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1. Warren Buffett Quotations:
Price is what you pay. Value is what you get.
The basic ideas of investing are to look at stocks as businesses, use market fluctuations to your advantage, and seek a margin of safety. That's what Ben Graham taught us. A hundred years from now they will still be the cornerstone of investing.
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own the shares forever.
Be fearful when others are greedy, and be greedy when others are fearful.
The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
Charlie and I look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag.
An investor should act as though he had a lifetime decision card with just twenty punches on it. With every investment decision his card is punched, and he has one fewer available for the rest of his life.
Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.
We just focus on a few outstanding companies. We're focus investors.
At Berkshire we focus almost exclusively on the valuations of individual companies, looking only to a very limited extent at the valuation of the overall market. Even then, valuing the market has nothing to do with where it's going to go next week or next month or next year, a line of thought we never get into. The fact is that markets behave in ways, sometimes for a very long stretch, that are not linked to value. Sooner or later, though, value counts.
I can't be involved in 50 or 75 things. That's a Noah's Ark way of investing – you end up with a zoo that way. I like to put meaningful amounts of money in a few things.
The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.
If you aren't willing to own a stock for 10 years don't even think about owning it for 10 minutes.
You will see that we favor businesses and industries unlikely to experience major change. The reason for that is simple: We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.
Here I need to remind you about the definition of "investing," which though simple is often forgotten. Investing is laying out money today to receive more money tomorrow.
If you need to use a computer or calculator to make the calculation, you shouldn't buy it.
There is a huge difference between the business that grows and requires lots of capital to do so and the business that grows and doesn't require capital.
If a CEO is enthused about a particularly foolish acquisition, both his internal staff and his outside advisors will come up with whatever projections are needed to justify his stance. Only in fairy tales are emperors told that they are naked.
If past history was all there was to the game, the richest people would be librarians.
If the choice is between a questionable business at a comfortable price or a comfortable business at a questionable price, we much prefer the latter. What really gets our attention, however, is a comfortable business at a comfortable price.
Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble.
The first law of capital allocation – whether the money is slated for acquisitions or share repurchases – is that what is smart at one price is dumb at another.
Intelligent investing is not complex, though that is far from saying it is easy. What an investor needs is the ability to correctly evaluate selected business. Note that word ‘selected’, you don’t have to be an expert on every company, or even many.
The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.
You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right. Look at market fluctuations as your friend, rather than your enemy – profit from folly rather than participate in it.
Shares are not mere pieces of paper. They represent part ownership of a business. So, when contemplating an investment, think like a prospective owner.
We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than the price, we’re not interested in buying. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And that same principle works in investing.
We don't have to be smarter than the rest. We have to be more disciplined than the rest.
In the real world, of course, investors in stocks don't just buy and hold. Instead, many try to outwit their fellow investors in order to maximize their own proportions of corporate earnings. This thrashing about, obviously fruitless in aggregate, has no impact on the equity coupon but reduces the investor's portion of it, because he incurs substantial frictional costs, such as advisory fees and brokerage charges. Throw in an active options market, which adds nothing to the productivity of American enterprise but requires a cast of thousands to man the casino, and frictional costs rise further.
The primary test of managerial economic performance is the achievement of high earnings rate on equity capital employed.
I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.
We do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business. We've never succeeded in making a good deal with a bad person.
There's really a lot of overlap between managing and investing. Being a manager has made me a better investor, and being an investor has made me a better manager.
The ability to say "no" is a tremendous advantage for an investor.
Temperament is also important. Independent thinking, emotional stability, and a keen understanding of both human and institutional behavior is vital to long-term investment success. I’ve seen a lot of very smart people who have lacked these virtues.
It is usually foolish to part with an interest in a business that is both understandable and durably wonderful. Business interests of that kind are simply too hard to replace.
The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business.
We do have a few advantages, perhaps the greatest being that we don't have a strategic plan
It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately to people or it doesn't take at all. It's like an inoculation. If it doesn't grab a person right away, I find that you can talk to him for years and show him records, and it doesn't make any difference ... I've never seen anyone who became a gradual convert over a ten-year period to this approach. It doesn't seem to be a matter of IQ or academic training. It's instant recognition, or it is nothing.
A public-opinion poll is no substitute for thought.
No matter how great the talent or effort, some things just take time: you can’t produce a baby in one month by getting nine women pregnant.
Those who invest only when commentators are upbeat end up paying a heavy price for meaningless reassurance. In the end, what counts in investing is what you pay for a business – through the purchase of a small piece of it in the stock market – and what that business earns in the succeeding decade or two.
Buy companies with strong histories of profitability and with a dominant business franchise.
If you want to know one question to ask in terms of determining whether somebody’s got a good business or not, just ask them whether they can raise prices tomorrow.
We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.’
Ben's Mr. Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas. Their interest in such matters is understandable, since techniques shrouded in mystery clearly have value to the purveyor of investment advice. After all, what witch doctor has ever achieved fame and fortune by simply advising 'Take two aspirins'?
We will reject interesting opportunities rather than over-leverage our balance sheet.
When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.
If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor.
You don’t have to think of everything. It was Isaac Newton who said, "I've seen a little more of the world because I stood on the shoulders of giants." There is nothing wrong with standing on other people's shoulders.
You can’t precisely know what a stock is worth, so leave yourself a margin of safety. Only go into things where you could be wrong to some extent and come out OK.
I put heavy weight on certainty. It's not risky to buy securities at a fraction of what they're worth.
My game is simply to buy something worth a dollar for 50 cents. Then if they go crazy in the right direction it helps me and if they go crazy in the other direction I just buy more. My job is to take advantage of craziness.
Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ ... Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.
When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.
It's bad to go to bed at night thinking about the price of the stock. We think about the value and company results; the stock market is there to serve you, not instruct you.
Just because Charlie and I can clearly see dramatic growth ahead for an industry does not mean we can judge what its profit margins and returns on capital will be as a host of competitors battle for supremacy. At Berkshire we will stick with businesses whose profit picture for decades to come seems reasonably predictable. Even then, we will make plenty of mistakes.
I buy businesses, not stocks, businesses I would be willing to own forever.
All we want is to be in businesses that we understand, run by people whom we like and priced attractively relative to their future prospects.
Look for the durability of the franchise. The most important thing to me is figuring out how big a moat there is around the business. What I love, of course, is a big castle and a big moat with piranhas and crocodiles.
We have tried occasionally to buy toads at bargain prices with results that have been chronicled in past reports. Clearly our kisses fell flat. We have done well with a couple of princes – but they were princes when purchased.
Inactivity strikes us as intelligent behavior.
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.
If we find a company we like, the level of the market will not really impact our decisions. We will decide company by company. We spend essentially no time thinking about macroeconomic factors. In other words, if somebody handed us a prediction by the most revered intellectual on the subject, with figures for unemployment or interest rates, or whatever it might be for the next two years, we would not pay any attention to it. We simply try to focus on businesses that we think we understand and where we like the price and management.
Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.
The most dramatic way we protect ourselves is we don’t use leverage. We believe almost anything can happen in financial markets. The only way smart people can get clobbered is [through] leverage.
I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out.
To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.
When investing, we view ourselves as business analysts, not as market analysts, not as macroeconomic analysts, and not even as security analysts.
I have no idea on timing. It’s far easier to tell what will happen than when it will happen.
I should emphasize that we do not measure the progress of our investments by what their market prices do during any given year. Rather, we evaluate their performance by the two methods we apply to the businesses we own. The first test is improvement in earnings, with our making due allowance for industry conditions. The second test, more subjective, is whether their “moats” – a metaphor for the superiorities they possess that make life difficult for their competitors – have widened during the year.
With each investment you make, you should have the courage and the conviction to place at least 10% of your net worth in that stock.
Common yardsticks such as dividend yield, the ratio of price to earnings or to book value, and even growth rates have nothing to do with valuation except to the extent they provide clues to the amount and timing of cash flows into and from the business.
Like most trends, at the beginning it's driven by fundamentals, at some point speculation takes over. What the wise man does in the beginning, the fool does in the end.
What students should be learning is how to value a business. That’s what investing is all about.
If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Diversification may preserve wealth, but concentration builds wealth.
I read annual reports of the company I'm looking at and I read the annual reports of the competitors. That's the main source material.
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics is equally unpredictable, both as to duration and degree. Therefore we never try to anticipate the arrival or departure of either.
Buy stocks like you buy your groceries, not like you buy your perfume.
Growth is always a component in the calculation of value, constituting a variable whose importance can range from negligible to enormous and whose impact can be negative as well as positive.
Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.
Generally speaking, people, in evaluating mergers and acquisitions, look at the premium paid to the market price and decide whether that's a fair price or not. A fair price to us is one where we think we're going to get our money's worth in terms of future earnings.
I'm very suspicious of all economic forecasts, including my own.
If you own a wonderful business in life, the best thing to do is keep it. All you're going to do is trade your wonderful business for a whole bunch of cash, which isn't as good as the business, and now you got the problem of investing in other businesses, and you probably paid a tax in between. So my advice to anybody who owns a wonderful business is keep it.
A pin lies in wait for every bubble and when the two eventually meet, a new wave of investors learns some very old lessons.
Too often CEOs seem blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.
Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.
There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month.
Investors should remember that excitement and expenses are their enemies.
So there's two types of assets to buy. One is where the asset itself delivers a return to you, such as, you know, rental properties, stocks, a farm. And then there's assets that you buy where you hope somebody else pays you more later on, but the asset itself doesn't produce anything. And those are two different games. I regard the second game as speculation.
If we think the business’s competitive position is shaky, we won’t try to compensate with price.
We want to buy a great business, defined as having a high return on capital for a long period of time, where we think management will treat us right. We like to buy at 40 cents on the dollar, but will pay a lot closer to $1 on the dollar for a great business.
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
Investors should not pay any attention to the day's news. If they're paying attention to the day's news and they're trying to buy and sell stocks based on the day's news, they're never going to be successful investors.
I don't know how to make money trading actively. Maybe if I did, I wouldn't be so negative on it.
A truly great business must have an enduring 'moat' that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business 'castle' that is earning high returns.
The best thing to have is to develop your own talents. The second best thing is to buy into other people's talents.
The stock market in the 20th century went from 66 on the Dow to 11,400. And you'd said, `How could anybody not have a good experience?' But millions of people don't because they get excited at the wrong time, and they get depressed at the wrong time. So you've got to put your emotions aside, you've got to give up the idea that you can decide when to buy stocks and when to sell stocks. The time to buy stocks is consistently over time.
We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.
A company that needs large increases in capital to engender its growth may well prove to be a satisfactory investment ... It’s far better to have an ever-increasing stream of earnings with virtually no major capital requirements.
Never be afraid to ask for too much when selling or offer too little when buying.
If you're evaluating a business year-to-year, the number one question you want to ask yourself is whether the competitive advantage has been made stronger and more durable. And that's more important than the P&L for a given year.
If you’re in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%.
With enough inside information and a million dollars, you can go broke in a year.
The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright brothers.
Read Ben Graham and Phil Fisher, read annual reports, but don't do equations with Greek letters in them.
In selecting common stocks, we devote our attention to attractive purchases, not to the possibility of attractive sales.
Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don't have the first, the other two will kill you. You think about it; it's true. If you hire somebody without the first, you really want them to be dumb and lazy.
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.
The nature of markets is that at times they offer extraordinary values and at other times you have to have the discipline to wait.
I am very skeptical of most big mergers. The assumptions made tend to be very optimistic. People want to do deals – you start with that. There's a lot of Darwin going on in companies. And people who get to the top want action. I've been on 19 boards in my life, and I'd say the great majority of deals that I've seen were not very good deals.
If a business does well, the stock eventually follows.
In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything – arrogance, ego and overconfidence are very lethal.
We are never going to risk what we have and need in order to stretch for what we don’t need.
It is not necessary to do extraordinary things to get extraordinary results.
Most of our large stock positions are going to be held for many years and the scorecard on our investment decisions will be provided by business results over that period, and not by prices on any given day. Just as it would be foolish to focus unduly on short-term prospects when acquiring an entire company, we think it equally unsound to become mesmerized by prospective near term earnings or recent trends in earnings when purchasing small pieces of a company; i.e., marketable common stocks.
The best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.
You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no."
Growth can destroy value if it requires cash inputs in the early years of a project or enterprise that exceed the discounted value of the cash that those assets will generate in later years.
An investor needs to do very few things right as long as he or she avoids big mistakes.
Charlie and I avoid businesses whose futures we can’t evaluate, no matter how exciting their products may be. In the past, it required no brilliance for people to foresee the fabulous growth that awaited such industries as autos (in 1910), aircraft (in 1930) and television sets (in 1950). But the future then also included competitive dynamics that would decimate almost all of the companies entering those industries. Even the survivors tended to come away bleeding.
A great investment opportunity occurs when a marvelous business encounters a one-time huge, but solvable problem.
Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor. Never let ego, arrogance and over-confidence control you – not just as an investor but also as a human being.
Beware of geeks bearing formulas.
Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks
Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company's intrinsic business value, conservatively calculated. We have witnessed many bouts of repurchasing that failed our second test.
We don’t do due diligence or go out kicking tires. It doesn’t matter. What matters is understanding the competitive dynamics of a business.
I don’t read economic forecasts. I don’t read the funny papers.
The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities – that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future – will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.
It is only when you combine sound intellect with emotional discipline that you get rational behavior.
It is optimism that is the enemy of the rational buyer.
Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles: 'How many legs does a dog have if you call his tail a leg?' The answer: 'Four, because calling a tail a leg does not make it a leg'.
It's easy to put on leverage but not as easy to take it off.
I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years' time. Take Wrigley’s chewing gum. I don’t think the Internet is going to change how people chew gum.
