7 Secrets to Investing Like Warren Buffett

Mary Buffett, Sean Seah

• Publisher: Scribner
• Year: 2019
• ISBN:
  9781982130343
• Topic: Personal Development
• Subtopic: Personal Finance

A clear, simple, and complete guide for beginning investors from bestselling author Mary Buffett and Sean Seah that explains Warren Buffett's techniques of Value Investing and his proven strategies to ensure long-term success. For twelve years, Mary Buffett was part of the Buffett inner circle. During that time, she studied Warren's investment strategies and techniques and observed his habits. Now, in 7 Secrets to Investing Like Warren Buffett, Mary and Sean Seah provide a complete guide for beginning investors who want to understand how to invest like Warren Buffett.Mary and Sean walk readers through the process of assessing and buying stocks step-by-step. Their friendly and direct style and concrete examples make it easy to understand how to avoid common pitfalls and prosper in the stock market. The first section of the book discusses habits to adopt to begin a lifelong journey of wealth building. The second section examines specific stock-picking techniques inspired by Buffett's teacher Benjamin Graham and that are vastly different from the common Wall Street wisdom of trying to time the market. The authors look at timeless principles as well as latest ideas on where to find great investment ideas, and they share the specific financial indicators they look for in a good investment. Finally, Mary and Sean explain how to build and track a portfolio of stocks.From learning how to read financial statements to preparing both personal and professional balance sheets, 7 Secrets to Investing Like Warren Buffett is a must-have companion for every investor. Simple questionnaires, charts, and graphs help illustrate specific strategies. The authors' personal stories provide a clear explanation of the theory behind Value Investing, as well as advice for developing the necessary "soft skills"—habits, mindset, loving what you do, taking care of your mind and body—that have made Warren Buffett and many others so successful.

SECRET 1 THE POWER OF HABITS

CHAPTER 1 The Power of Habits

The chains of habit are too light to be felt until they are too heavy to be broken.

BENJAMIN GRAHAM

Habits define who you are, how you live your life, and the results you will get from your efforts. If you are overweight, it is very possibly due to not having the right eating and exercising habits. If you are broke, it is most likely because you are not practicing the right financial planning.

Truly wealthy people have habits that help them create wealth. But many people do not adopt empowering habits; instead they resort to get-rich-quick schemes, believing that one good investment, one jackpot, or one home run can change their financial destiny instantly and permanently.

On August 25, 2017, CNBC published an article stating that lottery winners and other people who receive financial windfalls tend to squander their newly found money and end up being worse off than they were initially.

Why is that so?

The answer is simple. It is akin to people who go on a crash diet hoping to lose weight quickly. This may work in the short run, but your body is unlikely to maintain the weight loss over time. Most people eventually give up and eat more than they did before to compensate for what they’ve been missing, and they gain weight.

Fast results seldom work.

Warren once said, “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”

What is the sensible path?

Take your time. Have patience. Be disciplined.

Remember, Rome was not built in a day. You can adopt sustainable and consistent actions that help you achieve your goals. Although results do not materialize overnight, the good news is that as you start to adopt good habits, you will be rewarded with small achievements. The key is to be disciplined and persistent.

In the following chapters, I want to share with you the important habits of wealthy and successful people. Adopt good habits, and you will start noticing positive changes in your life.

CHAPTER 2 Watch Your Spending

WARREN’S OLD CAR

Warren once shared an interesting story with me. For many years, he drove an old Volkswagen Beetle. People knew he could afford a new car and thought that the reason he kept driving the old was that he was cheap.

Rather than being offended by their opinion, Warren said, “Look—a new car will cost me $20,000. And 30 years later, it is going to be worth nothing. In fact, it may not even last for 30 years.

“However, if I compound $20,000 annually for 10 years, it is going to be about $150,000. In 20 years, it will probably become $1.5 million. And in 30 years, it’s going to be worth $9.9 million!

“$9.9 million! That’s just too much to pay for a car!”

Warren habitually thinks about purchases in terms of how much the item will be worth in the future, when its cost is compounded. If you can adopt this thinking whenever you are about to buy an unnecessary piece of apparel or a gadget, how much money will you be able to save and compound in 30 years’ time?

Which comes first? Savings or spending?

Warren said, “You know, most people spend first, and save whatever’s left over. But in fact, what you should do is to save first, and spend whatever you have left.”

Believe it or not, this small reversal in thinking can make a drastic difference to your life.

