Wisdoms of Warren Buffett

On Principles of Sound Investment

I consider there to be three basic ideas, ideas that if they're really ground into your intellectual framework, I don't see how you could but do reasonably well in stocks. None of them are complicated. None of them take mathematical talent or anything of the sort. [Benjamin Graham] said:

1. You should look at stocks as small pieces of the business.
2. Look at fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.
3. He said the three most important words of investing are margin of safety.

I think those ideas, 100 years from now, will be regarded as the three cornerstones of sound investing.

(Buffett speech, N.Y. Society of Security Analysts, December 6 , 1994.)

On Inflation

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 income tax on her interest during a period of zero inflation or pays no income taxes during years of 5 percent inflation. Either way, she is "taxed" in a manner that leaves her no real income whatsoever. Any money spends comes right out of the capital. She would find outrageous a 120 income tax but doesn't seem to notice that 5 percent inflation is the economic equivalent.

(Warren E. Buffett, "How Inflation Swindles the Investor," Fortune, May 5, 1977, p. 250)

On Long Term View

I buy on the assumption that they could close the market the next day and not reopen it for five years.

(Omaha World Herald, July 31, 1983)

You could be somewhere where the mail was delayed three weeks and do just fine investing.

(Linda Coraut, "Striking Out at Wall Street," US News and World Report, June 20, 1994, p.58)

On Ups and Downs

In any business, there are going to be all kinds of factors that happen next week, next month, next year, and so forth. But the really important thing is to be in the right business. The classic case is Coca-Cola, which went public in 1919. They initially sold stock at $40 a share. The next year, it went down to $19. Sugar prices had changed pretty dramatically after World War I. So you would have lost half of your money one year later if you’d bought the stock when it first came public; but if you owned that share today – and had reinvested all of your dividends – it would be worth about $1.8 million. We have had depressions. We have had wars. Sugar prices have gone up and down. A million things have happened. How much more fruitful is it for us to think about whether the product is likely to sustain itself and its economics than to try to be questioning whether to jump in or out of the stock?

(Berkshire Hathaway Annual Meeting, Omaha, 1992)

On Popularity

In the short run the market is a voting machine; in the long run, it's a weighing machine.

(Forbes, November 1, 1974)

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.

(Ann Hughey, Omaha's Plain Dealer, Newsweek, April 1, 1985, p. 56)

On Gambling

People would rather be promised a (presumably) winning lottery ticket next week than an opportunity to get rich slowly.

(Janet Lowe, "Warren Buffett Speaks," John WIleys & Sons, 1998, p.107)

On Handicapping

"There are a lot of similarities between handicapping and investing. There are speed handicappers and class handicappers. The speed handicapper says you try and figure out how fast the horse can run. A class handicapper says a $10,000 horse will beat a $6,000 horse. Ben Graham said, 'Buy any stock cheap enough and it will work.' That was the speed handicapper. And other people said, 'Buy the best company, and it will work.' That's class handicapping."

(L. J. Davis, "Buffett Takes Stock," N.Y. Times magazine, April, 1990)

On Companies to Own

Wonderful castles, surrounded by deep, dangerous moats where the leader inside is an honest and decent person. Preferably, the castle gets its strength from the genius inside; the moat is permanent and acts as a powerful deterrent to those considering an attack; and inside, the leader makes gold but doesn't keep it all for himself. We like great companies with dominant positions, whose franchise is hard to duplicate and has tremendous staying power.

(Berkshire Hathaway Annual Meeting, Omaha, May 1, 1995)

On Price Action

For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.

(L. J. Davis, "Buffett Talks Stocks," The N.Y. Times Magazine, April 1, 1990, p.16)

On Habits

The chains of habit are too light to be felt until they are too heavy to be broken. At my age, I can't change any of my habits. I'm stuck. But you will have the habits 20 years from now that you decide to put into practice today. So I suggest that you look at the behavior that you admire in others and make those your own habits, and look at what you really find reprehensible in others and decide that those are things you are not going to do. If you do that, you'll find that you convert all of your horsepower into output.

(Fortune, July 20, 1998)

On Advantage in Business

I would say that a lot of things in business, including technology, really have the same effect as if you went to a parade and the band started coming down the street and all of a sudden you stood up on tiptoe. In another 30 seconds everybody else is on tiptoe, and it would be hell on your legs and you still wouldn’t be seeing any better. Capitalism tends to be self-neutralizing like that in terms of improvements. That’s marvelous because it means we have better everything than otherwise. But the real trick is to stand up on tiptoe and not have anyone notice you.

(Fortune, July 20, 1998)

On Loving Your Job

My guess is that if Ted Williams was getting the highest salary in baseball and he was hitting .220, he would be unhappy. And if he was getting the lowest salary in baseball and batting .400, he'd be very happy. That's the way I feel about doing this job. Money is a by-product of doing something I like doing extremely well.

(Berkshire Hathaway Annual Meeting, Omaha, 1998)