28 February 2016
17 Of Warren Buffett’s Best Quotes Analyzed
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”
Warren Buffett gives consistent advice. The three quotes above show what he is looking for is Businesses that are suitable for long-term holding.
These 3 quotes also address the psychological makeup one needed for successful investing. You must be happy holding for periods of 5 to 10 years or longer.
The implications for your portfolio are clear. You should look for high quality businesses to hold for long periods of time.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Five to ten years isn’t ideal. It is the starting point.
This quote shows that Warren Buffett is looking for businesses that will be around far into the future.
There are very few businesses that have competitive advantages so sustainable that they can grow profitably for over 100 years.
A few that have accomplished this are:
•Coca-Cola (KO) – a Warren Buffett holding
•Johnson & Johnson (JNJ) – a Warren Buffett holding
“Time is the friend of the wonderful company, the enemy of the mediocre.”
High quality businesses continue growing through time. This compounds your wealth in the business over many years.
Mediocre businesses without a sustainable competitive advantage will fall prey to the competitive forces of capitalism. They wither and die over time.
“Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1”
At first glance, this quote seems rather obvious. By preventing losses, your investments are protected on the downside and only have room to increase in value.
By focusing on not losing money, you will forgo risky investments to focus on only your highest conviction investments.
“I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.”
The long term investor cannot focus only on the management of a business today.
Companies with truly sustainable competitive advantages will have ‘idiot proof’ business models that can withstand the impact of a poor CEO and continue to grow.
“Be fearful when others are greedy and greedy only when others are fearful.”
This quote is about taking advantage of human psychology. We tend to overreact to bad news and unnecessarily discount the price of a high quality stock due to short term under performance or a steep (and temporary) market decline.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
In this quote Warren Buffett makes the claim that deep value stocks are not as good an investment as high quality businesses trading at fair prices.
Deeply undervalued mediocre business can reward you only when it returns to fair value.
A fairly valued wonderful company will provide returns year after year and decade after decade as it pays growing dividends and reinvests additional profits back into the business to fund future growth.
“The most important thing to do if you find yourself in a hole is to stop digging.”
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
If one of your investments begins to lose its competitive advantage, do NOT hold on in hopes that it will somehow improve.
Instead, cut your losses and move on.
The boat analogy quote says the same. Don’t waste your time on investments that have not worked out. Instead devote your energy to finding a better investment opportunity.
“There seems to be some perverse human characteristic that likes to make easy things difficult. ”
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
Investing in high quality businesses does not have to be overly difficult.
We are all familiar with several companies that have long-term competitive advantages (who hasn’t had a Coca-Cola?).
Fight the urge to make things more difficult for yourself in hopes of ‘outsmarting the market’. Don’t take unnecessary risks on businesses you don’t understand. There are more than enough simple to understand businesses available.
“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.”
Warren Buffett is an opportunist. You can generate decent returns from investing in high quality businesses at fair prices.
Even better returns come to investors who identify high quality businesses in temporary trouble.
Short term trouble can result in depressed stock prices which allow you to add positions to your portfolio at a fraction of their intrinsic value.
An example of this type of investment is Warren Buffett’s purchase of American Express in 1964. American Express stock had become extremely depressed due to a scandal.
The company had written warehouse receipts verifying the legitimacy of Anthony “Tino” DeAngelis’ barrels of vegetable oil. Tino used these receipts to obtain loans using the vegetable oil as collateral.
The only problem was much of the ‘vegetable oil’ was nothing more than water…
When the scandal was discovered, American Express ended up owing millions. The company’s stock collapsed due to the scandal.
That is when Warren Buffett began purchasing the stock. When businesses show signs of distress diligent investors can get in at bargain prices.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Wait to buy your socks when they are on sale. Do not pay full price for high quality businesses. Wait until the price falls due to market fluctuations or a short term upheaval in business fortunes.
“I am a better investor because I am a businessman, and a better businessman because I am no investor.”
It is important to draw the distinction between purchasing a stock and purchasing fractional shares of a business.
A businessman sees his stock ownership as a fractional share of a company’s business.
A regular speculator in the stock market sees his shares as lottery tickets that go up and down based on the whims of the market.
Being a business man, Warren Buffett analyzes the fundamental value of a business and its competitive position in the market.
As an investor one analyzes the sentiment surrounding a stock.
If sentiment is negative while the long-term prospects of the business are favorable due to a strong competitive advantage, an investment is prudent.
Alternatively, when sentiment is overwhelmingly positive and the businesses’ future looks doubtful due to dissolving competitive advantage, exiting a position is in order.
“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.”
Eventually, all businesses fail as the competitive landscape changes. Some businesses have significantly longer life spans than others due to the nature of their products.
Wrigley gum is an example of a business in a slow changing industry. Consumer taste for gum may change, but the gum industry is unlikely to experience a radical shift other than changing flavors and ingredients.
Compare this to the technology industry, which is in a continual state of innovation and upheaval.
Closing Thoughts
Buffett is able to distill complex financial topics into easy to understand sound bites that do it yourself investors can learn a great deal from. Combining the bulk of Warren Buffett’s quotes reveals his straightforward strategy:
Buy high quality businesses with a strong competitive advantage below their fair value and hold them until they lose their competitive advantage (which is hopefully never).
