Warren Buffett Quotes

The following quotes have been attributed to Warren Buffett, arguably the world’s greatest investor. Click a quote to learn more:

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

The only time you can buy a wonderful company at a truly attractive price is when others do not agree with you. That is, in order for you to buy a great company at a discount to its true value, Wall Street has to overlook the company or otherwise think that it is fairly or over priced.

Any time you buy stock in a company, you should be confident in and comfortable with your decision to do so. To be confident and comfortable, you have to have a reasonably expectation that your stock will grow. If you have a rational basis for buying a stock, you do not need to worry what the institutional gamblers are doing with their billions of dollars.

Remember: Companies grow regardless of the movement in their stock price and stock price always follows the value of a company. If you buy stock in a company that grows, and you buy your stock on sale, your stock price will follow and your investment will grow. To get your stock on sale, you have to wait until Wall Street disagrees with you.

“When Berkshire [Hathaway] buys common stock, we approach the transaction as if we were buying into a private business.”

Warren Buffett buys stock through his insurance holding company, Berkshire Hathaway. When doing so, Buffett looks at stocks the same way he would look at acquiring a private business.

When buying a private business, you are buying the net worth of that business and you are acquiring the right to your share of any future cash that the business can generate—above and beyond any expenses that it has to pay. Finding the net worth is easy. If you can reasonably project the future cash that the business can generate, you can derive a value for the company—a price above which you should not pay.

Of course, there is no way to accurately predict the future. Because of that, you should add in a Margin Of Safety to protect you from the potential obstacles your company may not be able to overcome.

When you buy stock, you are essentially becoming a silent partner in that company. A partner because you are an owner; silent because you do not have any say over the day-to-day operations of the business. In that light, what good are earnings or revenue if they do not translate into cash? How will your company grow or pay dividends to the silent partners if it has no cash to do so?

If you were a silent partner in a friend’s company, all the revenues and earnings in the world would do nothing for you if they could not be converted into cash and paid out to you (or used to increase the company’s net worth and, hence, your share of the higher net worth). The same is true in stocks.

Remember: The stock market is a place to buy and sell businesses. Treat it as such.

“Wide diversification is only required when investors do not understand what they are doing.”

If you do not understand how to invest in businesses—whether through publicly traded stocks or privately—you should consider owning a wide array of investments to protect yourself from, well, yourself. The more investments you hold, the less overall losses you’ll suffer when one goes bad. Conversely, the more investments you hold, the less you’ll earn when one grows rapidly.

On the other hand, if you understand how businesses grow, you do not need to hold hundreds of investments (as you do through a mutual fund). Instead, you can concentrate your money in a few wonderful companies and benefit greatly when they grow rapidly.

“…knowing what [you] are doing” does not imply that you should know how to quickly buy and sell stocks for short-term profits or that you should be market-savvy. If you understand how businesses grow, how to value a business, and how to monitor its financial health, you will know what you are doing.

Then, you simply have to sit back, let your wonderful businesses grow, and profit from owning a few wonderful companies instead of hundreds of mediocre ones.

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

When you buy stocks, you are buying a company. To buy properly and profit greatly, you have to understand how businesses grow and how much to pay for your company. But that is only half of the puzzle.

The other half is knowing that the stock price has nothing to do with the value of a business and that the stock price, on a short-term basis of weeks and months, is controlled entirely by the large institutional gamblers trying to make a fast buck.

In the long-run, stock prices follow the value of the company. If the company is growing, the price follows it. In the short-term, the gamblers can do anything to push a stock price up and down.

Why, then, should you not be concerned if your stock price drops 50%? If you know the value of the company, then you’ll know that the price will have to follow value. If you own a wonderful company, let the gamblers do what they will. Eventually, they will get caught with their hand in the cookie jar, your company’s price will rise with its value, and you’ll profit.

Why does the price have to follow value? Simple. If the value gets too high and the price becomes too low, the company will buy back shares or smart business investors will acquire the company. In any event, the price will then come up accordingly and you will profit. Stock prices move entirely on supply and demand. There is a great demand for deeply discounted, wonderful businesses. The supply is short. A wonderful company can only stay cheap for so long.

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”

The value of a company is that company’s net worth and all of the future cash that it can generate. The intrinsic value of a company is the net worth, the future cash, and the company’s status, or lack of status, as an industry leader.

Even if net worth and future cash is the same, industry leaders have a higher intrinsic value because of their status as an industry leader. Everyone knows Coca-Cola and Coca-Cola has an easier time getting contracts and sales than does Bob’s Beverage, Bait, & Tackle.

The logic is simple—know the value of the company before you invest. How can you possibly expect your money to grow if you have no idea whether or not you are paying too much today?

No matter what hype a company receives, no matter how great the stock tip, you should always know the value of a company before you consider investing your money.

“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”

Forget the stock market, interest rates, elections, and other nonsense that gamblers follow. A wonderful company can thrive regardless of the stock market, interest rates, or who is in the Oval Office.

When you buy stocks, you should only invest in the companies that will grow regardless of the gamblers’ predictions or sentiments. Most business owners do not care about interest rates, the stock market, or the Presidential election—they care about generating enough cash to survive and grow their business.

Invest like a business owner. After all, when you buy stocks, that is exactly what you are.

“Be fearful when others are greedy and greedy only when others are fearful.”

