Live by Two Rules, Says Warren Buffett

Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.
— Warren Buffett

This is one of investor Warren Buffett's most famous dictums and also one of my favorites. I first read it when I was just starting to learn about investing and, to be honest, I didn’t quite understand it.

After all, how can you ever be sure an investment won't go wrong?

What I've since learned is that Buffett is actually referring to the proper investor's mindset. Don't gamble. Don't have a cavalier attitude. Be sensible, be informed, and make decisions that in all probability will pay off in your favor.

It's also called protecting yourself from downside risk, which is the risk that your investment will go bad. Buffett's manner of "never losing money" is to choose proven companies, with enduring advantages or moats that protect them from competition. He also only buys when the price is lower than what he thinks his investments are worth.

Buffett's rules preclude betting on hopeful startups; he only invests in companies with a proven record. He is certainly no Cathie Wood, with her portfolios of future-focused companies that have yet to prove themselves in the market.

And "never lose money" is definitely not a rule followed by venture capitalists, who sink money into early-stage companies and often expect most will fail. They hope that one or two will be such successes that the losers won't matter.

Read more fabulous insights from Warren Buffett in Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor by Janet Lowe. For free, you can also read Buffett's annual letters to shareholders on Berkshire Hathaway's website.

And watch for the next My Daily Oracle Newsletter in your inbox or sign up at www.mydailyoracle.com.

Disclaimer: This newsletter is for informational purposes only and does not constitute financial advice. Please consult a qualified financial advisor before making any investment decisions. Links on this page may be affiliate links, meaning your purchases help support this newsletter. Quotes may be edited slightly for clarity. Images represent our best effort. Copyright © 2025 mydailyoracle.com. All rights reserved.