With an estimated fortune of $62 billion, Warren Buffett is the richest man in the entire world. In 1962, when he began buying stock in Berkshire Hathaway, a share cost $7.50. Today, Buffett, 78, is Berkshire’s chairman and CEO, and one share of the company’s class A stock is worth close to $119,000. He credits his astonishing success to several key strategies, which he has shared with writer Alice Schroeder. She spent hundreds of hours interviewing the Sage of Omaha for the new authorized biography The Snowball. Here are some of Buffett’s money-making secrets—and how they could work for you.

1. Reinvest your profits
When you first make money, you may be tempted to spend it. Don’t. Instead, reinvest the profits. Buffett learned this early on. In high school, he and a pal bought a pinball machine to put in a barbershop. With the money they earned, they bought more machines until they had eight in different shops. When the friends sold the venture, Buffett used the proceeds to buy stocks and to start another small business. By age 26, he’d amassed $174,000—or $1.4 million in today’s money. Even a small sum can turn into great wealth.

2. Be willing to be different
Don’t base your decisions upon what everyone is saying or doing. When Buffett began managing money in 1956 with $100,000 cobbled together from a handful of investors, he was dubbed an oddball. He worked in Omaha, not on Wall Street, and he refused to tell his partners where he was putting their money. People predicted that he’d fail, but when he closed his partnership 14 years later, it was worth more than $100 million. Instead of following the crowd, he looked for undervalued investments and ended up vastly beating the market average every single year. To Buffett, the average is just that—what everybody else is doing. To be above average, you need to measure yourself by what he calls the Inner Scorecard, judging yourself by your own standards and not the world’s.

3. Never suck your thumb
Gather in advance any information you need to make a decision, and ask a friend or relative to make sure that you stick to a deadline. Buffett prides himself on swiftly making up his mind and acting on it. He calls any unnecessary sitting and thinking “thumb-sucking.” When people offer him a business or an investment, he says, “I won’t talk unless they bring me a price.” He gives them an answer on the spot.

4. Spell out the deal before you start
Your bargaining leverage is always greatest before you begin a job—that’s when you have something to offer that the other party wants. Buffett learned this lesson the hard way as a kid, when his grandfather Ernest hired him and a friend to dig out the family grocery store after a blizzard. The boys spent five hours shoveling until they could barely straighten their frozen hands. Afterward, his grandfather gave the pair less than 90 cents to split. Buffett was horrified that he performed such backbreaking work only to earn pennies an hour. Always nail down the specifics of a deal in advance—even with your friends and relatives.

5. Watch small expenses
Buffett invests in businesses run by managers who obsess over the tiniest costs. He once acquired a company whose owner counted the sheets in rolls of 500-sheet toilet paper to see if he was being cheated (he was). He also admired a friend who painted only the side of his office building that faced the road. Exercising vigilance over every expense can make your profits—and your paycheck—go much further.

6. Limit what you borrow
Living on credit cards and loans won’t make you rich. Buffett has never borrowed a significant amount—not to invest, not for a mortgage. He has gotten many heartrending letters from people who thought their borrowing was manageable but became overwhelmed by debt. His advice: Negotiate with creditors to pay what you can. Then, when you’re debt-free, work on saving some money that you can use to invest.

7. Be persistent
With tenacity and ingenuity, you can win against a more established competitor. Buffett acquired the Nebraska Furniture Mart in 1983 because he liked the way its founder, Rose Blumkin, did business. A Russian immigrant, she built the mart from a pawnshop into the largest furniture store in North America. Her strategy was to undersell the big shots, and she was a merciless negotiator. To Buffett, Rose embodied the unwavering courage that makes a winner out of an underdog.

8. Know when to quit
Once, when Buffett was a teen, he went to the racetrack. He bet on a race and lost. To recoup his funds, he bet on another race. He lost again, leaving him with close to nothing. He felt sick—he had squandered nearly a week’s earnings. Buffett never repeated that mistake. Know when to walk away from a loss, and don’t let anxiety fool you into trying again.

