5 Takeaways from Warren Buffett’s Life Will Change Your Perspective of Managing Finances
“Never depend on a single income. Make an investment to create a second source.” — Warren Buffett
Warren has always wished to be a teacher(as stated by his sister in his documentary) and he has been mentoring budding entrepreneurs across the world with not only his wise sayings but also through his vigilant and smart moves that he had made over time. Warren’s teachings have lead many across the globe to enormous wealth and business expansions but here are few takeaways I find most significant from all his wise sayings…
Start Making Smart Investments At the Right Time
Someone’s sitting in the shade today because someone planted a tree a long time ago. — Warren Buffett
As I went through the documentary of Warren, the one thing that was recurring in the complete documentary is “Knowing When to Invest”. While most of us writers are already investing a lot of time in the process of writing and making money out of it but what we also need to understand is that where are we supposed to invest the money that we make from our Skill?
A recent report from Morning Consult suggests that just 39% of adults who are saving for retirement started in their 20s, despite half of the respondents saying that people should start saving during those years. Just over a quarter of Americans began saving in their 30s, 15% in their 40s, and 6% in their 50s.
According to Warren, one must start investing from the very first day he has that extra penny in his pocket. At some or the other time in our lives, we must have those extra funds staying with us either in our closets or in our secret difficult to find lockers that are just kept idle and are not going to grow themselves. What I have found is that even if I grow my money by 0.01% each day it can turn out to be 3.65% each year and I am talking about the same money that could have been kept idle if I wouldn't have invested AT ALL.
Develop Your Circle of Competence
Wide diversification is only required when investors do not understand what they are doing. — Warren Buffett
We all have a zone of comfort in our lives but what if I tell you that your money could also have a Zone of comfort, according to Warren, he calls it the “Circle of Competence”. We all work hard for financial freedom in our lives and try different ways to make ourselves financially sound but what we forget during the course is that we start trying everything possible in order to make a profit from every penny that we have. Sometimes it turns out that we make a Profit out of the investment while sometimes we end up in losses and decide to quit the path of generation of that extra income we all desire.
I started investing money that I had saved over the past two and half years with my brother who has a good knowledge of the stock exchanges and works really hard to analyze each and every aspect of the company before investing anything into it. His methods of doing researches in various sectors seemed pretty simple to me and that's when blunders started happening.
I started thinking what if I could invest on my own? Why do I have to wait for him to invest my money? Why can't I do it myself? This is the time when I opened my trading account and started trading. Initially, it felt pretty easy to just read the news articles, look for the companies that have made profits in the recent quarter, and invest in the money, and guess what? It initially turned out to be a huge success for me to book profit on my very first trade. I started feeling that the grass is actually greener on the other side.
My very first successful trade triggered the “Pseudo-Trader” in me and then I literally started trading in multiple companies at the same time, this time the only and most important thing that was missing in my trades was the “Research”. As one can easily predict, I started losing my money, not only the ones that I had made from my initial trades but also the ones I had saved over the years.
Losing 5000 bucks just two days after making the first profits gave me a very important lesson in my life and that is “ I breached my Circle of Competence”. As Warren stated in his documentary, “it is very important to know your circle of competence”, you must know where to invest your money and more importantly you must not invest in all the companies you find interesting instead invest in the ones you have a good idea about.
Building the Moat
“Rule Number One: Never Lose Money. Rule Number Two: Never Forget Rule Number One” — Warren Buffett
A moat is actually a deep, broad ditch, either dry or filled with water, that is dug and surrounds a castle, fortification, building, or town, historically to provide it with a preliminary line of defense. Warren in his documentary asks to build, a similar deep ditch of defense in our lives for the sake of “Financial Security”. While we move ahead with growing our money we also want it to be safely invested, he suggests we keep some amount of money with us instead of investing it all.
This way we can build a financial moat by having a particular amount of savings with us at all times, so that we can use them in emergency conditions when we need it the most, as in this pandemic when the jobs of many are lost, most of us are getting salary cuts every month due to the great economical effect this pandemic has on the world economies.
Having a financial moat not only helps us in overcoming the tough times but it also has a subconscious effect on our minds that we don't have to pull our investments for the sake of sustaining our lives in the tough times!
Don't Be Smart, Be Patient!
“Assiduity is the ability to sit on your ass and do nothing until a great opportunities presents itself” – Charlie Munger
There’s a popular saying by Warren: “Our favorite holding period is forever”. It is not just any statement that he has given, he literally means it. Warren is seen as a value investor by the world, it is not because some arrows launched by him have accidentally hit the target, it’s because he believes in investing for a longer time period, this is what outcasts him from the others.
Warren in his documentary made a very strong statement which has really made a huge impact on my perspective of investing, he says: “the biggest thing in making money is time, you don’t have to be critically smart, you just have to be patient!!”. Those who are reading this article and have made a trade at some time in their life would totally relate to making this mistake of selling or buying the assets in a shorter span of time. We all make such mistakes of selling the investments when the markets Seem volatile to us, instead of holding them and waiting for the long run.
This way we not only lose a substantial amount of money by selling our assets for a valued price but we also make ourselves more vulnerable for the future trades or investments that we make. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”, this line quoted by Warren best explains what we must do when such situations arrive.
The Burdened Hustles
“The important thing to do is to look for the job you would take if you didn’t need a job” — Warren Buffett
We all at some point in time come to know what is important for us in life and what isn’t. The point is that some of us are happy doing the job that we always wished for but a few are still left with compromise in their lives and that is where it all starts. We all have got stomachs to fill and for that, it is very necessary for us to do something which brings us stuff to fill it up. But at times it becomes very difficult for us to cope up with the luxuries in our lives, there are times when making sacrifices seems important and that is exactly the time we never want in our lives.
According to Warren, “The world is a great movie to watch, but, you don't want to sleepwalk it”. These lines have such a deep insight that we are here to enjoy our lives but we cannot keep on making haphazard decisions in our lives that drop us to a level where even sustaining seems impossible. What I strongly believe is that “The important thing to do is to look for the job you would take if you didn’t need a job”.
Disclaimer: “I do not provide personal investment advice and I am not a qualified licensed investment advisor. I am an amateur investor. All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment, or educational purposes only and should not be construed as personal investment advice. While the information provided is believed to be accurate, it may include errors or inaccuracies.”
