9 Life & Money Lessons From Warren Buffet
Warren Buffett is by far one of the most successful investors in the world. He has a networth of over $100 billion at the time of this video, making him the world's sixth-wealthiest person. But what makes Warren Buffet also famous besides his tremendous long-term success as an investor is his folksy, down-to-earth personality. And I have personally gleaned a lot of wisdom about personal finance, investing, and life in general from the “Oracle of Omaha.” So in this post we are going to review 9 of my personal favorite life and money lessons from Mr. Warren Buffet.
01 - Investing Doesn’t Require High IQ
“You don’t need to be a rocket scientist. investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
God bless him for this nugget of wisdom because I struggled with this pretty much my whole life. Our society naturally places high value on intellect. We automatically assume that someone who went to an Ivy League school and has a PhD in Quantum Physics is a genius and is worthy of success and wealth. Whereas for the rest of us mortal beings with mediocre grades and below average IQ are relegated to living dull lives; especially when it comes to accumulating wealth.
However, when it comes to investing, it is so true that higher intellect really doesn’t make much of a difference. Most often individuals who think they are smarter than the market actually perform below average in the long run. Being smarter won’t necessarily give us better returns because in investing, simpler is most often better. That’s why I focus on a simple 2 or 3-fund portfolio with low cost broad market index funds as my investing strategy. I know I don’t have a high IQ, but I know I can follow a simple strategy for a long period of time.
02 - Investing Is About Avoiding Mistakes
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
There are really two ways to succeed in investing. One way is to make money, and the other way is to not lose money. We can all make money from the market if we are to follow a simple, long-term strategy when it comes to investing. Investing in low cost broad market index funds and holding them as long as possible. However, we must also be careful to avoid big mistakes. Some of the most common ones I seen are the following:
Not investing enough. We can all make money in the market, but only if you are investing enough and consistently. When we have a high cost lifestyle, this is hard to do.
Investing in single stocks. Trading in single stocks is like gambling. Just like in Las Vegas, there are professional gamblers who know how to navigate the system, but they are far and few in between.
Paying high fees. This most often occurs because we give financial advisors and fund managers the key to our money. We can all manage our own investments. Follow a simple 2 or 3-fund strategy and avoid high fees like the plague.
03 - Market Forecasting Is BS
“We have long felt that the only value of stock forecasters is to make fortune-tellers look good.”
If you’ve been around the investing world long enough, you might know this guy - Mr. Jim Cramer. A former Hedge Fund manager turned TV show host who now makes a living telling people how to invest their money. Jim Cramer’s show Mad Money and thousands of other similar media platforms are spreading the toxic and false message that playing the stocks is easy and fun. And they have good reason to. Many of these media outlets's entire business model is based on encouraging individual stock picking.
CEO’s come on to discuss why viewers or listeners should invest in their companies. Analysts appear reinforcing the recommendations. And convinced by their cover of professionalism, we as individual investors come to believe these “expert” analyses of individual stocks. We are duped into believing that we too can understand company and market fundamentals. And armed with this knowledge, we too can read the fortune cookie and make money.
The honest truth is that these media outlets don’t care if you make money or or lose money on your investments. All they care about is their ratings and audience retention. Ratings bring in ad revenue. And do you know who most often are buying these ad slots? Companies that want to sell you financial products. Banks, Investment Management Companies, Trading Platforms.
No one knows a stock’s future because they don’t care about accuracy. All they care about is getting your attention. And if they can make you believe that you can win trading stocks, that’s what they will constantly do.
04 - Build Patience
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Investing is naturally a long-term endeavor. Many people call short-term making money schemes also investing, but the more appropriate label is either flipping or trading. Or sometimes just gambling. The benefit of true investing typically comes after many years, not weeks or months. Therefore patience is a crucial skill that allows investors to endure short-term hardships for a future reward.
And if you just step back, life works the same way right? Anything worth its money took years in making. Not overnight. Rome wasn’t built in a day. Apple struggled for decades before hitting the right strides and becoming the largest company in the world. And you can probably identify from your own life, examples where real sustainable achievement came from long-term perspective and patience. Enduring the day to day.
Though my wife and I have reached financial security today, it took a decade in making. We started out with $105K of student debt over 10 years ago and only through alot of ups and downs were we able to arrive where we are today. So patience is not only a crucial skill to investing. But also in life as well.
05 - Keep Investing Simple
“There seems to be some perverse human characteristic that likes to make easy things difficult.”
The media likes to convey an image of investing as something sexy and complicated. However, the reality is that really effective investing is actually quite boring. I mean I like index funds, but even I admit that investing in a few index funds and holding for a long period of time is boring.
That is why it is so tempting to get swept up by the talks of our friends who are boasting about their latest Tesla stocks or bitcoins. We can’t help ourselves but think: can I squeeze out additional returns by adding new asset classes, adjusting my allocation or moving my money to a new investment firm? But remember Jack Bogle’s quote in simplicity.
“When there are multiple solutions to a problem, choose the simplest one.” - Jack Bogle
I firmly believe that in investing, as in other areas of life, the perfect is the enemy of the good. When we seek to maximize our returns with complex and fancy looking investment strategies, we are expending energy that could be used better elsewhere.
06 - Save
“Do not save what is left after spending, but spend what is left after saving.”
This is all about paying yourself first. When I talk to people about money, most often the first question they ask is regarding investing. What fund should I invest in? What is the ideal asset allocation? Which one has the best returns? But none of it matters if we don’t have our savings dialed in.
What’s the point of having your perfect asset allocation if you only have a few dollars invested in the market. It doesn’t matter how much returns you get on your investment, a 100% return on $10 dollars will only be $10 dollars. If you need to set a personal “investment tax” to get yourself to save, then do it. Saving should not be optional and is the key foundation to wealth building.
07 - Choose Your Friends Wisely
“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.”
Jim Rohn and Tim Ferriss both have also said that we are the average of the five people closest to us. The people we spend the most time with not only occupy our time, but also influence our minds and our daily behaviors. So if our closest friends are made up of people who are money conscious and focused on growing their net worth, it is highly likely that we will follow similar habits.
However, if our closest friends are made up of people with bad money habits. And they aren’t focused on growing themselves or their net worth, it is a matter of time before these habits rub off on us. Hang out with people who will challenge and push us to be our best self, not worse.
08 - Time Is Our Greatest Resource
Warren Buffett is one of the richest men in the world, but he can’t turn back time. This was his answer to a question asked by a young man in his 20s at one of his annual meetings.
“I’d give away every cent I have to be your age again.”
Time is a finite, non-renewable resource, no matter how much money we have. We can have all the money in the world, but if we don’t have time to enjoy it, it really means nothing. What’s the point of having $100 million dollars in your bank account if you don’t have the time to watch your children grow up. Spend quality time with your spouse or be with your parents at the late stages of their lives.
Of all things that money can buy, I believe buying back time has the greatest return for your investment. As you build your wealth, consider spending your financial resources to buy back the greatest resource you have; time.
09 - Be Thankful
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
This quote could apply to many areas of life. If you are in a position where you can work, save and invest to ultimately grow wealth, you are blessed. There are so many people in the world, as well as in history who didn’t get to enjoy that level of freedom and opportunity. But that freedom and opportunity was bought at a cost. Our parents who raised us. Our teachers who taught us. Our veterans who protected our freedom. Let’s always be thankful no matter wherever we are in our lives.