Valuing a business is part art and part science.
Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn’t count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analyzed an investment alternative characterized by many constantly shifting and complex variables.
I'd be a bum on the street with a tin cup if the markets were always efficient.
The dumbest reason in the world to buy a stock is because it’s going up.
You cannot expect to forever realize a 12% annual increase – much less 22% – in the valuation of American business if its profitability is growing only at 5%. The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.
The investor of today does not profit from yesterday’s growth.
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!'
Unless you can watch your stock holdings decline by 50% without becoming panic-stricken, you should not be in the stock market
The main mistakes we’ve made – some of them big time – are: 1) Ones when we didn’t invest at all, even when we understood it was cheap; and 2) Starting in on an investment and not maximizing it ... I sometimes stopped buying, perhaps hoping it would come back down. We’ve missed billions when I’ve gotten anchored.
Everybody has got a different circle of competence. The important thing is not how big the circle is; the important thing is staying inside the circle.
You should focus on what’s important and knowable. There are many things that are important but not knowable, like a nuclear attack tomorrow. You can’t focus on those.
I’ve never had a target price or a target holding period on a stock.
An investor cannot obtain superior profits from stocks by simply committing to a specific investment category or style. He can earn them only by carefully evaluating facts and continuously exercising discipline.
Risk comes from not knowing what you’re doing.
We don’t need a daily quote on our 100% position in See's or H.H. Brown to validate our well-being. Why, then, should we need a quote on our 7% interest in Coke?
We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.
We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.
Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.
When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.
In short, bad news is an investor’s best friend.
There's very little money to be made recommending our strategy. Your broker would starve to death. Recommending something to be held for 30 years is a level of self-sacrifice you'll rarely see in a monastery, let alone a brokerage house.
Managers and owners need to remember, however, that accounting is but an aid to business thinking, never a substitute for it.
Sound investing can make you very wealthy if you're not in too big of a hurry.
Value investors are not concerned with getting rich tomorrow. People who want to get rich quickly, will not get rich at all. There is nothing wrong with getting rich slowly.
Don't try to catch a falling knife until you have a handle on the risk.
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher 5, 10, and 20 years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock.
Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.
Remember that the stock market is manic-depressive. Buy a business, don't rent stocks.
The speed at which a business success is recognized is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us (or the company) the chance to buy more of a good thing at a bargain price.
In business, I look for economic castles protected by unbreachable 'moats'.
An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.
I am a better investor because I am a businessman and a better businessman because I am an investor.
We derive no comfort because important people, vocal people, or great numbers of people agree with us. Nor do we derive comfort if they don't.
We believe that short-term forecasts of stock or bond prices are useless. The forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.
In addition, we think the very term 'value investing' is redundant. What is 'investing' if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value – in the hope that it can soon be sold for a still-higher price – should be labeled speculation (which is neither illegal, immoral nor - in our view - financially fattening).
In the search for companies to acquire, we adopt the same attitude one might find appropriate in looking for a spouse: it pays to be active, interested, and open-minded, but it does not pay to be in a hurry.
In a business selling a commodity-type product, it’s impossible to be a lot smarter than your dumbest competitor.
A company that wants to use its own stock as currency for an acquisition has no problems if the stock is selling in the market at full intrinsic value. But suppose it is selling at only half intrinsic value. In that case it is faced with the unhappy prospect of using a substantially undervalued currency to pay for a fully valued property.
I would rather be certain of a good result than hopeful of a great one.
We select our marketable equity securities in much the way we would evaluate a business for acquisition in its entirety.
We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?
The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.
When Berkshire buys common stock, we approach the transaction as if we were buying into a private business.
Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people
Market price and intrinsic value often follow very different paths – sometimes for extended periods – but eventually they meet.
Fund consultants like to require style boxes such as “long-short,” “macro,” “international equities.” At Berkshire our only style box is “smart.”
If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game.
Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.
The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them.
There are all kinds of businesses that Charlie and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do.
Never invest in a business you cannot understand.
The very liquidity of stock markets causes people to focus on price action. If you buy an apartment house, if you buy a farm, if you buy a MacDonald's franchise you don't think about what it's going sell for tomorrow or next week, or next month, you think about how is this business going to do. But stocks with this huge liquidity suck people in and they turn what should be an advantage into a disadvantage.
You can still get in trouble if you pay too much, but you are focusing on the right thing if you look at the stream of income that the asset is going to produce over time.
Investors making purchases in an overheated market need to recognize that it may often take an extended period for the value of even an outstanding company to catch up with the price they paid.
We like things that you don’t have to carry out to three decimal places. If you have to carry them out to three decimal places, they’re not good ideas.
Time is the enemy of the poor business and the friend of the great business. If you have a business that's earning 20%-25% on equity, time is your friend. But time is your enemy if your money is in a low return business.
Before looking at new investments, we consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process.
If you’re smart, you don’t need leverage. If you’re dumb, you have no business using it.
We don’t try to pick bottoms. To sit around and not do something sensible because you think there might be something better ... doesn’t make sense. Picking bottoms is not our game. Pricing is our game. And that’s not so difficult. Picking bottoms is, I think, impossible.
The most important quality for an investor is temperament, not intellect ... You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.
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.
My advice is to read a lot. There are no secrets in the business that only the priesthood knows. It’s all right there.
Since the basic game is so favorable, Charlie and I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of 'experts,' or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it.
It was always interesting to me that everyone read Graham, and they didn't misread him, it's just that they didn't like following him.
None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What’s required is thinking rather than polling.
The simple test of good ethics, is how would you feel about any act, if a reasonably intelligent, but unfriendly reporter were to write it up and put it in tomorrow’s paper for everyone to see. If it passes that test, it’s okay, and if you have to think about it, it probably isn't the right thing to do.
Hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.
It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that you will do things differently.
