Re-Writing Leadership Rules: Buffet’s 9 Value Investing Plays to Win Top Spot

The key to Warren Buffett’s immense fortune lies in value investing. This can be summarized in a formula that measures the intrinsic value between “the price you pay and the inherent stored value.” Translating this concept into our leadership advantage let’s say that the more value we create, the greater our rewards. That’s not the same as keeping the trains running on time. Its about knowing how to create value, to count it, and to communicate it. Here, I outline my 9 Leadership Power Skills modeled after Buffett’s value-investing method.*

Betting on the Spread — Value Investing in a Nut Shell

Value investing, a term coined by Benjamin Graham, is a strategy Buffet mastered to find securities whose prices are unjustifiably low compared to their intrinsic worth. It involves purchasing assets at a discount to their inherent value, which is calculated based on factors such as a company’s assets, receivables, debts, and projected earnings. Buffett’s approach involves betting on the spread between the discounted price and the future value of the company, using conservative estimates of future growth and earnings.

Thought Leaders are the Gold Standard

Let’s apply this methodology to leaders like you and me positioning ourselves as the go-to person in the organization. When we provide this rare and valuable service as consultants, project leaders, team leaders, or from within the corporate hierarchy, we become thought leaders.

Value creators differentiate themselves from problem-solvers. By design, we create value to provide new value. This adds up to short-term credits but the greatest gains are made over the long term using the simple mathematics of compounding interest based on consistently accrued value over time. This only works if we lead, measure, and communicate.

Do the Math — rules of thumb

Successfully implementing these 9 rules to develop your leadership value-creating portfolio is recession-proof and vitally important to the organization and its stakeholders specifically by:

• leading by example,
• solving difficult problems,
• finding alternative and innovative solutions,
• avoiding and anticipating disruptions,
• raising the level of performance and engagement among team members, and
• measuring and communicating this new value to decision-makers and stakeholders that serves their best interests

These new rules are based on decision theory and the calculations are easy to implement once we recast proxy measures for inherent value. (Skip to rules 8 & 9 for some basic calculations).

Nine Value-Investment Methods to Track and Calculate Leadership’s Hidden Value

Emphasizing Quality Over Quantity

It’s common advice to first target “low-hanging fruit,” referring to prioritizing easy wins over more challenging prospects. However, competition for low-hanging fruit is fierce and transactional, so it’s often to your advantage to differentiate yourself by seeking high-quality targets.

While the road to success may be harder, the long-term payoffs will be worth it. Look for opportunities with scalable potential and network effects, as these can lead to long-term value that might just fund your early retirement.

2. Conventional Wisdom Isn’t Always Wisest: Leaders are also Scouts Forging Future Paths

Possessing a comprehensive perspective on potential opportunities and defenses against disruptions will set you apart from other leaders. Remember, the food industry was caught off guard when Amazon acquired Whole Foods just before the pandemic, making national food chains ill-prepared to compete with Amazon’s home delivery services at the local level. Future-focused and value-creating leaders anticipate change, track trends that can propel or undermine their business, and amass alternatives and innovative ideas.

3. Embrace Market Volatility — Build Resilience

The Cassandras make headlines and cause a stir, but it’s essential to stay the course. Conduct a thorough assessment of the strategy, the portfolio, and market conditions regardless of external forces. Be consistent and follow the strategy directed at the vision. Over time, value investing accumulates as long as you don’t sell your losses during tough times or add debt. This is resilience.

Buffett relishes market dips and sees them as opportunities to buy at a discount — a reason why 2022 was a particularly active year for him. Would you panic and run away if your favorite store’s prices suddenly dropped 20%? Unlikely. Value creators are value hunters.

On the other hand, be agile when the indicators highlight a tangible change (see point #5).

4. Think Long-Term

Timing is everything, especially in business, investing, and leadership. A long-term mindset is the single most crucial factor for sustainable success. Short-term engagements are transactional, while long-term commitments are transformative. Adopting this mindset sets you apart from the competition, both internally and externally.

