With an estimated fortune of $73 billion, Warren Buffett is one of the richest men in the world – certainly the wealthiest stock-market investor to walk on this earth. In 1962, when he began buying stock in Berkshire Hathaway, a share cost $7.50. Today, Warren Buffett, 84, is Berkshire’s chairman and CEO, and one share of the company’s class A stock worth close to $215,000. He credits his astonishing success to several key strategies, which he has shared in books, interviews and Berkshire Hathaway’s annual reports over the years . Here is a list of 10 of Warren Buffett’s money-making secrets — and how they could work for you.
1. Reinvest Your Profits: When you first make money in the stock market, you may be tempted to spend it. Don’t. Instead, reinvest the profits.
Warren Buffett learned this early on. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Warren Buffett used the proceeds to buy stocks and to start another small business. By age 26, he’d amassed $174,000 — or $1.4 million in today’s money. Even a small sum can turn into great wealth.
2. Spell Out The Deal Before You Start: Your bargaining leverage is always greatest before you begin a job — that’s when you have something to offer that the other party wants.
Warren Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Warren Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance — even with your friends and relatives.
3. Be Willing To Be Different: Don’t base your decisions upon what everyone is saying or doing.
When Warren Buffett began managing money in 1956 with $100,000 which he managed to raise from a handful of investors, he was dubbed an oddball. He worked in Omaha, not Wall Street where all the money managers were. People predicted that he’d fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Warren Buffett, the average is just that — what everybody else is doing. to be above average, you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and not the world’s.
4. Know When To Quit: Once, when Warren Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick — he had squandered nearly a week’s earnings. Warren Buffett never repeated that mistake. Know when to walk away from a loss, and don’t let anxiety fool you into trying again.
5. Watch Small Expenses: Warren Buffett invests in businesses run by managers who obsess over the tiniest costs.
He one acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only on the side of his office building that faced the road. Exercising vigilance over every expense can make your profits — and your paycheck — go much further.
6. Limit What You Borrow: Living on credit cards and loans won’t make you rich. Warren Buffett has never borrowed a significant amount — not to invest, not for a mortgage. He has gotten many heart-rendering letters from people who thought their borrowing was manageable but became overwhelmed by debt.
His advice: Negotiate with creditors to pay what you can. Then, when you’re debt-free, work on saving some money that you can use to invest.
7. Be Persistent: With tenacity and ingenuity, you can win against a more established competitor. Warren Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator. To Warren Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.
8. Keep cash in reserve.
In many of Buffet’s deals he used all cash. He didn’t have to liquidate any investment. By having cash on the sidelines, he was able to pull the trigger with lightning speed.
When building your investment portfolio, keep enough cash in reserve so you can buy “opportunities” too good to pass up. At the same time, your cash will provide you with a cushion against unexpected events, so you never have to be a panicked seller.
9. Invest in what you know and understand.
Buffett invests in cars, planes, trains, catsup, razors, underwear, jewelry, furniture and boring insurance companies. There’s not a high-flyer among them, certainly not an Apple or a Google, but the staples he does invest in all make money over time. He invests in companies’ services and products that people use.
Tip: Review your investments to see if they will continue to have a place in the homes and family budgets of consumers when the next economic downturn takes place.
10. Know What Success Really Means: Despite his wealth, Warren Buffett does not measure success by dollars.
In 2006, he pledged to give away almost his entire fortune to charities, primarily to the Bill and Melinda Gates Foundation. He’s adamant about not funding monuments to himself — no Warren Buffett buildings or halls. “I know people who have a lot of money,” he says, “and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you’ll measure your success in life by how many of the people you want to have love you, actually do love you. That’s the ultimate test of how you’ve lived your life.”