9 Can’t-Miss Secrets Behind Warren Buffett’s Wealth

Studying the success of investors like Warren Buffet is a cottage industry. A search for Warren Buffet on Amazon shows over 700 book titles. As one of the most successful investors in history, it makes sense to explore the principles and ideas he used to achieve his wealth. What characterizes Warren Buffet?

1. He Is A Dedicated Student of Investing

For investors simply looking to earn average returns, Buffet recommends investing in index funds (e.g. a popular type of index fund invests in the S&P 500 stock index). What if you want to join Buffet in seeking to very high returns, in excess of the market?

Be prepared to study and learn to follow in Buffets footsteps. Buffets study of investing goes back decades to his time as a student at Columbia when he studied with Ben Graham, author of The Intelligent Investor. Learning the details and methods of investing are the first secret of Warren Buffets wealth.

2. He Stays True To His Principles Even When They Are Unpopular

Do you remember the Dot Com era of the late 1990s? From an investing standpoint, the Dot Com era was strange indeed. Many people bought shares in companies that had little revenue or profit. At that time, Buffet avoided these trendy investments. That decision led some to question his judgement. In 2001 BBC article, Buffet points that, investors had been hypnotised by the staggering ascent of tech stocks and ignored everything else, including whether the businesses they were investing in were making money.

3. He Improved His Communication Skills Through Training

In order to have money to invest, Buffet understood that he had to increase his income and professional skills. When he was in his early 20s, Buffet took the Dale Carnegie course to improve his speaking skills. To keep his skills sharp, he then took up a part time teaching role at the University of Omaha. Public speaking is a skill that most people can learn with practice and training.

Resource: 5 Ways to Improve Your Communication Skills

Tip: Buffets advice to Columbia Business School students: improve your value with better communication skills.

4. He Reads For Hours Each Day

I read 500 pages like this every day. Thats how knowledge builds up, like compound interest. Warren Buffet

Daily reading is a key habit for Buffet as he seeks new information and opportunities. He reads far and wide: multiple newspapers each day, large numbers of financial reports on potential investments and books. For example, he reads The Wall Street Journal and Financial Times every day (his billionaire business partner Charlie Munger prefers The Economist).

Reading reports, books, newspapers and other material each and every day is much like compound interest. Over time, the knowledge he learns compounds and yields greater insights. Daily reading is a wealth secret that anyone can practice with the right discipline.

Tip: Become more effective in your reading: 16 Skills To Make Your Reading More Productive.

Tip: If youre in debt or learning the principles of money, start by looking up some good books: 20 Best Personal Finance Books You Should Read Now.

5. He Practices Value Investing Principles

Only buy something that youd be perfectly happy to hold if the market shut down for 10 years. Warren Buffet

There are many different investing approaches on the market: dividend investing, index fund investing, value investing, and so forth. Buffets approach is fundamentally based on the value investing principles developed by Ben Graham in the mid 20th century. According to Investopedia:

Value investing: The strategy of selecting stocks that trade for less than their intrinsic values. Value investors actively seek stocks of companies that they believe the market has undervalued. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with the companys long-term fundamentals. The result is an opportunity for value investors to profit by buying when the price is deflated.

The great challenge lies in identifying the intrinsic value of a company and then having the courage to put your money on the line.

Resource: Value Investing Resources (Graham And Doddsville)

Resource (PDF): The Superinvestors of Graham and Doddsville by Warren Buffett (a short explanation of Buffets investment approach in his own words

6. He Builds Wealth Slowly

Unlike the technology entrepreneurs of today, Buffet earned his wealth slowly over many decades. Attempting to get rich fast is a recipe for disaster that tends to lead people to taking foolish risks.

7. He Limits Personal Indulgences

Buffet is well known for spending relatively little of his fortune. For example, he still lives in the same house in Omaha that he purchased in the 1950s. Buffet is an expert at resisting lifestyle inflation. After all, if he spent all of his fortune, there would be less available to invest.

Tip: Keep Lifestyle Inflation At Bay.

8. He Knows His Limits

Despite the potential opportunities, Buffet has steered clear of investing in high technology companies. Why? Buffet argues that investing in innovations tends not to produce good returns. In a famous 1999 Fortune Magazine article, Buffet pointed out that the automotive industry was one of the most innovative developments of the 20th century, changing the daily life of millions of people. Yet, a very large portion of American automobile companies have disappeared a fact that should give pause to investors. Given the difficulty of successfully investing in innovative companies, Buffet tends to avoid them.

9. He Started Earning Money As A Teenager

Growing up, Buffet was determined to earn money. When he was seventeen years old in 1947, he earned ,000 delivering newspapers (equivalent to ,000 in 2013 income terms according to Measuring Worth). Making money and managing money effectively are skills that take time to develop. Buffet did himself a failure by starting young

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