13 Life Lessons from Warren and Charlie: Reporting back from 2010 Berkshire Hathaway Shareholder’s Meeting

Average Reading Time: 5 minutes

For one day each year, any and all of us get the chance to listen to 6.5 hours of live questions and answers with Warren Buffett and Charlie Munger (and even ask one of your own if you're lucky). This year almost 40,000 people took advantage of the opportunity. I was one of them. As I was last year and the two years prior to that. The weekend has become an annual highlight that words cannot describe. Despite the fact that it's important for our business in the investment partnership my partner and I run, this is one of the best weekends of the year for learning about life and personal improvement. I love it.

Life Lessons.

To most people's surprise, this is not simply another dry talk on investing and business. It's far from it. The great majority of the meeting revolves around lessons in life, relationships, education and career decisions. These guys have experienced over 160 combined years of amazing life experiences and seen success (and even some failure) on numerous fronts. They are brilliant and happen to be two of the best teachers I have come across in all my reading and learning. And the price of admission…free! Ideally you should be a shareholder but there are plenty of other ways to get into the meeting if you'd like. I have to share some of the most recent pearls with you all. I'll stick to broader life lessons, but feel free to send a note if you'd like more from the business and investing side.

13 Life Lessons from Warren and Charlie:

1. Lose money and I will forgive you, but lose even a shred of reputation and I will be ruthless [Warren]. This has been echoed across the business world for years and it applies to us all. Life is too short to cut corners to make an extra buck. Wealth can always be recreated but reputation takes a lifetime to build and often only a moment to destroy. As Warren says, "we will not trade reputation for money."

2. The best defense in a tough economy is to add the most you can to society. Your money can be inflated away but your knowledge and talent cannot [Warren]. No matter the external circumstances, you are always in control of your talent, learning and passion for life. "There will always be opportunities for talent" as Warren says.

3. We get worried when people start to agree with us [Warren]. The best fruit is found out on the limbs. The road less traveled makes all the difference. Make a rule to always stay on the side of the minority in your life's path and you will likely be greatly rewarded and you'll certainly experience a lot more excitement.

4. We celebrate wealth only when it's been fairly won and wisely used [Charlie]. The goal is not to make money at all costs. It's easy to forget that in a lot of industries and sub-cultures around the U.S. where everyone is in constant competition to keep up with the Joneses. Wealth is worthless if you've destroyed all your relationships to attain it. As Charlie says "take the high road. It's far less crowded." Sad but often true. Makes it pretty easy to stand out.

5. When you are exceptional you jump off the page. There really isn't that much competition there [Warren]. Be your own best competitive advantage. Then it doesn't make a difference what others are doing. You are in control.

6. Do what you're passionate about. If you do this, there will be few people competing or running faster than you [Warren]. The best way to be exceptional is with passion! As Tony Robbins says every day of his life, "Live with Passion!" And trust me, life is a lot more fun this way.

7. I think I developed courage when I learned I could deal with hardship. You need to get your feet wet and get some failure under your belt [Charlie]. Courage does not grow on its own. Just like a muscle, it must be constantly worked out and developed. Life begins outside your comfort zone and that is where your courage is developed. Most people don't succeed because they're afraid to fail. Failure isn't that bad anyway. It will make you tougher and more likely to win the next time around. No one has succeeded without going through their own failures at some point. To try and fail is much better than to never try. Why not get started early and get some of them out of the way! What's the worst that could happen anyway? As big wave surfer Laird Hamilton says "If you're not falling then you're not learning."

Charlie Learning

8. There's no better way to be happier than getting your expectations down [Charlie]. Most unhappiness comes from misaligned and unrealistic expectations of life. Expect the world of yourself, but expect nothing of the world. Then you cannot help but live your life pleasantly surprised.

9. If I can be optimistic while I'm nearly dead, you can deal with a little inflation [Charlie]. This had the crowd laughing out loud. Life is what you make it. Don't let things get you down. It could always be worse.

10. If the only reason you find for doing something is because others are doing it then that's not good enough [Warren]. Enough said.

11. Bad behavior is contagious. That's how human nature works [Warren]. Watch out for this. It can catch you off guard.

12. We've done a lot of stupid things but we've avoided a small subset of stupidity and that subset is important. It's about avoiding the dumb things [Charlie]. They hammer this every year. Their success does not come from doing so many things right. It comes from avoiding the things that are terribly wrong. Some say this is two sides of the same coin. But it's not. It requires a fundamental shift in psychology. The stories are endless of people who did a few things right and were massively successful, but then did something stupid that took them back to zero. Before Charlie and Warren do anything, they "invert, always invert" as Charlie says. They list every way imaginable in which they could fail at a particular task and then take massive effort to avoid those failures. Do that and the success will come automatically.

13. Go to bed a little wiser than when you woke up [Charlie]. This covers the whole meeting in a word. Life is about learning. If you are always learning you can never lose. Keep this as your only rule for the day and the world will be yours for the taking.

Go to bed a little wiser than when you woke up.

