Five Timeless Lessons From Warren Buffett

J D — Mon, 19 Jan 2009 23:25:32 +0000

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If you were to use anyone as a hero, there would be no better man than Warren Buffett. He has been one of the richest men in the world for the past 20 years and it should come as no surprise. He doesn’t try to please anyone other than his shareholders and his stock performance proves it. So, without further ado, here are five timeless lessons from the world’s most successful investor.

Play Baseball Without Strikes

In 1999, Warren Buffett compared investing to baseball without strikes. You can wait for the right pitch all day and there is no penalty other than lost opportunity. So, “when the fielders are asleep, step up and hit the pitch.”

What a simple concept, yet many businesses, including myself, make this mistake daily.

When my blog took off, I looked for advertising sales reps. I was tired of low CPMs from ad networks like Google and I wanted direct sales. I did minimal research and went with the first company who made me an offer. I swung at the first pitch.

I was locked into a 12 month agreement, but I didn’t mind. I was set to make a ton of money. Unfortunately, they didn’t pay me anything. I gave them millions of advertising impressions and never received one penny. My home run ended up being a foul.

I learned that it’s easy to swing at sub-par pitches, but when you’re in the business game, those sub-par pitches are what breaks your company. Just take a look at some banks in 2008 and 2009.

Keep Score on Your Inner Scorecard

For those of you who read “The Snowball: Warren Buffett and the Business of Life,” you will know what I’m talking about. For those of you who haven’t, Alice Schroeder talks about how Warren Buffett views success. He believes you need to keep score on your inner scorecard as opposed to your outer scorecard. In other words, measure yourself vs your own standards and not against other people.

Yet another mistake I made. I compared my business to others regularly. It was a huge waste of time. So, here are two ways I make my visits to the competition productive:

Action Plans – When I visit the competition, I won’t leave without an action plan that would work for my business. I may not use it, but at least I have it for further reference.

Interesting Stories – Great stories are powerful and rare. When I visit the competition, I look for great stories to log into my moleskin. This has been a huge help with my writing and my presentations.

So, while learning from your competition can be beneficial, comparing yourself to them is a waste of time. Don’t worry about who’s better or who earns more money. Instead, focus on what you can do to earn more money and achieve your business goals.

Be Greedy When Others Are Fearful

During the bottom of the bear market of 1974, Forbes asked Warren Buffett, “How do you feel?” He responded with “Like an oversexed guy in a whorehouse. Now is the time to invest and get rich.” This was the first time he made a public prediction about the stock market. The second time came in late 2008 when he said, “I’m buying American and you should be too.”

These two time periods have one thing in common. Buffett puts his money on the line and lives his quote “be fearful when others are greedy and greedy when others are fearful.” Now we know it worked for Buffett, but what about everyone else?

In the past few months I was able to buy some stocks at extremely cheap prices since blood was in the streets. Now, I’m looking at websites who are in a panic because of plummeting CPMs. I’m waiting for a fair price on great websites and I’m sure it’s going to pay off in the long haul. In short, if you look for opportunities, you can be greedy when others are fearful.

Diversity Protects Ignorance

Many people love to say “you need to diversify” to become successful, but it doesn’t make sense and Warren Buffett agrees. He said, “Diversity is protection against ignorance. It makes very little sense for those who know what they’re doing.”

When I started earning money on the internet, I focused on several websites. I ended up making no money on all of them. Once I focused on one website, it took a few short months and I started earning good money. This strategy worked because I limited my opportunities and focused on one of them.

Buffett was right when he said “it makes very little sense for those who know what they’re doing,” but it was not complete. It also makes very little sense for people who don’t know what they’re doing. Without focus, you will never become world-class. Studies show that you need 10,000 hours of practice and if you diversify, you will never reach that goal.

High Tide Shields the Naked

I know you heard the Warren Buffett quote “It is only when the tide goes out that you know who was swimming naked,” but now I would like you to write it down. When the financial tide went out in 2008, people like Madoff and the highly leveraged investment banks were left naked on the beach. The bull economy hid their mistakes, but the bear economy exposed them.

When I was running my entertainment blog, I rested on my success and watched my advertising CPMS deteriorate in the down market. The high tide was hiding my uncompetitive business model, but now that the tide is out, one of my businesses suffered significant profit loss. I was left standing naked.

So, whether you’re in a good market or a bad market, you need to commit to success. You need to make sure you are always doing everything in your power to stay competitive. The system I adopted to help me get through this was the Kaizen system and thus far it has worked for me.

Tying It All Together

When the majority of the world was hungry for tech stocks earlier this century, Buffett stuck to what he knew and measured himself vs his own goals. Many people thought he was crazy, but when the market crashed, he emerged out on top. Now in 2009, if history repeats itself, who better than Buffett to teach you about success?