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The Tao of Warren Buffett
WWWD: What Would Warren Do?
Warren Buffett will release his annual letter to Berkshire Hathaway shareholders today. Buffett's letter is probably the most widely read shareholder's letter and it is sure to be filled with many of Buffett's trademark folksy wisdom. Fortunately, you don't have to weave through all of the text on Berkshire's current businesses to get Buffett's life lessons. David Clark and Mary Buffett, two noted "Buffettologists," have compiled an anthology of Buffett's most famous sayings and tenets. Mary Buffett is the former daughter-in-law to Warren and David Clark has spent many years chronicling Buffett and keeps notebooks full of Warren's investing advice. Their book, The Tao of Warren Buffett, contains 125 quotes from Buffett on life and investing.
In this review, I will highlight ten of my favorites. For the full list, definitely purchase the book. It is a quick read, but full of valuable information from a man Felix Dennis would call rich.
1. Rule No. 1: Never lose money. Rule No.2: Never forget rule No. 1
Compounding is the key to making money. Since time is the critical factor as you build wealth, you need to ensure you start with as much money as possible. Therefore, avoid losing money.
2. Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway
Again, avoid losing money. High fees and commissions will throttle investment returns. This is the main reason why Buffett recommends low-cost index funds for most investors. If you find yourself on the receiving end of a sales pitch from a broker, think about this: If their investment tip was such a great idea, why would they tell you? Why give away a money-making opportunity? If the idea was sure thing, why not keep your mouth shut and execute the strategy for their personal account? The answer is because they make money when you move money so...
3. You should invest like a Catholic marries-for life
Don't engage in short-term trading. You will be killed by the fees you rack up and a short-term outlook leads to faulty decision making. Planning to invest for life requires you to do your homework and be certain you are making a sound investment.
4. Managing your career is like investing-the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train
In everything you do you want to be moving up and to the right. Careers in thriving industries are easier to manage. Salaries are rising and job opportunities are plentiful. The key is to be able to look out 5, 10, and 20 years into the future. Where is the economy headed and what skills will be in demand?
5. Someone is sitting in the shade today because someone planted a tree a long time ago
The main takeaway here is that good mentors in life are critical to your success. Look for people who are where you want to be in life and seek them out. Most successful people are happy to help those with intelligence and drive, but just happen to be less experienced. Mentors can make your path much easier by showing you best practices and where the pitfalls are located. If you understand this, than you've internalized Buffett's next point...
Warren Buffett: Pearls of Wisdom
6. You want to learn from experience, but you want to learn from other people's experience when you can
Asking great questions and observation skills are absolutely critical for success. Mentors, friends acquaintances, and even enemies can be the sources of valuable information and help you advance. Do not be afraid to try and fail, but also do not dismiss the experiences of others.
7. It's only when the tide goes out that you learn who's been swimming naked
This quote is normally tied to sketchy companies in a bull market, but it is more generally applicable. Lean times are when you find out the true nature of not only companies, but people as well. Who is able to withstand difficult times?
8. If you let yourself be undisciplined on the small things, you will probably be undisciplined on the large things as well
Good habits have to be nurtured and applied consistently. You can't let things slide and expect to be able to flick the light switch on discipline. Be consistent in all things and it gets easier with time.
9. Of the seven deadly sins, envy is the silliest, because if you have it, you don't feel better. You feel worse. I've had some good times with gluttony...we wo
The only person you should compete with is you. Work on being better than you were yesterday and you go a long way toward happiness and success. We all have different abilities and circumstances. Remember, there will always be someone in a better situation than you and there will always be someone in a worse situation. Don't fall into the trap of comparing yourself to anyone else. Social media has made envy harder to avoid. Our "friends" post their highlight reel and we compare it to our real life, warts and all. Don't do!
10. It takes twenty years to build a reputation and five minutes to lose it. If you think about that, you will do things differently
Integrity and honesty. Guard your reputation with everything you have. Once you've lost trust, it is very difficult to regain it. The short-term gain is rarely worth the risk.
What is wealth?
Warren Buffett is financially wealthy. The tools for getting money can be applied to all aspects of life. Read The Tao of Warren Buffett not as a financial book, but as a guide to life. Buffett decided he was most suited for making money, but you can adapt these words of wisdom to any pursuit in your life.