What I Learned from a Conversation with Warren Buffett

by RJ

in Investing

So I didn’t actually get to sit and talk with Warren Buffett.

Although I do know him well, without ever having the chance to meet him. So well in fact, that I feel if I were to have a conversation with him I would be able to know what he was going to say.

This might sound backwards, so let me explain.

There are certain people whose lives I enjoy learning about. I read everything they write, I listen to everything they say, and I read the books they recommend. I want to know what makes them think the way they do.

Once I know how they think, I put them on my personal board of directors. Now, when looking for advice, I have someone to go to “outside” of myself. (It sounds weird but it works.)

Warren Buffett is one of those people. I have tried to listen or read to everything he has written or spoken. If he were sitting across from me, this is some of the advice I would expect him to give.

# 1 – A Penny Saved is Ten Pennies Earned

Buffett looked at each dollar he spent, not as just another dollar, but a dollar that was unable to go into his compound interest machine. Therefore, when he was unable to save a penny, the actual cost to him was ten.

# 2 – Don’t Make Things to Complicated

In High School, Buffett had a deal with a local barbershop that allowed him to put a pinball machine he owned into the store.  The profits from the machine were split between the store owner and himself.

Buffett started with just one machine in one store. Eventually, he took the profits he made from that store, bought another pinball machine, and made the same arrangement with another store.

He did this seven more times by the end of high school. Eventually, selling the company because it was too much work collecting the change.

To Buffett, making money was never difficult. He was never interested in reinvesting the wheel.

# 3 – Work for someone you Admire

According to Buffett, the best job shouldn’t be the job that pays the most, but the one whose boss you admire the most.

Buffet has said, “People ask me where they should go to work, and I always tell them to go to work for whom they admire the most. It’s crazy to take little in-between jobs just because they look good on your resume. That’s like saving sex for your old age. Do what you love and work for whom you admire the most and you’ve given yourself the best chance in life you can.”

The investor who Buffett admired most was Benjamin Graham. Buffett attended Columbia because that’s where Graham taught. Upon graduation, Buffett offered to work for free for Graham. Initially, he was turned down. However, after waiting a few years, Graham eventually hired Buffett.

Buffett has quoted Isaac Newton in the past when he has said, ““If I have seen further than others, it is by standing on the shoulders of giants.”

# 4 – Avoid Debt

What is really amazing about Warren Buffett is that he’s built up his investment portfolio, very similar to his pinball operation. Instead of using gains for spending money or interest payments, he has reinvested them. This method has allowed him to avoid ever getting into serious debt.

# 5 – Don’t Actively Invest

You would think that the greatest investor of all time, would encourage others to invest in the stock market themselves. However, Warren Buffett has said, “Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful and fearful when others are greedy, but don’t think you can outsmart the market. If a cross section of the American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors.”

# 6 – NEVER Stop Learning

In 2008, blogger Josh Whitford sent a letter to Warren Buffett, saying:

Dear Mr. Buffett,

My name is Josh Whitford, and I live in Fargo, ND. I am looking for a bit of advice. There are few things I know better than the fact that I truly do not know much. I do not seek knowledge but rather wisdom. I admire the foresight you have that has led to your success as a person. I would like to know what single piece of wisdom you would offer to someone you have never met.”

Inside of the letter, Josh included a prestamped postcard with his address on it.

A few weeks later, Josh received the postcard back from Warren with the advice, “Read, read, read.”

The thing I admire about Warren Buffett the most is his commitment to learning. Unlike most people who turn 80, Warren is only improving.

# 7 – Compound Interest really is Magic

Buffett started making money and investing at an early age. This little head start gave him a huge advantage.

“I packed my little snowball very early, and if I had packed it ten years later, it would have been way different than where it stands on the hill right now. So I recommend to students that if you start out a little ahead of the game – it doesn’t have to be a lot, but it’s so much better than starting out behind the game. And credit cards can really get you behind the game.”

Remember that little pinball operation Warren had? Say he sold it for $2,000, 60 years ago. Today, at the 20% rate Warren has come close to compounding over his lifetime, that $2,000 is now worth $112,695,029.

# 8 – It’s Hard to Make Mistakes Inside your Circle of Competence

Buffett has a simple rule that he’s never broken, he only invests in what he knows. Making decisions inside of his circle of competence, has led him to few mistakes.

For example, even though Bill Gates is one of his best friends, he doesn’t understand technology. In the 90’s when everyone was investing in technology stocks, Buffett stayed away. At the time, journalists were declaring that  Buffett was losing touch with reality. He was getting old and no longer had what it took to successfully invest.

Not so. When the tech bubble hit,  Buffett’s “boring” portfolio held its value. Even during the 2000’s, when journalists were declaring that it was a “lost decade for investors,” Buffett returned 12% per year.

# 9 – The Inner Scorecard

Buffett is one of the richest men in the world. This alone, makes millions of others perceive him as a success.

But to Buffett, just because others think of him as a success, doesn’t mean he is. Others people’s perceptions it what he terms the outer scorecard.

The real measure of success is the inner scorecard. The scorecard which you measure yourself by.

Want to Learn More?

If you want to learn more about Warren Buffett, read:


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{ 4 comments… read them below or add one }

DennisNo Gravatar March 4, 2011 at 11:59 am

Kudos on the article… great little read and spot on with what Buffett preaches. I would like to further stress the importance for all to read “The Intelligent Investor” by Graham (get the edition with commentary by Zweig).


Pat S.No Gravatar March 4, 2011 at 4:14 pm

Agreed. Very interesting take on Buffett’s lifestyle and the factors that have made him successful.


EricNo Gravatar March 7, 2011 at 6:21 pm

Makes me want a pinball machine. I also question how realistic small business ventures like that are for a 22 year old trying to bring in a little extra cash. But then I have to remind myself it’s that attitude that’ll keep my finances stagnant.


Afford-Anything.comNo Gravatar March 10, 2011 at 1:17 am

Often when you hear financial advice, it’s the same ol’, same ol’. This is never the case when listening to Warren Buffet.

While he repeats the classic (but true!) pieces of wisdom we all hear so much: avoid debt, reinvest your earnings, read often … he also advises actions that very few others discuss.

Sticking inside your circle of competence is one of these things. He did this beautifully in the dot-com era, to great results, even when financial magazines were mocking him (as the bubble grew).

I have another one to add: stay inside your circle of influence. People often complain that they can’t make money or become rich because of some external factor, like the recession. Or they devote their energy to talking, ad nauseam, about taxes or politics.

My advice: stop talking about things outside your control. Stick to your circle of influence, just as Buffet tells you to stick to your circle of competence. Do something if you can do something; if not, don’t waste your energy on it.


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