Published: September 30, 2018 | Blog Post
Warren Buffett is a guru of common sense. People examine everything he says and does looking for an edge making money and in actual fact, his wisdom can be applied to the general practice of living a good life. He is revered both for his old-fashioned values and general wisdom, and respected for his down-to-earth values. He’s a likeable guy.
He’s also one of the most successful investors in the world. His annual Berkshire Hathaway report is eagerly anticipated every year in the financial community and his words and transactions are closely scrutinized. His common sense investment wisdom is both an ideal primer for novice investors and much enjoyed at BTC Trading Inc. Buffet’s classic quotes summarize great wisdom.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Following the crowd feels safer, but it’s not generally the smart way to make investment decisions. BTC Trading advisors refer to this as the ‘herd mentality’. Buffet cautions investors to be like the shepherd, not like the sheep. He avoids most tech companies and anything he doesn’t understand. He’s patient about holding cash and has the confidence to buy in a period of economic downturn, a strategy that has made him and Berkshire Hathaway shareholders very wealthy over the long term.
A classic example of the herd mentality was the dot-com bubble of 1995-2000. Stock valuations of companies that few understood were trading at obscene prices; investors were so afraid of missing the boat that they kept buying and buying regardless of price. Many small investors who couldn’t afford big losses got in at the last minute just before the bubble burst, only to watch the NASDAQ lose 75% from its peak over the next two years.
“Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Warren Buffett is a notoriously steady man. He keeps his eye on long term objectives without getting caught up in day-to-day economic dramas or market fluctuations. He advises people to plan today for what can and will occur in the distant future, because eventually the future will become the present.
Along with his folksy manner, he is famous for holding his investments indefinitely. He likes to remind people to “look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.” Investors should take the time to make good decisions, and then not pay much attention to the market on a day to day basis. The current 24 hour news cycle can turn a healthy and normal 4% market correction into a catastrophe that sends investors into an irrational panic. Like any good driver, investors need to keep their eye on the horizon, not on bird droppings directly in front of the car.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Buffet prioritizes looking for quality over chasing the lowest price. Regardless of the price, an investment is never a good deal if it has no long term value. As an old-school BTC trader was fond of saying, “garbage is garbage, even if it’s free”. Buffet is a classic value investor. He favors established companies with a strong footing in the overall economy that generate long term above-average returns for investors. He eschews highly leveraged companies and those with an over reliance on debt financing. He does his research himself, looking for fiscally healthy, well-run companies that grow through capital reinvestment and he only invests in businesses he can personally understand. Buffet, through his conglomerate, will pay for quality where he is convinced that it will generate a higher return on investment over the long term.
“Do not save what is left after spending; instead spend what is left after saving.”
Buffet has always advocated saving first and spending second. If all you can budget is $50 a month, then that’s what you do. He reminds us that people build wealth based on their saving habits, not their spending habits. This most famous investor believes in budgeting and advises people to make a budget that ensures all essential household needs are met, pay the bills and then save what is extra. It’s a simple and effective plan that applies to people in all income brackets, yet one that many neglect to follow.
He is also a fierce advocate of fiscal responsibility, both corporate and personal. He lives below his means, and shuns the idea of borrowing money to finance fancy homes and cars. As it is well known, he lives in Omaha, Nebraska in a home he bought in 1958 for $31,500. The headquarters of Berkshire Hathaway take up only one floor of an understated office building. His personal office has a landline and no computer.