Finance

10 Important Lessons We’ve Learned from Warren Buffett

10 Important Lessons We’ve Learned From Warren Buffett
Written by Oana Schneider

We could all take life lessons from people who made it big. Whether it’s success financially, entrepreneurially, or life in general, there are people whose advice we can use and apply to our own lives to make it better. One example is Warren Buffett. If you’re looking for tips on how to manage your finances, how to invest or what you can do to give back to others, there are plenty of sound bites from this man that we can all use a little more of in our lives.

A Glimpse at the Life of Warren Buffett

Before counting down the most important lessons everyone should learn from Warren Buffett, let’s take a quick glimpse at his life first. Who is he and what makes him worth listening to? Born in Omaha, Nebraska, Warren Edward Buffett is the chairman and CEO of Berkshire Hathaway. As of April 2015, his net worth is $70.9 billion.

Buffett is considered as one of the most successful investors of the 20th century, and also the most influential. In 2008, he was ranked as the wealthiest person in the world while in 2011, he’s one of the top three wealthiest people. A year later, Time Magazine dubbed him as one of the most influential people on Earth. An interesting side note is that Buffett is also a philanthropist who pledged to give away 99% of his fortune to philanthropic causes, the primary of which will go towards the Gates Foundation.

He started as an investment salesman in 1951 for Buffett-Falk 7 Company. Later on, he worked as a securities analyst at Buffett Partnership, Ltd. It was in 1962 that Buffett earned his first million because of his partnerships in business. It was during the same year that he took control of Berkshire Hathaway, a textile manufacturing firm. In 1990, he became a proper billionaire when he sold class A shares, acquired General Re, and provided reinsurance after getting involved with Maurice R. Greenberg at AIG.

USA Today reported in October 2008 that there are at least 47 books in print with Warren Buffett’s name in the title – similar to US presidents, political figures and the Dalai Lama. Buffett’s personal favorite is “The Essays of Warren Buffett” while some of the top-selling titles are “Tap Dancing to Work: Warren Buffett on Practically Everything” by Carol J. Loomis; “Warren Buffett’s Three Favorite Books” by Preston Pysh; “Buffett, Making of an American Capitalist” by Roger Lowenstein; and “The Warren Buffett Way” by Robert Hagstrom.

10 Important Lessons Learned from Warren Buffett

With dozens of books under his name, billions of dollars in the bank and decades of experience in the business industry, almost anybody can do with a word of wisdom or two from Warren Buffett. To give you an idea about the ten most important things that we’ve learned from this enigmatic man over the years, here are some of his most important sound bites:

1. “Value investing works. Buy bargains.”

For first time investors, one of the most important lessons taught by Warren Buffett is about value investing. It involves buying a company for a market price which is below the intrinsic value of the business. According to Buffett, paying a price above the estimated value of a business is mere speculation – even if you have high hopes of selling it for a much higher price. Growth and value are intimately related, however, so it pays to familiarize yourself with the current market trends to make the most out of your investment instruments.

2. “Quality matters, in business and in people.”

When buying something, you might be tempted to choose one with the lowest price despite not having a good enough quality, especially if you are on a strict budget. But it might be a better idea to wait until you have more money to get the best value. The same thing applies to business, and to the people you interact with. According to Warren Buffett, businesses with better quality are more likely to grow and compound cash flow. As far as the people working behind the scenes are concerned, it is a must to partner with highly-capable managers whose interests lie in line with yours. 

3. “There is no need to overly diversify.”

One of the basic rules when investing is to diversify your portfolio. According to Warren Buffett, however, there is no need to overdo it. A better rule to follow is to “Invest like you have a single, lifetime punch card with only 20 punches, so make each one count.” Whether you’re a first time investor or if you have done it multiple times in the past, you can find better opportunities within unexpected industries or lesser-known structures.

4. “Holding cash in the absence of opportunity makes sense.”

If you think that the market is quite stale, stagnant or even on a downside trend, it is best to have cash on hand. This means that despite your multitude of investments, you still need to have liquid assets that you can tap into anytime you need to do so.

5. “Favor substance over form.”

The complete quotation for this is from Warren Buffett is that that you should favor substance over form and it doesn’t matter if the investment is public or private; fractional or full ownership; or debts, preferred shares or common equity. No matter which of these investment instruments you put your money in, what’s important is for you to learn as much as you can about the investment. Doing so will assure that you are choosing substance over form, and ensuring that you are maximizing the potential earnings of your investment.

6. “Unprecented events occur with some regularity, so be prepared.”

Nobody could have personally predicted the housing and financial meltdown that occurred a few years ago. Back then, if you had a number of houses as an investment, you would have been part of the bubble or meltdown and probably experienced such a disaster financially. Thankfully, that stage in the world economy has passed but it does not mean that it can’t happen again.

