Warren Buffett's 9 rules for running a business

Warren Buffett is legendary as an investor, but he's also an incredibly successful businessperson, too—a fact that sometimes gets lost in the millions of words that have been written about his advice on how to buy a stock.

That advice can be summarized with a just a few words. Appearing on the CNBC-produced syndicated program "On the Money" last month,Buffett said, "If you own your stocks as an investment—just like you'd own an apartment, house or a farm—look at them as a business."

Using that viewpoint, you shouldn't buy a stock simply because you think it will go up in price sometime soon. Instead, you should buy a piece of a business that you think will generate profits for a long time to come.

That long-term perspective is also at the core of the business advice that Buffett has provided over the years.

Here are some examples from his annual letters to Berkshire Hathawayshareholders.

1. Keep calm in the face of volatility. Buffett writes that earnings gyrations "don't bother us in the least." After all, "Charlie and I would much rather earn a lumpy 15 percent over time than a smooth 12 percent."

2. Keep good company. Berkshire has never split its Class A shares. As a result, one share currently costs almost $214,000. That discouraged people from rapidly moving into and out of the stock, and that's exactly the way Buffett likes it. He wants shareholders who share his long-term view. All the way back in 1979, he wrote, "In large part, companies obtain the shareholder constituency that they seek and deserve. If they focus their thinking and communications on short-term results or short-term stock market consequences, they will, in large part, attract shareholders who focus on the same factors."

3. Keep your focus. In that same letter, Buffett warns that even a great company can see its "value stagnate in the presence of hubris or of boredom that caused the attention of managers to wander." The result: a "sidetracked" leadership that "neglects its wonderful base business while purchasing other businesses that are so-so or worse." In this area, Buffett argues that "inactivity strikes us as intelligent behavior." In 1982, a year that saw a number of corporate deals, Buffett thought that in many of them, "managerial intellect wilted in competition with managerial adrenaline. The thrill of the chase blinded the pursuers to the consequences of the catch."

4. Keep costs low. In his 1996 letter, Buffett wrote that being a "low-cost operator" is directly responsible for the success of Berkshire's GEICO auto insurance subsidiary. "Low costs permit low prices, and low prices attract and retain good policyholders." And when those customers recommend GEICO to their friends, the company gets an "enormous savings in acquisition expenses, and that makes our costs still lower."

5. Keep employee incentives simple. Buffett doesn't like what he calls "lottery ticket" arrangements, such as stock options, in which the ultimate value could range from "zero to huge" and is "totally out of the control of the person whose behavior we would like to affect." Instead, goals should be "tailored to the economics" of the business, simple and measurable, and "directly related to the daily activities of plan participants."

6. Keep out of trouble. Buffett tries to "reverse engineer" the future at Berkshire. "If we can't tolerate a possible consequence, remote though it may be, we steer clear of planting its seeds." (Buffett notes that his partner Charlie Munger often says, "All I want to know is where I'm going to die so I'll never go there.")

7. Keep your undervalued stock to yourself. Buffett is especially critical of a company using its stock to make a purchase when that stock isn't being fully valued by the market. "Under such circumstances, a marvelous business purchased at a fair sales price becomes a terrible buy. For gold valued as gold cannot be purchased intelligently through the utilitization of gold—or even silver—valued as lead."

8. Keep it small. In 2006, Buffett wrote that he's skeptical "about the ability of big entities of any type to function well." In his opinion, "size seems to make many organizations slow-thinking, resistant to change and smug." That's one reason Berkshire's corporate headquarters still has only a handful of employees, with almost all the managing work left to its unit's managers. "It is a real pleasure to work with managers who enjoy coming to work each morning and, once there, instinctively and unerringly think like owners."

9. Keep your reputation. In Buffett's mind, perhaps the most important piece of advice for businesses, and for everyone else, is to maintain a sterling reputation for honesty by never doing something you wouldn't want to see reported on the front page of your local newspaper. After taking control of Salomon in the wake of a major 1991 scandal at the financial firm, he famously told a Congressional panel that he had a simple message for employees: "Lose money for the firm and I will be understanding; lose a shred of reputation for the firm and I will be ruthless."

As he put it in one of his most-often quoted sayings: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."

Wisdom of Warren Buffett to be shared especially with regards to 2015

Warren Buffett is such an investing powerhouse, it’s hard to list his credentials without making him sound like Dos Equis’ Most Interesting Man in the World:

• He made his first stock purchase when he was 11 and 99 percent of his $63 billion fortune after his 50th birthday.
• He was the lone insurance policy for Pepsi’s Billion Dollar Sweepstakes.
• People stand in line to get a photo with his wallet.

