With a net worth of around $72 billion, investing guru and Berkshire Hathaway CEO Warren Buffett is one of the wealthiest people in the world. So naturally, you stand to learn more than a few things from him if you want to get rich.
Here are some of Warren Buffett’s best investing tips. Click through to learn not only how he did it — but how you can invest like Buffett, too.
1. Invest in Yourself
“Generally speaking, investing in yourself is the best thing you can do. Anything that improves your own talents … You can have all kinds of things happen, but if you’ve got talent yourself and you maximize your talent, you’ve got a terrific asset.”
Invest in your skills and education to become successful. That doesn’t necessarily mean you have to go to college — it might just mean reading every book in the library on a particular subject or taking a continuing education class.
2. Invest in What You Know
“You may have an entirely different field of expertise than I would have. Probably much more up-to-date in terms of the kind of businesses we’re seeing evolve. You can get very rich if you understand a few of them and understand their future.”
There’s no need to be an expert on everything. Just stick to what you know. Companies within the realm of your career industry are good places to begin.
3. You Can Go Against Conventional Wisdom
“I stick with what I know. If somebody owns 50 stocks, can they really like the one they rank as No. 50 as well as the one they rank as No. 1? Can they really know it as well? I don’t think so.”
Although traditional investing wisdom says not to put all your eggs in one basket, again — stick with what you know. You can diversify gradually over time, building up your knowledge base to create a less risky portfolio.
4. Don’t Speculate, Invest
“[With] an investment attitude, you look to the asset itself to produce the return.”
Don’t look at the stock’s price — look at the return itself. If you buy a stock hoping someone will buy it from you for more money at a future date, that’s speculation. Although investments are still subjective to market conditions, assets delivering a return take much of the gamble out of the process.
5. Ignore the Many Moods of Mr. Market
“This imaginary person out there — Mr. Market — is kind of a drunken psycho. Some days he gets very enthused, some days he gets very depressed. And when he gets really enthused … you sell to him. And if he gets very depressed, you buy from him. There’s no moral taint attached to that.”
Don’t get caught up in stock market fluctuations. When the market is down, just follow this game plan.
6. Invest in Productive Assets
“The real test of whether you would like it as an investment is whether you would be happy if it never got quoted again and just in terms of what the asset did for you.”
Invest in assets that will still churn out products that benefit the consumer and your profit margin — no matter what stock values are doing that day.
“Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment,” Buffett wrote in a Berkshire Hathaway shareholder letter. “Farms, real estate and many businesses such as Coca-Cola, IBM and our own See’s Candy meet that double-barreled test.”
7. Invest for the Long Term
“Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint.”
Invest in stocks you can see yourself wanting to own forever — or at least a very long time.
8. Think Independently
“You have to think for yourself. When I look in the mirror in the morning I say, ‘How do you feel about this?’ and if the mirror says, ‘Yes’ — that’s good enough.”
Like Buffett, you’ll do best if you avoid the hype that causes many to jump on investment bandwagons. Do your own research, and trust your own analysis over the latest trends.
9. Do Your Homework
Stock prices shouldn’t be the first thing you examine. Rather, evaluate the company first to avoid letting the price influence you. Buffett and his right-hand man, Charlie Munger, look at a four-point checklist before investing in a company. It needs to have a durable competitive advantage, management with integrity and talent, a price point that makes sense, and it has to be a business that they’re capable of understanding, Munger once said.
10. Don’t Swing at Every Pitch
“In investing, there’s no called strikes … I only get a strike call if I swing at a pitch and miss, so I can wait there and look at thousands of companies day after day. And only when I see something I understand, and when I like the price at which it is selling, then [I swing]….”
You don’t need to invest in every company that comes your way. The savvy investor will wait until the right opportunity sails over the sweet spot.
11. You Don’t Need to Be Right All the Time
“You don’t need 20 right decisions to get rich. Four or five will probably do it over time.”
As Buffett explained, imagine you have a card with 20 slots for punches representing the only investment decisions you’ll get to make for the rest of your life. You’d get very rich because you’d think about each one very carefully.
12. Cash Isn’t the Best Investment
“Anytime we have surplus cash around, I’m unhappy. I would much rather have good businesses than cash.”
Cash is like oxygen: You definitely need it, but not in excessive amounts. The dollar will be worth less than it is today in 10 or 20 years, but a wise investment will be worth much more than it is today.
13. Don’t Go Into Debt
“More smart people have gone broke through leverage than through any other activity. A smart person can’t go broke unless they use leverage … If you’re smart, you don’t need it. And if you’re dumb, you’ve got no business using it. It just doesn’t make sense.”
Using leverage — or borrowed money — to invest more money in the stock market isn’t always a good idea. Although higher investment profits using other people’s money can look enticing, it’s just as likely to leave you with losses larger than your initial investment.
14. Think Like a Business Owner
“You’re not buying a stock — you’re buying a part ownership in a business. You will do well if the business does well.”
Buffett doesn’t just buy stocks; he buys companies. Before you buy a stock, examine the company’s past performance, management style and long-term prospects. Use these factors when deciding where to invest your money.
15. You Can Make Mistakes
“You make mistakes. And it does pay to recognize quickly when you’ve made them.”
Even Buffett makes mistakes. Shake off the human tendency to want to hold on and justify the old decision. Instead, recognize your mistakes, and move on with a lesson learned.
Keep Reading: 7 Investing Mistakes Warren Buffett Regrets
About the Author
Jodi O’Connell is a freelance wordsmith based in Sedona, Arizona, who writes about everything from vacation vagary and adventure sports to real estate and pets. She spent more than a decade in Arizona’s real estate industry advising first-time homebuyers and commercial investors before indulging her passion for the written word on a full-time basis. Her articles appear on websites as diverse as U.S. News and World Report, USA Today, Hipmunk, Roots Rated, and Travelocity.