13 Important Lessons From Warren Buffett
Managing Your Money By Natalie Saar
13 Important Lessons From Warren Buffett
The Oracle of Omaha, or as he’s better known, Warren Buffett, has some life lessons for us all. Buffett is one of the most successful money men in history, but that doesn’t mean the Berkshire Hathaway Chairman and CEO only has business smarts.
Over the years, Buffett has dropped nuggets of wisdom along the way, whether it was in interviews, books or annual shareholder letters. Here are some important lessons from him.
Sometimes we can over-complicate things when all we really need to do is “KISS” or “Keep It Simple, Stupid.” With most things, if you have the basics down, that’s all you’ll need to get the job done.
2. Stay Steady
"You're dealing with a lot of silly people in the marketplace; it's like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be O.K."
This isn’t to say you shouldn’t have fun, but when it comes to investments and making important decisions, take a look at what’s going on around you. Is everyone getting caught up in the hype, or is it really a good decision in the light of day? Stay steady when making big decisions.
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3. Stay Humble
"I happen to have a talent for allocating capital. But my ability to use that talent is completely dependent on the society I was born into. If I'd been born into a tribe of hunters, this talent of mine would be pretty worthless. I can't run very fast. I'm not particularly strong. I'd probably end up as some wild animal's dinner."
This quote from Buffett comes from Barack Obama’s book “The Audacity of Hope,” and is a good reminder about staying humble. All of us have a gift in life, but not everyone is able to use theirs to their full potential. Try to find what your gift is, and work to use it the best you can.
4. Be Patient
"We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children."
If you follow Buffett’s advice over time, you’ll see that patience is a recurring theme he brings up often, and this is no different. Investing in the short term is a gamble but keeping a steady course provides long term returns.
If you want to lose weight, don’t give fad diets a second thought, but instead change the way you eat and exercise into a sustainable way of life. With most things, patience is the key.
5. Recognize When You Have a Good Thing
"At Berkshire, we make no attempt to pick the few winners that will emerge from an ocean of unproven enterprises. We're not smart enough to do that, and we know it. Instead, we try to apply Aesop's 2,600-year-old equation to opportunities in which we have reasonable confidence as to how many birds are in the bush and when they will emerge (a formulation that my grandsons would probably update to 'A girl in a convertible is worth five in the phonebook.')."
Once again, staying humble, Buffett knows what he’s good at and what he’s not. But he also knows how to recognize when he’s got a good thing going. If you’re feeling like life isn’t going your way lately, take a step back and think about the good things you do have. You may not have your dream job yet, but for now it’s better than no job at all. A bird in the hand is worth two in the bush.
6. Buy Low, Sell High
"Long ago, Ben Graham taught me that 'Price is what you pay; value is what you get.' Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
Buy low and sell high. That’s a common phrase heard in the investing world for obvious reasons, but it also applies to other areas of life. If you want high quality food, buy fresh produce when it’s in season; since it’s being harvest, you’ll get it at a lower price than other times of year.
Or if you like designer clothes, consider shopping at retailers who carry them at a discount like Marshall's and Ross. When you see a deal on a high quality item, go for it, but you have to keep an eye out to snag the best ones.
7. Save Smartly
"We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits."
Buffett has always been upfront about making sure Berkshire Hathaway has enough capital to run on it’s own, but this lesson extends far beyond stocks. You’ve likely heard about how important it is to have an emergency savings account, and this is one of the reasons why.
While a week long trip to the Bahamas may sound nice, if you don’t have a savings account to fall back on if needed, then that lack of security isn’t worth losing sleep over just to get away for a few days. Save smartly, and then spending will be more fun.
8. Break Bad Habits and Form Good Ones
"Chains of habits are too light to be felt until they are too heavy to be broken."
It’s probably a safe guess that you’ve fallen into a bad habit or two in your lifetime. Whether it’s not drinking enough water or snacking late at night, these habits become ingrained in us and are harder to break as time goes on.
One day at a time, we slowly move further and further away from what we should be doing, until it’s such a burden to go back that it requires significant effort to do so. Identify some of your bad habits -- or some good ones you’d like to start -- and resolve to begin breaking those chains today.
9. Be Wary of Pack Mentality
"Two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable ... We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."
This goes with the previous principle of “buy low and sell high,” but it also speaks to not moving with the herd. Not all trends are bad or forlorn, but there’s something to be said about being wary of a pack mentality. No matter what decision you’re considering, take a step back and look at the crowd before actually following it, and make your own independent decision.
10. Slow and Steady Wins the Race
"It is not necessary to do extraordinary things to get extraordinary results ... By periodically investing in an index fund, the know-nothing investor can actually outperform most investment professionals."
This basic principle has been taught in many different ways over the centuries. You may recall the Tortoise and the Hare, which also applies.
The Hare was extraordinarily fast, but the tortoise just kept slowly chipping away at the distance and eventually ended up winning. In different areas of life, if doesn’t matter how fast, strong, or smart you are, it only matters that you stick with what you set out to do.
11. Know When to Walk Away
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be a more productive than energy devoted to patching leaks.”
Sometimes we put so much time and effort into something that it’s hard to imagine it won’t work out, but the hard truth is that at some point, you need to walk away. This is what Buffett is trying to get at. It could be a failed startup business or a piece of Ikea furniture that just isn’t fitting together. Walk away, and save yourself some time.
12. Buy Well-Made, Not What's Hot
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
Don’t make life harder on yourself by constantly having to update what you invested in, and that doesn’t only mean stocks. Buy a cell phone because it’s well made, not because it’s the hot phone of the moment. That’s the general thinking behind this comment.
13. Invest in Relationships
“I tell college students, when you get to be my age you will be successful if the people who you hope to have love you, do love you.”
It sounds cliche, but at the end of the day, it’s not about your bank account or possessions. While you’re chasing your own personal success, don’t forget to also invest in your relationships. Making it to the top of the mountain isn’t worth it if you are alone.
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