Warren Buffett’s ten secrets to wealth and life

Warren Buffett is the richest man in the world, yet his reputation for frugality, folksy wisdom, and straight talk make him seem like just a regular guy, like he might be the billionaire next door. He's one of my heroes.

Several Buffett biographies have seen print over the years — The Making of an America Capitalist, The Good Guy of Wall Street, etc. — but at the end of September, author Alice Schroeder will publish a new one: The Snowball: Warren Buffet and the Business of Life.

In the most recent issue of Parade magazine (a Sunday newspaper supplement), Schroeder shares ten of Buffett's “money-making secrets”, which she gleaned during hundreds of hours of interviews for her book. Though Parade has billed these as “10 ways to get rich”, I think they're actually ten sensible ways to deal with life in general. Buffet advises:

  1. Reinvest your profits. “Even a small sum can turn into great wealth,” Schroeder writes, if you're disciplined to not touch your profits. Let the power of compound interest work for you.
  2. Be willing to be different. Don't follow the herd. Do what is best for you and your situation.
  3. Never suck your thumb. Ah, how I could learn from this one. Buffett makes decisions quickly based on the available information. I tend to sit and stew about things. Acting decisively can give you an advantage and prevent procrastination.
  4. Spell out the deal before you start. I stress this all the time: Don't sign a contract unless you've read it (especially not a mortgage). Read the fine print. Understand the what you're getting yourself into.
  5. Watch small expenses. While it's true that the big things matter, the little things do too. Frugality is an important part of personal finance. But this principle also applies when investing, which is one reason I'm a fan of low-cost index funds.
  6. Limit what you borrow. “Living on credit cards and loans won't make you rich,” writes Schroeder. Sure, leverage can get you into a home or a new car, but too much debt is one of the biggest drags on your financial well-being.
  7. Be persistent. If you know what you're doing is important and right, stick to it. Doggedly pursue your goals. Learn to “fail forward”.
  8. Know when to quit. The other day, I wrote about the danger of the sunk-cost fallacy. Just because you've already paid $10 to see Indiana Jones and the Kingdom of the Crystal Skull, doesn't mean you should sit through to the end. Be willing to cut your losses and walk away.
  9. Assess the risks. “Asking yourself ‘and then what?' can help you see all of the possible consequences when you're struggling to make a decision — and can guide you to the smartest choice.”
  10. Know what success really means. Success is different for each of us. Find what it is that brings meaning to your life, what makes each day important. Make this your focus. Buffett says: “When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life.”

Parade also published a short piece describing how Warren Buffett made his first dime.

Although I consider Warren Buffett a personal hero, I realize my admiration may be more for the idea of Buffett than for the man himself. Still, I'm eager to read this new biography when it's released at the end of September. Maybe I should make it my selection for my monthly book group. (Nah, they'd kill me.)

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The Financial Philosopher
The Financial Philosopher
12 years ago

Buffett is a philosopher: His financial “success” has almost nothing to do with money and almost everything to do with the timeless virtues of simplicity, moderation, patience, contentment, and so on…

“I tell you that virtue is not given by money, but that from virtue comes money and every other good of man.” ~ Socrates

Thanks for the post…

Kent @ The Financial Philosopher

Corey
Corey
12 years ago

I’ve never understood Warren Buffett worship. He’s a speculator who, like a few very other select people like George Soros, has managed to be consistently lucky for a very long time. Here’s what Warren Buffett did: 1) Got very, very lucky on the stock market (and continues to be lucky) 2) Reinvested his profits by buying up companies, again got very, very lucky 3) Has artificially kept the price of Berkshire Hathaway stock high by perpetuating his homespun, humble image. In essence, he’s a guy that gambled on the stock market, gambled in M&A, and has been generally very lucky… Read more »

Moneyblogga
Moneyblogga
12 years ago

I like the analogy with Indiana Jones – how true. Knowing when to walk away is a big one. I couldn’t walk away from that dreadful crystal skull movie so I fell asleep instead. That could be a perfect analogy for me and my financial world.

bamboozlde
bamboozlde
12 years ago

out of no where comes a strong, much deserved right cross to Indiana Jones and the Kingdom of the Crystal Skull. and you worked it into a financial post with good advice. well done you.

