Another post in my Teaching my kids series: Warren Buffett
As frequent reader of my blog you know that I’m writing some posts to try to financially educate my kids. I know they are still very young (7 and 9) but it is never too early to start. And they can read these blog posts later on in life 😉 (This is probably the case, because they don’t speak or read English very well at this moment – You got to love an understatement!).
This is another blog post to keep the “snowball of knowledge” rolling.
I think when you educate kids about money, they will benefit from it for the rest of their lives. Or as the saying goes: “What is learned in the cradle is carried to the tomb”. And to educate your kid is your responsibility as a parent.
You can learn a lot by looking what other (famous) investors do, and read about them what their investing methods are. Therefore this blog post is about a great investor, probably the most famous investors of all time, the Oracle of Omaha, Warren Buffett.
Who is Warren Buffett?
Say his name and probably most of the people know how you talk about. If one name can be linked to investing then it is investment guru Warren Buffett.
Warren Edward Buffet is an US investor. He is the founder and major shareholder of Berkshire Hathaway. Through his clever investment strategies and his down-to-earth, sober lifestyle, he has gained a lot of respect over the years.
Berkshire is an American multinational conglomerate holding company headquartered in Omaha, Nebraska, United States. In the past 10 years the price of his company has risen by as much as 150%! By comparison, the S&P index rose by 75% in the same period and in 43 of the 44 years Berkshire performed better than the S&P. Well that is a great and impressive record!
When I tell this to my kids, they will probably look at me with the look “ So what”. So lets try to formulate it in a different, and more comprehendible way in which they understand.
Suppose you have invested $ 1000 in Berkshire Hathaway in the beginning of 1964, and totally forgot about these shares. And when you found these shares again in the beginning of this year, then I congratulate you on your millions, because you had earned approx. $ 11 million.
My Lessons from Warren Buffett
I learned a lot from Warren Buffett by reading his interviews, his shareholder letters, books about him and a lot of other sources.
Probably the most important lesson I learned from Warren Buffett is: Quality, Quality, and Quality. Only buy good quality companies with great track records. Or as Warren puts it:
It is better to buy a great company at a fair price than a fair company at a great price.
And for a Dividend Growth Investor (DGI) quality is very important. Because only high quality companies can continue to pay and (hopefully) increase dividends for decades.
My second lesson is that you must think as an owner instead of a shareholder. So if you buy a stock, you must be absolute sure you want to own it. If you don’t want to own the stock for 10 years, you don’t need to own the stock 10 minutes.
To be a successful dividend investor you have to have a long-term holding horizon.
As I already told you at my most important lesson, it is important to only buy companies with great history. Why you ask? Well you don’t stay in business for 30+ years reporting bad results 😉
If we take a look at Warren Buffett’s portfolio we see that he owns some of the greatest American companies of all time. The list includes American Express Company, Coca Cola and many more. These are examples of companies that have been in business for a really long time! Warren Buffett knows that companies with a long and successful track record have a history of excellence.
My third lesson is only buy companies you know and understand. So you should never invest in a stock or company if you don’t know what is going on. Sure, you might miss out on some returns, but more often than not you’ll save yourself from big losses too.
And when you put all these lessons together, it is very simple:
Buy great companies at fair prices and hold them forever
To sum up the lessons I learned from Warren Buffett:
- Only buy good quality companies with great track records;
- Think as an owner;
- Only buy companies you know and understand;
Buy stocks that can pay and increase dividend over decades.
This is my twentieth blog post about teaching my kids. I hope my kids at the age of say 18, have all the financial knowledge I’m having right now. This would be a huge advantage for them! And that’s why I started these blog post series.
What do you tell your kids about money and investing? What are the lessons you have learned from Warren Buffett? I like to hear from you!
Help me get the “snowball of knowledge” rolling and share this post.