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Warren Buffett's Inspiration - 3 Books That Triggered His Success

By Edited Dec 27, 2015 0 0
Warren Buffett's Inspiration - 3 Books That Triggered His Success
Credit: http://www.flickr.com/photos/simthom/3247937322/sizes/l/in/photostream/

He is called the “Oracle of Omaha” and justifiably so. Forbes currently estimates Warren Buffett’s net worth at USD 53.5 bn, all of which is attributable to formidable past investment decisions and the magic of compounding over time. Buffett’s fascination with making money and multiplying existing dollars goes way back. In his early years, he could be seen going from door to door selling chewing gum and Coca Cola or working in his Grandfather’s grocery store. He would go on to deliver newspapers, sell golf balls and even start a pinball machine business with a friend. In his mind, there was never a doubt that he would eventually want to manage money professionally. As he grew up, he soaked up knowledge like a sponge and read every book on the art of investing and the mechanics of the stock market he could lay his hands on. This article will introduce three books, that significantly influenced Buffett’s life and business success and are bound to make everyone a more adept decision maker.

The Intelligent Investor

Benjamin Graham is widely recognized as the founder of modern value investing. He authored “The intelligent investor”, which Buffett calls “by far the best book on investing ever written”. Graham introduces a fellow called “Mr. Market” to demonstrate the craziness of financial markets. The story has been told in various versions, but the underlying lesson is always the same.

Mr. Market is a business owner and wants to sell you his share of a thriving company. Every day, he rings your doorbell and quotes a price. You can either take him up on his offer or turn him down, all the while knowing that he will turn up again tomorrow with a new price. To add to the equation, Mr. Market is emotionally unstable and thus prone to mood swings. While he might be very optimistic about the future of that company today, he might be desperate to get rid of his share tomorrow.

The lesson of this analogy is that financial markets are irrational. The intelligent investor keeps his emotions under control and thus only buys securities that are undervalued and sells those he concludes are overvalued. Obviously this is highly counter intuitive, as we often let ourselves be swept away by the emotions of those who surround us. Anyone who is serious about becoming a value investor should study “The intelligent investor” carefully.

How To Win Friends And Influence People

The second book recommended here might surprise readers, as it doesn’t appear to have anything to do with investing. Warren was socially awkward in his early years, having had difficulties dealing with people and having been absolutely terrified of public speaking. Skills that are crucial for even mediocre success in business, not to mention business mastery.

Dale Carnegie spent many years trying to find out how people work. The book “How to win friends and influence people” is the product of lengthy research, countless interviews and years of experience in the field. This book is so important, that it should lie on everyone’s night stand! Buffett has applied Carnegie’s principles throughout his life and with great success.

How To Win Friends and Influence People
Amazon Price: $27.00 $11.11 Buy Now
(price as of Dec 27, 2015)

Security Analysis

Together with "The Intelligent Investor”, the book “Security Analaysis” formed Warren’s early investment philosophy. David Graham wrote this book together with David Dodd in 1934 amidst the great depression. Buffett visited Dodd’s class when he studied at university. It is said, that he actually knew the book better than Dodd himself, he was that convinced of the principles discussed in “Security Analysis”. Graham and Dodd introduce a concept they call “the margin of safety”, which in essence represents the difference between the price of a company on the market and it’s intrinsic value. Thus the prudent investor will strive to buy stocks with a large “margin of safety”.

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