5 Important Business Lessons Warren Buffett Learned as a Kid

Can you spot a young millionaire-to-be when you see one? Maybe.

The late Felix Dennis (creator of Maxim magazine), in his book How To Get Rich, talks about an encounter he had as an adult with the mother of one of his childhood friends.

The mother, upon seeing Dennis all grown up, tells him that he used to frighten her. Dennis asks why. Here’s what she says:

“I asked you what you were going to do when you left school. You looked me in the eye. Your eyes weren’t like any teenager I ever knew. They were fierce, like a tiger’s. You were insolent and arrogant and frightening…You told me you were going to get rich. Not that you were going to university or were after this or that job. Just that you were going to be rich. I never forgot it.”

And Dennis was right - he died a very, very rich man.

For Warren Buffett, his childhood may have also foreshadowed a future of riches. The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder, illustrates a few key lessons Buffett learned at an early age - lessons that can help all of us navigate our own futures.

Here are five important business lessons Buffett learned as a kid.

1. Buffett Learned To Think In Numbers.

From an early age, Buffett loved numbers.

He was a wiz in math class, loved collecting and counting bottle caps, and enjoyed timing marbles with a stopwatch as he raced them to the drain of his bathtub (weird game, I know).

In church, he’d run calculations to figure out the life span of the hymn composers based on their dates of birth and death.

All of this may sound trivial. But what Buffett was really doing was learning to collect information and calculate odds. And if you spend time reading what successful people write, you’ll find that calculating probabilities and making good bets is critical to wealth creation.

Value investor Mohnish Pabrai has his phrase for making Dhandho bets: “tails I win; heads I don’t lose much.”

Entrepreneur Naval Ravikant thinks in terms of asymmetric opportunities; opportunities where the upside is much greater than the downside.

And Charlie Munger encourages us to use the simple math of permutations and combinations to solve problems, as well as develop decision trees using probability to calculate opportunity costs.

Buffett, perhaps standing taller than all the rest, learned this lesson very early.

2. Buffett Learned The Dangers Of Following The Leader.

There’s a story in the book where Buffett is chosen to play the cornet in a school ceremony. He is the “echo” of another trumpet player, and all is going well until the trumpet player he is following plays the wrong note.

At that moment, Buffett is paralyzed with indecision. He doesn’t know whether to play the wrong note to ‘correctly’ echo the trumpet player, or to play the right note and embarrass him.

As Schroeder writes, Buffett learned something critical from this:

“It might seem easier to go through life as the echo—but only until the other guy plays a wrong note.”

Buffett carried this lesson with him into his adult life. He’s made a vast fortune off of contrarian plays, investing heavily when there’s fear, selling when there’s greed, and creating many ‘echoes’ in his wake.

3. Buffett Learned That Money Would Bring Freedom.

At the age of 10, Buffett took a trip with his dad to visit Wall Street. That experience left him certain that when he grew up, he wanted to be rich. Why?

In a word: freedom. Here’s Buffett explaining this:

“[Money] could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.”

This is wisdom far beyond the years of a 10-year-old. This is wealth for the right reasons - void of vanity and ego. This is all there is to strive for - freedom of your time. The freedom to work for yourself without direct reports, without performance reviews, and without quarterly assessments.

Freedom is the name of this game, and a young Buffett knew it was money that would give him his freedom.

4. Buffett Learned The Power of Compounding.

There are people who go their entire lives without ever realizing the awesome power of compound interest. Buffett learned it in his tweens.

He happened upon a book called One Thousand Ways to Make $1,000 and quickly found that if you compound $1000 at just ten percent for 25 years, you end up with over $10,800.

This prompted him to look at time in a different way - where the present was married to the future through the power of compounding.

After this epiphany, at the age of 10, Buffett told his friends he was going to be a millionaire by the time he was 35. He was right - he did it by the age of 32.

5. Buffett Learned How To Make A Deal.

At the age of 11, Buffett learned the importance of a good deal. He and his friend were shoveling snow for his grandfather. When they were finished, they learned his grandfather was going to give them a dollar (too little) or a dime (much too little).

It was then that he learned how important it was to know the terms of the deal before you make it.

In his letters to Berkshire Hathaway shareholders, Buffett often talks about massive deals that are sealed with nothing more than a handshake. He talks about working with people of integrity; doing long-term deals with long-term people.

And it seems to have made all the difference.

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Schroeder, Alice. The Snowball: Warren Buffett and the Business of Life. Random House Publishing Group. Kindle Edition.

Dennis, Felix. How to Get Rich: One of the World's Greatest Entrepreneurs Shares His Secrets. Penguin Publishing Group. Kindle Edition.