The Oracle of Omaha is one of the most influential businessmen in the world — and, arguably, the most frugal, a billionaire that once complained “most toys are just a pain in the neck.”

As often as he’s on CNBC’s “Squawk Box” talking about holding company Berkshire Hathaway’s per-share book value, he’s urging students to stay out of credit card debt and increase their savings.

With the year winding down, we combed through all the advice Buffett has given us in 2014, from the sublime (“Price is what you pay, value is what you get”) to the ridiculous (“A bull market is like sex. It feels best just before it ends”).

The net result? Six things you should be doing with your money in 2015, from the master’s mouth.

Warren Buffett’s Best Advice for 2015

1. Put Your Estate in Index Funds

In his 2014 letter to Berkshire Hathaway shareholders, Buffett revealed his estate plan, reminding readers to keep their investments safe, low-cost and long-term.

Turns out, he’s planning on leaving all of the cash for his wife in a product that’s as old, stodgy and lucrative as himself.

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”

2. Stay Away From Bitcoin

Given Buffett’s almost wholesale aversion to tech, this one isn’t a surprise; the Oracle refuses to invest in what he doesn’t know, and he doesn’t know the technology sector, IBM notwithstanding.

But Buffett’s problem with Bitcoin isn’t that it’s a tech investment — it’s that it’s not any kind of investment at all, because it doesn’t have value, as he explained in a March interview with CNBC.

“Stay away from it. It’s a mirage, basically. … It’s a method of transmitting money. It’s a very effective way of transmitting money and you can do it anonymously and all that. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money? Are money orders? You can transmit money by money orders. People do it. I hope Bitcoin becomes a better way of doing it, but you can replicate it a bunch of different ways and it will be. The idea that it has some huge intrinsic value is just a joke in my view.”

3. Learn How to Read Financial Statements

Buffett gave this advice to Tre Grinner, a 17-year-old with Hodgkin’s Lymphoma who recently secured a Goldman Sachs internship with the help of the Make-a-Wish Foundation.

Buffett surprised the intern with a call while he was being interviewed by CNBC in August, offering him this advice:

“Take all the accounting courses that you can find. Accounting is the language of business. … It’ll make it so much easier for years and years to come for reading financial statements, to get comfortable with it, because it is a language all of its own. Getting comfortable in a foreign language takes a little experience, a little study early on, but it pays off big later on.”

4. Focus on Saving, Not Getting Rich Quick

Ironically, Buffett dropped this tip when promoting his basically unwinnable billion dollar bracket challenge on the Dan Patrick Show.

The sweepstakes, backed by Buffett and Quicken Loans, would award $1 billion to anyone who devised a perfect NCAA March Madness bracket. (The odds of winning were about 1 in 9.2 quintillion — you were 53 billion times more likely to win the Powerball.) Still, the Oracle’s advice was solid:

“Well, I think the biggest mistake is not learning the habits of saving properly early. Because saving is a habit. And then, trying to get rich quick. It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”

5. When Stock Prices Drop, Buy — Don’t Sell

It was a volatile year for the market and Buffett’s wealth; the investor lost about $2 billion in the course of several days in October when Coke and IBM took a hit after their quarterly earnings reports. Buffett kept calm, though, giving several interviews in which he explained why he was a fan of bear markets.

Granted, when you’ve got $63 billion to your name, this kind of a hit is lunch money. But, as the Oracle explained to CNBC, investors with itchy trigger fingers rarely succeed.

“I like buying it as it goes down, and the more it goes down, the more I like to buy. … If you told me that the market was going to go down 500 points next week, I would have bought those same businesses and stocks yesterday. I don’t know how to tell what the market’s going to do. I do know how to pick out reasonable businesses to own over a long period of time.”

6. Stop Pretending to Be an Expert

“If you don’t invest in things you know, you’re just gambling,” Buffett told CNBC earlier this year. It’s advice he’s rarely strayed from, and the reason why tech, gold and airlines will never get his money (or, in the case of airlines, get his money again). As he wrote in his 2014 shareholders letter:

“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick ‘no.'

Read more: http://www.gobankingrates.com/personal-finance/6-things-warren-buffett-says-should-money-2015/#ixzz3MvFvkgL8

Warren Buffett still the best role model for any stock investor.