Shanel Yang
Shanel Yang
12 years ago

Somewhere between No. 7 (“be persistent”) and No. 8 (“know when to quit”) is the true secret to success. But no one “knows” that answer for sure. The rest of the tips are solid gold! Thanks, J.D.!

Karen Putz
Karen Putz
12 years ago

#2 is the biggest key to financial success and all other success when you think about it.

Michael
Michael
12 years ago

Bah…I’ve gotta work on #3. Tomorrow.

Mo Money
Mo Money
12 years ago

I too think he is lucky, and he makes his own luck! Nobody can get to where he is on luck.

kick_push
kick_push
12 years ago

sounds like an interesting book.. i might have to get this one when it comes out

buffet is a personal hero of mine

Roger
Roger
12 years ago

Buffet may have had some luck, but I also think he is more than an investor – he also is a great manager. He often influences the management of the companies that he controls/invests in. Therefore, he may be good at seeing a company’s potential and then helping the company realize its potential.

Amanda
Amanda
12 years ago

There’s always a bit of luck involved in life- good and bad. Medical problems and natural disasters are a few things that are hard to control and may take a lifetime to overcome financially.

But no person can make it to the top of a profession, be it a gambler, investor, CEO, whatever, purely on good luck.

Warren Buffet is no exception. He has taken what luck life has given him and made his own fortune.

Daniel Gibbons
Daniel Gibbons
12 years ago

@2 (Corey): I’m not sure that you can put his success down to luck. It’s more about very disciplined value investing, even in the face of traditional boom / bust economic cycles. For example, Buffett to many seemed like a fool for missing much of the speculative frenzy of the first dot-com boom, and then was a genius when the bubble burst. But all he was doing was what he’s always done: looking for undervalued companies in growth sectors.

Mark Nelson
Mark Nelson
12 years ago

Being persistent and knowing when to quit.

To succeed in most things you have to be persistent. Yes, sometimes people will get lucky and hit a homerun right away but most successful people have a ton of failures on their way to success.

With that said knowing when to quit is a tough decision. If you are being bound and determined to make something work. When is the right time to pull the plug?

The Financial Philosopher
The Financial Philosopher
12 years ago

If Warren Buffett is “lucky” then so is Michael Jordan, Bill Gates, Tiger Woods, Donald Trump, Gene Simmons, and J.K. Rowling, just to name a few…

“Luck is what happens when preparation meets opportunity.” ~ Seneca

kick_push
kick_push
12 years ago

i agree it isn’t just luck that makes buffet who he is.. it’s the billionaire next door attitude (discipline in living a simple life) that makes him successful

BTGNow.net
BTGNow.net
12 years ago

Did anyone else find it ironically hilarious in the Parade article that one of the first things Mr. Buffett sold as a kid was…coca cola?

Let’s see, who owns a majority share in Coca cola…

http://www.btgnow.net

Corey
Corey
12 years ago

Guys – read up on efficient market hypothesis and “Random Walk” theory – the stock market is 100% random. The sheer magnitude of securities markets means that a few very lucky individuals will consistently beat very long odds and make a lot of money, and since money buys power, they tend to get famous and then we assume that they are responsible for their successes.

I admire Buffett’s post-wealth stances, especially his vocal opposition to dynastic wealth and the repeal of estate taxes, though.

J.D.
J.D.
12 years ago

“I’d be a bum on the street with a tin cup if the markets were always efficient.” — Warren Buffett I think Buffett would agree that the markets are generally efficient, but he’d argue that there are sometimes breakdowns in this efficiency. He looks for these breakdowns. I think he would also agree that some of what he’s accomplished is due to luck, but he would argue that much of it is due to patience and sticking to a defined set of rules. It’s important to note that he urges 99% of the population to NOT follow in his footsteps.… Read more »

Anna
Anna
12 years ago

Buffet didn’t make all of his money in the stock market. He first made money owning and then selling businesses.

He is a lucky guy who has the smarts to become successful. I like his advice, it’s simple and effective so anyone can do it.

