Habitual Fool readers know I am a fan of American multi-billionaire Warren Buffett. Not only is the ‘Oracle of Omaha’ worth $116.4bn, but he has also donated $50bn to good causes.
I’ve learnt some great lessons from Buffett. Many books have been written about ‘Uncle Warren’, but my favourite remains The Snowball: Warren Buffett and the Business of Life, by Alice Schroeder.
Warren Buffett’s wise words
Here are five ways that this modern-day maestro made me a better investor:
1. It’s okay to live simply
Famously, Warren Buffett lives in the same home he bought for $31,500 in 1958. Also, he drives an old car and lives on a diet of cheeseburgers and Cherry Coke.
If a brilliant tycoon can live so frugally, then so can I. For example, I’ve never owned a car (but have driven company cars). I have little interest in material possessions, so rarely buy luxuries or expensive items. Quite simply, I spend less on living today to invest more for my family’s future security.
2. Price isn’t everything
Buffett has repeatedly said, “Price is what you pay, value is what you get”. These wise words taught me that low-priced shares can be marked down for good reason.
Too many times, I’ve messed up by buying bombed-out and beaten-down shares simply because they had plunged. These days, I don’t try to catch these falling knives. Instead, I look to buy into solid companies at reasonable prices. Which leads me to Warren’s next quote…
3. Buy at fair prices
In the past, I’ve made the mistake of pointlessly waiting — sometimes for years — for stocks to hit bargain prices so I could buy big. But Buffett argues, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Nowadays, if I see shares in a great business trading at reasonable price levels, rarely do I hesitate to buy. No more waiting for the best possible deal when current prices are reasonable and acceptable.
4. Buy when I’m afraid
In October 2008, during the depths of the 2007/09 global financials crisis, Buffett urged investors: “Be fearful when others are greedy and be greedy when others are fearful”.
For too many years, I would panic as share prices went down and cheered as they rose. Now my attitude is exactly the reverse. I worry when stock prices soar and get excited when they plunge.
This approach served me brilliantly during the brutal stock-market crashes of 2007/09 and spring 2020. On both occasions, I ignored the blood in the streets and aggressively bought into undervalued companies. Today, much of my family’s capital comes from being greedy when others were fearful.
5. Bet on America
Until perhaps 20 years ago, my share portfolio consistently almost entirely of UK shares. But then I realised that the ‘cult of equity’ in the US was a big driver of stock prices in the long run.
As Buffett has said often, including in his 2021 letter to shareholders, “Never bet against America”. Over the years, we have diversified our family capital geographically by allocating to US stocks, with great success.
Summing up: many thanks for your great guidance, Mr Buffett!
