Warren Buffett’s Top Ten Investing Lessons

| September 6, 2019 | 0 Comments

Warren BuffettI’ve been studying legendary investor Warren Buffett for almost ten years.

It’s largely because of his teachings that I’ve been able to build a significant amount of wealth and retire in my early 30s, as I lay out in 5 Steps To Retire In 5 Years.

By following a number of Buffett’s timeless investing lessons, I built the FIRE Fund.

That’s my real-money early retirement stock portfolio. It’s a six-figure collection of some of the best businesses in the world. The Fund generates enough five-figure dividend income for me to live off of.

Warren Buffett’s investing lessons have been instrumental in achieving my financial success. I wouldn’t be living the life of my dreams had I not learned and applied his lessons.

But I don’t see any reason to keep this information to myself.

So I decided to share some of Buffett’s top investing lessons with the world today, in hopes that you’ll learn and apply them in an effort to make your own dreams come true.

These are ten invaluable and eternal investing lessons from the legendary Warren Buffett.


This is probably the biggest, yet simplest, lesson of all.

Stocks aren’t like baseball cards. They’re not just pieces of paper that are designed to be traded around.

A stock represents a small share of ownership in a real business. There’s cash flow and intrinsic value here.

When you buy stock, you’re investing in a real-life company. That means you’re investing in their assets, liabilities, cash flows, employees, brands, networks, etc.

When you fully realize that buying stock is the same thing as buying fractional ownership in a real company, you’re setting yourself up for success. Every other lesson Warren Buffett will ever teach you hinges upon this basic understanding.

The stock market as a whole, vis-à-vis the S&P 500 index or Dow Jones Industrial Average, is what people focus on.

But businesses don’t move in one, monolithic fashion.

Each individual business does what it does. And one business could be doing fantastic while another is doing terribly.

It’s not a stock market as much as it’s a market of stocks. And a market of stocks is ultimately a market of individual businesses.

Investing in businesses is a business. So approach it as a businessman.


Since these are real businesses, you should be investing in what you can understand.

Warren Buffett calls this lesson staying within your “circle of competence”.

More often than not, this equates to investing in simple business models. Buffett likes to buy businesses that are so simple and wonderful that even an “idiot” can run them.

There’s absolutely no reason to buy stock in a company that doesn’t make any sense to you. In fact, you should actively avoid investing in anything you don’t understand. Buying something you don’t really comprehend is a recipe for disaster.

Just imagine a company is coming to you as a private investor, looking for capital. If they can’t easily explain what the business model is, how they make money, and what they’re going to do with your capital, you shouldn’t go anywhere near it.

If something can’t be easily explained, that’s an immediate red flag.

Whenever you buy stock, make sure you can easily explain to yourself exactly what you’re buying and why you’re buying it.


When Warren Buffett was a much younger man, he would go after “cigar butt” stocks.

He likened this strategy to finding a used cigar butt on the ground. It might have been dirty and soggy, but it had one last puff in it. And that puff was free.

Likewise, going after some low-quality, cheap business that had a few pennies that could be squeezed out of it was something he would aim for.

However, with the help of his partner Charlie Munger, he later realized that this wasn’t the kind of strategy that could help him become truly wealthy over time. It was a ton of work. And it couldn’t scale.

Ever since, Buffett has focused on high-quality businesses with excellent fundamentals, great brands, and competitive advantages.

And this has helped to make him very, very wealthy.

But it isn’t just quality.

Warren Buffett stresses the vital importance of valuation.

While price is what you pay, value is what you get.

Stock prices fluctuate every day. But every business has an intrinsic value to it, and this value doesn’t fluctuate nearly as much. It’s up to the investor to estimate this intrinsic value, then pay a price that’s as far below that number as possible.

Valuation plays a huge role in how well an investment will do. The valuation at the time of investment affects everything from how much equity you can get for a fixed amount of money, to what kind of yield you get on your investment.

If you pay too much, even for a top-notch business, be prepared to experience worse results than you otherwise could have had.


Stock prices go up. Stock prices go down.

This is the nature of the stock market, which is really the nature of any market.

