Lessons from Warren Buffett

From the letter to the shareholders of Berkshire Hathaway, below is the investment wisdom conveyed by the “Oracle of Omaha”, Mr. Buffett himself:

The Three Gs
Let us suppose that you are planning to lock away the surplus money with you in a bank savings account and three different banks approach you with three different offers:

The first bank takes a one time deposit and pays you a very attractive interest rate, which will continue to increase as years pass by;
The second bank pays a decent interest rate but also asks you to increase your yearly deposits at a fixed rate, which will also bear a decent interest rate; and
The third banks pays you a very poor interest rate and also asks you to increase your deposits at a high rate, which in turn yield the same poor interest rate.

It is difficult to imagine a depositor choosing any other sequence than the one mentioned above if asked to rank his preferences. However, while investing in companies, the very same depositor fumbles quite often. He ends up investing in firms that exhibit the characteristics of deposit schemes similar to options b) and c) listed above.