2. Other Investing Quotations
Value investing is the discipline of buying securities at a significant discount from their current underlying values and holding them until more of their value is realized. The element of a bargain is the key to the process. In the language of value investors, this is referred to as buying a dollar for fifty cents. Seth Klarman
Sometimes a value investor will review in depth a great many potential investments without finding a single one that is sufficiently attractive. Such persistence is necessary, however, since value is often well hidden. Seth Klarman
The cheapest security in an overvalued market may still be overvalued. Seth Klarman
The most important determinant of whether investors will incur opportunity cost is whether or not part of their portfolio is held in cash. Maintaining moderate cash balances or owning securities that periodically throw off appreciable cash is likely to reduce the number of foregone opportunities. Seth Klarman
Investing is the intersection of business and psychology. Seth Klarman
Interestingly, we have beaten the market quite handsomely over this time frame, although beating the market has never been our objective. Rather, we have consistently tried not to lose money and, in doing so, have not only protected on the downside but also outperformed on the upside. Seth Klarman
Nowhere does it say that investors should strive to make every last dollar of potential profit; consideration of risk must never take a backseat to return. Seth Klarman
Do not accept principal risk while investing short-term cash: the greedy effort to earn a few extra basis points of yield inevitably leads to the incurrence of greater risk, which increases the likelihood of losses and severe illiquidity at precisely the moment when cash is needed to cover expenses, to meet commitments, or to make compelling long-term investments. Seth Klarman
Most institutional investors feel compelled to swing at almost every pitch and forgo batting selectivity for frequency. Seth Klarman
Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments. Seth Klarman
If you can remember that stocks aren't pieces of paper that gyrate all the time – they are fractional interests in businesses – it all makes sense. Seth Klarman
The single greatest edge an investor can have is a long-term orientation. In a world where performance comparisons are made not only annually and quarterly but even monthly and daily, it is more crucial that ever to take the long view. Seth Klarman
We focus on risk before we focus on return. Seth Klarman
To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don't when they don't. Seth Klarman
While others attempt to win every lap around the track, it is crucial to remember that to succeed at investing, you have to be around at the finish. Seth Klarman
While some might mistakenly consider value investing a mechanical tool for identifying bargains, it is actually a comprehensive investment philosophy that emphasizes the need to perform in-depth fundamental analysis, pursue long-term investment results, limit risk, and resist crowd psychology. Seth Klarman
It is easy to confuse genius with a bull market. Seth Klarman
We tried to remember that investing is a marathon and not a sprint, and we conditioned ourselves to go the distance. Seth Klarman
Our willingness to hold cash during fallow periods has enabled us to maintain a strict sell discipline regardless of whether we had anything promising to replace what we sold. This view on cash, combined with a truly long-term investment perspective, has also enabled us to avoid the gun-to the-head mentality that pressures many investors to own less than stellar investments. Seth Klarman
Investors need discipline to avoid the many unattractive pitches that are thrown, patience to wait for the right pitch, and judgment to know when it is time to swing. Seth Klarman
Often, the near absence of bargains works as a reverse market indicator for us; when we find little that is worth buying, there may be much that is worth selling. Seth Klarman
A corollary to the importance of compounding is that it is very difficult to recover from even one large loss, which could literally destroy all at once the beneficial effects of many years of investment success. In other words, an investor is more likely to do well by achieving consistently good returns with limited downside risk than by achieving volatile and sometimes even spectacular gains but with considerable risk of principle. An investor who earns 16% annual returns over a decade, for example, will, perhaps surprisingly, end up with more money than an investor who earns 20% a year for nine years and then loses 15% the 10th year. Seth Klarman
Since they are acting against the crowd, contrarians are almost always initially wrong and likely for a time to suffer paper losses. Seth Klarman
Price is everything, and every investment is undervalued at one price, fairly valued at a higher price, and overvalued at some still higher price. You buy the first, avoid the second, and sell the third. Seth Klarman
We make no heroic assumptions in our analysis, hoping, instead, that by compounding multiple conservative assumptions, we will crease such a substantial margin of safety that a lot can go wrong without impairing our capital much or even at all. Seth Klarman
Just as a grim present is usually precursor to a better future, a rosy present may be precursor to a bleaker tomorrow. Seth Klarman
Bottom-up value investors would not wish to bet the ranch on a macroeconomic view, but neither would they be wise to ignore the macroeconomy altogether. Disaster hedging – always an important tool for investors – takes on heightened significance in today's unprecedentedly challenging environment. Seth Klarman
We firmly believe that one of Baupost's biggest risks, and, needless to say, that of other investors, is that we will buy too soon on the way down. Sometimes cheap stocks become a whole lot cheaper. Seth Klarman
I can buy this thing for a huge fraction of what it's worth. What am I worried about if it goes down a little bit more? Seth Klarman
Value investors have to be patient and disciplined, but what I really think is you need to not be greedy. Seth Klarman
Markets are inefficient because of human nature – innate, deep-rooted, permanent. People don't consciously choose to invest with emotion – they simply can't help it. Seth Klarman
We are able and willing to concentrate our capital into our best ideas. These days, other investors' idea of "risk control" is to own literally hundreds of small positions while making no sizeable bets, a strategy that might also be labeled "return control". It is clearly an advantage, but by no means without risk, to be able to concentrate our exposures. We work exceptionally hard to ensure that our largest positions are indeed our most worthwhile opportunities on a risk-adjusted basis. Seth Klarman
The stock market is the story of cycles and of the human behavior that is responsible for overreactions in both directions. Seth Klarman
Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night. Seth Klarman
For the undisciplined, "buy the dips" can drift mindlessly into "buy anything"; a rising tide that is lifting all boats often proves irresistible. Seth Klarman
Investing is mean reverting. What has outperformed lately will not, and cannot, grow to the sky. Sustained out performance in any particular sector of the markets is eventually borrowed from the future, to be given back either slowly through sustained under performance or quickly through price declines. What has worked lately is popular, widely owned, and bid up in price, and therefore generally anathema to good future results. But human nature makes it extremely difficult for people to embrace what has recently fared poorly. Seth Klarman
Value investing requires a great deal of hard work, unusually strict discipline and a long-term investment horizon. Seth Klarman
We regard investing as an arrogant act; an investor who buys is effectively saying that he or she knows more than the seller and the same or more than other prospective buyers. We counter this necessary arrogance (for indeed, a good investor must pull confidently on the trigger) with an offsetting dose of humility, always asking whether we have an apparent advantage over other market participants in any potential investment. If the answer is negative, we do not invest. Seth Klarman
Price is perhaps the single most important criterion in sound investment decision making. Seth Klarman
My view is that an investor is better off knowing a lot about a few investments than knowing only a little about each of a great many holdings. Seth Klarman
The single most crucial factor in trading is developing the appropriate reaction to price fluctuations. Investors must learn to resist fear, the tendency to panic, when prices are falling, and greed, the tendency to become overly enthusiastic when prices are rising. Seth Klarman
Value investing is risk aversion. Seth Klarman
Modern financial theory tells you to calculate the beta of a stock to determine its riskiness. In my entire professional career, now twenty-five years long, I have never calculated a beta. Seth Klarman
Value investing is, in effect, predicated on the proposition that the efficient-market hypothesis is frequently wrong. Seth Klarman
Read as much as you can about the markets, economy, and financial history. Never stop reading. Seth Klarman
