LA VERNE, California, Jan. 10, 2018 — I consider myself somewhat of a Warren Buffett expert. I featured the Oracle of Omaha in my book, Life Lessons of a Harvard Reject, a few years back when his conglomerate had a market cap of $334 billion. Today, Buffett’s empire is worth more than half a trillion ($504 billion, Wed. Jan. 10, 2:18 p.m.), proving he’s one 87 year old who is hard to keep up with.
Today, he was making news again, announcing that he was appointing Gregory Abel and Ajit Jain to its board as vice chairs, hinting that one of them is likely to be his heir down the line.
That line, however, appears to be nowhere in sight. Indeed, he said he’d hop on a plane today if there’s a deal that he believes will add future value to his vast financial empire.
He also recently told Inc. magazine that he owes much of his success to three hiring principles — intelligence, energy and integrity — which he looks for in each new employee. Couple those traits with Buffett’s legendary investment strategies, listed below, and you, too, can be more like Warren.
Here are his top 10:
Invest in yourself before you invest in anything else
Since 2011, the University of Nebraska Omaha has hosted the Genius of Warren Buffett seminar, where at one such gathering, one student asked what aspect of investing, in his leisure time, should he be studying.
The Oracle replied: “For most people, the bulk of their income is going to come from earning power in their chosen profession. Therefore, from the standpoint of building wealth, free time is better spent sharpening one’s professional skills rather than studying investing.”
Following his own advice, Buffett returned to Omaha, Neb., as a stockbroker and enrolled in a Dale Carnegie public speaking course so he could better communicate with clients, who would prove to be the lifeblood of his early success.
Maybe, like Buffett, find a course or certificate program offered by your local community college to improve your professional stature and enhance your earning power. Always be learning. Put mastery before money.
Determine as early as you can what you want to do with your life — and do it
In his 1947 Woodrow Wilson High School yearbook, Buffett said he “likes math” and wants to be a “stockbroker.”
Actually, Buffett’s quest had begun much earlier. At age 11, he bought his first stock, six shares of Cities Services preferred stock (three for him and three for his sister Doris). At age 13, he declared to a family friend that he would be a millionaire by the time he was 30 or “I’ll jump off the tallest building in Omaha.”
At 14, he took the earnings from his paper route and bought 40 acres of farmland, valued at $1,200, which he leased out. At 21, he volunteered to work for one of his business mentors for free.
Select a pursuit you’re most passionate about and make it the focus of all your energy and determination. Answer honestly and don’t feel as if you have to major in business, like Buffett, either.
According to a survey conducted by Gallup and Purdue University, released Oct. 1, business students were the least satisfied in their jobs, and, in a twist, not even the most economically secure. “My advice to Americans, especially young people, is that if you make a decision about what to major in based on how much money you want to make, you might end up disappointed, not only with your first job but with your overall career,” said Brandon Busteed, executive director of Gallup Education.
Watch small expenses
You don’t become a legend or an oracle by not watching the little things. Although he won’t flinch at spending billions to buy a catsup company, he also believes in watching his spending down to the last penny. Buffett also won’t buy a company unless it imposes that same kind of financial discipline. For example, he once bought a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being shorted.
When his first child was born, Buffett turned a dresser drawer into a bassinet. For his second child, he borrowed a crib, although he had the means to buy a new one. During one of his most famous investment deals at New York’s Plaza Hotel, he reportedly phoned a friend to bring over a six-pack of Pepsi so he wouldn’t have to pay for room service. Back in Omaha, he motored around town in a Volkswagen until his wife finally persuaded him to upgrade to a Cadillac, a car better suited for caddying clients around.
To be able to invest, you have to spend less than you make. By finding ways to cut back on your spending, you’ll have money left over each month to increase your savings and add to your investments?
Keep cash in reserve
In Buffett’s latest deal, he used all cash. He didn’t have to liquidate any investment. By having cash on the sidelines, he was able to pull the trigger with lightning speed.
You may not be playing at Buffett’s same level, but you can still emulate his M.O. Keep enough cash in reserve so you can buy “opportunities” too good to pass up. At the same time, your cash will provide you with a cushion against unexpected events, so you never have to be a panicked seller.
If your cash reserves aren’t where you feel they should be, maybe there’s hidden treasure you’ve overlooked. Perhaps, there’s an old car in your driveway on which you’re still paying insurance, although you never drive it. Maybe, it’s time to cut the cable bill. Do whatever you have to do to build your cash reserves. Keep some power dry!
