5 Traits From Warren Buffett to Become a Better Investor
Warren Buffett spent nearly 50 years writing letters telling us his exact investing strategy.
In honor of Buffett’s Retirement, Seth Klarman wrote a great piece in The Atlantic breaking down the five traits that made Warren Buffett so successful for so long.
Let’s dive into them and how they can help us keep compounding our dividends.
Buffett is widely considered the greatest investor ever.
The most impressive thing isn’t his returns, but how long he’s sustained them.
He’s consistently outperformed the markets for over 50 years.
Here are the 5 things that allowed Warren Buffett to do so well for so long.
1. Decisive Judgment
Warren is known for spending most of his time reading and thinking.
This gives him a broad base of knowledge and mental frameworks to be decisive in his judgement.
In 2008, during the height of the financial crisis, the world was panicking.
While others were frozen by fear, Buffett was decisive.
He quickly analyzed Goldman Sachs and invested $5 billion.
He knew the business was essential to the economy, that the government wouldn’t allow the financial system to collapse, and the terms were heavily in his favor.
The deal included preferred shares that had a 10% dividend.
Goldman bought them back in 2011, making Berkshire $3.7 billion in 3 years.
Lessons for Dividend Investors:
Know your Buy Price: Have a list of high-quality dividend payers and know exactly what price you are willing to pay.
Trust your research: When a fat pitch comes, be ready to swing.
2. Simplicity of Thought
Buffett is able to focus on a few important things without over-complicating or over-thinking an investment.
Buffett often talks about See’s Candies.
He didn’t look at complex spreadsheets, or create complicated models to buy it.
He looked at the brand.
He realized that people in California had an emotional connection to the chocolate.
If they wanted the best, they went to See’s.
It was a simple business with pricing power - they could raise prices every year, and people would still buy.
Lessons for Dividend Investors:
The Six-Year-Old Rule: If you can’t explain how a company makes money to a child, don’t buy it.
Focus on Cash: For dividends, the thing to focus on is Free Cash Flow. If the company makes more cash than it spends, it can pay you.
3. Stick with the Best
Buffet no longer settles for ‘good’ or ‘cheap’.
He wants the best businesses and once he buys them, he has the conviction to hold the winners.
Buffett bought Coca-Cola in the late 1980s.
Since then, he has never sold a share.
Many investors would have sold after a 50% gain to “lock in profits.”
But Buffett knew Coke was one of the best brands in the world, and let it grow.
Coke closed 1988 at $2.79 per share.
Today, every share pays Buffett $2.04 in dividends.
Lessons for Dividend Investors:
Let winners run: If a company keeps growing its dividend by 10% a year, don’t sell it just because the price went up.
Cut the underperformers: If a company cuts its dividend or its business model breaks, sell it. Only keep the best.
4. Focused Effort
Buffett has been able to stay patient and focused for decades.
Buffett lives in the same house in Omaha that he bought in 1958, far away from the noise of Wall Street.
He spends his days reading annual reports and trade journals.
He famously has the idea of the card with 20 punches.
Because he only makes a few moves, he has to make sure they are the right ones.
Lessons for Dividend Investors:
Ignore hot tips: Don’t get distracted by the latest AI trend or crypto craze if it doesn’t pay a dividend.
Be a Business Owner: Check your portfolio once a quarter, not once an hour. Compounding works best when you leave it alone.
5. Flexible Thinking
Buffett has been able to change his thinking and investing style to match changes in the market or the world.
Early in his career, Buffett only bought cheap stocks (often called “Cigar Butts”).
His partner, Charlie Munger, convinced him to change.
Munger argued it was better to pay a fair price for a wonderful business than a cheap price for a bad business.
Buffett had the humility to change his entire philosophy.
This led to him investing in things like Apple, which became a cornerstone of his portfolio.
Lessons for Dividend Investors:
Value Quality Over Yield: A 10% dividend yield is useless if the company goes bankrupt. It is better to accept a 3% yield from a world-class company that grows every year.
Keep Learning: As industries and the world changes, be willing to adjust.
That’s It For Today!
In his 1988 letter to shareholders, Buffett wrote:
“Our favorite holding period is forever.”
By keeping things simple, staying focused, and thinking like a business owner, you can build a dividend portfolio that grows for a lifetime.
One Dividend At A Time,
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data