Learn from the Masters

Physicians who are challenged in their personal and/or professional economic lives can learn a lot from the words and deeds of these two American business titans: Warren Buffett and Peter Drucker:

Warren Buffett—Master Investor

If you ever wondered why legendary investor Warren Buffett is called the Oracle of Omaha, look at the history of Berkshire Hathaway. In 1965, when the budding investment genius started aggressively buying shares in Berkshire Hathaway, a cash-rich company in the dying textile industry, the share price was about $15. Buffett eventually took over the company and today a single share of Berkshire Hathaway stock will set you back about $125,000.

With Berkshire Hathaway’s cash, Buffett bought other businesses, concentrating on insurance companies with their huge cash reserves. Eventually Berkshire Hathaway compiled a roster of wholly-owned companies, including firms that make candy, apparel, and construction materials. Buffett also bought shares in publicly traded companies, using the value-investing principles he learned from Benjamin Graham, author of The Intelligent Investor, which became Buffett’s investment bible.

As a value investor, Buffett looks for stocks that are selling below the company’s intrinsic value. Berkshire Hathaway was a classic example, with a working capital value of $19 a share compared to the $15 that Buffett paid. Stocks that are undervalued have a built-in margin of safety but Buffett also looks for stocks that have a big competitive advantage, which has led him to invest in companies like Coca-Cola and Gillette. Buffett also invests for the long term, one reason he has famously shunned technology companies, a strategy that allowed Berkshire to survive the dot.com meltdown relatively unscathed. It’s not because he doesn’t recognize the value of technology, according to Buffett, but because he can’t predict where any specific technology company will be in 10 years.

Although he is the wealthiest man in the country, Buffett still lives in the same house he bought 50 years ago for $51,000 and drives his own car, a Cadillac DTS. In 2006, he agreed to donate $10 million Berkshire Hathaway Class B shares over the next 20 years to the Bill and Melinda Gates Foundation. At the time, the total value of the stock involved was close to $31 billion, making it the largest charitable donation in history.

“The first rule is not to lose. The second rule is not to forget the first rule.”—Warren Buffett

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Peter Drucker—Management Guru

When Peter Drucker, PhD died in 2005, America lost its premier thinker on management. In a career that spanned nearly seven decades, Dr. Drucker changed the way the corporate world looks at management. Along the way, he coined the terms “knowledge worker” and “management by objectives,” and developed the management philosophies behind those terms. Throughout his working life, he stressed the idea that highly skilled employees are the life blood of a company and an organization’s most valuable asset.

These ideas often put Dr. Drucker at odds with the top-down management style that prevailed in the post-World War II corporate environment and still exists in many companies today. In 1945, his book, Concept of the Corporation, challenged the centralized, hierarchical management style at General Motors and instead proposed decentralizing the decision-making process. The book, an outgrowth of a two-year study of GM’s management, quickly hit the bestseller list and jump-started Dr. Drucker’s reputation as a management consultant.

His ideas about knowledge workers grew from his observation that many employees know more about certain subjects than their bosses, but are expected to follow directions from those bosses. According to Dr. Drucker, the basic job of the manager is to empower those knowledge workers and allow them to perform at a high level.

Dr. Drucker also insisted that a corporation’s primary job was to serve its customers, not to make a profit, although profit was the means of insuring the continued viability of the company. His ideas in this area led to his now-classic three questions for every company: What is our business? Who is our customer? What does our customer consider valuable?

Drucker’s philosophy of management not only had an significant impact on corporate bigwigs like Jack Welch and Bill Gates, but also extended beyond the business world to a diverse range of people, including Winston Churchill and Newt Gingrich.

For a solid overview of Dr. Drucker’s philosophy pick up a copy of his book, The Effective Executive. At just 178 pages, it’s the perfect guide book for on-the-go professionals seeking an advantage.

“The purpose of business is to create and keep a customer.”—Dr. Peter Drucker