Warren Buffett is arguably the world's greatest stock investor. He's also a bit of a philosopher. He pares down his investment ideas into simple, memorable sound bites. Do you know what his homespun sayings really mean? Does his philosophy hold up in today's difficult environment? Find out below.

"Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1."Buffett personally lost about $23 billion in the financial crisis of 2008, and his company, Berkshire Hathaway, lost its revered AAA ratings. So how can he tell us to never lose money? He's referring to the mindset of a sensible investor. Don't be frivolous. Don't gamble. Don't go into an investment with a cavalier attitude that it's OK to lose. Be informed. Do your homework. Buffett invests only in companies he thoroughly researches and understands. He doesn't go into an investment prepared to lose, and neither should you.

Buffett believes the most important quality for an investor is temperament, not intellect. A successful investor doesn't focus on being with or against the crowd.

The stock market will swing up and down. But in good times and bad, Buffett stays focused on his goals. So should we. (This esteemed investor rarely changes his long-term investing strategy no matter what the market does. Learn more in Warren Buffett's Bear Market Maneuvers.)

"If The Business Does Well, The Stock Eventually Follows.""The Intelligent Investor" by Benjamin Graham convinced Buffett that investing in a stock equates to owning a piece of the business. So when he searches for a stock to invest in, Buffett seeks out businesses that exhibit favorable long-term prospects. Does the company have a consistent operating history? Does it have a dominant business franchise? Is the business generating high and sustainable profit margins? If the company's share price is trading below expectations for its future growth, then it's a stock Buffett may want to own.

Buffett never buys anything unless he can write down his reasons why he'll pay a specific price per share for a particular company. Do you do the same? (They don't call him "The Oracle" for nothing. Learn how Buffett comes up with his winning picks; check out Think Like Warren Buffet.)

How to find the best credit card for your lifestyle.

"It's Far Better To Buy A Wonderful Company At A Fair Price Than A Fair Company At A Wonderful Price."Buffett is a value investor who likes to buy quality stocks at rock-bottom prices. His real goal is to build more and more operating power for Berkshire Hathaway by owning stocks that will generate solid profits and capital appreciation for years to come. When the markets reeled during the recent financial crisis, Buffett was stockpiling great long-term investments by investing billions in names like General Electric and Goldman Sachs.

To pick stocks well, investors must set down criteria for uncovering good businesses, and stick to their discipline. You might, for example, seek companies that offer a durable product or service and also have solid operating earnings and the germ for future profits. You might establish a minimum market capitalization you're willing to accept, and a maximum P/E ratio or debt level. Finding the right company at the right price - with a margin for safety against unknown market risk - is the ultimate goal. (Learn about the different kinds of risk that investors must face in Risk And Diversification: Different Types Of Risk.)

Remember, the price you pay for a stock isn't the same as the value you get. Successful investors know the difference.

"Our Favorite Holding Period Is Forever."How long should you hold a stock? Buffett says if you don't feel comfortable owning a stock for 10 years, you shouldn't own it for 10 minutes. Even during the period he called the "Financial Pearl Harbor", Buffett loyally held on to the bulk of his portfolio.

Unless a company has suffered a sea change in prospects, such as impossible labor problems or product obsolescence, a long holding period will keep an investor from acting too human. That is, being too fearful or too greedy can cause investors to sell stocks at the bottom or buy at the peak - and destroy portfolio appreciation for the long run.

You may think the recent financial meltdown changed things, but don't be fooled: those unfussy sayings from the Oracle of Omaha still RULE!

The Bottom Line
Find out how he went from selling soft drinks to buying up companies and making billions of dollars; see Warren Buffett: The Road To Riches.

Warren Buffett's wisdom goes a long way

Warren Buffett offers advice on investing and life

  Billionaire Warren Buffett dispensed plenty of advice on investing and life during this weekend's Berkshire Hathaway shareholders meeting.

The wisdom Buffett and his investing partner Charlie Munger offer is part of what attracts more than 30,000 to the meetings each year.

Here's a sample of their insights:
INVESTING SUCCESS:
Buffett and Munger told shareholders that successful investors must learn all they can about the businesses they are buying and stick to industries they know, but the right temperament is also important.
"You just have to avoid getting excited when other people are excited," Buffett said.
Admittedly, it's hard to continue to make rational decisions about investments when the stock market is soaring, but it has proven profitable for Berkshire Hathaway.
"We've always tried to stay sane when other people like to go crazy," Munger said. "That's a competitive advantage."



The above appears in Yahoo news.on 6th May 2013
Must learn from him to be successful.