“I tap dance to work, and when I get there I think I'm supposed to lie on my back and paint the ceiling. It's tremendous fun.”
—Warren Buffett, Tap Dancing to Work: Warren Buffett on Practically Everything, 1966–2012
Everyone wants to be financially literate and, ultimately, financially independent. What better way to become financially literate than to use the mindset of Warren Buffett, likely the greatest and richest investor who ever lived? That's the premise of this book. Through his decades of writings, interviews, and speeches, Buffett has provided reams of advice, but he has never written a book on financial literacy. This book takes much of that material and rearranges it in a way to make you financially literate and puts you on the path to becoming financially independent. It may be the next best thing to having Buffett on speed dial!
Buffett's net worth—the amount of money he would have after paying off any debts—was recently pegged at about $80 billion. But minting money just scratches the surface of Buffett's accomplishments. He'll also go down in history as one of the greatest philanthropists ever. He's giving away virtually all of his money to charitable organizations. If that's not enough, he and Bill Gates—the co-founder of Microsoft—set up the Giving Pledge, an organization where many of the world's billionaires have pledged to give at least half of their wealth to philanthropy. Buffett's also a great guy, a genuine down-to-earth person who enjoys life on his own terms. He also has an amazing sense of humor.
Here's a sample. When asked why he has a diet filled with junk food, Buffett replied, “I checked the actuarial tables, and the lowest death rate is among six-year-olds. So I decided to eat like a six-year-old.” In short, Buffett's a great role model for all people, regardless of age—if you can get past his diet.
In this book, we take some of the experiences, quotes, wit, and wisdom of Warren Buffett and apply them not only to issues related to financial literacy, but also to lessons on having a successful life. It's a boot camp on personal finance and life, with the backbone of the book constructed by the lessons of Warren Buffett from his many writings, interviews, and external biographies. Although the topic of financial literacy may be of greatest benefit to teens and young adults, since they are often starting with a clean slate, the concepts are really applicable to people of all ages, especially those without a financial background. You're probably thinking, “What can I learn from a 90-year-old?” A lot! At least in our view. And we promise to make it painless for you and, hopefully, fun!
Buffett wasn't born rich, and he didn't turn into a financial superstar when he was an older adult. The foundation to his success was laid during his pre-teen years. When Buffett was in elementary school, in Omaha, Nebraska, he sold Wrigley's chewing gum and bottles of Coca-Cola—both future investments for him—to make money. He bought his first stock at the age of 11! We'll devote two whole chapters in this book to the stock market, but for now you can think of stock as something that makes you part owner of a business. He filed his first tax return at the age of 13, deducting the costs of his watch and bicycle as business expenses, resulting in a net payment to the U.S. Treasury of $7. Paying taxes is about as exciting as watching paint dry, but they're something you won't be able to avoid down the road, especially if, make that when, you get richer. One of America's Founding Fathers, Benjamin Franklin, once wrote, “In this world nothing can be said to be certain, except death and taxes.”
Buffett's father, Howard, was a United States Congressman for 6 years, and Warren moved with his family to Washington, DC, during the 1940s. Buffett got a newspaper route in DC delivering The Washington Post (another future stock investment). By the age of 15 he had used the profits from his business ventures to buy 40 acres of farmland in Nebraska. As a teenager, he and a friend also bought pinball machines and put them in barbershops, splitting the profits with the shop owners. Thus, we hope you can see that the experiences of the young Warren Buffett played an important role, making him the man that he is today.
Well, first we think there's a gap in the teachings of Warren Buffett. He participated in a cartoon series, Secret Millionaires Club, over the 2011–2013 period that provided some simple tips on financial literacy, but not enough to make someone financially competent. Buffett also writes a detailed letter to the stockholders of his firm, Berkshire Hathaway, each year. Stockholders own stock and, therefore, are part owners of a business. You can find Buffett's Berkshire letters going back to 1977 on the web at http://www.berkshirehathaway.com/letters/letters.html.
