Warren Buffett is the world's third richest man, with a current estimated net worth of upwards of $45,000,000,000. Most famous for his remarkable stock picking prowess, the Oracle of Omaha is also famous for his frugal lifestyle. So what can we learn about personal finance from a man whose personal wealth is so vast? A great deal, in fact.
Warren Buffett is frugal. Throughout his extremely successful investing career, Warren Buffett has proven his frugality. Buffett has lived in the same, modest home in Omaha for more than 50 years, drives his own American made car, and once named Berkshire Hathaway's private jet "The Indefensible".
Warren Buffett has lived in the same home for 53 years. Warren Buffett has lived in the same, five-bedroom stucco house in Omaha, Nebraska that he purchased for $31,500 since 1957, proving that Buffett understands that a home is a source of shelter, not a vehicle for capital appreciation.
Warren Buffett takes calculated risks. The legends of Warren Buffett state that his love of business started during his early years. During his youth, Buffett worked several different jobs, delivered newspapers, and even ran a pinball machine business. Warren Buffett began investing early, and although some of these ventures, including the purchase of a Sinclair gas station early in his career, did not prove successful, Warren Buffet clearly understood at an early age that taking calculated risks can offer great financial rewards.
Warren Buffett invests in stocks. As the third richest man in the world, Warren Buffett could choose any number of investment strategies to continue to grow his net worth and protect his capital. But Warren Buffett has chosen stocks. Specifically, Buffett has chosen large dividend paying blue chip stocks, which he has historically purchased during market downturns.
Warren Buffett doesn't trade, he invests. When asked what his favorite holding period for stocks is, Buffett is reputed to have stated "forever". Warren Buffett is an investor, and shows little to no interest in the short term vagaries of market pricing. He has proven unwilling to sell a stock unless something fundamentally changes in the underlying business, or he is better able to use the capital elsewhere in Berkshire Hathaway's investment portfolio.
Warren Buffett minimizes taxes. Warren Buffett is reported to have filed his first tax return in 1944, in which he took a $35 tax deduction for the use of his personal bicycle on a paper route. Warren Buffett's current salary is $100,000 a year. By maintaining investment in the stock market, Berkshire Hathaway pays the more favorable dividends and capital gains taxes on these investments, and Warren Buffett minimizes his income taxes.
Warren Buffett gives generously. Warren Buffet has pledged to leave 99% of his wealth to charity. Thats more than $44,500,000,000.
Want to invest like Buffett? There are a number of sites that offer further analysis on the techniques that Warren Buffet has used in the past. Be aware, no system will fully capture the brilliance of Buffett's investing style, but can get you started on the right track. For more information, here is a site to explore:
Great summary, Pat. I would add one point: Warren Buffett prizes reputation. He's spent a lifetime building it and really understands that a person's integrity is the one thing that no one can take from you but that you can easily loose on your own. Reminds me of his quote to a manager of his many years ago, something along the lines of "lose 100 million of this businesses' money, I'll understand, lose one shred of it's reputation, and I'll be ruthless!"
ReplyDeleteGreat point! Warren Buffett is at once a master of finance, and a master of public perception. If he wasn't, there wouldn't be such an interest in his life, investing strategy, and frugality.
ReplyDeletebecause the world knows that mr warren buffet is rich. he got nothing else to prove. no need to flash any mansions, cars, brand names and the likes. :-)
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