10 LESSONS WE CAN LEARN FROM WARREN BUFFETT

Feeling in the dark about your
financial situation? Who better to
listen to than the third-richest
man in the world? Learn the keys
to success from someone who's
no stranger to it.
1. Spend wisely.
- Buffett still dwells in the 5-
bedroom apartment he
purchased 55 years ago.
- Money invested can earn over
20% annual return.
- Median household income: $
45,800 (2010)
- Average spent on frivolous
purchases: 15% or $6,870 -
enough money to fill up a
Hummer gas tank nearly 7x each
month for a year
2. No one cares about your
money as much as you do.
- Buffett makes all his own
investment decisions for his best
interests ? not the commission-
based interests of financial
advisors, stock brokers etc.
- Over 1 in 3 Americans works
with a financial planner
- But 45% of Americans have no
financial plans
- 7% don't even have goals or
strategies they would use
3. Do your homework: scan
thousands of stocks.
- Buffett spends 18 hours a day
working on investment capital,
saying investors should think of
themselves as partial owners.
- 'Never invest in a business you
cannot understand.' - Warren
Buffett
- 40% of Americans say they're
financially literate, but 1 in 3
Americans couldn't correctly
answer this question:
- $100 is in a savings account
with a yearly interest rate of 2%.
After 5 years untouched, how
much money is there?
- A: More than $102
- B: Exactly $102
- C: Less than $102
- (Answer: A: More than $102)
4. Overcome your fear of risk.
- Americans are afraid that
investing will cause them to lose
money, but Buffett says stocks
outperform bonds, banks and
even gold, and are safer, too.
- 'Risk comes from not knowing
what you are doing.' - Warren
Buffett
- 29% of Americans are too risk-
averse to invest in stocks
- 52% of those under age 31 feel
the same
- Yet for nearly 90 years, leading
stocks have averaged 10%
annual returns
5. Focus on the long term.
- Putting off saving/investing
means you'll need to save more
in less time for the same
outcome.
- Buffett equates life to
snowballs; think of investments
the same way:
- 'The important thing is finding
wet snow and a really long hill.' -
Warren Buffett
- Compare Scenarios:
- Saver 1:
- Starts saving at age 21
- Puts away $500/month through
age 30 through 9 years
- Gets 7% annual return
- Reaches $1 million by age 65
- Saver 2:
- Starts saving at age 31
- Put away $500/month through
age 65 - 34 years
- Gets 7% annual return
- Reaches $1 million by age 65 -
by contributing $150,000 more
over the years
6. Invest in quality businesses.
- The result of doing your
homework is determining
worthy companies. Buffett is
famously invested in Coca Cola,
Wells Fargo and IBM.
- 'An investor needs to buy the
stock as if he is buying the whole
company down the road.' -
Warren Buffett
- Remember Enron? It used to
make headlines in a good way...
- Average lifetime of a Fortune
500 company in the 1960s: 75
years
- Average now: 15 years or fewer
7. Hunt for exceptional bargains
for solid companies.
- Buffett recommends buying
stock during a crash, when even
great companies have extremely
low prices.
- Analyze performance, mission
statements, business process,
long term goals and more.
- Fewer stocks can be better, so
invest more time in more
research, rather than more
stocks.
- 5 valuable stocks can yield 71%
of the benefits of a fully-
diversified portfolio
- 15 valuable stocks can yield
87% of the benefits
8. Make decisions to invest
based on how well money is
being used by company
management.
- Buffett feels penny-pinching
indicates a profitable mindset.
Once, he acquired a company
whose owner took the time to
discover his toilet paper roll
wasn't really the advertised 500
sheets!
- Assess these for the best
picture:
- Return on Equity (ROE):
Company's net profit divided by
shareholder's equity
- Return on Capital Employed
(ROCE): Company's earnings
before interest & tax deductions
(EBIT) divided by the result of its
total assets minus current
liabilities
- Ideal condition: ROE and ROCE
are about equal
- Over 40% of Americans report
having made investment
decisions based entirely on
emotion
- Nearly 1 in 2 men have done so
- 1 in 3 women have done so
9. Be patient; wait until
everything is in your favor to
invest.
- When conditions align, buy an
appropriate amount of shares.
Buffett rec