Raise your hand if you’ve heard of Warren Buffett.
Most people call him an investing genius. If you look at the numbers, it’s hard to argue that he’s not one of the most successful investors to ever live.
So what’s his secret? Is he a genius? Does he have superhuman abilities to predict the future? Was he just lucky?
While he’s no doubt an intelligent human being, Warren Buffett’s success doesn’t lie in his intelligence and abilities alone. Most of the reasons he became so successful have nothing to do with intelligence or talent but rather simple practices and philosophies that helped him grow his massive fortune over time.
These quotes from Warren Buffett will teach you how to live a better life, build a better business, and build wealth, without doing anything that you aren’t already capable of.
The ultimate lesson? Your decisions in life matter more than pretty much any other variable.
Learn to be a contrarian
On his investing strategy, Warren Buffett said:
Be fearful when others are greedy, and greedy when others are fearful.
Most smart investors will tell you that managing your emotions matters much more than your intelligence. Money causes people to make irrational decisions. And usually, the best opportunities are found during the most gut wrenching circumstances.
It’s one thing to talk about “buying when there’s blood in the streets” and it’s an entirely different thing to actually do it. Let’s go back in time to late March of 2020 when the pandemic started to become a real issue. The stock market plummeted sharply from one of its all-time highs. Many individual stocks took major losses of 50% or more.
People who bought stocks at a discount near the bottom of the market made massive returns in the months after, but it wasn’t an easy decision to make at the time. A stock market drop of 30 percent could easily turn into a 50 percent drop, leaving you at a loss that could take years to recover. Many investors will “panic sell” their stocks after these drops due to fear.
Nobody knew how the market would turn out. Nobody knew how the pandemic would turn out either. What if the stock market continued to tank without recovering? It takes courage to buy assets that nobody else wants at the time.
After the stock market rallied, tons of retail investors started buying stocks at all-time highs. Many of those investors let greed drive their decision-making, which led to them losing money when those stocks went back down. Usually, when euphoria is at an all-time high, a sharp and quick fall is around the corner. You cangain success and wealth by being a contrarian, but you have to master your emotions and handle the possibility of being wrong in order to do it.
He made 99.7% of his fortune after the age of 52. When it comes to investing, both in yourself and the financial markets, patience is the number one trait that will determine your success.
If you allow both to compound over long periods of time, you can build a wealth of knowledge and money. Many people don’t understand the counterintuitive process of compounding. In short, small gains can turn into huge gains. But most people never get great returns because they can’t bring themselves to sit and wait.
When it comes to financial investments, you’ll often have to watch your investments go through many drops in the short term to create long-term growth. Most people can’t stomach the dips. Also, Warren is known for his patience in deciding when to make a move:
The stock market is a no-called-strike game. You don’t have to swing at everything—you can wait for your pitch.
He passed on tech stocks during the dot-com bubble. For years, he didn’t invest in technology companies because he didn’t understand them well. He waits for opportunities he understands. Also, he’ll pass up on good companies that he can’t buy at a great price.
In short, he’s the opposite of most people when it comes to both investing and life in general. Most people lack the patience to let their wealth grow. Most don’t have the foresight to see how their lives will end up decades from now based on their current actions. Few people will consistently be fearful when others are greedy and greedy when others are fearful for decades either.
Think about how this investing mindset can apply to your life as a whole. Are you patient and ready to strike when great opportunities come your way? Are you giving yourself enough time to let your knowledge and skills compound? This is how you can do things like turning aside hustle into a full-time business, build a career you love, and have the financial flexibility that would improve your quality of your life.
Reading is a superpower
To build the knowledge and skills you need to compound in the future, you have to love learning. Warren’s business partner, Charlie Munger, had this to say about the relationship between learning and success:
I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines.
Both are known to spend the majority of their time reading and thinking. Most successful people, from CEOs to successful entrepreneurs are avid readers. It’s a cliche to say that at this point, but it’s still worth saying because the power of reading can’t be understated.
From Buffett himself:
I just sit in my office and read all day. I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business.
