Warren Buffett isn’t the Oracle of Omaha for nothing. He is one of the world’s most respected investors. According to Forbes in 2016, Buffett’s net worth as of 2015 stands at US$60.8 billion. Investors harp on his every word when his annual letter to Berkshire Hathaway’s shareholders is released. For charity, people with deep pockets bid for a meal with the investment guru himself. He usually spends around 3 to 4 hours with the winning bidder.
Recently, the lunch auction with Warren Buffett was won by a mystery bidder at a whopping US$3,456,789. If people are willing to spend astronomical amounts year after year for a chance to dine with the Oracle of Omaha, for the ones like us who don’t have that kind of money, it is probably worthwhile to remember some of the things Buffett has said.
#1 “Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.”
Warren Buffett is surprisingly frugal for someone with such a high net worth. He neither owns a mobile phone nor a laptop. In 2014, Buffett told shareholders during a meeting that his quality of life isn’t impacted by the amount of money he has.
For many people, once they have been promoted or received their annual bonus, the extra money received typically goes fulfilling some (or many) wants. This is called lifestyle inflation. This toxic financial habit keeps many Singaporeans from achieving financial freedom, setting up an emergency fund, investing, and planning for retirement.
#2 “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
As a strong advocate of long-term investing, Buffett does not encourage holding investments for a short period because the long term is where large amounts of returns are made. If we follow his advice and judge a company based on whether they will continue to do well after 10 years, it will change the way we assess stocks from emotional to rational.
#3 “Startups are not our game.”
Crowdfunding is all the rage these days. Especially when we can invest in the hottest, up and coming startups (or so they say) with online banking, many people gloss over the risks involved in investing in startups. Typically, startups don’t make it big and fail within their first few years, with poor cost control being one of the common issues.
#4 “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”
The reason behind the temptation can be summed up in a word: emotions. Emotions, predominantly greed and fear drives people to make decisions based on impulse.
#5 “Market forecasters will fill your ears but never fill your wallet.”
Warren Buffett also said, “I think the worst mistake you can make in stocks is to buy or sell based on current headlines.” Market forecasters usually react to economic changes and business news aka the headlines.
He advises, “The lower prices go, as long as you know the company you’re investing in, the better it is for a buyer. Down days always make me feel good.”
#6 “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
Many investors without proper investment know-how buy when prices are high. This means they are buying when everyone else is buying. When the herd is not interested in stocks, such as when fear is high, pessimism will drive the prices down and if the company’s fundamentals are good, it will bring significant return thereafter when confidence starts to pick up.
#7 “All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.”
Read #6 again. If there’s only one thing you can learn from this article, it is that Warren Buffett advocates long-term investing. Holding your stocks only during the short-term can be a result of an emotional decision that spurs you to sell. This includes situations such as an analyst saying a recession is imminent, a change in CEO, or rumors.
#8 “I read annual reports of the company I’m looking at, and I read the annual reports of the competitors – that is the main source of material.”
This is one of the most important things to do before committing to buying a stock of any company. The annual reports tell you a lot about the financial health of the firm. But it is not enough to simply look at the latest annual report because the performance of the company could be dependent on the economic situation in the world during that financial year.
Annual reports should be compared over a few years to really track the growth of the company before deciding if their fundamentals are strong enough to weather bad short-term economic outlook.
#9 “Money to some extent sometimes lets you be in more interesting environments. But it can’t change how many people love you or how healthy you are.”
Despite being extremely wealthy, there are things that even Warren Buffett cannot buy, such as love and health. Although money allows you to experience cool things like a nice vacation to Santorini or dining at a top fine dining restaurant, love and health still cannot be bought. You should not take your friends, family, and physical wellness for granted regardless of the state of your finances.
#10 “We enjoy the process far more than the proceeds.”
It is common advice that when you follow your passion, money will follow. There is no point if you devote your life to something you simply do not enjoy. Perhaps the secret behind Warren Buffett’s legacy is doing what he loves. So, what drives you?
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