Warren Buffett, head of mega-conglomerate Berkshire Hathaway, is famous for his successful investments that made him the second richest man in the world. Lucky for us, billionaire Buffett typically offers up his advice freely.
While Buffett is often considered the most successful investor of our time, if you dig a little deeper than that, he is a businessman. In fact, he often urges people to treat their stocks like they would a business. We’ve already discussed some of Buffett’s great advice for running a business; rules for running one, how women can benefit your company, and even some simple advice to entrepreneurs. Still, though, there is much to be learned from the Oracle of Omaha on how to run a business.
1) Stay in your circle of competence
Buffett is a serious advocate for sticking to what you know, or what is within your “circle of competence.” Largely, risk comes from not knowing what you’re doing. By sticking with what you know, you avoid a whole lot of risk.
A lot of small business owners, at the first sign of profit, start thinking about how they can spend that. Rather than trying to better your quality of life with that profit, you should try to better the quality of your businesss. By reinvesting your profit, you enable growth for your business.
Warren Buffett has been practicing this strategy since he was young. Even in high school, after selling his pinball machine business, Buffett reinvested those earnings into stocks instead of spending it.
3) Frugality is a good thing
Among the many qualities that Buffett is known for is frugality. Not only does he live his personal life with a bit of a lock on his wallet, he runs Berkshire with the same frugality. I mean, Buffett runs the 4th largest business in the world, and still only employs about 25 people at the headquarters. Don’t spend money where it doesn’t need spent. Instead of thinking about if you can do something, think about if you should do it.
4) Admit your mistakes
“GEICO’s managers, it should be emphasized, were never enthusiastic about my idea. They warned me that instead of getting the cream of GEICO’s customers we would get the… well, let’s call it the non-cream. I subtly indicated that I was older and wiser. I was just older.”
This is from Buffett’s 2010 letter to shareholders, where he took responsibility for a $44 million loss, but it’s no where near being the first or the last time Buffett has admitted to a mistake. In his 1989 letter to shareholders, he spent an entire section mulling over the mistakes of his previous 25 years with Berkshire Hathaway. Not only does it keep you humble, it shows investors and peers that you can admit fault and then try to fix it.
5) Make a difference
Buffett has pledged to give away 99% of his fortune, and is constantly investing in philanthropies. He teamed up with Bill Gates to create the Giving Pledge so other wealthy people can do the same. This one is simple, be kind and use your money wisely. There are more people to benefit than just you.
“If you’re in the luckiest 1 percent of humanity, you owe it to the rest of humanity to think about the other 99 percent,” Buffett says.