Six Life Lessons From Warren Buffett

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6 Life Lessons from Warren Buffett by John Szramiak was originally published on Vintage Value Investing

Warren Buffett is perhaps one of the most successful investors in the world. He is also one of the richest people in the world. Here are some lessons you can learn from the “Oracle of Omaha”:

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  1. Live Below Your Means

Warren Buffett has a net worth of 77 billion. But he still lives in the same house he bought in 1958 for only $31,500. Compared to his income and net worth, Warren Buffett lives frugally. The rest of his money is protection in case of emergencies. Because he lives frugally, he can also invest more money, which will reap more rewards. Not only will his wealth grow faster, but it is unlikely he will declare bankruptcy. Consider this quote by him:

“I’m not interested in cars and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living.”

  1. Skip Meetings and Other Unnecessary Time Wasters

Instead of having long, unnecessary meetings every year, Buffett sends a letter to each of his companies, praising victories from the past year, and stating his goal for the current year (see also: Warren Buffett’s “Not To Do” List). The result is he has more time to work on more productive projects and his employees have more time to work and accomplish goals.

Warren Buffett’s business partner Charlie Munger jokes about Buffett:

“You look at his schedule sometime and there’s a haircut.

Tuesday, haircut day.

That’s what created one of the world’s most successful business records in history. He has a lot of time to think.”

  1. Practice Your Communication Skills

Buffett hated public speaking when he was younger, but he knew it was necessary for him to be successful. So he enrolled in a public speaking course that eventually broke down his fear of public speaking and helped him become a successful public speaker. He now tells young entrepreneurs that the key to success is good communication skills.

  1. Research Before You Invest

Always research before you invest. Buffett researches each of his companies thoroughly and makes sure he can understand them before he invests. After he has deemed a stock to be strong, he invests generously. He also likes companies that can be easily run. After all, companies that are “so simple even a fool can run them” are relatively safe investments – even when fools ARE running them. Warren Buffett does not keep his researching method for investing a secret (see: The 4 Warren Buffett Investing Principles). You can use this as well when you invest:

“We select such investments on a long-term basis, weighing the same factors as would be involved in the purchase of 100% of an operating business:

(1) Favorable long-term economic characteristics;

(2) Competent and honest management;

(3) Purchase price attractive when measured against the yardstick of value to a private owner; and

(4) An industry with which we are familiar and whose long-term business characteristics we feel competent to judge.”

  1. Resist Trends

There are always trendy stocks to buy like Facebook, Apple, Snapchat, or Twitter. But Warren Buffett stays away from these, instead investing in stocks that have a proven track record. After all, there is no telling where the newer trends will go and how long the trendy investments will turn a profit.

  1. Have Fun

Warren Buffett does not understand why people will take jobs they do not like just to get ahead. He is a big believer in doing what you love because life is too short. Warren Buffett loves his job and investing which is why he spends effort and work on it. If he did not like his work, he would probably care much less about it and put a lot less effort into it and he certainly would not be happy. He once compared taking a job you did not like for the promise of future rewards to saving up sex for old age. He also once said:

“Not doing what we love in the name of greed is very poor management of our lives.”

 

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Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…