Timeless Investment Wisdom of the Oracle of Omaha: Warren
Buffett’s Powerful 10 commandments on investing
Warren Buffet – my
investment mentor & guru, announced his retirement this month, which was a
shock for the investing world & myself, though he was quite aged @ 94 years. The global Investing world & Berkshire
Hathaway (the insurance company behemoth he built and led along with his famous
partner & another investment guru Charlie Munger) will never be the same
without him. He has been fondly named “Oracle of Omaha” because the global investment
community very closely followed his investment picks and comments on the
market, while he lives and works in Omaha (a city in US) & not in famous
Wall Street. His consistently market
beating achievements in last 60 years (1964 to 2024), when his investments
generated about 20% average IRR/returns for himself and Berkshire Hathaway (multiplying
the investments to 55000(Fifty-Five thousand times in 60 years) , double the US
S&P 500 returns (10.2% in the same period) , speaks for itself.
Warren Buffett, is more than just a wildly successful
investor; he's a fountain of wisdom whose teachings have guided generations of
aspiring financiers, investors and everyday savers alike. His philosophy, built
on a bedrock of discipline, patience, and a deep understanding of business
fundamentals, offers a refreshing counterpoint to the often frenetic and
speculative nature of the market.
For anyone looking to navigate the complexities of
investing, delving into Buffett's learnings isn't just advisable – it's
essential. Here, I distil some of his
most profound insights, learnings and memorable quotes that continue to
resonate today.
1. Invest in What You Understand: The Circle of Competence
Perhaps one of Buffett's most famous tenets is to stay
within your "circle of competence." This means investing in
businesses whose operations, revenue models, and competitive advantages you can
genuinely comprehend. This is why he has historically stayed away from tech
stocks until he felt comfortable with the industry (Apple being a rare and
successful exception, only towards his last decade in 2016). He never invested
in Microsoft( though he has been a great friend of Bill Gates, Microsoft
founder) or Google , Facebook etc
He says "Risk comes from not knowing what you're
doing."
Chasing hot tips or complex financial instruments you don't
understand is a recipe for disaster. Instead, focus on industries and companies
where you have a genuine interest and can make informed judgments about their
long-term prospects. If you can't explain the business to a child, you probably
shouldn't be investing in it.
2. Focus on the Long Term
(Magic of compounding works only in long term )
“Our favourite holding period is forever.”
Buffett doesn't believe in timing the market or chasing
short-term gains. His long-term investments—like Coca-Cola, American Express,
and Geico—are examples of businesses he’s held for decades, reaping compounded
returns.
Learning: Time in the market is more important than
timing the market. Patience & magic of compounding are superpowers in
investing
3. Buy Wonderful Companies at Fair Prices
“It’s far better to buy a wonderful company at a fair
price than a fair company at a wonderful price.”
“ Price Is What You Pay, Value Is What You Get”
“ Don’t buy stocks , buy wonderful businesses(companies)
underlying them”
Buffett prioritizes quality over cheap valuations. A strong
brand, sustainable competitive advantage (or "moat"), and consistent
earnings & Returns on capital(ROE) matter more than just a low stock price.
Over time, Buffett shifted from buying “cheap” companies to buying great
businesses at reasonable prices, recognizing that quality compounds wealth. He
was inspired by Charlie Munger to make this change in investing strategy over
his earlier pure value investing strategy of buying cheaper businesses/
stocks(inspired by his guru Benjamin Graham – father of value investing)
Learning: Value investing isn’t just about low
prices—it's about paying the right price for quality.
4. Emotional discipline
“Be fearful when others are greedy, and greedy when
others are fearful.”
“The stock market is
manic depressive.”
