Buffett's Tips

A Guide to Financial Literacy and Life

John M. Longo, Tyler J. Longo

• Publisher: Wiley
• Year: 2020
• ISBN:
  9781119763710
• Edition: 1
• Topic: Personal Development
• Subtopic: Personal Finance

What if you could learnfinancialliteracy from Warren Buffett himself?

Finance is a language like any other: themore fluentlyyou speak it, thefurther—and more comfortably—you travel.And if you want to improve your financial literacy, what better teacher could you have than Warren Buffett? Often described as the greatest investor of all time, Warren Buffett startedhis investment firmwith$100 in the late 1950s andwenton to become the billionaire and sage we know today. Along the way he's reaped huge profits for fellow investors in Berkshire Hathaway and remains one of the most sought-after and closely watched figures in the business world.

So how did he do it? In Buffett's Tips, award-winning professor and professional investor John M. Longodemonstrates just how by translatingdecades of Buffett's writings and media appearances into a 100 straightforward tips and strategiesanyone can followfor enhancedfinancial literacy and independence, including:

• Essential conceptslikethe time value of money and compound interest
• Basicfinancial instruments, such as savings and checking accounts and certificates of deposit
• Approaches to valuing stock, including discounted cash flow and relative valuation
• How to build a portfolioin accordance with Buffett's two golden rules

Whether you want togrowyourpersonal finances, develop yourbusinessacumen, or improve softer career skills such as emotional intelligence, there'sno one betterto learn from than the most famous investor in the world—and no better way to do that than having a copy of Buffett's Tips close at hand.

1
Who Is Warren Buffett?

“I tap dance to work, and when I get there I think I'm supposed to lie on my back and paint the ceiling. It's tremendous fun.”

—Warren Buffett, Tap Dancing to Work: Warren Buffett on Practically Everything, 1966–2012

Introduction

Everyone wants to be financially literate and, ultimately, financially independent. What better way to become financially literate than to use the mindset of Warren Buffett, likely the greatest and richest investor who ever lived? That's the premise of this book. Through his decades of writings, interviews, and speeches, Buffett has provided reams of advice, but he has never written a book on financial literacy. This book takes much of that material and rearranges it in a way to make you financially literate and puts you on the path to becoming financially independent. It may be the next best thing to having Buffett on speed dial!

Buffett's net worth—the amount of money he would have after paying off any debts—was recently pegged at about $80 billion. But minting money just scratches the surface of Buffett's accomplishments. He'll also go down in history as one of the greatest philanthropists ever. He's giving away virtually all of his money to charitable organizations. If that's not enough, he and Bill Gates—the co-founder of Microsoft—set up the Giving Pledge, an organization where many of the world's billionaires have pledged to give at least half of their wealth to philanthropy. Buffett's also a great guy, a genuine down-to-earth person who enjoys life on his own terms. He also has an amazing sense of humor.

Here's a sample. When asked why he has a diet filled with junk food, Buffett replied, “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old.” In short, Buffett's a great role model for all people, regardless of age—if you can get past his diet.

In this book, we take some of the experiences, quotes, wit, and wisdom of Warren Buffett and apply them not only to issues related to financial literacy, but also to lessons on having a successful life. It's a boot camp on personal finance and life, with the backbone of the book constructed by the lessons of Warren Buffett from his many writings, interviews, and external biographies. Although the topic of financial literacy may be of greatest benefit to teens and young adults, since they are often starting with a clean slate, the concepts are really applicable to people of all ages, especially those without a financial background. You're probably thinking, “What can I learn from a 90-year-old?” A lot! At least in our view. And we promise to make it painless for you and, hopefully, fun!

