Warren Buffett has two people in mind when he drafts his annual letters—his sisters, Doris and Bertie. They’re smart, he says, but they are not active in business and they don’t read the business pages every day.
How does Buffett communicate a big idea to them? Through the power of story. It’s a skill that will serve you well, too, in written or verbal communication.
One of Buffett’s favorite metaphors to explain the American free market system is likening it to a “tailwind,” a force that has made U.S. companies the best place to invest. It’s a complex message, so Buffett simplifies the idea in the form of a story.
March 11, 1942
In Berkshire Hathaway’s recently released 2018 Annual Letter, the story begins 77 years ago when Buffett was 11-years-old. He bought his first stock—three shares of Cities Service. He went “all in” and invested every penny of the $114.75 he had saved.
Buffett writes: “If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019.”
The story of Buffett’s first investment is the same one he told at the 2018 Berkshire Hathaway annual conference. In that telling, Buffett brought along a prop.
Holding up a newspaper from 1942, he said, “Imagine yourself back on March 11 of 1942. Things were looking bad in the European theatre as well as what was going on in the Pacific…Imagine investing $10,000 in the S&P 500 in March of 1942. And you held on through wars, unrest, recessions. You’d have $51 million today. All you had to do is bet that America would be fine.”
The next stage of the story is what would have happened if you had “listened to the prophets of doom and gloom.” Perhaps you would you purchased gold, Buffett writes in his letter, a traditional safe-haven should the economy turn south.
“To ‘protect’ yourself, you might have eschewed stocks and opted instead to buy 31⁄4 ounces of gold with your $114.75. And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business.”
Buffett concludes the lesson with a storyteller’s flourish: “The magical metal was no match for the American mettle.”
Recently, I spoke to a group of wealth advisors for a global bank. We shared information on the power of storytelling to explain complex ideas to clients who, like Buffett’s sisters Doris and Bertie, are smart people who don’t necessarily follow business news day to day. Explaining financial ideas in the form of a story is a valuable skill to build for business leaders in finance and nearly every other profession.
Stories are, indeed, the foundation of a strong message—in verbal or written communication like a Buffett letter. Buffett uses stories as verbal shortcuts to make sense of complex topics. The human mind is wired for story. Neuroscientists have discovered that we process our world in the form of narrative. We think in story, we translate ideas by using stories and we prefer to get our information in story form.
If you want to get your ideas across, tell more stories. It works for Buffett.