American business magnate, investor, and philanthropist Warren Buffett is one of the most influential business minds in the world and is also the 6th wealthiest person on the planet as of October this year. Buffett's net worth is estimated at around $95 billion, and his investments propelled him to be perceived as one of the best business gurus of our time whose advice is carefully listened to by anyone interested in investment and stocks.
Buffett is looking for "seven-footers" in business
Buffett is known as someone who mixes humor when talking about business and how he chooses and plans his investments. In one of his interviews, he used a basketball analogy when explaining about investment and what he is looking for when searching for the right product or service that could potentially make him a lot of money over 5 to 10 years.
Even though his analogy for investing is rather simple when he compares it to a basketball coach looking to build a team by finding an extraordinary prospect, it actually makes perfect sense. Like any basketball coach, you first try to find a seven-footer and then evaluate whether he can do a few other things along the way. If you are a short guy that can handle the ball is not enough to make the cut because there are so many other people out there that can do the same thing.
"I'm looking for a business I can understand. I'm like a basketball coach, and If I walk down the street, the first thing I'm looking for is seven footers. Once I find the seven-footer, I still gotta figure out whether he is coordinated or not and whether I can keep him in school and all those things. But if some guy comes up and says, you know, he's 5'6," and he says, wait until you see me handle the ball and all that. I'm not looking for those guys. When I first started, I used to find a lot of seven-footers. It's harder to find seven-footers now because my universe isn't as big. I look for things I can understand. I think I know what the economics of the business will look like five or 10, or 20 years from now. I understand what a computer does, but I don't know who is going to be making lots of money from computers 10 years from now any more than I knew who is going to be making lots of money off of television sets back in the 1960s.
This analogy is somewhat ruthless but it makes sense
Buffett's strategy here makes perfect sense, and it's actually similar to the one of an actual basketball coach or a scout looking to find a player that has all the tools to be potentially successful in a few years. Having a skilled seven-footer is usually the best recipe because you are looking for the best physical specimens out there because of the simple fact that basketball is a tall men's game.
Obviously, we had numerous smaller great players to play the sport, but when you look at some of the most dominant players in NBA history, a lot of them were seven-footers, and if you are a scout or a coach, you would rather risk with a big man that can develop into a legitimate player than a short guy that has some skills. No matter how ruthless or insensible that may sound, that is the nature of the sport. Similar to the way Buffett assesses his investments, he is looking for the business with the biggest upside early on that can become something great after a certain period if certain things fall in line.