As Berkshire Hathaway shared its 2017 annual shareholder letter Saturday, a data scientist reveals Warren Buffett’s leadership style based on past letters.
The self-made billionaire has a serious following as a business leader and, according to one data scientist, Bufffett is a master at communicating effectively and inspiring others to perform.
His fans have proven they will go to great lengths to follow in his footsteps: He has motivated more than 160 billionaires to give away at least half of their wealth for philanthropic causes and inspired a $1 million bid just to have lunch with him.
Michael Toth, a data scientist at Orchard Platform and a former portfolio analyst at BlackRock , has made an effort to read Buffett’s Berkshire Hathaway annual shareholder letters for personal growth as an individual investor. While he hopes to eventually read all of them, he used statistical computing to quantify and highlight Buffett’s penchant for positivity over the years.
Toth performed a sentiment analysis on the annual shareholder letters from 1977 to 2016, which ultimately demonstrated Buffett’s mastery in balancing both optimism and realism , he tells CNBC Make It . But the data also helped Toth understand what makes the legendary investor such an influential leader.
“When times are tough, it’s a very human thing to sweep the negative under the rug and just hope things get better,” Toth says, “yet the sentiment analysis shows Buffett addressed issues in real time.”
Of the 40 shareholder letters, only five showed a negative sentiment score, which to Toth’s surprise aligned perfectly with five moments of economic downturn.
“Even when things are going badly, like in 2008 when everything was falling apart, he is still measured in his approach in speaking to his shareholders,” Toth says. “Things are not always going to be perfect, and I think Buffett’s ability to still communicate and inspire confidence during those bad time periods is important.”
Toth also notes Buffett’s long-term thinking and consistency demonstrated throughout his letters, highlighting how Berkshire Hathaway stock has gained about 21 percent since 1965, while the S&P 500 as a whole has gained only 9.7 percent over the same period.
“Generally, Warren Buffett is quite a positive person,” Toth says. “When things are going poorly, he’s comfortable admitting that, and he’s comfortable telling others both when Berkshire’s performance is bad and when the broader market is bad.”
That’s “a strong quality in a leader,” he says.
To Toth, the alignment between the relatively negative letters and market downturn also demonstrated how Buffett managed positive messages to shareholders and the business world, despite overvalued markets and the impending economic slowdown.
“Buffett’s positivity is very powerful and important to understand as you navigate your own career, ” Toth says. “People respect when a leader is not only forward-thinking, but is very open and honest when things are potentially not going well, and those are characteristics that apply beyond just the world of investing and finance.”
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This is an updated version of a previously published story.