Buffett's Cocktail Filter

A story about Warren Buffett's approach to evaluating people, shared during a lunch conversation.

"Warren was at lunch and someone said to him 'I think one of your great gifts is you're a great judge of people.' They were talking about how Warren hired Ajit who runs their insurance business. They asked 'How do you do it? What's your secret?'

Warren responded, 'I don't think I'm a great reader of people - and I'm not trying to be humble. I just approach it differently. It pays to be a harsh grader when it comes to people.'

He explained: 'If you put me in a cocktail party and let me have 5 minutes with 100 people, in that time I could probably tell you the 5 people who are really outstanding and the 5 people who are really lousy. But then there's 90 people that I just can't make a judgment on in 5 minutes - so I just put them all in the bad pile.'

He puts them in the 'too hard to know' pile and rules them out because it's not worth the brain damage to figure it out case by case. The cost of being wrong about someone - letting them into your circle or doing business with them - is much higher than missing out on a good person. Over time, the obviously good people will become apparent, so he just focuses on those.

He applies this to both investing and people. Most people try to be accurate with all 100, spending time on the hard-to-judge things and getting many wrong. His approach is: take the obviously good, throw out the obviously bad, and ignore everything else in the too-hard pile."