Buffett the Teen

Buffett wasn't born rich, and he didn't turn into a financial superstar when he was an older adult. The foundation to his success was laid during his pre-teen years. When Buffett was in elementary school, in Omaha, Nebraska, he sold Wrigley's chewing gum and bottles of Coca-Cola—both future investments for him—to make money. He bought his first stock at the age of 11! We'll devote two whole chapters in this book to the stock market, but for now you can think of stock as something that makes you part owner of a business. He filed his first tax return at the age of 13, deducting the costs of his watch and bicycle as business expenses, resulting in a net payment to the U.S. Treasury of $7. Paying taxes is about as exciting as watching paint dry, but they're something you won't be able to avoid down the road, especially if, make that when, you get richer. One of America's Founding Fathers, Benjamin Franklin, once wrote, “In this world nothing can be said to be certain, except death and taxes.”

Buffett's father, Howard, was a United States Congressman for 6 years, and Warren moved with his family to Washington, DC, during the 1940s. Buffett got a newspaper route in DC delivering The Washington Post (another future stock investment). 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. Thus, we hope you can see that the experiences of the young Warren Buffett played an important role, making him the man that he is today.

Who Are We to Write This Book?

Well, first we think there's a gap in the teachings of Warren Buffett. He participated in a cartoon series, Secret Millionaires Club, over the 2011–2013 period that provided some simple tips on financial literacy, but not enough to make someone financially competent. Buffett also writes a detailed letter to the stockholders of his firm, Berkshire Hathaway, each year. Stockholders own stock and, therefore, are part owners of a business. You can find Buffett's Berkshire letters going back to 1977 on the web at http://www.berkshirehathaway.com/letters/letters.html.

You may not have heard of Berkshire Hathaway, but you've almost certainly come across some of its businesses. It owns Dairy Queen, GEICO Insurance (the car insurance company with the funny commercials), Duracell batteries, See's Candy, and dozens of other businesses. It's also one of the biggest stockholders in several of the companies that you likely know, such as Coca Cola, Kraft Heinz (maker of ketchup and mac & cheese), American Express, Wells Fargo, Bank of America, Amazon.com, Apple, and many others.

We're guessing you may not want to read a bunch of annual reports and letters to shareholders, even ones as insightful and often humorous as Berkshire's. But we've read them and extracted many nuggets of information that apply to financial literacy and life. There’ve been several excellent books written about Buffett, such as Alice Schroeder's The Snowball: Warren Buffett and the Business of Life. It's the only book on Buffett that had his explicit cooperation, but at 832 pages, it's almost the size of War and Peace! Plus, these and other excellent Buffett-oriented books and websites assume you know a fair amount about business and finance. This book doesn't take that knowledge for granted and teaches you financial literacy concepts along the way. So one way to think of this book is that it's like a CliffsNotes on the life of Buffett that makes you financially literate and gives you some life skills to boot—but don't sign up just yet for the reality TV show Survivor. :-)

John is a finance professor and investment manager who has met Buffett on four separate occasions. He also teaches graduate college classes on Value Investing, a style of making investments that Buffett follows. He teaches mostly at Rutgers University but also on a part-time basis in the global Executive MBA Program at Columbia University—the same university where Buffett got his master's degree. More precisely, it's a joint Executive MBA program among Columbia, London Business School, and the University Hong Kong, one of the most highly ranked in the world. He's also served as chief investment offic...

Table of contents

• Cover
• Table of Contents
• Title Page
• Copyright
• Dedication
• Preface
• Acknowledgments
• 1 Who Is Warren Buffett?
• 2 Investment Fundamentals According to Buffett
• 3 Bank Accounts, Debit Cards, Credit Cards, and Your Credit Score
• 4 Bonds and Inflation
• 5 Stock Market Fundamentals
• 6 Buffett's Approach to Stocks
• 7 Accounting Fundamentals: The Report Card for Businesses
• 8 Buffett's Approach to Portfolio and Risk Management
• 9 Business 101: Companies You Should Know
• 10 Business 101—Past and Present Business Leaders, or Who's Who in Business
• 11 Being Thrifty like Buffett: Ways to Save Money
• 12 Buffett's Views on Cars and Homes
• 13 Buffett on Dale Carnegie, Communication Skills, and Emotional Intelligence
• 14 Buffett's Tips for College
• 15 Buffett's Tips for Careers
• 16 Buffett's Tips for Philanthropy
• Glossary of Financial Terms in “Plain English”
• Index
• End User License Agreement