Warren Buffett’s Investing Philosophy Would Have Left the World Poorer

Don’t invest in things you don’t understand, make few investments, and spend copious amounts of time reading financial statements before putting any money down.

That investment philosophy has formed the basic core of what Warren Buffett has done to pave his way to riches and after surpassing US$100 billion in net worth two days ago, more attention than ever is being placed on how that wealth was amassed.

Buffett often quips about airlines and in a 2007 letter to shareholders in Berkshire Hathaway’s annual report, noted how “if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville (the one flying the plane) down.”

Buffett wasn’t advocating murder, but rather he rued the day that the airplane was ever invented because airlines are so desperately difficult businesses to turn a profit from, as Buffett himself can painfully attest to, having lost money on them in the 1980s and again in 2020 when the pandemic struck.

But had Buffett’s hypothetical capitalist managed to shoot poor Orville out of the sky, we’d still be on a 2-day boat ride from Tokyo to Los Angeles. So how would Buffett feel about electric vehicles? Probably no different.

But the world would be a lot worse for wear if all investors behaved like Buffett.

That Tesla’s (+4.72%) shares have risen (recovered) of late and are expensive, has led investors to pour into other electric vehicle upstarts, including NIO (+11.40%), BYD (-1.46%) and Nikola Corporation (+6.84%) to name a few.

For all of these companies to succeed seems unlikely, but those that do, should ideally help to make the world better as we try to de-carbonize our mobility solutions. And isn’t that the point of investing after all? For a better tomorrow? The failures of today fund the fortunes of tomorrow.

Entrepreneurs rarely, if ever, succeed on their first venture, but the lessons that they learn from each subsequent iteration, prepare them for success later down the line and the opportunity to contribute to the world in a meaningful way.

It’s probably too early to say whether electric vehicles will be a good boom or a bad boom, but even if it’s a bad boom, it won’t be a complete washout. The knowledge of how to make more efficient electric motors and higher-capacity batteries will remain even if the companies that developed that technology don’t.

And consider how most legacy car makers hadn’t seriously pursued electric vehicles until Tesla gave them a run for their money. Today, almost every major vehicle maker has a suite of electric vehicle offerings.

If Tesla hadn’t existed, it’s hard to think these legacy automobile manufacturers would have made that push into electrification in earnest or organically. Yet had Buffett bet on Apple (+1.65%) or Amazon in the early days, his investors would have seen many multiples of return on their investment.

Instead, Buffett made those investments into Apple and Amazon when they were already well-established companies and when the potential for further appreciation is more constrained and predictable.

If Berkshire Hathaway does one day bet on Tesla, you can be sure that the company would by then be a veteran electric vehicle maker, with a cult following (it already has one) and a significant market share.