffett, primarily from Fortune magazine, spanning from 1966 to 2012. It provides a comprehensive view of Buffett's investment journey and philosophy.
  • Buffett's Philosophy: The book highlights Buffett's approach to value investing, emphasizing the importance of understanding the businesses behind stocks and his transition from investor to philanthropist.
  • Chronological Format: Articles are arranged chronologically, allowing readers to observe the evolution of Buffett's thoughts and strategies over nearly five decades.

Why should I read Tap Dancing to Work?

  • Insight into Buffett's Mind: The book offers a unique opportunity to understand the mindset of one of history's most successful investors, providing valuable lessons for both novice and experienced investors.
  • Historical Context: It provides context about the U.S. economy and stock market over the decades, helping readers understand the broader implications of Buffett's strategies.
  • Diverse Perspectives: Contributions from various authors, including Buffett himself, enrich the narrative and provide multiple viewpoints on his impact on business and investing.

What are the key takeaways of Tap Dancing to Work?

  • Value Investing Principles: Buffett emphasizes buying undervalued companies with strong fundamentals and holding investments for the long term to benefit from compounding.
  • Management Integrity: He highlights the significance of management quality, stating that good businesses should be run by ethical and capable leaders.
  • Philanthropy and Legacy: The book discusses Buffett's philanthropic efforts, particularly his commitment to giving away the majority of his wealth to address societal issues.

What are the best quotes from Tap Dancing to Work and what do they mean?

  • “The first rule is not to lose. The second rule is not to forget the first rule.”: This quote underscores Buffett's conservative approach to investing, emphasizing capital preservation.
  • “We don’t make judgments based on ratings.”: Reflects Buffett's belief in conducting thorough personal analysis rather than relying on external assessments, encouraging due diligence.
  • “Good managers are so scarce I can’t afford the luxury of letting them go just because they’ve added a year to their age.”: Highlights Buffett's respect for experience and wisdom, promoting a meritocratic view of business leadership.

What is Warren Buffett's investment philosophy in Tap Dancing to Work?

  • Value Investing: Buffett's philosophy centers around buying stocks that are undervalued relative to their intrinsic worth, a principle he learned from Benjamin Graham.
  • Quality Over Price: He stresses the importance of investing in high-quality companies with strong management, preferring "wonderful companies at fair prices."
  • Conservative Approach: Buffett advocates for a conservative financial approach, avoiding excessive leverage and focusing on sustainable growth.

How does Warren Buffett define a "good business" in Tap Dancing to Work?

  • Strong Franchise: A good business should have a strong competitive advantage or franchise that can sustain profitability over time.
  • High Returns on Equity: Buffett looks for companies that generate high returns on equity, indicating efficient use of capital.
  • Low Capital Investment Needs: He prefers businesses that do not require excessive capital investment, allowing more cash flow to be returned to shareholders.

What investment strategies does Buffett recommend in Tap Dancing to Work?

  • Buy and Hold: Buffett advocates for purchasing stocks of good businesses and holding them for the long term to benefit from compounding returns.
  • Margin of Safety: He stresses buying stocks at a price significantly below their intrinsic value to reduce risk and increase potential profit.
  • Focus on Fundamentals: Buffett encourages focusing on a company's financial health, management, and competitive position rather than market trends.

How does Buffett view risk in investing, as discussed in Tap Dancing to Work?

  • Understanding Risk: True risk comes from not understanding what you are investing in; Buffett advises investing only in businesses you fully comprehend.
  • Long-Term Perspective: Short-term market fluctuations should not be viewed as risks if the underlying business remains strong.
  • Avoiding Speculation: Speculative investments increase risk without potential for real returns; sound analysis and business fundamentals are crucial.

What role does philanthropy play in Buffett's life, as highlighted in Tap Dancing to Work?

  • Commitment to Giving: Buffett has pledged to give away the majority of his wealth, reflecting his belief in using wealth to make a positive societal impact.
  • The Giving Pledge: Co-founded with Bill and Melinda Gates, it encourages billionaires to commit to giving away at least half of their wealth.
  • Focus on Effective Solutions: Buffett emphasizes choosing causes that can lead to meaningful change, tackling significant challenges like poverty and education.

How does Buffett's relationship with Charlie Munger influence his investment philosophy in Tap Dancing to Work?

  • Mutual Respect: Buffett and Munger share a deep respect for each other's intellect, enhancing their decision-making processes.
  • Focus on Quality: Munger influenced Buffett to prioritize investing in high-quality businesses, leading to more consistent long-term performance.
  • Rational Decision-Making: Both advocate for rationality in investing, detaching emotions from financial decisions for disciplined strategy.

How does Buffett approach mistakes in Tap Dancing to Work?

  • Learning from Mistakes: Buffett candidly discusses his mistakes, emphasizing the importance of acknowledging and learning from failures.
  • Omission vs. Commission: Some of his worst mistakes were missed opportunities, highlighting the cost of inaction in investing.
  • Continuous Improvement: He expresses a desire to improve and learn from past experiences, aiming to report on mistakes to enhance future decisions.

What is the significance of Buffett's relationship with Bill Gates in Tap Dancing to Work?

  • Mutual Respect: Buffett and Gates share a deep mutual respect, with Buffett praising Gates' business acumen and innovative thinking.
  • Philanthropic Collaboration: Their friendship has led to significant philanthropic efforts, with both committing to give away the majority of their wealth.
  • Diverse Perspectives: The relationship highlights the value of diverse perspectives, complementing Buffett's traditional approach with Gates' focus on technology.

Review Summary

3.98 out of 5
Average of 2k+ ratings from Goodreads and Amazon.

Tap Dancing to Work is a collection of Fortune articles about Warren Buffett, compiled by his friend Carol Loomis. Reviews are mixed, with some praising the insights into Buffett's investing philosophy and personal life, while others find it repetitive and lacking depth. Many appreciate the historical perspective and Buffett's wisdom on business and investing. However, some readers expected more original content from Loomis given her close relationship with Buffett. Overall, it's seen as an interesting but imperfect look at the legendary investor's life and career.

Your rating:

About the Author

Carol Junge Loomis is a renowned American financial journalist who spent six decades at Fortune magazine, retiring in 2014 as senior editor-at-large. She joined Fortune in 1954 and had the longest tenure of any employee in the magazine's history. Loomis is credited with coining the term "hedge fund" in 1966. She has a close relationship with Warren Buffett, serving as the pro bono editor of his annual shareholder letters for Berkshire Hathaway. Her extensive experience and connections in the financial world have made her a respected figure in business journalism.

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