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In his 1987 letter to shareholders, Buffett wrote, "Debt is a killer. If you're not careful, it can kill you."
If you aren't thinking about owning a stock for 10 years, don't even think about owning it for 10 minutes. 9. Practice Extreme Focus
: Skip complex tech trends or speculative assets if you cannot explain how they make money.
This guide breaks down those ten verified, time-tested principles. These rules will help you minimize risk and build long-term wealth. 1. Invest within Your Circle of Competence 10 golden principles of warren buffett pdf verified
Even so, adherence to these principles produced a 20%+ annual return from 1965–2020, versus 10% for the S&P 500.
“The single most important decision in evaluating a business is pricing power.”
The Ultimate Guide to Wealth: 10 Golden Principles of Warren Buffett In his 1987 letter to shareholders, Buffett wrote,
This discount protects your capital if the company faces unexpected trouble or if your math is slightly wrong. 5. Demand Quality Management
Avoid complex tech or trendy assets if you cannot explain how they make money.
Buy the stock only when it trades at a significant discount to that value. 5. Adopt a Long-Term Horizon Buffett’s favorite holding period is "forever." Short-term market fluctuations are just noise. Practice Extreme Focus : Skip complex tech trends
Firms that can produce goods cheaper than anyone else, like GEICO. 3. Buy Businesses, Not Stocks
7. Focus on return on equity (ROE), not earnings per share (EPS). Buffett prioritizes ROE as a measure of capital efficiency. 8. Calculate "owner earnings." He values cash flow over accounting earnings. 9. Look for companies with high profit margins. Sustainable profitability from core operations—not one-off gains—is paramount.
Buffett distinguishes between productive leverage (insurance premiums collected before paying claims) and dangerous leverage (bank loans, margin debt). Berkshire holds at least $20–30 billion in cash to survive any crisis. He famously avoided the 2008 financial crisis collapse because Berkshire had no short-term debt. Principle: You can only compound wealth if you are not forced to sell at the worst possible time.
: Only purchase stocks trading below their calculated intrinsic value. 4. Insist on a Margin of Safety
Buffett famously avoided tech stocks for decades because he did not understand their durable competitive advantage. He invests only in businesses he can predict with reasonable certainty (e.g., Coca-Cola, See’s Candies, GEICO). This principle prevents catastrophic mistakes caused by overconfidence in unfamiliar industries.
