Buffett Takes a Bow: 7 Lessons From an Iconic Investor
By Laurie Haelen
“What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework. You must supply the emotional discipline.”
— Warren Buffett
At the age of 94, Warren Buffett recently announced his retirement as CEO of Berkshire Hathaway, the massive holding company he has controlled since 1965.
Buffett is a venerated investor due to his financial success and long track record of stock market outperformance. The value of Berkshire Hathaway shares grew by 19.9% per year (annualized) over the six decades from 1965 to 2024, compared with a total return of 10.4% per year for the S&P 500 Index over the same period, according to Bloomberg.
Buffett’s investment strategy evolved into a blend of quality and value — which means he identifies well-run companies with solid balance sheets that are priced fairly based on their intrinsic value (the earnings and cash flow that the underlying business produces for shareholders). Having bought his first stock at age 11, he became known for diligent research and diving deep into the financial statements of his businesses and acquisition targets.
Nicknamed the “Oracle of Omaha,” Buffett has frequently shared his thoughts on finance and investing in media interviews, at Berkshire’s annual meetings (often called the “Woodstock of Capitalism”), and in his widely read letters to shareholders. As a result, his admirers have access to a treasure trove of investment fundamentals and words of wisdom that might help improve their own financial lives.
Here are seven important financial lessons to be gleaned from a selection of Warren Buffett’s notable quotes.
1. Keep your lifestyle in check, so you can put money to work
Despite his billionaire status, Buffett lives in the same modest house in Omaha that he has owned since 1958. Automatically diverting a set portion of every paycheck to a savings account, workplace retirement plan or an IRA is a convenient way to save money you might otherwise be tempted to spend on a more expensive home or car. These savings could then be invested to help reach future goals.
2. Play the long game
In Buffett’s view, investors should have an ownership mindset rather than thinking like a speculator. Speculators take large risks by trying to anticipate future price movements in hopes of making quick gains. The problem with this approach is that few people have the expertise, time and resources to do this successfully. It’s more likely that by trying to time the market, they will sell at the bottom and buy at the top. They might miss some of the best trading days, and their portfolios will likely underperform.
Long-term investors take risks, too, but generally they buy quality assets and strive to build a balanced portfolio that is appropriate for their goals, time frame and risk tolerance.
3. Evaluate your exposure to risk
Market risk refers to the possibility that an investment will lose value because of a broad decline in the financial markets caused by unexpected economic or sociopolitical developments. It would be prudent for the risk profile of your portfolio to align with your risk tolerance or your ability to endure periods of market volatility, both financially and emotionally. This typically depends on your current financial position as well as your age, future earning potential and time horizon — the length of time before you expect to tap your investment assets for specific financial goals.
4. Be brave when the market is scary
The silver lining of a steep market downturn is the opportunity to buy quality stocks that you may have longed to own at much lower prices, just as Buffett did in the depths of the 2008 financial crisis.
5. Hold on to humility
Buffett is willing to acknowledge his blind spots and admit his past missteps. In his latest letter to shareholders, he pointed out that he used the words “mistake” or “error” 16 times in his communications during the 2019 to 2023 period, according to Bloomberg.
Some investors (professionals and amateurs alike) overestimate their skills, knowledge and ability to predict probable outcomes. But there’s danger in overconfidence; it may cause you to trade excessively or downplay potential risks — or both.
6. Take care of the people who matter to you
A thoughtful estate plan is more than a set of documents to pass down wealth and help reduce potential estate taxes after you die. It can be crafted to reflect your values, leave a positive legacy through philanthropy and help protect your loved ones in your absence. Plus, by clearly stating your intentions in a will or trust, you can help family members prevent disputes during a painful and stressful time.
7. Don’t go it alone
Even the most experienced investors might benefit from an outside perspective. A trusted financial professional can help you develop an investment strategy that’s tailored to your specific situation, while providing ongoing support that may help keep you from making costly, emotion-driven mistakes. In today’s volatile environment, it takes discipline to stay the course, and a financial professional can be a good ally to help you along the way.
The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. The S&P 500 is an unmanaged group of securities that is considered representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance does not guarantee future results. Actual results will vary.
Laurie Haelen, AIF (accredited investment fiduciary), is senior vice president, manager of investment and financial planning solutions, CNB Wealth Management, Canandaigua National Bank & Trust Company. She can be reached at 585-419-0670, ext. 41970 or by email at lhaelen@cnbank.com.