Books

The Tao of Warren Buffett | Mary Buffett


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Published in: 2006

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Mary Buffett was for 12 years the daughter-in-law of Warren Buffett and has since released several books on Buffett’s views on investing. During years of family dinners, she has learned about investments, education, mentors, and life in general. The word “tao” is Chinese and means “way”, “path” or “doctrine”.

TWO RULES OF INVESTINGBuffett has said that “Rule no. 1 is never lose money. Rule No. 2 is to never forget rule No. 1”. You get rich by compounding capital over a long period of time. There can be no zeros in the protocol. In addition, time is the friend of a good investment outcome. The earlier you start the better. Buffett has joked “I made my first investment at eleven. I was wasting my life up until then”.

THINK BEFORE YOU ACT. It is difficult to get out of a signed contract – so do all the thinking before you sign. Think through all the scenarios, especially the negative ones. Thinking long and carefully before signing saves a lot of future thinking time if the decision turns out to be wrong.

”It is easier to stay out of trouble than it is to get out of trouble”

YOUR REPUTATION IS YOUR MOST IMPORTANT ASSET. Buffett is known for thinking about his reputation first. It takes 20 years to build a good reputation but five minutes to ruin it. If you think about it, you do things differently.

”It’s best not to do something that you know is wrong, because if you are caught, the price you pay may be more than you can afford.”

WATCH OUT FOR BAD HABITS EARLY IN LIFE. A well-known quote from Buffett is “The chains of habit are too light to be felt until they are too heavy to be broken.” However, it is not his own words, but the British philosopher Bertrand Russell’s. Early in life we can choose what habits we want. Later in life, we are stuck with the habits we have picked when we were young.

WATCH OUT FOR A CHERRY CONSENSUS. In the stock market, you get paid to go your own way – provided the analysis is correct. If you do as everyone else, you get what everyone else gets and can therefore not expect miracles. If a stock is liked by everyone, it is expensive. Then the upside is small if the business develops as expected, but the downside is large if something goes wrong. Buffett has said “The less prudence which with others conduct their affairs, the greater the prudence with which we should conduct our affairs”. On the same subject, he has also said that we should be fearful when others are greedy, and greedy when others are fearful.

BASIC MATH IS ENOUGH. According to Buffett, a successful investor only needs to be able to add, subtract, multiply and divide. In addition, he needs to be fluent in calculations of percentages and probabilities. When an investment is justified by Greek figures, it is not good – then the uncertainty is too great.

INTEGRITTY, INTELLIGENCE AND ENERGY. When Buffett hires someone, he wants them to have integrity, be intelligent and have a lot of energy. He is famous for saying “And if you don’t have the first, the other two will kill you.” If he has all three, he can leave them to take care of themselves and expect a good job.

DON’T POSTPONE LIFE. There will come a time when you should start doing what you really want. There are many who take job after job because it will look good on their CV. This behavior is only good for a while. Doing it for too long is like saving up sex for later in life.

DON’T LOOK BACK. Buffett has said that he never looks back. We all make mistakes and there is so much to look forward to in the future. Why then suffer from previous bad decisions that we still cannot do anything about. We can only live our lives forward.

ACCEPT MISTAKES. If you never make any mistakes, you never make any decisions. Mistakes are part of the game. Those who can make decisions will lead and those who cannot be led. Part of decision making is making mistakes. If you make twelve decisions in one day, something will be wrong. Buffett, on the other hand, always wants to be able to explain his mistakes, so he makes no decisions if he does not understand the situation.

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