9. Assess the risks
In 1995, the employer of Buffett’s son, Howie, was accused by the FBI of price-fixing. Buffett advised Howie to imagine the worst- and best-case scenarios if he stayed with the company. His son quickly realized that the risks of staying far outweighed any potential gains, and he quit the next day. Asking yourself “and then what?” can help you see all of the possible consequences when you’re struggling to make a decision—and can guide you to the smartest choice.

10. Know what success really means
Despite his wealth, Buffett does not measure success by dollars. In 2006, he pledged to give away almost his entire fortune to charities, primarily the Bill and Melinda Gates Foundation. He’s adamant about not funding monuments to himself—no Warren Buffett buildings or halls. “I know people who have a lot of money,” he says, “and they get testimonial dinners and hospital wings named after them. But the truth is that nobody in the world loves them. When you get to my age, you’ll measure your success in life by how many of the people you want to have love you actually do love you. That’s the ultimate test of how you’ve lived your life.”

This is one of the latest books of Donald Trump that he wrote together with Bill Zanker from the Learning Annex. They draw from their experiences in life to provide practical advice on how to think big in your life and achieve what you want. Donald gives many examples from real estate and his experience with dealing with famous people. Bill’s prospective is different. He draws his examples from the struggles that he had in starting the Learning Annex and transforming it into a successful company.

They recommend that is very important to find your passion and follow it. Do not do something for money, but because you are passionate about it. Then the money will follow. You need to go after your passion with 150% focus and to focus on the solutions to the problems that you will encounter and do not be dishearten by the problems. They say that you should follow and listen to your instincts because many times they will guide you through difficult situations. Their discussion of luck is very interesting. They point out that luck is created by hard work and not waiting for something to come to you.

There is a large portion of the book that is focused on been very competitive, gaining respect from your colleagues and going after people who are trying to hurt you. They talk about the jungle of the business world and that you need to be the strongest to survive, because people will always try to bring you down. What is very important as well is to build momentum and not to stop when you start to achieve things. Slowing your momentum will cause you to relax and you will lose your edge.

Their final advice is that if you want to think big you also need to act big. You need to show it in your everyday life. You need to have friends who have big dreams like you and learn from them.

In general the book is very interesting and discusses many personal characteristics that successful people have that you can easily copy. The examples that Bill gives from running the Learning Annex are very remarkable and show how big his thinking has helped him to grow his business.

Follow the practical way,
George

This is a great book for anyone who is interested to invest in the stock market and run a business. The book describes the life of Warren Buffett from the day he was born up to 2008. The lessons are drawn from both his personal and his professional life.

Warren got involved in a very young age in the process of making money and managing other people’s money. When he was a kid he took his sister’s money to invest in a stock. This stock went down and everyday his sister would ask him why the stock is down. Warren did not like that experience at all and from that day on he did not want to manage other’s people money unless he knew he could do a great job. This gave birth to his first rule of investment “Never lose the money.”

You can find a lot of details on his management style in the book and how he pushes his people to get the best out of them. He believes that a smart person can do a great job and lets them do their job without him interfering. He is very good in showering his employees with praise and then at the same time giving them more tasks to do.

In the last few chapters of the book, you can see his ideas on philanthropy and inherited wealth. He is not a big fun of people leaving all their possessions to the children because that stops them from growing and achieving their own great things. He gave away the majority of his wealth to the Bill and Melinda Foundation.

I strongly recommend that you read the book and get a glimpse on how the greatest investor of all times created his fortune following simple rules and a lot of focus.

Follow the practical way,
George

First of all, you should never sell simply because a stock—and the market in general – goes down several percentage points. Selling on this basis alone is an overreaction that usually costs you money in the long run. Don’t waste your time on trying to time the market. Instead, you want to know your stocks well enough to be able to recognize which events spell danger and which scream opportunity.

Here, then, are some pointers to help you decide whether to stay the course or sell—for the right reasons:

1. Stay informed.
For other stocks you may own, make sure you check on them at least once a quarter when they report earnings. You want to read through all of the recent earnings reports and annual reports as well as press releases, magazine articles and online articles. What should you look for? Here are some key areas to research:

• How the firm is doing with its current operations.
• New directions the company is heading and any new plans it’s announced.
• Any cautious words issued by management.
• Trends evident in financial statements.

