Studying the success of investors like Warren Buffett is an industry in itself. A search for “Warren Buffett” on Amazon shows more than 700 book titles. As one of the most successful investors in history with the nickname “the oracle of Omaha” (where he comes from), it makes sense to examine the principles and ideas he used to amass his wealth. What characterizes top investor Warren Buffett?
He is a dedicated student in the field of investing
For investors simply looking for an average return, Buffett recommends simply investing in index funds (eg, a popular type of index fund invests in the S&P 500 stock index). But what if you want to join Warren Buffett and aim for much higher returns than the market average?
In that case, be prepared to study and learn to follow in Buffett's footsteps. Buffett's investing research dates back decades to his time as a student at Columbia Business School, when he studied with Ben Graham, author of The Intelligent Investor. Learning the details and methods of investing is the first secret and foundation of Warren Buffett's wealth.
He improved his communication skills through training
Buffett was very shy when he was young. However, he realized that good communication is necessary for success. In his early twenties, Buffet took the Dale Carnegie course to improve his speaking skills. To keep his skills sharp, he then took a part-time job as a lecturer at the University of Omaha. His public speaking and communication improved, which helped him in his business and public life. He has always cited these communication courses as one of the reasons for his success.
Buffett shares his wisdom through recognizable short stories, a testament to his communication skills. If you are not good at articulating your thoughts, this is an excellent choice to join a course to have an audience and practice your public speaking and gain confidence as a result.
He reads for hours every day
Buffett has always believed in the power of compounding. He has not only applied this to investing, but also to his life. He keeps himself informed by reading more than 500 pages a day.
“I read 500 pages this way every day. That's how knowledge is built, such as compound interest. - Warren BuffetT
Daily reading is an important habit for Buffett in seeking out new information and opportunities. He reads an awful lot: several newspapers a day, large numbers of financial reports on possible investments and many books. For example, he reads The Wall Street Journal and Financial Times every day (his billionaire business partner Charlie Munger prefers The Economist).
Reading reports, books, newspapers and other material every day is therefore very similar to compound interest. The knowledge he learns grows over time and provides more insights. Reading daily is a wealth-accumulating secret that anyone with the right discipline and habits can practice.
He applies the principles of value investing
There are many different investment approaches in the market: dividend investing, index fund investing, value investing, and so on. Buffett's approach is fundamentally based on the value investment principles developed by Ben Graham in the mid-20th century.
Value investing: the strategy of selecting stocks that trade for less than their net asset value. Value investors are actively looking for shares of companies that they believe the market has undervalued. They believe that the market overreacts to good and bad news, resulting in fluctuations in stock prices that are inconsistent with the company's long-term fundamental fundamentals. The result is an opportunity for value investors to profit by buying when the price has fallen.
"Only buy something you would really like to have when the market has been at a standstill for ten years." - Warren Buffet T.
The big challenge lies in finding out the intrinsic value of a company and then having the guts to put your money on the line.
He started making money as a teenager
Warren Buffett was determined to make a living growing up. In 1947 at seventeen years old, he earned $5,000 delivering newspapers (equivalent to $ 52,000 in the 2013 income terms according to Measuring Worth). Making money and managing money effectively are skills that take time to develop. Buffett did himself a favor by being aware of this at a young age and starting young.
He slowly builds wealth
Unlike today's technology entrepreneurs, Buffett made his wealth slowly and constructively over many decades. Getting rich quick, he says, is a recipe for disaster that tends people to take foolish risks.
It remains simple and hardly spoils itself
Although he is so rich, Buffett prefers to live with simplicity and be way below financial means to live. He still lives in the house he bought in Omaha in the 1950s. Buffett has breakfast at McDonald's and drives the same car he's had for years. This does not mean that he is not living properly. He doesn't feel the need to be extravagant. Buffett is an expert in resisting the so-called lifestyle inflation. Living simple takes the pressure off to impress people on social media and focus on what's important. If you feel validated in yourself, you don't need external validation.
He remains true to his principles
Do you remember the “Dot Com” era of the late 1990s? From an investment standpoint, the Dot Com era was strange. Many people bought shares in companies that had little income or profit.
At the time, Buffett avoided these trendy investments. That decision led some to question his judgment. In a 2001 article, Buffet notes that "investors were hypnotized by the dizzying surge in technology stocks and ignored everything else, including whether the companies they invested in were making money."
He knows his limits
Despite Buffett's knowledge and wealth, Buffett is incredibly humble and is not afraid to admit mistakes. He has also revealed his lack of expertise in certain areas. When asked why he doesn't invest in technology, he famously said that he only invests in what he understands. He has admitted that he doesn't understand specific industries and would be much better positioned to succeed by investing in an industry he understands.
Despite the potential opportunities, Buffet has therefore refrained from investing in high-tech companies. Buffet states that investing in innovations does not usually yield good returns.
In 1999, Buffet pointed out that the automotive industry was one of the most innovative developments of the 20th century, changing the daily lives of millions of people. Yet a very large portion of American auto companies has disappeared - a fact that should make investors think. Given the difficulty of investing successfully in innovative companies, Buffett tends to avoid them.
Sources include Addicted2Success (link), BBC (link), Fortune (link), Inc.com (link), Lifehack (link)
