When it comes to financial wisdom, few people merit as much attention as Warren Buffett. The man renowned as the “Sage of Omaha” built a billion-dollar empire from scratch, all the while maintaining modest spending habits that are the envy of every frugal people everywhere. Liz Claman of the Fox Business Network spoke with Buffett recently, andd shares some of his wisdom with MintLife:
1. When you’re looking to buy a stock, never EVER overpay for it no matter how much you want it. Look at the price-to-earnings ratio, how solid the management is, how much cash the company brings in from its operations and then make sure the price isn’t elevated beyond what’s reasonable. This takes discipline, but you’ll find that Buffett is the most disciplined investor on the planet. He sticks to his rules and never strays. And one of his favorite rules is, “Buy good stuff at cheap prices!”
2. Look for the ugly ducklings that you know will eventually turn into beautiful stock swans. He once said to me, “Liz, you never want to buy the quarterback who just won the Superbowl. He’s too expensive. You want to buy the guy in the hospital bed with his leg in a sling because you know he’s cheaper, and the odds are, he’ll get better and blossom.”
3. Be fearful when others are greedy, and greedy when others are fearful. It’s his way of saying, “Do not follow the herd. Be the contrarian. It’ll serve you well.” When the herd was running toward dot-com stocks in 1999 and paying ridiculous prices for companies that showed no profit, he remained disciplined (see #1) and stayed away. That way when the herd shifted direction, he didn’t get trampled. It works in the reverse as well. When everyone was running away from stocks during the financial crisis, he was elbow deep, buying up the names he’d wanted for so long but were too expensive. Suddenly they were ‘on sale’ and he had lots of dry powder to dive in.
4. Learn how to communicate. It shocks a lot of people to know that Buffett was incredibly shy and lacked all confidence even through his twenties. He finally forced himself to take the Dale Carnegie course, “How to Win Friends and Influence People”, because he realized the only way he’d be truly successful in life— even with his natural ability to allocate financial assets— was if he could communicate to potential investors. It took him quite some time to get up the courage to finally enroll in the course but it’s the only document he has framed and up on the wall in his inner office. Not his diplomas, not any awards, just the “Warren Buffett successfully completed Dale Carnegie’s course.” There’s something very poignant to me about that.
Liz Claman is an anchor at the Fox Business Network.