Warren Buffett is widely considered the best investor of all time. And with a net worth of $85.5B, it’s a tough claim to dispute. Warren is well-known for living a frugal life. He eats breakfast every morning at McDonald’s, not the healthiest choice, but he’s still going strong at 87, so maybe he’s on to something. He also decides on his breakfast choice based on whether the market is up or down that day, and always pays in cash, with exact change. He still lives in the same 5-bedroom home in Omaha, Nebraska he bought in 1956 for $31,500.
Buffett appears to take frugality to the next level, bordering on unhealthy. But I think there’s actually a reason for this, he understands better than most the true value of a dollar. He understands that he can put a single dollar to work today, to equal much more in the coming years. He didn’t accumulate such wealth by not easily parting with it.
Over the course of Buffett’s prolific investing career, he’s imparted more concrete wisdom, aside from his clear respect for a dollar. Here are my top 10 lessons he’s taught us.
- What we learn from history is that people don’t learn from history.
- Time after time, people fall into the same traps. With the most recent examples being the Dot Com Bubble, Real Estate Bubbles, and Bitcoin insanity. People are too quick to forget the lessons they should have learned long ago.
- Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- This rule seems strange at first. How is this possible when no one has a crystal ball? The important thing to understand, for most investors, is that you only lose money when you sell. If you buy Index Funds (which is actually what Buffett recommends even his own children do) then you essentially just have to wait it out, don’t panic.
- Only when the tide goes out do you discover who’s been swimming naked.
- Often times its impossible to judge how well a business, or individual is really doing. The most recent recession in 2007-2009 showed us once again that people were willing to over-leverage themselves due to the euphoric conditions. However, it’s only a matter of time before those people are caught with their pants down… so to speak.
- I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
- Too often people are looking for that big win, million dollar idea, windfall of cash, get rich quick scheme, when in most cases, that just doesn’t exist. The way to grow true wealth is by doing the little things, which are often, the unexciting things. Buffet doesn’t do anything terribly fancy. He’s never shorted the market or over-leveraged himself based on a hunch. But rather, he buys companies that he believes in, and holds them. Pretty boring if you ask me, it’s not The Big Short after all. But then again, that’s precisely the reason why Warren has amassed the fortune he has, and why so many others have failed.
- Predicting rain doesn’t count. Building arks does
- One of my favorite sayings is, “they successfully predicted 10 of the last 2 recessions.” People are unfortunately programmed to be doom and gloom. Because of this, there is perpetual talk of the impending stock market crash around us. It’s important to know, these people are quick to predict, but that doesn’t count for much. We shouldn’t time the market, so our own personal arks should be ensuring we’re always prepared for when crap will inevitably hit the fan.
- 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 a few big decisions in our lives, that if we get right, will put us in a great position to succeed. For example, buying a reasonable house, reasonable car, setting up your 401k to pull more than the minimum from your paycheck, will open up so many opportunities. It’s important to not always get hung up on the lattes, and other little money wasters, and ensure that you get the big things right. You’re much better off getting the big things right, and the little things wrong, than vice versa.
- We’re still in a recession. We’re not gonna be out of it for a while, but we will get out.
- This reminds me of another one of my favorite investment sayings, “every 7-10 years, people forget that we have a recession every 7-10 years.” It’s important to not only expect a recession, but plan on it. It will happen, we just don’t know when. That means that you need to expect your portfolio to drop by 40%. Expect to make other lifestyle adjustments as other challenges pile up on your plate. As long as you plan for the bad times, you won’t follow the herd and make the same mistakes.
- The best thing I did was to choose the right heroes.
- Make sure that the people you aspire to be, are actually people who are not just talking the talk. It’s hard to tell how happy people really are, or how much money they actually have. The saddest example I have of this is a former co-worker who would always talk about how happy he was. He had a super nice car, would constantly go to festivals and concerts, he seemed to have the life that any single guy would aspire to live. Well, not too long after I left the company, he died of a drug overdose. The same person who put on a facade of happiness and bliss was living a lie. Moral of the story, pick the people you look up to wisely. Most people don’t have it together like you might think.
- 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.
- “Your network is your net worth.” You can hang around people who will constantly gripe and complain, or you can associate with people who are hustling and improving their situation. I firmly believe that you will become the average of the 5 people you spend the most time with. But I’ve found something interesting, those don’t have to be actual people you associate with. It can be books, podcasts, or blogs. I would also recommend trying to start a Mastermind Group in your local area.
- Be fearful when others are greedy. Be greedy when others are fearful.
- This is by far, my favorite lesson from Warren. When people are getting rich, others want to throw caution to the wind and join in. The saddest example of this was with the Bitcoin craze in late 2017. I’m not trying to write-off all cryptocurrencies, or even Bitcoin for that matter. But when I heard about people going into debt just to buy Bitcoin, I knew we were in trouble. I didn’t know any specifics, but this quote rang in my head during this time. And of course, since the highs in December 2017, Bitcoin’s value has been reduced by roughly 60% in a matter of months. There is no true, “get rich quick scheme.” Sure, people will get lucky, and others will research a trend and get in at the right time, but the vast majority of people will get green with envy and join in too late. The key is to observe this phenomenon as it’s occurring, and to prepare your own capital to swoop in during the inevitable crash.
These lessons won’t teach you how to evaluate a company or find the next big thing, but they will teach you the path to true and lasting wealth. Which lesson is your favorite?