8 Money Principles from Warren Buffett and Charlie Munger
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1. Invest in What You Know
- Buffett’s Principle: Stick to industries and companies you understand. This reduces risk and increases confidence in your investments.
- Example: Buffett’s focus on consumer goods and insurance companies, such as Coca-Cola and Geico.
- Note: The Vanguard S&P 500 ETF (VOO) has delivered an average annual return of approximately 10.36% over the past 30 years. This performance aligns closely with the historical performance of the S&P 500 Index, which has also provided similar returns over long periods.
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2. Patience and Long-Term Focus
- Key Idea: The best investment opportunities often require time to mature.
- Example: Buffett’s holding of Coca-Cola stock for decades, emphasizing long-term growth over short-term gains.
- Note: Over the past 30 years, Coca-Cola (KO) stock has shown a strong and steady performance, reflecting its stability and the strength of its brand. Historically, Coca-Cola has provided average annual returns of around 10% when including dividends and price appreciation. This performance aligns with the general long-term performance of the stock market, making Coca-Cola a reliable choice for long-term investors. The company’s consistent dividend payments and strong market presence have contributed to its appeal among investors.
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3. Avoid Debt
- Advice: Stay out of unnecessary debt. High interest can erode potential investment returns.
- Buffett’s View: Use leverage sparingly and only when it’s manageable and beneficial.
4. Diversification vs. Concentration
- Buffett’s Take: While diversification is protection against ignorance, investing heavily in a few well-researched companies can yield better returns.
- Munger’s Insight: Focus on a few high-quality businesses rather than spreading investments too thin.
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5. Continuous Learning
- Philosophy: Constantly expand your knowledge and understanding of businesses, markets, and economies.
- Practice: Both Buffett and Munger are known for their extensive reading habits and lifelong learning.
- Resource: The Motley Fool, Investopedia, and Seeking Alpha are excellent sites to enhance your education on investing.
6. Integrity and Ethics
- Principle: Conduct business and investments with high ethical standards.
- Buffett’s Quote: “It takes 20 years to build a reputation and five minutes to ruin it.”
7. Living Below Your Means
- Lifestyle Advice: Keep personal expenses low and avoid extravagant spending.
- Example: Buffett’s frugal lifestyle, including living in the same house he bought in 1958.
- Tool: Make sure you have (and use) your Real Estate Treasure Map, including ‘My Financial Picture’ and goals worksheets to be clear on your financial situation and future planning.
- Tool: Use MonarchMoney.com to track the performance of all your assets, from savings and checking accounts to investments and rental properties. Visit your dashboard daily!
8. Surround Yourself with Like-Minded People
- Advice: Be around motivated, educated, and active individuals.
- Action: Sign up for Premier Coaching today to get started for free!
