Buffett board adorns many institutions in America and beyond. These commandments were published in 2008 in Parade Magazine. Then Alice Schroeder, author of Warren’s biography, introduced 9 ways to get rich from Buffett or “Secrets That Can Work for You”.
Here are some points from the nine rules:
• Be different. Have your own beliefs and don’t follow the crowd thoughtlessly.
• Do not sleep. If you have a good idea, you need to take real positions to implement it..
• Know when to stop.
Warren Buffett, whose fortune is estimated at $ 84 billion (June 2018), is one of the richest people in the world. In 1962, he began buying stock at Berkshire Hathaway, which cost $ 7.50.
Today, Warren is 78 years old and is the chairman and CEO of Berkshire, and one share of a Class A company costs about $ 119,000. He attributes his astounding success to several key strategies that Alice Schroeder shared with the writer. She spent hundreds of hours questioning the so-called sage Omaha for the new biography of The Snowball. Here are some Buffett tips and secrets to making money..
1. Reinvest your profits
When you first make money, you may be tempted to spend it. Do not. Reinvest profits instead. Buffett found out about this quite early. In high school, he and a friend bought a pinball machine to put it in the hairdresser. With the money they earned, they bought more machines, while they did not have eight cars in different stores. When friends sold the venture, Buffett used the proceeds to buy shares and open another small business..
That is why Berkshire Hathaway does not pay dividends. Warren Buffett knows that he can reinvest this money back into the company’s business or acquire another project in order to earn big profits..
Warren knows the power of compound interest. If you have a $ 1,000 investment earning 10% per year, that means you get paid $ 100 in cash every 12 months. If you spend this money, they will be gone forever, and you will always make $ 100 a year..
However, you can reinvest this money with the same high rate of return, then next year you will earn 10% not from $ 1,000, but from $ 1,100, which means that you will be paid $ 110, not $ 100. This difference increases exponentially over time. If you continue to reinvest your profits, in ten years you will earn more than $ 235 every year.
2. Be prepared to be different
Buffett’s advice will not do without it. Do not base your decisions on what everyone says or does. When Buffett began managing money in 1956 with $ 100,000 and a handful of investors, he was dubbed a strange man. He worked in Omaha, not on Wall Street, and he refused to tell his partners where he invested their money. People predicted that he would fail, but when he closed his partnership 14 years later, his profit was over $ 100 million.
“You are wrong if other people agree with you – you are right if your facts and analysis are correct. You must think independently as an investor, and this means that sometimes you have to be prepared to be different and stand out from the crowd. Do not follow blindly all. ” – Ben Graham, founder of value investing.
When Warren Buffett thinks he has good ideas, he goes “all in“. This is a very rare case in the investment world, in which many people will take soft positions to track certain shares or will not allow any of them to make more than 10% (or some other arbitrary percentage) of their total portfolio. Warren Buffett believes that when you have the opportunity, you should go after it with everything that you have. This means that you cannot waste time: you must act!
3. Understand the deal before you begin
Your negotiating lever only works when you have something to offer the other interested party. Buffett learned this lesson as a child when his grandfather Ernest hired him and a friend to dig out a family grocery store after a blizzard. The boys spent five hours at work until their hands froze. After that, his grandfather gave the guys 90 cents, and this was the amount for two. Little Warren’s disappointment knew no bounds.
Now Warren Buffett is not negotiating. He is very straightforward with the price he is willing to pay in order to acquire a company and will not run back and forth in an attempt to “share the difference”. His transactions are accepted or rejected, but he is able to do them because he always offers a reasonable and fair price..
4. Keep track of small expenses.
Buffett invests in a business run by managers obsessed with the most insignificant things. Once he acquired a company whose owner counted the number of sheets in rolls of toilet paper to check if he had been deceived (and deceived).
There is a funny incident that happened to Warren Buffett and his friend Bill Gates. The two richest people in the world traveled together to China in 2010. It was lunch, and Warren and Bill were hungry, so they decided to have a bite to eat at McDonald’s. After they have collected the order, it’s time to pay. Bill Gates pulled out his wallet, but Warren stopped him saying, “Bill, don’t worry about it,” and began to pull out a stack of discount coupons that he brought with him from Omaha!
Do not squander money. There is a big difference between being stingy (i.e., not ready to open your wallet to pay for anything at all) and thrifty (i.e. economical and smart, not overpaying for things).
5. Limit yourself in loans
Buffett never borrowed a significant amount for deposits or mortgages. He received a lot of heartbreaking letters from people who thought their finances were under control, but eventually became overloaded with debts. Buffett’s advice on this subject is as follows: negotiate with creditors to pay as much as you can. Then, when you are out of debt, work on saving money that you can use for investment.
Warren Buffett is a risk averse, and he often says he doesn’t want to be in a position where he or his company relies on someone for financial support. In fact, the company’s solid financial stability and cash reserves allow Warren Buffett to be a fittest even during a market downturn..
6. Be persistent
Buffett’s advice says that with perseverance and ingenuity you can defeat a more established competitor. Buffett acquired Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, does business. A Russian immigrant who turned her business from a pawnshop into the largest furniture store in North America. Her strategy was to underestimate large companies and negotiate mercilessly with all competitors and partners..
“You will face heavy blows and difficult problems in life, but you need to remain persistent and continue to do your job.” says Charlie Munger, Warren Buffett’s right hand
7. Know when to stop
Once, when Buffett was a teenager, he went to the racetrack. He bet on the race and lost. To recoup his money, he put on another race and lost again, leaving almost nothing. He felt uneasy: he squandered almost a week’s earnings. Buffett never repeated this mistake.
Remember: you do not need to try to get something back right after the loss. If you understand that your investment strategy has failed, then it’s time to sell your stock. Find the next best investment opportunity and invest your money. Learn from this and move on..
8. Assess risks objectively
In 1995, the employer of Buffett’s son, Howie, was accused of fixing prices by the FBI. Buffett advised Howie to present the worst and best scenarios if he stayed with the company. His son quickly realized that the risks outweighed any potential benefits, and he left the next day..
Warren Buffett believes that he takes risks in a completely different way than most other representatives of the investment world. In Wall Street and MBA classes across the country, risk is often associated with volatility. Buffett disagrees. He says risk is just the chance of losing your initial investment. And this is not something that you can mitigate through diversification, options, or another portfolio management strategy. For Buffett, risk taking is a binary decision. This is the choice of “go or not.” If there is a risk, Buffett remains aloof.
9. Understand what success really is.
Despite his enormous wealth, Buffett does not measure success with banknotes and numbers in bank accounts. In 2006, he promised to give almost all his fortune to charitable organizations, primarily friends, the Bill and Melinda Gates Foundation. He is also adamant about not feeding vanity and financing monuments to himself: he does not support any buildings or halls in honor of Warren Buffett.
“When you reach my age, you will measure your success in life by the number of people you want to love and who truly love you. This is the final test of how you spent your time. ” – says Buffett
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