You may not have heard of Berkshire Hathaway, but you've almost certainly come across some of its businesses. It owns Dairy Queen, GEICO Insurance (the car insurance company with the funny commercials), Duracell batteries, See's Candy, and dozens of other businesses. It's also one of the biggest stockholders in several of the companies that you likely know, such as Coca Cola, Kraft Heinz (maker of ketchup and mac & cheese), American Express, Wells Fargo, Bank of America, Amazon.com, Apple, and many others.
We're guessing you may not want to read a bunch of annual reports and letters to shareholders, even ones as insightful and often humorous as Berkshire's. But we've read them and extracted many nuggets of information that apply to financial literacy and life. There’ve been several excellent books written about Buffett, such as Alice Schroeder's The Snowball: Warren Buffett and the Business of Life. It's the only book on Buffett that had his explicit cooperation, but at 832 pages, it's almost the size of War and Peace! Plus, these and other excellent Buffett-oriented books and websites assume you know a fair amount about business and finance. This book doesn't take that knowledge for granted and teaches you financial literacy concepts along the way. So one way to think of this book is that it's like a CliffsNotes on the life of Buffett that makes you financially literate and gives you some life skills to boot—but don't sign up just yet for the reality TV show Survivor. :-)
John is a finance professor and investment manager who has met Buffett on four separate occasions. He also teaches graduate college classes on Value Investing, a style of making investments that Buffett follows. He teaches mostly at Rutgers University but also on a part-time basis in the global Executive MBA Program at Columbia University—the same university where Buffett got his master's degree. More precisely, it's a joint Executive MBA program among Columbia, London Business School, and the University Hong Kong, one of the most highly ranked in the world. He's also served as chief investment officer for two billion-dollar-plus investment firms for more than 15 years in total.
Younger people may not want to hear advice from a middle-aged college professor and money manager any more than they want to hear it from their parents. Enter Tyler, a teenage high school student who is learning about personal finance issues in real time. He's completed coursework in financial literacy, economics, statistics, and the Introduction to Business, Finance, and Economics Program for high school students at Columbia University. He is co-author of this book, having written portions of the book, and has his finger on the pulse of teens and young adults to a much greater extent than any college professor. And, perhaps most importantly, his understanding of the concepts in this book acts as an important filter to make sure the book is understandable to teens, young adults, and people new to finance of all ages. Plus, if you see slang words, such as savage, lit, and take the L, used to make the book more readable and less stuffy, that's probably Tyler's influence too. You can also thank him for the handy glossary near the end of this book, so you can brush up on your vocab when you hear a financial term that you don't know. He also contributed some important stories, such as the one related to the Patagonian toothfish that we'll get to in Chapter 11.
Literacy means being able to read and write. The President's Advisory Council on Financial Literacy defines personal financial literacy as “the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being.” In plain English, it means understanding things related to money and being able to make good financial decisions.
In this book, we'll examine a bunch of concepts related to financial literacy including bank accounts, credit cards, credit scores, balancing a checkbook, the stock market, the bond market, mutual funds, real estate, car loans, student loans, mortgage loans, financial websites, financial apps, retirement accounts, and tips for saving money. But we'll do a lot more than that. We'll also discuss other skills that may be useful in your growth and personal development including communication skills, dealing with adversity, learning from mistakes, and ultimately, helping others.
Let's start with some core lessons from Buffett's life, or what we'll call “tips.” We'll start with 10 tips in the first chapter, but we'll cover 100 in total by the time we're done with this book. Some of the tips are direct quotes from Buffett, while others are implied from his actions or words. And we'll make it easy for you, summarizing a list of the “tips” at the end of each chapter, just in case someone forced you to read this book. :-) (You can just skip to the tips and be done with it!) Here's our first tip for building wealth based on the life of the young Warren Buffett.
Imagine having—through your own hard work and not by gift—the equivalent of roughly $60,000 by the time you finished high school. That's some serious coin! Well, that's about what Buffett had, adjusted for inflation, back in the late 1940s.
Inflation refers to rising prices. We'll cover how it's measured in some more detail later in the book, but for now you can assume that the prices of most things rise over time. College tuition is a biggie for most people under the age of 30, or for someone paying the bill. Tuition, room, board/food, fees, and books at top private colleges can run more than $75,000 a year today. But around 30 years ago, the number was closer to $17,000 for these same “name brand” schools. The same dynamic—rising prices—is usually true if you look at the prices of cars, homes, doctor's visits, and a broad mix of products and services that make up the economy.
