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A Look Into Warren Buffett’s Life and His 8 Investment Principles

warren buffett

Warren Buffet’s Life and Investment Principles

This past weekend the National Geographic channel had a special television episode dedicated to Warren Buffet’s life and the investment strategies that have made him one of the richest men in the world.

The segment was called, Warren Buffet – The Modern Midas. I would suggest recording this episode and taking notes (I am sure it will be aired again). What works for Buffet has worked for others and he’ll tell you how to repeat his results.

If you don’t have cable or won’t be able to record the program then keep reading. In the following paragraphs I will give you the highlights from my notes. I’ll tell you why Warren is different, how he runs his business and his 8 investment principles he and his right hand man Charlie Munger follow religiously.

Warrens Simple Life

Warren Buffet lives a simple life 1200 miles west of Wall Street in Omaha, Nebraska. Omaha’s population of 500,000 pales in comparison to the crowded streets of New York and Wall Street.

Buffet’s company, Berkshire Hathaway is valued at $150+ Billion! Company world headquarters are in Omaha and have been there since January 1, 1962.  Berkshire Hathaway is run by a couple handfuls of employees at company headquarters. Buffet has two secretaries, two accountants, one bond trader, and a personal assistant who screens his phone calls.

Buffet lives a very frugal life. He doesn’t own the biggest house on he block and he doesn’t own multiple properties.

“How could I improve my life owning 10 houses around the globe?” ~ Warren Buffett

He lives in a modest home that he bought for $31K over 50 years ago.

He also buys hail-damaged cars to get a good bargain and drives them until his daughter is too embarrassed to be seen with him.

Buffet lives a slow paced life and that’s how he has made his money. Buffett doesn’t make quick decisions every minute like those who follow the stock market closely.

Four Point Potential Investment Checklist

Charlie Munger, who is Buffet’s right hand man, has established a 4 point checklist with Buffett to determine if a company is worth buying into or not.

  1. Deal in things you have a capability of understanding
  2. Must have intrinsic characteristics that gives a competitive advantage
  3. Management in place with lots of integrity and talent
  4. A price that makes sense

Using this 4 point checklist Buffett heavily invested in Coke several years ago and his investment quadrupled. Berkshire Hathaway still owns $10 billion in Coke stock today.

Buffett’s 8 Rules of Investing

Here are Buffett’s 8 rules of investing, which he shared on the television special. Some of the rules he elaborated on quite a bit. Then there were other rules where he simply shared one sentence. Either way, I think you will appreciate his sensible point of view.

Rule #1: Invest…don’t speculate

Don’t focus on the fluctuating price of a company like Wall Street does. Instead focus on the planned outcome from the business. Where is the business headed?

“I think buying a stock and hoping it goes up the next day is pure speculation.” ~ Warren Buffett

Rule #2: You don’t have to diversify

“If somebody owns fifty stocks, can they really like the one they ranked 50 as well as the one they ranked as one? Can they know it as well? I don’t think so.”

Rule #3: Don’t just buy shares, be a business owner

Buffett does most of his research on the company; it’s growth, management, and values more so than it’s financial statements.

Some companies Buffett bought out he didn’t even do financial audits on simply because he trusted the business owner.

Know the company you want to invest in well and know where they are going.

Rule #4: Allocate capital efficiently

Buffett is smooth with all the company managers that Berkshire Hathaway owns and that affords him the ability to use profits from one company to invest in another without managers fusing at him.

He also learned to use capital efficiently when he started buying up insurance companies. Buffett and Munger saw an opportunity to use insurance float.

Insurance companies customers pay premiums upfront, which creates an enormous cash flow that Buffett invests. In other words, insurance float allows Buffett to invest without barrowing or leveraging his money like Wall Street, which leads to his next rule…

Rule #5: Don’t get into debt

Enough said.

Rule #6: Think Independently

Tune out the hype on Wall Street and avoid jumping on bandwagons.

“You have to think for yourself.” ~ Warren Buffet

Rule #7: Break your own rules

Be prepared to break your own rules. Adapt and conquer.

Rule #8: Give it away

Buffett has committed to giving away his wealth to the tune of $31 billion. This money will go the Bill Gate’s foundation. Gate’s who is good friends with Buffett has given away many millions and will continue to give away more and more.

Buffet believes that he is good at making money and there are other people that are better at giving it away than himself.

As you think about your investments and achieving financial freedom try to think like Buffett. Are you frugal? Do you live a simple life below your means? Do you think for yourself or do you follow the crowd?

Do you think Buffett’s investment principles and frugal life choices are still applicable today?

