warren buffett is known today as one of the best investors to ever live if you had invested just one thousand dollars in his investment company bakeshare hathaway when he took it over you would have over 21 million dollars today even with the recent market crash this is an average return of around 20 which exceeds the return of the s p 500 which has an average return of 10 yearly now how did warren buffett get such great results and become one of the richest men in the world these results came from investing in companies and following
a set of key principles that we'll cover in this video so here are the six investing principles of warren buffett number one cash is never a good investment this is something that goes with your philosophy today get out of cash and get into assets because we don't know what's going to happen to the dollar well cash is always a bad investment i mean when people said cash is king a year ago i mean that's crazy i mean cash wasn't producing anything and it was sure to go down in value over time and then you always
want to be sure you have enough i mean it's like oxygen you want to be sure it's around you know but you don't need to have you don't need to have excessive amounts of it around and cash we will always have enough cash around but anytime we have surplus cash around i'm unhappy i mean i would much rather have good businesses than cash and and we found a chance in the last year thereabouts to deploy we came in with something over 40 billion in cash and we've got about 20 billion now and we've had some
earnings so we put a lot of cash to work and i like that no i'd much rather own a good business than have cash uh and it is a hedge against the dollar well you can say all assets are a hedge against the dollar i mean but all you know is that the dollar is going to be worthless 10 20 30 years from now i say worth less not worthless right you want to watch that but it will be you know unless that's true of almost every currency that i can think of the question is
how much it depreciates in value but cash cash is not a place at that number two invest in productive assets so you could have a cube if you owned all the gold in the world you could have a cube that would be 67 or 68 feet uh on a side and you could get a ladder and you could climb up on top of it and you could say you know i'm sitting on top of the world and you know and i think you're king of the world you could you know you could follow it you
could polish it you could you could do all these things with it stare at it but it isn't going to do anything now it's all you are doing when you buy that is that you're hoping that somebody else a year from now or five years from now will pay you more to own something that again can't do anything but you're hoping that the person then thinks that somebody else will buy something five years later from him there was you're betting on not just how scared people are now of paper money you're betting on how much
they think a year from now people will be scared two years from then on the third category of asset is something that you value based on it's on its what it will produce what it will deliver you buy a farm because you expect a certain amount of corn or soybeans or cotton or whatever it may be to be to come your way every year and you decide how much you pay based on how much you think the asset itself will deliver over time and those are the assets that appeal to me and charlie now there's
some logical follow-on to that if you buy that farm and you really think about how many bushels of corn how many bushels of soybeans will produce how much do i have to pay the tenant farmer how much do i have to pay in taxes and so on you can make a rational calculation and the success of that investment will be determined in your own mind by whether it meets your expectations as to what it delivers logically you should not care whether you get a quote on that farm a day later a week later a month
later or a year later we feel the same way about businesses when we buy this car or we buy lubrizol or whatever we don't run around getting a quote on it every week and say you know is it up or down or anything like that we look to the business we feel the same way about securities when we buy marketable security we don't care if the stock exchange closes for a few years so when we look at berkshire we are looking at what we think can be delivered from the productive assets that we own and
how we can utilize that capital in acquiring more productive assets number three stay in your circle of competence defining your circle of competence is the most important aspect of investing it's not how important how large your circle is you don't have to be an expert on everything but knowing where the perimeter of that circle of what you know and what you don't know is and staying inside of it is all important tom watson senior who started ibm said in his book he said i'm no genius i said but i'm smart in spots and i stay
around those spots and you know that is the key so if i understand a few things and i stick in that arena i'll do okay and if i don't understand something but i get all excited about it because my neighbors are talking about stocks are going up and everything they start fooling around someplace else eventually i'll get cream and i should number four evaluate companies first you can't keep always trying for the average person who's maybe never bought a stock before what's your advice about that you can't constantly sit there and wait and say oh
it's going to go higher it's going to go higher we don't even think about that what we think about is how much is it selling for how much do we think it's worth when we bought it at 35 billion effectively i felt the company was probably worth at least 100 billion how did it come to your attention how do you find a stock like petrochina i sit there in my office and i read an annual report which fortunately was in english and it described a very good company and uh told about the oil reserves told
about the refining tool about the chemicals everything else and i sat there and read it and i thought to myself this company's worth about 100 billion now i didn't look at the price first i look at the business first and trying to figure out what it's worth because if i look at the price first i'll get influenced by that so i look at the i look at the company first i try to value it and then i look at the price and if the price is way less than what i've just valued at that i'm
going to buy it number five play big and don't waste opportunities all mission is way bigger than combination there's big opportunities in life have to be seized now we don't do very many things but when we get the chance to do something that's right and big we've got to do it and even to do it in a small scale is just as big a mistake almost is not doing it at all i mean you've really gotta you gotta grab them when they come because they you're not going to get 500 great opportunities you would be
better off if when you got out of school here you got a punch card with 20 punches on it and every big financial every financial decision you made you used up a punch you'd get very rich because you'd think through very hard each one i mean he went to a cocktail party and somebody talked about a company he didn't even understand what they did or couldn't pronounce the name but they made some money last week and another one like it you wouldn't buy it if you only had 20 punches on that card there's a temptation
to dabble if particularly during bull markets in stocks it's so easy you know it's easier now than ever because you can do it online you know just you click it in and maybe it goes up to point and get excited about that you buy another one the next day and so on you can't make any money over time doing that but if you had a punch card with only 20 punches you weren't going to get another one of the rest of your life you would think a long time before every investment decision and you would
make good ones and you'd make big ones and you probably wouldn't even use all 20 punches in your lifetime but you wouldn't need to number six invest in yourself the best boat you can have is your own talent you know i mean it's they can't they can't take it away from you they inflation can't take it from you taxes can't take it from you so i i when i talk to students i see these students and i tell them you know you're a million dollar asset i would pay you a hundred thousand dollars the mbas
for 10 of the earnings for the rest of your life so that makes you a million dollar asset now if you can do something increase that value 50 if you can learn to communicate better verbally or in written form and you become 50 more that's 500 000 just by improving yourself i mean not nobody can take that away from you and and so i urge everybody you know and then i talk to him in high school about this and and and colleges just do develop develop the habits you've got the brain power you've got the
energy but develop the habits of success and then look around you at the people that you admire you know and list what makes you admire them compared to somebody else that looks equally strong or equally talented and those are those are things that you can do i mean just write them down and and and uh you know people like people that are there they like them if they're that they're humorous and they're friendly if they're if they're uh if they give credit to the other fellow i mean i and and they don't like them if
they're stingy you know or they overstate and over promise and all those sort of things well that's decision that's a decision you make so so i i encourage everybody to build your own moat around yourself all right guys i wanted to start this series for us to learn from some of the most successful people in the world and absorb their knowledge every single week in the comments below let me know who would you like me to cover next in our six rules of money series if you like this video make sure to give it a
thumbs up it really helps us with the youtube algorithm and as always thank you for watching and i will see you in the next video
