Lessons in Frugality From Investor Warren Buffett

Rich Cox — April 25, 2020

In a now-famous letter written by Warren Buffett and sent shareholders during the 2008 financial crisis, the Oracle of Omaha explained that “price is what you pay, value is what you get.” In other words, the price paid for any financial market asset might not necessarily lead to the production of real market value that is gained during the investment process.

Warren Buffet via Shutterstock

In practice, this means that it becomes possible for investors to lose money whenever the price paid for an investment fails to match the true market value that is gained by holding ownership of the assets in question. Key financial terms in this realm would include topics like overvalued and undervalued assets as they exist in relation to the goals of each investor. For example, negative performances can be expected if an investor pays a high price for a house that cannot be re-sold or used as a living space at some time in the future.

In this hypothetical case, the investor might have received a low price on that house but the investment is destined to become worthless if there is no value to be gained from the decision to make the original purchase. Perhaps, this might be the reason the billionaire philanthropist and Berkshire Hathaway CEO has gone to great lengths to discuss the importance of forming proper money habits during life’s early years.

Specifically, Mr. Buffett has explained that since most human behaviors are a product of learned habits, the “chains of habit are too light to be felt until they are too heavy to be broken.” In other words, habits are usually the product of simple human behaviors but these are behaviors that are much easier to change for the better whenever we are able to start the process during our earliest years.

According to Mr. Buffett, the practices of being frugal and saving properly are always the first steps to designing an investment portfolio strategy because these practices represent the best way of growing resources that can be used to build wealth over time. One of the biggest mistakes that can be made by any consumer is to fail to learn proper spending habits, so it is critical that all households follow these rules as a primary action so that spending habits help our household finances rather than hurt our household finances.

Warren Buffett is the classic buy-and-hold guru of traditional investment strategies, which is the reason one of his admirers paid nearly $ 5 million for a lunch meeting with the financial expert. When using traditional investment strategies, investors will usually hold their market positions for extended periods of time rather than making an attempt to time the market. When investors make an attempt to time the stock markets, there can often be disastrous results because there are simply too many factors involved when determining broader volatility levels.

As we have seen during the last few months, share prices in stock markets can often move quite quickly depending on the types of assets that are involved in the investment. When these types of volatile price moves occur in an unpredictable fashion, investors that make an attempt to time the market will often encounter unnecessary losses and these are the types of situations that investors should be trying to avoid. For these reasons, it’s important to understand the wisdom of proven financial experts like Warren Buffet because following his ideas can make it much easier for investors to grow wealth over time. In the end, this makes it easier to focus on the things that really matter in life, like practicing philanthropy, raising children, and building a family household that is economically stable.

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