3 Quotes by Warren Buffet That Teach You How Money Works

Take full control of your money before your money takes control of you.

“If I were dealing with 1 million dollars or even 10 million, I would have invested everything. It was in the fifties that I achieved the best rates of return. I annihilated Dow. You had to see the numbers. But at that time, my investment was very small. It is a great structural advantage, not having a lot of money. I think I could make 50% a year with 1 million. No, I know I could do it. I can guarantee it.” — Warren Buffet, BusinessWeek, 1999

I started to invest in 2018, so what do I know.

But as an addict to books, I read almost everything about Warren Buffett.

The last one was a 980 pages ‘The Snowball: Warren Buffett and the Business of Life’, by Alice Schroeder. A masterpiece. It’s gonna be difficult to find such a complete and extensive work about one of the best investors of our time.

However, there are so many pieces of evidence on youtube about Warren’s investment genius, that you can be one entire day watching and listen to his lectures.

Buffet wanted to be a teacher, so he always loved to be in front of a crowd explaining his way of doing things.

But if you read about him, as I did, you start to understand some principles about investing.

One of them is that in each decade, many things happen, and there is always a black swan or a big crisis that opens a huge opportunity to win lots of money.

And Warren mastered that art.

“My own investment philosophy developed around the theory that prophecy reveals much more about the prophet’s weaknesses than about the future.”

The hardest thing about investment and the stock market is to anticipate what’s gonna happen with the economy.

What’s gonna be the next big thing?

But you have thousands of ‘specialists’ trying to sell you all kinds of products (stocks) they guarantee to be the next Coca-Cola.

“I am not in the business of predicting the general stock market or business fluctuations. If you think I can do this, or if you think it is essential for an investment program, then you should not be part of this Society.” — Warren Buffett

Warren was always so clear about futurology. He refused to do it, period.

He never bought or sold shares based on what other people think the stock market will do. But first about what he thinks the company is going to do.

How to apply it:

There is something Warren said in his book ‘Buffettology, the Previously Unexplained Techniques That Have Made Warren Buffett the World’s Most Famous Investor’, that never left my memory:

“Diversification is something that people do to protect themselves from their own stupidity, not to know about investments.” — Warren Buffett

When you are a newbie in this complex world, you try to invest your money in something that will be protected from your own ignorance.

That was why my first investment was in an ETF that replicates the S&P500.

However, I always remember this last quote from Warren, and that was when I started to go deep in understanding some of my favorite companies. I dive into every data available. Apple, Microsoft, JP Morgan Chase, Alphabet, Amazon, I read everything I could about them.

I wanted to be like Warren. I wanted to understand analytically all of them. And start to think about the future. How these companies prepared themselves for the upcoming years and decades.

I believe we are in a shifting paradigm. A profound and never seen technology disruption. That’s why I’m all invested in Tesla (not 100%, of course).

But like Warren in the past understood the Coca-Cola trend, the Nike trend, the Geico trend, the Apple trend, I wanted to be the kind of investor that studied the company, not the prophecy.

Guess what? There are rumors about Warren being hardly investing in Tesla.

Maybe all the hard work of reading the master Buffett made sense.

“Read 500 pages every day. That’s how knowledge works. It builds up like compound interest.”

All the great investors of the world have one thing in common. They read a lot. They read everything. They spend their life reading, investing and socializing with their family and friends. That’s it.

You can’t learn by sitting in front of the PC watching all the YouTubers talking about the stock market. You can entertain yourself with that stuff. Some of them are funny people. Some of them even know something about investing. Others even know a lot about investing.

Yet, everything is in the books. Things never told in public. Thoughts never shared with the audience. Those little words that make the difference are in the books. Not in a fucking screen.

So, knowledge was always the first principle Warren applied to.

If you see some documentaries about his life, you watch him reading, or socializing. But the only image I have in my mind about Buffett is of him, sitting in his office, with a journal in his hands.

Reading.

Compound interest

“Those who understand them earn them, and those who do not understand, pay them.” — Albert Einstein

Through humorous stories throughout letters he sent to his shareholders, Buffett teaches investors that the power of compound interest cannot be compared to any other factor in producing wealth through investment.

Using the compound interest regime throughout an investment program and throughout life is your best strategy, without exception.

How to apply it:

You have to be patient. And patience is something hard to achieve. When I first invested my money, I was watching the screen every 5 minutes. The numbers were there, without moving, but I was so excited about the decision I made of putting my money in an investment fund, that I thought it would be an exciting activity.

Let me be frank with you. It’s not. To be honest, it’s boring!

“The compound interest regime derives its power from its parabolic nature; the longer it lasts, the more impact it has.” — Jeremy Miller in Warren Buffet’s Ground Rules

Jeremy Miller complements it by saying: However, it does require an amount of time to reach a sufficient size to become an obvious driver within an investment program.

I guess that’s the real problem with investing. The lack of patience we generally have.

With the new tech applications on a single smartphone, you can have pure adrenaline investing every day. Buy and sell. Buy and sell.

If you read Jaime Rogozinski's book ‘WallStreetBets’, you will understand the subworld of betting in the stock market. You’d be amazed by the power of interaction between these kids. They created a culture within the subworld of investments. (On Reddit, he’s “World Caos”, a high-schooler who turned $900 into $55,000 in just 12 days.)

This culture is the anti-Buffett. It does the opposite of what Warren always taught us.

But it’s a reality. And as much as you think you will fall to Warren’s side, make sure you’re strong. Because temptation exists. Adrenaline is like a drog.

And it’s definitely more powerful than patience.

“It is better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Charlie Munger understood this early; Warren was a slow learner. But now, they buy companies or shares, and they look for first-class companies accompanied by first-class managers.

The shift from quantitative to qualitative was evolutionary, not revolutionary. Nothing that came from Graham’s school (Buffett’s mentor) or Warren’s beginning was canceled; it was simply added.

And we, small and tinny investors, have to understand the complexity of Warren Buffett's journey. He is now 90 years old, but he starts investing when he was 14, like a small and tinny investor.

What I think sometimes people misjudge about investing in the stock market, is that we think because Buffett said or did something at a particular time, we should do the same.

That’s not who it works. And that is why we should read a lot of books and be patient.

If we read something out of context, and we apply it into our lives, and that strategy doesn’t work, that’s because of your ignorance about the process.

We need quotes because they are inspiring phrases and sometimes they reproduce ancient thoughts about society and life.

However, don’t believe in quotes just because.

You have to work harder to deeply understand what they mean. And by that, if you need to read an entire book to understand the meaning then do it.

How to apply it:

I guess with humor. Apply it with humor, because if you take it very seriously, you’ll get out of it frustrated, and worse than that, with your pockets empty.

Warren Buffett is a brilliant investor, but honestly, I think he is even better in humor:

“When you combine ignorance and leverage, you get some pretty interesting results.” — Warren Buffett

Thank you,

Nuno