Invest in what you know and understand
Buffett invests in cars, colas, planes, trains, catsup, razors, underwear, jewelry, furniture and boring insurance companies. There’s not a high-flyer among them (no bitcoin), but the staples he does invest in all make money over time. He invests in companies’ services and products that people use.
Review your investments to see if they will continue to have a place in the homes and family budgets of consumers when the next economic downturn takes place.
Buy quality
Until Buffett added the classy See’s Candy to his portfolio in 1972, he had largely focused his investment efforts on finding undervalued assets that he could buy cheaply. Buffett’s partner, Charlie Munger revealed that See’s was the first high-quality business that Berkshire Hathaway ever bought. The success of the See’s acquisition forever influenced their commitment to buying businesses with a strong reputation and brand recognition.
Whatever investment you anticipate making, invoke the example of Buffett and Munger’s See’s purchase. Even it’s a little more expensive, buy one coat that’s going to last several seasons, not the one that is barely going to get you through this winter. Always put quality over quantity!
Be patient
At 87, Buffett still takes a long-term investment horizon as if he’s going to live another 50 years. “We don’t get paid for activity, just for being right,” Buffett said. “As long as we’ll wait, we’ll wait indefinitely,” he said.
Buffett’s partner, Munger, seconds that investment philosophy: “There are worse situations than drowning in cash and sitting, sitting, sitting,” he said. “I remember when I wasn’t awash in cash — and I don’t want to go back.”
As an illustration of this philosophy, Buffett first invested in Coca-Cola in 1988. Since that investment, he has never sold a share. Similarly, Buffett also has maintained his sizable stake in American Express through severe market downturns only to see the stock rebound with a vengeance.
If you’re looking for the quick score or flip, you’re the anti-Buffett.
“Even now,” Buffett said, “Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
So, with your investments, take a long-term approach. Give them time to grow. Don’t be prepared to run at the first sign of trouble or a negative report. If you can’t stomach the ups and downs of investing, consider putting your money in less volatile investments. Slow and steady wins the race.
Give up something less valuable to gain something more valuable
The razor blade business that Gillette pioneered and still dominates is the original example of the business model of giving away a larger, infrequently purchased product (the razor) to sell a smaller, repeatedly purchased product (the disposable blades) to customers for the rest of their lives. Knowing this simple investment truth, Buffett was a big buyer of Gillette stock over the years.
Everybody loves a deal. Think of what you give away as a promotion, premium or loss leader to attract more business for your primary profit-maker. For every steak you sell, make sure you add a little sizzle.
Put as little money into your house as possible — or even rent
Sounds shocking, doesn’t it? At age 28, Buffett bought his first house, which he still lives in, for $31,500. Adjusted for inflation, that sum equals about $260,000 today. While Buffett admits a home is a great place to create “terrific memories with more to come,” he believes it falls flat as an investment vehicle. “I would have made far more money had I instead rented and used the purchase money to buy stocks,” Buffett said.
When you factor in that it also costs about $4,000 a year on average to maintain a home, ask yourself if buying a home, especially with so many upfront costs, including a down payment, is the best use of your money.
Don’t beat yourself up if you’re over 30 and still don’t own a house. Rather, beat yourself up if you’re not saving and investing in things that will make your money grow, such as taking full advantage of your company’s 401(k) program.
Dare to be different
When Warren Buffett began managing money in 1956 with $100,000 that he cobbled together from a handful of investors, he was considered a freak. He worked in Omaha, not Wall Street. People predicted that he’d fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. Famously, he said, “Be fearful when others are greedy, and be greedy when others are fearful.”
A half century after he moved back to Omaha, he was still going against the grain and defying conventional wisdom. During the Great Recession, he was gobbling up companies – Bank of America, Goldman Sachs, General Electric and Dow Chemical – that had been crushed.
Like Buffett, use an Inner Scorecard, where you judge yourself by your standards, not everyone else’s.
Don’t try to copy Buffett’s winning get-rich formula step by step. He would be the first to tell you that you have to find your own investment strategy and style with which you’re comfortable. But he also would tell you to always be consistent, focused, vigilant, and patiently looking to invest in yourself as well as other opportunities that will stand the test of time and to stick to your investment philosophy through thick and thin.
Foremost, proceed with integrity!