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How did Buffett make his fortune?

Buffett is currently the fifth richest person in the world, falling in place behind Elon Musk, Bernard Arnault, Jeff Bezos and Bill Gates. Not bad company to be in.

Buffett is the chairman and CEO of Berkshire Hathaway, and he's amassed his fortune by sticking to investing strategies that focus on the long term.

It wasn't until he was in his 50s that Buffett become a billionaire.

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Buffett’s early years

Warren Buffett was born August 30 1930, in Omaha, Nebraska. At age 11, he famously made his first investment for the grand sum of $114.75. He graduated from the University of Nebraska with a B.S in 1950, and obtained his M.S. from Columbia University School of Business the following year. Buffett returned to Omaha in 1956, and nine years later he took control of a textile manufacturing company called Berkshire Hathaway (BH). He became chairman and CEO of Berkshire Hathaway in 1970, and is still its head honcho today.

Buffett’s frugality is the stuff of legend. Rather than living the typical billionaire lifestyle, Buffett only owns one home, the 6,570 square foot property he bought in 1958 for $31,500 (about $329,505 in today’s dollars). He notoriously never spends more than $4 on breakfast, stopping at the McDonalds’ drive-thru on the way to his office every morning.

What companies does Warren Buffett own?

Much like the world, Berkshire Hathaway has changed a lot since Buffett assumed full control more than 50 years ago. Under his leadership, BH began taking over insurance companies, then utilities, then retail — Buffett is truly a one-man Monopoly game. BH also makes money by owning shares in other companies — like being a stockholder of Coca-Cola, and owning 5% of Apple.

Currently, the five largest “positions” in BH’s portfolio are Apple Inc., the Bank of America Corporation, Chevron, Coca-Cola, and American Express. Those five comprise 75% of Berkshire Hathaway’s total stock portfolio; but out of those five, Apple Inc. is the biggest slice of pie, accounting for 39% of their total holdings.

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Buffett's rules for financial success

But if it's so easy, you ask, why aren't more people as incredibly rich as Buffett? Because his approach takes the kind of discipline, patience and instinct that many people either don't have or are unwilling to develop.

Here are 10 rules that have helped the "Oracle of Omaha" find and sustain success — and an incredible net worth.

1. It all starts with good communication

Warren Buffett addresses a classroom of students.
Becoming Warren Buffett / HBO
Buffett says you need to develop good communication skills if you want to lead.

Buffett's first key to prosperity has little to do with picking stocks. He says you need to become a strong communicator: Wield words as your most important tools.

"Without good communication skills, you won’t be able to convince people to follow you even though you see over the mountain and they don't," Buffett once told a Stanford MBA student.

While this may seem like sage advice for financial planners, it's good for helping anyone develop leadership skills and the ability to think in stressful situations.

2. Look forward, not backward

Buffett famously stated in the 1950s that "the investor of today does not profit from yesterday's growth." This maxim still holds true today.

According to Buffett, following past trends is much less important than identifying new opportunities. When deciding whether to invest in a company, focus on what's in its future, not its history.

3. Innovate — don't follow

A flock of sheep following each other in a long row.
Marjolijne / Shutterstock
Warren Buffett was never one to follow the herd.

Adopting a herd mentality is a surefire way to get middling results, Buffett believes. "You need to divorce your mind from the crowd," he has said.

It's tough, but you have to break out from the pack by developing your own investing strategy based on your knowledge and experience. "To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible," Buffett says.

At the same time, be open to good advice. Financial planning services can help guide you toward your dream retirement.

4. Live frugally

Buffett famously lives well below his means. He has been known to drive an older, modest car. He still resides in the house he bought in Omaha, Nebraska, for $31,500 in 1958, and he picks up breakfast at a McDonald's drive-thru almost every day.

You can follow his example by looking for new ways to stretch your dollars. For example, when shopping for life insurance, consider a less expensive term life policy.

5. Be open to learning new things

Warren Buffett begins each day by reading a newspaper.
Becoming Warren Buffett / HBO
Warren Buffett begins each day by reading a newspaper.

Buffett likes to say that knowledge accumulates just like interest in the bank. He starts each day with a newspaper, and he reads books on various topics every day.

Consuming information will not only influence your investing, but it also will prepare you for success in all areas of life. Soak up what others can tell you about new technologies and new strategies.

Those who avoid learning new things risk becoming obsolete. Be like Buffett, and you'll never grow too old to learn a new trick.

6. Know when to fold 'em

Don't get the wrong idea — Buffett does sell stocks when he has to. Despite his overall success, he has bet on plenty of clunkers. The trick for long-term investing success is knowing when to walk away.

Buffett learned these lessons as a young man betting on horse races. He tried to make up for losses by increasing his bets, and he lost more money.

Recognize when a stock is a genuine loser, so you can walk away and minimize your losses. If you use an app that allows you to invest your spare change, your portfolio will be adjusted automatically to protect you when a stock is in trouble.

7. Think long term

Two options Short Term and Long Term on road signs on highway
Bennian / Shutterstock
Buffett says invest for the long term and don't get caught up in the stock market's day-to-day moves.

"Buy and hold" is a common, long-term investment strategy that calls for sticking with a stock even when it's having a bad day — or month.

Buffett's approach might be called "buy and hold and hold." As he likes to tell his Berkshire Hathaway shareholders, "Our favorite holding period is forever."

He doesn't mind when a stock takes an occasional tumble, because those are good opportunities to buy more shares at a discount.

8. Never invest borrowed money

When investing, use your own money. Buffett says it's "crazy" to borrow. "It's insane to risk what you have and need for something you don't really need," he told CNBC.

If you borrow to invest, your strategies will be too closely tied to your need to repay the money. Some investments require long-term planning and holding out for growth, which is difficult with a debt hanging over your head.

You don't need much money to invest if you use an investment app that will allow you to buy fractions of shares for as little as $1 or charges you lower-to-no commission on trades.

9. Dividends are key to long-term growth

TORONTO, CANADA - OCTOBER 31, 2014: Coca Cola products on display in a grocery store. Coca Cola Company is leading manufacturer of soda drinks  in the world.
Niloo / Shutterstock
Buffett's company earns millions of dollars from Coca-Cola, in the form of dividends.

Warren Buffett loves stocks that pay dividends. His company, Berkshire Hathaway, gets hundreds of millions of dollars each year from Coca-Cola in the form of dividends.

Dividends come from reliable companies that consistently meet or exceed their goals. Their stocks may not make you a lot of money quickly, but their dividends can put your investing on autopilot.

Other high-dividend-paying companies include Caterpillar, AT&T, Verizon and the investment firm BlackRock Capital — though, ironically, not Berkshire Hathaway.

10. Remember, anything is possible

Buffett is known to plaster his walls with what he calls "instructional art." This includes newspaper front pages with screaming headlines about stock market crashes.

They remind him that, in investing and in life, you need to be ready because anything can happen. If you keep this in mind, then you'll proceed with caution and make informed decisions about your investments.

You'll avoid taking on debt you can't handle, won't live an unsustainably lavish lifestyle, and will be able to withstand market fluctuations — just like Warren Buffett.

More: Classic Warren Buffett quotes on investing


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About the Author

Doug Whiteman

Doug Whiteman

Former Editor-in-Chief

Doug Whiteman was formerly the editor-in-chief of MoneyWise. He has been quoted by The Wall Street Journal, USA Today and CNBC.com and has been interviewed on Fox Business, CBS Radio and the syndicated TV show "First Business."

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