It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent. Charlie Munger
The whole concept of dividing it up into 'value' and 'growth' strikes me as twaddle. It's convenient for a bunch of pension fund consultants to get fees prattling about and a way for one advisor to distinguish himself from another. But, to me, all intelligent investing is value investing. Charlie Munger
It’s generally quite smart to copy very successful investors. Charlie Munger
Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now. Charlie Munger
All intelligent investing is value investing – to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass. Charlie Munger
Using volatility as a measure of risk is nuts. Risk to us is 1) the risk of permanent loss of capital, or 2) the risk of inadequate return. Some great businesses have very volatile returns – for example, See’s usually loses money in two quarters of each year – and some terrible businesses can have steady results. Charlie Munger
Virtually every investment expert’s public assessment is that he is above average, no matter what is the evidence to the contrary. Charlie Munger
Over the long term, it’s hard for a stock to earn a much better return that the business which underlies it earns. If the business earns six percent on capital over forty years and you hold it for that forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result. Charlie Munger
In my whole life, I have known no wise people who didn't read all the time – none, zero. You'd be amazed at how much Warren reads, at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out. Charlie Munger
Practically everybody overweighs the stuff that can be numbered, because it yields to the statistical techniques they’re taught in academia, and doesn’t mix in the hard-to-measure stuff that may be more important. That is a mistake I’ve tried all my life to avoid, and I have no regrets for having done that. Charlie Munger
We don’t care about quarterly earnings (though obviously we care about how the business is doing over time) and are unwilling to manipulate in any way to make some quarter look better. Charlie Munger
You must know the big ideas in the big disciplines, and use them routinely – all of them, not just a few. Most people are trained in one model, economics for example, and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems. Charlie Munger
Understanding how to be a good investor makes you a better business manager and vice versa. Charlie Munger
When we bought See's Candies, we didn't know the power of a good brand. Over time we just discovered that we could raise prices 10% a year and no one cared. Learning that changed Berkshire. It was really important. Charlie Munger
I constantly see people rise in life who are not the smartest – sometimes not even the most diligent. But they are learning machines; they go to bed every night a little wiser than when they got up. And, boy, does that habit help, particularly when you have a long run ahead of you. Charlie Munger
Warren and I have not made our way in life by making successful macroeconomic predictions and betting on our conclusions. Charlie Munger
If you buy a business just because it's undervalued, than you have to worry about selling it when it reaches its intrinsic value. That's hard. But if you can buy a few great companies, then you can sit on your ass. That's a good thing. Charlie Munger
Extra care in thinking is not all good but also introduces extra error. But most good things have undesired 'side effects', and thinking is no exception. Charlie Munger
I think the reason why we got into such idiocy in investment management is best illustrated by a story that I tell about the guy who sold fishing tackle. I asked him, “My God, they’re purple and green. Do fish really take these lures?” And he said, “Mister, I don’t sell to fish.” Charlie Munger
If you took our top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounce on them with vigor. Charlie Munger
We just throw some decisions into the ‘too hard’ file and go onto the others. Charlie Munger
A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind that loves diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past. Charlie Munger
The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage. Charlie Munger
The turtles who outrun the hares are learning machines. If you stop learning in this world, the world rushes right by you. Charlie Munger
Another very simple effect I very seldom see discussed either by investment managers or anybody else is the effect of taxes. If you're going to buy something which compounds for 30 years at 15% per annum and you pay one 35% tax at the very end, the way that works out is that after taxes, you keep 13.3% per annum. In contrast, if you bought the same investment, but had to pay taxes every year of 35% out of the 15% that you earned, then your return would be 15% minus 35% of 15% or only 9.75% per year compounded. So the difference there is over 3.5%. And what 3.5% does to the numbers over long holding periods like 30 years is truly eye-opening. If you sit back for long, long stretches in great companies, you can get a huge edge from nothing but the way that income taxes work. Charlie Munger
Almost all good businesses engage in 'pain today, gain tomorrow' activities. Charlie Munger
I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart. Charlie Munger
People chronically misappraise the limits of their own knowledge; that’s one of the most basic parts of human nature. Knowing the edge of your circle of competence is one of the most difficult things for a human being to do. Knowing what you don’t know is much more useful in life and business than being brilliant. Charlie Munger
Above all, never fool yourself, and remember that you are the easiest person to fool. Charlie Munger
Having a certain kind of temperament is more important than brains. You need to keep raw irrational emotion under control. You need patience and discipline and an ability to take losses and adversity without going crazy. You need an ability to not be driven crazy by extreme success. Charlie Munger
If you don't allow for self-serving bias in the conduct of others, you are, again, a fool. Charlie Munger
It's kind of a snare and a delusion to outguess macroeconomic cycles ... very few people do it successfully and some of them do it by accident. When the game is that tough why not adopt the other system of swimming as competently as you can and figuring that over a long life you'll have your share of good tides and bad tides? Charlie Munger
When any guy offers you a chance to earn lots of money without risk, don't listen to the rest of his sentence. Follow this, and you'll save yourself a lot of misery. Charlie Munger
Assume life will be really tough, and then ask if you can handle it. If the answer is yes, you've won. Charlie Munger
If you've got somebody who's only talking about growth prospects or short-term earnings prospects, you're going to be in trouble. Bruce Greenwald
Emotions are absolutely your enemy. You want to be a certain kind of mutant who is just completely different in their orientation to what's an attractive investment for the rest of the market. Bruce Greenwald
You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets. Peter Lynch
In this business if you're good, you're right six times out of ten. You're never going to be right nine times out of ten. Peter Lynch
Often, there is no correlation between the success of a company's operations and the success of its stock over a few months or even a few years. In the long term, there is a 100 percent correlation between the success of the company and the success of its stock. This disparity is the key to making money; it pays to be patient, and to own successful companies. Peter Lynch
You can outperform the investment experts if you use your edge by investing in companies or industries that you already understand. Peter Lynch
Gambling can be separated from investing not by the type of activity but by the skill, dedication and enterprise of the participant. Peter Lynch
You should not buy a stock because it's cheap but because you know a lot about it. Peter Lynch
It takes remarkable patience to hold on to a stock in a company that excites you, but which everybody else seems to ignore. You begin to think everybody else is right and you are wrong. But where fundamentals are promising, patience is rewarded. Peter Lynch
Avoid hot stocks in hot industries. Great companies in cold, non-growth industries are consistent big winners. Peter Lynch
The list of qualities an investor ought to have include patience, selfreliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic. Peter Lynch
There is always something to worry about! Peter Lynch
Some people automatically sell the ‘winners’ – stocks that go up – and hold on to their ‘losers’ – stocks that go down – which is about as sensible as pulling out the flowers and watering the weeds. Others automatically sell their losers and hold on to their winners, which doesn’t work out much better. Both strategies fail because they’re tied to the current movement of the stock price as an indicator of the company’s fundamental value. Peter Lynch
When 10 people would rather talk to a dentist about plaque than to the manager of an equity mutual fund about stocks, it’s likely that the market is about to turn up. When the neighbors tell me what to buy and I wish I had taken their advice, it’s a sure sign that the market has reached a top and is due for a tumble. Peter Lynch
