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Best Investment Advice From Warren Buffett

June 19, 2020

It’s no coincidence that Warren Buffett has been nicknamed the Oracle of Omaha. For decades, he has been one of the leading forces in investments. His success would seem almost magical, if it didn’t have such a simple strategy. Save. Invest. Educate yourself. His humble determination and single-mindedness are two of the reasons for his success. For those of us who don’t have the capacity to read financial newspapers for hours of the day, we have gathered a list of Buffett’s advice for finance, investing, and life.

A Short Biography

Warren Buffett began his life as a shy child in Omaha, Nebraska. Born in 1930, he was raised in an upper middle-class family with two older sisters. His father eventually ran for Congress and was a Member of the U.S. House of Representatives for around 8 years. Buffett graduated from the University of Nebraska and subsequently from Columbia University. After graduating from Columbia, he returned to Omaha, where he has remained ever since. Buffett was married to his wife, Susan, for almost 50 years, until her death. Together, they had three children. He got married a second time in 2006, to his wife, Astrid. Despite being one of the richest people on the earth, Warren Buffett’s life is remarkably normal. He has lived in the same city for most of his life, has a short commute to work at his job as the CEO of Berkshire Hathaway, and buys breakfast at McDonald’s on his way.

Berkshire Hathaway

Berkshire Hathaway began in the 19th century as a textile company. In 1962, Warren Buffett started investing in it, buying more and more stock. A couple of years passed and Buffett saw that business was waning and decided to sell his shares, but after the owner reneged on the sell price that had only been agreed on orally, Buffett retaliated. He started buying up Berkshire Hathaway shares, obtaining enough to gain control and get rid of the owner. Eventually, the business became a holding company. Berkshire Hathaway is now worth well over four hundred billion dollars now has partial or full ownership of an extensive list of assets, including construction, insurance, food, and clothing companies. Some of these are more obscure, others are household names, like Dairy Queen, Duracell, GEICO, or Fruit of the Loom. Warren Buffett is the CEO.

Warren Buffett Investing Tips

Warren Buffett says that he has two rules for investing, “rule number one, never lose money. Rule number two, never forget rule number one”. Sound too good to be true? We’ve made a more detailed list for you with tips and advice just in case this isn’t enough.

  1. Compound interest. We can’t emphasize it enough. Compound. Interest. This is when the interest to the original amount is added and then combined. For instance, you invest $100,000 with a 10% return and you never take home the 10%. After 5 years, you’ll have over $161,000 in your account without adding anything to the original capital. Albert Einstein once said that “compound interest is the eighth wonder of the world”. Use it to your benefit.
  2. Begin small and buy American. Buffett recommends buying American stocks now. Not only will this help stimulate growth in the American economy, but as the biggest economy in the world, America is your best bet. Warren Buffett believes that the American economy will not only recover, but come back stronger than ever.
  3. Warren Buffett didn’t make his money in a day. Although he is now one of the richest men in the world, it wasn’t always that way. He advises on looking long term. If you invest in brands that are well known, you are almost guaranteed to come out on top eventually. People follow what they know; brands that have a personal connection to us normally come out on top. No matter what happens in the world, we keep putting ketchup on our hot dogs and batteries into our children’s toys. Even if their quarterly numbers fluctuate, these types of companies almost always recover.
  4. This brings us to our next point. Patience. Try to think long term. Stocks that you buy should be viable in five, ten, or even twenty years. Coca-Cola? Probably. The new super-popular Christmas toy? Probably not. This has multiple benefits; you are more likely to make better investments, and you won’t have to deal with the taxes and fees for buying and selling constantly.
  5. Buy when everyone else is trying to sell. The stock market has significantly dropped since the beginning of the COVID-19 pandemic. This is a good time to buy because when the market inevitably recovers, you will come out a winner.
  6. Buffett suggests that you should be able to understand what the business you are investing in does. It’s not enough to ascertain if the company is profitable or not, if you have no idea what’s going on, you won’t be able to judge their future performance and business decisions.
  7. Don’t spread yourself thin. Focus on a specific area. It’s better to invest in one specific area that you have an understanding of and are confident with the results, as opposed to spending a little bit in every area.
  8. Invest in an index fund. These are mutual funds that provide a cross-section of investments, which makes it harder to lose.
  9. Invest in the S&P 500. The return rates over a 10 year period are significantly higher than those of hedge funds.
  10. Probably stay away from tourism for the time being. Tourism has taken a hard hit, especially airlines. It will be a long road for them to recover and become financially profitable.
  11. Don’t borrow money to get into the game. Start small and with what you already have. It’s better to use your own money and avoid loans.
  12. Make sure your investments are of high quality. Companies that constantly have problems have them for a reason; either they aren’t a high quality company or their management isn’t great. If you think that you’re getting something for nothing, a good stock for cheap, it might be a bad investment. Good companies might cost more but they are definitely worth it. 
  13. High quality is high value. This does not always have a correlation to high prices. If a stock’s price is inflated, it doesn’t necessarily mean that it is of a better value. Make certain that the high quality stocks you are investing in are of high value in the long term. A high quality doggie dental salon might not be as good of a value as a family-owned takeout restaurant, even if they cost the same price.
  14. Don’t constantly focus on the news. The media has to provide something for us to consume, otherwise they’d be out of jobs. If something is in the news, it doesn’t necessarily mean it’s important. Of course, if the nighttime news says to shelter in place, pay attention. If you see one bad opinion piece on a certain company, probably let it go.
  15. It might get boring. We all watched Wolves of Wall Street and imagined that being a stockbroker was the most exciting job in the world. Well, either a stockbroker or Dr. House. In reality, investing is mostly non-eventful. Good investments will slow and steadily ripen and will not be high-stress exchanges.

