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With an estimated
fortune of $62 billion, Warren Buffett is the richest man in
the entire world. In 1962, when he began buying stock in
Berkshire Hathaway, a share cost $7.50. Today, Warren
Buffett, 78, is Berkshire's chairman and CEO, and one share
of the company's class A stock worth close to $119,000. He
credits his astonishing success to several key strategies,
which he has shared with writer Alice Schroeder. She spend
hundreds of hours interviewing the Sage of Omaha for the new
authorized biography The Snowball. Here are some of Warren
Buffett's money-making secrets -- and how they could work for
you.
1. Reinvest Your
Profits: When you first make money, you may be tempted to spend
it. Don't. Instead, reinvest the profits. Warren Buffett learned
this early on. In high school, he and a pal bought a pinball
machine to pun in a barbershop. With the money they earned, they
bought more machines until they had eight in different shops. When
the friends sold the venture, Warren Buffett used the proceeds to
buy stocks and to start another small business. By age 26, he'd
amassed $174,000 -- or $1.4 million in today's money. Even a small
sum can turn into great wealth.
2. Be Willing To Be Different: Don't base your decisions
upon what everyone is saying or doing. When Warren Buffett began
managing money in 1956 with $100,000 cobbled together from a
handful of investors, he was dubbed an oddball. He worked in Omaha,
not Wall Street, and he refused to tell his parents where he was
putting their money. People predicted that he'd fail, but when he
closed his partnership 14 years later, it was worth more than $100
million. Instead of following the crowd, he looked for undervalued
investments and ended up vastly beating the market average every
single year. To Warren Buffett, the average is just that -- what
everybody else is doing. to be above average, you need to measure
yourself by what he calls the Inner Scorecard, judging yourself by
your own standards and not the world's.
3. Never Suck Your Thumb: Gather in advance any information
you need to make a decision, and ask a friend or relative to make
sure that you stick to a deadline. Warren Buffett prides himself on
swiftly making up his mind and acting on it. He calls any
unnecessary sitting and thinking "thumb sucking." When people offer
him a business or an investment, he says, "I won't talk unless they
bring me a price." He gives them an answer on the spot.
4. Spell Out The Deal Before You Start: Your bargaining
leverage is always greatest before you begin a job -- that's when
you have something to offer that the other party wants. Warren
Buffett learned this lesson the hard way as a kid, when his
grandfather Ernest hired him and a friend to dig out the family
grocery store after a blizzard. The boys spent five hours shoveling
until they could barely straighten their frozen hands. Afterward,
his grandfather gave the pair less than 90 cents to split. Warren
Buffett was horrified that he performed such backbreaking work only
to earn pennies an hour. Always nail down the specifics of a deal
in advance -- even with your friends and relatives.
5. Watch Small Expenses: Warren Buffett invests in
businesses run by managers who obsess over the tiniest costs. He
one acquired a company whose owner counted the sheets in rolls of
500-sheet toilet paper to see if he was being cheated (he was). He
also admired a friend who painted only on the side of his office
building that faced the road. Exercising vigilance over every
expense can make your profits -- and your paycheck -- go much
further.
6. Limit What You Borrow: Living on credit cards and loans
won't make you rich. Warren Buffett has never borrowed a
significant amount -- not to invest, not for a mortgage. He has
gotten many heart-rendering letters from people who thought their
borrowing was manageable but became overwhelmed by debt. His
advice: Negotiate with creditors to pay what you can. Then, when
you're debt-free, work on saving some money that you can use to
invest.
7. Be Persistent: With tenacity and ingenuity, you can win
against a more established competitor. Warren Buffett acquired the
Nebraska Furniture Mart in 1983 because he liked the way its
founder, Rose Blumkin, did business. A Russian immigrant, she built
the mart from a pawnshop into the largest furniture store in North
America. Her strategy was to undersell the big shots, and she was a
merciless negotiator. To Warren Buffett, Rose embodied the
unwavering courage that makes a winner out of an underdog.
8. Know When To Quit: Once, when Warren Buffett was a teen,
he went to the racetrack. He bet on a race and lost. To recoup his
funds, he bet on another race. He lost again, leaving him with
close to nothing. He felt sick -- he had squandered nearly a week's
earnings. Warren Buffett never repeated that mistake. Know when to
walk away from a loss, and don't let anxiety fool you into trying
again.
9. Assess The Risk: In 1995, the employer of Warren
Buffett's son, Howie, was accused by the FBI of price-fixing.
Warren Buffett advised Howie to imagine the worst-and-bast-case
scenarios if he stayed with the company. His son quickly realized
that the risks of staying far outweighed any potential gains, and
he quit the next day. 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: Despite his wealth,
Warren Buffett does not measure success by dollars. In 2006, he
pledged to give away almost his entire fortune to charities,
primarily the Bill and Melinda Gates Foundation. He's adamant about
not funding monuments to himself -- no Warren Buffett buildings or
halls. "I know people who have a lot of money," he says, "and they
get testimonial dinners and hospital wings named after them. But
the truth is that nobody in the world loves them. 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." |