Warren Buffet, the famed “Oracle of Omaha, is one of the most well-known and successful investors ever. The native Nebraskan demonstrated a keen interest in entrepreneurial activity early and earned a Master’s in Economics from Columbia University. Highly influenced by the legendary value investor Benjamin Graham, Mr. Buffet made billions for himself and his shareholders with his investment company, Berkshire Hathaway. By 2008, Forbes Magazine ranked Mr. Buffet the wealthiest man in America, with a net worth of $62 Billion. Not only astute and successful in business, but Mr. Buffet is also a noted philanthropist. Given today’s market volatility, he’s in the spotlight again, and his tips have proven timeless.
1. Be In It For The Long Run
The quote “My favorite holding period is forever” is often attributed to Mr. Buffet. He first said it in his 1998 shareholders’ report. It illustrates one of his favorite investment maxims: “Be In It For The Long Run.” Highly influenced by the great value investor Benjamin Graham, Mr. Buffet believes that to make real money in stocks, don’t buy them to sell them. Instead, invest in companies you like and understand, especially when there is an opportunity to buy low. You “like and understand” a company because it produces valuable things or products to such a successful degree that it has a solid and stable cash flow and is likely to grow for the foreseeable future. Most of these companies are considered “Blue Chips” by seasoned investors.
2. Knowledge Is A Great Investment
Mr. Buffet is a great advocate of continuous life-long learning. He scans the newspapers daily and reads books prodigiously in his desire for knowledge. In one publicized encounter, he gave a budding entrepreneur several pieces of advice. The first piece was, “Before you sleep each night, ask yourself: Are you smarter? Have you learned something new?” A staunch believer that knowledge is an excellent investment, Mr. Buffet believes that learning is the single best investment of our time that we can make. Success is a great teacher. But Mr. Buffet even goes so far as to say that failure is a teacher, too: Learn from it.
3. Build Relationships Everywhere You Go
Here’s a quote from Mr. Buffet: “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” One of the pillars of his investment philosophy is the importance of having honest, well-crafted relationships in business and one’s personal life. He often speaks to students who are regularly surprised by the range of his remarks. In addition to business and investment topics, he speaks persuasively on the need to focus on personal relationships. He often advises students and business people to build professional and personal relationships everywhere they go.
4. Know When To Cut Your Losses
Even though his favorite investment holding period is forever, he is not shy to nip losers in the bud. Another of his investment pillars is to know when to cut your losses. No one, not even the Oracle of Omaha, has a perfectly functioning crystal ball. Mr. Buffet learned early on, even in his teenage years as an entrepreneur, to fold up a losing situation. Mr. Buffet believes, and common sense shows, that trying to shovel out of a hole sometimes only makes it deeper. Instead, he advises cutting losses to avoid further difficulty. He once said there are only two rules for investing: Rule One, Don’t lose money; Rule Two, Don’t forget Rule One.
5. Highest Cost Doesn’t Mean Higher Value
Mr. Buffet knows value when he sees it because he was highly influenced by the godfather of value investing, Benjamin Graham. He believes that real value consists in buying high-quality companies at depressed prices relative to their intrinsic worth. He firmly believes that higher cost doesn’t mean increased value. Instead, Mr. Buffet searches for firms that he believes are valuable but not recognized as such at the time. This approach is the opposite of the “Herd Mentality,” in which some investors think increasing prices mean a stock is increasingly valuable. Often, the best buying opportunities occur when most other investors are running scared because of a major market meltdown, and there is “Blood in the streets.”
Disclaimer: This information is not intended as a substitute for professional financial, accounting, tax, or legal consultation; it is provided “as is” without any representations or warranties, express or implied. Always consult professionals when you have specific questions about any financial matter.
Sources:
Buffet, W., 1998, Lecture at the University of Florida School of Business – Transcript. Intelligent Investor.
Gilchrist, K., 2018, Warren Buffett rejected this entrepreneur’s dinner invitation — but he did give her 3 pieces of advice. CNBC. www.cnbc.com/2018/03/14/warren-buffett-rejects-dinner-invite-gives-3-pieces-of-advice.html
Investopedia Staff, 2018, Warren Buffett: How He Does It. Investopedia. www.investopedia.com/articles/01/071801.asp
Loomis, C. J., 2006, A conversation with Warren Buffett. CNN Money. www.money.cnn.com/2006/06/25/magazines/fortune/charity2.fortune/index.htm
Markels, A., 2007, How to make money the Buffet way. U. S. News and World Report.
Michaels, M., 2018, Warren Buffett is worth $87 billion — here are 9 of his best pieces of advice on success. Business Insider. www.businessinsider.com/warren-buffett-best-advice-on-wealth-success-2018-3
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