Warren Buffett is the most respected investor in history, known for his approachable demeanor and insightful quotes about the art of investing.
When aiming to reach the summit, following in the footsteps of successful predecessors is often a wise choice. By learning and applying Buffett’s best investment techniques, the probability of investment success will increase.
Here are Buffett’s top 10 classic financial principles.
One of Buffett’s most popular quotes is: “Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.” If you are constantly losing money, it becomes increasingly difficult to return to square one, let alone turn a profit.
In his 2008 letter to Berkshire Hathaway shareholders, Buffett shared another crucial principle: “Price is what you pay; value is what you get.” When the price you pay does not match the value you receive, losses may occur. For example, paying high interest on credit card debt or buying items with minimal utility.
On the contrary, live a modest life like Buffett and seek opportunities to get more value at lower prices. Buffett wrote, “Whether socks or stocks, I like buying quality merchandise when it is marked down.”
In a speech at the University of Florida in 2007, Buffett said, “Most behavior is habitual. People often say that the chains of habit are too light to be felt until they are too heavy to be broken.” Strive to cultivate positive financial habits and eliminate those that harm your wallet.
Buffett’s wealth accumulation comes from making interest work for him, rather than working to pay interest like many Americans do.
Buffett once said, “Credit card interest rates are very high. If I borrow money at an 18% or 20% interest rate, I will go bankrupt.”
Another key to ensuring safety is always maintaining a cash reserve. In the 2014 Berkshire Hathaway annual report, Buffett stated, “We always keep the equivalent of at least $20 billion in cash.”
According to Inc.com, Buffett once said, “Invest in yourself as much as you can. You are your own biggest asset so far.” He also expressed the same view in an interview with CNBC: “Any effort you make to improve your skills and increase your value will be rewarded with corresponding real purchasing power.”
These rewards are also very lucrative. Buffett said, “Anything you invest in yourself will get a tenfold return.” And unlike other assets and investments, “No one can tax it; they can’t steal it from you.”
Part of investing in yourself includes learning more about financial management. As an investor, most of Buffett’s work involves minimizing risk. Buffett once said, “Risk comes from not knowing what you’re doing.”
The more you understand about personal finance, the lower the risk you can take, leading to greater peace of mind.
Buffett encourages ordinary investors to buy index funds. “Put 10% of your cash in short-term government bonds and 90% in low-cost standard & Poor’s 500 (S&P 500) index funds, Buffett has been giving this advice for many years.
At the 2004 Berkshire Hathaway annual meeting, Buffett said, “If you invest in low-cost index funds, not as a lump sum, but averaging over 10 years, your returns will be better than those who invested 90% at the same time.”
According to Forbes, Buffett once said, “If you are among the luckiest 1% of humans, you owe it to the rest of humanity to think about the other 99%.”
Even if you’re not a billionaire, you can still enrich your life by giving back to society.
Buffett once said, “Someone is sitting in the shade today because someone planted a tree long ago.” Planting and nurturing the seeds of financial success now will provide shade for future life. This shade may include freedom from debt, a secure retirement, or the ability to pay for your children’s college education.
Accumulating true wealth takes time and may involve financial challenges during the investment process. But viewing finances as a lifelong career can help stay on track in adversity and build a lasting financial foundation.
(This article is for general information purposes only and is not intended as a recommendation. Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or other personal finance advice. For specific investment matters, consult your financial advisor. Epoch Times does not assume any investment responsibility.)