Introduction
This book teaches about the nine different habits of Warren Buffett. Warren Buffett was consistent in following those habits and that’s why he is one of the richest persons on the planet with a net worth of over US $85.6 billion as of December 2020. People should develop all these habits in order to be successful in their future. We will talk about each of the habits in a detailed manner below.
Habit 1: Reading + Numbers
One needs to develop the habit of reading since reading is the stepping stone to one’s success. 75% of self-made millionaires read at least 2 books a month. Warren Buffett is no different. The majority of his time in a day gets spent reading many newspapers, magazines, 10Ks, etc and that is why he is proficient in the stock market business. Warren got motivated from the initial few lines of this book “One thousand ways to make $1000?”. Here is a line from this book “The way to begin making money is to begin”. This is a very powerful sentence. It basically means that even though many people like to make a lot of money, unfortunately, some of them never get started as they wait for things to turn around.
People must start somewhere. Even if they fail, they can learn from their mistakes and utilize that learning in their next venture. Eventually, they are bound to get success. However, in an interview, Warren mentioned that the biggest breakthrough of his investment career came after reading the book “Intelligent Investor”, written by Benjamin Graham. This book has been the foundation of Warren Buffet’s investment plans and it has inspired many finance enthusiasts as well.
Reading makes people wiser since people start understanding what not to do and therefore, they are less likely to commit any mistakes. The book mentioned a 7-day plan for brain acceleration via systematic reading. The plan is mentioned below.
a) Pick a book that is quite engaging. You should feel like you are completely immersed in the book and that way you won’t feel bored as well. Isaac, the author of this book recommended Paulo Coelho’s “The Alchemist” to start with.
b) Just read 30 minutes a day at the same time every day for 7 days. Now, since you started enjoying it, you will again pick up another book on the 8th day. Follow the routine for another 7 days and then the journey will be seamless. You won’t think that you are putting too much effort into reading and that is when it would turn into a habit for you.
However, there are some rules that need to be followed during those 7 days.
Rule 1: Keep aside your smartphones. If possible, switch it off so that you don’t get distracted.
Rule 2: No internet and television.
Rule 3: Reading rhythm. Try to read 10 pages at one shot to “connect” with the ideas of the author.
Rule 4: After you finished reading 10 pages, take a break and think about what you read so far and how much you remembered. This is not a test of memory but to figure out how much you liked the story so far and what’s really fascinating.
Habit 2 : The Principle of Compounding in Finance and Life
The principle of compounding in Finance is basically reinvesting your earnings in your principal. Once you start reinvesting, the amount grows huge over time and provides amazing returns. Warren Buffett used to follow this consistently and that is how he gained enormous wealth.
The principle of compounding in life can be linked to reading. If you read few pages daily, over a period of time, you will gain enormous knowledge like what happens with compound interest. Also, it can be linked to other aspects of lives as well. The point the author is trying to make here is that whatever one does daily, he or she needs to be consistent in doing that, and over a certain period of time, the benefits will get compounded.
For people who do not understand the stock market or do not have the time to research, Warren Buffett advised them to invest in Index Funds, the funds that mimic the overall market or a set of representative stocks and not one particular stock. In this way, people can reduce the risk of investing in only 1 stock by investing in Index Funds.
Habit 3 : The Circle of Competence
Every person on this planet is competent. The only thing is that the person does not know in which area his or her skills lie. If the person is able to discover that and focuses on improving that skill and apply it in professional and personal lives, success is bound to come in the long run.
The same is true when it comes to investing in stocks. If you are convinced of investing in a particular stock after understanding and analyzing the economics of that stock, go ahead and invest in it. If you think, you are not convinced, then don’t invest in that specific stock.
Warren Buffett figured out that he was really good in investment banking and therefore he put his entire focus over there. Investment banking was his strength and he utilized that strength to become one of the richest persons in this world.
This habit teaches us the lesson that if you are unable to figure out your competence, take a break and ask yourself about the competencies you have. Once you are able to figure that out, focus on improving that and everything else would fall into place.
Habit 4 : Power of isolation, thinking and No Internet
When people can remain away from the hustle and bustle of city life and can stay in some environment which is peaceful, that is when they would be able to think clearly and decide the strategies on whatever they plan to do. Buffett stays at Omaha, a city in Nebraska that is far away from Wall Street. Since his home environment is peaceful and is free from the noise of business investments, he can think clearly. He spends 80% of his time in a day reading articles on business investments. He strategizes his entire investment plan and then executes it. One should invest more time in planning and analyzing before executing. That way the person won’t be afraid after investing in some stocks as he did his entire research before buying the stock.