If you were checking home prices every single day, you’d also notice volatility in that market. It’s just that stocks get a lot more attention because they’re getting highly visible quotes every second of every trading day. And people make the mistake of trying to trade on this, adding to the chaos.

People like to tune into these quotes, put on CNBC, read headlines, and expose themselves to the noise.

Don’t do this.

Ignore the noise. Don’t pay any attention to it. The 24/7 news cycle is endless and exhausting. And it’s totally disconnected from the way businesses slowly plod ahead in real life.

It’s the same thing if you go and buy a house. You wouldn’t then try to pull a quote on it every day. It’s doubtful that you’d be watching a 24/7 newscast on housing economics or housing industry updates, driving yourself crazy with all of the noise and fluctuations.

Instead, you’d simply go about your life.

Well, do the same thing with stocks. Invest, then go about your life.


Ignoring the noise is a lot easier when you’re investing for the long term, which is exactly what you should be doing.

The broader stock market has averaged something close to a 10% compound annual rate of return over the last century.

That equates to the market roughly doubling every seven years!

Indeed, the S&P 500 has more than quadrupled since its Great Recession lows.

There’s no reason in the world you should be trying to trade in and out of that. Don’t try to time the market.

If you know a game is very favorable and is going to reward you handsomely over the long term, you’re crazy to try to enter and exit the game at just the right times. Just stay in the game and let it make you rich.

When you buy stock in a business, you should plan on holding it forever.


Another reason to ignore the noise is so that you can avoid excess and unnecessary emotional tolls.

If you find yourself focusing on the day-to-day action of the stock market, you’re putting yourself in a position to act emotionally.

Instead, remember that buying stock is buying a share of a business.

If you buy stock in McDonald’s Corporation (MCD), you’re not just buying a piece of paper or a digital ticker. You’re buying a slice of every transaction that McDonald’s will have today, tomorrow, and for as long as you remain an investor. You’re benefiting and profiting from a global ecosystem of thousands of restaurants, hundreds of thousands of employees, and millions of customers.

What the stock market prices all of this at on a Tuesday afternoon compared to a Wednesday morning has nothing to do with you.

When you invest, you simply have to estimate the intrinsic value of a business with reasonable accuracy, buy when capital and opportunities align, then sit on your hands for the long haul. Emotion never enters the picture.

Ignore the noise. Don’t be emotional. This is particularly helpful for navigating drops in stock price.

And when a stock’s price does drop, which will invariably happen, you’re in a perfect position to act unemotionally.

Averaging down would be a great example of acting unemotionally. If you liked at stock at $X, you should love it at 20% less than $X.


Warren Buffett has called the stock market a device for transferring wealth from the impatient to the patient.

That’s extremely accurate.

What this tells you is, patience pays off.

When you invest in a company, you should be fully committed to remaining patient and letting that business go to work for you and make a lot of money over the coming years. It’s not going to happen overnight. But great businesses tend to make ever-more money over time.

It’s like a dripping faucet. Each drop of water might not seem like much. But if you let that water accumulate over time, it adds up to gallons of water.

Likewise, patience means you have to let the opportunities come to you.

If you find a great business, but the valuation seems inordinate, stay patient. It’s a big market. And stocks aren’t going anywhere. Let that valuation become more reasonable, then swing.

Buffett has often talked about learning so much from Ted Williams. Williams liked to wait for pitches in his “sweet spot”, where he could be reasonably sure that he could hit the ball. If a ball was in that sweet spot, he could hit .400. But if the ball were off in the top right corner or something, he’d be hitting .200.

Be patient and wait for those “fat pitches”.


You should have an investment framework built, which is based upon a foundation of knowledge, that can be replicated across numerous businesses within your circle of competence.

If you’re Ted Williams, you’re only able to swing at fat pitches in your sweet spot because you have the fundamentals down. You know how to stand, where to place your weight, the mechanics of the swing. All of that.

Likewise, you have to have those fundamentals in place when approaching investing in businesses as a businessman.

Buffett has noted time and again that he can tell within just a few minutes whether or not he’s interested in a business.

