Warren Buffett: The Best 10 Minutes of Financial Advice on the Internet

Testing one million, two million, three million. That's working.

Okay, talk to you about your financial future, and I hope those figures become applicable to all of you as we go along. And I'd like to start by posing a problem for you. I said I'm just going to talk for a couple of minutes, and we'll do Q&A because what we want to do is talk about what's on your mind. But I'd like you to think about this for just a second: if, as we walked out of here today, I said I would like to buy 10% of your financial future, I was going to write you a check today, and from this day forth you were going to give me 10% of everything you earned, how much would you want to charge me for that?

I'm going to buy one tenth of you, and I may take the low bid; incidentally, so be careful what you... Right now, I think if you thought about that a little while, as you contemplate that for a few minutes, you know you're going to get a check from me today, and you can do anything you want with the money. But from this day forth, you have to give me 10% of what you earn.

I think it would be very foolish of you, any of you, if you asked for less than say fifty thousand dollars. Now it could be a few years before you're out earning money, and so I've got a few years of dead money there, but then I would start getting this royalty on you as you went along. So I really think that if you thought about it, most of you would want a fair amount more than that. I think you'd be right.

Fortunately, I didn't make this deal with anybody when I started out, so nobody's got a 10% royalty on me. But I think that fifty thousand would sort of be the absolute minimum. If you think about that, that means that right today, you were worth five hundred thousand because 10% of you is worth fifty thousand in cash today. Your potential is worth a minimum, on a 100 basis, of five hundred thousand dollars. That is the big financial asset you've got.

It's way more important what you do with that five hundred thousand dollar asset that you own today than whether you decide to buy stocks or bonds or whether you put your money in a mutual fund, or pick your own stocks or anything of that sort. The biggest financial asset that you have going for you, by miles, is the value of your own earning power over the years. So that's really what you should focus on.

If you're focusing on your financial future, that means you should focus on you. Because whether your 10% is worth fifty thousand or a hundred thousand, or three hundred thousand—which would be five hundred thousand, or a million or three million—for all of you, whether it turns out to be one or the other is really dependent, in a very large part, on what you do in the next few years.

All of you in this room have the brains to do extremely well in life. You've all got the energy to do extremely well in life. And then the question is, how do you apply it? If you've got a 200 horsepower motor, do you get 200 horsepower out of it? Do you get your full potential, or do you get 100 horsepower or 50 horsepower?

Now, there are two things that can hold you back in getting the full horsepower out of your engine—whatever it may be. All of you have big enough engines. One of those is a lack of education, but that probably isn't going to happen to very many people in this room. If you did have a lack of education, if you didn't have a chance to get a decent education in life, it wouldn't make any difference what that potential was because you'd never unlock it.

But the second most important thing—and equally as important—is in terms of the habits that you develop. In terms of what you do with yourself, when we hire people, we look for three qualities. We look for integrity, we look for intelligence, and we look for energy. But if they don't have the first one, integrity, the other two will kill you. Because if you're hiring somebody without integrity, you really want to be dumb and lazy, don't you? I mean, the last thing in the world you want for them is to be smart and energetic.

So smart and energetic only goes with integrity. You know, you make your own decision on that. You can't change your IQ, or how far you can throw a football, or how high you can jump, or the color of your hair very easily. But you can elect to have integrity that matches anybody else's. And if you match that with intelligence, which you have, and energy, which you have, you will get an extraordinary result.

And you'd be very foolish to sell me ten percent of yourself for fifty thousand. On the other hand, if you don't match it with that, your potential will, in a significant part, go unused. And I'll give you a little simple test to apply in terms of thinking about the kind of habits you want to develop because you can have any habits you want. You can be lazy, you can be prompt, you can be late, you can be honest, you can cut corners. I mean, you have all these choices, and those are choices for you to make. Nobody else is going to make them for you.