Life without the internet is really tough nowadays. However, Buffett does not have any Internet or computer in his office. What Buffett tries to explain here is to find your own voice rather than simply searching for the information which other people are also following over the internet.
Internet is so much incorporated into our lives that we can’t stay away from it. However, Isaac urged his readers to try to remain away from the internet and cell phone for a day. The result would be amazing and people would soon realize how much time they lose by spending hours on internet surfing, social media, etc. The author suggested not to use the Internet until and unless it’s really required. When you keep yourself away from the distractions like internet, you would then be able to discover the real ‘you’ in yourself and you would become more productive.
Habit 5 : Inner Scorecard or Outer Scorecard?
The crux of this habit is that people need to abide by their own opinions and decisions. They should not fall upon another person’s opinion and forget about their own opinion. Inner scorecard basically means to be convinced by your own opinion rather than listening to someone else’s opinion. Buffett is an inner scorecard person. He never cares about what others think of him. He follows his mind and sticks to his decisions and that is how he was able to invest in most of the good stocks.
This doesn’t mean you wouldn’t listen to others’ opinions at all. If you think your reasoning is challenged, then stand by your own decisions. You should follow what you love, not what others want you to do. Even if you fail, you will learn a lot and that would prepare you for the next journey of your life. You will ultimately get success if you are able to follow your passion.
Habit 6 : Do what you love- The Science of not getting bored and eventually succeed!
Warren Buffet was in love with investment in stock markets and that is what he followed throughout his life to become rich. If you also follow what you love, you are bound to get success. The majority of the people spend 80% of their time doing things they do not like and eventually they get bored out of it. Try to find which skill you are good at. Focus on that skill and take some courses to learn that skill. You still work on your routine job and on weekends or whenever you have free time, see how you can get a passive income. That will eventually help you if you want to start your business in the area which you love. Just follow your passion. Things would eventually fall on the right path.
Habit 7 : Cash is King- Really?
A cash balance of $20 billion acted as a savior for Warren Buffet’s Berkshire Hathway during the 2008 recession. Some cash is required for any contingencies or for some emergencies. However, cash is the worst investment. Your cash for today is definitely going to be valued less tomorrow because of inflation. So, the best way to handle this is to invest in mutual funds, government bonds, and stocks. One mistake people do is they spend first and invest with what is left. However, that is not a good strategy at all. You should invest first and then spend with the leftover income. That way you can ensure, you are able to invest the same amount of money every month. Over time, the amount will get compounded as mentioned in Habit 2.
Habit 8 : Invest in yourself- Pay yourself first!
Great leaders invested in themselves to reach where they are currently. Warren Buffett also invested in himself to learn new skills. Don’t make a to-do list for the things you want to do. When you have many choices, you will lose track of everything, and eventually, you will not do anything. Better you just decide on the course you want to take and write down in plain paper these 2 things- a) Joined and Paid? b) Completed?
When you pay for some course, you wouldn’t waste your hard-earned money and eventually, you would end up taking the course, thereby learning a new skill. You can enhance your skill in this way. Once you learn a new skill, you can then think of monetizing it. Maybe you can give tuition or you can even start your own business. The sky is the limit. So, invest in yourself and you never know how this would be benefitting you in the long run.
Habit 9 : Time Management :- 24 hours/1440 minutes a day
Warren Buffett shared an interesting trick to managing time. He first said to identify your top 25 goals and make sure you prioritize those in order. Then out of those 25 goals, you highlight the top 5 goals which you want to focus on. The third step is to scrap the remaining 20 goals which are not required. Now focus on those top 5 goals since the remaining are not at all important. Our brain gets confused when there are many things to work on. So direct your brain to focus on the important ones. Learn to say ‘NO’ to everything which is not related to your top 5 goals. That is how you can manage the time. Note that everyone has 24 hours in a day and the really successful leaders are the ones who were able to manage those 24 hours effectively.
Conclusion
These 9 habits of Warren Buffet teach us how to remain organized and productive over time. One should now plan on executing these habits in his or her daily life instead of simply enjoying them after reading these habits. Note that if you can follow these habits day in and day out, eventually success will come but the main thing is consistency. Be consistent in following these habits and life will definitely turn around for you.
Thank you for reading this. If you liked the summary, do let me know in the comments.
Recommended Reading
Rich Dad Poor Dad by Robert T. Kiyosaki
