Don’t we all want a net worth of over S$70 billion? Well, that was a rhetorical question because, c’mon, we all probably have the same answer to that.
Warren Buffett is one of the richest people in the world today. But just like the rest of us, he started small, made mistakes, learnt from them, picked himself up and mounted himself on a fortune of billions. So, what can he teach us about money that we don’t know or knew but have forgotten?
Here are six things to learn from Warren Buffett that will inspire to be better at money management:
Want to get straight to the infographic? Scroll to the end!
1. Never thumb-suck
Childhood flashback? Nope, his teachings don’t extend to kids who thumb-suck, it’s to the rest of us who can differentiate between the literal and the metaphorical sense of the term. What he means by this is that you should do your research, no matter how trivial your investment is. Research like it’s your Master’s dissertation all over again, pick it apart and put it back together.
“Rule No.1: Never lose money. Rule No.2: Never forget Rule No.1”
You’re in your 20-something at the moment and you’re getting pre-approved for credit cards. You’re like a kid in a candy store, you want them all because everything looks appealing and offers a “return”. But are all those “returns” applicable to you?
Say, you now own 6-7 credit cards but you’re using only 2 of them because at some point the rewards, cashback/rebate and offers are bound to overlap. So you don’t find the need to use them all but you still have them.
We know what you’re thinking – it’s a good thing to not use them all because you can maintain a healthy credit score and not carry much credit card debt. But, have you thought about the annual fees you’re paying on them, regardless of what use you get/don’t get out of them? There, you just forgot Buffett’s first rule and consecutively the second.
Tip: It’s okay to own multiple credit cards if they’re a ‘good return on your investment’. Are you paying more on the fees to maintain the card than the rewards you’re gaining in return? It’s something to think about.
2. Don’t pay retail
This is something that Buffett and online shopping have in common. We’re all hooked on to online shopping for the simple reason that we never have to pay retail. If you shop online, then you have already grasped the principle behind his learning.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
And he most definitely did. Buffett’s ideology of investment is noosed around the concept of “value investing”. In layman’s terms, value investing refers to purchasing securities at discounted rates or those that seem underpriced but will yield high dividends because of their intrinsic value.
Value investing is a great way to learn how to manage your own money and you don’t really need any ‘professional advice’ to do it right. All you need is dedicated research. Singaporeans can be compartmentalised into three types of value investors:
- Those who “buy low and sell high”, wherein you purchase stocks/shares that are currently undervalued and sell them when the price appreciates.
- When you’ve mastered identifying the right stocks to buy, take it a step further by identifying companies that can offer you “passive income”. This is where you purchase shares of an undervalued company that will offer you regular dividends.
- And when you’re finally ready for the big players, invest in the “right company” without worrying about selling your stocks or shares in the near future.
3. Patience is virtue
The best of us make mistakes, and so does Warren Buffett (clearly, he has transcended “us”). Did you know that Buffett started learning about money before he even hit puberty? He was 11 years old and he bought 6 shares of Cities Service Preferred.
The shares were priced at S$38.25 at the time. It then fell to S$27 and then rose to S$40. At this point, he decided to sell his shares at a meagre profit of S$1.75 per share (total profit of S$10.5). After he sold his shares, each share of the company got valued at S$202.
“Someone is sitting in the shade today because someone planted a tree a long time ago”
The lesson here is not that he made a loss. It’s that he learnt one of his very first lessons and how did he do that? He made a mistake of being impatient that crushed his return. Always remember that if you don’t make mistakes, there are very few lessons to learn from life. This wasn’t the last mistake he ever made when it comes to money.
So, it’s ok to make mistakes as long as you learn something from each of them and use them for your future investment purposes.
4. Don’t look for an ‘out of the park’ shot on every investment
Not every investment you make is going to make you rich and strengthen your portfolio, especially when you’re just starting off.
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
If you’re just starting off with investments, it’s ok to start off slow rather than sinking your teeth into the sharks. When building your investment portfolio, give precedence to value over volume. You not only need to build a portfolio but also your confidence.
For instance, currently, fixed deposits may not be considered the best investment opportunities for Singaporeans, but it surely is a stepping stone. Don’t look just for value but also look at what that value means to you.
So, you’re looking to make hard investments in the future, right? You also need hard money for that and that will come from savings unless you hit a jackpot. Fixed deposits are not only a low-risk investment opportunity but also a great savings buddy.
Hence, if you’re just starting off, instead of jumping over the “7-foot bars” of Wall Street, start with “1-foot bars” such as fixed deposits that you know you “can step over”.
Tip: Several banks in Singapore are offering fixed deposit promotions for various investment brackets.
5. Small expenses can cost you big
One of the things that Buffett admires is businesses where the managers are obsessed even with the tiniest costs and expenses. Watching your small expenses are as important as watching the prices of your stocks and shares rising.
“Chains of habit are too light to be felt until they are too heavy to be broken.”
There are so many of our day-to-day expenses that we let wade away as “pocket change” expenses. And when we go broke at the end of the month is when the same expenses come back to pinch us. Buffett was in admiration of his friend who only painted one wall of his office which faced the road. This is a man who can probably count painting the offices of an entire city as “pocket change”.
Tip: Monitor all of your expenses, no matter how big or small. The most important one will always be monitoring your credit card statements. Don’t rush to pay your bills; revisit, investigate and cut back whenever and wherever you can because money is finite, you know?
6. Step out and be a go-getter
Now that you’ve learnt some of the biggest lessons that Warren Buffett has in ‘stock’ for us (pun intended), don’t just sit on your couch and have a predicting game with your friends about which stock or share you think is going to be the next big thing. Life isn’t an episode of “E! News”.
“Predicting rain doesn’t count. Building arks does.”
Warren Buffett started building his ark at a tender age of 11. So, if you’re old enough to know who Warren Buffett is, then you’re old enough to start investing your money (even if it’s pocket money at the moment) and making your own decisions about money.
Tip: Even if you have just S$500 to spare, you can choose from Singapore Savings Bonds, Corporate Bonds or even enhance your CPF Special Account Savings as your investment appetizer.
If you’re reading this right now, congratulations! We have both finished “predicting the rain”, now, let’s go out there and “build arks”.