Warren Buffett's Advice for Young People Who Want to Be Rich

I tell people if they're going in the investment business, if you got 160 IQ, sell 30 points to somebody else because you won't need it. I mean, that it, yeah. I mean, I figured out very early you don't have to be that smart in this business, which is fortunate. But you do have to have the right temperament, and you have to be able to ignore what other people are saying and simply look at the facts and decide, is this stock which is selling at X worth 2X?

That is Warren Buffett, the world's best investor. He's achieved an average annual return of 20% since 1965. He currently sits ninth on the Forbes real-time list of billionaires with a net worth of 105 billion dollars. However, unlike a lot of billionaires, Buffett is actually very honest and humble, and has spent a lot of his time over the years trying to educate the next generation of investors on how to achieve long-term wealth and success.

So in this video, we're going to look at some of the critical pieces of investing advice Warren has for us young people to help us grow our investing portfolios and achieve true long-term wealth. So stick around because these are some lessons that you will not want to miss.

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Okay, so let's start at the start: Warren Buffett. How do we go about getting started with our investing? Now, if you're interested in financial matters, hey, you've got to have something to work with. I mean, I was fortunate in that respect because my dad paid for my education. If he hadn't, I probably wouldn't have become educated if I had to pay for myself. But, so I was able to save ten thousand dollars by the time I was 21, and you know that was a huge, huge head start. If I hadn't been able to do that, my first child came along when I was 22. So, I mean, the family, it's much easier to say, but in those teenage years if you’re lucky enough to be in a family where you don't have what your parents are taking care of your financial obligations, every dollar then is, you know, worth making 10 or 20 later on.

And so, if you are interested in financial matters, getting a stake early is very useful, and getting knowledge early is very useful. Accumulating knowledge—that's one of the beauties of the business that Charlie and I are in—is that everything is cumulative. The stuff I learned when I was 20 is useful today. You're building a database in your mind that is going to pay off over time, but you have to have a little money to work with. So, there's nothing like getting a few dollars ahead. Stay away from credit cards, and you can have a lot of fun if your mind goes along that track.

As you get older, there are two key pieces of advice in this first clip. First is that to shift the needle really, you have to have something to start with. So, get yourself in a position where investing is actually going to do something for you. You know, save up ten thousand dollars as Warren did. You know, focus on that before you focus on going deep and learning the strategy because think of it like this: if you're earning five hundred dollars a week in retail, don't take time away from that to try and turn a hundred dollars into two hundred dollars in the stock market. You'd be better off spending that time working.

But then when you do have that initial sum ready that you'd like to invest, Buffett's second piece of advice is to then accumulate knowledge about business and about the stock market and also find the areas of business that you're really interested in. Now, if you're new to the world of investing and you want to establish that baseline knowledge, I would highly recommend you read firstly, "Rule One" by Phil Town, then read "The Dondo Investor" by Monish Pabrai, and then try "One Up on Wall Street" by Peter Lynch. If you read those three books, you will begin to understand how to approach investing both strategically and also temperamentally.

Then after that, as Buffett says, it's all about finding your interests in business. You know, do you like social media companies, or do you like banks? Do you like video game companies, or do you like mining companies? In investing, it's very important to stay within areas that you're interested in, as firstly it'll help you understand the business more easily, and it will also help you get a deeper understanding of that business.

And if you're a little bit stuck on this one, a good way to understand what your interests are is quite simply to write down the answers to these two questions. Firstly, what do you spend your time doing? And then, what do you spend your money on? If you thoroughly answer those two questions, you will start to pick up the recurring themes as to what industries you might want to look at for your investing.

I was wondering if you have any stock tips for any of the students, you know, we're all trying to make a little living.

The best investment I ever met, well, I bought a book in 1949 by a fellow named Ben Graham called "The Intelligent Investor." I don't remember what I paid, but aside from what I paid for my two marriage licenses, that was the best investment I ever made. And, uh, it's very important to have the right framework. You need to have an approach to investing that's sound, and Graham's approach is simple, but some people adopt to it, which I did immediately, and most people don't.

But if you have the right philosophy, you will find opportunities as you go through the next 20, 30, 40, 50 years. And frankly, you're most likely to find them when in periods like five years ago when we were having the panic. I mean, stocks sell at silly prices from time to time. Most stocks at one time or another sell at very silly prices. And it doesn't take a high IQ to figure out that they're cheap, but it does take a temperament that's willing to step up and actually act.

I tell people if they're going in the investment business, if you've got 160 IQ, sell 30 points to somebody else because you won't need it. I mean, that it, yeah. I mean, I figured out very early you don't have to be that smart in this business, which is fortunate, but you do have to have the right temperament. And you have to be able to ignore what other people are saying and simply look at the facts and decide: is this stock which is selling at X worth 2X?

And occasionally, you'll find things like that. And when you don't find them, you don't do anything. So that's my generalized stock tip—no names.

Ah, do you have any stock tips? So this is the most commonly asked question to experienced investors, but it's also the worst question you could possibly ask. It really shows you aren't in the right mindset if you want to ask that question. And I'll let my good friend Jaz Preach Sing from the Minority Mindset explain this one.

The worst question that you can ask is, "What stock should I buy?" Because you're ignoring everything else around it. What's a good stock for you might not be a good stock for me, and what's a good stock for me might not be a good stock for you. So a stock can be good or bad just depending on what your strategy is, and that's where you need to start. You need to understand what your goal is, and based off of your goal, you can come up with a strategy.

