How Warren Buffett, a Rabbi, and Steve Jobs Can Help You Think About Risk and Opportunities

“The secret of success in life is for a man to be ready for his opportunity when it comes.” – Benjamin Disraeli

Doug Kass recently shared an interesting story in an article about an early investor with Warren Buffett in the 1960s. This particular investor was a rabbi named Myer Kripke that had become friends with Buffett and his wife over the years.

They actually lived down the street from each other and this was before Buffett was known as the greatest investor of all-time.  He was still getting started out with his investment management career at the time.

The rabbi never earned more than $35,000 a year but he and his wife lived below their means and eventually managed to build up their savings to around $70,000. Here’s what happened next, according to Kass:

“Myer Kripke’s wife Dorothy implored him to “invest the money with your friend Warren.” Three years later, he got the courage to ask Warren to invest his worldly savings, and Warren accepted the money into his partnership. When Warren closed his partnership, he suggested that the rabbi roll his investment into Berkshire Hathaway’s shares, which he did.

Fast forward 30 years after the time Rabbi Kripke invested in Warren’s partnership and in Berkshire Hathaway — his original investment of about $70,000 was now worth almost $25 million!

The kicker to this story is the fact that they never became big spenders despite the fact that they were extremely wealthy from this investment. Here’s the Rabbi’s take on his car situation:

“Dorothy once asked me, ‘Wouldn’t you like to buy a better car?’ I said, ‘There’s nothing wrong with a Chevrolet.'”

The rabbi eventually ended up giving away many of his millions because he felt the need to give back.

RISK TOLERANCE
This story illustrates an important point about the willingness and ability to take risk in our lives and with our finances. Because the rabbi and his wife lived below their means and weren’t big spenders, they were able to take a chance with their investments.

I’m sure they never planned on becoming millionaires but by carefully planning and saving they were able to take advantage of a great opportunity and it paid off for them. You could say they got lucky and it does help becoming friends with Warren Buffett.

But would they have been able to make that investment with Buffett if they lived beyond their means, didn’t save and took on all kinds of debt? Of course not. They gave themselves the ability to take a big risk by saving. And this increased their willingness to take risk since they were already comfortable with their current lifestyle.

STEVE JOBS’ GARAGE
On the flip side of that story, there are always going to be those that miss out on these kinds of opportunities.

In Walter Isaacson’s book, Steve Jobs, we learn about the early days of Apple Computer when Jobs and his partner, Steve Wozniak, were making computers in his parent’s garage. They were just getting the company off the ground and were looking for early investors and employees to help get things started.

This is a fascinating story for a number of reasons, but one of the really interesting aspects was the fact that they offered 10% of the company to a man named Ron Wayne, a middle-aged engineer working for Atari at the time.

Wayne had been part of a failed start-up in the past and ended up getting cold feet about Apple’s prospects. He was also worried about a possible global financial Armageddon so he was nervous to make an investment in Apple.  He was so worried he even hid gold coins under his mattress.

Since the initial company was set up as a partnership instead of a corporation, Wayne was worried that creditors could go after his assets if the company went under. So, in the end he turned down their offer of being brought in as an equity partner in the company.

Had he stayed with the company, by the end of 2010 his stake would have been worth $2.6 billion.

Instead, he now resides in a small home and lives off his social security checks. He did say he has no regrets. “I made the best decision for me at the time. Both of them (Jobs & Wozniak) were real whirlwinds, and I knew my stomach and it wasn’t ready for such a ride.”

LESSONS
Obviously, both of these stories are extreme situations that most people will not see in their lifetimes. And we can always play the ‘what if?’ game with any big decision. But the old saying goes that luck equates to opportunity plus preparation.

Myer Kripke was prepared, took advantage of his opportunity and it paid off handsomely for him and his wife.

Ron Wayne wasn’t willing to take a chance with Apple and it cost him big time.  I’m glad he says he has no regrets, but having a more optimistic view of the future certainly would have helped him.

The lessons from these stories for your investment portfolio and career are not that you need to make every investment that comes along or take every job you are offered.

Not every opportunity that presents itself will be right for you or your particular circumstances. The point is that the you are able to take advantage of more opportunities if you plan ahead.

The more prepared you are for the future the greater your ability to take some chances with your money and with your career.

Sources:
Kass: The Rabbi and the Oracle
Steve Jobs

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  1. Martin commented on Jul 05

    I think both stories nicely illustrate an old saying: invest only money you can afford to lose. Although your retirement money aren’t ultimately the money you can afford to lose, I think you need to find some balance in it. To protect yourself diversify accounts and investments. Thus I have my retirement money in about four different accounts such as 401k, taxable, ROTH, and P2P, so maybe one of them may hit the home run or if one of them gets down it won’t ruin me completely.