Investing in stocks is an art, not a science, and people who’ve been trained to rigidly quantify everything have a big disadvantage. Peter Lynch
Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves. Peter Lynch
Investing is fun, exciting, and dangerous if you don’t do any work. Peter Lynch
You can see the importance of earnings on any chart that has an earnings line running alongside the stock price. On chart after chart the two lines will move in tandem, or if the stock price strays away from the earnings line, sooner or later it will come back to the earnings. Peter Lynch
I don't believe in predicting markets. I believe in buying great businesses – especially companies that are undervalued, and/or under-appreciated. Peter Lynch
When you participate in company profits, the most important point is whether you believe that they will be higher in another ten or twenty years or not. If not, then perhaps it would be better for you not to be exposed to them. Peter Lynch
You can't understand and be familiar with all of the market all of the time. You have to exploit your advantage to invest in what you really understand in depth, and not in what you don’t. If you gamble and buy oil stocks one year and retail stocks the next and electronics stocks the year after that, that's not investment. That's just a bet. Peter Lynch
I prefer to be invested in companies that any idiot can manage, because in the end, that is what will happen. Peter Lynch
Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Peter Lynch
What makes stocks valuable in the long run isn't the market. It's the profitability of the shares in the companies you own. As corporate profits increase, corporations become more valuable and sooner or later, their shares will sell for a higher price. Peter Lynch
Stop trying to predict the direction of the stock markets, the economy, interest rates or elections, and stop wasting money on individuals that do this for a living. Study the facts and the financial condition, value the company's future outlook, and purchase when everything is in your favor. Many people invest in a way similar to playing poker all night without ever looking at their cards. Peter Lynch
Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they're going to be higher or lower in two to three years, you might as well flip a coin to decide. Peter Lynch
If you don’t study any companies, you have the same success buying shares as you do in a poker game if you bet without looking at your cards. Peter Lynch
If you can’t find any companies that you think are attractive, put your money in the bank until you discover some. Peter Lynch
Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you'll likely find one grub; if you turn over 20 rocks you'll find two. Peter Lynch
As a place to invest, I'll take a lousy industry over a great industry any time. In a lousy industry, one that's growing slowly if at all, the weak dropout and the survivors get a bigger share of the market. A company that can capture an ever-increasing share of a stagnant market is a lot better off than one that has to struggle to protect a dwindling share of an exciting market. Peter Lynch
Although it's easy to forget sometimes, a share of a stock is not a lottery ticket. It's part ownership of a business. Peter Lynch
When stocks are attractive, you buy them. Sure, they can go lower. I've bought stocks at $12 that went to $2, but then they later went to $30. You just don't know when you can find the bottom. Peter Lynch
Avoid hot stocks in hot industries. Great companies in cold, non-growth industries are consistent big winners. Peter Lynch
A stock-market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm panic. Peter Lynch
There are substantial rewards for adopting a regular routine of investing and following it no matter what, and additional rewards for buying more shares when most investors are scared into selling. Peter Lynch
There's no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock, or, worse, to buy more of it, when the fundamentals are deteriorating. Peter Lynch
If you remember nothing else about P/E ratios, remember to avoid stocks with excessively high ones. You'll save yourself a lot of grief and a lot of money if you do. With few exceptions, an extremely high P/E ratio is a handicap to a stock, in the same way that extra weight in the saddle is a handicap to a racehorse. Peter Lynch
Don't buy stocks on tips alone. If your only reason for picking a stock is that an expert likes it, then what you really need is paid professional help. Peter Lynch
Be patient. The stocks that have been most rewarding to me have made their greatest gains in the third or fourth year I owned them. A few took ten years. Peter Lynch
Don't buy "cheap" stocks just because they're cheap. Buy them because the fundamentals are improving. Peter Lynch
Keep your expectations in line with history. Historically stocks have returned 6.8 percent after inflation over the last two centuries and have sold at an average PE ratio of about 15. Jeremy Siegel
The growth trap is falling into a pattern of just buying companies with what you think are the fastest-growing earnings, and ignoring the price ... investors that chase after those fast-growing companies actually suffer worse returns than those that buy slower-growing companies at reasonable prices. Jeremy Siegel
The fundamental sources of stock valuation derive from the earnings and dividends of firms. In contrast to a work of art – which can be bought both for an investment and for its viewing pleasure – stocks have value only because of the cash flows that current investors receive or the appreciation caused by cash flows that future investors hope to receive. Jeremy Siegel
Bear markets are not only painful episodes that investors must endure, but also an integral reason why investors who reinvest dividends experience sharply higher returns. Jeremy Siegel
The growth trap seduces investors into overpaying for the very firms and industries that drive innovation and spearhead economic expansion. This relentless pursuit of growth – through buying hot stocks, seeking exciting new technologies, or investing in the fastest-growing countries – dooms investors to poor returns. In fact, history shows that many of the best-performing investments are instead found in shrinking industries and in slower-growing countries. Jeremy Siegel
The long-term return on a stock depends not on the actual growth of its earnings, but on the difference between its actual earnings growth and the growth that investors expected. Jeremy Siegel
Remember, valuations always matter, bubble or no bubble. Markets will ultimately deal a severe blow to those who believe that growth is worth any price. Jeremy Siegel
In the short run, the market is a voting machine but in the long run it is a weighing machine. Benjamin Graham
The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell. Benjamin Graham
Individuals who cannot master their emotions are ill-suited to profit from the investment process. Benjamin Graham
Investment is most intelligent when it is most businesslike. It is amazing to see how many capable businessmen try to operate on Wall Street with complete disregard of all the sound principles through which they have gained success in their own undertakings. Benjamin Graham
If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what’s going to happen to the stock market. Benjamin Graham
I do believe it is possible for a minority of investors to get significantly better results than the average. Two conditions are necessary for that. One is that they must follow some sound principles of selection which are related to the value of the securities and not to their market price action. Benjamin Graham
Let me emphasize that it does not take genius to be a successful value analyst, what it needs is, first, reasonably good intelligence; second, sound principles of operation; and third, and most important, firmness of character. Benjamin Graham
The investor who permits himself to be stampeded or unduly worried by the unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. Benjamin Graham
Price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies. Benjamin Graham
Wall Street has a few prudent principles; the trouble is that they are always forgotten when they are most needed. Benjamin Graham
Confronted with a challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety. Benjamin Graham
It is an almost unbelievable fact that Wall Street never asks, "How much is this business selling for?" Yet this should be the first question in considering a stock purchase. If a business man were offered a 5 percent interest in some concern for $10,000, his first mental process would be to multiply the asked price by 20 and thus establish a proposed value of $200,000 for the entire undertaking. The rest of his calculation would turn on the question whether or not the business was a ‘good buy’ at $200,000. Benjamin Graham
Forecasting security prices is not properly a part of security analysis. Benjamin Graham
The individual investor should act consistently as an investor and not as a speculator. This means that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase. Benjamin Graham
To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks. Benjamin Graham
Timidity prompted by past failures causes investors to miss the most important bull markets. Walter Schloss
Price is the most important factor to use in relation to value. Walter Schloss
