3 Warren Buffett quotes to live by

Warren Buffett is a self-made billionaire and possibly the world's most famous investor. Here we take a look at 3 Warren Buffett quotes to live by.

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Warren Buffett is a self-made billionaire and possibly the world's most famous investor. He is also a very wise man indeed – the oracle of Omaha is known for both smart investing and life advice.

Here we take a look at 3 Warren Buffett quotes to live by.

"If you buy things you do not need, soon you will have to sell things you need"

A lot of us spend a lot of time accumulating a lot of unnecessary stuff. Do you really need another pair of shoes or that extra bag? When you spend ahead of saving, you can end up in a difficult position when unexpected expenses arise. As Warren Buffett advises, "do not save what is left after spending but spend what is left after saving."

Building wealth for the long term means you have to put aside some of today's earnings for tomorrow. Then you have to do the same with tomorrow's earnings and so on. These earnings are then invested to create additional income streams and potential capital gains. If you spend all your earnings on things you do not need, you not only forfeit the opportunity to create future wealth, you could leave yourself in a potentially precarious financial position.

"Someone's sitting in the shade today because someone planted a tree a long time ago"

It takes time and patience to build wealth. For a tree to grow large enough to provide shelter, it must be watered and nurtured over many years. Likewise, to build a portfolio that will generate returns to sustain you, you must add to that portfolio and let the returns compound over a sufficiently long period of time.

Investing is a long game. Patience and consistency are key. You may not win in a particular year, just as the tree may not grow in a year of drought. Over time, however, average returns (and growth) should be positive. The important thing is to continue to add to your portfolio incrementally (as much as your circumstances allow) over time. This is akin to watering the tree, allowing it to grow.

"Price is what you pay. Value is what you get"

Price and value are not the same thing. What something is worth (its value) is not necessarily reflected in its price. As an investor, it is your job to identify when there is a disconnect between the two. Identifying undervalued shares (shares which are priced lower than their intrinsic value) can allow you to buy at a discount. When the rest of the market discovers the undervaluation, you stand to make a gain.

Equally important is to be able to identify overpriced shares. No matter how wonderful the company, if you overpay for shares you may struggle to get your money's worth. As Warren Buffett said, "a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favourable business developments."

Motley Fool contributor Kate O'Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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