Warren Buffett is widely regarded as one of the most successful investors of the 20th century. Over the years, Buffett, now 94, has shared a wealth of knowledge about the principles that have guided his remarkable success. So, how did he achieve such impressive results and become one of the richest people in the world? It was by investing in businesses and following a set of core principles that have consistently served him well.
Here are six of his key investment rules:
- Cash is Never a Good Investment
This principle reflects Buffett’s broader investment philosophy: get out of cash and invest in assets, because the value of cash will likely decrease over time.
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As Buffett famously said, “When people say cash is king, I mean, that’s crazy. Cash doesn’t produce anything, and it’s sure to lose value over time.”
While it’s important to have enough cash for your immediate needs — like oxygen for survival — holding too much cash is inefficient. “We always want to have enough cash around, but anytime we have surplus cash, I’m unhappy. I would much rather own good businesses than hold cash,” Buffett explains.
- Invest in Productive Assets
Buffett contrasts owning physical commodities like gold with investing in productive assets. “You could own all the gold in the world and have a cube 67 or 68 feet on each side. You could climb on top of it and think you’re king of the world, but it doesn’t do anything. It doesn’t produce anything,” he states.
Instead, Buffett advocates for investing in assets that deliver returns over time. “You buy a farm because you expect it to produce a certain amount of corn, soybeans, or cotton every year. You decide how much you’ll pay for it based on what you think it will deliver,” he explains.
When investing in a business, Buffett thinks long term and ignore short-term fluctuations in stock prices.
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