5 Things You Should Learn From Warren Buffett

If you follow Warren Buffett's investing principles, you are likely to have a good shot at materially improving your long-term investment returns.

Aug 25, 2014 at 8:00AM


Source: Flickr.

There is a reason Warren Buffett has pushed Berkshire Hathaway's market capitalization to approximately $324 billion over the last couple of decades. In addition, Buffett has become one of the wealthiest men with a net worth estimate of around $66 billion, according to Forbes.

But why is it that despite the fairly simple-to-follow investment guidance of Buffett, many investors are far from achieving the success Warren Buffett has?

A lot of it has to do with how the serious job of researching and investing is portrayed in the media as well as how our culture focuses on short-term trading instead of accentuating patience and sound investing principles. While both Warren Buffett and Charlie Munger, vice chairman of Berkshire Hathaway, advocate long-term investing, our society glorifies making fast money, preferably without any material effort.

The Buffett route to investing, though, appears to be more promising. If you apply these five key principles of Warren Buffett to your investing, you are already way ahead of the pack and may be even on the road to some serious money.

1. Buffett wants to be an owner
If you see yourself as an owner of a business instead of an unattached speculator, your thinking changes dramatically. Activity and volatility in the stock market are often driven by speculators who employ short-term trading strategies (including high-frequency trading from professional money managers).

It is part of the human condition that we want to be rewarded quickly. Buffett, on the other hand, excels at dismissing this natural urge and invests solely for the long term. His favorite investment holding period: forever.

2. Buffett buys at the right time
One of the best Buffett quotes, in my opinion, is: "Be fearful when others are greedy and greedy when others are fearful."

Buffett famously stays away from the crowd and often buys companies and stocks when nobody else would. Somehow, he mostly ends up on the right side of things. His stock and option purchases of Goldman Sachs and Bank of America at the height of the financial crisis certainly fall into this category.

3. Buffett stays away from activity
Do you ever ask yourself why there are so few Warren Buffetts in this world (investors who endorse value investing, religiously take advantage of compounding, and hold on to their investments for a long, long time)?

It's because most investors are actually not investors at all, they are speculators.

Speculators are inherently on the lookout for momentum and a short-term trade to make some quick cash. Buffett stays away from anything that "stimulates activity."

4. Buffett bets big on America
He believes in capitalism and America and famously said: "America's best days lie ahead."

Buffett wants to invest when stocks are on sale, and as such, it is not really surprising that Buffett endorsed America in a time of extraordinary distress during the financial crisis. He sees long-term growth opportunities in the United States, invests when others are scared, and remains unaffected by short-term economic weakness.

5. Buffett believes in the magic of compounding
"My wealth has come from a combination of living in America, some lucky genes, and compound interest."

This pretty much says it all: Compound interest is the way to make a long-term fortune. Investors can learn a lot from this simple investing wisdom: Make sure you reinvest as much of your dividends and bond income as you possibly can. Over the long term, compounding will work its magic.

The Foolish bottom line
If you really think about it, Warren Buffett's success principles are not that difficult to apply -- if you are aware of your shortcomings.

The biggest advantage you can gain over others is to think like an owner who wants to hold an investment forever. This likely dramatically cuts down your investment options, too, as there aren't so many top-quality companies going around.

Also, make sure you don't buy stocks when everybody else does. Buy them when they are cheap and nobody wants them.

Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett admitted this emerging technology is threatening his biggest cash-cow. While Buffett shakes in his billionaire-boots, only a few investors are embracing this new market which experts say will be worth over $2 trillion. Find out how you can cash in on this technology before the crowd catches on, by jumping onto one company that could get you the biggest piece of the action. Click here to access a FREE investor alert on the company we're calling the "brains behind" the technology.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information