Book Club – Warren Buffet Speaks

Warren Buffet is undeniably the world’s greatest investor. For long, he has been one of the richest people in the world and it is all through the investments and holdings of his company Berkshire Hathway. Over the years, almost every word spoken by him has been keenly listened to by anyone interested in learning how to invest successfully.

 

One of the books I picked up on my last visit to the library was “Warren Buffet Speaks – Wit and wisdom from the world’s greatest investor” by Janet Lowe. It is a small blue book but packs a mighty punch with the richness of its’ content. As I read it, I realized that the learning from Warren Buffet is not limited to investing lessons as his pearls of wisdom impart some pretty crucial life lessons too.

 

Below you can get a glimpse of my greatest takeaways from his book and his life accompanied by his quotes, all taken from this brilliant book by Janet Lowe. I have divided my learnings into Life Lessons and Investment Lessons for convenience:

 

 

LIFE LESSONS

 

It is easy to make money

To me, this is thinking against the grain. Most people I know (including myself) find it easier to spend than to make or even save money. When I read that quote of Buffet, one of my realizations was that it all probably starts with a mindset shift more than anything else.

It’s easier to create money than to spend it

It’s not like I want money. It’s the fun of making money and watching it grow.

 

 

The definition of success

Success is a word defined very differently by different people. While to some, it might be on pure monetary terms whereas some believe it has to be a more well-rounded approach to it.

Warren Buffet covers this well-rounded approach in a very succinct manner with his quote:

Success is having people love you that you want to have love you

Personally, I see two angles to the quote – one, success is meaningless if important people in your life are not happy or don’t love you. Two, ultimate pinnacle of success is when people you have looked up to become part of your social circle, know you intimately and love you.

 

A point in case here is the relationship between Warren Buffet and Benjamin Graham. Graham has been the first major influence on Buffets’ style of investing, having been his introduction to the concept of value investing. Gradually, as he and his reputation grew, Buffet was able to develop a close relationship of mutual respect with his mentor Benjamin Graham.

 

 

Importance of believing in oneself

If you are going to succeed in life, the first person in the world you gotta convince is yourself. The mind is a strong powerhouse which can take you either way. It can make the scaling of great heights pretty effortless or it can take you to the deepest dumps. Which side the mind helps you swing to, depends entirely on how much you believe in your capabilities and what you tell yourself.

I always knew I was going to be rich. I don’t think I doubted it for a minute.

 

 

What retirement?

My favorite bit about Warren Buffet is his denial of the concept of retirement. Personally, I also believe I cannot retire from all productive means of earning money and early retirement is a concept I am not onboard with.

There are repeated instances where Buffet categorically brings down the idea of retirement for himself or his good managers (unless they want to). Looks like it is working pretty well for him considering he is 87 years young now and actively working J

Retirement plans? About 5 to 10 years after I die

My god! Good managers are so scarce I can’t afford the luxury of letting them go just because they’ve added a year to their age.

 

 

Making kids self-dependent

While I have always grown up with a very sensible head on my shoulders (or so I like to believe) I know it is quite easy to spoil children through the route of money.

One of the first books I read that tackles the idea of wealthy parents teaching their children to be self-dependent was the timeless one – The Millionaire Next Door. Warren Buffet believes and exercises the same opinion in his life.

Our kids are great. But I would argue that when your kids have all the advantages anyway, in terms of how they grow up and the opportunities they have for education, including what they learn at home – I would say it’s neither right nor rational to be flooding them with money. Dynastic mega wealth would further tilt the playing field that we ought to be trying instead to level.

 

 

Work with people you like

When I read the book, I realised once more that I probably spend more number of waking hours with my colleagues than I do with my husband. Having a good relationship with the people that you work with, then becomes of the utmost importance.

Warren Buffet has been quoted as comparing working relationship to marriage and working with people you don’t like to marrying for money. I found both the analogies pretty apt.

I think that’s kind of a crazy way to live [marrying for money and working with people you don’t like]. It’s probably a bad idea under any circumstances, but absolutely nuts if you’re already rich.

I choose to work with every single person I work with. That ends up being the most important factor. I don’t interact with people I don’t like or admire. That’s the key. It’s like marrying.

 

 

Give back to the society

One of the facts mentioned time and again in the book was how Warren Buffet has pledged 85% of his net worth to Melinda and Bill Gates fund making it the largest privately funded charity in the world. Not just that, his first wife and oldest daughter (Susie and Suzie) both were known for the charities they ran.

It is important to give back to the society as much as you can.

 

Importance of reading
Just keep reading…

Reading is important

One of my favourite lessons from the book, you gotta keep reading. Additionally, I believe it’s important to keep abreast of the latest happenings in your field and keep learning on that front.

In my whole life, I have known no wise people  – none, zero – [who don’t read]. Yow would be amazed at how much Warren reads. My children probably think of me as a book with two legs sticking out. – Charlie Munger

 

 

INVESTMENT LESSONS

 

Always do your own research

Everyone has a different opinion and a different style of investing. Just following a list of “10 stocks you must invest in to get rich” is never the solution to be successful in stock market investing.

Educate yourself on its principles and do your own research before buying any stock.

It baffles us how many people know of Ben Graham, but so few follow. We tell our principles freely and write about them extensively in our annual reports. They are easy to learn. They should be easy to follow. But the only thing anyone wants to know is, “What are you buying today?”. Like Graham, we are easily recognized but least followed.

When asked on how much attention to pay to broker recommendations, Buffet said:

Never ask the barber if you need a haircut

We don’t make judgements based on ratings. If we wanted Moodys’ and Standard & Poors’ to run our money, we’d give it to them.

 

 

Go Micro in the stock market, rather than worry about overall market

Do not worry about the twists and turns that you will find in any market. A good company will survive and thrive through any macroeconomic condition.

Instead, focus on the financial fundamentals of the company and decide according to that.

The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses.

If we find a company we like, the level of the market will not really impact our decisions. We will decide company by company. We spend essentially no time thinking about macroeconomic factors.

 

 

Long-term investing is key

Warren Buffet along with his partner Charlie Munger has always been a champion of long-term investing. They are definitely not into day-trading or speculation in the equity markets.

We like to buy businesses. We don’t like to sell, and we expect the relationships to last a lifetime.

My favorite time frame for holding a stock is forever.

Warren and I are chicken about buying stocks on margin. There’s always a slight chance of catastrophe when you own securities pledged to others. The ideal is to borrow in a way no temporary thing can disturb you. – Charlie Munger

 

 

Invest in instruments you understand

There are a lot of complicated financial instruments in the equities market that people speculate with, without bothering to understand the product either. Look at the bitcoin craze. How many people made the time and effort to understand what does cryptocurrency involve or the blockchain technology behind it before running head first into the craze?

When asked about his opinion on derivatives as an investment vehicle, Buffet talked about the twin dangers: Derivatives are seldom well understood by investors, and they tend to involve heavy leverage.

When you combine ignorance and borrowed money, the consequences can get interesting.

 

So, the book might look tiny but it carries more than its weight in how good the content is and how many lessons you can end up taking away from it.

 

Have you read the book? What was your greatest learning? Drop a comment below or email me at aparna@elementummoney.com

 

 

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