Warren Buffett: Be an Emotional Person, Just Not With Your Money
“Have we ever made an emotional decision?” Warren Buffett asked his long-time business partner and friend, Charlie Munger, at the 2023 Berkshire Hathaway annual shareholder’s meeting. Being emotional with money is common with most people, after all.
Munger, as dry as he always is, answered without thinking:
Buffett said that he had never made an emotional investment decision in his life. And Munger agreed.
This was my favorite takeaway from their annual meeting. And it doesn’t come as a surprise. Buffett and Munger are famous for their rational decision-making.
When it comes to financial decisions, we must act like robots. We can’t let emotions get in the way.
The question is: Can you learn how to remove emotions from your decision-making process?
In my experience, the answer is yes. I’ve always been very emotional when it came to my investment decisions.
Like most stock market investors, I was either too greedy or too fearful. When I saw an opportunity I invested too much money and got obsessed with the outcome. Then, when it didn’t work out in the short term, I would get scared and sell.
Let me share two things I’ve learned from observing Warren Buffett about removing emotional money decisions.
1. Future returns is the name of the game
Buffett has achieved an average annual return of 20% since 1965 with Berkshire. Before that, he had a partnership he started in 1957.
With that partnership, he averaged 31% and had no losing years.
What I’ve noticed is that Buffett always talks about money in future terms. For instance, if you want to buy a $1,000 iPhone, you’re actually paying $2,488.32 for the device.
Buffett always believes he’s able to compound his money at least with a 20% annual return. If you invest that $1k for 5 years at 20%, you end up with $2,488.32.