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Real Investor Advice

Much has been said of that legendary American investor known as Warren Buffett. Although he didn’t invent the idea of value investing — buying up stocks that are trading below their intrinsic values, confident that their sound, underlying business models eventually will cause the stock price to soar — He’s come close to perfecting it.

Real Investor AdviceAmong his company’s many great successes were the purchase of PetroChina, which generated a total return of 720% over five years; Chinese car battery company BYD, which racked up a total return of 671% over six years; and, Freddie Mac, the giant, U.S. government-backed mortgage insurance firm, which yielded a total return of 1,525% over a 13-year holding period.
Perhaps a more important lesson for entrepreneurs and small business owners, however, has less to do with Buffett’s investments and more to do with the man’s demeanor. After a lifetime of investment success stories tempered by a few noteworthy failures, Warren Buffett remains humble, approachable and respected on Wall Street and Main Street alike.

Here are some life lessons every entrepreneur should learn from Warren:

Select Investments Carefully – Wall Street stockbrokers have a popular saying: “Good ideas sound good, but bad ideas can sound good, too.” The hidden wisdom in this simple statement is that you must choose your investments wisely.

For Warren, that means investing in ideas, not necessarily the people behind them. In fact, he once commented that he selects companies for his portfolio that are so wonderful, even an idiot could run them. If your investment concept is sound (e.g. buying railroads because industry will always need to move freight), it doesn’t matter if, presently, there’s an inept management team at the helm. They can always be replaced at anytime but the underlying business is forever.

Less Expense Is More – You’ll never regret tomorrow living below your means today. Or, as New York Times best-selling personal finance author and radio host Dave Ramsey says, “Act your wage.”

Buffett exemplifies this less-expense-is-more mentality. Despite having amassed a staggering net worth of $39 billion, he lives in the same house today that he purchased in 1958 for $31,500. In fact, he calls it the best investment he ever made.

Remember Where You Are Coming From – Our roots provide a framework for who we grow into, and the people we meet when we’re coming up have a way of reappearing along our journey. You just never know who you’ll end up doing business with in the future, so don’t forget your roots.

Case Note – As a teenager, one of Buffett’s first jobs was delivering papers for The Washington Post. Today, his company, Berkshire Hathaway, is the newspaper’s largest shareholder. So, in a sense, he extended an early encounter with a company into a lifelong relationship that benefits both parties. Imagine the possibilities if you could do the same with your current business.

Savings Come First – The vast majority of Americans have no savings. That’s because most people have their priorities backwards, paying bills and buying consumer goods first, then trying to save whatever’s left over. Of course, there’s never enough left over, so savings become a pipe dream.

Buffett, on the other hand, got where he is today by setting aside his savings first, then applying the rest to bills and purchases.

Be Persistent – If you believed in your business idea from the start and all your research supported your decision to move forward, then stick with it.

Berkshire Hathaway was a struggling textile firm that specialized in making linings for men’s suits when Buffett stepped in to buy it. No doubt, there were people who thought he was crazy at the time. But Buffett saw the business’ promise and he persevered. Over time, and through his leadership, Berkshire Hathaway grew into a multinational conglomerate.

Real Investors Do Their Homework – The stock market can be an emotion-fueled rollercoaster for the undisciplined. Statistically, most individual investors buy at prices close to the high and sell at prices close to the low—the exact opposite of what successful investors do.

To avoid this scenario, heed Buffett’s advice – Carefully research stocks before investing a single dollar. Once you’ve done your due diligence, don’t be afraid to invest generously in a stock that has proven to be a sound choice.

Embrace Public Speaking – Most entrepreneurs and small business owners shy away from public speaking. Buffett did, too. But you need to get over this fear if you want to build and grow your business.

In Buffett’s case, he took a Dale Carnegie course to get up to speed. Today, he emphasizes the ability to communicate effectively as something vital to young entrepreneurs’ success.

Your Reputation Precedes You – What we say and do, how we handle our business, the way we respond under pressure, the content of our character. All of these adds up to our reputation. As an entrepreneur, you’ve worked hard to build a credible and trustworthy reputation.

Buffett’s advice – Money come and go, but reputation is forever. Ferociously protect the reputation of both yourself and your business because once it’s gone, you’ll never get it back again.

Be Mindful Of Your Associates – Like it or not, we are judged by the company we keep. This fact may be especially true for entrepreneurs and small business owners, for whom the ability to network productively is vital to success.

For Buffett, keeping good company is largely a matter of identifying other professionals who are better than we are. By associating with them, we become inspired to continually improve ourselves and our skills.

Ignore The Fads – What’s popular today often looks foolish in hindsight—a fact that’s especially true in business.

When it comes to investing, Buffett avoids the hot, trendy stocks of the day, limiting his focus to underlying value. You might want to do that, too.

Avoid Meetings Whenever Possible – Be honest, how many truly productive meetings have you attended in your career?

Warren must agree because he prefers sending yearly letters to each of his companies, outlining his goals for the year and celebrating the past year’s accomplishments. In fact, he minimizes meetings as much as possible, opting instead to let his workers spend their time doing their jobs.

Do What You Love, Love What You Do – It sounds obvious, but taking a job you hate just to “get ahead” is no way to advance your career. Success doesn’t take root in misery.

Buffett’s recommendation is – Remember that life is too short, invest your time and effort in the work you love. Success will follow.

Your business may never rise to the level of Berkshire Hathaway, but if you remember these lessons, you may find that your quality of life is just as rich, and every bit as rewarding, as that of the world’s richest man.

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