Why Buffett Sometimes Breaks His No. 1 Rule of Investing

As the world’s top investor, people are constantly looking to Warren Buffett for advice on how to invest money wisely. While there are literally dozens of quotes on both business and investing, his most quoted relates to his rules of investing:

Rule No. 1: Never lose money
Rule No. 2: Never forget Rule No. 1

However, despite what you might think, even the Oracle of Omaha occasionally breaks this rule and the reason why makes a ton of sense.

If there’s one thing that everyone can agree on when it comes to Warren Buffett, it’s that he is definitely not a short term investor. In fact, he frequently explains that he measures stocks and companies in five to ten year increments because less than that really isn’t enough to show anything. So, with that in mind, Buffett will occasionally lose money temporarily for the prospect of making even more money later.

This is most evidenced in the way he trades stocks occasionally. Buffett has been known to purchase stocks at a price that might seem a little high with the knowledge that the company is likely to pay a hefty dividend or even buy back the shares at a profit. When Buffett first started investing, he did this frequently and while it’s not the main way that Buffett invests now, it is still an occasional tactic that Berkshire Hathaway uses.

Additionally, Buffett has been known to hang on to stocks that are down if he’s confident that it will rise again. While everyone else is screaming to sell, Buffett purchases more. Then, when the stocks finally level out, he makes a tidy profit. This is what he means when he says “Be greedy when others are fearful, and fearful when others are greedy.” Of course, it doesn’t always work that way and sometimes Buffett will lose money, but he always admits it and learns from the mistake.

So, in short, while not losing money is an important thing to keep in mind for business, being careful to view the big picture is even more important. It’s just one more example of how once you get to the point where you really understand the rules and the game, you’ll know when to break those rules.


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