As you probably know, Warren Buffett is the most renowned investor of our age. He developed his core principles on investing from Benjamin Graham who is largely accepted as the father of value investing.
So when you are looking for quotes or investing advice s is to Warren we turn. Here are our favorite Warren Buffett quotes on investing.
“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger the margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay; but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety…”
The margin of safety is all about reducing the risk of an investment. The bigger the discount you can get when buying a share of a company the less risk you has, because actually how far further could the stock price fall?
“Our favorite holding period is forever.”
Focusing on the long-term is what Warren preaches, this is another example to help people relax about their investments and focus on the long-term future.
“Never invest in a business you can’t understand”
”We blew it.” On not buying Alphabet (NASDAQ: GOOG); or Google, years ago –
“I’ve watched Amazon from the start. I think what Jeff Bezos has done is something close to a miracle . . . the problem is when I think something will be a miracle, I tend not to bet on it.”
Buffett only invests in simple businesses that have a competitive advantage, in industries that are not subject to massive change. Even though he freely admits to missing the boat on some high tech companies, he does not hold any regrets as you can see from the Amazon & Google quote.
“The Internet as a phenomenon is just huge. That much I understand. I just don’t know how to make money at it… I don’t try to profit from the Internet. But I do want to understand the damage it can do to an established business. 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.”
Here Buffett is explaining that for him, the speed of development and the unseen risks of industry disruption is something he cannot foresee, and that represents a risk he is unwilling to invest in.
“If a business does well, the stock eventually follows.”
Business’ that are making regular profits and controlling their costs in an industry they have an advantage in, eventually will be discovered by Wall Street analysts and the stock will rise accordingly.
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
Again referring to buying shares in a business regardless of what the market thinks and how the market values the stock.
“What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
Do not spread your focus too widely, evaluate what you know in an industry that you know and you will be able to uncover the gems that will make you money.
“Do not take yearly results too seriously. Instead, focus on four or five-year averages.”
“Focus on return on equity, not earnings per share.”
This refers to focusing on the value of a company, not the speed of their earning increases.
“What the wise do in the beginning, fools do in the end.”
The wise people here are people like Buffett who find great companies at low market valuations and buy them. The fools are the majority of investors who jump on the investing bandwagon too late when the share price is so high it is difficult to make a good profit. Towards the end of a stock market crash, everyone is selling their holdings (the fools) whereas the wise are buying.
[Related Post: 137 of the Very Best Warren Buffett Quotes]
“Nobody buys a farm based on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
“Lethargy bordering on sloth should remain the cornerstone of an investment style.”
Referring to day traders and swing traders, Buffett warns against frequent trading. Lethargy and sloth also mean to not be an active investor trading the markets every day, let the businesses you buy, work for you in the long-term.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
If you do find a great investment opportunity, grab it with both hands and enjoy the windfall, do not be overly cautious.
“Turnarounds seldom turn.”
The fact is, if a business is in a crisis and needs a turnaround then there is something wrong with the economics of the business, industry or market. This represents a risk Buffett is unlikely to take. Although in 2008 he did invest in banks going through the financial crisis, but he only did that with guaranteed returns on preference shares and debt, therefore reducing his risk significantly.
“Buy companies with strong histories of profitability and with a dominant business franchise.”
The common theme of competitive advantage and the ability to scale is the mantra here.
“Time is the friend of the wonderful company, the enemy of the mediocre.”
Mediocre companies will eventually lose out to fitter and stronger companies. The wonderful company with a competitive advantage and long-term profitability will win over time.
“In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”
The media and Wall Street are constantly promoting fashionable stocks, Buffett rebels against this popularity contest. The weighing machine refers to the fact that the market dominance and profitability of good companies will mean eventually they will be valued highly.
“Unless you can watch your stock holding decline by 50 percent without becoming panic-stricken, you should not be in the stock market.”
This refers to having the patience and belief in an investment throughout the inevitable dips and crashes in the stock market. Mr. Market is paranoid and emotional and the valuations it places on companies is rarely correct in the short-term.
“For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.”
Again the concepts of the price you pay to hold a stock. If you pay a high price for those earnings (price/earning ratio) it may cost you long-term.
“In the business world, the rear-view mirror is always clearer than the windshield.”
This commentary on business decision making essentially means that when you look back on your historical decisions it is easy to see your errors. Understanding all the ramifications of the decisions you are making now is much more difficult, do not get hung up on past decisions or peoples views of them
“I am a better investor; because I am a businessman, and a better businessman because I am an investor.”
Buffett is very proud of not just being an investor but also running and growing a huge business. Having business acumen and experience of running businesses is of great help for long-term investors.
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”
Buffett never went to business school, he has a simple yet powerful approach to business based on numbers and good ethical business decision making. Business schools he believes obstruct the simplicity of building and running a business.
“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
An excellent insight into the fact that many businesses begin to fail when the third generation of family owners take over. So a business that is so simple any idiot can run it is a maxim that reminds to of the risks.
“Pricing your products is an ongoing process that requires a good mix of math and market research. All business owners need to learn how to do it right”.
Finally, in this section, Buffett believes that the correct pricing of any product can be the deciding factor in the success of a business.