The 5 Mental Models That Made Warren Buffett a Billionaire
5 key mental models to think like Buffett and invest smarter.
When someone starts their investing journey, they somehow discover the Oracle of Omaha.
Of course, I’m talking about the legendary investor Mr. Warren Buffett
Instead of talking about his journey of becoming one of the most successful investors,
I want to discuss the mental models that helped him make billions.
While I was doing my research, I came across a lot of things that fascinated me to learn more about him and the way he invests.
His principles have shaped the way I invest, think about the risk and opportunities.
And in this article, I will be breaking down his 5 mental models that made him a BILLIONAIRE.
If you’re serious about learning how the best investors think — not just what they buy — this post is for you.
"Rule one: Don’t lose money. Rule two: Remember rule one.”
I simply can’t afford to lose my hard-earned money, and you guys also don’t have to.
But sometimes it’s okay to lose, and losses are a part of the game.
Mr. Buffett has made some very bad decisions, which led him to lose his billions, but what he suggests is that we have to keep a mindset of a sensible investor.
Do not Gamble, don’t go for investing without proper research. Be informed. Do your homework.
The market will experience upward or downward swings, but staying focused on your true goal will evolve you as a serious investor.
Don’t focus on staying with the crowd; instead, focus on your research and findings.
Don’t follow the NOISE..
"Wealth moves from the impatient to the patient, discipline turns undervaluation into fortune.”
It’s true that the stock market is a platform to transfer the money from the impatient(yes, beginner me) to the patient.
Mr. Buffett's wealth grew after he turned 50; I mean, it just kept growing.
I, on the other hand, felt bad when I was just losing my money, and eventually destroyed my account when I was just 20 years old.
Like he said, investing is a long-term game, and we have to be patient and disciplined.
Mr. Buffett has demonstrated the power of perseverance and compound interest over time. Rather than seeking quick profits, he had held and gradually increased his positions in the companies, which eventually made him Billions.
He had said that wealth building is often not about finding the next great company instead giving those companies to compound returns.
‘’Our favorite holding period is forever’’ - Warren Buffett.
"Invest in yourself, knowledge pays the highest return.”
Investing in ourselves is the best thing we can do, lots of highly successful including Mr. Buffett, agree on this.
Same goes for us, right now, I don’t know how many subscriptions I’ve taken for entertainment, which has only helped me to procrastinate, but investing in a writing course has taught me more than I thought. That’s why I’ve dedicated this paragraph to self-investment.
He has stated in one of his interviews that if you have a particular skillset, then people will be ready to pay a fortune for it, if they have to, so the best investment by far is to develop yourself, and it’s not taxed.
Nobody can take away the talent you have. So the more you learn, the more you earn.
Even to this date, he spends hours reading and learning, so why are we not doing the same?
As I have started to read and do research, I’ve come across countless insights that have shaped the way I think. So, investing in books, courses, and any tool that builds your mind is never a waste. It’s planting seeds that will grow for a lifetime.
One of the best investments would be communication skills, both in writing and in person will open countless doors for us.
If we put in the effort, we can learn anything. It might take some time, but putting that extra effort will teach us a lot about anything we are interested in.
And over time, it compounds into real growth.
"Judge your circle, better company makes you better.”
When I was in high school, I was surrounded by friends who didn’t really think much about their future, and I guess most of us have been through that phase.
After I joined college, I had one simple idea that I needed to find the right people who would motivate me to grow.
Surrounding yourself with growth-minded people will eventually put pressure on you to grow and catch up with them.
A strong environment that focuses on development and continuous learning can foster personal growth, leading to greater resilience, leadership skills, and conflict resolution abilities.
The truth is: No one does anything on their own. Everything that you accomplish, you accomplish with teams. And, success is surrounding yourself with other great people who are smarter than you, and better than you, so finding ways to surround yourself with the best people you possibly can, the people that push you to be better, is the best thing you can do.
Your circle shapes your standards, and a better circle will make you better eventually.
“Be fearful when others are greedy and greedy when others are fearful.”
Back in my early days of when I had just started to trade, I used to trade every stock that was trending.
If a stock was going up, I used to go long, and if others were selling a particular stock, I’d sell to, I was just following the crowd.
Eventually, I ended up blowing my account. It hit me hard when all those precious savings were gone.
That’s when I realized: I was doing it all wrong, and I feel like you have also been there in your early days.
But Mr. Buffett has put it simply that the two primary emotions that drive the market are fear and greed.
“Price is what we pay, and value is what we get.” The value of a stock is relative to the number of earnings it will generate over the life of its business. But how could an 18-year-old boy think like that, so he/she will eventually fall for that trap.
That's why learning from your mistakes is the best thing one should realize.
Mr. Buffett is on the lookout for stocks that are trading below their actual value. This can only happen when there’s fear in the market, and people like us eventually sell in panic.
That's why Mr. Buffett had famously said that investors should be “fearful when others are greedy, and greedy when others are fearful.”
This is my very first post on Substack, and I know I’ve a lot to improve.
That’s why I need your feedback; feel free to suggest anything you want, it will be a blessing for me. As I have just begun to write online, your critiques will help me improve further, and I could provide you with the best reading experience possible.
As I was wondering which article should start my online publishing journey, the Oracle of Omaha announced his retirement, and I’ve learned a lot from him; his philosophy on investing has shaped the way I think about money, risk, and opportunities.
In the future, I will be sharing more about the research I’ve done on the industries that are promising, I’ll also write about the ongoing global macro trends, macro trading, and investing.
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