Our top ten favorite quotes from Warren Buffett.
1. “Never depend on a single income, make investments to create a second source.”
In today’s world, to depend only on your one income is risky. One needs to actively have other sources of income, preferably passive. When young or in the accumulation phase, do invest in yourself to increase your earnings and income.
2. “If you buy things you don’t need, you will soon sell things you need.”
A drastic statement with some truth in it. Living in an over-consumptive society, we buy many things that we don’t need. One tip to manage this habit – think delayed gratification. By not buying an item immediately, you are better able to assess how you truly need it in your life right now. You’ll also learn to better appreciate it more.
3. “Risk comes from not knowing what you’re doing.”
Risk comes from putting resources to use, especially monetary, without knowing what you are doing. You cannot depend on brokers, analysts, experts and your mamak/’kopi’ gang friends for hot investment tips. You need to get yourself educated financially. Working with a mentor and personal finances advisor that puts your needs first can help accelerate the process.
4. “Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
Diversification is good for building up a robust asset allocation for varying economic situations. But you do need to know what you are doing. Do not diversify just for the sake of being able to say you are “diversified” or because some experts told you so.
Portfolio diversification can be by investment type, investment goals, country, sector, cyclical/non-cyclical, etc.
5. “Keep all your eggs in one basket, but watch that basket closely.”
Over-diversification can actually be bad for you. For example, if you have 40 different investments, you will very likely be unable to meaningfully monitor your investment performances in a timely manner.
If you know an investment will give you superior returns, it does not make sense to divvy up your investment funds available into other investments that will give you sub-par performance.
In fact, diversification can be achieved with as few as 7 investments.
6. “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
Decent to good investments, especially when compounded, lead to tremendous manifold gains over time. Financial freedom is indeed achievable for everyone. (Read a real life story on financial freedom)
7. “Time is the friend of the wonderful company, the enemy of the mediocre.”
This again can relate to compounding returns. If you have decent returns, say averaging above 8%, your funds if reinvested can grow at a tremendous rate. (Read on what it takes to compound to a million ringgit)
However, if you park everything to give you returns of 3% to 4% (merely keeping up with inflation rate), you end up going nowhere.
8. “The trick is, when there is nothing to do, do nothing.”
There will always be future opportunities coming. If there is nothing to invest in right now that you are comfortable with, then don’t! Instead, use the time to prepare your resources and improve your financial knowledge.
9. “You are neither right nor wrong because the crowd disagrees with you.”
Being a contrarian investor either means you’re a genius or a fool. The thing is that you will only find out in the future.
If you find that after you do your homework, an investment makes sense while the world says “No!”, recheck your results. Get an unbiased 3rd party view if you have the luxury of time. Then, go ahead and make your millions!
10. “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
There is only one rule to rule them all. Happy investing!