“I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” – Warren Buffett
In the investment world, there’s no denying the influence and investing success of Warren Buffett, who has consistently demonstrated the power of patience, perseverance, and principles. This individual hailed as the “Oracle of Omaha,” has a wealth of knowledge and experience, which he has generously shared over the years. His insights are rooted in a deep understanding of the nature of stocks, the economy, and the underlying factors contributing to sustainable wealth creation. In this article, we delve into the wisdom he imparted during many candid discussions, interviews, and Q&A sessions about his journey, investment philosophy, and the lessons he learned. Let’s uncover the secrets behind this billionaire’s wealth creation and his unparalleled business success. The most important thing is to learn how you can apply these timeless principles to your investment journey.
How did Warren Buffett get Rich?
Warren Buffett explains his trading and investing journey, “When I was 11, I picked stocks. I had the whole wrong idea. I was interested in watching stocks, and I thought stocks were things that went up and down, and I charted them. I read books on technical analysis. I read Edwards and Mackey; I think that was the classic then. Hundreds and hundreds of pages, and I read that whole thing over and over again. I read everything, and thought for the first eight years, I thought the important thing was to predict what a stock would do and predict the stock market. Then, I read Ben Graham, you know, when I was 19 or 20, and I realized that I was doing it exactly the wrong way.”
“But it didn’t hurt that I had that background and everything, and I rejiggered my mind. When I read the book ‘The Intelligent Investor’, from that point, I never bought another stock. I bought businesses that happened to be publicly traded. But I became an owner of a business, and I did not care whether a stock went up or down the next day, or the next week, or the next month, or the next year. And I didn’t have any idea what it would do. I didn’t know what the stock market would do, but I knew businesses. I’m a bright guy who’s terribly interested in what he does. I’ve spent a lifetime doing it. I’ve surrounded myself with people that bring out the best in me.”
“And you don’t need to be a genius in what I do. That’s the good thing about it. If I went into physics or a whole lot of other subjects, I’d be an also-ran. But I am in a game that you probably need 120 points of IQ. Yeah, but 170 doesn’t do any better than 120; it may do worse, probably do worse. But you don’t really need brains.”
“What do you need?”, asked the interviewer.
Buffett continued, “You need the right orientation. You know, ninety percent of the people—pulling the figure out of the air—but ninety percent of the people that buy stocks don’t think of them the right way. They think about something that they hope goes up next week and think about the market as something they hope goes up. And if it’s down, they feel worse. I feel better.”
The interviewer asks, “And you think about…”
Buffett interjects, “I think about—what the company is going to be worth 10 or 20 years now, and I hope it goes down when I buy it because I’ll buy more.”
“I try to keep my competitive experience in a game where I can win. I do know this: when I want to do something, I always want to do it big. I put my whole net worth in City Service Preferred at $114.75. And since that day, on March 11, 1942, I have never had less than eighty percent of my money in American business. You can call them stocks, all right, but I see them as American business. I’ve owned a piece of American business, at least 80% at all times. I just don’t want to own anything else. I want to own a home and, you know, things my family wants and all that, but owning five homes doesn’t mean anything to me because I’m going to be happy in one home. And there’s a certain amount of things that go wrong with everything, and if I got two homes, I know I’ve got more problems, and I don’t have more happiness.”
The interviewer, “What brings you happiness?”
Buffett answers, “What makes me happiest is what I’m doing. What I’m doing, I enjoy two things about it. One, I know I’ll win over time. Don’t beat everybody else or anything like that, but I mean the game is very, very, very easy if you have the right lessons in your mind about what you’re buying. I’m not buying stocks. I’m buying pieces of overwhelmingly American businesses, and I’m happy when I’m doing it. I’m happier when stocks are going down because I can buy more of them with the same amount of money. I’d be happy if I was a farmer; I’d want farmland to go down so I could buy more acreage. It just makes sense.”
“I’ll tell you the second thing I really like: I like being trusted by people. I would rather do what I do with partners than do it sitting in a room myself, even though I might make more money that way. Let’s pretend there is no stock market. Let’s say I had to buy these privately, like you buy a farm privately like you buy a department house privately—they’re investments. So you’re looking to say, ‘What can I do with money I’ve saved to put it away so I feel good about getting it back later, under any circumstances, but not necessarily on a given moment?’. But if I have a farm, it’s going to take me a while.”
“People would be so much better if they actually didn’t have a stock market in terms of buying businesses. The United States economy—and it’s very easy to look at the statistics on it—I mean more people, a greater percentage of the American population, is wealthy now or having more income now than they’ve ever had. And if you look at whether Bank of America would give you their average deposit, I mean, you just look at the wealth. That doesn’t mean everybody’s wealthy, but it does mean relative to any other period of time. I mean, people have more money now; they get mortgages at lower rates than they’ve ever gotten. So if they want to buy a house or something right today, you live in an environment where the bottom two percent in terms of income in the United States, the bottom five percent, and for sure the top one percent, all live better than John D. Rockefeller was living when I was six years old.”
“John D. Rockefeller was the richest man in the world, and today, you can get better medicine, better education, better entertainment, better transportation. You can do everything better than he could. It’s astounding. That’s in my lifetime. If he wanted to watch a football game, he still had to go there, and I can sit there with this big screen, and they keep showing me the replay. I saw that explaining to me what happened, and everybody… and maybe everybody doesn’t have a screen as big as mine, but damn near everybody has a screen, or an iPhone, or a computer, or access to one.”
