What we can learn from Warren Buffet

What can we learn from the life of Warren Buffet?

In today’s post I wanted to have a look at Warren Buffet the businessman. Although each person’s life choices might stir up a little bit of controversy now and then, I wanted to focus on the lessons that we can learn from his business choices and how we can put them into practice.

1) Don’t get emotional about investments

Talking about finances, retirement, and investments can’t help but stir up our emotions. That’s just how we are built. But it’s one thing to feel those emotions and another to let those emotions guide the way we act.

I mentioned this point a little in a previous post, but the point is not to let the fears or peer pressure from the market dictate the way that we invest our money. Buffet says:

Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits — and, worse yet, important to consider acting upon their comments.

 2) Stocks are portions of a business

When we invest in the stock market, it can be easy to get caught up in numbers, reports, and prices. But Warren Buffet and his longtime investment partner Charlie Munger try to keep the big picture in view. They remember that a “share” is just that – a percentage of ownership in a company. Those who own a lot of the company help make decisions, but even the owner of just one share can stand to gain or lose by the performance of the company.

Buffet writes:

During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?

When Charlie Munger and I buy stocks — which we think of as small portions of businesses — our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings — which is usually the case — we simply move on to other prospects. In the 54 years we have worked together, we have never forgone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.

 3) How you should spend what you earn

Finally, there is the matter of how we let our money change our life. Some people make $10 profit and celebrate with a $100 bottle of champagne. I don’t think that’s the way to go. Of course there’s nothing wrong with enjoying the fruits of your labor, but why not reinvest most of what you make to make sure you’re taken care of for life?

An article in the Huffington Post stated:

Billionaire Warren Buffet chooses to continue to reside in the home he bought in 1958 for $31,500 in the Dundee-Happy Hollow Historic District of Omaha, Nebraska where he was raised.

Although Warren is rumored to have a second home in Southern California and has been known to buy a new toy from time to time, the majority of his money goes back into his business. He lives in the same house, drives an older model car, and eats at the same local restaurant as he has done for years.

I like this guy. I don’t personally know him, but I like how he views work and money. He likes his work, and he likes spending his money, but he keeps everything in perspective. I think that if more investors imitated Warren Buffet, the market would make a little more sense.

If you want to learn more about this exceptional man, click on the links below:



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