Master the basics.
"To invest successfully, you need not understand beta, efficient
markets, modern portfolio theory, option pricing or emerging markets.
You may, in fact, be better off knowing nothing of these. That, of
course, is not the prevailing view at most business schools, whose
finance curriculum tends to be dominated by such subjects. In our
view, though, investment students need only two well-taught courses -
How to Value a Business, and How to Think About Market Prices."
Source: Chairman's Letter, 1996
The best time to buy a company is when it's in trouble.
"The best thing that happens to us is when a great company gets into
temporary trouble...We want to buy them when they're on the operating
table."
Source: Businessweek, 1999
Don't buy a stock just because everyone hates it.
"None of this means, however, that a business or stock is an
intelligent purchase simply because it is unpopular; a contrarian
approach is just as foolish as a follow-the-crowd strategy. What's
required is thinking rather than polling. Unfortunately, Bertrand
Russell's observation about life in general applies with unusual force
in the financial world: "Most men would rather die than think. Many
do."
Source: Chairman's Letter, 1990
Stocks have always come out of crises.
"Over the long term, the stock market news will be good. In the 20th
century, the United States endured two world wars and other traumatic
and expensive military conflicts; the Depression; a dozen or so
recessions and financial panics; oil shocks; a flu epidemic; and the
resignation of a disgraced president. Yet the Dow rose from 66 to
11,497."
Source: The New York Times, October 16, 2008
Don't be fooled by that Cinderella feeling you get from great returns
"The line separating investment and speculation, which is never bright
and clear, becomes blurred still further when most market participants
have recently enjoyed triumphs. Nothing sedates rationality like large
doses of effortless money. After a heady experience of that kind,
normally sensible people drift into behavior akin to that of
Cinderella at the ball. They know that overstaying the festivities ¾
that is, continuing to speculate in companies that have gigantic
valuations relative to the cash they are likely to generate in the
future ¾ will eventually bring on pumpkins and mice. But they
nevertheless hate to miss a single minute of what is one helluva
party. Therefore, the giddy participants all plan to leave just
seconds before midnight. There's a problem, though: They are dancing
in a room in which the clocks have no hands."
Source: Letter to shareholders, 2000
You don't have to be a genius to invest well.
"You don't need to be a rocket scientist. Investing is not a game
where the guy with the 160 IQ beats the guy with 130 IQ."
Source: Warren Buffet Speaks, via msnbc.msn
Always be liquid.
"I have pledged – to you, the rating agencies and myself – to always
run Berkshire with more than ample cash. We never want to count on the
kindness of strangers in order to meet tomorrow's obligations. When
forced to choose, I will not trade even a night's sleep for the chance
of extra profits."
Source: Letter to shareholders, 2008
Think long-term.
"Your goal as an investor should simply be to purchase, at a rational
price, a part interest in an easily-understandable business whose
earnings are virtually certain to be materially higher five, ten and
twenty years from now. Over time, you will find only a few companies
that meet these standards - so when you see one that qualifies, you
should buy a meaningful amount of stock. You must also resist the
temptation to stray from your guidelines: If you aren't willing to own
a stock for ten years, don't even think about owning it for ten
minutes. Put together a portfolio of companies whose aggregate
earnings march upward over the years, and so also will the portfolio's
market value."
Source: Chairman's Letter, 1996
Forever is a good holding period.
"When we own portions of outstanding businesses with outstanding
managements, our favorite holding period is forever."
Source: Letter to shareholders, 1988
Buy business that can be run by idiots.
"I try to buy stock in businesses that are so wonderful that an idiot
can run them. Because sooner or later, one will."
Source: Business Insider
Be greedy when others are fearful.
"Investors should remember that excitement and expenses are their
enemies. And if they insist on trying to time their participation in
equities, they should try to be fearful when others are greedy and
greedy only when others are fearful."
Source: Letter to shareholders, 2004
Buying a stock is about more than just the price.
"It's far better to buy a wonderful company at a fair price than a
fair company at a wonderful price."
