Never Lose Money
Buffett said he tries not to lose money. This turns out to be easier than it sounds, as he has gone decades without recording a noteworthy loss.
“If any generation ever had a chance to put this country into a permanent tax-free, debt-free zone, it’s the generation running America at present,” Buffett is quoted as saying in New York Times reporter Carol Loomis’s 2001 book, “Tap Dancing to Work.”
“So it’s perfectly obvious what should be done: Set aside all deficit spending and pay down the debt. Every year. No excuses.”
Buy Businesses – Not Stocks
To understand why Buffett isn’t a fan of buying stocks on the stock market, it is worth explaining the difference between stocks and a business.
Be in the Game For the Long Haul
When asked about the secret to his success, Warren Buffet replied without hesitation “Consistency of thought.”
This principle of consistency applies to Buffett’s investment style too. For instance, Warren Buffett is known for his long-term investments. As we know, most of his investments are in companies that he bought for the first time years ago and are in it for the long run.
Warren Buffett’s perspective is he is protecting his capital when he buys bad businesses. He will only buy the stock of a class A business, which would only be understandable if the stock is available on his terms, at a reasonable market price.
For Warren Buffett, the market is like a ping-pong game. One day the market is up, while the other day the market is down. It moves up and down. However, it’s important to stay in the game for the long haul, hold on to your stocks and wait for the inevitable bull market. Even though the market is always ready to go to the next level, you must understand that no one knows where the market is headed tomorrow or in the long term.
You Are Ultimately Responsible For Your Success or Failure
Being an entrepreneur or business leader is not for the faint of heart.
When it comes to business, there are no easy answers and there are no one-size-fits-all solutions.
You need to understand that you are in charge of your own destiny and that your success or failure is ultimately up to you.
Warren Buffett has been a long-time proponent of self-reliance. Warren Buffet believes that a CEO, in order to succeed, must also take responsibility for his or her own actions. He says,
No one can bring success to a company. If I could, I’d buy every company in America, and no one would work for anyone else.
Keep Tight Control Over Your Living Expenses
If you want to accumulate wealth, keeping tight control of your living expenses is essential. Many people think living expenses have little to do with accumulating wealth, but that’s not the case.
Comforts and luxuries are fine to have, but you need to be careful with them, especially if you have a lifestyle that’s significantly beyond your income.
Expenses are the main reasons for personal bankruptcy.
That’s why you should concentrate on reducing expenses in areas that aren’t vital to your abilities to function.
Keeping tight control of your living expenses should be one of your top priorities.
Invest in Quality
Buffett is a champion of investing in quality brands at fair prices, which is the opposite of the approach advocated by many value investors. He has consistently avoided technology stocks and other hyped investments, preferring instead to invest in solid, growing businesses with entrenched businesses like Coca-Cola.
Buffett would not indulge in the common practice of paying up for the next hot rising star. He knows the business and will only invest in businesses that he’s sure will do well.
Great long-term investments aren’t cheap.
Value investing is investing in businesses that are undervalued. Benjamin Graham and Warren Buffett are the fathers of value investing. They looked for businesses with strong competitive advantages, sustainable competitive advantages (moats), stable economics or product lines, and little debt. If the price they had to pay was low enough relative to the intrinsic value, then they made a purchase. If the price was too high, they might be able to get a piece of the action by investing in a company’s preferred stocks and benefiting from the equity premium.
Here’s a good definition from Joel Greenblatt in one of his investment books, You Can Be a Stock Market Genius: the only way to earn real returns in the stock market is to buy companies that are so good that they will remain good for a long time. Warren Buffett put it this way: the goal of investing is to identify the businesses that are the safest … and desirable to owners (and to him as an investor …) and then to buy them at a sensible price.
You won’t get rich with expensive investments.
When Warren Buffett was growing up, his father was a stock broker and partner in Buffett & Son, an investment business that bought and sold stock and bond certificates. When he was 10 years old, Buffett began to conduct businesses on his own and invested in speculative stocks. When the Great Depression hit, he lost all his savings – and the family’s money – but eventually recovered. He developed important lessons from the experience.