Life Advice

Warren Buffett gives advice about financial investments. Oddly enough, Mr. Buffett’s best advice has little to do with finance and a lot to do with how to live your life.

His isn’t number one on the Forbes 500, but this is partly due to the fact that he’s a generous philanthropist. Buffet pledged to give away 99% of his wealth within his lifetime or at his death. To date he has donated over $38.8 billion.

Here are some of his words of wisdom.

  1. Live close to work, it will save you huge amounts of time in commuting.
  2. In his HBO documentary film called “Becoming Warren Buffett”, he tells a young group of students that their bodies are the most valuable possession they have because in your entire life, you’ll only get one.Take care of your body like it’s going out of style. Your choices in your youth will define the way you feel and function later.
  3. Be really good at one thing. It’s almost impossible to be a master of multiple areas. Find something that is interesting to you and focus most of your time and attention on it. It’s better to be an NBA basketball player than pretty good at 15 sports.
  4. Learn how to communicate. If you aren’t a natural speaker, take courses. Buffett credits the completion of the Dale Carnegie courses as one of the biggest life changing experiences. In his opinion, possessing the ability to effectively communicate with others and speak in public is one of the most important qualities in success. You might be the most intelligent person in the world, but if you can’t explain your thoughts to others, you’re in trouble.
  5. Don’t use credit cards. Just don’t. If you have credit card debt, pay it off as soon as possible. Credit card interest rates are significantly higher than almost any investment returns you could ever receive.
  6. Acquire knowledge. You should only stop learning when you stop breathing. But there’s a catch. How you understand and subsequently apply this information is just as important. You shouldn’t just be a walking encyclopedia; you should be able to apply what you know to improve your own life and the lives of those around you.
  7. You are the best investment of your life. Invest time and resources in yourself. This might mean reading for an hour a day, it might mean spending money to attend conferences. Figure out what you need to do in order to constantly improve on your investment.
  8. Be friends with smart people. Warren Buffett considers Bill Gates and Charlie Munger to be close friends. All of these men are at the top of their fields and have revolutionized their spheres of influence. Oddly enough, their genius is not the reason that Buffett is friends with them. He says that the most important quality in friendship is finding people that bring out the best in you.
  9. Read as many books as is humanly possible. Warren Buffett spends most of his waking hours reading. He believes that reading is the most important factor in becoming more educated. Besides reading, it’s vital that you retain the information that you have just ingested. This information will eventually compound and smooth itself into a mosaic- like image in your brain.
  10. Don’t worry about what other people say or think. Facts are what matter. Keep a personal scorecard. People will always talk about other people and their opinions rarely deserve your attention. Life your life. 

Conclusion

Warren Buffett has had a profound influence as an investor and as a philanthropist in the 20th and 21st century. When he began investing, Buffett made a point to educate himself and constantly be in the know. Currently, it is enough for him to make a move and everyone else follows. This is due to his stellar record and unparalleled knowledge. He is also unique in his desire to share all that he knows. Buffett openly gives advice and shares what he has accumulated with others. This indestructible desire to help and share has made him not only one of the most successful individuals in the modern world, but also one of the most liked. 

He not only shares his knowledge but shares his financial resources as well. Buffett believes that he won the genetic lottery; being in the right place at the right time. He has made it his life’s work to even the playing field. Buffett has donated billions to the Bill and Melinda Gates Foundation and the Susan Thompson Buffett Foundation. In his statement on The Giving Pledge, Buffett writes that he will give 99% of his wealth away, in hopes of improving the health and welfare of others. Warren Buffett has found the formula to being successful at anything in life.

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