The better you know your company, the better handle you’ll have on its overall value and potential profits. This will make you less likely to sell a stock as soon as its price drops, only to regret it when the stock heads up again. The reverse is also true. By staying informed, you’ll be more likely to spot problems sooner rather than later and get out of bad situations before they get worse.

2. Keep track of the reasons you bought in the first place.
Whenever you buy a stock, it’s a good idea to jot down the reasons you believe it’s a good investment. This can boost your confidence in your purchase and assist you in determining when to sell down the road—that is, if some or all of those reasons are no longer valid. Over time, if the company grows properly, you may find some of your original reasons are scratched out and replaced with new entries. Keeping track of a company’s qualities as they evolve will also help stave off any temptation to sell based on emotion.

3. Refresh your memory on longtime holdings.
Again, you want to know the reasons you’re buying a stock before investing. But if there are some stocks you’ve had forever and you can’t remember why you bought them, it’s time to start refreshing your memory. If you can’t find a set of compelling reasons to invest, consider selling.

4. Watch the valuation.
Simply put, you want to know if your stock has room to run. In the bigger picture, if your company has the management and structure to continue growing and reaching new levels of profitability, stay the course. If you’re less than confident that the company is willing to change with the times, move on.

5. Don’t get caught in the percentage loss trap.
Stop losses are essentially a floor that you put under a stock’s price. You can set a limit order with your broker to sell if a stock dips a certain percentage or hits a specific price. On the one hand, stop losses can protect gains and minimize losses. Unfortunately, they are just as likely— if not more likely—to bounce you out of a stock right before the momentum shifts and it begins rising again. The biggest problem with stop losses is that they lock you in to sell based purely on short-term price movement and not on the company’s true potential. Now, you need to be comfortable with the way you invest. If you simply can’t sleep at night without a stop loss in place, by all means set some up with your broker. Be aware, though, that you’re as likely to be burned by them as you are to be helped.

Here are some cases to sell
Now you have an idea of what to do before quick-clicking the sell button when your stock is down. If you’ve invested in the right companies, chances are you’ll stick with
them through the tough times, confident that your future profits will outweigh the short-term ups and downs. That said, you might wonder when we would ever recommend selling a stock. There are many legitimate reasons to sell. First and foremost if a company’s fundamental story changes significantly for the worse, sell. Among the key indicators of this are slowing sales growth, divergent sales and profit growth, and plummeting cash flow. All can be real signs of trouble. Other legitimate reasons to consider selling are:

• You’ll need the money within a few years. Any money you’ll need in one to five years should be in a less volatile place than stocks—perhaps money market funds, bonds or CDs.
• You find much more attractive places to invest your money. Aim to have your money invested only in your top ideas—in the companies that seem most promising to you. That said, if you find a company that’s only slightly more attractive than another, it’s often not worth selling and switching because of the taxes that you may owe on any gains in the first stock.
• You’re only hanging on for emotional reasons. Perhaps your favourite uncle left you some shares of his favourite company—one he worked at for 50 years. If you’re hanging on to them sentimentally, out of love for your uncle, that’s sweet—but maybe not smart. Be objective when you assess a holding’s value and potential. Don’t hang on because a stock was the first one you ever bought, or was good to you in the past. Your uncle would want it that way.
• You have too much money in too few stocks. Proper diversification is a hallmark of Foolish investing. Focusing your money on a few stocks is simply too risky. If that’s your situation, consider selling some shares and redeploying the money into a few additional companies. Diversification is your strongest defence against a poor performer.

In sum, be smart about how you approach downturns in your stocks. Don’t let yourself get spooked and make bad decisions for the wrong reasons. Instead, do some reassessing and make sure that you own the right companies for the right reasons.

