Warren Buffett may be the best investor in the past 100 years. Besides making great investments, he’s been very generous to share his wisdom over the years. Many of Mr. Buffett’s quotes are able to summarize complex ideas about investing into one or two colorful sentences. Here are some of our favorites:
Investing versus trading
“Buy into a company because you want to own it, not because you want the stock to go up.”
“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.”
Many people think that good investing means finding a hot new idea and buying in before everyone else does. Afterwards, presumably, one could sell that investment at a profit and look for the next hot stock. Buffett disagrees. He focuses on the quality of the underlying business rather than trends and the perceptions of other investors. This is an important distinction between trading and investing.
Finding investment value
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Buffett is a master at identifying good investments at bargain prices. He does not trade in an attempt to follow market trends. Instead, he looks for opportunities that begin a market trend.
“The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.”
“Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.”
More trading doesn’t mean better investing. It’s better to pick a few excellent investments rather than many good investments. Buffett doesn’t look for his investments to get hyped up so he can sell at a profit. He’d rather find good businesses which generate strong returns regardless of any temporary trends in the market.
Importance of the long-term
“Someone’s sitting in the shade today because someone planted a tree a long time ago”
“You can’t produce a baby in one month by getting nine women pregnant.”
Some companies only look a few months ahead. They may sacrifice financial stability, brand value, or other important factors to achieve temporary profits or a temporary move in their stock price. Stronger businesses have long-term plans and vision.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
“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.”
Markets rise and fall, but strong businesses endure. Just because the economy suffers in the short-term doesn’t mean it’s time to abandon good long-term investments. Good investors profit from economic recovery.
“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
“I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.”
It’s important to research the management of a company in addition to its business prospects. CEOs are human, just like everyone else, and may have important strengths or weaknesses.
Gold as an investment
“It doesn’t do anything but sit there and look at you.”
“You could take all the gold that’s ever been mined, and it would fill a cube 67 feet in each direction. For what it’s worth at current gold prices, you could buy — not some — all of the farmland in the United States. Plus, you could buy 10 ExxonMobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?”
Buffett doesn’t like investing in gold because it doesn’t produce anything. One argument to buy gold is for hedging against inflation. In our view, Stocks provide protection against inflation.