Over the past ten years, I have written hundreds of articles on the Oracle of Omaha, Warren Buffett (Trades, Portfolio). I've read virtually all of his annual letters to shareholders, most of the transcripts of his annual meetings, several books on his life and investments and reviewed interviews as well as lectures.
As a result of all the time and effort I've spent studying the billionaire over the past decade, I would consider myself to be reasonably well-read on the topic of Buffett and his conglomerate Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial).
Reflecting on my studies of Buffett, here are the four lessons from the great investor that I have found most helpful in the investing process.
Patience is key
Buffett's investment career started when he was just a teenager. It has taken him decades to get where he is today, and it wasn't always easy for the young investor in the beginning.
He was initially rejected when he wanted to go and work for Benjamin Graham on Wall Street, and he lost 25% of his net worth investing in a gas station, which was one of his first significant investments.
But throughout all of his setbacks, Buffett continued to push on, worked hard and waited the right moment to strike. When that moment arrived, he acted quickly and with conviction.
He's followed the same process for seven decades because it works. There's always going to be opportunities. We need to make sure we can take advantage of them when they arrive.
Don't stop
The second lesson is to keep going. Throughout his investment career, Buffett has made thousands of investments. Not all of these have been successful. What has separated Buffett from the rest of the pack is his ability to learn from the mistake and move on.
The Oracle has been described as having a mind like a "bathtub." If something goes wrong, he acknowledges it, learns from it, and moves on. He's never taken a loss to heart or tried to save a failing business to save face. He's happy to cut his losses, and we should be as well if we want to be successful.
Look to the long-term
Buffett has always been a long-term investor. He's never tried to buy a business or stock based on its short term outlook. This has been hugely beneficial over the years. If you look at each investment as a lifetime holding, it forces you to take a more in-depth look.
This principle is also applicable to personal finance. Adopting a long-term mentality when planning personal finances may help you avoid making silly short-term mistakes that might have a long-term impact on your life. Buying that expensive item might make sense today, but will it hurt your savings pushing back your retirement plans? It's all worth considering.
Buy what you know
Buffett frequently talks about his circle of competence and why it is important not to stray outside this circle when investing. This is an extremely powerful idea, and once again, it's relevant for both investments and personal financial planning.
For example, there are many retirement planning products out there on the market. Some are better than others. Some are outright scams. If you don't know what you're buying, it might be best to stay away. If you don't know anything about retirement planning, it might be better to hire an expert.
The same goes for purchasing a home, opening a bank or savings account or renting an apartment. If you don't know or understand what you're doing, it might be best to stay away or hire an expert. This could cost money, but it may save you money in the long-run.
The same goes for choosing investments. If you don't know or understand what you're buying, stay away.
Disclosure: The author owns shares in Berkshire Hathaway.
Read more here:
- Berkshire Hathaway's Key Size and Reputation Advantage
- Keeping Rational in a Rising Market: Thoughts from Seth Klarman
- 'A Way to Stay Real Rich' - Warren Buffett on the Utility Business
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