Learn the fundamentals of investing. It should become second nature over time. Once it’s second nature, it becomes a template that you can apply to numerous businesses over and over again.

Educate yourself on how to read financial statements, how to reasonably judge attractive business characteristics, and how to go about estimating the intrinsic value of businesses.

Knowing how to read financial statements, in particular, is vital. Buffett has called accounting the “language of business”.


It’s a well-known fact that individual investors do quite poorly over the long run.

While the stock market has roughly doubled every seven years, individual retail investors have badly lagged this.

Part of the problem is that people exhibit a herd mentality and are unable to think independently and critically. They act irrationally.

So when stocks are going down, there must be a reason for it – and they sell.

When stocks are going up, there must be a reason for it – and they buy.

This is not the way an investor becomes successful and wealthy over time.

If you think and act like everyone else, you’re going to see results just like everyone else.

Warren Buffett hasn’t thought or acted like anyone else in a very long time, and he’s incredibly wealthy because of it.

Don’t worry about what your friends, family, or neighbors are doing. Remain rational and think independently.

Right is right even when nobody is doing it; wrong is wrong even when everyone is doing it.

Think independently, be rational, take advantage of your fundamental framework, ignore the noise, be patient, and swing at those fat pitches. While everyone else is complaining about “bad luck” or “the system keeping them poor”, you’ll be swimming in money.


Warren Buffett’s mentor, Benjamin Graham, liked to imagine the stock market as a person. He called this person, “Mr. Market”.

Mr. Market likes to knock on your door every day and offer to buy any stock from you and/or sell any stock to you.

Sometimes the prices are quite rational. Sometimes they’re extremely irrational.

Mr. Market is a very moody individual. And the swings in prices don’t seem to correlate to anything in reality. These wild swings in price, also known as volatility, can throw a lot of people off and cause them to act on emotion.

This is why it’s vital that you have those fundamentals down, remain patient, stay rational, and never be emotional.

When you do this, you’re in control. You can let Mr. Market serve you. You’re able to wait for the right prices on the right businesses and buy.

Meanwhile, there’s nothing forcing you to sell quality stocks to Mr. Market at insane prices.

Mr. Market is not there to guide you. If you try to let Mr. Market guide you, you will undoubtedly find yourself poorer for it.

It’s not his job to tell you what businesses are worth buying at what prices. That’s YOUR job.

Do that job correctly by being an independent and rational businessman, and you’ll be able to let Mr. Market serve you and make you very wealthy over time.


Warren Buffett recently turned 89 years old.

What an incredible life he’s led!

I’ve long admired Buffett for many reasons. He’s my personal hero. And I’ve constructed a life that emulates his in some ways.

What I probably admire most about Buffett is, his teachings. If you ask Buffett how he’d like to be remembered, it’s as a teacher.

Well, Buffett has taught me incredibly valuable lessons about life and money. He’s radically changed my life forever. And I’m so grateful for it.

These ten investing lessons are particularly important. If you want to become a successful and wealthy investor, you’d be hard-pressed to do well without learning and applying all of these lessons.

I hope you found just as much value in them as I have. They’ve helped make my dreams come true.

And I hope you apply these lessons as you work toward making your own dreams come true.

Full disclosure: I’m long MCD.

Note: This article originally appeared at Mr. Free @ 33.


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Category: Stocks

About the Author ()

ABOUT JASON FIEBER Founder and publisher of Mr. Free At 33. Founder of Dividend Mantra. Author of best-selling The Dividend Mantra Way. I became financially free at 33 years old through a combination of hard work, frugal living, strategic entrepreneurship, intelligent investing, patience, persistence, and perseverance. I'm sharing my perspective on what life is like being financially independent at such a young age in order to inspire others looking for a similar lifestyle. I'm in pursuit of happiness, and I believe that being financially free is vital toward that end. I hope that by trying to become a better version of myself every single day, I help you become a better version of you. I write about how financial independence, frugalism, dividend growth investing, passions, and minimalism all holistically work together to improve happiness from a personal perspective in real-time.

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