Warren Buffett is known as the richest man in the entire world with a projected fortune of $62 billion. Buffett who started earlier in 1962 with buying shares is now Berkshire’s chairman and CEO and one share of the company’s Class A stock is worth close to $119,000 (versus $7.50 in 1962). He credits his astonishing success to several basic strategies, which he has shared with author – Alice Schroeder.
Schroeder spent hundreds of hours interviewing ‘Sage of Omaha’ for a new authorized biography “The Snowball.” Here are some money-making secrets from Buffett.
- Don’t waste time: Assemble the information you need to make a decision and always stick to the deadlines. Buffett prides himself on swiftly making his mind on decisions and quickly acting on them. Buffett’s answer to people, who bring him a business or investment is “I won’t talk unless they bring me a price.”
- Re-invest your profits: When you first make money in the stock market you might be tempted to spend it. But, Buffett suggests reinvesting the profits. Buffett learned this early in high school, when he and one of his friend bought a pinball machine to put in a barbershop. With the money they earned from that pinball machine, they purchased more until they had eight of them for different shops.When they sold the company, Buffett used the profit to buy shares and started another small business and until the age of 26, he accumulated $174,000 or $1.4 billion in today’s money. So, even a small amount of money can be converted into great wealth.
- Watch for small expenses: Buffett invests in businesses run by managers who obsess over smaller expenses. He once acquired a company whose owner counted the sheets in rolls of 500 sheets of toilet paper to see if he was being cheated. Buffett also admired a friend who only painted the side of the office building that faced the road. Exercising surveillance on each expense can make your profits and your paycheck go much further.
- Be willing to be different: Don’t make your decisions on what everyone is saying or doing. Buffett started managing money in 1956 with $100,000 that he cobbled together from a handful of investors. He worked in Omaha instead of Wall Street and refused to tell his parents that where he was putting their money. At that time, people predicted him to fail, but 14 years later, when he closed his partnership, it was over $100 million dollars. Rather than following the crowd, he looked for undervalued investments and ended up wisely exceeding the average market each year. According to Buffett, average is what everybody else is doing and to be above average, you need to measure yourself by what he calls the inner scoreboard. Judge yourself by your own standard and not by the world’s, believes Buffett.
- Know when to quit: As a teen, once Buffett went to a race track, where he bet and lost. To recover his funds back, he bet again on another race and lost again. He was left with nothing. He felt sick on wasting a week’s earnings and never repeated the same mistake again. Always knew that when to walk away from a loss, and never ever let angst and fear fool you into trying again.
- Spell out the deal before you start: One always has higher negotiating leverage before beginning a job. This is when you have something to offer that the other party wants. Buffett learned this lesson a hard way when he was a kid.Ernest, his grandfather, hired him and his friend to dig out a family grocery store after a storm and the young boys spent five hours shoveling until they could barely straighten their frozen hands after which their Grandfather gave them less than 90 cents. Buffett was disappointed that he worked hard only to earn such a small amount. Always pin down the specifics of a deal in advance, even with your friends and relatives.
- Assess the risk: In 1955, the employer of Buffett’s son, Howie – was accused of price fixing by the FBI. Buffett advised Howie to imagine the worst and the best case scenario if he stayed with the company. His son quickly realized that the risks far outweigh any possible gains, and resigned the next day. Asking yourself “and then what” can help you see the possible consequences when you are struggling to make a decision.
- Limit your borrowing: Living on credit cards and loans won’t help you establish your empire. Buffett never borrowed a significant amount. He gets many letters from people who thought their borrowing was manageable and instead got weighed down under debt. His advice is to negotiate with creditors to pay what you can and when you are debt free, start saving to invest.
- Be persistent: With perseverance and creativity, you can even win against an established rival. In 1983, Buffett acquired the Nebraska Furniture Mart because he liked the way his founder Rose Blumkin did business. A Russian immigrant, Blumkin built a largest furniture store from a pawnshop in North America. Her strategy was to undersell big shots and she was a ruthless negotiator. Buffett saw Rose as an example of unwavering courage that could get a winner out of an underdog.
- Know what success really means: Despite being the wealthiest man in the world, Buffett never measured his success by the dollars he earned. In 2006, Buffett pledged to donate his entire wealth to the charities. He is adamant about not funding the monuments to himself. He does not want any Buffett buildings or halls in his name.
The crux is there is no magical secret formula for making money overnight and when it comes to getting rich, Buffett’s mantra is – slow and steady wins the race.