You do not make money by following the crowd. When everyone else is hyped-up, buying everything they can regardless of value, you should be highly cautious and not fall into the hype.

When reality comes crashing down, the crowd loses money, and stock prices are well below the companies’ values, you should scoop up as much value as you can at a deep discount.

When you buy stocks, you should have a cold, rational reason for doing so. Getting caught up in the hype may allow you to make some short-term money, but it is a recipe for long-term disaster.

Don’t follow the crowd—buy when the crowd is scared, let them follow you in, and profit from their mistakes.

“As far as you are concerned, the stock market does not exist. Ignore it.”

Stock prices and the markets move up and down for two reasons: Supply and demand, and the fact that there is a limited number of shares available for trading. When people want to buy stock, a market maker has to match the “buy” orders with “sell” orders. If there are too many buy orders, the market maker will keep increasing the price to entice others to sell—ultimately allowing the market maker to match the orders.

Conversely, when more people want to sell than buy, the market maker continues to drop the price until others begin buying at the lower price. If nobody wanted to buy or sell, the stock’s price would not move.

This longwinded discussion all leads to one point: This means nothing to long-term investors. Stock prices move because orders are placed and filled. When you buy a wonderful company at a discount to its true value, you can learn to ignore the daily order routing of the markets and focus on the value of your business.

If your company is growing, the stock price will move up over the years because investors will pay a higher and higher price for the greater value. Still, that is over the course of a few years. On a day-to-day basis, gamblers will gamble and market makers will make a market for your stock.

If you are comfortable with and confident in your valuation and your company, you have no need to watch what the gamblers are doing.

“An investor should act as though he had a lifetime decision card with just twenty punches on it.”

Many people believe that investing in stocks requires constant buying and selling—resulting in dozens or hundreds of trades a year. Though you can gamble in the markets in such a way, you do not have to.

If you understand how businesses grow and how to value a business, then you only need to find two or three wonderful opportunities every few years.

If you acted as though your entire financial future depended on your ability to find twenty great investments throughout your lifetime, you would likely be much more cautious in your approach to buying stocks.

“Do not take yearly results too seriously. Instead, focus on four- or five-year averages.”

Though business tends to be very fast-paced on a day-to-day basis, time actually moves very slow in business growth. Plans set in motion today may take years before the benefit (or harm) begins to show.

One need not look further than advertising. To run a successful advertising campaign, a business has to hit its target audience three times a day, seven days a week, for at least six months. Only then will that company’s name and product begin to become truly ingrained in the buyer’s head. The longer the campaign, the more people it will reach and the deeper it will become ingrained. It can take two or three years before an advertising campaign can finally show its true potential. During that time, the business is losing money—at least initially, and the break-even thereafter.

Think of it another way—your friend starts a business. After a year, she is upset because she is not making $1 million yet. What do you tell her? “Be patient. It takes time.” And after four- or five-years, if she is not making it in business, you would likely tell her (or at least think), “Maybe it is time to look at something else.”

To truly understand this, you would have to run a business for a few years. Every business owner knows that anything can happen over the course of a year. Sales could be explosive—or dead. Mistakes can be made and overcome. No rational business owner or manager would run for the hills because of one bad or mediocre year.

“Growth and value investing are joined at the hip.”

Wall Street constantly tries to separate growth investing and value investing. According to Wall Street, growth investments grow rapidly and widly, value investments grow slowly and steadily. In reality, it is impossible to separate growth from value.

When you buy a stock, you are buying the value of the company. When you overpay for that value, you often end up with little or no growth, or a loss. When you buy that value at a discount, you end up with tremendous growth assuming your company continues to grow. As such, value can not be separated from growth.

On the flip side, you can not get long-term growth if the value of a company does not grow. Though in the short-term the gamblers push stock prices up and down wildly, price follows value in the long-term. You will not get sustained growth in a stock price over the long-term if the value does not grow accordingly.

Why would you ever buy value if you could not get growth? Why would you think something’s price would grow if its value continued to drop?

“Buy a business, don’t rent stocks.”

There are two ways to invest in stocks: Own quality businesses for the long-term or gamble in stocks in the short-term. The latter is more exciting—but exciting doesn’t pay the bills in retirement.

Rather than buying stocks and hoping to make money every day, week, month, or year, you should buy stocks as if you were buying an entire business. After all, when you own stock, you own a piece of a business.

If you bought a business, would you panic if your phone started ringing off the hook as gamblers called offering to buy your business for less than you had paid? Would you fire-sale your business because the Oval Office was changing parties?

When you buy stocks, you should act as though you were buying the entire company. Rather than analyzing news like a stock gambler, you should look at your company as if you were sitting behind the manager’s desk.

No rational business owner or manager would run for the hills at the first sign of a potential problem that may or may not materialize.

Be a business owner—not a gambler.

Submit Article :- BlinkList + Blogmarks + Digg + Del.icio.us + Ekstreme Socializer + Feedmarker + Furl + Google Bookmarks + ma.gnolia + Netvouz + RawSugar + Reddit + Scuttle + Shadows + Simpy + Spurl + Technorati + Unalog + Wink

Posted in: Investment Pick

This entry was posted on Tuesday, November 6th, 2007 at 4:33 pm and is filed under Investment Pick. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Leave a Reply