MiningOilGasGuru
MiningOilGasGuru
12 years ago

Every quote Warren Buffet has ever made becomes an instant classic. I think it is because he speaks in the language of an average person. He is wise and likeable, I have never heard bad advice from him.

Thanks for the post,
MiningOilGasGuru

The Financial Philosopher
The Financial Philosopher
12 years ago

Corey, To add to J.D.’s comment, and to yours, there are certain areas of the market that are highly “efficient,” meaning that all of the information available about stocks are already priced into those given stocks and that any given investor could not, therefore, gain an advantage over any other given investor. Large cap stocks, for example, are highly efficient because an enormous amount of information exists about them. I could teach my 4-year old son how to determine if Wal-mart is a “buy” a “sell” or a “hold.” Small-cap stocks, however, are less efficient because there is less information… Read more »

Jesse Hines
Jesse Hines
12 years ago

I really liked Buffett’s #2: “Be willing to be different. Don’t follow the herd. Do what is best for you and your situation.” Frugality, budgeting, saving, minimizing expenses, increasing income–they all can be major components of getting one’s finances right. But…we’re more likely to stick with a plan that actually works for us if we focus on a few big impactful things and really stay with them. For each of us, those few principal things might be different. The key is to figure out, through trial and error, what really does work for our situation and is likely to be… Read more »

Fielding J. Hurst
Fielding J. Hurst
12 years ago

Buffet really doesn’t seem to give a squat what anyone thinks of him or his house, car, etc. For sure a big part of it.

Sara at On Simplicity
Sara at On Simplicity
12 years ago

You had to kick an old man when he’s down? (Indy, not Buffett, of course.)

As for the Buffett and luck conversation that’s sprung up, I’d have to say that even if his riches were all made on luck (which I don’t think is true), he’s a damn genius at PR. Either way, this dude was going to make it big in some way.

Beth
Beth
12 years ago

In the Parade magazine, I liked the comment he had about selling gum. He wouldn’t sell one piece of gum to a woman. That meant he would have had to break up the pack! Smart guy. I wonder if he’ll adopt me?

Ryan McLean
Ryan McLean
12 years ago

Hey, The advertising above your comments section shows a sexy woman with clevage hanging out to advertise for a dating site. I don’t know if you monitor ads but if you do I thought you should know seeing as you might not want this on your site. Now to the comment: Warren Buffet is a financial hero to many. He is the man when it comes to stocks. I have chosen to follow a different path to him by investing in my blog and other forms of making money online, but you can still learn so much from him. It… Read more »

J.D.
J.D.
12 years ago

If anyone can give me the URL included in the ad (or a screenshot), I can try to block it.

t
t
12 years ago

I work under the Berkshire umbrella and can attest to how St. Warren makes his money: hire pitbulls to do your dirty work, gut the existing benefit system to bring it to the lowest common denominator, micromanage all the creativity, enthusiasm and intellectual activity out of the company…and wrap it in a gee schucks package. Everyone thinks his brand of capitalism is different – but it’s not. If anything it is pure in the Walmart sense. I applaud his sense of largesse, but knowing where it comes from gives me pause. Let the arrows fly – I can handle it.… Read more »

susan
susan
12 years ago

“Limit what you borrow. “Living on credit cards and loans won’t make you rich,” writes Schroeder. Sure, leverage can get you into a home or a new car, but too much debt is one of the biggest drags on your financial well-being.”

Borrowing on a house (appreciating) and borrowing on a car (depreciating) are two different issues.

J.D.
J.D.
12 years ago

Good point, Susan. I was merely looking at a home and a car from the perspective of Big Life Purchases that often require debt to finance. You’re right that there are important differences between the two!

CrackingGold.com
CrackingGold.com
12 years ago

Save On Small Expenses

Funny. But We really do save a lot when we mind our small expenses. What I concretely recommend is to have a container where you could put,not just your loose change, but the money you would’ve spent for buying a small item or for getting a more expensive item. The funds from that will then be placed in your investment account. That’s a good practice.

RitaB
RitaB
12 years ago

I got kind of turned off by WB when I learned that he’s openly had a mistress for many years.

