Buffett’s tips 1

Warren Buffett’s advice to Wealth Managers, Wealth Owners and everyone

WELREX^® Director John Longo, CFA recently published, in collaboration with his son Tyler Longo, “Buffett’s Tips: A Guide to Financial Literacy and Life”. 

In a series of articles, we synthesise the key lessons from John and Tyler’s in-depth study of the “Sage of Omaha”.

One of Buffett’s key observations regarding wealth management is the importance of starting early. In his case he started VERY early – selling Wrigley’s chewing gum and bottles of Coca-Cola at six years old. He bought his first stock at 11, filed his first tax return at 13, and by the age of 15 he had used the profits from his business ventures to buy 40 acres of farmland in Nebraska. As a teenager, he and a friend also bought pinball machines and put them in barbershops, splitting the profits with the shop owners. He had three newspaper delivery routes when he was in high school, making him the equivalent of $28,000 a year, adjusted for inflation.

Two related insights underpin this tip – the importance of working hard and the direct linkage between learning and earning.

Stating the importance of working hard may seem obvious, but its impact on future success can never be underestimated (did you ever meet a successful lazy person?). In Buffett’s view, the first part of working hard is simply showing up on time, all the time. Not just when you feel like it, or when it’s easy. Woody Allen, the comedian and film director, once said, “Eighty percent of success is just showing up.” In other words: many people aren’t responsible and reliable and you can get ahead of 80% of them just by being responsible and doing what is expected of you. That applies to school, work, relationships, and many other activities.

Buffet is also a great believer in education – not just the value of it per se, but also the positive impact of education on career success. Over the years, many surveys have provided evidence to support the linkage between educational achievement level and employment and salary levels among the employed. A 2019 study by a unit of the US government, the Bureau of Labor Statistics (BLS), examined weekly income levels and unemployment rates by educational levels. The study concluded that someone with a four-year college degree (bachelor’s) earned $1,248 a week on average, more than twice the amount ($592 a week) earned by a high school dropout.

Further, people who attended graduate school (college beyond a four-year degree), made even more money and also had lower unemployment rates. The best paid and most likely to find jobs were people who went to professional graduate schools, including doctors, lawyers, and businesspeople. Those holding a graduate professional degree earned an average of $1,861 a week and had an unemployment rate of only 1.6% – further supporting Buffett’s maxim “The more you learn, the more you earn”.

Buffett was a strong student, although he had a little some trouble with his grades when he first moved to DC with his parents at the age of 12, only achieving C grades initially. But he was a definite bookworm and estimated he read about 100 books, beyond what was required by school. By the time he graduated from high school he had read most of the financial-related books in his library twice over! One of his favourites, “One Thousand Ways to Make $1,000”, underscored his growing interest in business.

Buffett graduated from his high school ranked 16th out of a class of 374. His businesses were doing well, and he wasn’t keen on attending college but took his father’s advice and entered the business school of the University of Pennsylvania—The Wharton School. It’s often ranked as the top business school in the US, if not the entire world. His time at Wharton crystallised his interest in finance and set him on his decades-long career journey.

The strands of starting early, putting the effort in and a focus on life-long learning, come together neatly to form some classic Buffett insights. “Life is like a snowball. The important thing is finding wet snow and a really long hill.” A really long hill is the equivalent of starting early. Buffett’s perspective was that time is on the investor’s side, as long as you get started soon, like that snowball rolling downhill.

And as he has often said “The sooner you start saving, the more time your money is able to work for you”.

Need more motivation? Consider the words of Lao-Tzu, the ancient Chinese philosopher, who said “A journey of a thousand miles begins with a single step.”