Editor’s note: This article was first published in February 2013, so the meeting with Buffett it describes as recent refers to one reported at that time.
Warren Buffett recently met a group of MBA students from the Richard Ivey School of Business.
The legendary investor talked about many subjects and was open to the students’ questions, some of which many of us would have liked to ask him ourselves. Buffett answered with his characteristic humility.
Question: Part of the secret of your career was thorough analysis of companies’ fundamentals and probably having information well before other investors. Now that information travels at the speed of light, how can you keep achieving such big successes so far ahead of other investors?
Buffett: People are much better informed now, but even so, most of them still act irrationally. Sometimes you have to work a little harder than everyone else to find good investment opportunities and good businesses. In the end, the key to success lies in emotional stability. You don’t need a high IQ to get rich.
Question: If getting rich by investing isn’t that hard, why do so few people manage it?
Buffett: To begin with, most of the public goes into the stock market with the wrong mindset and the wrong attitude. Everyone is looking to get rich in the short term, and those people will never get rich. Getting rich on the stock market is a very slow process. You have to give your gains time to build up on top of your initial capital. Overtrading means that many people looking for quick gains find quick losses instead.
Besides, it is hard for 90% of people to get rich this way if 90% of them follow the same investment advice and invest in the same companies, which tend to be one-off recommendations based on a tip that works today but maybe not tomorrow.
Question: Explain your investment strategy for people who are starting out and want to get rich.
Buffett: Invest gradually in equities and be patient. You should invest in yourself, working on your own talents and weaknesses. You should invest in companies that will always be around, such as, to give one example, Coca-Cola (Read: Why Warren Buffett invests in Coca-Cola and not in tech companies). When you feel ready, you can also take on more risk by opportunistically buying strategic stocks, or buying at strategic moments.
Some time ago I had a limit on how much capital I could put into a single investment (a single stock). I found a good deal and asked for that limit to be raised so I could take advantage of it. I put 75% of my account into that investment (all-in). Everything went well, and I wouldn’t rule out doing it again. You also have to be very careful with leverage and not use it unless you are very clear about the investment opportunity.
Question: What is the most important thing you have learned in life that we should all know?
Buffett: A person has to find their passion. Don’t worry, you will recognise your passion as soon as you see it. That is much more important than money. In the end, happiness is not measured by the money you have made. It is measured by how many of the people you wanted to love you really do love you.
See also: Investing in inflation-linked bonds: what they are and how they work
In short: once again, just like his teacher Benjamin Graham, we should be patient, invest in companies with potential (which are not always the ones analysts recommend), think long term and, if we see a great opportunity, take a risk to seize it. This view is fairly close to what we explained in the perfect investment method.
Further reading
Featured image: Mikerussell, CC BY-SA 3.0, via Wikimedia Commons.