The sooner you start saving, the more time your money is able to work for you. The interest rate is the rate at which your money grows if you are saving. Or the rate at which your debt grows if you borrow money. We'll cover more on this topic in Chapter 2 and Chapter 3. For now, you can think of interest as a snowball rolling downhill. That's sort of how the book by Alice Schroeder we mentioned earlier, The Snowball: Warren Buffett and the Business of Life, got its title. There's a quote from Buffett on the back book jacket, which says, “Life is like a snowball. The important thing is finding wet snow and a really long hill.” A really long hill is the equivalent of starting early.
One more point on the importance of interest before we move on. A journalist reportedly once asked Albert Einstein, perhaps the most brilliant physicist ever, what he thought was the greatest invention of all time. Einstein purportedly responded, “Compound interest.” Compound interest refers to the interest earned on interest. The “miracle of compound interest,” as it's sometimes referred to in financial circles, explains how small sums of money can grow into gigantic sums of money over long periods of time. It also explains how small debts can snowball into huge debts. Better yet, stay out of debt, if you can avoid it.
Getting back to the young Buffett, his first known business enterprise started when he was only 6 years old! Buffett bought packs of gum—Juicy Fruit, Spearmint, Doublemint, and so forth—from his grandfather's grocery store, and he would go around door to door in his neighborhood selling them at a higher price. A little bit later he set up a lemonade stand near his friend's house, since it had more traffic, and therefore more potential customers. Sharp thinking for someone still in elementary school!
Other early ventures included finding stray golf balls at a local golf course and then reselling them later for a profit. Profit is the money you make from selling an item (also known as revenue), minus any expenses involved in selling the item. In this case, Buffett had no expenses since he got the stray golf balls for nothing, so his profit was equal to his sales, or revenue. This brings to mind a quote that dates back to at least 1860, “One man's trash is another man’s treasure.” While we're on the topic of trash, the young Buffett would often go to the horse racetrack and look for tickets thrown on the ground. Once in a while he would find a winning ticket that someone mistakenly threw away and cash it in. For a short while he also made money at the track selling a “tip sheet”—a list of predictions of which horses would win each race. That is, until the people running the racetrack shut his tip sheet business down. Bummer!
Buffett eventually got a “real” job as a caddy, carrying golf clubs for adults playing golf, at a wage of $3 a day, or about $50 today, adjusted for inflation. And we previously mentioned his paper route and pinball machine businesses that were still ongoing at the time that had him minting money. Needless to say, Buffett got an early start in business in route to becoming a billionaire. If you don't have much money right now, don't worry. Time is on your side, as long as you get started soon, like that snowball rolling downhill. Need more motivation? Consider the words of Lao-Tzu, an ancient Chinese philosopher, who once said, “A journey of a thousand miles begins with a single step.” The previous discussion gets us to our first Tip.
John once asked Buffett if he thought a great investor was born or made. Buffett said it was a combination of both. He gave the example of the champion golfer, Tiger Woods, in his prime. Buffett said that Tiger was born with an aptitude for golf, but he also put in an insane amount of practice by often hitting 500 golf balls a day. Practicing hard each day, when combined with his huge natural talent, turned Tiger Woods from a good golfer into a great golfer.
The first part of working hard is simply showing up on time, all the time. Not just when you feel like it, or when it's easy. Woody Allen, the comedian and film director, once said, “Eighty percent of success is just showing up.” In other words, many people aren't responsible and reliable. You can get ahead of 80% of people just by being responsible and doing what is expected of you. That goes for school, work, relationships, and many other activities.
Thomas Edison, inventor of the modern lightbulb, record player (the ancient way we listened to music before we had streaming and downloadable music), and movie camera, said, “Ninety percent of a man's success in business is perspiration.” And, of course, success in business applies to women too. By the way, Buffett is a huge proponent of women in business, as we'll discuss later in this book.