For one, he said, “I concluded that a long-term investment in a diversified, low-cost, and non-emotional approach was the very ticket for success.”
Buffett also realized the important role of research. He said, “It was this experience that led me to really get seriously into studying and understanding accounting and finance, and to realize that so much of the conventional wisdom of the market simply was not so.”
Buffett’s advice? Avoid fads, do your homework, and be patient.
Buy When “The Blood Is Running in the Streets”
Buffett has invested in every major financial crisis since the 1920s. Why? Because he knows that when fear is at its peak, it’s a great time to buy when other people are selling.
Buffett has a rule that he will not invest in a company unless it is trading for less than its intrinsic value. The intrinsic value is the price the stock should be trading at, based on the company’s assets, profits, and future earnings potential. When Berkshire Hathaway buys a company, Buffett also likes to buy the company at less than the intrinsic value. As he says, “the difference becomes the cushion for profitable misjudgments.”
When a company’s stock prices drops to a point where it is trading below its intrinsic value, it’s called “selling without blood.” Buffett will then buy it, because he knows that it’s very unlikely that the company’s value will continue to decrease. Many investors sell in times of fear and panic. But Buffett never sells at these times. Instead, he buys. He knows that at some point, people will realize that the company is still worth a lot of money, and their stock will start to go up.
Sell Your Losing Positions in Strong Markets
Is there any value left? Have the buyers of the stock simply been wrong? Did they forget that XYZ is actually a terrible business? Or have they figured out something that you as a seller have overlooked? Are you wrong enough, and early enough? If the answer is yes, sell your losing position.
Balancing capital is important to preserving capital, but it’s also important to preserving your sanity. All too often, stocks that end up losing money take far longer to get out of than they should. But you can’t afford to wait for an ideal entry point. Take the side exit.
Risk is Part of the Game – Get Used to It
Warren Buffet has been one of the wealthiest men in the world for many years now. His story is one of success, but it’s also one that includes an indefinite number of failures.
Businesses are constantly changing. Business models are continuously being adapted and re-invented. To be a successful entrepreneur, you must learn to embrace failures, in fact, you should seek to fail.
Success in business is an art, not a science, and the most successful business owners have been able to make adjustments on the fly based on mistakes they’ve made.
Just because you failed last time doesn’t mean you should give up and give up trying. The key is to learn from your mistakes and take the positives from it for next time around.
There have been no shortage of success stories in the business world, but one big thing that most successful entrepreneurs have in common is a level of perseverance and determination, which allows them to continue to move forward.
Pay Close Attention to Management
Warren Buffet is arguably the most successful investor of all time, if not the most successful individual investor. That’s why it’s no surprise that he is touted as a role model to many. Buffett has always highlighted that the most important factor in success in business is management; in contrast, he has said repeatedly that “People aren’t going to fall over themselves for a good idea.”
Buffett is known for his disciplined style of value investing. He buys stocks for a fair price, not for a bargain. His reason for buying is simple “ the stock must be able to increase over long period of time. He is an expert in attention to details and it shows in how his companies are managed.
If you’re looking to become a part of the Warren Buffett dream team, pay close attention to management. Find sound businesses that can be managed well for long-term results. Try to avoid businesses that are in a hyper-competitive industry with a high level of volatility. Instead, try to find basic businesses that have staying power.
Stick With What You Know
Keep It Simple
“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.”
Buffet once said he would rather buy a good company and hold it forever than try to time the stock market.
If you want to avoid costly mistakes, learn from the master and keep it simple.
Keep a Low Profile
One thing Warren Buffet has learned in his lifetime is that he is not as good at making money for himself as he is at making money for other people.
There is a very bright line that divides investing and speculating. And like Buffet, if you are able to be clear about that difference, it can make a huge difference in your future.
While Buffet is an advocate of the value investing philosophy, he doesn’t place too much emphasis on the importance of the first investor getting access to highly valuable information. That’s because getting the information is only half the battle. Buffet is concerned with the value of the information and the use to which the information is put.
In business, Buffet’s core philosophy is to seek long term stability through market dominance and even monopoly. He takes a long term view at the opportunities that present themselves in the market, investing alongside great people and making sure that the business will stand up and thrive in any environment.