In the long run, quality stocks have proven to be the one free lunch: you simply have not had to pay for the privilege of owning the great safe companies, as plain logic and established theory would both suggest. Jeremy Grantham
All corporate growth has to funnel through return on equity. The problem with growth companies and growth countries is that they so often outrun the capital with which to grow and must raise more capital. Investors grow rich not on earnings growth, but on growth in earnings per share. There is almost no evidence that faster-growing countries have higher margins. In fact, it is slightly the reverse. Jeremy Grantham
Be aware that everything concerning markets and economics regresses from extremes towards normal faster than people think. Jeremy Grantham
In the end ... returns in a stock market are overwhelmingly to do with return on capital (ROC). It isn't about top line growth. Nobody believes this but it's true. Growth stocks simply don't beat value stocks. Growth countries, for the record, have no history of reliably beating slower growth countries. Although everyone thinks it's the case it won't stand the test of analysis. Jeremy Grantham
The saving grace is that, although value is a weak force in any single year, it becomes a monster over several years. Like gravity, it slowly wears down the opposition. Jeremy Grantham
By far the biggest problem for professionals in investing is dealing with career and business risk: protecting your own job as an agent. The second curse of professional investing is over-management caused by the need to be seen to be busy, to be earning your keep. The individual is far better-positioned to wait patiently for the right pitch while paying no regard to what others are doing, which is almost impossible for professionals. Jeremy Grantham
For an individual company, having an exceptional proﬁt margin deserves a premium P/E against its competitors. But for the market as a whole, for which proﬁt margins are beautifully mean reverting, it is exactly the reverse. This apparent paradox seems to fool the market persistently. Jeremy Grantham
You don't actually find a strong correlation between top-line GDP growth and making money in the market. The fastest-growing countries should give investors the highest return, but they simply don't. Unfortunately, there's only four of us that believe that story. Everyone else in the world believes that if you grow fast like China, you'll outperform in the stock market. Jeremy Grantham
I never ask if the market is going to go up or down next year. I know there is nobody who can tell me that. John Templeton
An investor who has all the answers doesn't even understand the questions. John Templeton
The best time to invest is when you have money. This is because history suggests it is not timing which matters, but time. John Templeton
For those properly prepared in advance, a bear market in stocks is not a calamity but an opportunity. John Templeton
Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. John Templeton
The four most expensive words in the English language are, 'This time it's different.' John Templeton
Share prices fluctuate more than share values. John Templeton
The best bargains are not stocks whose prices are down most, but rather those stocks having the lowest prices in relation to possible earning power of future years. John Templeton
Sell a stock only when you have found a new stock that is a 50% better bargain than the one that you hold. John Templeton
To buy when others are despondently selling and to sell when others are euphorically buying takes the greatest courage, but provides the greatest profit. John Templeton
It is impossible to produce superior performance unless you do something different from the majority. John Templeton
Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded, and skeptical. John Templeton
Indeed, the evidence is compelling that when decade-long real stock returns are inordinately high by historical standards, returns in subsequent decades are likely to tumble; when past returns are exceptionally low, future returns are apt to rise. What it's all about, it seems, is reversion to the mean. John Bogle
Reversion to the mean is the iron rule of the financial markets. John Bogle
In investing, rely on the ordinary virtues that intelligent, balanced human beings have relied on for centuries: common sense, thrift, realistic expectations, patience, and perseverance. John Bogle
If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks. John Bogle
What happens in the fund business is the magic of compound returns is overwhelmed by the tyranny of compounding cost. It's a mathematical fact. John Bogle
When you focus on prices and pretty much disregard intrinsic values, you are just gambling. John Bogle
In the very long run, it is how businesses actually perform that determines the return on our invested capital. Dividend yields, plus earnings growth, account for substantially 100 percent of the return on stocks.
Learn every day, but especially from the experiences of others. It’s cheaper! John Bogle
It is said on Wall Street, correctly, 'money has no conscience,' but don't allow that truism to let you ignore your own conscience, nor to alter your own conduct and character. John Bogle
Time is your friend; impulse is your enemy. John Bogle
The percentage of investors who own 25 or more different stocks is appalling. It is not this number of 25 or more which itself is appalling. Rather it is that in the great majority of instances only a small percentage of such holdings is in attractive stocks about which the investor has a high degree of knowledge. Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all. It never seems to occur to them that buying a company without having sufficient knowledge of it may be even more dangerous than having inadequate diversification. Philip Fisher
It is just appalling the nerve strain people put themselves under trying to buy something today and sell it tomorrow. It's a small-win proposition. If you are a truly long-range investor, of which I am practically a vanishing breed, the profits are so tremendously greater. Philip Fisher
I don’t want a lot of good investments; I want a few outstanding ones. If the job has been correctly done when a common stock is purchased, the time to sell it is almost never. Philip Fisher
The fact that a stock has or has not risen in the last several years is of no significance whatsoever in determining whether it should be bought now. Philip Fisher
I have seen many investors dispose of a holding that was to show stupendous gain in the years ahead because of this fear of a coming bear market. Frequently the bear market never came and the stock went right up. When a bear market has come, I have not seen one time in ten when the investor actually got back into the same shares before they had gone up above his selling price. Philip Fisher
There is still one other argument investors sometimes use to separate themselves from the profits they would otherwise make. This one is the most ridiculous of all. It is that the stock they own has had a huge advance. Therefore, just because it has gone up, it has probably used up most of its potential. Consequently they should sell it and buy something that hasn't gone up yet. Outstanding companies, the only type which I believe the investor should buy, just don't function this way. Philip Fisher
There are fads and styles in the stock market just as there are in women's clothes. Philip Fisher
These investment fads and misinterpretation of facts may run for several months or several years. In the long run, however, realities not only terminate them, but frequently, for a time, cause the affected stocks to go too far in the opposite direction. Philip Fisher
It is often easier to tell what will happen to the price of a stock than how much time will elapse before it happens. Philip Fisher
If there is a serious question of the lack of a strong management sense of trusteeship for stockholders, the investor should never seriously consider participating in such an enterprise. Philip Fisher
An alert investor who has held a good stock for some time usually gets to know its less desirable as well as its more desirable characteristics. Therefore, before selling a rather satisfactory holding in order to get a still better one, there is need of the greatest care in trying to appraise accurately all elements of the situation. Philip Fisher
I have seen investment people so imbued with the need to go contrary to the general trend of thought that they completely overlook the corollary of all this which is: when you do go contrary to the general trend of investment thinking, you must be very, very sure that you are right. Philip Fisher
It has been my observation that it is so difficult to time correctly the near-term price movements of an attractive stock that the profits made in the few instances when this stock is sold and subsequently replaced at significantly lower prices are dwarfed by the profits lost when timing is wrong. Philip Fisher
More money has probably been lost by investors holding a stock they really did not want until they could "at least come out even" than from any other single reason. Philip Fisher
The only true test of whether a stock is "cheap" or "high" is not its current price in relation to some former price, no matter how accustomed we may have become to that former price, but whether the company's fundamentals are significantly more or less favorable than the current financial-community appraisal of that stock. Philip Fisher