A quote often (incorrectly) attributed to Thomas Jefferson says, “The harder I work, the more luck I have.” According to our research, this quote, or something similar, first came from writer Coleman Cox. Regardless of who first said it, it's good advice. Hard work often gives rise to new opportunities and the skill set to make the most of them, bringing to mind the expression, “Make your own luck.”
We discussed several of the jobs that Buffett had, even before he graduated from high school. Although he liked most of his jobs, clearly they involved some hard work. He had three paper routes when he was in high school, making him the equivalent of $28,000 a year, adjusted for inflation. Buffett estimated that he delivered almost 600,000 newspapers when he was a teenager. With all that throwing, we're surprised he didn't become a professional baseball player. Buffett usually had to wake up before 5:00 a.m. to deliver his papers before school. His family would often return to Omaha during the summers. One summer job for Buffett in his teen years involved him carrying 50-pound bags of animal feed from a railroad freight car to a warehouse. Later, when he became interested in dating girls, he would read about books to develop big arm muscles. Suns out, guns out!
Ashton Kutcher, a hugely successful actor perhaps best known for his roles in TV shows That 70's Show, Punk'd, and Two and a Half Men, said in a 2013 speech at the Teen Choice Awards, “I never had a job that was better than me.” Before Kutcher was a big TV and movie star, he had menial jobs such as sweeping Cheerios dust off the factory floor. And it might surprise you to learn that Kutcher has made many millions of dollars outside of acting, from his investments. For example, he made extremely successful investments in Uber and Airbnb.
Let's turn that advice from Buffett, Edison, Jefferson, and others into our second Tip.
Many of the Secret Millionaires Club episodes ended with Buffett's cartoon character saying, “The more you learn, the more you earn.” It's true, and we'll show you some data to support that quote. Right off the bat, let's turn that Buffett quote into a Tip.
Income, or the amount of money you make from your job and other sources, generally goes up with educational level. A 2019 study by a unit of the US government, The Bureau of Labor Statistics (BLS), examined weekly income levels and unemployment rates by educational levels. Someone is considered unemployed if they are not able to find work and are looking for a job.
The study found that in 2019, someone with a four-year college degree (bachelor's) earned $1,248 a week on average, more than twice the amount ($592 a week) earned by a high school dropout. Not only did the college graduates earn more, they also had significantly lower unemployment rates, making it easier for them to get a job if they needed one. The college graduates had a 2.2% unemployment rate, while the high school dropouts had a 5.4% unemployment rate.
But wait, it gets better for those more educated. People who attended graduate school (college beyond a four-year degree), made even more money and also had lower unemployment rates. The best paid and most likely to find jobs were people who went to professional graduate schools, including doctors, lawyers, and businesspeople. Those holding a graduate professional degree earned an average of $1,861 a week and had an unemployment rate of only 1.6%. If you see someone cruising by you in a Tesla, Mercedes, BMW, or Porsche, odds are they have a professional degree! Table 1.1 provides a summary of the study's results.
https://www.bls.gov/emp/tables/unemployment-earnings-education.htm
Buffett was a strong student, although he had a little bit of trouble with his grades when he first moved to DC, getting a bunch of Cs. He was a bookworm and estimated he read about 100 books, outside of what was required by school, by the time he graduated from high school. He read most of the financial-related books in his library twice! One of his favorites, One Thousand Ways to Make $1,000, was tied to his interest in business. Buffett skipped a grade and was born in August, so he was younger than most of his classmates and graduated high school at the ripe old age of 16.
Buffett graduated from his high school ranked 16th out of a class of 374. His businesses were doing well, and he wasn't keen on attending college but took his father's advice and entered the business school of the University of Pennsylvania—The Wharton School. It's often ranked as the top business school in the US, if not the entire world.
The University of Pennsylvania is one of eight Ivy League schools, which are among the best and most prestigious colleges in the world. The eight Ivy League schools ordered by the year they were founded are Harvard University, Yale University, University of Pennsylvania, Princeton University, Columbia University, Brown University, Dartmouth College, and Cornell University. Buffett spent two years at the University of Pennsylvania but got homesick and wanted to focus on his business ventures in Nebraska. So he finished his undergraduate degree in business administration from The University of Nebraska–Lincoln at the age of 19. He had roughly $100,000, when adjusted for inflation, by the time he finished college. Today, sadly, many college students end up more than $100,000 in debt. In Chapter 14, we'll give you some advice on how to avoid, or at least reduce, this.