Good luck :)

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Share The Wealth and What Is A Bond Infographic

surfer

We’ve come to the end of another great spring week and there has been a ton of great personal finance content shared all over the web. Here are some of my favorite reads from across the personal finance blogosphere.

If you read an epic post this week about personal finances then please share the wealth in the comment section below. Let’s talk about finances and share new ideas with epic content! Enjoy these posts and take notes.

Canadian Finance Blog – 10 Cat Toys For Under $10

Daily Worth – The Female Financial Paradox

Generation X Finance – It’s Not Too Late To Max Out Your 2011 IRA Contribution

Squakfox – The Real Reason You’re Broke

Faithful Provisions – What’s For Dinner It’s Pizza Night

Ready to be Rich – About that million dollar job

Bucksome Boomer – 10 Sneaky Expenses That You Never Saw Coming

Financial Samurai – Early Retirement: It’s Not As Risky As You Might Think

Passive Panda – 5 Options For Earning More Money 

The Frugal Girl – Earn more or save more…do we have to choose

Now that you have read some great posts from around the web here is a neat infographic about bonds. Have you ever wondered what a bond is or why they are important? Knowing the basics of bonds will further strengthen your financial fundamentals.

 

Photo from epSos.de on Flickr

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10 Bad Habits That All Poor People Have

Casino

Everyone has good habits and bad habits. The rich and the poor have many in common. Here are ten bad habits that poor people have and what the rich do differently.

This post is the fourth of our millionaires series (plus the original, How to be Rich). Read the other articles listed below to see if you are living by the same values young millionaires commit to.

Poor people believe “Life happens to me.”

The rich believe “I create my life.” If you are costing through life right now thinking that life just happens and it’s out of your control then you probably believe whatever happens to your money is out of your control too. Snap out of it and realize that “I create my own life” and that includes financial freedom. Accept the challenge of living your life to the fullest and maximizing your money.

Poor people play the money game to NOT lose.

Rich people play the money game to win. The rich don’t want to have a few extra dollars. The rich want piles of extra money. The poor want to make money to pay their bills on time and see a movie at the theater. The rich want to be rich beyond their wildest dreams and the poor want to make ends meet with a little bonus at the end to distract them from their poor lives. Play the game to win!

Poor people want to be rich.

Rich people are committed to being rich. Poor people moan and groan and dream about the day when they will have money. Rich people are focused and committed to becoming rich. They make goals and continually try to improve as hard workers and future millionaires.

Poor people focus on obstacles.

Rich people focus on opportunities. Everyone has heard that you should keep you eyes on the prize and the rich are very good at this. Once you take your eyes off the prize you begin to see all the obstacles in your way. Poor people focus on the obstacles and what they think they can’t do. Keep you eyes on the prize and look for opportunities.

Poor people associate with negative or unsuccessful people.

Rich people associate with positive, successful people. The rich feed off of one another’s victories. They learn from each other and they are motivated to perform their best. The poor look at the rich in disgust and instead of seeing the rich persons success as a challenge they turn their back and associate with the unsuccessful that they can compete with.

Poor people choose to get paid based on time.

Rich people choose to get paid based on results. If you take a moment to pause you’ll realize that poor people are always trying to get more hours or paid more per hour. The only problem is there are a limited number or hours each day. The rich know that it’s important to get paid based on results, not hours.

Poor people think “either/or.”

Rich people think both. The poor are always trying to compromise to come up with the best solution. The rich say “why not both?” As soon as you start thinking both instead of either/or you’ll see your life in a whole new light. You deserve both, so expect it.

Poor people focus on their working income.

Rich people focus on their net worth. The rich realize that building wealth is more than just a salary or a working income. Being rich is about all of your assets and liabilities. Poor people focus on increasing their working income instead of increasing their net worth. Find out your net worth and how to grow it.

Poor people mismanage their money well.

Rich people manage their money well. The rich know that you have to measure your money to manage it well. They are experts at knowing where every dollar is coming in and going out. Poor people close their eyes and hope to make ends meet on time. Becoming rich isn’t dumb luck. Commit to managing your money well with tools like Mint.

Poor people think they already know.

Rich people are always learning and improving. Poor people think they know all the answers about saving, investing, and all subjects related to money. The rich know there is always something new to learn about money and they absorb new ideas and strategies from other rich people like a sponge. Commit to a lifetime of learning more about money and becoming financially free.

To read more indepth information into the differences between the rich and poor then pick up Secrets of the Millionaire Mind by T. Harv Eker.

