Before the transition from an assertive individual whose dream was to earn a lot of money to a person whose aim is to keep things simple, be happy and stay stress free, I was very keen to know about the richest in the world. The name “Warren Buffet” pipped everyone to occupy the top spot in one of those years. The name on the list tapped the curious youngster in me to dig deep into what made him so rich. Research revealed a lot of facts about Berkshire Hathway, but my interest was glued to his personal life and the lessons he learned in his professional life.
The reason for the inclination was the shock waves sent by this seasoned investor in 2006. He has pledged $37 billion out of his $44 billion, which is 85% of this total wealth, to charity. Out of which, $31 billion was directed to Bill & Melinda Gates Foundation. My reaction to the news is no different from that of the world. Pledging 85% of the total wealth and that too in billions of dollars had redefined charity. Exhibiting flamboyance by the rich is what I had known till then, something tangential to such a pattern was very rare. And this was the rarest of the rare.
Digging into his life has revealed facts about his simple lifestyle and tough investment philosophy. Above all, his pictures made me feel like giving him a nickname “The Ever-Smiling Grandpa”.
His simple lifestyle is knitted with a variety of routines, one of which is living in a 5-bedroom house which he bought in 1958. He can be seen having breakfast daily, not at a five-star hotel but at a McDonalds which is located between his home and office. The choice of buying luxurious cars depends on affordability and interest. Broaching about affordability while talking about Warren Buffett is futile. His choice of cars is limited to buying refurbished cars and keeping them for long. His philosophy is “cars tend to depreciate quickly, so it can be better for your finances if you try to keep your well-working car for as long as possible — or at least opt to buy a used car instead of new”. He used a flip phone till 2020 despite being an investor in Apple since 2016. He had restrained himself from using an iPhone till then even though the CEO of Apple, Tim Cook offered to fly to his place if he ever face any technical issue with the phone.
His investment philosophy seems to be in line with his lifestyle, i.e., simple and easy to emulate. The toughness concealed behind the words can only be understood by any stock market investor trying to put those into practice. The most difficult task in the world, controlling a lot of emotions, is the prerequisite for successful implementation of those principles.
Two of His Investment Principles
Never Lose Money
Of course, we all invest in stocks for profits not to lose. Successful application of this principle is possible in a bullish market and/or when the stocks bought perform well. Consistent bull run is a dream of every trader, but the reality is nowhere close to it. The longevity of the adamant nature of the trader to stick to the stock is tested under stressful situations. Because bears become untamable a greater number of days compared to those of bulls, during those times the stock bought might go below the cost price.
Let’s say, X bought a share at Rs.100 going by the strong fundamentals of the company. Due to various political or sentimental or economic factors, the company’s share is starting to form a bearish trend. You might be fine, with the price reaching Rs.95, maybe Rs.90. Any downfall from there triggers an anxiety coupled with questions like “what if the share goes to Rs.70?”, “what if the company incur losses?” “Should I sell the stock before I lose more money?” and “what if I lose more than what I lost till now?”. The theoretical suggestion to sit tight with a balanced mindset starts to derail. Many sell the share with the fear of losing more. Passing through those anxious moments without letting emotions take over requires tenacity.
Buy When Others are Selling and Sell When Others are Buying
Buying when others are selling implies buying stock when the price goes down. Price of stock starts tumbling owing to the investors’ sentiment or confidence that the company’s future is not looking bright. Believing in your analytical capabilities in understanding the fundamentals paired with the ability to take risk are the prerequisites to buy such a stock.
Same is the case with selling when others are buying. The greediness in a typical investor will not let you sell a share when it is on a roll. Your brain is dragged to think “the price might go further up; I will wait to increase my profit”. One must be prepared to sell at his own target price and not care what happens to the stock afterwards.
Hope you understood about the emotional balance required to follow just two of his many suggestions. According to him, the most important quality for an investor is temperament, not intellect. You need a temperament that derives great pleasure neither from being with the crowd or against the crowd.
After knowing about his philosophies from living and investing standpoint, I felt very lucky to have known about such a great individual. His passion for life, investments and philanthropy is giving him enough strength to lead a happy and healthy life even at 94. Hope I take some leaves out of his life from all three branches.
