Warren Buffett - Why Smart People Do Dumb Things
By Jatinder Singh, Associate Partner, Lighthouse International
Warren Buffett is a legend at managing risk. This is a man for example, who foregoes making billions of “quick” dollars by refusing to invest in technology stocks because he does not understand how they are valued. This is even though one of his closest friends is Bill Gates who even sits on the board of his company!
The Way Mr Buffett Invests is a Great Lesson To Live Our Lives By
Learning the principles he uses to invest in companies is not solely limited to helping us in our financial lives though - far from it. They apply to every area of our lives.
In this video, Mr Buffett discusses how people act foolishly because they have their priorities wrong. He recounts a story about 16 business associates he knew, many of whom were the best in their industry and which included two Nobel prize winners. They were already incredibly successful and wealthy and together they set up one of the world’s largest investment companies, borrowing hundreds of millions to fund it.
They lost it all!
Forward to 12:30 to hear him recounting the story until 16:30, though I recommend watching the whole video...
When We Are Purely Motivated by Getting More Than We Need - We Pay the Price
Mr Buffett called this foolish behaviour because these investors were taking big risks and sacrificing things that were important to them for things that ultimately wouldn’t make much difference to their lives. They were already incredibly wealthy! Hence likening it to a game of Russian Roulette!
How many of us act in a similar way - for example taking on mountains of debt to go on holiday or buy a bigger car? Through doing this, we often sacrifice what is most important because we think having these extra things will make us happier. I'm not saying it's bad to go on holiday or buy a nice car, enjoying the good things in life is a crucial part of happiness, it’s when we are addicted to spending more than our means to feel happier that things can come crashing down on us.
Mr Buffett is successful because he appreciates his great wealth and knows that his happiness is not obtained by getting more money.
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