As the saying goes, “a fool with a plan can defeat a genius without a strategy.” These are the words of Warren Buffett.
Here are some of the best takeaways from Warren Buffett:
- The most valuable asset you own is yourself.
The following is an example of one of his famous questions: “Imagine you granted a 17-year-old free use of whatever automobile they chose. However, the catch was that it had to last them for the rest of their lives.”
They would probably go through the owner’s handbook and read it hundreds of times, and they would probably replace the oil more often than is suggested. Each of us is given a unique body as well as a unique intellect. You can’t expect to be able to fix it if you damage it by the time you’re 60 years old.
- Educate yourself on accounting.
Buffett said that the best way to educate oneself on accounting was to read as many annual reports as possible. If you have a good understanding of accounting, you will also have a good understanding of how to invest. If you are unable to comprehend the accounting, it is likely that management is trying to conceal anything from you.
- Hedging Your Bets Against Inflation
Buffett was quoted as saying that while gold is generally cited as the most effective hedge against inflation, nearly any tangible asset acts as a fair hedge. On the other hand, Buffett is most interested in tangible assets that generate income, such as agricultural land and oil rigs. Gold might be used as a hedge, but over the long term, it does not provide any economic value and hence is not a good investment. The most effective hedge against inflation is a product or brand for which you have the ability to adjust pricing to keep pace with rising costs.
- The Crux of All Mischief
During his time on the board of directors at Salomon Brothers, Buffett learned an important lesson about finance: greed is not the source of all problems. Jealousy is. If one of Solomon’s workers got a $10 million bonus, he would be delighted with himself until he found out that one of his coworkers had received a $10.1 million bonus. If it happened, he would have a terrible time.
- On Leverage.
In 2007, Buffett made the following prediction: The degree of leverage generated by derivatives will eventually lead to calamity. The takeaway here is that you should never try to time a fall. The takeaway here is to ensure that the level of your own leverage is reasonable. Even if you have 10 prosperous years in a row, your total return will be a loss of 100% if you have a bad year in the 11th year.
- Returns v Size
In 2008, Buffett issued a warning to investors that they should not assume future returns that would be equal to Berkshire’s historical successes. In order for Berkshire to make a difference as it moved up the ranks to become the 11th most valuable US company, it would need to contemplate acquisitions of at least $50 billion. To put it another way, there is a greater number of firms selling at better prices within the value range of $20 million to $50 billion. If you are skilled at managing money, you may get returns of over 80% IRR even if you are managing $50 million in assets. But doing so while managing one billion dollars is a significant challenge.