5. Kill the darlings if necessary

Value is the foundation of all investing, and that means being prepared to assess the return on investment (ROI) of all assets: human, market, or projects. Don’t shirk from eliminating waste and underperforming assets.

The Pareto principle says that 80% of the value comes from just 20% of an asset, so it’s important to assess where high value resides and be ready to eliminate underperforming assets.

This applies to anything even writing, for example. Take copy editing. The term of art is: “killing your darlings.”

This means no matter how much your love your phrases, paragraphs or chapters, delete anything that doesn’t move the copy and the target closer to the call to action. The copy must serve the client with a profitable outcome.

When creating value there are no true darlings — just investments with high returns.

The same holds true for leadership, where sometimes underperforming projects or individuals must be replaced or redeveloped. To make these difficult decisions easier, it’s important that initial project or team plans include realistic scenarios for low, modest, and high-performance outcomes with an assigned probability to each.

When you stick to the data, tough conversations become less daunting, more rational, and more successful. Take Steve Jobs whose team was dedicated to developing the iPad for years when the lightning-in-a-bottle idea of a “computer in your pocket-i-phone” struck. He shelved the iPad, redirected teams to fast-track the iPhone, and eventually, the iPad came back into production. Agility beats brains.

6. Compound Your Success

Albert Einstein famously referred to compounding interest as the eighth wonder of the world. Those who understand its power make it work, while those who don’t, work for those who do.

Consider compounding as a key factor in your success and success breeds success. As Peter Thiel says in his book “The Power of One,” exponential growth is the key to unlocking your full potential. This involves strategic scalability and network effects.

7. Continuously Learn and Grow

Leadership and personal growth are like compounding interest when consistently applied and accumulated over time. To maximize your growth and impact as a leader, it’s essential to incorporate ongoing learning and development into your strategy. By continuously learning and growing, you’ll become a well-rounded, effective leader with a lasting impact.

8. Establish your baseline value as the Minimal Viable Asset (MVA)

First, establish and validate your value proposition for your organization. Answer the question to how what you do goes above and beyond the management criteria of keeping the trains running on time and on budget. This should help establish your value as a minimal viable asset.

Calculate it based on heuristics regarding education, experience, leadership competencies, and confidence. These are the same factors that got you a dance card or the invitation to hold the position you’ve got.

So for example, advanced degrees may have a weighted value of 5/10 (given that the majority of leaders holding positions within the grade range have comparable education. Years of experience are weighted according to the size or scope of the organization, its level of innovation, and market cap. Google might rate 8/10, whereas traditional sectors with lower innovation levels might rate 4/10, for example, Banking or the finance industry not yet adopting FinTech.

Confidence is an answer to the question, how confident are you in your decision having a high probability of success?

So how do you calculate the value of your track record?

Back-casting: calculate decisions that limited loss and created measurable immediate value added to its discounted present current value (PCV) from long-term projections.

To establish the baseline, take this scenario as an example: You launch a marketing and sales campaign to increase the lifetime value of a customer (CLV) and to grow market share (%). Calculate the outcomes and compare the benefits in terms of revenue and percentages validated against both the opportunity cost and counterfactual estimates to know if the new value would or wouldn’t have been achieved by existing campaigns.

9. Calculate the Margin of Safety

Calculating a margin of safety in decision-making is essential to limit potential losses. The margin of safety is a measure of investment risk tolerance helping to ensure that the results of decisions have a low probability of failure and a higher probability of exceeding expectations.

By regularly evaluating performance and quantifying the value that you create, you can position yourself as a valuable asset to your high-value clients and senior leadership.

Write and practice your value proposition incorporating this data into your introductions, social media profiles, pitches, and meetings to make you the go-to person on current and future teams.

If you commit to any one of these 9 rules of value investing in your leadership power skills portfolio, you’ll be successful today, resist recession-based bad decisions, build momentum for the future, and benefit from the long-term, accrued interest.

(*Tip of the hat to Mottley Fool’s article: Warren Buffett’s Investment Strategy, By Matthew Frankel, CFP — Updated Jan 19, 2023)