Mary Buffett - The Tao of Warren Buffett: Warren Buffett’s Words of Wisdom: Quotations and Interpretations to Help Guide You to Billionaire Wealth and Enlightened Business Management

For twelve years, from 1981 to 1993, I was the daughter-in-law of Warren Buffett, the worlds most successful investor and now its greatest philanthropist.

Shortly after I married Warrens son Peter, and long before most of the world outside Wall Street had ever heard of Warren, I visited their family home in Omaha. While there, I met a small group of devoted students of the master investors wisdom who referred to themselves as Buffettologists. One of the Buffettologists, David Clark, kept notebooks filled with Warrens wisdom on investing, which were meticulous and endlessly fascinating to read. Davids notebooks were the foundation upon which he and I later shaped the best-selling investment books Buffettology, The Buffettology Workbook, and The New Buffettology, now published in ten languages, including Chinese and Russian.

Out of all of Davids notebooks, my favorite was filled with many of Warrens most profound aphorisms, which were great fun to read because they had a way of really making you think. As I was later to discover, to Buffettologists, these aphorisms were akin to the teachings of a Taoist master in that the more the student contemplates them, the more they reveal.

As time progressed, I, too, started to collect aphorisms that Warren would say to us in private family moments and at social gatherings that included many business luminaries. At these gatherings, Warren would sometimes take the floor and answer questions in the manner of a master teacher, rewarding the students patience with his great wisdom.

And the more I heard Warren speak, the more I learned, not only about investing, but about business and life. His aphorisms have a way of staying with you. I often find myself quoting them to make a point or thinking back on them to warn myself not to make a mistake, such as getting swept away in the wild enthusiasm of a bull market. They have even helped teach me what kinds of companies I should focus on and when is the best time to invest in them.

Keeping within the Taoist-like spirit that surrounds Warrens teachings, David and I thought that it would be fun to create The Tao of Warren Buffett, filling it with what we think are Warrens most enlightening aphorisms on investing, business management, choosing a career, and pursuing a successful life. These words have been true friends to us over the years as weve navigated our ways through life, business, and the search for the winning investment. We have incorporated our Buffettologists interpretations to help provide context and to open the door for further exploration into the aphorisms more hidden and subtle meanings.

It is my hope that this book will enrich your world by making it a more profitable and enjoyable place to invest, work, and live.

Mary Buffett

July 2006

Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.

The great secret to getting rich is getting your money to compound for you, and the larger sum you start with, all the better. As an example: $100,000 compounding at 15% for twenty years will grow to $1,636,653 in year twenty, which gives you a profit of $1,536,653. But lets say you lost $90,000 of your initial capital before you even started and could only invest $10,000. Your investment would then only grow to $163,665 in year twenty, for a profit of $153,665. This is a much smaller number. The larger the amount of money you lose, the greater the impact on your ability to earn money in the future. That is something that Warren has never forgotten. It is also the reason why he drove an old VW Beetle long after he was a multimillionaire.

I made my first investment at age eleven. I was wasting my life up until then.

It is good to find ones calling early in life, and in the field of investing it allows for unparalleled opportunities for the magic of compounding sums of money to work. The time to gamble is not when one is young, when there is so much time ahead to profit from wise decisions.

The stock that Warren bought when he was eleven was in an oil company called City Services. He bought three shares at $38, only to watch it sink to $27. He sweated it out and, after it recovered, sold it at $40 a share. Shortly thereafter, it soared to $200 a share and he learned his first lesson in investmentpatience. Good things do come to those who waitprovided you pick the right stock.

Never be afraid to ask for too much when selling or offer too little when buying.

Warren understands that people fear embarrassment if they ask too high a price when selling or offer too low a price when buying. No one wants to be seen as greedy or cheap. Simply stated, in the world of business, how much money you get from a sale or how much you have to pay when making a purchase determines whether you make or lose money and how rich you ultimately become. Once negotiations begin, you can come down in your selling price or up in your buying price. But its impossible to do the opposite.

Warren has walked from many a deal because it failed to meet his price criteria. Perhaps the most famous example was his Capital Cities purchase of ABC. Warren wanted a larger share of the company for his money than Capital Cities was willing to part withso he walked from the deal. The next day Capital Cities caved in and gave him the deal he wanted. Ask and you might just receive, but if you dont ask

You cant make a good deal with a bad person.

A bad person is a bad person, and a bad person will never make you a good deal. The world is filled with enough good and honest people that doing business with the dishonest ones is pure foolishness. If you even have to ask yourself the question Do I trust this person? you should immediately leave the negotiating table and look for more honest company with whom to do business. You dont want to doubt that your parachute will open when you are about to jump out of a plane, and you dont want to doubt the integrity of the person with whom you are about to jump into business. If you cant trust them now, you wont be able to trust them later, so why trust them at all?