Table 1.1 Unemployment rates and earnings by educational attainment, 2019
Source: “Employment Projections”, U.S. Bureau of Labor Statistics.
| Educational attainment | Unemployment Rate (%) | Median Usual Weekly Earnings ($) |
|---|---|---|
| Doctoral degree | 1.1 | 1883 |
| Professional degree | 1.6 | 1861 |
| Master's degree | 2.0 | 1497 |
| Bachelor's degree | 2.2 | 1248 |
| Associate's degree | 2.7 | 887 |
| Some college, no degree | 3.3 | 833 |
| High school diploma | 3.7 | 746 |
| Less than a high school diploma | 5.4 | 592 |
| Total | 3.0 | 969 |
A year after finishing his undergraduate degree, Buffett attended Columbia University, another Ivy League university, in New York City. He graduated with a master's degree in economics from Columbia at the age of 20. By that time, Buffett was a budding financial superstar. He received the only A+ in a graduate school class at Columbia taught by his eventual mentor, investment legend Benjamin Graham.
Buffett is a happy guy, in large part because he loves what he does for a living. He said, “I can certainly define happiness, because happy is what I am. I get to do what I like to do every single day of the year. I get to do it with people I like, and I don't have to associate with anybody who causes my stomach to churn. I tap dance to work, and when I get there I think I'm supposed to lie on my back and paint the ceiling. It's tremendous fun.” We'll simplify that quote for our fourth tip.
Despite the success of the TV show Dancing with the Stars, most young people don't tap dance anymore. For you, it might be doing the Floss Dance, Nae Nae, or Gangnam Style Dance on the way to work. :-) Needless to say, Buffett loves his job, running and making investments for Berkshire Hathaway. That's why he didn’t retire even after he became enormously wealthy. He also likes the people he works with, especially his business partner, Charlie Munger. You can view Charlie as Buffett's BFF, using today's hip language. Munger, another billionaire investor, is 96 and still works too! We'll be hearing a lot more about Charlie over the course of this book, so you may want to remember his name.
One of Berkshire Hathaway's companies is Nebraska Furniture Mart. Its Omaha, Nebraska, store is the biggest furniture store in North America. Yes, they sell furniture, but also a bunch of other items, such as TVs, computers, and refrigerators. They basically sell anything that you might need to furnish your home. Berkshire bought the company in 1983 from its owner, Rose Blumkin, affectionately known as “Mrs. B.” Even though she was wealthy, Mrs. B worked at the Furniture Mart until shortly before her death at the age of 104! For nearly her entire business career, Mrs. B exhibited a tremendous work ethic, often working 7 days a week, 10 hours a day. In her later years, she still worked extremely long hours and used a motor scooter to get around. Now that's commitment!
In one of John's meetings with Buffett, someone asked Buffett what was his favorite place to go. Buffett replied, “The office.” He went on to say that he has vacationed in some nice places around the world, but he'd rather be working than traveling to some distant land. The bottom line is this. If you do what you love for a job, you will enjoy going to work. You're more likely to be successful at your job since you'll probably be very good at it, which will ultimately lead not only to more money but also to greater happiness. We're going to devote Chapter 15 to career-related issues, through the lens of Buffett, of course.
In another of John's meetings with Buffett, a student asked what skills would be most valuable for having a successful career. Buffett's response? Communication skills. He said, if you have a good idea and can't communicate it well, it's similar to “liking a girl and winking at her in the dark.” Of course, in the dark no one could see if you're winking and, therefore, it would have no effect. He also estimated that having strong communication skills, over time, could increase your earnings power by 50%—an awesome return on your time investment and one that merits a Tip.
Communication skills include speaking, writing, listening, and interpersonal skills. That is, skills helpful in getting along with, influencing, and leading other people. Buffett said the biggest thing that improved his communication skills was taking a Dale Carnegie course. Dale Carnegie was a self-help guru active during the first half of the 20th century, perhaps best known for his book, How to Win Friends and Influence People. At last count, the book has sold 30 million copies worldwide, so it must be pretty good! We'll devote an entire chapter, Chapter 13, to communication and interpersonal skills, including a large section devoted to techniques taught by Dale Carnegie.