And I would suggest that you play this little game with me, too. Think about the person you would most like to be in life. So maybe it's one of your contemporaries, maybe somebody a little older, but pick out the person you admire the most—the person that you would change places with if you could—and then write down why you admire them. Just put it on a piece of paper.

Then figure out the person that you would at least like to change places with—who really turns you off? Who do you find repulsive? And list the reasons why that person turns you off so much, and put those down on the other side of the paper. Then look at that list, and you'll find that everything on the left-hand side—what you admire in other people, the qualities they bring to life—cheerfulness, you know, generosity, all kinds of things—you'll find those are things you can do yourself.

It's very simple; you gotta apply yourself. But the habits you form in doing that early on will carry you through life. And on the other hand, you'll find that the things that make people repulsive—selfishness, obnoxiousness, all these things, egotism—are things that no one has to have. If you find those in yourself, you can get rid of them as long as you get rid of them early.

So all I suggest is that you write down a list of what you admire and what you find contemptible, and decide that, you know, the ones on the admired side are the ones you're going to acquire for yourself. And if you do that when you're young, it'll carry you through the rest of your life. This doesn't work if you do it when you're 50 or 60. By then, the habits are too well-formed.

But if you do it early, behavior becomes a habit. So if you do that, two or three years from now, if you go through the same exercise, you'll find out the person you admire the most is yourself. That can be a little dangerous under some circumstances, but it's not a bad thing. I mean, you want to be somebody you like, and you don't want to be somebody that you dislike, and form those habitually; you basically can't miss.

Now I'll give you one other small piece of advice that's just a corollary on this, and then we'll get to your questions. And that is, as a general matter, one piece of specific financial advice I would say—avoid credit cards. Just forget about them. We're in various businesses that issue credit cards; the American public loves credit cards. But if you start revolving debt on credit cards, you're going to be paying 18 or 20 percent, and you can't make progress in your financial life going around borrowing money at 18 or 20 percent.

You can make a lot of money by lending it out at 18 or 20 over time, you know, if you can find anybody that's good that will borrow from you. But you don't want to be on the side of the equation that's always behind in life. You know, I was lucky; I'd saved about ten thousand dollars by the time I got out of school. That ten thousand dollars was really worth millions I might have earned later on. Because after you get a family and everything, the expenses roll in.

But those were my tools to work with. But it was only because I was ahead of the game. If you're behind the game by ten thousand dollars at some point and paying 18 or 20 percent interest on it, you will never get out of it. So the trick—I've got a partner that says all I want to know is where I'm going to die, so I'll never go there—and that's true in financial matters as well. You want to figure out where you don't want to be ahead of time and avoid that.

I get about a dozen letters a day from people who are having terrible problems, and there are two reasons why they have terrible problems. One is a number of them have had health problems of some sort. I mean, they have really been hit by some, or somebody in their family has been hit by some kind of catastrophic illness, and that is a, you know, it's a terrible thing to happen to any family. They get in, they run up bills they can't pay, and really only society can solve that one—uh—in terms of protecting people against that. That's just plain bad luck.

But the other one is from people who run up credit card debt, and they're facing bankruptcy. Here, they've been through bankruptcy once before, and they owe a whole bunch of money, and they can't even pay the interest, let alone pay any principal. Half of my letters come from people like that, and that problem is avoidable—catastrophic illnesses, not—but credit card debt is something you bring on yourself.

And it's way better, it's way easier to stay out of trouble than to get out of trouble financially. And I will guarantee if you run a big credit card debt that you will be in trouble probably the rest of your life in terms of your financial situation. On the other hand, if you get ahead of the game, even if it's on a very modest scale, so that money is coming in from investing and you have people owe you money or equities, you'll be way ahead of the game compared to paying, being always paying your creditors every month.

So my advice to you is, if you can't pay for it, don't buy it, and get yourself in a position where you can pay for anything. And then we'll be glad to see you at Borsheim's, at the Nebraska Furniture Mart.