-Charlie Munger

The lessons from Warren and Charlie are endless. We can all stand to learn and be better people from what they are willing to share. They don't charge any money or ask for anything in return. Except of course that we live a life with a burning desire to learn and do all we can to be valuable additions to society. Take these lessons to heart. There will likely not be another Warren and Charlie for a very long time. Take advantage of the education while you can. Do so and I have a feeling success and fulfillment will come naturally.

Thank you Warren and Charlie. We owe you a great deal.

How have the above points improved your life? What have you learned from Warren and Charlie that you'd like to share with us? Please let us know in the comments section below.

Financial planning for people in their 20s

Einstein calls it the 8th wonder of the world. It has power to create enormous wealth for people who persevere and hold on to it. This is compounding rate of return. Compounding return is nothing but earning returns over returns as well as principal.

The wealth created by compounding rate works in favour of those who have larger earning period remaining in their life. This article will focus on such people.

I will worry about it later, I am young and I will have fun for now.

While this is certainly something that all of us do in our young age, we have to also build a discipline to save a part of our income and invest to reap benefits in future. The discipline that we build now will keep us in good stead years later. Let me show the power of compounding.

It assumes a person starts investing Rs 1 per month at various stages of his life till he or she is 65. It means if you are 25 years old, your investment horizon is 40 years while the horizon is 30 years for 35 years old. The table also shows how your future wealth varies with the rate of return.

A 25 year old person who starts investing Rs 1 per month at 10 return till he reaches 65 years of age will have Rs 6324.08 while a 30 year old person will have only Rs 3796.64. At 14 per cent, you will have twice as much wealth than someone who started investing just 5 years later.

If you can start investing Rs 5,000 per month at the interest of 12 per cent from 25th year, you will accumulate 5,88,23,850.00 (5 crore, 28 lakhs, 8 hundred and 50) by the time you turn 65. Does it really look like 8th wonder? You bet.

Where to find money for investment?

Saving 5,000 is not a big deal if you are serious about it. Even if you are able to save 2,500, you will have close to 3 crore at the end of 65 years of age, assuming you are 25 years old. The important point is that you save something.

Some of the things you can use to save money and invest in appropriate funds are as follows:

1. Pay your credit card bills on time. No exception.

2. Make budget for your expenses. This may sound a tough job but do it for 2-3 months and you will have a fair idea of where the money is going. You may not need to do it after initial few months. Now curtail useless expenses. For example, going to expensive restaurant 3-4 times in a week. Cut it down to once or twice.

3. Pay yourself first: Resolve to save a specific amount every month. Put it in investment account. Take this money out of salary in the beginning of the month so that you don't touch it.

4. Buy a car or bike having resale value. If possible, buy a second hand car if you are too keen.

5. Stop splurging on sale and discount. You often end up buying things you never need.

Where to invest your money

Since you are in your 20s, you can invest major part of savings in equity or equity fund which will not only protect your principal but will provide a healthy return. You also need to put 3-6 times your monthly salary in bank to face any emergency.

Most importantly, you should have long term view of your investment. Remember that the 8th wonder works in long term. Let's see what options you have in investment space.

1. Equity & Equity Mutual Funds: Equity investment is known to give the highest returns. This includes individual stocks, diversified equity fund, sector equity fund, index funds etc. Over 20 year period between 1990 and 2010, Nifty has given an annualised return of more than 20 per cent. However the variability of returns is high which makes it riskiest of them all. The best idea is to find few blue chip firms or a well-diversified mutual fund and invest for a long term. A mutual fund is a fund that invests in a set of companies to diversify the risks (means if few companies go down, few others may go up to save your capital).

2. Bonds & Debt Funds: There are good quality bonds available from Government and Companies. These are fairly safe and returns can be between 8-12 per cent.

3. Safest Instruments: There are others which are very safe, such as PPF, PF, Bank Deposit but they have lesser returns. Your company anyway does the PF for you.

4. Others: Other options could be ULIP, Gold ETF, and Index funds.

As a general rule, young people should invest a big part of their savings in equity or equity mutual fund. There are generic rule such as subtract your age from 100 and you should invest that much percentage of your saving in equity & equity mutual fund. If you are 25 year old, you should invest 100-25 = 75 per cent of your saving in equity & equity mutual fund and rest 25 per cent in high grade bonds or bond funds.

The typical returns from different financial instruments are as follows:

But before you start investing in the market, you must have 3-6 months gross salary in your savings account for any emergency.

Here is a typical asset allocation for a 25 years old person (assuming you already have sufficient money in your savings account for emergency purpose)

Building a strong foundation for your future:

It is extremely important to plan for your financial future. Often, in case of finance, failing to plan is planning to fail.

Firstly, resolve to save a part of your salary every month and invest. If you cannot maintain the discipline, start a systematic investment plan (SIP) with a brokerage firm, such as ICICI direct, Kotak Securities, Angel Broking.

Secondly, have a long term view of your investment. If you look at any stock price or NAV of mutual fund, the prices go up and down in short term but generally go up in long term for good stocks and mutual funds. And lastly, learn about investment, planning, and don't hesitate in taking professional help. You work hard in your youth; it is natural but to lead a comfortable life when you retire. You deserve it.