When you read, you get to absorb the experiences and wisdom of people who’ve spent years of their life putting those ideas together. Instead of trying to figure everything out for yourself, study those who’ve already done the work for you. Reading widely helps you build different mental models you can use to make smart decisions.
Take an investment, for example. You might need a combination of knowledge in different fields like psychology, biology, the environment, and economics to make a single sound decision. You never know exactly how the dots will connect when you study different fields, but often your learning will come in handy and help you seize opportunities.
Just like being patient and waiting years to see your investment returns grow, most people won’t do what it takes to become a learning machine. But if you do this, you’ll set yourself apart from everyone who stopped learning shortly after their formal education ended. Books are a cheat code to success and lifetime learning makes great results inevitable if you put that knowledge to use.
Follow the 5/25 rule to figure out what to do with your life
The 5/25 rule says that you should write down 25 opportunities or goals you’d like to achieve in a lifetime. After taking time to think about the list, cut it down to five items and put all your focus on them.
This is similar to earlier points like being patient, but it speaks to the power of focus. There’s an ancient saying, “He who chases two rabbits catches neither.” When you divide your attention too much, you reap fewer rewards overall.
Warren Buffett shares this mindset:
The difference between successful people and really successful people is that really successful people say no to almost everything.
Imagine going all out and succeeding on five major goals you have in your life. What would your life look like five, ten, or 20 years down the road if you chose to focus on getting good at a handful of things?
This rule teaches you to take your decisions seriously. This doesn’t mean you should spend your entire life in “paralysis by analysis” and never pull the trigger, but it shows how much due diligence goes a long way to determining your future success. Look at most of the lessons mentioned on this list so far. None of them are flashy or sexy but they work.
You don’t need to be a genius or have extreme talent to win. You simply need to do the things you know you need to do consistently. This skill is one of, if not the most, difficult yet rewarding skills to master.
You have to reach a point in your life where youcommit to some paths for the long-term. Yes, this means you might miss out on some opportunities. But, again, you don’t need to seize every opportunity to live a great life.
Try the exercise and use the results to help guide your future.
A path to wealth almost anyone can follow
You can build wealth without ever having to know anything about specific stocks. Most experts say you should choose this route vs. becoming a stock picker who tries to find the best stocks.
Among the various propositions offered to you, if you invested in a very low cost index fund—where you don’t put the money in at one time, but average in over 10 years—you’ll do better than 90% of people who start investing at the same time.
Data supports this. Most actively managed funds, funds that choose individual stocks,underperform index funds, and ETFs that track the success of a broad range of companies like the S&P 500.
InThe Psychology of Money, author Morgan Housel opens with a story about how a janitor retired with a million dollar fortune by doing nothing more than adding his modest savings into a basket of top companies, just as Warren advises.
Try this experiment to see how it can work in real-time. Go to thisinvestment calculator and see how much money you’ll have over long periods by adding money to your portfolio and making a modest return, say 8% per year. You’ll see the power of compounding.
Think of the 5/25 rule to decide whether or not you want to become a full-time investor instead of just passively building wealth over time. To become a great investor, Warren has this advice:
“If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”
For most of us, it makes the most sense to forgo the lifestyle of a hot-shot investor and simply maximize the income we get from our jobs and businesses by following a dead-simple personal finance strategy.
You’ll see the theme of simplicity running through each of these life lessons. You should feel relieved that you don’t have to reinvent the wheel to have an abundant life, career, business, or bank account.
Do the things few people will do to get results few people will get. Be patient. Focus. Wait for the right opportunities instead of chasing the hot new trends. Take the time to learn more about yourself and the world. Instead of following the crowd, build conviction in your own beliefs through your patient studying and focused efforts in the fields that interest you.
We live in an amazing time to be alive. With technology and internet access, you can build a career and live tailor-made to your tastes, wants, and needs—but you’ll never reach your goals with shortsighted thinking and a lazy or unfocused effort.
Imagine a future where you get to look back on your accomplishments with pride because you decided to say no to most opportunities. Think about the quiet confidence you’ll build over time by sticking to your guns through the ups and downs. And, last, picture that monster bank account you will create by just sitting back and waiting for it to grow.