Warren Buffett's risk filter: Why he ‘likes to deal with people where 1-page contract will do the job’

Billionaire investor and Berkshire Hathaway Chairman Warren Buffett has been vocal about his business mantras and investing guidelines over the years. Notably, when it comes to dealing with people there is one quality, he places high — trust. Here’s why and how he navigates this requirement.

Speaking to an interviewer in 2014, when he shared the one-page contract he used to buy National Indemnity in Berkshire’s annual report, Warren Buffett explained that while times have changed, he still prefers the one-page deals.

Warren Buffett prefers one-page contracts: Here’s why

“We had one-page contracts for other companies (besides National Indemnity), but I can’t seem to pull this off anymore. I mean, I send out these one-pagers out to our lawyers and say let’s get down to this, let’s get this done by… but the world seems to have changed on that,” the ace investor explained.

Adding, “I still would go for the one-page contract. I like to deal with people where I feel a one-page contract will do the job. If I have to have 50 pages in there to protect me against the guy I’m dealing with, I’ll always wonder whether I needed 51.” 

Notably, the now 95-year-old has exited active investing for the company this year. The Oracle of Omaha handed over the reins to his and late partner-friend Charlie Munger’s long-time successor, Greg Abel, who took over as CEO on 1st January.

Why Warren Buffett says ‘Can’t make a good deal with a bad person’

The logic has been consistent with Buffett, where he places trust high on his list of requirements when making a business decision. In a 2021 interview with CNBC alongside late business partner Charlie Munger, Warren Buffett told the channel that you can’t make a good deal with a bad person. The duo was on the channel to discuss their company and six-decade long friendship.

“You can’t make a good deal with a bad person. Just forget it. Now, if you think you can drop a contract that is going to work against a bad person, they’re going to win. For one thing, they probably enjoy litigation, but Berkshire Hathaway as an entity or me personally, I think we don’t want to spend our life doing that sort of thing. And besides, the bad guys win. They know more games. They may lose eventually in the but it’s no way to spend your life.”