Warren Buffett needs little introduction, especially for those focused on the business of making money. The richest man in the world is arguably one of the most successful investors of all time. But he’s also one of the most mysterious. In a world where fast money and big egos rule, he prefers to live his life with humility, simplicity and thriftiness. In short, he’s a business enigma, a modern paradox.
One of his more famous quotes. Warren Buffett once asked somebody, “Would you rather be the world’s greatest lover, but have everyone think you’re the world’s worst lover? Or would you rather be the world’s worst lover, but have everyone think you’re the world’s greatest lover?” It was an interesting insight into the world’s richest man. His point was that world is going to have an opinion of you, whether you like it or not. But if you’re true to yourself, it won’t matter.
These kinds of quirky philosophies are typical of 78-year-old Buffett, the CEO of Berkshire Hathaway, who is as famous for his witticisms and bon mots as he is for his billions. Dubbed the ‘Oracle of Omaha’, Buffett seems to have an answer for everything – and not just the current financial crisis. He’s been dabbling in investments since he was 13 (when he filed his first tax return) and has proven you can make money quite easily, simply by following the right philosophies. The richest or second richest man in the world, depending on who’s doing the ranking and when (he was ranked first in early 2008 by Forbes, with an estimated net worth of $62 billion), Buffett believes that wealth gained through the snowball effect – roll a little over, and if you push it downhill hard enough, and through the right kind of snow – it gathers substance and eventually turns into a bigger snowball. It’s the power of compounded money – well-invested money compounds, and then compounds some more. Eventually, if you roll it enough, you’ll get to the bottom of the hill and find you’ve got a million
But Buffett also believes in investing with a margin of safety. After all, snowballs can become dangerous. In essence, a margin of safety refers to the style of investing in which an investor only purchases something when its market price is significantly below its intrinsic value. The difference becomes ‘the margin of safety’, and allows an investment to be made with minimal downside risk. So that if you feel that a stock is worth $20, buying it at $12 will give you a margin of safety in case your analysis turns out to be incorrect and the stock is only worth $16.
“The basic ideas of investing are use the market’s fluctuations to your advantage – and seek a margin of safety,” says Buffett, in his usual over-simplified way. The idea, which was popularized by Buffett’s mentor, Benjamin Graham, has stood the Oracle in good stead over the years. Of course, it doesn’t guarantee a successful investment, but it does provide room for error in an analyst’s judgment. And then there’s Buffett’s third philosophy, which is to live well beneath your level of wealth. Even though he’s a billionaire, Buffett still lives in the same small, three-bedroom house he bought in Omaha for $31,000 in 1958. He only pays himself $100,000 a year in income. And he goes to great efforts to live frugally. That way, he says, you’ve always got enough when the going gets tough,
Every year he auctions himself off for charity, with the winner receiving a lunch and free advice (although they’re not allowed to ask what he’s investing in). In 2008, a Chinese businessman, Zhao Danyang, paid more than $2 million for the right to dine with Buffett. The venue? A steakhouse in New York. He does not carry a mobile phone, does not have a computer in his office and drives his own car, a Cadillac.