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26 Market Wisdoms from Warren Buffett

on September 9 | in Market Wisdom | by

1. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.

2. Chains of habit are too light to be felt until they are too heavy to be broken.

3. Risk comes from not knowing what you’re doing.

4. Only when the tide goes out do you discover who’s been swimming naked.

5. If past history was all there was to the game, the richest people would be librarians.

6. 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.

7. It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price

8. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful

9. Time is the friend of the wonderful business, the enemy of the mediocre.

10. 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!

11. 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.

12. 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.

13. I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

14. If I ever write a book, it will be titled  ’why smart people do stupid things’. My partner says it should be autobiographical. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense. I don’t care what the odds are for you to succeed.

15. You only have to get rich once. That seems pretty fundamental.

16. History does not tell you the probability of future financial events happening.  The beta of the stocks doesn’t tell you about the risk of the stock.

17. I like businesses I can understand. It is not an easy business for competitors to enter. I look for a competitive advantage – cost, brand, share of mind is priceless (better than market share). How much could anyone hurt them if they had a billion or 10 billion dollars. If they can’t make a dent, I am in.

18. I want to know What a business will look like 10 years from now. If I can’t see them where they will be 10 years from now, I don’t buy them. We are buying a piece of a business. You will do well if the business does well if you didn’t pay too high of a price.

19. We don’t have huge returns, but we don’t lose our money either (they are already rich. They are not going to take the risk and go after outsize returns. They don’t expect to get high returns from business that won’t change for 10 years)

20. The best buys have been when the number almost tell you not to. Then you feel so strongly about the product. Almost every business we bought is takes 5 or 10 minutes in terms of analysis. If you don’t know enough to understand the business instantly, a couple months of analysis won’t change that too much.

21. People are going to get out of bed and work productively around the world to meet the needs of their family. People are going to spend and there will always be some companies that will sell something that people would love to trade their money against.

22. Coke Cola IPO-ed in 1919 for $40. A year later, it was $19. You can always find a few reasons why that was not a good time to buy it, but if you bought 1 share at $40 and re-invested the dividends, you would have $5 million today. This factor overrides everything – all macro concerns you could have. There is never a perfect time to buy a great business; there are always reason to worry, but you should also know when it is wise to worry at all. For things that are unimportant or unknown, you should not worry. If you are right about the business, you will make a lot of money over time.

23. My biggest mistakes have been buying an attractive security in an unattractive business, where I liked the terms, but didn’t like the business.

24. We don’t spend any time looking back at Berkshire. There’s so much to look forward to that it just doesn’t make sense to look behind. You can only live life forward. You can learn something from the mistakes (preferable other people’s mistakes), but the big thing to do is to stick with the businesses you understand. You want your decision making to be by looking in the mirror – stay in your circle of competence. You should be able to explain why you are buying a stock: “I am buying 100 shares of XXX, because….it is your responsibility to know. There is got to be a reason you buy a business. There is got to be a reason you buy a stock.

25. I don’t think about the macro stuff. Figure out what’s important and knowable. We’ve never bought or not bought a business because of interest rates or any macro projections.

26. If you are on Wall street, you might get overstimulated. All you need is one good idea a year and then ride it. It is very hard to ride one idea when you get so much new information every day.

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