“And they have access… When I was born, the dentist didn’t use Novocaine.”
The interviewer agrees, “So there has been progress, obviously, and nowhere more than in the United States.”
Buffett continues, “There’s no country that’s done what our country’s done. If you go back three of my lifetimes, you’re looking at less than one percent of the world’s population, closer to half of one percent, are sitting in this land. They don’t work harder than people in all the rest of the world. I mean, in terms of hours of unpleasant labor, everybody’s got hours of unpleasant labor in those days practically. They don’t come laden with gold, and you know, they are half of one percent, and they work the same hours. They got the same IQs. They may be a little self-selected in terms of enterprise in terms of going across oceans and things.”
“Fast forward a couple of lifetimes, and they’ve got 20% plus of all the bounty in the world. I mean, that is something that has worked like nothing else. Just imagine that if you’ve gone to anybody in the Constitutional Congress, you know, 1789, if you go to any one of the representatives there, and you said, ‘I want to tell you what this place is going to look like, you know, in three more of your lifetimes. Your great-great-grandchildren are going to be flying in the skies, they’re going to be watching sports all over the world, they’re going to be advancing their medicine,’ they’d haul you off to a lunatic asylum.”
“What he’s doing is getting 50 cars and he’s getting a whole bunch of little claim checks. Just think of it. Everything when Thomas Edison did all the things he did, he made some money, but we’re using it, it belongs to us. If you take what an hour of labor delivered to you 100 years ago and what an hour of labor delivers to you now, for you and your family, it’s unbelievable. Capitalism, say, get rid of a referee and a government. We’ve got a government that can tell capitalism what to do. They do, and that’s what they should do, and they do in different ways at different times and all kinds of things, but it’s claim checks on future output, the claim checks belong to me.”
“So if I want to buy 50 super yachts, I can do it. But what does it mean to me? They can buy more things for other people that are useful to them. It’s not evil. The federal government is the boss in the end, and they shouldn’t screw up capitalism, and capitalism shouldn’t screw up the federal government. It’s very simple.”
“It’s evolving always. We started in 1789, we had business and it’s gotten far, far, far, unbelievably more productive for people, and the only thing you can do with what it produces is give it to other people. It isn’t like the 50 richest guys in the country can say ‘I’m just going to eat everything.’ They’re turning out products, iPhone that I have, which I’m probably the least capable guy in the world of working with it, but it makes life better.”
“But that comes with government. So far we’ve got the best system. We’ve got a better system than we used to have, and we’ll have a better system 50 years from now.”
The interviewer asks, “Why are you so sure?”
Buffett replies, “Well, I’ve seen 91 years of it. I’ve never seen a period where I didn’t believe that. Not every aspect, we’d go backward to some, and now it’s not. But it’s unbelievable what has happened.”
“Just think of it, you know, we’ve had a Civil War, we’ve got a Great Depression, we’ve had all these things.”
“Pandemics,” the interviewer interjects.
“Yeah. I’ll guarantee you, well, I thought you’d get them next year and the year after the year after, but in a herky-jerky, but dramatic manner, business moves forward, government moves forward. More importantly, people move forward.”
“I mean, I am happy to tell people that, the same thing I’ve told them before, but they’ll never get the message, most of them. But a few do, that’s the most, you know, best thing to do. If you want to invest for the long term and it’s the S&P 500 index. And what’s happened of course is that organizations like to grow. So they set up indexes on different industries, different countries, and as soon as you do that, you’re violating basically what Jack Bogle said. He says ‘You don’t know enough to pick the right businesses,’ which means you don’t know enough to pick the right countries, you’re right, you know enough.” [1]
Key Takeaways
- Realize the importance of understanding the true nature of stocks: Instead of viewing them as mere price points that fluctuate, consider them as businesses where you’re becoming a part-owner.
- Adopt the right investment mindset: Resist being swayed by short-term trends and market volatility, and instead, concentrate on the long-term potential of businesses.
- Recognize the utility of index funds: If you lack the expertise or time to analyze individual companies, investing in broad market indices such as the S&P 500 can be a wise strategy.
- Embrace the optimism for the long term: Despite cyclical downturns, human resilience, ingenuity, and innovation drive continuous progress, making a long-term investment in businesses worthwhile.
- Understand the role of government: It’s critical to balance capitalism with government oversight and regulations to ensure fair practices.
- Prioritize personal fulfillment: While financial success is rewarding, finding happiness and fulfillment in what you do is paramount.
Conclusion
Investment success, as illustrated by Warren Buffett, isn’t merely about quick returns or short-term trends. Instead, it necessitates a shift in perspective, understanding that you are buying businesses rather than mere stock symbols. This approach champions a long-term investment strategy, focusing on the inherent value and growth potential of companies. At the same time, it’s critical to have faith in human progress and innovation, which has consistently proven to drive society forward. Striking the right balance between capitalism and government oversight is essential to ensure a thriving and fair economy. Lastly, while achieving wealth is a goal for many, deriving satisfaction and fulfillment from your actions and investments should always remain at the forefront.