Life Lessons From Warren Buffet
Warren Buffet, also known as the Oracle of Omaha, is the CEO of Berkshire Hathaway, the largest holdings company in the world. Warren is also one of the wealthiest men on the planet and has consistently appeared on the Forbes list of the richest men in the world.
Buffet made his money by sticking to a simple investment philosophy — value investing. It involves finding a company that’s undervalued and buying it. His two rules about money are never to lose money and not to forget the first rule.
Other than that, Buffet is also a great believer in the power of compound interest. He is famously quoted as saying, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
The reason is simple.
By holding a stock for more than ten years, the value of your investment grows with time. It is an investment philosophy that has worked incredibly well for him. The majority of his wealth came when he was 50, and he didn’t become a billionaire until he was 56! However, he still made his first million before turning 30 which adjusted for inflation is about $9.8 million.
Buffet is also a great believer in the American dream and is always surprised that it has taken just three of his lifetimes (from 1776) to transform the American economy from its rural Puritan setting to the greatest growth machine the world has ever seen. His advice? Don’t bet against the American economy.
Indeed, he credits much of Berkshire’s wealth to riding what he calls the American Tailwind or the ability of the American capitalist economy to generate value over time. His optimism for the same remains high despite going through some 20 or so market downturns that have wiped out several billion dollars. Buffet always comes out on top and has so far managed 22% annual returns for the 80+ years he has been investing. Simply incredible. For comparison, the mutual index fund does a solid 3.5%.
An Early Bird
Like many business gurus, Buffet didn’t always make the right moves. His first lesson on investments came at 11 years when he bought three shares of City Services Preferred at $125. After the stock price fell from $38.25 to $27 he made the decision to sell following a price recovery for a $5 profit for each share. It was a decision that would haunt him for the rest of his life because the share price went on to soar to an incredible $202.
Video of Warren Buffets’ first investment mistake
https://www.youtube.com/shorts/pUbNqVbwyLY
Buffet calculated that had he been patient, he would have made a cool $492 profit. From this investment mistake, he learned three lessons.
- Not to fixate on the price he bought a stock for because prices always vary.
- Not to rush for a quick profit because, in the long run, he would lose so much more.
- Not to be responsible for anyone else’s money until he knew what he was doing
Indeed, his investment journey is marked by a series of lifelong lessons which explain his incredible success. Buffet has never let his failures define him because as he says in his 2022 annual shareholders letter, “the weeds wither away in significance as the flowers bloom”. In other words, his mistakes are trivial in comparison to the gains he has made from making the right investment decisions.
Such investments include a $1.3 billion acquisition of 400 million shares of Coca-Cola in 1995 which now brings in a cool $700 million in dividends each year and American Express which brings in $300 million. Both of these investments are worth over $22 billion dollars.
Buffets Reading Habits
Much of Warrens’s success also comes from his fascination with books and ideas. At a young age, he would read through the financial statements of hundreds of publicly listed companies. A habit that gave him unprecedented insight into the nature of capital markets. One book in particular — Value Investing by Benjamin Graham — changed the way he picked stocks and businesses.
In the book, Graham, the father of value investing, presents an investment strategy that involves looking for undervalued stocks whose intrinsic value is more than the market value. The intelligent investor buys such stocks and holds them until their true value comes to fruition. In the early days of his career, Buffet would find many such gems including Geico which he now fully owns through Berkshire Hathaway.
Aside from value investing, Buffet also favors another approach which can be summarized as follows:
Be greedy when others are fearful and fearful when others are greedy.
In short, when the market is performing poorly as was the case during the 2007–2008 recession, Buffet splashes a lot of cash on assets that are undervalued. It is the reason he keeps such a huge pile of cash. He is simply waiting for the right time to strike. It allows him to make strategic decisions such as his recent acquisition of 5% of Apple which is among his biggest holdings.
Buffet is also famous for the Berkshire Hathaway annual shareholder letter in which he wittily describes his business practices, failures, successes, and his overall approach to investments. The most striking thing about Buffet as can be seen from the letter is the consistency of his methods.
In his first TV interview, (1985) buffet laid out the foundation of his investment strategy. In it, he says the most important quality of an investment manager is his temperament and not his intellect.
“You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
According to him, investment is not about how much IQ you have or how the stock market is doing. He adds, “If you own a good piece of business, it shouldn’t matter whether the stock market is open or closed for five years.”
Warren Buffett’s First Television Interview — Discussing Timeless Investment Principles
Honesty and integrity are some of the other qualities that Buffet admires in others. He even advises young people to look up the habits of their mentors and simply copy them. To most people, Buffet’s success is the sum of his immense wealth but that is not how he sees it. In his words, a man’s worth is determined by the number of people that love them.
Investment Takeaways from Warren Buffet
Here are some nuggets of wisdom from Warren Buffet which you can use to guide your investment strategy
- Think long term
Buffet is a long-term thinker and a proponent of the power of compound interest. He also believes in starting early because investments mature for longer. He started his investment journey at the age of 11 and become a billionaire at the age of 56 despite compounding his gains at an incredible $22%.
Had he started later say in his thirties, he would not have made it to the Forbes list of the richest Americans. The lesson here is start early so that your gains can grow with time.
2. Have a stable personality
Warren Buffet rarely changes his habits. His investment advice has remained the same for For the many years he has been in the game. Even his diet has been the same since age six. When he figures out something that works for him, he rarely changes it. It also explains his frugality. He still lives in the same house he bought in Omaha, Nebraska in 1958 and drives the same car for years.
His explanation for sticking with his habits is simple. If something doesn’t add to his happiness there is no point in pursuing it. His investments also benefit a lot from his temperamental nature because he is not easily swayed to spend his money.
3. Have integrity in your dealings
Warren and his long-term partner, Munger are known for their strict business ethics. They do not short-change their investors or entertain questionable business ethics. This level of integrity has earned him the respect of friends and investors who have trusted him with their money. In return, Buffet invests the funds he gets in profitable businesses.
If you are going to be handling other people’s money, it helps to have sound business practices. After all, businesses run on trust.
4. Invest in businesses with good fundamentals
Buffet believes that it is better to invest in a company with a proven track record, good leadership, and strong growth potential.
In particular, he looks to acquire businesses with strong brand identities because they have a customer base that will stick no matter what.
