Estimated reading time: 3 minute(s).
Warren Buffett's Ten Rules
No. 1: Reinvest Your Profits
When you first make money, you may be tempted to spend it. Don't. Instead, reinvest the profits. Warren Buffett learned this early in life. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Buffett used the proceeds to buy stocks and to start another small business.
No. 2: Be Willing to Be Different
Don't base your decisions upon what everyone is saying or doing. When Buffett began managing money in 1956 with $100,000 from a handful of investors, he was dubbed an oddball. He worked in Omaha, not Wall Street, and he refused to tell his parents where he was putting their money. People predicted he would fail, but when he closed his partnership 14 years later, it was worth $100 million.
No. 3: Never Suck Your Thumb
Gather in advance any information you need to make a decision, and ask a friend or relative to help you stick to a deadline. Buffett prides himself on swiftly making up his mind and acting on it.
No. 4: Spell Out the Deal Before You Start
Your bargaining leverage is always greatest before you begin a job - that's when you have something to offer that the other party wants. Buffett learned this lesson the hard way as a kid when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they reached down to bare pavement - only to receive less than 90 cents each.
No. 5: Watch Small Expenses
Buffett invests in businesses run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was).
No. 6: Limit What You Borrow
Buffett has never borrowed a significant amount - not to invest, not for a mortgage. He has gotten many heart-wrenching letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you're debt-free, work on saving some money that you can use to invest.
No. 7: Be Persistent
With tenacity and ingenuity, you can win against a more established competitor. Buffett attended the Nebraska Furniture Mart auction in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator.
No. 8: Know When to Quit
Once, when Buffett was a teenager, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with nothing. He felt sick - he had squandered nearly a week's earnings. Buffett never repeated that mistake.
No. 9: Assess the Risks
In 1995, the employer of Buffett's son, Howie, was accused of price-fixing. Buffett advised Howie to imagine the worst and best-case scenarios if he stayed with the company. His son quickly realized the risks of staying far outweighed any potential gains, and he quit the next day.
No. 10: Know What Success Really Means
Despite his wealth, Buffett does not measure success by dollars. In 2006, he pledged to give away 85% of his fortune to charitable foundations. "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 have lived your life."