Seems like that might be painful for his wife and some family members.

tat
tat
12 years ago

The fact that WB is rich is not changing my
opinion about him as a person.He had very
complicated life like many of us. Money was
a game, a toy,a hard work. But I think he
never enjoyed fully a lot of opportunities
which money can bring to him , to his wife, to his mistress, to his children.
…At least traveling… He never saw THE
WORLD !!!….

Steven
Steven
12 years ago

@RitaB

Warren Buffett’s first wife, Susie, died several years ago of cancer. At the time of her death, they had been living apart because she wanted a life and a career of her own. It was an amicable separation. When Susie discovered she was ill, it was Susie who encouraged Warren to date his present wife. True, Warren and Anid lived together before they got married, this relationship had the blessings of all concerned.

Bill in NC
Bill in NC
12 years ago

“Borrowing on a house (appreciating) and borrowing on a car (depreciating) are two different issues.”

No, both are consumption (not investment) expenditures.

Residential real estate over the long term has returned about 1% over inflation – at best, it is an inflation hedge, not an investment.

Minimize both expenses (for most households, they are the top 2 consumption categories) to free up capital for investment.

Success Professor
Success Professor
12 years ago

What an excellent list. I tried to pick one favorite, but for me 5, 6, 7, and 8 are all priceless.

Thanks.

Marijan Sivric
Marijan Sivric
12 years ago

Great post!I wish I was Warren! It’s really a great list of “secrets”! I will try to follow these!

Mustang99
Mustang99
11 years ago

The reasons for a huge success or a massive failure are exactly the same ! – Take big risks. Thats exacly what WB did in his earlier years (he did not follow not one tip in the list). However, once he established himself as a successful investor (by some luck) he adopted the list and a strategy to exploit his name, charisma, whatever.

No wonder, there is not another WB made following his tips. So, my suggestion is to throw away the tips and take big risks if you have the appetite.

Egirl
Egirl
11 years ago

I got the audio version (8 CDs) of The Snowball and enjoyed it immensely. Naysayers can think whatever they want. I appreciate Warren Buffett’s overall investing philosophy and stand in awe of what he has built over his lifetime. He’s not a god, just a human being with an extraordinary head for numbers. I’m going to get Benjamin Graham’s “Intelligent Investor” next.

Dan
Dan
11 years ago

Warren would say he was lucky in the sense that he was born at the right time to the right parents and had an incredible aptitude and interest in numbers. His father owned a small brokerage and young Warren read everything he could find in his office. He was lucky to be accepted at graduate school to study under his idol of value investing, Ben Graham. He was lucky to begin investing when there were many value stocks to be found, if you knew how to identify them. Beyond that he worked very hard to build Berkshire from scratch. As… Read more »

Delicious Monsters
Delicious Monsters
11 years ago

I never invest borrowed money. When the market goes down you get hit by a double whammy.

Salman Rostami
Salman Rostami
11 years ago

I am a 23 year old young man in Iran. Among about 100 portraits of great men including Newton, Gates, … I chose Buffett’s as my laptop background. His life gives insight to me.
Thank you Warren.

Onome CCL
Onome CCL
11 years ago

W.B is a man of great insight and guts. He saw success in something and invested in it. I think thats more than just luck- foresight.

Shola from Nigeria
Shola from Nigeria
6 years ago

Ever since i’ve started working it has been too hard for me to save due to so many things on my list. But going through this artcle av leant so many things. Thank you.

Saifullah Khallid
Saifullah Khallid
6 years ago

Persistence,simplicity and common sense (which is not so common)are some of the factors contributing to Buffett’s success.

Emmy boy.
Emmy boy.
5 years ago

How wonderful are his tips. More of his pitfalls while in is growing days please!

DR. ART ABELLA
DR. ART ABELLA
4 years ago

The best advice that we can recall from Mr. Buffet is invest as what you do to a farm land, plant and have faith that it will bear fruit and that you can have a harvest.

DR. ART ABELLA
DR. ART ABELLA
4 years ago

The best advice that we can recall from Mr. Buffet is maintain austerity in times of fat cows.

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