Wednesday, September 17, 2008

10 Ways to Get Rich by Warren Buffett

In Parade Magazine, Warren Buffett listed ten ways to get rich.  Here is the list and my comments are below.
  1. Reinvest your profits.
  2. Be willing to be different. 
  3. Never suck your thumb.
  4. Spell out the deal before you start.
  5. Watch small expenses.
  6. Limit what you borrow. 
  7. Be persistant.
  8. Know when to quit.
  9. Assess the risks.
  10. Know what success really means. 

Reinvest your profits.
  • If you make a little money, refrain from spending it on unnecessary things.  Instead, reinvest your profits in the asset or other investments.  Typically the more you invest, the better off you will be.  Compounding interest as quoted by Albert Einstein is "the most powerful force in the universe."
Be willing to be different. 
  • Don't always follow the crowd, be a contrarian.  This is where you will make your money.  Place bets on what the crowd doesn't like and the calculate the risks in doing so.  If the benefits outweigh the risks and you are correct in your assumptions, you will make a bundle when the crowd starts to follow the idea again.
Never suck your thumb.
  • Buffett also calls this "unnecessary sitting".  A form of procrastination, determine what you need to do, and DO IT.  Action and execcution are really all that matter.  If the task is large, break it up into pieces and set deadlines to get those pieces done.  It will seem like a much smaller task once you break it up.
Spell out the deal before you start.
  • The ability to see scenarios of what can happen and planning on your responses is the best way to get what you want out of negotiations.  Always be prepared.  Understand what the other party wants from the deal and both sides can win.
Watch small expenses.
  • Sometimes we lost sight of the little things in life, and in this example are the small expenses.  In general, the more we make, the more we lose track of the little expenses because we feel they don't matter.  Managing your little expenses can save you a lot down the road.  This also applies to doing business.
Limit what you borrow. 
  • Living on credit cards and loans will not make you rich.  It may appear to other people that you are for a short period of time until all of the debt becomes apparent.  Work on being debt-free and investing the excess.
Be persistant.
  • Don't give up what you believe in and stand for.  
Know when to quit.
  • Know when to walk away from a loss.  If the business is a failing business, leave emotional ties behind.  The ability to think clearly and knowing when to cut your losses is crucial to being successful.
Assess the risks.
  • Crucial to Berkshire Hathaway's business, Warren has to constantly evaluate possible risks when owning companies.  Evaluate all possible scenarios so there will be no surprises.
Know what success really means. 
  • Buffett doesn't measure success in dollars surprisingly.  He lives an extremely humble live and doesn't own many lavish things.  This is how Warren measures success "When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life." 

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