Learn From Warren Buffett How To Save Money
In the world of investment and savings, Warren Buffett is more of a cult. Not only is he respected by the entire savings and business community globally, his uncanny sense of humor and easy style of communication simplifies the whole art of investing wisely in stock markets.
So if you are planning to get rich and actively looking at generating profit via investment in stocks, going with the mantra of the Oracle of Omaha is a wise move. So what exactly would be the top 10 savings tips from Warren Buffett? Here is a quick lowdown on his style of investment.
1. Make Healthy Savings Habit
Buffett maintains that saving is a habit. While addressing the University of Florida in 2007, he had once said that ‘habits are changeable but the earlier you start, the better.’
In this context, he feels it is always a good idea to initiate a habit of saving quite early on in your investment cycle. The small savings that you make every week or every month might not appear a lot initially but over a sustained period that capital can often emerge as very helpful to build higher gains on.
2. Reinvest Profits
Taking forward this savings agenda, the next tip from Buffett is to always remember reinvesting the profits. He often says that the first time when you make money in the stock market you are often tempted to spend it. Instead, he feels that should be invested.
When the man who amassed a whopping $174,000 worth over $1 million in today’s by age 26 says this, it surely carries a lot of weight and manifests the true value of his savings and investing policy.
3. Look for High Value & Not High Price
The Oracle of Omaha is perhaps one of the best ambassadors of betting on value buys. He says not only should you look for value buys but also look at holding them for a while. If you cannot own a stock for ten years, no point in owning it for ten minutes even. This is a good lesson for those who want to get rich trading the shorter time frames.
In fact, if you see some of his top buys for 2016, it includes stocks like Apple, Phillips and Liberty Global. It is needless to mention these are some of those counters that are in the news for hovering close to fair value levels at the moment. After all as Buffett says, ‘price is what you pay, value is what you get.’
4. Never Lose Money
This is perhaps one of Warren Buffett’s most talked about investment advice. He insists that it is always more difficult to get back if you are working from a loss, forget about earning gains.
This, he reiterates, is the basic of investing in stock market and one of those rules that seldom go wrong when it comes to booking profit in the stock market. He recommends an absolute ruthless approach for dealing with loss-making propositions. Averaging out is never an option in the books of the Oracle.
5. Avoid Debt
He feels that one should accumulate wealth by getting the interest to work for them instead of working to pay the interest in the form of credit card debt. Leverage or borrowed money especially in the form of credit cards is something that Buffett is extremely wary about and the rate of interest just too high to justify those loans.
6. Cash in Hand Is Important
Cash reserve in hand is a sure way to establish security, especially in terms of financial stability.
Talking of his firm Berkshire Hathaway’s annual report way back in 2014, he once mentioned that the company always maintained cash reserves/cash equivalents close to $20 billion. Often in the entire investment cycle, it is this reserve that comes in handy in terms of keeping a float especial during challenging times.
To him, cash is like oxygen to a business for both effective functioning as well as able preparedness for future inevitability.
7. Don’t Be Scared To Be Different
An able investor is not one who blindly apes what another successful investor might have done or achieved but on the contrary, understands what their target is and works on it as methodically as the mentor might have.
In the bargain, Warren Buffett says, it is no harm being different. He says there is no need to follow the crowd; instead, a successful investor should look for undervalued counters that might be available for a bargain.
After all, when he began to manage money way back in 1956 with mere $100,000 in the kitty sitting in Omaha instead of Wall Street, there are many who predicted he would fail. Surprisingly, he proved them all wrong and emerged as the greatest investment guru of this century.
8. Watch for Small Expenses
Often, during the course of one’s investment journey, there are many small expenses that we tend to ignore but surprisingly together when viewed in hindsight they come across as a formidable figure that you could be wondering why you did not invest instead.
It is this extreme vigilance that made him once buy a company where the owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated.
9. Tenacity Helps
In the world of investment, it never helps to lose patience. Instead, it is important that one should stay put and move ahead with diligence and tenacity.
As the Oracle of Omaha often mentions, patience pays.
10. Know When to Exit
That, however, does not mean that you should keep patience with your eyes shut. Just like an able investor needs to be vigilant in spotting a value buy, it is equally important that they should know exactly when to quit and exit positions from a certain investment.
Buffett always cites the experience he had at a racetrack where he lost first time on, again bet on another race to recoup the previous loss, and lost even more, leaving him practically with nothing.
In Buffett’s words, smart investment is as much about tenacity as it is about flexibility. It needs both vigilance as well as patience. But the cardinal rule remains the same, never lose money.