Buffett claims he was a “basket case” before taking the Dale Carnegie course. Although he attended some excellent colleges, such as the University of Pennsylvania, University of Nebraska, and Columbia University, the only diploma he hangs on his office wall is from his Dale Carnegie program.
It might not be fair, but people often form an impression of your intelligence based on the way you speak and write. If you act like a jerk or bully, people won't want to be around you. They won't want work with or for you. Or date you. So take Buffett's word for it. Polishing up and improving your communications skills is one of the most important things you can do to improve not only your wealth but also virtually all other aspects of your life.
Integrity means being honest and acting in an honorable and ethical manner. Being a person of your word. Being trustworthy. Being principled. Buffett was never perfect and got into a bit of trouble when he was a teen. But today, Buffett's known for his integrity almost as much as he is known for his wealth and philanthropy. Let's look at a few examples.
In the late 1960s Buffett was investing money for some family, friends, and acquaintances with spectacular results. He was making the equivalent of more than a million dollars a year, adjusted for inflation. However, he decided to shut down his investment business and give investors their money back. Why? He thought the stock market was expensive and that his style of investing was out of favor. In other words, if he didn't think he could do a good job for his investors, he would pass up the chance to earn millions of dollars a year!
Buffett tells his employees to act in a manner such that they wouldn't be embarrassed if they saw their actions written up by a reporter in their local newspaper for all to see. Today, you might substitute “newspaper” for Facebook, Instagram, or Snapchat.
In Berkshire's 1990 Letter to Shareholders, Buffett wrote, “We will behave exactly as promised, both because we have so promised, and because we need to in order to achieve the best business results.” That is, behaving with integrity isn't only the right thing to do morally, it makes for good business.
In the 1990s, Buffett invested in a Wall Street investment bank by the name of Salomon Brothers. Among other things, investment banks trade stocks and bonds. Some of the firm's biggest traders broke some securities laws, and the firm was on the verge of failing. Buffett agreed to step in and run the firm, in an effort to prevent it from going under. He was asked to testify before Congress, which was conducting a hearing on the trading scandal. In his opening remarks, Buffett uttered one of his most famous phrases, “Lose money for the firm and I will be understanding. Lose a shred of reputation for the firm and I will be ruthless.”
More recently, in early 2017, a person running a local Dairy Queen business in Zion, Illinois, made some racist remarks directed at a customer. Recall, Dairy Queen is owned by Buffett's Berkshire Hathaway. Dairy Queen promptly fired the operator of the Zion Dairy Queen that made the racist remark and shut down the location. A Dairy Queen spokesperson said, “The recent actions of this franchisee are inexcusable, reprehensible, unacceptable, and do not represent the values of the Dairy Queen family, our employees, fans, and other independent franchises around the world. We expect our franchisees and their employees to treat every single person who walks through their doors with the utmost dignity and respect. Nothing less is acceptable.” Although Buffett likely let Dairy Queen's senior management handle this particular case, there is no denying that Berkshire's culture required the firm to respond with a swift and severe punishment. All of these stories have the concept of integrity at their core and merits a Tip.
If you buy something online or in person at a great price you probably feel good. Make that great. We've all seen some “buy one, get one free” or 70% off sales. And who doesn't love free stuff? The investment advice “Buy low and sell high” is as old as the hills. One of Walmart’s most famous slogans is “Save money, live better.”
In Buffett's case, he buys stocks or entire companies. He follows a style of investment called Value Investing. Value investors try to buy things at deep discounts. The lower you buy, the greater the profit when you sell, assuming the thing you're selling rises in price.
Buffett's most famous investment is Berkshire Hathaway. He first started buying the stock way back in December 1962 at $7.65 a share. Looking at its books and records, or what investment analysts term financial statements, Buffett thought it should have been worth at least $20.00 a share. So he thought he was getting it at about a 62% discount. He eventually bought enough shares to acquire full control of the company in 1965. And today? The stock is worth about $300,000 a share! Yes, for a single share!
