Most people know Warren Buffett as the Oracle of Omaha, the most successful investor of all time. Buffett has accumulated a net worth of over $60 billion by beating the markets by a huge margin over the past 50 years.
What many don’t know is that Buffett is also a really good person. He has accumulated his wealth through ethical and sound business practices. He’s also a fairly modest guy who loves cheeseburgers and has lived in the same home for 40 years. Buffett plans to give most of his fortune to charity upon his death.
What can you learn from Buffett?
Every year, Warren Buffett writes a letter to shareholders. Don’t despair if you didn’t buy shares in Berkshire Hathaway; anyone can read Buffett’s musings right here. The morning this letter hits the Internet, I log on to my computer and read it. Then, I read it about five more times just to make sure that I didn’t miss anything.
These letters contain loads of useful information for big and small investors alike. Read carefully and you’ll learn how to invest. Read even more carefully and you’ll learn how to live.
Buffett doles out plenty of wisdom in his writing. Here are my favorite bits of advice from this year.
1. Be Humble
One of the traits that I’ve always liked about Buffett is that he’s not afraid or ashamed to admit his mistakes. Buffett knows that failure is a powerful teacher:
I’ve made some dumb purchases, and the amount I paid for the economic goodwill of those companies was later written off… (page 3)
Lesson: The man or woman who claims he hasn’t made mistakes or refuses to admit them is in denial. Failure is a part of life. If you can’t or won’t own up to your mistakes, you’re denying a powerful learning opportunity. You may also not be taking enough chances.
2. Embrace Change
Berkshire Hathaway Energy made major commitments to the future development of renewables in support of the Paris Climate Change Conference. Our fulfilling those promises will make great sense, both for the environment and for Berkshire’s economics. (page 5)
Lesson: Never stop learning and never stop adapting. Strive for pragmatism and rationality. The world will continue to change, whether you decide to change with it or not.
3. Be Selective and Strive for Quality
Charlie and I encourage bolt-ons, if they are sensibly-priced. (Most deals offered us most definitely aren’t.) (page 5)
At Berkshire, we, too, crave efficiency and detest bureaucracy. To achieve our goals, however, we follow an approach emphasizing avoidance of bloat… (page 6)
It’s better to have a partial interest in the Hope Diamond than to own all of a rhinestone. (page 7)
Buffett doesn’t waste time. He has developed a strong filter and can assess deals in seconds. If a deal doesn’t make sense, he moves on.
Lesson: Time is our greatest asset and should be managed and respected with utmost care. Develop a strong filter. Choose your friends and activities carefully.
4. Invest well and be an Optimist
We’ve spent 48 years building this multi-faceted operation, and it can’t be replicated. (page 7)
Lesson: Plan for the very long term. Fortunes are not made overnight.
When Wall Street gets “innovative,” watch out! (page 18)
Huge institutional investors, viewed as a group, have long underperformed the unsophisticated index-fund investor who simply sits tight for decades. (page 19 of 2014 letter)
I cheated a little by mentioning last year’s letter, but the advice is too good not to revisit.
Lesson: The surprisingly easy answer to successful investing is to buy simple, low fee index funds and sit on them for a very long time. It really is that simple.
The babies being born in America today are the luckiest crop in history. (page 7)
America’s economic magic remains alive and well. (page 7)
For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. (page 8)
Indeed, most of today’s children are doing well. All families in my upper middle-class neighborhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name just a few – transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do. (page 8)
Buffett’s optimism is unwavering, unshakable and inspirational. And I absolutely love it.
Fear-mongering is a powerful tool. One need to look no further than the evening news to witness politicians screaming about impending doom. Living in fear is a silly and detrimental way to live.
Step back and consider, just for a moment the incredible world in which we live:
- Lifespans are as long as they’ve ever been. A child born in 1900 had a less than 50% chance of making it to 50.
- We have handheld computers (smart phones) that have access to the world’s accumulated knowledge (thanks Google and Apple).
- For the price of a cheap ticket, we can jump on a plane and be just about anywhere in the world in a day.
Lesson: While the world is not without its challenges, we live in truly amazing times. Buffett’s incredible optimism has served him very well. You’d be wise to emulate him.
Negativity sells, but optimism will make you rich.
The Wise Words of Warren Buffett
Every year, I attend the Berkshire Hathaway conference in Omaha to hear and see Warren Buffett in the flesh. Some call the gathering the “Woodstock of Capitalism.” Last year, 50,000 rabid fans attended. The atmosphere is similar to a rock concert, but one attended by the wealthiest people on the planet. To call it a spectacle is not an understatement.
I go for many reasons, but the main one is to be inspired. I never leave the meeting without a smile on my face. Listening to Buffett dish out his folksy advice is amazing. I feel better about the world afterwards.
Buffett is an incredible person. Through moral, thoughtful and long term investing, he has accumulated an immense fortune. The best part of his success is that he’s still a normal, good guy. I get the feeling that if I ever met Buffett, we would sit back and chat like old friends.
What do you say Warren? I’ll be in Omaha for your big party at the end of the month. I’m not worth $66,000,000,000, but I’ll spring for hot dogs and even Dairy Queen afterwards!