Principles of Financial Success: Billions of Reasons to Think Like Warren Buffett

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When one of the world’s richest men talks, people listen. Credit: Mark Hirschey

No, he’s not the guy who sang “Margaritaville” in 1977.

Warren Buffett is a self-made entrepreneur, number three on the most recent Forbes list of billionaires, with a net worth estimated at $44 billion.

Whenever someone of that degree of financial acumen is discussed in any context, the average person starts to think about the last episode of Survivor, or whether Coors tastes better than Budweiser — most people cannot envision that he’s relatable in any way, shape or form to the average person working 40 hours a week at the rendering plant, but they’re wrong.

Granted, there may be a passel full of additional zeroes on his balance sheet, but the concepts used to get there are the same, no matter how many digits we’re talking about.

Warren Buffet’s Financial Beginnings

One could do far worse than follow the precepts of someone who started early, purchasing three shares of stock at $38/share when he was 11, eventually selling them for a modest profit. He later kicked himself for his lack of patience when it climbed to nearly $200/share. During his youth, he had a paper route, a horse-racing tip sheet, and a vending machine business; he finished college at age 20 with almost $10,000 earned from his various businesses.

Buffett has certainly taken chances throughout his investment career. Without accepting any degree of risk, one cannot expect more than a modest return. And yet, there are ways to achieve a reasonable balance between risk and reward, as well as hedging strategies to avoid putting all eggs in one basket.

There’s no reason to reinvent the wheel. You, too, can dramatically improve your personal net worth by shifting your priorities and diversifying your investment strategies. You may not end up with $44 billion, but you can garner at least a few of those zeros while putting yourself on solid financial footing for the long term. That said, the following are five of Buffett’s most apropos quotes and how they can pertain to anyone:

Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No.1

This principle is a bit tongue-in-cheek because, let’s face it: we’ve all broken that rule, either overtly or by association. We took a flier on a stock that went down the drain, gave away half our money in a divorce settlement, backed cousin Joe’s ridiculously bad business venture, or put it all on that “sure thing” greyhound at the Tijuana dog track. Buffett has been quoted as saying he’s done some “dumb things” himself. Having said that, however, avoiding fads, doing careful research, and investing with a conservative eye pays off more often than not. Furthermore, diversifying risk by spreading the money between multiple investment categories such as stocks, bonds, real estate, and cash — and splitting it further into subcategories within those groups — allows one to generate returns with far less  concentration of risk.

It is better to hang out with people better than you. You’ll drift in that direction

There’s a weird, unspoken taboo about finances and money in our culture. We don’t ask what someone makes, and we don’t talk about their finances. However, the exception to that rule is this: successful people are like proud parents. They want to talk about their progeny. Stroke their ego, while helping yourself to their vast array of knowledge.

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