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”
Warren Buffett gives consistent advice. The three quotes above show what he is looking for is Businesses that are suitable for long-term holding.
These 3 quotes also address the psychological makeup one needed for successful investing. You must be happy holding for periods of 5 to 10 years or longer.
The implications for your portfolio are clear. You should look for high quality businesses to hold for long periods of time.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
Five to ten years isn’t ideal. It is the starting point.
This quote shows that Warren Buffett is looking for businesses that will be around far into the future.
There are very few businesses that have competitive advantages so sustainable that they can grow profitably for over 100 years.
A few that have accomplished this are:
•Coca-Cola (KO) – a Warren Buffett holding
•Johnson & Johnson (JNJ) – a Warren Buffett holding
“Time is the friend of the wonderful company, the enemy of the mediocre.”
High quality businesses continue growing through time. This compounds your wealth in the business over many years.
Mediocre businesses without a sustainable competitive advantage will fall prey to the competitive forces of capitalism. They wither and die over time.
“Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1”
At first glance, this quote seems rather obvious. By preventing losses, your investments are protected on the downside and only have room to increase in value.
By focusing on not losing money, you will forgo risky investments to focus on only your highest conviction investments.
“I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.”
The long term investor cannot focus only on the management of a business today.
Companies with truly sustainable competitive advantages will have ‘idiot proof’ business models that can withstand the impact of a poor CEO and continue to grow.
“Be fearful when others are greedy and greedy only when others are fearful.”
This quote is about taking advantage of human psychology. We tend to overreact to bad news and unnecessarily discount the price of a high quality stock due to short term under performance or a steep (and temporary) market decline.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”
In this quote Warren Buffett makes the claim that deep value stocks are not as good an investment as high quality businesses trading at fair prices.
Deeply undervalued mediocre business can reward you only when it returns to fair value.
A fairly valued wonderful company will provide returns year after year and decade after decade as it pays growing dividends and reinvests additional profits back into the business to fund future growth.
“The most important thing to do if you find yourself in a hole is to stop digging.”
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
If one of your investments begins to lose its competitive advantage, do NOT hold on in hopes that it will somehow improve.
Instead, cut your losses and move on.
The boat analogy quote says the same. Don’t waste your time on investments that have not worked out. Instead devote your energy to finding a better investment opportunity.
“There seems to be some perverse human characteristic that likes to make easy things difficult. ”
“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
Investing in high quality businesses does not have to be overly difficult.
We are all familiar with several companies that have long-term competitive advantages (who hasn’t had a Coca-Cola?).
Fight the urge to make things more difficult for yourself in hopes of ‘outsmarting the market’. Don’t take unnecessary risks on businesses you don’t understand. There are more than enough simple to understand businesses available.
“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.”
Warren Buffett is an opportunist. You can generate decent returns from investing in high quality businesses at fair prices.
Even better returns come to investors who identify high quality businesses in temporary trouble.
Short term trouble can result in depressed stock prices which allow you to add positions to your portfolio at a fraction of their intrinsic value.
An example of this type of investment is Warren Buffett’s purchase of American Express in 1964. American Express stock had become extremely depressed due to a scandal.
The company had written warehouse receipts verifying the legitimacy of Anthony “Tino” DeAngelis’ barrels of vegetable oil. Tino used these receipts to obtain loans using the vegetable oil as collateral.
The only problem was much of the ‘vegetable oil’ was nothing more than water…
When the scandal was discovered, American Express ended up owing millions. The company’s stock collapsed due to the scandal.
That is when Warren Buffett began purchasing the stock. When businesses show signs of distress diligent investors can get in at bargain prices.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Wait to buy your socks when they are on sale. Do not pay full price for high quality businesses. Wait until the price falls due to market fluctuations or a short term upheaval in business fortunes.
“I am a better investor because I am a businessman, and a better businessman because I am no investor.”
It is important to draw the distinction between purchasing a stock and purchasing fractional shares of a business.
A businessman sees his stock ownership as a fractional share of a company’s business.
A regular speculator in the stock market sees his shares as lottery tickets that go up and down based on the whims of the market.
Being a business man, Warren Buffett analyzes the fundamental value of a business and its competitive position in the market.
As an investor one analyzes the sentiment surrounding a stock.
If sentiment is negative while the long-term prospects of the business are favorable due to a strong competitive advantage, an investment is prudent.
Alternatively, when sentiment is overwhelmingly positive and the businesses’ future looks doubtful due to dissolving competitive advantage, exiting a position is in order.
“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.”
Eventually, all businesses fail as the competitive landscape changes. Some businesses have significantly longer life spans than others due to the nature of their products.
Wrigley gum is an example of a business in a slow changing industry. Consumer taste for gum may change, but the gum industry is unlikely to experience a radical shift other than changing flavors and ingredients.
Compare this to the technology industry, which is in a continual state of innovation and upheaval.
Closing Thoughts
Buffett is able to distill complex financial topics into easy to understand sound bites that do it yourself investors can learn a great deal from. Combining the bulk of Warren Buffett’s quotes reveals his straightforward strategy:
Buy high quality businesses with a strong competitive advantage below their fair value and hold them until they lose their competitive advantage (which is hopefully never).
Labels: Investment Quote
