‘The good jockeys will do well in the good horses, but not in the broken rifles’: Warren Buffett warns that even the best leaders cannot fix bad businesses

Warren Buffett, president and CEO of Berkshire Hathaway (BRK.A) (BRK.B) has built its reputation not only in investment performance, but also in its ability to explain commercial principles through Plainspoken metaphors. One of his most durable lessons for investors and managers was first captured in his 1989 letter to the shareholders: “Good riders will work well in good horses, but not in the shameless ones.”

The analogy illustrates Buffett’s central belief that while capable management is valuable, it cannot overcome the structural disadvantages of a weak business. In other words, the quality of the company itself is more important than the talent that directs it. This perspective has guided Buffett’s investment philosophy for decades, emphasizing the importance of durable competitive advantages, which often calls “economic ghosts”, in short -term leadership strategies.

The context of this comment lies in the long history of Buffett to evaluate both people and companies. He has constantly praised effective managers, particularly those who direct Berkshire’s subsidiaries, but has also warned investors against overestima the power of leadership in industries with a poor economy. An expert executive, like a talented rider, can maximize the potential of a strong company, but even the best rider cannot constantly win on a failed horse.

This principle is reflected in the first false steps of Buffett, as well as in his subsequent successes. His investment in the textile business that gave Berkshire Hathaway his name is an excellent example. Despite its best efforts and the presence of a competent management, the textile economy was unfavorable, which eventually led Buffett to change the company’s approach to insurance and other more promising sectors. The lesson was clear: great managers cannot save fundamentally defective companies.

On the contrary, their long-term investments in companies such as Coca-Cola (KO) and American Express (AXP) show the other side of the metaphor. These companies have durable brand resistance and resistant commercial models, which makes them the “good horses” in which strong management can prosper. In these cases, Buffett’s support allowed both the leadership and the quality of the underlying business to work together, producing sustained yields of shareholders.

The authority of this observation comes not only from Buffett’s history but also from its alignment with a broader economic history. The markets are full of examples in which poor commercial models even undermined talented executives, from plagued airlines of capital intensity to retailers who cannot resist changes in consumer behavior. On the contrary, companies with lasting advantages have often flourished even when management was simply adequate.

In current markets, the metaphor is still very relevant. Industries undergoing rapid interruption, such as media, technology and retail trade, highlight the importance of distinguishing between companies with solid long -term perspectives and those that are structurally disadvantaged. Investors and executives face the challenge of determining whether they are supporting a good horse or breakdown.

Ultimately, Buffet’s comment serves as a timeless reminder of where to focus attention on business and investment. While leadership is important, the basis of success is found in the inherent force of the company itself. A good rider can earn races, but only if the horse is able to execute them.

On the date of publication, Caleb Naysmith had no positions (directly or indirectly) in any of the values ​​mentioned in this article. All information and data in this article are only for informative purposes. This article was originally published at Barchart.com