Built using the last BH Annual report data, found in Buffet’s letter to shareholders:

Compounded Annual Gain (1965-2010) is 20.2% for BH, 9.4% for the S&P, while overall Gain (1964-2010) is 490,409% for BH, 6,262% for the S&P.

Notes: Data are for calendar years with these exceptions: 1965 and 1966, year ended 9/30; 1967, 15 months ended 12/31. Starting in 1979, accounting rules required insurance companies to value the equity securities they hold at market rather than at the lower of cost or market, which was previously the requirement. In this table, Berkshire’s results through 1978 have been restated to conform to the changed rules. In all other respects, the results are calculated using the numbers originally reported.
The S&P 500 numbers are pre-tax whereas the Berkshire numbers are after-tax. If a corporation such as Berkshire were simply to have owned the S&P 500 and accrued the appropriate taxes, its results would have lagged the S&P 500 in years when that index showed a positive return, but would have exceeded the S&P 500 in years when the index showed a negative return. Over the years, the tax costs would have caused the aggregate lag to be substantial.

via Chart Focus: The real cost of obesity.

Our findings suggest that chronic sleep deprivation during childhood and adolescence is a significant explanatory variable of the halt in the secular trend observed in Japan since the late 1980s;  another explanatory variable identified using  prefecture-level  data is caloric restraint.

Rich and slim, but relatively short Explaining the halt in the secular trend in Japan

As a consultant, I am not the most entrepreneurial person. As Victor Cheng puts it in is online video on how to get into consulting, this job is not made for the Steve Jobs or Richard Branson of this world. Consultants develop hypotheses and find solutions based on solid facts, data and research—they check the water before jumping in. Entrepreneurs have ideas, dreams, goals, and vision—they jump in the water and figure it out as it goes.

I do, however, appreciate the courage and determination of people who take risks and venture into unchartered territory. Thus I find watching Dragons Den (in my case the Canadian version, on CBC) quite enjoyable. After watching many episodes (and seeing people failing to secure an investment for so many obvious reasons), it seemed to me that there is a list of rules that must be followed to have a reasonable chance (and I guess they apply to any start-up or entrepreneurs trying to secure funding).

1. A professional presentation. Don’t come dress in a stupid costume (like the guy who came in a giant yellow lion suit). It’s TV, but it’s still business.
2. Get to the point. Drop the long introductions, the context, the “why it’s so important to me”, etc. Tell them what your business is about. In some cases, however, it’s good sense to take the time to let the Dragons experiment with your products (especially if they can eat it, drink it, wear it, etc.). Otherwise, don’t lose their time. In the words or Kevin O’Leary; “I got the warm fuzzy feeling, I got the idea, but where is the part where I make MONEY”.
3. Avoid bad ideas. If anyone can copy your product, if you can’t or don’t make money with the product, if you sank all your economies, it’s probably not a good idea. So don’t even show up.
4. Know your audience. The Dragons usually invest in businesses that they understand, like, believe in and have no moral issues with. Some ideas were rejected because even though they made business sense, it was not a good fit with their industry experience (e.g., you will rarely see Robert—having a strong IT background—investing in fashion), their personal interest or moral standards.
5. Get the valuation right. Whichever formula you use to value your business, make sure it makes sense, that you back it up by some form of analysis. Many candidates make up values that are, in Kevin’s words “completely insane”. If you are asking $200K for 20% of your company, we’re talking about a $1M company. Is this real? Why?
6. Number talks. You should know your revenue to date, your revenue in the last 12 months, your profit margin, and the value of your contracts. Have reasonable forecast. Know why you are here. Is it because you are about to be bankrupt? Or then banks shut their doors?
7. Money talks. If you don’t have any sales, they won’t be interested. Show them the money. What kind of ROI are they looking at? Don’t try to argue that it will work because it’s your dream or because you believe in it, it’s not an argument.
8. Protect your IP. Have you secured, patented your creation? Can anybody copy you? Are you alone in this market?
9. Be prepared to negotiate. If you have all the other criteria checked, come prepared to discuss $ and %. You offer 20% for a $200K business; they might come back with an offer that gives them 50% of the company for the same price. Would you go for that? What if it’s a royalty deal instead of an equity deal? How would these figures look like given your forecast?
10. Be respectful and respectable. If they find that your introduction is too long, and interject with a question, you should probably answer instead of saying “one minute, I’m coming to it”. How many occasions do you have to pitch in front of these guys? Generally speaking, they won’t invest in someone who is not respectable, hence careful with your jokes.

–Peter Drucker

As mentionned in a previous post (What is a strength?), Gallup research repeatedly showed that managers should focus on developing their employees’ strengths rather than fixing their weaknesses. As a result, most of the performance appraisal schemes aim at “identifying opportunities (aka weaknesses” and developing an action plan to mitigate them. The underlying theory behind that, a “folk performance management theory”  can be summarized in 4 tenets. And all of them are false.

• You don’t need to develop strengths—The belief here is that if you are already good at something, then you are good, period, and you might spend your time fixing the weaknesses so that your toolkit is made of strengths only.  The truth: you can and should nurture them. It’s hard to change your nature. You can find some workarounds, or partners with complimentary strengths, but if you are not a competitive person, you can’t become that overnight. Try instead to leverage your own strengths and develop them.
• You should fix weaknesses—Similarly, the belief is that weaknesses should take most of your energy. The truth: you cannot change them, you can manage them. Strengths-developing has a better ROI than weakness fixing. Employees are more engaged when they uses their strengths, which drives many key metrics (turnover, productivity, etc..
• Fixing weakness will make you a better performer—Everybody want to be well-rounded, right? The truth:  it will make you average. You won’t develop your strengths, so good luck being a top performer.
• Everyone can do anything they put their minds to—How often have we hear that? The “power of positive thinking”?. This is an unsubstantiated claim. The truth: your strengths determine what you can do productively. All of us have different strengths in the social, intellectual, motivational domains. You can do anything your strengths allows you to do, which is not the same thing.

For more details, read the classic “First Break All the Rules“

(via Geary Behavioural Economics Blog: How habits are formed: modelling habit formation in the real world.)

A new study published in Science found that three factors were significantly correlated with a group’s collective intelligence — in other words, its ability to perform a variety of tasks collectively, from solving puzzles to negotiating.

The three factors are: the average social sensitivity of the members of the group, the extent to which the group’s conversations weren’t dominated by a few members, and the percentage of women in the group. (The women in the study tended to score higher on social sensitivity than the men.) In other words, groups perform better on tasks if the members have strong social skills, if there are some women in the group, and if the conversation reflects more group members’ ideas. The groups studied were small teams with two to five members.

Source:

What Makes Teams Smart – Improvisations – MIT Sloan Management Review.

His research has been popularized in the business bestsellers First, Break All the Rules and How Full Is Your Bucket? and in academic articles, book chapters, and publications such as USA Today, The Wall Street Journal, and The New York Times. He is coauthor of the New York Times bestseller 12: The Elements of Great Managing, an exploration of the 12 crucial ingredients for creating and harnessing employee engagement.
Harter is the primary researcher and author of the first meta-analysis to investigate the relationships between work-unit employee engagement and business results. This study, which is updated periodically, currently covers 24,000 business units in 37 industries and 23 countries. He is coauthor of “Manage Your Human Sigma,” published in the Harvard Business Review (July/August, 2005). This groundbreaking management approach assesses and improves the quality of the employee-customer encounter.