Billionaire Warren Buffett’s investment principles

Warren Buffett is the world’s most successful value investor and has influenced many other super-investors like Bill Ackman, Seth Klarman, and Mohnish Pabrai.

Buffett was born on 30 August 1930 and started investing at a young age. He bought his first stock when he was eleven and made his first real estate investment at 14.

He is a long-time follower of the late value investor Benjamin Graham and studied under him during his business degree at Columbia University.

Graham’s influence is seen in Buffett’s value-investing strategy, where he looks for good companies that are undervalued in the market.

Most of Buffett’s success was achieved through his investment vehicle, Berkshire Hathaway, which he bought in partnership with Charlie Munger.

Through Berkshire Hathaway, he has accumulated tremendous wealth and, with a net worth of over $108 billion, is one of the wealthiest people in the world.

He has run Berkshire Hathaway as chairman and CEO since 1965, with his right-hand man Munger as vice chairman.

There is a good reason why so many investors follow Buffett so closely – he consistently outperformed the market for decades.

He shares his knowledge and investment principles openly in interviews, lectures, and the popular Berkshire Hathaway annual shareholders meeting.

The shareholders’ meeting has become a right of passage for many value investors, where Buffett and Munger answer delegate questions for hours.

Buffett has often joked that the most important investment principle could be summarised by “Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.”

Alice Schroeder, the author of the Warren Buffett biography The Snowball, published an article, “10 Ways to Get Rich – Warren Buffett’s Secrets that Can Work for You.”

Here are the principles which Schroeder listed as a guideline for how Buffett became one of the richest people in the world.

  • Reinvest your profits – When you first make money, you may be tempted to spend it. Don’t. Instead, reinvest the profits.
  • Be willing to be different – Don’t base your decisions upon what everyone is saying or doing.
  • Never suck your thumb – Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline.
  • Spell out the deal before you start – Your bargaining leverage is always greatest before you begin a job – that’s when you have something to offer that the other party wants.
  • Watch small expenses – Buffett invests in businesses run by managers who obsess over the tiniest costs.
  • Limit what you borrow – Buffett has never borrowed a significant amount — not to invest, not for a mortgage.
  • Be persistent – With tenacity and ingenuity, you can win against a more established competitor.
  • Know when to quit – Once, when Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick — he had squandered nearly a week’s earnings. Buffett never repeated that mistake.
  • Assess the risks – In 1995, the employer of Buffett’s son, Howie, was accused by the FBI of price-fixing. Buffett advised Howie to imagine the worst- and best-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day.
  • Know what success really means – Despite his wealth, Buffett does not measure success by dollars.

Schroeder said these key strategies had helped Buffet to achieve his astonishing success and become of the richest people in the world.

Charlie Munger and Warren Buffett

Warren Buffett’s investment principles, according to ChatGPT

Daily Investor also asked the artificial intelligence (AI) chatbot ChatGPT about Buffett’s investment principles.

ChatGPT is a chatbot launched by OpenAI in November 2022, which is built on top of OpenAI’s GPT-3 family of large language models.

ChatGPT said Warren Buffett is considered one of the most successful investors of all time and has several investment principles guiding his decision-making process.

  • Long-term focus: Buffett has always emphasized the importance of a long-term perspective when it comes to investing. He believes in holding onto stocks for many years, often decades, rather than making quick trades.
  • Quality over quantity: Buffett prefers to invest in a small number of high-quality companies with a proven track record of success, rather than many mediocre companies.
  • Value investing: Buffett is a value investor, meaning that he looks for companies that are undervalued by the market and have a strong potential for growth. He believes in paying a fair price for a stock and avoiding overpriced and overhyped stocks.
  • Thorough research: Buffett conducts extensive research on the company and its management before making any investment decisions. He looks for companies with a durable competitive advantage and a clear plan for future growth.
  • Diversification: While Buffett is known for investing heavily in a few key companies, he also believes in the importance of diversification. He suggests that investors should not have all their eggs in one basket and should spread their investments across multiple sectors and industries.
  • Patience: Buffett is known for his patience and willingness to wait for the right investment opportunity. He never makes investment decisions based on emotions or short-term market fluctuations and instead focuses on a company’s long-term potential.

These are some of the key investment principles that have guided Warren Buffett’s success over the years.

It’s important to note that while these principles have worked well for him, they may not necessarily be the best approach for everyone.


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