Editor’s note: This article was first published in April 2012. Describing Warren Buffett as the third richest man in the world and citing 30 billion donated to philanthropy reflect 2012 figures.
Howard Buffett, son of Warren Buffett and future heir of Berkshire Hathaway, the eccentric billionaire’s empire, has opened up about his father in an interview. Among many other things, he talked about some key ideas about money that his father instilled in him.
Those keys, or pieces of advice on financial education, are what we’re going to look at now.
Warren Buffett’s keys to success can be summed up in these 10 points
1. Reinvest your profits
Warren Buffett tells how, when he was in high school, he bought a pinball machine to install in a shop. With the money he made, he bought eight more machines. After selling them, he diversified the profits, and part of them went into the stock market.
Reinvesting capital is necessary when you want to grow, and in the same way it’s necessary when you want to get the most out of your savings or investments. But you also need to know how to judge when it’s better to reinvest in the same model and when to diversify.
2. Be different
We can all agree that Warren Buffett is not a very typical billionaire. Among other things, he is a very down-to-earth person, as we saw in the video of his speech.
Buffett doesn’t compare himself with anyone and never tried to imitate anyone. Part of the success of his investments lies in having bought very cheap companies that even Wall Street analysts advised against. “If you want different results from everyone else, do things differently from everyone else.”
3. Don’t waste time
Once he has gathered all the information he needs to make a decision, he answers on the spot. He doesn’t like wasting time or having others waste it. Besides, wasting time can make us miss business opportunities.
4. Watch the small details
They say the small details make great people. Well, small details can also wreck a great company. In business as in investing, keep an eye on the small details.
5. Watch the small expenses
Buffett says, and boasts, that the managers of his companies are obsessed with small expenses and even the most trivial costs, such as toilet paper or office supplies. Added together, small expenses end up becoming a large sum of money by the end of the year. Be careful with small expenses.
6. Limit your borrowing
Living with mortgages and on credit will never make you rich. His advice: pay off your debts, negotiate with your creditors, turn any asset you can into cash, and start saving and investing. There is no other formula.
7. Be persistent
A race isn’t won by the fastest runner, but by the one who keeps running when the rest have stopped. When you’re competing with big companies that are already established in the market, there’s only one way to compete with them, and that is by being persistent. If you work hard and keep trying, sooner or later you’ll reach your goal.
8. Learn to lose and to quit in time
He tells how, when he was 10, he lost a couple of bets at a racetrack. He wanted to win his money back by betting again, and that afternoon he ended up with no money at all. Everyone loses at some point, but if you quit in time, the loss is usually smaller.
9. Assess the risks and act accordingly
When facing a decision, you should picture both the best and the worst case. He recounts that his son Howard was being investigated by the FBI over a price-fixing matter. After analysing the worst-case consequences for the company, his son resigned from it. Don’t wait for a small problem to turn into a big one. Act accordingly and prevent it.
See also: Why do a company’s shares go up or down? Answers to readers
10. Understand what success means
Even though Warren Buffett is the third richest man in the world (he would be the first if he hadn’t donated 30 billion dollars to philanthropic causes), he has never measured success in dollars. We’ll end with an idea Buffett has often expressed: in the end, success isn’t measured in money. It’s measured by how many of the people you want to love you actually do love you. That is the ultimate test of success.
Featured image: Mark Hirschey, CC BY-SA 2.0, via Wikimedia Commons.
