"An idiot with a plan can beat a genius without a plan. " - Warren Buffett
I'm a huge Warren Buffett nerd and I've collected all of his key wisdom nuggets from all over the internet. Here they are:
1. Your greatest asset is, you.
A famous question from him: "Imagine you offered a 17-year-old a free car, any car they wanted. But the caveat was that it had to last them a lifetime." They’d likely read the owner’s manual dozens of times and change the oil twice as often as recommended. We each receive one body and one mind. You can’t wreck it by age 60 and expect to be able to repair it.
2. Learn Accounting.
Buffett recommended to learn accounting by reading as many annual reports as possible. If you understand accounting, you’ll understand how to invest. If you can’t understand the accounting, it’s because management is hiding something.
3. How to Hedge Inflation.
Buffett stated that while gold is frequently mentioned as the finest inflation hedge, practically any physical asset functions as a decent hedge. However, Buffett prefers physical assets that produce something, like agriculture land and oil rigs. Gold could act as a hedge, but in the long-term it’s not producing any economic value. The best inflation hedge is a product or brand where you can raise prices to keep up with inflation.
4. The Root of Evil.
Buffett served on the Salomon Brothers board, where he discovered a financial lesson: Greed is not the root of all evil. Envy is. If one employee at Solomon received a $10 million bonus, he would be pleased until he learned that a colleague received a $10.1 million bonus. He would then be miserable.
5. On Leverage.
Buffett predicted in 2007: The amount of leverage created by derivatives would end in disaster. However, the lesson is not to time a downfall. The lesson is to keep your own leverage manageable. You can have 10 great years, but if you get wiped out in the 11th year, your overall return is -100%.
6. Returns vs. Size.
Buffett cautioned investors in 2008 not to anticipate future returns to be comparable to Berkshire's previous results. As Berkshire rose to become the 11th most valuable US firm, it would need to consider purchases of $50 billion or more to make a difference. Simply said, there are more businesses in the $20 million to $50 billion valuation bracket at better prices. If you’re good at managing money, you can surpass 80% IRR returns if you manage $50 million. But it's very hard to do while managing $1 billion.
Thanks for reading…
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