Warren Buffet, the business magnate and investor, has pretty much been my inspiration ever since I started exploring the world of equity. His ideologies, investment discipline and techniques have guided me immensely. Since 1977 on every annual meeting of Berkshire Hathaway, he releases a letter to his shareholders and having read a couple of them, I got a whole new perspective on wealth creation and the equity market. Here are a few of his quotes and also a few takeaways from the letters, that I found compelling.
“Equity is business ownership, not stock ownership”
- This is what separates a speculator from an investor
- Focus on the underlying business instead of playing the market
“Focus on per share results”
A company that grows earnings in aggregate but reduces them through dilution on a per share basis proves the axiom “A rising tide sinks all boats”
“If a business does well, the stock eventually follows.”
This quote seems to come right out of the Benjamin Graham playbook. Graham famously said of the stock market, “In the short run, the stock market is a voting machine. In the long-run, it is a weighing machine.”
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
- “You don’t have to be an expert to achieve satisfactory investment returns. However you must recognize your limitations, keep things simple and don’t swing for the fences. Do not believe in or look for a good profit”
- “Focus on future productivity of assets you are considering”. If you can’t make a rough estimate of future earnings, move on.
- “With two small investments, I thought only of what the properties would produce and not their daily valuations.
- Games are won by players who focus on the playing field- not by those with their eyes glued to the scoreboard.
- If you can enjoy Saturdays Sundays without looking at stock prices give it a try on weekdays”
“Speculation is a Losing game”
- Do not speculate, and avoid focusing on the prospective price of an asset
“Half of all coin flippers will win their first toss, however none of these winners will expect profits if they continue to play the game”
It is important to know the difference between investing for the productivity of the asset v/s investing on the hope that the price of the asset changes
“Forming macro opinions or listening to macro or market predictions of others is a waste of time. Indeed, it is dangerous because it can blur your vision about facts which are truly important”
“I never attempt to make money on the stock market. I buy a stock on the assumption that they could close the market the next day and not reopen it for 5 years”
“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.”
“If investors frenetically bought and sold farmland to each other, neither yields not prices of the crops would increase. The resulting frictional costs can be huge and for investors in aggregate, devoid of any benefits”
“The investor of today does not profit from yesterday’s growth.”
Yes, Apple stock had a phenomenal decade. The stock price climbed over 6,000%. They introduced iTunes in 2003, the MacBook in 2006, the iPhone in 2007, and the iPad in 2010. That fueled a heck of a decade of growth. Apple could be a great ‘buy’ at today’s prices, but remember, it was the long-term shareholders who benefited from the stock’s great 2000-2010 run. Once you buy a company’s stock, you are betting on the success of the company to continue moving forward. Don’t let a company’s past glories cloud your judgment of its future.
Simple test for stock selection:
“When Charlie and I buy stocks- which we think of as small portions of business, our analysis is very similar to that which we use in buying entire businesses. We first see whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock if it sells at a reasonable price in relation to the bottom boundary of estimate. Otherwise we move on”
“If past history was all there was to the game, the richest people would be librarians.”
General Motors. Eastman Kodak. Sears-Roebuck. All of these companies were once considered blue-chips in the eyes of the American investor. In hindsight, it’s easy to see how companies rise and fall. It’s a lot harder to monitor a company’s competitive position as you’re living it. My best gauge of interpreting the health of a so-called blue-chip stock is by confirming that: on a three-to-five year basis, the earnings are growing. Over the same time frame, the dividend is growing. And I like to see that the payout ratio for dividends is less than 70% of earnings. If a company fails these tests, I’ll put my money elsewhere.
“Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
“A typical investor does not need the ability to forecast a business’ future earnings power. The goal of the non-professional should not be to pick winners but should rather be to own a cross section of businesses that in aggregate are bound to do well.”
“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.”
“During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York Real estate, even though a severe recession was brewing. And if I had owned a 100% solid business with good long term prospects, it would have been foolish of me to even consider dumping it. So why would I have sold my stocks that were my small participations in wonderful business?”
“What we do is not beyond anyone else’s competence. I feel the same way about managing that I do about investing: it is just not necessary to do extraordinary things to get extraordinary results.”
And here are my favorites-
“A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful”
“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 11497.”