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lnvestment Lessons from Warren Buffett

Warren Buffett

Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays. — Warren Buffett

While Warren Buffett remains the greatest investor ever, most of us mere mortals  are trapped in our own paradigm — stock market is a loser’s game!

The oracle of Omaha not only lives a simple life but also provides his wisdom freely through his annual newsletter to his share holders.

His uncanny ability to make plausible case for simple ways to build your wealth is brilliant.

In his 2013 letter, I found pearls of wisdom that I think are worth sharing with you.

According to Warren Buffett, a successful investor invests when he/she can project return on investment without any speculation. If investment is based on pure speculation, he recommends looking for a better investment opportunity.

In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me $280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out. — Warren Buffett

Lesson: You don’t have to be an expert to follow simple logic behind the land purchase Warren made. All you need is common sense and someone who can provide insight(like Warren’s son) to project future return on investment. And once you decide to invest, stay put for a long haul without allowing market conditions to influence your decision. A year later, 1987, market crashed but due to his persistence, Warren now owns the land free and clear and it is worth many times more than his initial investment.

In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the company’s CEO, told me about a New York retail property adjacent to NYU that the Resolution Trust Corp. was selling. Again, a bubble hard popped – this one involving commercial real estate – and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly. Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere. — Warren Buffett

Lesson: Location is the most important factor for real estate investment. This investment also shows Warren’s business acumen. Even though he didn’t know anything about this commercial property, he knew that future return will grow as the anchor tenant paid substantially less rent than other tenants.

Warren Buffett  is using these anecdotal personal investments to teach us an invaluable investment lesson.

I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal. — Warren Buffett


1. Don’t allow experts to influence your investment decisions. Invest in an Index fund(Preferrably Vanguard) to keep low expense ratio.

2. Don’t allow daily ticker fluctuations to influence your investment decision either; A climate of fear is your friend when investing; a euphoric world is your enemy.

My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers. — Warren Buffett


1. Stocks — Part XXIII: Selecting your asset allocation  via Jlcollinsnh

2. Stock Investing Series via Jlcollinsnh

3.  First Test of Independence via MadFientist

 photo by: J D Morri

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Comments (6)

Hi Shilpan…

Great to see you posting again! I know your various business interests have kept you plenty busy of late.

As always, thanks for the links!

Hi Jim,

Yes, it’s been tough lately to get time to write. :)

I second Jim’s comment…glad to see you posting again :) Hope you’ve been doing well!

Yes, I am. When you visit Atlanta, please let me know. I’d love to meet with you.

I am hoping to meet Jim when he goes through Atlanta in August as well.

Absolutely! Our US travel plans are up in the air at the moment, due to delays with selling our house, but I’ll keep you posted. Hopefully we are still able to make it through Atlanta because it’d be great to meet up!

I look forward to it!