Source: Letter to shareholders, 1989
You don't have to move at every opportunity.
"The stock market is a no-called-strike game. You don't have to swing
at everything--you can wait for your pitch. The problem when you're a
money manager is that your fans keep yelling, 'Swing, you bum!'"
Source: The Tao of Warren Buffett via Engineeringnews.com
Ignore politics and macroeconomics when picking stocks.
"We will continue to ignore political and economic forecasts, which
are an expensive distraction for many investors and businessmen.
Thirty years ago, no one could have foreseen the huge expansion of the
Vietnam War, wage and price controls, two oil shocks, the resignation
of a president, the dissolution of the Soviet Union, a one-day drop in
the Dow of 508 points, or treasury bill yields fluctuating between
2.8% and 17.4%.
"But, surprise - none of these blockbuster events made the slightest
dent in Ben Graham's investment principles. Nor did they render
unsound the negotiated purchases of fine businesses at sensible
prices. Imagine the cost to us, then, if we had let a fear of unknowns
cause us to defer or alter the deployment of capital. Indeed, we have
usually made our best purchases when apprehensions about some macro
event were at a peak. Fear is the foe of the faddist, but the friend
of the fundamentalist.
Source: Chairman's Letter, 1994
The more you trade, the more you underperform.
Public domain
"Long ago, Sir Isaac Newton gave us three laws of motion, which were
the work of genius. But Sir Isaac's talents didn't extend to
investing: He lost a bundle in the South Sea Bubble, explaining later,
"I can calculate the movement of the stars, but not the madness of
men." If he had not been traumatized by this loss, Sir Isaac might
well have gone on to discover the Fourth Law of Motion: For investors
as a whole, returns decrease as motion increases."
Source: Letters to shareholders, 2005
Price and value are not the same
"Long ago, Ben Graham taught me that 'Price is what you pay; value is
what you get.' Whether we're talking about socks or stocks, I like
buying quality merchandise when it is marked down."
Source: Letter to shareholders, 2008
Bad things aren't obvious when times are good.
"After all, you only find out who is swimming naked when the tide goes out."
Source: Letter to shareholders, 2001
There are no bonus points for complicated investments.
"Our investments continue to be few in number and simple in concept:
The truly big investment idea can usually be explained in a short
paragraph. We like a business with enduring competitive advantages
that is run by able and owner-oriented people. When these attributes
exist, and when we can make purchases at sensible prices, it is hard
to go wrong (a challenge we periodically manage to overcome).
"Investors should remember that their scorecard is not computed using
Olympic-diving methods: Degree-of-difficulty doesn't count. If you are
right about a business whole value is largely dependent on a single
key factor that is both easy to understand and enduring, the payoff is
the same as if you had correctly analyzed an investment alternative
characterized by many constantly shifting and complex variables."
Source: Chairman's Letter, 1994
A good businessperson makes a good investor.
"I am a better investor because I am a businessman, and a better
businessman because I am no investor."
Source: Forbes.com - Thoughts On The Business Life
Higher taxes aren't a dealbreaker.
"SUPPOSE that an investor you admire and trust comes to you with an
investment idea. "This is a good one," he says enthusiastically. "I'm
in it, and I think you should be, too."
Would your reply possibly be this? "Well, it all depends on what my
tax rate will be on the gain you're saying we're going to make. If the
taxes are too high, I would rather leave the money in my savings
account, earning a quarter of 1 percent." Only in Grover Norquist's
imagination does such a response exist."
Source: New York Times
Companies that don't change can be great investments.
"Our approach is very much profiting from lack of change rather than
from change. With Wrigley chewing gum, it's the lack of change that
appeals to me. I don't think it is going to be hurt by the Internet.
That's the kind of business I like."
Source: Businessweek, 1999
This is the most important thing.
"Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1"
Source: The Tao of Warren Buffett
Time will tell.
"Time is the friend of the wonderful business, the enemy of the mediocre."
Source: Letters to shareholders 1989
BONUS: On Wall Street advice
.businessinsider.com
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