Buffett's investment successes are almost too numerous to mention. He first gained attention on Wall Street, a term which refers not only to the physical street in downtown Manhattan but also to the firms at the center of the US financial system, buying stock in American Express. You probably know American Express for their credit cards.
In 1963, American Express helped finance a firm called Allied Crude Vegetable Oil Refining Company. It was a fancy name for a company that sold salad oil or dressing. The main problem was that the company committed fraud, lying about their business. They stored their salad oil in huge barrels filled with water with salad oil sprinkled on the top, when they told everyone the barrels were full of only salad oil. Oops!
Eventually, someone blew the whistle on the scam, and the jig was up. American Express lent the company money before the fraud was uncovered, and its stock took a huge hit when the scam was revealed. Enter Warren Buffett. He thought the scandal was a bad but not insurmountable problem for American Express. Their other businesses, such as credit cards and traveler's checks (a substitute for cash when spending money overseas), were doing well. Buffett called several people to make sure that was still the case. American Express’s stock plunged from $65 a share, before the scandal, to $37 in January 1964. Buffett started buying it around the time the stock cratered. When he sold, about 5 years later, the stock had gone up more than five-fold! Buffett has hit many other investment “grand slams” that we'll cover throughout this book. Let's turn the common thread of these stories into a Tip.
Peer pressure is one of the hardest things for young people, and even adults, to deal with. It's hard to say no when your friends are asking you to do things, even when you think they might be wrong. Buffett developed a response for dealing with peer pressure. It's something he learned from his father, Howard Buffett. He calls it an Inner Scorecard. It basically means living your life on your own terms, according to your own self-judgment. If you are influenced more by what others think, then you have an Outer Scorecard.
Buffett said, “The big question about how people behave is whether they've got an Inner Scorecard or an Outer Scorecard. It helps if you can be satisfied with an Inner Scorecard.” That is, try not to worry too much about what other people think. Do what you think is right. Buffett went on to say, “In teaching your kids, I think the lesson they're learning at a very, very early age is what their parents put the emphasis on. If all the emphasis is on what the world's going to think about you, forgetting about how you really behave, you'll end up with an Outer Scorecard.”
We're keeping this book PG rated. Here's one of the more risqué Buffett quotes, relating to the Inner Scorecard concept. He said, “I always pose it this way. I say: ‘Lookit. Would you rather be the world's greatest lover, but have everyone think you're the world's worst lover? Or would you rather be the world's worst lover but have everyone think you're the world's greatest lover?'” Of course, someone following the Inner Scorecard mentality wouldn't care much for what the outside world thought, secure in their own truth.
Buffett applies an Inner Scorecard to all areas of his life, despite his multi-billionaire status. He lives a fairly modest existence, residing in the same house—not a mansion—since 1958. His diet is terrible, health-wise, often consisting of McDonald's and a bunch of junk food like hamburgers, fudge, peanut brittle, and Cherry Coke. From an investment standpoint, he is not afraid to go against the crowd. In fact, that's where you can make the most money if you're right. Buffett said, “Be fearful when others are greedy and greedy when others are fearful.” We'll come back to this point in more detail in Chapter 5, but here's a quick example.
He put this famous saying into action during The Great Recession of 2007–2009, which was the one of the biggest downturns in the economy we've had since World War II. Financial firms, such as Citibank, Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley, and American International Group (AIG), were among the most affected during The Great Recession.
In the midst of The Great Recession, while it looked like the financial markets were collapsing, Buffett bought stock in Goldman Sachs and General Electric, which had a big financial division. Later, he bought stock in Bank of America. And when the economy recovered—you guessed it—he made a killing, pocketing billions of dollars on each investment!
As we are writing this book the world is grappling with the fallout from the coronavirus, COVID 19. Berkshire is sitting on a pile of more than $125 billion in cash as the COVID-19 crisis unfolds. We're more than willing to bet on the end financial result for Buffett and Berkshire. Another series of purchases of great companies at great prices and another multibillion-dollar profit for Berkshire. Let's turn Buffett's thoughts on the Inner Scorecard into a Tip.
