The Oracle of Omaha is a font of wisdom. He is perhaps the most successful investor in history. So he knows a lot of lessons we can all benefit from. Here are 22 life-changing lessons from Warren Buffett.
Warren Buffett quotes are almost as good as Yogi Berra quotes. Whether you want some words of wisdom on investing or how not to be a better person, there are Warren Buffett quotes to guide you.
Subscribe to the Show:
1. “Risk comes from not knowing what you’re doing.”
2. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
3. It is not necessary to do extraordinary things to get extraordinary results.
4. After all, you only find out who is swimming naked when the tide goes out.
“It is not necessary to do extraordinary things to get extraordinary results.”
So many people delay investing because they think they need to understand how it all works or to have lots of money before they can get started. You don’t. You can go to Betterment right now with zero knowledge of investing and almost zero dollars (there is no minimum) and get started.
Just do it. Do it now. Time is ticking, and the most powerful force in personal finance is compounding interest, but it needs time to work its alchemy.
This quote is accurate for lots of aspects of life. You don’t have to do an extraordinary amount of exercise to improve your health nor do you have to be an extraordinarily gifted athlete to get started. You don’t have to write a remarkable resume, the greatest resume ever crafted, to land an extraordinary job. But you do have to send out resumes.
You don’t have to be extraordinarily attractive or have an extraordinary game to ask that cute girl or boy out and find extraordinary love. To get extraordinary results, you just have to do a lot of normal things in the right direction.
“Risk comes from not knowing what you’re doing.”
There is a vast difference between risk and calculated risk. But the only difference is research and preparation. It is risky to quit your job and start a new business. It is a calculated risk to do enough research to know that there is a demand for your business and to continue working your 9-5 until your business starts to make money.
It is a risk to invest in a company you know nothing about or a product you don’t understand. It is a calculated risk to research a company’s debt to equity ratio, price to earnings ratio, and who makes up the leadership and then decide whether or not to invest.
1. Price is what you pay. Value is what you get.
2. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
3. The investor of today does not profit from yesterday’s growth.
4. Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
“Price is what you pay. Value is what you get.”
One of my personal finance lessons is Vimes theory of boots. It explains how poor people spend more money on things over time than rich people because rich people can spend more up front for things of better quality that last longer. Poor people have to buy the cheapest option available, and those cheap options have to be replaced more often than better quality ones.
If you have to make a fairly expensive purchase, furniture, appliances, a computer, get the best available, which is not necessarily the most expensive, even if you have to save up for it. Buy it for Life is a great resource to get advice on making a purchase that will last.
When it comes to investing, price and value can be miles apart. Price can be tied to things like perception, fear, and greed. After shares of United plummeted in the wake of their scandalous treatment of a passenger on a deliberately overbooked plane, did that price drop reflect the value or was it a reaction to a viral incident?
An ideal time to buy United shares would have been after that story broke. The public was outraged but we are outraged by things on a daily basis, and one is quickly supplanted by the next. We have very short attention spans. If today you asked ten people which airline was involved in that incident, how many do you think would know?
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Wait for a sale! If you have to make a big purchase, do some research and find out when that item goes on sale. For instance, exercise equipment goes on sale in January, hoping to cash in on those New Year’s Resolutions. Laptop and desktop computers go on sale in April.
Do your research like the Warren Buffett quote above told us, so you get a quality product and wait for the right time to buy so you get it at a reduced price.
Get our best stuff in your inbox:
1. It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours, and you’ll drift in that direction.
2. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
3. There seems to be some perverse human characteristic that likes to make easy things difficult.
4. Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
5. If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.
“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours, and you’ll drift in that direction.”
You’re probably doing okay, but you could be doing better. One way to make yourself better is to spend time with people better than you. At whatever it is you want to be better at. If you want to get in shape, join a running or cycling club. If you want to eat better, only eat with people who already eat well. They don’t try to tempt you with cheeseburgers and dessert.
If you want to improve your career, find a mentor at work. You are the average of the five people you spend the most time with. Look around at your five. Are they all who you would like to be? If not, find different people.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
To use the United example again, I’m sure there have been times the airline has flown a child who needed surgery in a hospital far from home for free. I’m sure they have upgraded returning soldiers to first class. I’m sure they have donated lots of money to charitable causes.
But I can’t recall a single story like any of those. What I and all of us can recall is the passenger getting beaten and dragged off a plane when he rightly refused to vacate a seat he paid for because the greedy airline deliberately oversold seats.
Everyone has a cell phone in their pocket, and if you are doing something stupid or scandalous or gross in public, someone will record it and put it on YouTube or Facebook. Heaven help you if you’re not anonymous and they have your name or someone who sees the video names you.
You may have been on your way to rescue some puppies from a fire and then to adopt some orphans, but if you call someone a racist name on the subway, that’s what everyone will know about you. Including potential employers, all of whom Google job candidates to see if they are a (not so) secret subway racist.
1. I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
2. In the business world, the rearview mirror is always clearer than the windshield.
3. You only have to do very few things right in your life so long as you don’t do too many things wrong.
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
We can take this one a couple of ways. If something seems hard, find something that is easier. Or, if something seems hard, break it down into smaller pieces. Thomas uses the 1% method for this. Every day, he tries to do things just 1% better than he did yesterday.
Just under 15 minutes is equal to 1% of your day. If you didn’t exercise at all yesterday, you could make your 1% improvement just by working out for 15 minutes. Each day you can add another 1% to that 15 minutes until you are getting the proper amount of exercise each week.
Those small improvements, over time, can make a monumental difference to your habits and your life.
“You only have to do very few things right in your life so long as you don’t do too many things wrong.”
No one can be good at everything all the time. Everyone can make mistakes. But what you are good at and where you make your mistakes is what counts. If you invest early and often, you don’t have to have a big, impressive career making tons of money. You can be a content C student.
What you can’t do is have a C student career and no money invested, unless you never want to retire at least.
1. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
2. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
3. Our favorite holding period is forever.
4. Never invest in a business you cannot understand.
5. Someone’s sitting in the shade today because someone planted a tree a long time ago.
6. Wide diversification is only required when investors do not understand what they are doing.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
When people get greedy, stock prices go up. When they get fearful, the prices go down. If you follow the herd and get greedy, you are likely to overpay for something that has an inflated value. If you go against the herd, you can get a great deal.
This was demonstrated when a Tesla caught fire in October 2013. People freaked, sure the cars were death traps. The stock dipped $12 per share, closing at $181 soon after the fire was made public. This was a great opportunity to buy the stock. Currently, it is worth $339.85 per share.
Before the 2008 housing crash, everyone and their grandmother were buying up houses they couldn’t afford. You might have thought you were really losing out. But then the crash happened, and people were punished harshly for their greed.
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Long-term thinking (and investing) and planning allow us and others to reap the rewards in the future. If you saved up $500 and opened a Betterment account today and added another $500 a month ($6,000 a year) and earned an average of 7% for the next 20 years, you would have more than $265,000, over a quarter of a million dollars!
If you got a late start and doubled those dollar amounts, $1,000 to start and $1,000 a month ($12,000 a year), but halved the amount of time to ten years, at the same 7%, you would have just over $179,000. There is no substitute for planting that tree early.
Be Like Warren
These Warren Buffett quotes are nearly all common sense. He doesn’t claim to be smarter than anyone else (although he is), he just sticks to common sense and some core principles when he invests. We should all be like Warren.
LMM Pro: Research and evaluate rental properties.