The Three Keys to Warren Buffett's Success

MSN Money has an interesting piece that says Warren Buffett is smarter than you. No kidding, huh? Anyway, the piece tries to explain why he's such a great investor. It attributes much of his success to the following:

Buffett's patience, discipline and willingness to act when others won't make him a better investor than you are.

Yes, these are certainly characteristics many investors don't have. In fact, it seems much more common to find investors who act quickly without thinking of the issues involved, have no disciplined approach to investing, and go along with the crowd (and whatever the press is touting as the current "conventional wisdom") -- the exact opposite of what Buffett does. Is it any wonder then that the average investor does so poorly?

A few thoughts on this issue from me:

1. I don't have the time and skill to manage my investments like Warren Buffett does, so I do the next best thing -- invest in index funds. Buffett recommends index funds and has even bet on them in a recent contest. Those are pretty good endorsements to me.

2. I've said before that discipline leads to wealth. But people really don't want to hear this sort of talk.

3. Listening to the press is particularly dangerous for your finances.

4. You often have to go against the flow, even when investing in index funds, to be successful.

5. Just in case you missed this post, here are some words of wisdom from Buffett.

Comments

[Kevin]

Parade magazine had a nice write-up on Buffet this past Sunday as well. A couple interesting stories on how he started making money.

http://www.parade.com/hot-topics/0809/10-ways-to-get-rich

[FMF]

Kevin -

I saw that too. I'll be commenting on it in a future post.

[Matt @ Steadfast Finances]

The key to Buffett's success (in my opinion) is his ability to find under priced companies that no one views as bargains. I try to emulate this by spending hours each day researching stocks that have recently taken a big hit and sell when traders bid the stock to back to normal levels or in some cases, sell after a stock reaches ridiculous levels.

You know my stance on index funds, but they're perfect for busy investors (like yourself) who don't have the time to do their own homework or find the stock market more boring as whales humping on the Discovery Channel.

[Corey]

He's 100% lucky and gambling money the way he does is not a recipe for sound personal finance. Even index funds assume the value of the stock market will rise forever, a dubious assumption indeed.

That's not to say that what Buffet or any investor is wrong in what they do, but let's recognize that it's all a gamble and even "geniuses" like Buffet are riding the tide of an efficient market and thus are not responsible for their successes.

[MasterPo]

Definately agree with #3. I've always done badly listening or reading the "experts".

And I agree with your comment to #1. It does take a great deal of time.

[MultifolDream$]

I enjoy reading about Buffet and I like his comments about #3 and Mr. Market who is trying to play you every single day.