Over the last 52 years, Warren Buffett’s company, Berkshire Hathaway has increased
in market value by an annualized 20.9 percent.
Compare that to the S&P 500’s 9.9 percent.
That’s a total return of 2.4MM percent versus the market’s less than 16,000 percent.
With his quick wit, Buffett is constantly dropping value through metaphors.
So much value, in fact, it can be overwhelming when trying to learn from the master.
I’ve pulled out five of his top tips for investors taught through metaphors.
Coming up!
I’m so glad you’re here.
I’m excited to have the opportunity to help you build your rapidly-growing, highly-diversified
net worth, one video at a time.
As you might expect, there is so much that can be learned from Buffett’s experience
and expertise.
I particularly appreciate his well-crafted metaphors.
I’m gonna take you through five of my favorites and the lessons that can be extracted from
each.
...and I’m sorry, but I’m going to save my favorite for last…
Number 1:
"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels
is likely to be more productive than energy devoted to patching leaks."
Often investors become emotionally attached to a particular company or strategy.
They try to find quick fixes, when in reality, their best bet for long-term survival would
be to find a new strategy, research and discover a better company, or to just get out altogether.
To succeed as an investor or trader, you have to be willing to accept and part with your
losses.
As long as you hang on to that loser, there is at least still hope that it could turn
around tomorrow or the next day.
It can be hard to sell - I get it - once you finally close out your order, the loss feels
more real, because now there’s no chance you’re going to make it back (with that
particular stock at least).
So many investors succumb to this emotional trap.
You will not win every time.
You may even be wrong most of the time.
But you can still win long term if you can learn to be okay with that fact and keep your
losses small.
Number 2:
"The most important thing to do if you find yourself in a hole is to stop digging."
Although similar to number 1, I see this metaphor as being more related to your investment strategy.
The sooner you can recognize that your strategy isn’t working anymore or simply doesn’t
work long-term - whether that’s because it just doesn’t work for you and your personality
or because it was ill-conceived to begin with - the sooner you can recognize that and move
on, the better off you’ll be.
That can be hard.
Sometimes, people start doubling down when a strategy that may have been recently successful
suddenly stops producing results.
They keep betting more and more hoping the next bet will pull them all the way out of
the increasingly-deep hole they’re in.
Don’t make that mistake.
Be open to change.
Always be learning as much as you can and striving to find better ways even (perhaps
especially) when you’re comfortable.
Number 3:
"Only when the tide goes out do you discover who's been swimming naked."
When the market is going up and has been for a long time, caution is often thrown to the
wind, and everyone thinks they’re genius.
It’s not until the market corrects or crashes that everyone can see who actually understands
how to succeed with stocks long-term.
And that crash - it may take a while to come…
like decades sometimes...
During the Dotcom bubble, for example, Buffett was ridiculed as a dinosaur being left behind
due to his inability to see the new stock market paradigm. Old, tried and true, valuation
metrics were thrown out the window, and young hot-shot investors were lauded as visionaries
as they took on increasingly greater risks, banking it all and more on pretty much anything
with a dotcom in its name.
For years, these young hot-shots looked brilliant - the market seemed to be proving that they
were right.
But when the tide went out as the bear market finally hit these investors and those who
followed their advice were ruined.
You can apply this personally - as in, if you’ve never had money in the market during
a crash, just continue to be aware of that fact and don’t get too cocky, don’t let
your guard down.
But I also strongly recommend you apply this lesson to those whose advice you’re following.
If that “expert” or “successful investor” has never experienced a major crash while
having any significant amount of money in the market, like 2007 or 2000 major, then
you should take what they say with a handful of salt… cause - think about it - they’ve
only experienced half of an investment cycle themselves - how can they advise and prepare
you for long-term success?!?
After all, knowing what to do to prepare yourself and weather the chaos of a bear market is
the most difficult part of long-term investment success.
The investors I highlight and that we learn from here on this channel, have absolutely
proven themselves through the ups and the inevitable (and often destructive) downs of
the market.
Personally, I’ve had money in the market for as long as I can remember, yet it’s
those investment lessons I learned from the crash of 2007, that have most influenced my
investment strategy and perspective today, specifically on the importance of strategic
risk management.
So be careful who you trust.
Ask yourself: will they be able to help me long term?
Or has their success just come because we’re in a bull market?
How do they know how to build a portfolio that can endure the inevitable crashes?
Just make sure you’re covered, because the tide WILL go out.
Number 4:
“Never test the depths of the river with both of your feet.”
When investing with a new strategy, you should always proceed with caution.
Maybe you watched my video on 4 ways to make money in stocks and now you’re exploring
day trading or penny stocks.
Whatever you do, don’t start with all your money.
When you first learned to ride a bike, you didn’t just jump on at the top of a steep
hill with heavy traffic… that’d be suicidal.
You should exercise that same caution with your money - don’t be suicidal with it - start
with a little bit, gain some experience - lots of experience - so much experience - and then,
increase incrementally as you become more comfortable and more familiar with all of
the risks involved.
Number 5:
“Don’t try and drive a 9,800-pound truck over a bridge that says it’s capacity is
10,000 pounds.
Go down the road a little bit and find one that says, capacity: 15,000 pounds.”
I love this principle so much.
It helps me sleep at night and not stress day-to-day about my portfolio.
Buffett is referring to the concept of investing with a Margin of Safety.
It’s the idea that, you only invest in companies where your conservative calculations suggest
there is substantial upside potential and little downside risk (as in the market is
unjustifiably discounting the value of an otherwise healthy company).
That way, even if you’re wrong… you could still make money, and if you don’t, at least
you’re not as likely to lose very much.
If that first bridge’s capacity is off by just a few hundred pounds, one impatient decision
could ruin you.
On the other hand, if that second bridge’s capacity is off by a few thousand pounds,
you’ll still make it across just fine.
This is how I invest.
These are the opportunities I seek.
You’ll see that as you glance through the stock recommendations I’ve made (and continue
to make) here on this channel.
I’ll link to the playlist of all the stock ideas I’ve covered here on YouTube.
The most recent will be first in the playlist, but most of my ideas have a one to two-year
time horizon, so a lot of them are still relevant today.
If that type of research interests you, I’d encourage you to explore that playlist.
And if you’d like more thoroughly-researched ideas like those, then you should also check
out my Patreon page.
That’s where I share ALL my ideas to a private group of interested and concerned investors.
If that sounds like you, I’d love to see you inside.
And if not, that’s fine too, there’s plenty here on this channel that can help you succeed!
So which of these Buffett-isms is your favorite?
Or did I miss your favorite?
There are so many!
Let me know in the comments.
And if you want to keep learning and working toward your rapidly-growing, highly-diversified
net worth, then don’t forget to subscribe and click that little bell.
That way, you won’t miss any of these timeless lessons or any of our time-sensitive stock
ideas.
If you liked this video, let me know with a like.
And share it with others who might find it helpful.
Whatever you do, don’t stop learning.
Either of these videos would be a great next step.
I’ll see you there.
Take care.