MONEY: Warren Buffett's Rules for Investing (2017)

Warren Buffett's 2017 estimated net worth is $76.7 Billion per Forbes Magazine and he is considered one of the most successful investors in the world. Buffett's current net worth makes him the second wealthiest person in the United States (behind Bill Gates, $86 Billion) and the fourth wealthiest person in the world.  He is the CEO of Berkshire Hathaway, a legendary investor, business magnate, and philanthropist.  

Born in Omaha, Nebraska, Buffett developed an interest in business and investing in his youth, eventually entering the Wharton School of the University of Pennsylvania in 1947 before transferring and graduating from University of Nebraska-Lincoln at the age of 19.  Buffett went on to enroll and graduate from Columbia University where he learned and eventually molded his investment philosophy around a concept pioneered by Benjamin Graham - Value Investing.  He attended New York Institute of Finance to specialize his economics background and soon after began various business partnerships, including one with Graham.  After meeting Charlie Munger, Buffett created the Buffett Partnership.  His firm would eventually acquire a textile manufacturing firm called Berkshire Hathaway and assume its name to create a diversified holding company. 

Buffett has been the chairman and largest shareholder of Berkshire Hathaway since 1970, and his business exploits have had him referred to as the "Wizard", "Oracle" or "Sage" of Omaha by global media outlets.  He is noted for adherence to value investing and for his personal frugality despite his immense wealth. 

Buffett is a notable philanthropist, having pledged to give away 99 percent of his fortune to philanthropic causes, primarily via the Bill & Melinda Gates Foundation.  In 2009, along with Bill Gates and Mark Zuckerberg, Warren founded The Giving Pledge, whereby billionaires pledge to give away at least half of their fortunes. (Wikipedia)

Whether you're looking to start in investing in the stock market or looking for strategies that can improve your investment returns, we can all learn something from the Oracle of Omaha. 

To watch some of Warren Buffett's Words of Wisdom, click here:


To watch Warren Buffett talk about how to maximize your potential, click here:


Here are 10 Rules of Investing from Warren Buffett:

Rule Number 1: Never Lose Money  
Rule Number 2: Never Forget Rule Number 1

With this rule, Buffett is referring to the mindset of a sensible investor.  Don't be frivolous.  Don't gamble.  Don't go into an investment with a cavalier attitude that it's OK to lose.  Be informed.  Do your homework.  Buffett invests only in companies he thoroughly researches and understands.  He doesn't go into an investment prepared to lose, and neither should you.

Buffett believes the most important quality for an investor is temperament, not intellect.  A successful investor doesn't focus on being with or against the crowd.

The stock market will swing up and down.  But in good times and bad, Buffett stays focused on his goals.  So should we. (Investopedia

3. Invest in Companies with Vigilant Leadership

"The first rule is that the company has to have vigilant leadership", explains Pysh, founder of BuffettsBooks.com.  "Everything within the company starts from the top and reflects the lowest position of the company.  Finding the right leader of a company and organization is vitally important to Buffett."

The renowed investor will look at the top of the company - at the CEO and the Chairman of the Board of Directors.  He looks at their salaries, whether or not they've kept company debt in check, and their past decisions, which give him a good idea of how prone to risk the company is. (Business Insider)

4. Invest in companies with long-term prospects

The next crucial thing to look at is whether or not the company will be able to sell their product in 30 years.

A good question Buffett likes to ask is, "Will the internet change the way we use the product?"  If the answer is yes, that means the product could soon become irrelevant and you might not want to invest.  This is one of the reasons he chose to invest in Wrigley's gum, because chewing gum will be around for a very long time. (Business Insider)

5. Our Favorite Holding Period is Forever

How long should you hold a stock?  Buffett says if you don't feel comfortable owning a stock for 10 years, you shouldn't own it for 10 minutes.  Even during the period he called the "Financial Pearl Harbor", Buffett loyally held on to the bulk of his portfolio.

Unless a company has suffered a sea change in prospects, such as impossible labor problems or product obsolescence, a long holding period will keep an investor from acting too human.  That is, being too fearful or too greedy can cause investors to sell stocks at the bottom or buy at the peak and destroy portfolio appreciation for the long run. (Investopedia)

6. A Stock is a Business, Not a Piece of Paper

First, although it seems banal to say, a stock is an ownership unit of a business.  The lesson for investors is that a stock represents the value of a business's future earnings.  You should own it for that reason, and not because you think you can capitalize on its short-term gyrations, which generally have nothing to do with its business value. (MarketWatch)

7. Keep a Multi-Decade Time Horizon

Buffett thinks long-term.  Being able to have a longer time horizon allows you to tolerate the volatility that stocks necessarily present, and reap the inflation-beating rewards they deliver. (MarketWatch)

8. You Don't Need to be an Expert in Order to Achieve Satisfactory Investment Returns

Buffett also warns that the investor should recognize her limitations and "keep things simple". (Business Insider)

9. It's Far Better to Buy a Wonderful Company at a Fair Price than a Fair Company at a Wonderful Price

Buffett is a value investor who likes to buy quality stocks at rock-bottom prices.  His real goal is to build more and more operation power for Berkshire Hathaway by owning stocks that will generate solid profits and capital appreciation for years to come.  When the markets reeled during the recent financial crisis, Buffett was stockpiling great long-term investments by investing billions in names like General Electric and Goldman Sachs. (Investopedia)

10. If the Business Does Well, the Stock Eventually Follows

"The Intelligent Investor" by Benjamin Graham convinced Buffett that investing in a stock equates to owning a piece of the business.  So when he searches for a stock to invest in, Buffett seeks out businesses that exhibit favorable long-term prospects.  Does the company have a consistent operating history?  Does it have a dominant business franchise?  Is the business generating high and sustainable profit margins?  If the company's share price is trading below expectations for its future growth, then it's a stock Buffett may want to own.

Buffett never buys anything unless he can write down his reason why he'll pay a specific price per share for a particular company. (Investopedia)


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