The next time you receive your paycheck, set aside at least 10% of it as savings. You can then spend the remaining amount with peace of mind.

Later in the book, I will talk about what you can do with the money that you set aside. For now, it’s important for you to adopt the mind-set that every single penny counts.

EVERY PENNY COUNTS

There was a time when Warren was in New York City and found himself in an elevator with some strangers. He was so famous that everybody in the lift knew who he was.

All of them couldn’t help but notice that there was a penny on the floor, but no one did anything about it. Finally, Warren bent over, picked the penny up, and declared, “A penny! On my way to the next billion.”

So, how do we find that extra penny?

FINDING THAT EXTRA PENNY!

When my son, Sam, was in college, I paid all of his expenses, including lodging and tuition. Every month I sent him a few hundred dollars so that he could occasionally go to restaurants instead of having every meal in the school cafeteria. But every month he would run out of money and ask for more.

One day I visited him at school, and while I was driving him somewhere, I asked, “Sam, what are you spending the extra money on? You have everything.”

He replied, “Well, I don’t know, Mom.”

Before I could continue the conversation, he suddenly pointed ahead and said, “Oh, wait, can we just stop here? I want to get a cup of coffee.”

I pulled over, followed him into a Starbucks, and watched while he bought a cup of coffee that cost more than $5.

Out of curiosity, I asked, “How many cups of coffee do you drink a day?”

“I don’t know,” he replied. “My friends and I stay up late most nights, so we buy Starbucks. Probably a couple of cups per day.”

Shocked by his answer, I stared at him and replied, “If you’re spending $10 a day, 365 days a year, you are spending thousands of dollars on coffee.”

Once we got back to the car, I drove straight to a discount store and bought Sam a coffee machine. Then I went back to Starbucks and bought a Starbucks cup.

I gave the two items to my son and announced, “Make your own coffee, son. Put it into this Starbucks cup, and you’ll look cool.”

Fortunately, Sam followed my advice and has managed to save thousands of dollars every year as a result.

BUILDING UP YOUR SAVING MUSCLES

In one of the workshops Sean and I conducted, a participant provided a very useful suggestion to help people start saving.

He suggested that we practice saving by taking a small step every week and progressively increasing our commitment. He said, “This is what I did. I saved a dollar in the first week. In the second week, I set aside two dollars. And the third week, I saved three dollars. By the 52nd week, my savings became $52 a week.”

This method illustrates three important concepts.

1. Progressiveness
   Very often, people tend to set ambitious goals. If they cannot achieve their goals within a short time, they tend to give up. That is why it is important to start small in order to get the momentum going.
2. Increasing milestones
   One reason many people find it difficult to build positive habits is that it gets boring after a while. When something is new, people are excited about it, but they soon get bored with it. Eventually, when the excitement has passed, many of them just give up.
   However, changing our goal every week makes us look forward to the next week as the challenge becomes harder and more exciting. It’s like playing a game. As we progress to the next level, the goal becomes more challenging. This is probably the reason why people become addicted to games. Make saving into a game and become addicted to it!
3. Consistency
   With a better understanding of these three important concepts, you can apply them to help you build a good saving habit. The starting amount does not matter. What is important is to begin taking action!
   Consistency is the key to building our muscle memory and turning something into a habit!

CHAPTER 3 Find a Job You Love

Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your résumé. Isn’t that a little like saving up sex for your old age?

WARREN BUFFETT

If you were to map out how you spend your time while you’re awake, most people would agree that they spend most of the time working once they have stepped into the workforce.

Do you love what you do at work? If you don’t, you’re spending a big part of your life doing something that does not bring you happiness.

Warren used to say, “Many people work just for money. As they don’t love their jobs, their unhappiness builds up over time. Many end up bringing their negative emotions back home, instead of bringing happiness to their children and family members. So really, you have to be doing something that you love.”

HAPPY PEOPLE, GREAT RESULTS

In many companies that Warren bought, the management stayed on because they loved their jobs. A great example is Mrs. Rose Blumkin, who is often known as Mrs. B. She sold Nebraska Furniture Mart to Warren when she was 89 years old and continued to work for the company until she turned 104.

In fact, she took only one vacation in her entire working life, and she hated it. During her holiday, she missed her job so much that she could not wait to get back to it. Under her management, Nebraska Furniture Mart grew exponentially, increasing its revenue year by year. That is the power of passion.

Passion does not just trigger happiness. It also increases our productivity....