He reminds us that markets are driven by human emotions—irrational swings are
normal. Staying rational and focused on fundamentals is essential. One of
Buffett’s most quoted lines(His above quote on greedy/ fearful) speaks to
contrarian investing. He believes in stepping back when the market is euphoric
and stepping in when others panic—buying undervalued assets when fear drives
prices down. For example , he made bold investments during Great Financial
crisis after LEHMAN collapse in 2008 , when he made significant investments in big
banks like Goldman Sachs , GE , Dow chemicals & Swiss Re in billions of $,
when everybody was playing safe , selling and hoarding cash after selling . Similarly, he bought significant stakes in a Gold mining
company(Barrick Gold) as Gold was the only safe haven & 5 big Japanese well
diversified conglomerates/ trading giants like Mitsubishi , Sumitomo, Mitsui
etc( in Billions of $)during Covid market crisis in 2020.
Learning: Emotional discipline is crucial. Don’t follow
the herd—stay rational when markets are irrational.
5. Cash is Not Trash—But Don’t Hoard It
“Cash combined with courage in a crisis is priceless.”
Buffett keeps ample cash on hand not because he fears the
market, but because it gives him flexibility. In downturns, this cash lets him
act quickly to scoop up bargains while others are paralyzed.
Learning: Liquidity is power. Don’t over-leverage. Keep
reserves ready for opportunities.
6. Learn Continuously
“The best investment you can make is in yourself.”
Buffett is a voracious reader, reportedly reading 5–6 hours
a day. He believes in lifelong learning, curiosity, and investing in personal
growth.
Learning: Skills compound like money. Invest time in
knowledge—it yields lifelong dividends.
7. Reputation and Integrity Matter
“It takes 20 years to build a reputation and five minutes
to ruin it.”
For Buffett, trust and ethics are foundational. His
partnerships and deals often rely on character and mutual respect as much as
financials. Buffett's emphasis on integrity and ethical behaviour is a
cornerstone of his success and a crucial lesson for any investor or business
leader. For example , he could never
recommend investing in Adani group companies in India after the recent issues
regarding their corporate governance related investigations/ allegations from
US Justice department . So would be the case for IndusInd bank in India.
"Lose money for the firm, and I will be
understanding. Lose a shred of reputation for the firm, and I will be
ruthless." That’s is famous quote
Learning: Success isn’t just about returns—it's about
integrity. Reputation is your most valuable asset.
8. Avoid businesses with high Debt and Leverage
"If you’re smart, you don’t need it; if you’re dumb,
you shouldn’t be using it."
Buffett has long warned against the dangers of investing in
businesses/ stocks with excessive debt. While leverage can amplify gains, it
can also destroy wealth quickly. His cautious use of debt has helped Berkshire
Hathaway remain stable through even the most turbulent times.
Learning : Over leveraging has been the key cause of
financial failures and bankruptcies of big icons in the past and hence
avoidable in investing. Same applies in personal life too . He advocated against leveraging for buying equity.
9. Capital Preservation Above All
“Rule No. 1: Never lose money. Rule No. 2: Never forget Rule
No. 1.”
This golden rule is the cornerstone of Buffett’s philosophy. He emphasizes that
protecting your capital is more important than chasing high returns. Even
though losses are sometimes inevitable, the mindset of caution and discipline
is what sets successful investors apart
Learning – Avoiding big risks and losing money/capital is
as important as making significant returns as the losses reduces the average
returns significantly for the portfolio
10. Selectivity and Patience
- “Opportunities
come infrequently. When it rains gold, put out the bucket, not the
thimble.”
Buffett counsels that great investment opportunities are rare, so when they appear, act decisively and with conviction - “At
the business school, I tell them that they would all be better off if when
they got out of school somebody gave them a card with 20 punches on it and
every time they made an investment decision, they used up a punch.”
This metaphor encourages investors to be highly selective, treating each investment decision as precious.
- “Don’t buy stocks , buy wonderful businesses(companies) underlying them” . Warren is asking people here to have a business & owner oriented mindset instead of stock oriented mindset and buy selective & wonderful businesses rather than stocks.
Learning:
Patience & selectivity is the cornerstone of wise & safe investing,
rather than chasing the hot & risky fads for high returns
Final Thoughts
Warren Buffett’s wisdom is as relevant
today as ever. His teachings remind us that successful investing is less about
chasing fads and more about discipline, patience, and rational decision-making.
By focusing on value, thinking long term, and continuously learning, investors
can build lasting wealth—one wise decision at a time
