With an estimated fortune of $62 billion, Warren
Buffett is the richest man in the entire world. In 1962,
when he began buying stock in Berkshire Hathaway,
a share cost $7.50. Today, Warren Buffett, 78, is
Berkshire’s chairman and CEO, and one share of the
company’s class A stock worth close to $119,000. He
credits his astonishing success to several key
strategies, which he has shared with writer Alice
Schroeder. She spend hundreds of hours interviewing
the Sage of Omaha for the new authorized biography
The Snowball. Here are some of Warren Buffett’s
money-making secrets — and how they could work
for you.
Reinvest Your Profits: When you first make
money in the stock market, you may be
tempted to spend it. Don’t. Instead, reinvest
the profits. Warren Buffett learned this early
on. In high school, he and a pal bought a
pinball machine to put in a barbershop. With
the money they earned, they bought more
machines until they had eight in different
shops. When the friends sold the venture,
Warren Buffett used the proceeds to buy
stocks and to start another small business.
By age 26, he’d amassed $174,000 — or $1.4
million in today’s money. Even a small sum
can turn into great wealth.
Be Willing To Be Different: Don’t base your
decisions upon what everyone is saying or
doing. When Warren Buffett began managing
money in 1956 with $100,000 cobbled together
from a handful of investors, he was dubbed an
oddball. He worked in Omaha, not Wall Street,
and he refused to tell his parents where he
was putting their money. People predicted
that he’d fail, but when he closed his
partnership 14 years later, it was worth more
than $100 million. Instead of following the
crowd, he looked for undervalued investments
and ended up vastly beating the market
average every single year. To Warren Buffett,
the average is just that — what everybody else
is doing. to be above average, you need to
measure yourself by what he calls the Inner
Scorecard, judging yourself by your own
standards and not the world’s.
Never Suck Your Thumb: Gather in advance
any information you need to make a decision,
and ask a friend or relative to make sure that
you stick to a deadline. Warren Buffett prides
himself on swiftly making up his mind and
acting on it. He calls any unnecessary sitting
and thinking “thumb sucking.” When people
offer him a business or an investment, he
says, “I won’t talk unless they bring me a
price.” He gives them an answer on the spot.
Spell Out The Deal Before You Start: Your
bargaining leverage is always greatest before
you begin a job — that’s when you have
something to offer that the other party wants.
Warren Buffett learned this lesson the hard
way as a kid, when his grandfather Ernest
hired him and a friend to dig out the family
grocery store after a blizzard. The boys spent
five hours shoveling until they could barely
straighten their frozen hands. Afterward, his
grandfather gave the pair less than 90 cents
to split. Warren Buffett was horrified that he
performed such backbreaking work only to
earn pennies an hour. Always nail down the
specifics of a deal in advance — even with
your friends and relatives.
Watch Small Expenses: Warren Buffett invests
in businesses run by managers who obsess
over the tiniest costs. He one acquired a
company whose owner counted the sheets in
rolls of 500-sheet toilet paper to see if he was
being cheated (he was). He also admired a
friend who painted only on the side of his
office building that faced the road. Exercising
vigilance over every expense can make your
profits — and your paycheck — go much
further.
Limit What You Borrow: Living on credit cards
and loans won’t make you rich. Warren Buffett
has never borrowed a significant amount —
not to invest, not for a mortgage. He has
gotten many heart-rendering letters from
people who thought their borrowing was
manageable but became overwhelmed by debt.
His advice: Negotiate with creditors to pay
what you can. Then, when you’re debt-free,
work on saving some money that you can use
to invest.
Be Persistent: With tenacity and ingenuity,
you can win against a more established
competitor. Warren Buffett acquired the
Nebraska Furniture Mart in 1983 because he
liked the way its founder, Rose Blumkin, did
business. A Russian immigrant, she built the
mart from a pawnshop into the largest
furniture store in North America. Her strategy
was to undersell the big shots, and she was a
merciless negotiator. To Warren Buffett, Rose
embodied the unwavering courage that makes
a winner out of an underdog.
Know When To Quit: Once, when Warren
Buffett was a teen, he went to the racetrack.
He bet on a race and lost. To recoup his
funds, he bet on another race. He lost again,
leaving him with close to nothing. He felt sick
— he had squandered nearly a week’s
earnings. Warren Buffett never repeated that
mistake. Know when to walk away from a loss,
and don’t let anxiety fool you into trying
again.
Assess The Risk: In 1995, the employer of
Warren Buffett’s son, Howie, was accused by
the FBI of price-fixing. Warren Buffett advised
Howie to imagine the worst-and-bast-case
scenarios if he stayed with the company. His
son quickly realized that the risks of staying
far outweighed any potential gains, and he
quit the next day. Asking yourself “and then
what?” can help you see all of the possible
consequences when you’re struggling to
make a decision — and can guide you to the
smartest choice.
Know What Success Really Means: Despite his
wealth, Warren Buffett does not measure
success by dollars. In 2006, he pledged to
give away almost his entire fortune to
charities, primarily the Bill and Melinda Gates
Foundation. He’s adamant about not funding
monuments to himself — no Warren Buffett
buildings or halls. “I know people who have a
lot of money,” he says, “and they get
testimonial dinners and hospital wings named
after them. But the truth is that nobody in the
world loves them. When you get to my age,
you’ll measure your success in life by how
many of the people you want to have love
you, actually do love you. That’s the ultimate
test of how you’ve lived your life.”
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