As Warren Buffett said, unprecedented events do occur with some regularity, so be prepared. This is also the point when it helps to not put all your eggs in one basket. In case one area or part of the market breaks down, you can always rely on another investment to grow, break even or give you excellent profit.

7. “Consistency and patience are crucial.”

As all entrepreneurs may know by now, consistency and patience are crucial qualities to have when it comes to running a business. According to Buffett, most investors are their own worst enemies. If you think that an investment which has been there for a number of years does not have a chance of bearing fruit, you are being your worst enemy. If you have enough endurance, you can wait it out and wait for the compounding to start. Overall, it is important to be consistent and have the patience to wait for your investments to provide you with enough return of investment.

8. “Look at the big picture.”

Bill Gates earned his billions from Microsoft, but it does not mean that he cannot learn a thing or two from Warren Buffett. When Gates attended the annual shareholder meeting of Berkshire Hathaway, he learned that it’s better to look at the bigger picture instead of nit-picking over the tiny details. Gates learned that the way Buffett’s success is rooted is by taking a look at the big picture. According to Gates, Buffett has a whole framework for business thinking which is very powerful. Is the business shrinking, growing or simply remaining stagnant? If you’re a shareholder, you need to look at the future profit stream of the business which you own shares for – and decide what it is worth.

9. “Find and retain like-minded shareholders.”

Yet another gemstone from Warren Buffett is for you to find and retain like-minded shareholders. If you’re an investment manager, look for investors who have the same vision as yours. This, according to Buffett, is what will allow you to liberate yourself from stocks with long-tern performances.

10. “Do what you love, and you’ll never work a day in your life.”

This is probably the most famous quotation from Warren Buffett. “Do what you love, and you’ll never work a day in your life.” Buffett himself loves the business industry and has excelled in it. If you are just starting out, choose a field that you are already interested in. Love what you do and learn as much as you can about it. Instead of dreading the prospect of going to work everyday, you should be filled with passion to share new ideas with your co-workers or colleagues. In keeping with Buffett’s words, doing what you love will not feel like work at all, so you do not actually have to work for even one day in your life.

These little nuggets of wisdom will inspire you to follow the model of Warren Buffett’s life and hopefully give you enough wisdom to succeed in whatever it is you’re doing.

About the author

Oana Schneider

Oana Schneider is a published author located in Chicago, Illinois, who currently works for DontPayFull.com as a communication specialist and blog editor. She writes about lifestyle, family budget, has a degree in Communications and advocates for women’s rights. Her future plans include getting a Labrador and losing a few pounds.

10 Comments

  • Very interesting indeed, especially, the do what you love, you will never work a day of life. It’s metaphorical where if you do what you love it’s not really considered work, and it’s really nice to know that he actually defines work as something we don’t like, unless it is something we love to do, which means it’s no longer work but a hobby.

  • A billionaire with a big heart. Pledging 99% of his fortune to philanthropy is a no mean task. It speaks volumes of his class as a man. Most of his principles are common sense. Bargain buys, Importance of quality, avoiding undue diversification are just a few. His life itself is an example. Yes, Do what you love and you’ll never work a day. Great stuff!

    • Buffett and Bill Gates are some of the most charitable individuals on the planet, which is impressive to say the least. It’s always good when a person’s wealth doesn’t go to their head because then they can become less than savory individuals. I commend Buffett and Gates for being charitable and humble.

  • Sensible and pragmatic advice not just for investors, but for anyone as they can apply them to all sorts of aspects of life. These days I’ve been needing to hear tips 7 and 8 in particular. I’ve always thought it wonderful that he’s committed to philanthropy as well. And the last quote has been one of my favorites for a long time.

    • Warren Buffett is a genuine human being that just happens to be a multi-billionaire that knows where to invest his money. He’s very much like Bill Gates in how honest and philanthropic he actually is. It seems like both men have a deep passion for life and helping others, which is hard to come by when you’re in the business world.

  • Warren Buffett is a smart and down-to-earth individual that’s pretty much a financial and investing genius. It’s incredible how he has built up Berkshire Hathaway to be such a gigantic player in investments. He’s got some incredible advice, and some of it even extends past investing, so I’d recommend following what the man says!

  • Warren Buffett is one of the most sought after influential financial advisor. I’ve taken interest on “Warren Buffett’s 3 Favorite Books” by George Preston Pysh. I have reserved from our community library to read in the next two weeks, “The Essays of Warren Buffett: Lessons for Corporate America” by Lawrence A. Cunningham.

    Life-quotes I can bring with life are a few of the thousands of Buffett’s wit and wisdom: “Consistency and patience are crucial.” “Looking at the big picture”, a focus on the intrinsic value of a business investment and future holdings and earnings. I value wisdom such as these, among the thousands, to carry on the vision in all walks of life.

    Thanks for this blog.

  • Buffets the man. I would like to buy more positions in what he holds. Slowly but surely. Unfortunately I don’t have 20 just sitting in my savings account. Maybe in the future.

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