10 MOST IMPORTANT WARREN BUFFETT’s INVESTMENT LESSONS YOU NEED TO KNOW

Warren Buffett is most admired investor for his good work ethics, investment approach, and his honesty. We can achieve success by learning investment lessons from Warren Buffett. He lives very simple life and he is very persistent with his approach.

READ MY STORY HOW I WENT FROM MAKING $100 PER MONTH TO BECOME MILLIONAIRE

Let’s look at the investing lessons by Warren Buffett.

1. INVEST FOR LONG TERM

Warren Buffet rarely sells his investments; he has been building his wealth by investing for long term. He looks for companies with great value and invest in it to keep it forever, he doesn’t invest if he finds company can’t sustain for long term, that’s why he has been investing lot on Food industry because we always need food to live.

Cost Effective

Long Term investment yields higher returns and it’s cost effective. You will require to pay fees and taxes when you sell your investments and then invest the left-over money again in other investment. So, at the end you left with less money to invest which gives you lower returns in long run.

How I use this advice?

• I have been investing in Rental properties and planning to keep them for long term, I am investing into Rentals for last 6 years and I have no plans to sell any of my properties.
• There is big cost of selling these investments in terms of Realtor Fees and Capital Gain taxes, best idea would be to refinance these properties to re-invest into other rental properties. Setup monthly Stock investments for Retirement accounts, I have setup automated monthly system to buy stocks for retirement accounts which I have no plans to sell till I retire.

2. INVEST IN INDEX FUNDS

INDEX Funds is one of the easiest possible ways to invest for someone who doesn’t understand Stocks at all.

Index Funds has stock holdings which are just mirror of stocks on the Index\Stock Exchange, Every Index fund has it’s unique set of holdings depends how some companies has set that up. The S&P 500 for example has 500 large companies stocks and investing in this fund gives you access to all these 500 companies.

Index Funds not managed by Active Fund Manager which means management fees or expenses are very low and it’s cheap for us to invest in them. Just 1-2 % saving from these fees compare to Actively Managed Funds can make big difference to your retirement fund over time.

You can easily see difference of $100,000 – $500,000 over 30-40 years by just having 1-2% extra returns based on size of your investments. Index Funds tends to beat the Active Managed Funds in long run, so why you want to give extra 1-2% to someone to manage the fund which won’t be able to beat Index Fund ?

How I use this advice?

• 90% of my stock investments are within US and Canadian INDEX funds. Remaining 10% is placed in Mutual Funds which are specific for Education, this particular investment is supposed to be for 10-15 years till my kids start going for higher education. It’s not very long-term investment and I will need the money at specific time which is main reason that it’s placed in Mutual Funds.

3. BE FEARFUL WHEN OTHERS ARE GREEDY, AND GREEDY WHEN OTHERS ARE FEARFUL

What happens when the Stock market crash? People get really scared, and they take out their money.

What happens when the Stock market is going UP crazy? People become hopeful and they invest more money.

What should ideally be happening? Exactly opposite, you should invest more when the Stock market crashes and less when it’s going crazy UP.

Why people make irrational decision ?

People get scared and they make irrational decision. They hear bad stories of people losing all their money and it’s enough for them to make bad decision to sell their stocks. History tells us that Stock market always recovers and you just need to wait. Sometimes, best decision to do nothing when you hear bad news about stocks market crash and just don’t touch your investments.

How I use this advice?

• Never taking out my money from Stock market when it crashes.
• Keeping some extra funds on the side to be invested when market crashes.
• Setup automated investment to buy stock every month, no matter what happens in stock market.

4. BUILD TRUST AND WORK WITH PEOPLE YOU TRUST

Would you take medicine from Doctor who you won’t TRUST? I guess not.

TRUST is very important to do business. It’s impossible to grow without having trust in PEOPLE around you.

You want to have TRUST in your supplier to provide you right supplies at right time, You want to TRUST your Realtor to BUY and SELL your properties, You want to TRUST your Mortgage Broker to provide you the best mortgage rates. It’s easier to find people who can do the job but it’s difficult to find TRUSTWORTHY PEOPLE to do the right job. So, look for people you can TRUST and WORK around them.

How I use this advice?

• Working with same set of people over long time to invest in real estate.

5. TRUST IN FUNDAMENTS NOT IN SPECULATION

What’s Strong Fundaments?

Warren Buffett search for the companies with strong foundation, strong values, strong base, strong support system to invest. Company value is created by the work and the value it is providing to society.