Anyone over the age of five realizes that life is like a rollercoaster, with lots of ups and downs. As Apple co-founder Steve Jobs once said in a terrific commencement speech at Stanford University, “Sometimes life's going to hit you in the head with a brick. Don't lose faith.” Jobs dealt with many highs and lows over the course of his incredible life. He was once fired by Apple's Board of Directors, the group with the ultimate responsibility for running a company. You might be thinking, “How can you get fired from a company you started?” Well, Jobs didn't own all of the company, and he clashed with the board on how to best run the company. They sided with another manager, and Jobs was kicked out of Apple in 1985. He eventually made a triumphant return in 1997, turning Apple into the most valuable stock in the world at the time of his passing.
Steve Jobs also experienced a long-term battle with cancer. He was first diagnosed with pancreatic cancer in 2003 and bravely fought the disease over the course of many years. He ultimately died of cancer in October 2011 but not before changing the world.
If Buffett didn't turn out to be a great investor, he may have had a second career as a comedian. He often pokes fun at himself, telling students that they dress and eat better than him. People that poke fun at themselves have what's known as a self-deprecating sense of humor. Buffett has it in spades, and it's a technique that's strongly encouraged by those running Dale Carnegie seminars today. Few people like a show-off, “hot dog,” or simply a jerk. So back to Buffett and his cool sense of humor. Check out his (PG-rated) response when asked about career advice:
“There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don't like because you think it will look good on your resume. Isn't that a little like saving up sex for your old age?”
A resume, as you probably know, is a document that describes your education, work experience, and skills. You usually give a print or electronic copy to people when you're looking for a job. We'll get back to that topic in Chapter 15 on careers.
Here's another self-deprecating Buffett quote from his 1987 Chairman's Letter to Berkshire Shareholders:
“It must be noted that your Chairman, always a quick study, required only 20 years to recognize how important it was to buy good businesses. In the interim, I searched for ‘bargains’—and had the misfortune to find some. My punishment was an education in the economics of short-line farm implement manufacturers, third-place department stores, and New England textile manufacturers.”
You get the point(s). Buffett is a funny guy who doesn't take himself too seriously, despite his almost unfathomable success, and that's one of the reasons why people like him so much. This gets us to our ninth Tip.
Buffett is donating more than 99% of his money to philanthropic organizations. To us, at least, that proves that his quest for becoming the richest person in the world was about the love of his work and not about the money. A generation or two from now, people may remember him more for his philanthropic work than for his investment prowess. It may sound hard to believe, but many people know Bill Gates today as a person who runs the Gates foundation, rather than as the co-founder of Microsoft.
The point is Buffett didn't become rich to purchase a lot of bling. That's not how he rolls. Buffett said, “If you're in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%.” Buffett gives credit to his father and his first wife, Susan or Susie, for having the biggest impacts on his character and ethics. Howard Buffett was a man of such high integrity that when he served in Congress, he refused to accept an increase in his pay, since he claimed he was voted in at the lower rate.
Buffett's wife Susan was involved in numerous charities and supported the civil rights movement in the 1960s, which fought for equal rights for all Americans. In one of Buffett's best-known charity activities, he auctions off a lunch each year for the Glide Foundation of San Francisco. People bid in an auction with the winning prize resulting in a lunch date with Buffett. The winning bid has sometimes exceeded $4.5 million! That is one expensive lunch! Susan Buffett was the one who brought the Glide Foundation to Buffett's attention. And we mentioned Buffett working with Bill Gates on the Giving Pledge, whereby trillions of dollars will eventually be donated to philanthropic activities.
If you are not financially rich, there are still many things you can do for charity that don't involve money. They might involve giving your time, labor, or heart (not literally!). On one of John's trips with college students to see Buffett, he presented Buffett with a card where each person pledged to do something for charity. It was a “thank you” gift for Buffett, for taking the time to host them. His response after getting the card? “That was the best thing you could have done for me.” We'll cover the topics of charity and philanthropy in our last chapter, Chapter 16, but let's begin to close this chapter with its final Tip.
So that's an intro to Warren Buffett and some fundamental tips on financial literacy and life to get the ball, or book, rolling. Welcome aboard!