Warren Buffett turns 92 in August. He’s been on lists of the richest people in the United States, if not on Earth, for decades and has been among the top 10 in many of those years. Buffett has earned the respect of many investors not only for his long-term performance, but also for his willingness to share investing insights and advice.
Many of the lessons you can learn from Warren Buffett will come from his writings, the lengthy question-and-answer sessions at his annual meetings, and from interviews, but there’s another valuable way to learn from him: his example. Here are some takeaways from how he has lived his life, plus a lesson that’s arguably the most important.
Watch and learn from Buffett
First off, let’s establish just how amazing the guy is, and why you might want to emulate him.
Buffett bought his company, Berkshire Hathaway, in 1965 and he increased its market value by an average annual rate of about 20% over more than 50 years. Considering that the S&P 500 has averaged only around 10% over the same period, Buffett’s kind of return is enough to turn a single $100 investment into more than $900,000 over 50 years.
Here are some lessons you can take from Buffett’s life and investing behaviors, many of which can help you get wealthier:
Live fairly frugally: Buffett is often cited for his extreme frugality because he still lives in the same relatively modest house he bought in the 1950s, and he enjoys fast food meals and dining at modest local restaurants. Even so, he has bought a private jet in the past (dubbing it the “Indefensible”) and a multimillion-dollar home in California (that he has since sold).
Focus on the long term: Buffett isn’t an active trader. He likes to buy great businesses at a good or great price and then hang on — often for decades.
Reinvest your gains: Buffett has clearly had lots of terrific investments in his career, and much of his success is due to holding on to any gains and reinvesting them in additional terrific investments. Berkshire Hathaway collects more than $4 billion annually in dividend income, for example, and Buffett gets to reinvest that money in Berkshire’s various businesses or in shares of stock.
Master your emotions: Buffett is famous for recommending that we be greedy when most investors are fearful (buy when stock prices have fallen) and be fearful when most investors are being greedy (be wary of overpriced stocks).
The biggest lesson: Start investing early
Here’s one of the most important lessons to learn from Buffett’s life: Start investing early.
How early? Well, Buffett was focused on getting rich very early in life, delivering hundreds of thousands of newspapers as a child and making money via other methods as well. He bought his first shares of stock at age 11.
At 91 years of age as of this writing, that means Buffett has been investing in stocks for a whopping 80 years. It would be hard for any of us to not get rich if we invested for 80 years — even if we fell far short of Buffett’s 20% gain.
Indeed, if you invested $1,000 just once some 80 years ago and it grew by 10% annually, it would increase more than 2,000-fold, becoming more than $2 million. Of course, it would total far more if you invested $1,000 every year — you’d end up with more than $22 million.
The lesson here isn’t that you need to invest for 80 years — it’s simply that you need to appreciate the power of time. This table shows how money can grow over time. You’ll see that the more time money has to grow, the more powerfully it can grow. It assumes a more conservative 8% average annual growth rate than Buffett’s average returns.
At an 8% Annual Growth Rate, $1,000 Will Grow to:
This table only reflects a single $1,000 investment. Make yours bigger, make it regularly, and you may amass millions.
Is it too late for you?
Don’t assume it’s too late for you to start investing. If you’re already 40, you may have 20 to 30 years ahead of you in which you can work, save, and invest. (Consider investing in low-fee, broad-market index funds, too.) Even if you’re 60 and approaching retirement, you might still park a chunk of your nest egg that you won’t need for at least a decade in stocks.
Buffett’s example is a powerful one that can help us start investing in earnest now, with great expectations. The more you learn from Buffett, the better an investor you can be.
Selena Maranjian has positions in Berkshire Hathaway (B shares). The Motley Fool has positions in and recommends Berkshire Hathaway (B shares). The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.