Warren Buffett is generally considered to be the greatest investor of all time. As a result, when Buffett speaks, investors listen closely. Every year, thousands of investors regularly pour over his annual letter to his shareholders, in the hope of receiving some expert knowledge. Today, I’ve put together five classic quotes from the investing legend himself. Could this advice put you on the path to financial freedom?
“Do not save what is left after spending but spend what is left after saving“
This, in my opinion is the key to saving, and the reason why some people manage to save and others don’t. If you want to see your savings grow, pay yourself as soon as you receive your salary, before expenses like rent and bills. If your strategy is to save whatever is left over at the end of the month, you may often struggle to save anything at all.
“Never depend on single income. Make investment to create a second source“
They say the average millionaire has seven different sources of income. Is it time then, that you diversified your income streams? In today’s world, there are literally thousands of ways to create a passive income, however, one of the oldest ways of generating a second income is still one of the most effective. I’m talking about dividend stocks. Build a portfolio of high-quality dividend stocks and you’ll potentially have a second income stream for life.
“The business schools reward difficult complex behaviour more than simple behaviour, but simple behaviour is more effective“
This is a brilliant quote from Buffett that sums up how investing should be approached. The bottom line is that investing doesn’t need to be complicated. Forget derivatives, spread bets and CFDs, and focus on just building a portfolio of high-quality dividend-paying stocks that you can hold for the long term. History tells us that this simple approach works.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful“
This is one of Buffett’s most popular quotes. Having said that, you would be amazed at the number of investors who can’t follow that advice. Many retail investors have a funny habit of getting their timing all wrong. They buy stocks when it feels good to be investing. Conversely, they sell stocks when it doesn’t feel good to be investing. As a result, they lose money. If you really want to get wealthy from the stock market, you have to go against the herd.
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.“
Lastly, an article on Warren Buffett’s wisdom wouldn’t be complete without mentioning the quote above. That’s because capital preservation really is one of the keys to successful investing. Lose 50% on a stock and it needs to double before you break even. Lose 80% and you’ll need a 400% return. If you want to retire early, big losses need to be minimised.