5 Timeless Principles From a 1985 Interview With Warren Buffett
In 1985, Warren Buffett was interviewed for the first time on television. His words are often quoted and several of his timeless insights have come from this one video. Here are 5 principles (with quotes) that can not only be applied to investing but also to life and business.
Principle 1: Don’t Lose Money
“The first rule of investing is don’t lose money, and the second rule of investing is don’t forget the first rule.”
This one might be obvious, but the ability to recover from significant losses can be difficult.
For example, if you had an investment that lost 10%, you would need an 11% return to get back to even. On the flip side, if you lost 50% in an investment, you would need 100% subsequent return just to break even.
This one simple principle can be considered a cornerstone in building long term wealth.
Principle 2: Control Your Emotions
Humans are thought to be rational and logical, yet we are too often irrational, emotional and biased. There are many situations in life, business and investing where our emotions get in the way and can cause problems. One of Buffetts greatest attributes when it comes to investing, is his ability to control his emotions.
For the very first question in the interview, Buffett is asked what he considers the most important quality for an investment manager. His response:
“It’s the temperamental quality, not an intellectual quality.”
Many of these temperamental emotions include greed, fear, and following the crowd. He went on to say:
“You need a stable personality. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls. It’s a business where you think. (Benjamin) Graham would say that you’re not right or wrong because a thousand people agree with you and you’re not right or wrong because a thousand people disagree with you. You’re right because your facts and your reasoning are right.”
Principle 3: Invest With a Long Term Mind Set
Playing the long game in life can be difficult because it may seem too simple or boring. This is true for:
Health
Relationships
Building a business
Developing a skill
Investing
Eating one less snack a day will not be noticed in the short-term, however over 10 years will have an impact.
You don’t get proficient at playing guitar without 10,000 hours of practice.
Investing ten dollars a day into the market may feel slow and boring, however can have a significant impact to your future wealth over 10, 20 and 30 years.
“If you’re making a good investment in a security it shouldn’t bother you if they close down the stock market for five years.”
Too much emphasis is put on the short term and short term results. This often leads to overestimating what can be achieved in the short term and underestimating what can be achieved in the long term.
“Most of the professional investors focus on what the stock is likely to do in the next year.”
Principle 4: Ignore The Noise
This one might be my favourite, however the most difficult to follow.
Today, we are over stimulated by the connectivity of media, internet and social media. However, most of it is noise. In order to stay in control of your own mind, a lot of it should be ignored. If you don’t know by now, Buffett has always operated out of Omaha Nebraska, one of the most unlikely places for one of the worlds greatest investors.
“You’ll notice we don’t have 50 people coming up and whispering in our ears that we should be doing this or that. I like the lack of stimulation we get. You get over stimulated in Wall Street.”
Principle 5: Patience
Buffett has commonly used analogies to help explain his thinking and philosophy. In his infamous baseball analogy, he refers to the stock market as the pitcher, who throws unlimited pitches (stock prices) with no strikes being called.
“They throw US Steal at $25 and they throw General Motors at $68. You don’t have to swing at any of them. They may be wonderful pitches to swing at, but if you don’t know enough, you don’t have to swing.”
This concept of patience can be applied to a lot of different aspects in life and business. It’s often been said that the most successful people say “no” all the time. The ability lies in the patience to not feel left out of any deal, idea or investment.
“You can sit there and watch thousands of pitches and finally you get one right there where you want it, something that you understand and then you swing. Or, you might not swing for six months, you might not swing for two years.”
Compounding small events over long periods of time can result in fantastic outcomes. Buffetts words offer us some timeless wisdom that are just as true today as they were over 35 years ago.
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