‘Ironclad’ Rules Forge Warren Buffett’s Success

Persist: Maintaining your discipline pays off long term

 

Warren Buffett’s rules of success are time-tested. Following them no matter what — even on the golf course — turned him into one of the richest people in the world. Who is Warren Buffett?

Once during a weekend golf outing with his buddies, the billionaire investor refused to accept a bet. If he lost, it would only cost him $10. But he would have netted $20,000 if he scored a hole-in-one. Buffett, 88, now worth $82.5 billion and third on the Forbes list of billionaires, took heat on the course from his pals.

When asked why he passed on the wager, Buffett said, “If you let yourself be undisciplined on the small things, you’d probably be undisciplined on the large things, too,” ex-Geico Chairman Jack Byrne recalled.

Buffett’s decision to skip the friendly bet speaks to his DNA for success. Winning the bet was unlikely. So going for it would break Buffett’s No. 1 rule: Don’t lose money, no matter how small the amount.

Turning down the wager highlights Buffett’s ability to keep his discipline, even while the masses lose their heads. For instance, Buffett looked out of step in the late 1990s for being too old-school. He stuck to his value-investing principles. Buffett refused to buy skyrocketing tech stocks that lost money. The dot-com boom eventually went bust in early 2000. The Warren Buffett way proved correct.

Buffett’s formula for success is simple: He doesn’t veer from his principles about life and work. That goes for the investing lessons he learned in 1949 after reading “The Intelligent Investor.” The book is a bible of value investing, written by his hero and eventual college professor Benjamin Graham.

“They are principles because they don’t change,” says Robert Miles, a Buffett expert and author of “The Warren Buffett CEO: Secrets from the Berkshire Hathaway Managers.”

“Buffett’s been using the same principles that he read about at age 19,” Miles says. “His principles and philosophy are ironclad.”

Buffett’s investing track record is among the best in Wall Street history. The kid from Omaha started buying his first stock at age 11. He also made money selling gum, Coca-ColaKO and newspapers. Buffett is now a giant in global finance. His net worth swelled to $1 million when he was 30.

Then his net worth jumped to $1 billion in his mid-50s. Buffett’s current net worth is now more than $82 billion. Berkshire Hathaway, the conglomerate he runs, now owns companies like insurer Geico, battery maker Duracell and ice cream chain Dairy Queen. The company’s market value grew by a compound annual average 20.5% from 1965 to 2018. That far outpaces the 9.7% average annual return of the S&P 500 stock index during that time, according to Buffett’s 2018 letter to shareholders.

There’s little mystery to Buffett’s investment style. Buy stocks and hold them for the long term — if not forever. Invest in good, well-managed companies with recurring revenue streams. And, of course, buy when everyone is fearful and stocks are on sale.

But Buffett’s roadmap for success extends well beyond his investing insights. “There are many factors that lead to his X-factor, a lot to the secret sauce,” said Miles.

And while Miles considers Buffett a genius and a one-of-a-kind talent, there are many traits and habits of the billionaire that can be replicated by everyday Americans.

Here are tenets Buffett lives by that others can emulate to boost their own chances of success, both professionally, personally and financially:

› Stick to your principles. Ignoring the herd mentality will keep you on track.

Back in the late 1960s, for example, the stock market was booming. Buffett realized share prices climbed so high that stock prices were unreasonable. He did what he thought was right to protect his investors.

He wrote a letter to his partners to let them know he was giving back their money and closing the investment partnership. Speaking in the 2017 documentary “Becoming Warren Buffett,” the billionaire recalls what he wrote in the letter: “I don’t know how to play in this game anymore. The valuations have gotten to where I can’t find things.”

› Find work that you love. Doing what you love to do, Buffett often says, will boost your chances of success at work. Buffett knew at an early age what brought him joy. And that’s what he’s focused on his entire life. “I was always playing around with numbers,” he noted in the documentary.

Buffett is fond of saying that for over 60 years he’s been able to “tap dance to work.”

Reading annual reports, scouring balance sheets, picking stocks and identifying businesses to buy makes him happy. “I just have a great time every day,” he said. “I’m getting to do exactly what I want to do in life and it doesn’t get any better than that.”

When giving career advice to college students, Buffett says to “find a job you have a passion for because once you are in that path you will be noticed and promoted and stand out from all the others,” recalls David Kass, a professor of finance at the University of Maryland and longtime Buffett-watcher. Kass has chronicled many inperson meetings between his students and the Oracle of Omaha dating back to 2005. “Do what you want to do as soon as you can,” Kass says Buffett tells students.

› Stay calm under pressure. Buffett’s ability to stay calm and avoid making emotional decisions in a crisis is a winning combination. It not only that applies to success in investing, but life in general.