What’s Speculation?

Company value is created by some fund managers and investors by speculating for future growth, company may not be making any profits, but investors speculate future possibilities and they try to find future Microsoft and Apple like companies which is nearly impossible to achieve.

How I use this advice?

• Don’t listen to late night stock advice to invest in next upcoming stocks.
• Not checking those ads on News channel to find out next big stock.
• Don’t monitor stock exchange ups and downs.               
• Created my own strategy and just following that.

6. BUILD MULTIPLE STREAMS OF INCOME

MULTIPLE STREAMS OF INCOME\PASSIVE INCOME – Extra income which you can generate without putting in 40 hrs. a week. This is very important step to achieve big success, having extra income gives you independence to follow your passion and work on the things which brings you HAPPINESS and SUCCESS

Why would you want to do this, is it worth the efforts?

• Retirement, Extra money which can be put aside for retirement or vacation
• Networking, side work can be used to do networking which can help you with your main job
• Hobby or Passion, we frequently get bored with our regular day jobs. We all had some Passion or hobby which we have not able to pursue because of our regular day job. So, working on something you love on the side can generate some income and make you happy.
• Building wealth, investing in real estate or working on blog or app on the side can build huge wealth over time which may not be possible with your regular job.
• Helping Society, working on something which helps our society, helping society creates better future for everyone. Avoid anxiety and stress by working on something you love on the side, that can help you live a happier and more fulfilling life.
• HELP for you or your kids’ EDUCATION, I have seen family struggling to pay for education. You can generate some extra revenue to help your kids for higher Education.

7. DON’T INVEST IN BUSINESS COMPLEX TO UNDERSTAND

Warren Buffett doesn’t invest in Tech companies even though he is best mate with Bill Gates because he finds tech companies have complex business model. He doesn’t like how some companies makes no profit but still worth billions which makes them too risky to invest in.

Do your own analysis and see if you can understand how company is making profit and how much cash they have in their reserve.

Use this advice to invest into something you can easily understand, instead of following news about big prospects.

8. BORROW MONEY WHEN IT’s CHEAP

What it means money to be cheap?

It means that interest rates are very low to borrow money to invest in your business.

Stock Markets can make on average 6-10% returns over time and Real estate can make around 7-15% returns over time. Currently, Interest rates in US and Canada are at their record low point, it’s almost close to ZERO. So, why you wouldn’t borrow money to invest in your business.

Real Estate is the best candidate to invest, using the leverage by borrowing money from banks. You still need to come up with 5-20% of your own money and rest can be borrowed easily from the banks.

How I use this advice?

• I have borrowed 70-80% money from bank for my rental properties

9. START INVESTING EARLY

You might feel that you are too young to invest, you have lot of time to invest. But time doesn’t stop for anyone and investments need time to grow big.

Lot of young people are busy chasing their dreams, falling for love, enjoying vacations, having fun. It’s all important but you don’t realize that it’s impossible to catch up at the later age.

SMALL, SMART CHOICES + CONSISTENCY + TIME = RADICAL DIFFERENCE

The Compound Effect

It is the principle of reaping huge rewards from a series of small, smart choices. People stop doing positive things after trying it for a few days or months, what they don’t realize is that these small, seemingly insignificant steps completed consistently over time will create a radical difference.

How I use this advice?

• I just have one regret that why I didn’t even start earlier. Fortunately, When I understood the importance of investing couple years ago, I started investing in Index Funds with small monthly contributions which already started to look very nice fund for retirement.
• I started small savings and later used that to buy rental properties.

10. INVEST IN YOURSELF

Our 9 to 5 JOBS are important and they are taking most of our time but it’s important to give time to learn new things; we are not spending time to widen our knowledge. We are not spending time to find out what is out there, other then what we are currently doing. 

Books

There is a vast amount of knowledge available in books out in the world. Even if you start reading one book a MONTH, there is no end to the amount of knowledge out there. All this information is so EASILY accessible these days and we can learn so much out of it. We are not doing enough to gain that information. No one can steal your knowledge from you.

GET UP, do yourself a FAVOR, START INVESTING IN YOURSELF and start reading at least 10 PAGES a day.

You will never stop the habit of reading books once you start creating your interest in learning new things. You will become aware of the FACTS related to the subject, you will be certain about what you are talking, and it will increase your confidence.

How I use this advice?

• Reading investment and motivational books for years helped me lot to learn to Save and Invest in Real Estate and Stocks.

Good Luck!

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