I love that clip, and this is exactly what Warren says as well. He diverts the question into what investing framework you should have. You know, what's your strategy? That's the fundamental building block that enables you to understand what stocks are right for you. You know, if you're a passive investor that wants to set and forget and simply participate in the market over a long period of time through dollar-cost averaging, then a market-tracking index fund is definitely for you.

But you'd never touch a stock like Facebook. But if you're an active investor where you like to understand the business, you like to look for a competitive advantage, perhaps social media sits right in your circle of competence and you deem that Facebook is currently 30% undervalued, then maybe Facebook is a great stock for you and the market-tracking index fund isn't.

So take the time to understand your strategy and then focus on temperament. As Buffett says, you don't need huge intelligence to be a great investor, but you need to be on top of your emotions. Okay? You need to be able to ignore the noise and come to your own conclusions. You need to be able to make investments when the sky is supposedly falling and not get sucked into the euphoria when the market is just pushing new all-time highs. As Buffett says, look at the facts and decide: is the stock that's currently trading at X worth 2X?

If you can do that, then you'll do very well. The most important thing is to decide—to be able to define which ones you can come to an intelligent decision on and which ones are beyond your capacity to evaluate. You don't have to be right about thousands and thousands of companies; you only have to be right about a couple.

I met Bill Gates on July 5th, 1991. We were out in Seattle, and Bill said, "You've got to have a computer." And I said, "Why?" And he said, "Well, you can do your income tax on it." I said, "I don't have any income. Berkshire doesn't pay a dividend." And he said, "Well, you can keep track of your portfolio." And I said, "I only have one stock." I said, "I mean." He says, "It's going to change everything." And I said, "Well, will it change whether people chew gum?" And he said, "Well, probably not." And I said, "Well, we'll change what kind of gum they chew." And I said, "Well then, I'll stick to chewing gum, and you stick to computers."

You know, I don't have to understand all kinds of—there's all kinds of businesses I don't understand. But there are thousands of opportunities there. I did understand the Bank of America, you know, and I'll be able—I'm able to understand some given percentage. But Ted Williams wrote a book called "The Science of Hitting," and in "The Science of Hitting," he's got a diagram that shows him at the plate, and he's got the strike zone divided into 77 squares, each the size of a baseball.

And he says if I only swing at pitches in my sweet zone, which he shows there, and he has what his batting average would be, which is .400. If he had to swing at low outside pitches but still in the strike zone, his average would be .230. He said the most important thing in hitting is waiting for the right pitch. Now, he was at a disadvantage because if the count was 0-2 or 1-2 and so on, even if that ball was down where he was only going to bat .230, he had to swing at it.

In investing, there's no called strikes. People can throw Microsoft at me and, you know, you name it—any stock: General Motors—and I don't have to swing, and nobody's going to call me out on called strikes. I only get a strike called if I swing at a pitch and miss. So, I can wait there and look at thousands of companies day after day, and only when I see something I understand and when I like the price at which it's selling, then if I swing—if I hit it, fine. If I miss it, it's a strike.

But it's an enormously advantageous game, and it's a terrible mistake to think you have to have an opinion on everything. You only have to have an opinion on a few things. In fact, I've told students if when they got out of school they got a punch card with 20 punches on it, and that's all the investment decisions they got to make in their entire life, they would get very rich because they would think very hard about each one.

So there you have it. Don't feel like you need to have an opinion on everything. Don't think you need to buy either Delta or Southwest if you hate airplanes. You know, don't feel like you need to know whether Exxon is undervalued if you hate oil companies. Just stick to what you know and just let everything else fly through to the keeper.

Treat your investing lifetime like that punch card. You only have 20 punches in your whole life. Let almost everything go until something crazy happens in the market until you get your favorite stock right in the middle of your circle of competence being thrown at you at 50% off. If that happens, then swing and swing hard. And that's really all there is to it, but it's much easier said than done.

So overall, what are the key take-home lessons here? Well, despite only looking at three clips, we've actually learned a lot of advice from Warren Buffett for young people. So let's go through it.

Number one: save up enough so that when you invest, it actually shifts the needle. You know, don't spend two months trying to turn 100 bucks into 150 bucks.

Number two: take the time to learn the proper strategy before you do anything. The stock market will still be there for you in three months.

Then number three: stick to businesses you are interested in and can understand.

Number four: learn to control your emotions because, as Buffett says, investing is all about temperament.

Number five: be patient. Remember, you only have 20 slots on that punch card. Let almost every pitch go through to the keeper. Remember, there are no strikeouts.

And then number six: finally, be greedy when others are fearful. When that perfect pitch comes along, don't forget to swing and swing very hard.

So, six lessons there to write down and stick on your wall. They are Warren Buffett's tips to young people that want to become successful investors.

So overall, guys, I hope this video has helped. Leave a like on the video if you did enjoy it or if you found it useful. Subscribe to the channel if you have not done so already. If you would like a full step-by-step walkthrough on the Warren Buffett strategy, video courses down link down in the description below. It's called Introduction to Stock Analysis. It's over on my business which is called Profitful, so you can check that out if you like. If you want more new money content, check out New Money Clips as well.

But guys, that will do us for today. Thank you very much for watching, and I'll see you guys in the next.