“Buffett has complete control of his emotions,” Kass says. “And just being calm under pressure and not panicking can apply to all walks of life.”

› Don’t compromise your integrity. Buffett’s integrity has boosted his success. Buffett famously came to the rescue of Wall Street titan Salomon Brothers, which he owned a big stake in, in the early 1990s.

The investment bank named Buffett interim chairman. Buffett spent two years cleaning up a bond market scandal. He had nothing to do with the scandal. But it threatened Salomon’s existence. Buffett told regulators and Treasury officials he would “personally promise” that he and Salomon would “aggressively help them find out anything we have done wrong in the past and make sure it doesn’t happen in the future.” They believed him.

“I was not involved, so I wasn’t tainted,” Buffett recalled.

› Never stop learning. It’s easy to quit learning once you graduate from college and get busy at work. But reading, learning and staying current on things pays dividends over time. Buffett often says he spends most of his workday reading (newspapers, books, annual reports, balance sheets) and thinking.

He often equates gaining knowledge with the financial concept that made him rich. Inc. magazine asked Buffett how to get smarter. Buffett raised a stack of papers and said I “read 500 pages like this every day. That’s how knowledge builds up, like compound interest.” (Compound interest is when you earn money, or interest, on the interest you’ve already made on an initial investment.)

“He has an insatiable appetite for knowledge,” Miles says. “He’s devouring every annual report, and they stay devoured; he remembers them,” Buffett biographer Roger Lowenstein said in “Becoming Warren Buffett.” “He’s got these balance sheets in his mind, so if a stock gets cheap, you know, three years later he remembers what the fundamentals of the company are — and says this is a buy now.”

› Polish your communication skills. Buffett is famous for his folksy, next-door neighbor way of communicating complex subjects in ways that everyone can understand.

He says his communication

skills — which are vital to success — weren’t always up to par.

In his early 20s, after hitting a roadblock trying to convince older investors to invest with him, he took a public speaking course from self-help guru Dale Carnegie.

“I had to be able to communicate with people better, and especially groups,” Buffett said in the 2017 documentary about his life. “I knew I couldn’t go through life terrified of public speaking.”

In an interview with Yahoo Finance, Buffett reiterated that young people starting out today need to hone their communication skills to boost their chances of success: “I tell students that if they just learn to communicate better, both in writing and in person, they increase their value at least 50%,” Buffett said.

Professor Kass lauds Buffett’s courage to face his fears and take steps to overcome them. “He acknowledged he had an awkwardness and had a fear (when it came to speaking in public), and he got over it,” Kass said. Got over it indeed. Each year Buffett holds court like a rock star in front of 20,000 investors at Berkshire’s annual meeting dubbed “The Woodstock of Capitalism.”

› Surround yourself with the right people. If you want to better yourself, surround yourself with people that are better than you, Buffett says.

The billionaire’s list of friends reads like a who’s-who of American business: MicrosoftMSFT founder Bill Gates; the late-Washington Post publisher, Katharine Graham; and his longtime business partner and Berkshire cochairman, Charlie Munger.

Buffett’s simple message: Make sure you hang out with the right people and don’t fall in with the wrong crowd. “He associates only with people he admires and wants to be with,” says Kass. “He would not buy a company whose management he does not like, even if he might like the numbers.”

› Stay focused, drown out the noise. If you want to excel, laserfocus on what you’re doing, Buffett says.

“I’ve never known anyone as focused as he is,” his daughter Suzie Buffett said in “Becoming Warren Buffett.”

Buffett mostly keeps to himself, reads most of the day and doesn’t overbook his schedule.

Buffett builds his routine to free himself up for the most important work. Kass recalls Buffett demonstrating how important his time was to him the first time he met his students. “He took out a pocket calendar and there was nothing there. It was empty.”

Bill Gates’ dad once asked his son and Buffett to write down one word to describe their success. Both wrote the same word: “focus.”

› Don’t overspend. Warren Buffett lived in the same house for his entire life. He bought it in 1958 for $31,500. He keeps other spending impulses in check, too.

If you want to accumulate wealth, it’s better to save and invest than spend lavishly. In a penny-pinching scene in “Discovering Warren Buffett,” the legendary investor opts for a less expensive Egg McMuffin at a Mc-Donald’sMCD drive-thru, explaining that “the market’s down this morning so I think I’ll pass on the $3.17 and go with the $2.95.” The more expensive version, he says, is served on a biscuit, not an English muffin.

“Buffett kept life very simple and was never caught up in the trappings of wealth,” says Miles. “He’s learned he can only live in one home at a time and drive one car. He gave up all the chasing.”

Buffett, of course, can rattle off 82.5 billion reasons why his secrets to success truly work.