Guru Lessons – 9 quotes from Warren Buffett to make you rich

Guru Lessons – 9 quotes from Warren Buffett to make you rich

Warren Buffett has guided my own financial principles and people who emulate him will no doubt become wiser and richer.

Buffett is one of the richest men in the world and started from nothing, just like you and me, so his words carry the weight of gold in the investing domain.

Here are some of his top quotes.

Investing is easier, when you know what you’re investing in

“Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”

Buffett doesn’t do tech investing (although he is getting warmer to the idea with his trades in Apple and IBM) because he doesn’t believe that they fall in his circle of competence. Who blames him? How many people get that Taptica drives revenues through PPC and other online advertising devices? It doesn’t mean that tech is a bad investment, just make sure you understand how the business makes its money!

Rising stock prices equates to less of a discount

“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. … Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”

Remember, a market crash is like a great big fire sale. Think about going to your favourite store which is holding a sale with 50% off all items and you have £100 to spend. What happens? You get double the amount of items.

News agencies tend to misunderstand that lower prices today equates to higher returns tomorrow. Instead, they strike fear and can paralyse an otherwise intelligent population.

Are you an investor or a speculator? 

“Consciously paying more for a stock than its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation (which is neither illegal, immoral nor — in our view — financially fattening).”

fundamental analysis is key here. Don’t worry, I’ll teach you my methods of evaluating a stock throughout this blog. However, If you are investing in Tesla because EVs are taking off then you wouldn’t have noticed how fundamentally overvalued it is. In fact, it’s due a major correction. The price may rise further but only because other speculators are more ignorant than you.

Debt is financial suicide 

“I will guarantee if you run up big credit card debts, you will be in trouble probably the rest of your life in terms of your financial situation. On the other hand, if you get ahead of the game, even on a modest scale, so that money is coming in from investing and people owe you money or equities owe you ownership, you’ll be way ahead of the game as opposed to you owing your creditors every month. So my advice to you is: if you can’t pay for it, don’t buy it.”

If, like many other Millennials, you are already in debt then fear not because there is a way out but it will require a little dedication and discipline. I’ll aim to create a debt guide for you guys in due course. Just remember, interest rates can only get higher which will make your situation worse so act now.

Imitate the habits of the people who you admire

“Chains of habit are too light to be felt until they are too heavy to be broken. … At your age you can have any habits, any patterns of behavior that you wish. It’s a matter of what you decide.”

Beautifully articulated, no further comment.

Trade regularly if you want to lose your returns 

“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s toolkit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator — and definitely not Charlie nor I — can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”

I owned a fundamentally strong portfolio when Brexit happened, I owned the same portfolio when Trump happened. According to economists my portfolio should have been obliterated in both instances. Instead it gained 27%. Stop trying to time the market – a position is only a loss if you sell it. Just make sure you have enough personal cash on the sidelines for a market downturn and a portion to buy the bargains of course!

Make money whilst you sleep, literally!

“Our portfolio shows little change: We continue to make more money when snoring than when active. … Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market.”

If you picked 5 of your favourite stocks based on sound quantitative and qualitative reasoning for the next five years and never looked at them until year 5 I can assure you that you’d be presently surprised when you reviewed them 5 years later. I found an old dummy trade account that I opened in 2012 with £100,000 – 3 years later it had a value of £250,435 sitting in it. It’s now worth £390,890. A 58% CAGR and exactly the same stocks.

Investment managers don’t beat markets

“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds. … My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.”

Who needs to look for the next Amazon when you could have it by investing in the whole market and still beat most of the managers around! Admittedly, Buffett has historically beat the market so purchase some Berkshire Hathaway B shares too! (Only buy them when they are trading at a P/B ratio of 1.20)

“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”

 Prosperity always prospers

“Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.

“Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket). The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most assuredly, America’s best days lie ahead.”

So stop worrying and think of the bigger picture. We are advancing quicker than we can comprehend and productivity, the key driver to economic growth, will only boom with technological advancements such as robots, free energy and artificial intelligence. Trust me on this.

Forecasters are fortune tellers in suits

“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] 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.”

You may assess the long-term market forecast because an overvalued market will impair your long-term return. You should continue to scour the market for undervalued issues in any circumstance. You’ll naturally find fewer opportunities in an overvalued market and will therefore buy less. If someone tells you that there will be a crash tomorrow, rejoice and prepare yourself for the bargains.

Buy his book which I rated 5 ⭐️ here.

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Summary
Photo ofWarren Buffett
Name
Warren Buffett
Nickname
(Buffett)
Job Title
Value Investor
Company
Berkshire Hathaway
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