Photo from HTTP2007 on Flickr

 

 

 

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The Frugal Faithful – Yes, Millionaires Are More Frugal Than You

Cash

Unfortunately most people don’t realize that the profile of the affluent is frugal, frugal, and frugal. Frugal is the cornerstone and capstone of a millionaire lifestyle.

This post is the third of our millionaires series. Read the other articles listed below to see if you are living by the same values young millionaires commit to.

What Frugal Is And Isn’t

Frugal definition

Frugal synonyms

Celebrities and athletes are notorious for misrepresenting the millionaire lifestyle and not being worth as much as they should be.

Most NFL players are bankrupt 5-7 years after leaving. Is anyone surprised? Their lavish lifestyles are the complete opposite of the millionaire next door.

According to The Millionaire Next Door’s wealth equation a $5,000,000 ball player at 30 years of age should be worth $15,000,000 or more.

The average millionaire is frugal, very frugal. In nearly all cases they have always been frugal and they learned it from their parents. Then they married someone who was even more frugal than them.

In a Millionaire Next Door survey nearly all millionaires answered, “yes” to these three questions. Can you?

  • Were your parents frugal?
  • Are you frugal?
  • Is your spouse more frugal than you are?

Frugal Clothing Shopper

One of the last places people expect millionaires to be frugal is when shopping for clothing and accessories.

With huge names brands and designers it would be easy to spend six figures on ones wardrobe.

By the way, clothing is one the highest marked up items money can buy. It pays dividends to be frugal in this area of your life. Here are some numbers from The Millionaire Next Door to prove it.

 The Millionaire Next Door Frugal Frugal Frugal

The typical American millionaire never spent more than $399 for a suit for themselves or anyone else. They also paid about $140 for a pair of shoes and $235 on a wriest watch.

Why Would Millionaires Need To Budget?

The answer is always the same. They became millionaires by budgeting and controlling their expenses, and they maintain their affluent status the same way.

Have you ever noticed those at the gym that are already slim and toned? It appears that they don’t necessarily need to be at the gym working out but that’s why they are in shape. They have good workout habits and although they could skip several days and still look skinny, hard work and focused determination is what got them there and will keep them there.

To be financially fit you need to execute the basics like developing a frugal mindset. Do you wish to be wealthy and stay wealthy? Can you answer, “yes” to the following four questions?

Can You Answer “Yes,” To These Four Questions?

  1. Does your household operate on an annual budget?
  2. Do you know how much your family spends each year for food, clothing, and shelter?
  3. Do you have a clearly defined set of daily, weekly, monthly, annual, and lifetime goals?
  4. Do you spend a lot of time planning your financial future?

If you can’t answer yes to these questions then what is holding you back? Make it you goal this weekend to answer these questions.

Answering all of these questions should only take you a couple hours. The easiest way to see your annual spending is to sign up for a free Mint account. Once you sign up and add your bank account and/or credit card accounts then you’ll be able to click on the TRENDS tab and see all you spending on a beautiful pie chart. You’ll be surprised where all your money goes in any given month (guaranteed).

If you want some more help writing good goals then you can get my free 5 Step Goals ebook here.

How can you be frugal this week and create some new lifestyle habits?

Looking for some frugal weekend entertainment? Check out our readers ideas.

 

Photo from Francoiskarm on Flickr

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Hand Up Hand Out – Cell Phone Savings?

Hand Up Hand Out

Welcome to the third edition to Hand Up Hand Out! Shared Financial Success’s mission is to bridge the communication gap between people who need financial help and the people who can give helpful advice in the realm of personal finance. Let’s bounce around ideas and lean on one another when we have questions about frugal living, shrinking debt, taking on a mortgage, putting kids through college, saving for retirement, and building wealth.

Why Hand Up Hand Out?

Hand Up Hand Out Questions

Hand Up Hand Out is a new weekly community post. I have been trying to think of ways to get people to break the silence about personal finance topics and I hope that this weekly community post will help ignite conversation and provide value to everyone.

Question of the week

Everyone is just a phone call away. Nearly everyone has a cell phone these days and even if your job hunting you need a phone to land an interview. This weeks question is about cutting cell phone and wireless plan costs. Here are a couple questions to ponder. Please share your thoughts in comment section below.

With a plethora of cell phone options and pricing plans, which ones are best for your wallet? 

Are smart phones a smart investment?

Got some good ideas or some savings tips? Please share helpful responses below in the comments area. Let’s get people talking about saving money!

Previous Questions

Your Questions

If you have a question you would like to submit to the community for ideas, simply contact me and share your question.

I hope you enjoy this weeks question. Please share you input and encourage others to talk about personal finances. Together we can create a community of Shared Financial Success.

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