Follow the practical way,
George Traganidas

There is one person though who is betting against him. Who tells that his time is over and he has lost his charm. This person is Doug Kass and the last few months he wrote articles on why Warren is wrong and why his style does not work any more. His articles and reasoning are very interesting. His main point is that his style is not applicable to this new age and following it will cause you to lose money.

Is he right? Has Warren lost his touch? I think that it is too early to make a judgment on this. Time will tell. I find it interesting though that someone has the courage to go against everyone and claim that Warren’s style does not work any more. Here are the links to his last two articles:

Buffett’s Strategy Is Stale
Is This the End of Warren Buffett?

I will keep my eyes and ears open to learn more about this prediction. For the people who are following the investments of Warren I do not think that these articles signal a stop. I still think that Warren investments are still good to copy and can make you money.

Follow the practical way,
George Traganidas

Today I will share with you the last idea. You might not realize the benefit of this one in the beginning and you might not even understand why this is important. I would recommend that you just look around you and decide if it is something that makes sense and you want to do as well. This is something that I did unconsciously some years ago and now I am happy I did it.

Habit 6 – Own your own property

You need to be the owner of your own property. You must own the house or flat that you live in. This will put you in the top elite of the world that are home owners. I know that you might think that this is no big deal. Many people are home owners today. That is true, but it is crucial to be one. The first benefit that you will realize from owning the property you live in is an internal one. It will change your psychology. You will feel better and feel that you are achieving things in life.

The second benefit is that you will be the captain of your own ship. You will own your own place and you will not be in danger of getting kicked out. In addition, you will not have to pay rent every month and that means that you will have more money to invest, save and enjoy.

I hope that this series of posts has been helpful and it has given you some practical ideas to put to use today. Have fun in the process and I will see you at the finishing line.

Follow the practical way,
George

The above steps must become your habits. Every month you must do them like you brush your teeth every morning. Where most people fail is that they follow this advice for a while and then they relax and skip a few months. In the end, they just do it whenever they remember or when they have money left over. This is a disaster and it will make you to fail. This step will help you to resist the temptation of going down that path. It is a very critical step.

Habit 5 – Automation

The money that you put aside for investments and the money that you save must be taken out of the money that you plan to spend that month. The best time to do this is at the beginning of the month. Put the money away and what is left in your account is what you are allowed to spend this month. If you try to do this at the end of the month you will not have any money left. Therefore, do this at the start of the month. This is critical.

Of course we are all human beings and we might forget to do this sometimes. In order to avoid this you must set up an automated process. At the beginning of the month the money will be moved from your spending account to the place where you store your investment and saving money. This will happen without you having to remember it every time. This will also help you to resist the temptation to reduce the amounts for a non-valid reason (e.g. need to buy new clothes this month and I need the money).

One important thing to remember with the automated process is to remember to update it when your financial circumstances change. If you remember from the earlier posts the money that we put aside for investments and savings are a percentage of our monthly income. Therefore, we must remember to update the automatic process if our income changes. This is crucial because the more you will earn the more you will invest and save.

Next week I will tell you the sixth habit.

Follow the practical way,
George

Now it is time to get into more depth about the creation of wealth. We have built a good basis by spending less than we earn and saving money for troubled times. We started to build a sum of money to invest to expand our wealth. Now it is time to invest this sum of money and make it work for us. Make the money produce more money without us having to be involved. This is the secret.

Habit 4 – Seek Proper Advice

In order to properly invest your money and make it grow you need to receive advice. This advice can come from many sources and in many forms. There is one thing that we need to be extra careful about. We must know the person who is giving us this advice. For example, if we want to invest money in stocks who is going to advise us? Our friend down the bar or a professional who is risking his own money in the market and is successful? I hope that you have answered the second person.

We must seek qualified advice. The person that we seek advice from must be also invested in the same business and they must have demonstrated knowledge and success. You want advice on real estate, go to someone who invests in property and is successful. You want advice on stocks, find someone who is already successful in it. Do not listen to people who sit on the side lines and just give advice. They do not have any of their money at stake and they are not committed.

