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It is no secret that Warren Buffett is one of the greatest investors of all time, and he isn’t shy about revealing his strategies. Buffett and his business partner, Charlie Munger, have been running Berkshire Hathaway since the 1970s. The two friends grew the tiny textile company into the industry giant worth over 1 trillion dollars today. This post will help you to learn from Warren Buffett’s investing lessons and apply his strategies to your own.
With returns that nearly doubled the S&P 500 on an average yearly basis, Buffett and Munger’s reputation is more than outstanding. Less than 10% of amateur investors are able to achieve higher returns than the market in the long run, while Warren Buffett has been doing it for decades. This is crazy! Just one dollar invested in Berkshire Hathaway after Buffett took full ownership in 1965 would be worth over $39,000 today.
Daniel Pecaut is a man who sought to learn from the amazing leadership at Berkshire Hathaway. He was in attendance during Buffett’s annual shareholder meetings each year, where Buffett and Munger answered shareholder inquiries, gave updates on acquisitions and business performance, and shared their accrued wisdom from their time as investors.
University of Berkshire Hathaway
While this book may not have been written by Buffett himself, it is just as informing. Daniel Pecaut, an investment professional, composed University of Berkshire Hathaway from notes at Berkshire Hathaway’s annual shareholder meetings.
The book contains quotes, stories, lessons, and general observations from the meetings. It reads very easy, as if you were there listening to Buffett and Munger speak directly to the crowd. The investment lessons themselves are sprinkled throughout, but by cracking open this book you get real insight into the greatest minds in investing history. You’ll begin to understand the thinking process behind Buffett and Munger’s decisions, and realize that it is actually very simple.
After reading this book, here are some of Warren Buffett’s greatest investing lessons:
Company Pricing
“It is far better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.” — Warren Buffett, University of Berkshire Hathaway
The idea behind this quote is that a great company is always more valuable than a fair company. This is important for long-term value investors who get too caught up in the current pricing of a company or stock rather than deciphering if it is a good long term play. Additionally, Buffett and Munger warn against the dangers of overpaying for a company, even if it is a great business.
“The market is there to serve you, not to instruct you.” — Warren Buffett, University of Berkshire Hathaway
Buffett is big on the idea that a stock’s price often doesn’t represent its real value. And this is a good thing, because it means that investors like him can actually make money by discovering undervalued securities and assets. Buffett stated that letting the price of your investments affect your mood is admitting that the market knows more than you do (admitting that you think you’re wrong), something that confident investors do not do often.
A final lesson on pricing was brought up with the example of buying groceries. When you go to the store to buy groceries, you welcome the lower prices. Buffett says that any investor who is in it for the long haul should treat their stocks the same way.
Characteristics of a Good Company
In his permanent holdings, Buffett looks for good economic characteristics, trustworthy management, and adoration for what the company does. These are the core things that drive Buffett to invest in a business.
Additionally, Buffett is very fond of the need for businesses to build their “moat”, or barrier to competition. Whether that be low production costs, a trademark, or advantage of scale, they need to have a sustainable edge that allows them to prevail against competitors. Buffett often sites Coca-Cola as his standard for this idea.
Broader Market Influence
Buffett is known for ignoring all the noise and speculation regarding market volatility. He has stated that nobody gets rich by predicting the economy. Instead, Buffett offers this advice: it is better to look at a product and see if it can sustain itself than to make economic predictions.
Building off of that idea, Buffett never let the state of the stock market influence his valuations for individual companies. Oftentimes, this is Buffett following his idea that you should be greedy when others are fearful.
The Ideal Mindset
Buffett and Munger are both big on the idea of discipline and integrity. These are qualities that they look for in company management as well as in themselves. Discipline involves the ability to blot out what the market “hype” is saying while remaining grounded in your ideals. It also shows itself in an investor’s ability to be patient and hold their businesses for a long, long time.
The ideal investing mindset also involves focus. Investors need to be able to focus on what actually matters, like the companies that they have put their money in. Buffett and Munger say that they “blotter out” any ideas that aren’t worth their time or effort.
Lastly, Munger is big on the prospect of keeping your expectations to a minimum. He says this will help you in investing, but also in life.
Learn More
Buffett is always trying to learn more, and is always reading. Buffett suggests that many investors learn the basics of accounting, as it is the “language of business”, while also emphasizing the importance of reading company annual reports. In general, Buffett says that it would serve all investors best if they read more. He said that he had read every book on investing in his public library before he was 10.
Most Impactful Lesson
I think that the biggest takeaway from this book is that Buffett and Munger’s investing strategy is actually pretty simple. They buy good business at fair prices and hold them for a long time. While simple, this strategy proves to be very hard to do as it tests an investor’s resilience and discipline. However, this is great news for new investors or anyone who has felt overwhelmed by all the information out there regarding investing.
Fundamental analysis is the style that fits Buffett and Munger’s description. Leaving behind the more mechanical and complex ideas found in technical analysis used by day traders.
Who Should Read This?
This is a book tailored for those who are curious about long term investing. It’s not a get rich quick scheme and it definitely won’t double your net worth overnight. But, with time and effort spent on learning and applying these investment lessons, anyone can become a better investor.
Know that this book doesn’t dive very deep into how to value companies using financials, but rather explores how Buffett and Munger have been so successful by allocating capital. If you want to learn more about picking and choosing individual stocks, check out my book review of One Up On Wall Street.
Where Do I Get This Book?
If you appreciated any of the investing lessons in this post, you should definitely go check out the actual book. University of Berkshire Hathaway is one of those books that gives you a solid set of fundamentals for investing, and the price of a paperback might make it your best investment of the year.
You can grab a copy on Amazon using the link below:
University of Berkshire Hathaway, Daniel Pecaut
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