Teachings from a Legend: Warren Buffett
Image Source: Associated Press, Nati Harnik
Warren Buffett, widely considered to be one of the best investors in our lifetime, is an avid reader. Particularly of books and annual reports. As the chairperson of Berkshire Hathaway, a multinational conglomerate, Buffett has written an annual letter to the company’s shareholders for the last 6 decades. Some of this most important teachings are below:
For most people, especially beginners and not professional investors, the best way to invest is to regularly put your money into buying an index fund (like the SP500 ETF). Buffett encourages beginners to not pay anyone to invest on their behalf.
“They come in and they talk for hours, and you pay them a large feel and they always suggest something other than just sitting on your rear end and participating in American business without cost.” (Buffett at Berkshire’s 2016 annual shareholders meeting).
_____ Read and Purchase “The Intelligent Investor” on Amazon. #paidlink
Read Benjamin Graham’s “The Intelligent Investor”, which Buffett credits for teaching him the fundamentals of investing.
According to Buffett, don’t think of stocks as just a way to get rich or something with a price that goes up and down. Think about the stock as a piece of the profits of a dynamic company.
“Forget about the word ‘stock’…[think] as a business.”
Can you understand what the company does? Is the company’s long-term future positive (don’t think in the short-term). Companies with strong long-term futures, according to Buffett, have great anchors or moats which creates robust customer loyalty.
“Every business…[is] an economic castle…what kind of moat do you have…that protects it.”
Think of Apple and its devices ecosystem. Think about Google, whose search engines and other offerings are crucial to our daily lives. Think about Microsoft and its productivity suite of features (Word, Excel, etc.) that is in corporate offices everywhere today.
Is the company management honest and capable of doing their jobs and running the company well? What’s their experience like?
Don’t let a company’s short-term fluctuation in prices impact your thinking of its long-term future. If you have conviction in the company, then stay the course. You can’t let the fear of falling stock prices (for example, in difficult times like right now) impact your investment behavior:
“Apparently…[some] don’t have the temperament, or emotional stability, or whatever…to invest in securities.”
Don’t try to time the market. Nobody does that well or consistently. Have a certain cushion (don’t invest all your money 100% of the time). Don’t be envious of people taking absurd levels of risk.
Don’t short the market or take on leverage to buy stocks. That’s a way to lose money quickly.
Don’t invest in assets like cryptocurrencies which don’t generate cash flow. Buffett strongly disapproves of cryptocurrencies such as bitcoin. Its value—he argues—is just what the next person would buy it for.
“People win lotteries every day…You shouldn’t be jealous of it.”
Don’t forget that money won’t make you much happier. So don’t get trapped in the rat race for just more money.
“[If] you’re an unhappy person and [think] a million dollars is going to make you happy, it is not…you’ll see people with two million.”
Contributor: Founder, Financeowlogy