I am sure that sometimes you will listen to advice from people who you think are experts but in reality they are not. This will cause you to lose money. That is ok. It is part of the learning process. As you start to gain experience, you will become more able to see through these kinds of people. As a safety measure, when you start to invest, start with little money. Then in the event that you lose your money, you will not get angry and you can write it down as a learning expense. If you have followed the advice so far, you will not worry anyway, because the money you invested is not from your savings or living money. It is money that you put aside for the specific purpose of investments.

I will not recommend what kind of investments are the best. There are so many different kinds of investing that I can not cover everything here. What you will choose to invest your money in depends on you. It depends on your appetite for risk and your comfort levels. I know people who only invest in real estate because they like it and they understand it. Others just invest in the stock market. Pick what you enjoy most and then seek advice on how to invest your money from qualified and successful people. Learn from them and do not reinvent the wheel.

Next week I will tell you the fifth habit.

Follow the practical way,
George

I just finished “The Wordly Philosophers” by Robert Heilbroner. It is a very interesting book that looks into the lives and teachings of great economists like Adam Smith, Carl Marx and focuses on their lives and how their every day life has influenced their theories.

This book does not provide any practical steps on how to become a great economist or any other secrets. It reviews the theories of these people that have shaped the world today. Therefore, you might wonder why I review it.

The reason why I decided to write about it is because it can help you with achieving wealth. It is one of the practical steps that I decided to take; to start learning about the market and the forces that govern it. This is what the book is all about. I can say that after reading it, I have a better understanding of why the rich get richer and the poor get poorer. In addition, it explains why people have been buying land since the ancient times and why entrepreneurs are so crucial in the modern world. I think that this understanding helps me when I make decisions about investments.

I would recommend reading this book if you seek an understanding on how the financial system works and how you can gain from it. I would like to point out that this book has little practical steps, but give you an understanding of the markets. If you like the book you can buy it from here.

Follow the practical way,
George

Today’s post is about the third habit. The first two habits talked about managing the money that is flowing in. Now it is time to monitor the money that is flowing out. This is a very painful topic for many people and also an eye opener. If you do not get a good handle on this habit, then nothing else matters. You are moving away from riches fast.

Habit 3 – Control Expenses

We need to know where we spend money. The most important thing is that we should spend less than what we earn. The real question though is how much less? Here there are a lot of schools of thought. People recommend that you should cut down on everything and live a very simple life. This will save you so much money. Others recommend to spend less than what you earn, but at the same time you should enjoy the little joys of life.

Let’s start from the beginning. The first step is to take an honest hard look at your expenses today. See where your money is going today and do some average calculations. From the last two posts we saw that we need to keep money for savings and for investments. So, here is the plan.

From your income every month you put aside the money for investments. Then you put aside the money for savings. What is left is the money that you have to spend this month. This money is to pay your bills, pay your loans/mortgages, eat, buy clothes, have fun, etc. You must make 100% sure that all your expenses can be covered by this amount of money. If not, then you need to cut back on things. If you spend more than this amount it means that you either not keep as much money for investments or you do not save enough. Not a good idea.

I like a lot the view of Robert Kiyosaki (author of Rich Dad, Poor Dad) on this subject. He recommends that you should not try to save every pound and deny the joys of life to live below your means. You should make an effort to expand your means and then enjoy everything. So for example, let’s say you want to go on an expensive cruise around the Greek islands that costs £1,500. According to your calculations of what you can afford at this moment (income-invest-save=spend money), it is something that can not be done at the moment. This is fine. How can you expand your means to afford this? You need to generate more income. Therefore, instead of giving up on your dream, you spend the next few months generating the extra income. Once you have done this and your calculations show you can afford the trip, you go. Therefore, you do not have to deny anything you like in life. You just have to find out how to expand your means to achieve this.

Expenses are what will leak your wealth away. You need to get a good handle on them and manage them well. You do not have to give up the pleasures of life, but you need to be aware of where your money is going. As Warren Buffett said after he became the richest person in the world, “If you want to know why I passed Bill Gates, it’s because I spend less. It’s a tribute to thriftiness.”

Next week I will tell you the fourth habit.

Follow the practical way,
George