Warren Buffett’s Top Ten Investing Lessons

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

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.

STOCKS ARE BUSINESSES

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 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.

INVEST IN WHAT YOU CAN UNDERSTAND

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.

STICK WITH QUALITY STOCKS AT ATTRACTIVE VALUATIONS 

When 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.

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Disclosure: I’m long MCD.

If you’re interested in using dividend growth investing to become financially independent and retire early for yourself, check out my two ...

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