Enjoy Warren Buffett’s 8 rules to be a successful investor and human being. If you want to separate yourself from the herd, it would be wise to develop the habits and qualities that have made Warren Buffett and Berkshire Hathaway successful.
Warren Buffett revealed his investing approach and his mistakes to a group of students at the Terry College of Business at the University of Georgia on July 18, 2001.
Buffett’s 8 Rules:
- The Right Qualities and Habits
- Circle of Competence
- Intrinsic Value: Wonderful Business At A Fair Price
- Accept and learn from your mistakes: omission is worse than commission
- The secret to success in stocks or marriage is low expectations
- Know and use your strengths
- Investing temperament is key
- Businesses that succeed care about their customers
Buffett said he looks for 3 things when they hire people: intelligence, initiative / energy, and integrity. If they don’t have integrity, you want them lazy and dumb. The third quality is your choice because you can’t change the way you are wired much, but you can change a lot of what you do with that wiring. It’s the habits that you generate on those qualities. The time to form the right habit patterns is when you are young.
He said that he only expect to make money in things he understands and that he believes are within his circle of competence. Understanding the economic characteristics of business is different than predicting how an industry is going to do.
Defining your circle of competence is the most important aspect of investing. It’s not how large your circle is, but knowing where the perimeter of what you do and don’t know, and staying inside of it, is all important.
Intrinsic value is the number that if you were all knowing about the future and could predict all the cash a business would give you between now and Judgment Day, discounted at the proper discount rate. That number is the intrinsic value of a business.
The only reason for making investment and laying out money now is to get more money later on. That’s what investing is all about. The question is how much are you going to get, when are you going to get it, and how sure are you.
When Buffett calculates intrinsic value of a business, and whether he’s buying all or a piece of the business, he always thinks he’s buying the whole business.
Buffett admitted that buying Berkshire was one of his biggest mistakes, and the textile business stagnated for 20 years, and money was not compounding. He said that time is the friend of the wonderful business, and the enemy of the lousy business.
He said that omission is a way bigger mistake than is commission. Big opportunities in life have to be seized. When he gets the chance to do something that is right and big, he’s gotta do it. You gotta grab them when they come because you’re not going to get 500 great opportunities. You would be better off if you got a punch card with 20 punches on it. Every financial decision you made you used up a punch. You’d get very rich because you’d think through very hard each one.
Buffett’s philosophy is that he got this money not because he’s a superior human being and not because he’s done more for society. He was wired the right way to be dropped into the US when he was. Buffett was born this way to allocate capital. The odds in 1930 were 50 to 1 of Buffett being born in the US.
He said that society is what does it for you and that the money should go back to society if you’ve been lucky enough to be dropped into where your wiring pays off big. And that’s just luck. There’s nothing wrong with being lucky, but money should go back intelligently to society.
Buffett said that people behave very peculiarly. They get greedy when others are greedy, fearful when others are fearful. You will see things you wont believe in securities markets. The country will do well over time, but you will see these huge waves.
He said if you can stay objective throughout that, if you can detach yourself temperamentally from crowd, you get very rich. You won’t have to be very bright. It doesn’t take brains, it takes temperament.
Buffett talked about the story of Mrs. Rose Blumkin, who founded the hugely successful Nebraska Furniture Mart. Part of her success is attributed to always asking “how do I take care of my customer?” because Buffett said that this mentality wins.
He said that you can’t beat the person who brings that kind of drive, and thinks about their customer day after day. All this while Mrs. B was raising 4 kids too!
Buffett should re-listen to himself say that the largest airlines haven’t won and Mark Twain’s “history doesn’t repeat, but it rhymes” so that he stops himself from buying airlines again in the future.
If you’re interested in learning how to take control of your finances and start becoming an investor like Warren Buffett, check out my free PDF guide.
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