Warren Buffet’s annual letters provide important insights into decision-making – financial as well as personal.
Here he is, at his best to describe what really counts in Insurance Business.
Since, matters of life including personal & professional growth are very similar to basic tenets of insurance (capital growth + loss aversion + long-term view), its interesting to extend this analogy further.
“What counts in [insurance] business is underwriting discipline. The winners are those that unfailingly stick to three key principles.”
“1. They accept only those risks that they are able to properly evaluate (staying within their circle of competence) and that, after they have evaluated all relevant factors including remote loss scenarios, carry the expectancy of profit. These insurers ignore market-share considerations and are sanguine about losing business to competitors that are offering foolish prices or policy conditions.”
While aspirations are unlimited, for you would want that corner office or own multi-million dollar business or even navigate the world in your own yacht, staying within your own circle of competence is what can save you from unwarranted risks that can take your life wayward. Letting others (out of competition, jealousy, greed) drive your life’s decisions is no recipe of success.
“2. They limit the business they accept in a matter that guarantees they will suffer no aggregation of losses from a single event or from related events that will threaten their solvency. They ceaselessly search for possible correlation among seemingly unrelated risks.”
Minimizing risks to your career or life is important as its growth. As it might result in permanent loss of capital (your time or money). Does not matter whether it comes from key industry trend (e.g. Automation in IT) or any other factors within/outside your control. Avoiding loss should be your strategy to build long-term, sustainable, successful life.
“3. They avoid business involving moral risk : No matter what the rate, trying to write good contracts with bad people doesn’t work. While most policyholders and clients are honorable and ethical, doing business with few exceptions is usually expensive, sometime extraordinarily so.”
No matter what path of life you are on, ethics/ integrity matters. Unethical behaviours are very costly and often irreparable in the long-term. History is full of examples where short-term greed has led to downfall of empires. Same principle applies to you.