Berkshire Hathaway CEO Warren Buffett is widely regarded as the most successful investor in the world. As Yahoo Finance gears up to livestream the company’s annual shareholder meeting April 30, we decided to look at some of the best advice Buffett has ever shared about spending, saving and investing.
1. Read everything you can — the earlier, the better.
“By the age of 10, I’d read every book in the Omaha public library about investing, some twice. You need to fill your mind with various competing thoughts and decide which make sense. Then you have to jump in the water – take a small amount of money and do it yourself. Investing on paper is like reading a romance novel vs. doing something else. You’ll soon find out whether you like it. The earlier you start, the better.”
His favorite book: The 1949 tome “The Intelligent Investor” by Benjamin Graham.
2. Credit cards aren’t your friend.
If you’re willing to pay 18% on a credit card, you will not come out well.
3. Invest in yourself.
Imagine that you had a car and that was the only car you'd have for your entire lifetime. Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person's main asset is themselves, so preserve and enhance yourself.
4. Most people would be better off not trading stocks.
“Just pick a broad index like the S&P 500. Don't put your money in all at once; do it over a period of time. I recommend John Bogle's books — any investor in funds should read them. They have all you need to know."
“If you invested in a very low cost index fund – where you don’t put the money in at one time, but average in over 10 years –you’ll do better than 90% of people who start investing at the same time.”
“If you like spending 6-8 hours per week working on investments, do it. If you don’t, then dollar cost average into index funds. This accomplishes diversification across assets and time, two very important things.”
5. Know what you don’t know.
There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.
6. Don’t follow the pack.
You need to divorce your mind from the crowd. The herd mentality causes all these IQ's to become paralyzed. I don't think investors are now acting more intelligently, despite the intelligence. Smart doesn't always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.
7. Ask for a raise the right way.
Write down all of the reasons why you believe you deserve a raise. Some of the things which will be important to demonstrate are reliability, honesty, and dependability. You might also be able to demonstrate that other people in the neighborhood are being paid more than you for the same service. Then go visit your employer and present your case. The better prepared you are to present your position, the more likely you will be successful.
8. Look at everyone else’s mistakes — and don’t repeat them.
The best thing is to learn from other guy’s mistakes. [General George S.] Patton used to say, "It's an honor to die for your country; make sure the other guy gets the honor." There are a lot of mistakes that I've repeated. The biggest one, the biggest category over time, is being reluctant to pay up a little for a business that I knew was really outstanding.
9. Work shouldn’t always be about the money.
You should do the job you love whether or not you are getting paid for it. Do the job you love. Know that the money will follow
You're rich if you are working around people you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.
10. Communication is one of the greatest skills you can learn.
If you improve your value 50% by having better communication skills, it’s another $500,000 in terms of capital value. You can dramatically increase your value by improving oral and written communication skills.
11. Detach yourself emotionally.
In ‘97-’98, people weren’t rational. People got caught up with what other people were doing. Don’t get caught up with what other people are doing. Being a contrarian isn’t the key, but being a crowd follower isn’t either. You need to detach yourself emotionally.
12. Know your own motives for investing.
Rationality is the only thing that helps you. One thing that could help would be to write down the reason you are buying a stock before your purchase. Write down “I am buying Microsoft at $300 billion because…” Force yourself to write this down. It clarifies your mind and discipline. This exercise makes you more rational.
13. Forget the Joneses.
I’m not interested in cars and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living.
Just keep up with the Buffetts. We’ve always been fans of living within your means and income. You’ll have a lot more income later on. [Children] will follow the example of their parents. You shouldn’t increase your cost of living without improving your standard of living.
14. Don’t spoil your kids.
I believe in giving my kids enough so they can do anything, but not so much that they can do nothing.
15. Choose your influencers wisely.
I had a great teacher in life in my father. But I had another great teacher in terms of profession in terms of Ben Graham. I was lucky enough to get the right foundation very early on. And then basically I didn't listen to anybody else. I just look in the mirror every morning and the mirror always agrees with me. And I go out and do what I believe I should be doing. And I'm not influenced by what other people think.
16. Sometimes spending is OK, too.
There are plenty of people I don’t advise to save. If you already have money in a 401(k) and Social Security and have a little left over, who is to say you should give up taking your children to Disney World and the associated happiness now for a 30-foot boat later vs. a 20-foot boat later.
There are benefits to spending now. It is not always better to save 10% than 5%, but definitely better than spending 105%. You need to live a life that is true to yourself. We don’t encourage extreme frugality. You are not a better or worse person if you live differently from your neighbor.
17. Education is everything.
One can best prepare themselves for the economic future by investing in your own education. If you study hard and learn at a young age, you will be in the best circumstances to secure your future.
18. Learn to be lovable.
The most powerful force in the world is unconditional love. To horde it is a terrible mistake in life. The more you try to give it away, the more you get it back. At an individual level, it’s important to make sure that for the people that count to you, you count to them.
I can't imagine people who aren't loved feel very successful.
Have a favorite quote from Warren Buffett? We're all ears: firstname.lastname@example.org.