In handling common stocks, as in most other fields of human activity, success greatly depends on a combination of hard work, intelligence, and honesty. Philip Fisher
As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. John Maynard Keynes
Investors may be quite willing to take the risk of being wrong in the company of others, while being much more reluctant to take the risk of being right alone. John Maynard Keynes
Investment is an activity of forecasting the yield on assets over the life of the assets ... speculation is the activity of forecasting the psychology of the market. John Maynard Keynes
Markets can remain irrational longer than you can remain solvent. John Maynard Keynes
In the final analysis, value investing means being price conscious rather than outlook conscious. You buy what is cheap and safe. Most everybody else is outlook conscious, or price unconscious. Marty Whitman
We ignore outlooks and forecasts ... we're lousy at it and we admit it ... everyone else is lousy too, but most people won't admit it. Marty Whitman
I particularly value two attributes in good investors – common sense and temperament. If you think logically, objectively and independently and ‘keep your head when others are losing theirs’, you have the starting blocks to being a successful investor. Anthony Bolton
I ask myself a simple question: How likely is this business to be around in 10 years’ time and to be more valuable than today? It is surprising how many businesses fail this test. Anthony Bolton
Trying to make money back in a share, where you have lost money to date, just to prove your initial thesis was correct, is very dangerous. Anthony Bolton
In my early years of managing money I might have bought shares in a company where I liked the franchise but maybe had some doubts about the management competence or integrity. But not any longer. Anthony Bolton
We all think we are better at investment than we are. We are all overconfident and, in particular, you mustn't let a good run go to your head. Anthony Bolton
Experience also counts for a great deal. Mark Twain said, ‘History never repeats itself but it sometimes rhymes’ – eight words that should be burned into every fund manager’s desk. Anthony Bolton
Stock markets are like a pendulum. They swing from the bottom of a bear market, when investors are very cautious and valuations are low, back up to the middle of the cycle, when stocks are fairly valued, and then to the top, when stocks become overvalued. Anthony Bolton
When I've analysed the biggest mistakes I've made over the years they have nearly always been in companies with poor balance sheets. Anthony Bolton
Most fund managers can select their share of winners, but what will often differentiate a good portfolio manager from an average one is holding fewer losers. Anthony Bolton
Most importantly, you should forget the price you paid for a share, otherwise it can become a psychological barrier if the share price subsequently falls. The investment thesis is the key; check it regularly. If this changes for the worse and the share is no longer a buy and probably therefore a sell, you should take action regardless of the price being below what you paid. Anthony Bolton
Most of the time the financial ratios that attract a private-equity buyer are the same ratios that attract a value investor (also the things that put you off as an investor deter private equity, such as pension-fund liabilities that are large relative to the market capitalisation). Therefore a value approach should increase your chances of holding companies that might be bid for. Anthony Bolton
In the long-term, the valuation and fundamentals of a company are the only things that matter and, like gravity, those things will reassert themselves. Neil Woodford
I think one has to be very careful about correlating growth necessarily with economic opportunity, and opportunity to make money. Neil Woodford
In the short-term, share prices are buffeted by all sorts of influences, but over longer-time periods fundamentals shine through. Neil Woodford
Value investing requires patience – it is a get rich slowly investment philosophy and most people want to get rich quickly. Whitney Tilson
Lucrative opportunities still await patient investors who stick to enduring principles. New twists on value investing invite disappointment. John Neff
No solitary measure or pair of measures should govern a decision to buy a stock. John Neff
The most important attribute for success in value investing is patience, patience, and more patience. The majority of investors do not possess this characteristic. Peter Cundill
Think long-term and remember that the big rewards accrue with compound annual rates of return. Peter Cundill
Curiosity is the engine of civilization. If I were to elaborate it would be to say read, read, read, and don't forget to talk to people, really talk, listening with attention and having conversations, on whatever topic, that are an exchange of thoughts. Keep the reading broad, beyond just the professional. This helps to develop one's sense of perspective in all matters. Peter Cundill
Figure out what something is worth and pay a lot less. Joel Greenblatt
As long as you're willing to do your own homework, a strategy of owning a select handful of your favourite stock situations should yield results far superior to a strategy of owning dozens of different stocks or mutual funds. Joel Greenblatt
It makes sense that if you limit your investments to those situations where you are knowledgeable and confident, and only those situations, your success rate will be very high. There is no sense diluting your best ideas or favourite situations by continuing to work your way down a list of attractive opportunities. Joel Greenblatt
Dividends don't come into our analysis. We don't care if we get the return in dividends or capital gains. Joel Greenblatt
One of the things that individual investors should think about is whether they are capable of valuing a company, because if they are not, investing intelligently in individual stocks isn't really doable. Joel Greenblatt
There are all kinds of studies, and they are fairly consistent, showing that picking almost any ratio that's cheap relative to price – whether it's earnings, cash flow, dividends, book value, sales, etc. – those stocks do beat the market over time. Joel Greenblatt
Most investors sell right after bad performance and buy right after good performance. This is a great way to lower long term investment returns. Joel Greenblatt
We can't value most companies. We have to wait until we can find a company or security where we have high enough confidence in our estimates for the business going forward to do reasonable valuation work. Joel Greenblatt
Becoming a good investor is about reading, learning and practicing and then practicing some more. There's no magic bullet, but the more experience you can gain the better. Joel Greenblatt
In the short term, the market will do anything but over the long term, it will trade for what it is worth and that is what you get. Joel Greenblatt
One way to create an attractive risk/reward situation is to limit downside risk severely by investing in situations that have a large margin of safety. The upside, while still difficult to quantify, will usually take care of itself. In other words, look down, not up, when making your initial investment decision. Joel Greenblatt
I think it's essential to remember that just about everything is cyclical. There's little I'm certain of, but these things are true: Cycles always prevail eventually. Nothing goes in one direction forever. Trees don't grow to the sky. Few things go to zero. And there's little that's as dangerous for investor health as insistence on extrapolating today's events into the future. Howard Marks
There’s only one way to describe most investors: trend followers. Superior investors are the exact opposite. Howard Marks
I hear people say the way to make money is to take more risk -- and that is ridiculous, in my opinion. Taking more risk should not be one's goal. One's goal should be to make smart investments even if they involve risk, but not because they involve risk. That is a very important distinction. Howard Marks
If I had to identify a single key to consistently successful investing, I’d say it’s “cheapness.” Howard Marks
It bears repeating that most investors extrapolate past performance, expecting the continuation of trends rather than the far-more-dependable regression to the mean. Howard Marks
Value stocks are about as exciting as watching grass grow. But have you ever noticed just how much your grass grows in a week? Christopher Browne
Investors repeatedly jump ship on a good strategy just because it hasn't worked so well lately, and, almost invariably, abandon it at precisely the wrong time. David Dreman
It is critical that investors recognize that no manager performs well in all environments. When we talk to potential investors, we emphasize they should not expect us to outperform the market every month, every quarter, every year. We believe investors would be well served not to track us versus a benchmark in shorter time periods. Donald Yacktman
As long-term investors, we position portfolios for the 95% of the time the economy is growing, not the unforecastable 5% when it is not. Bill Miller
We differ from many value investors in being willing to analyze stocks that look expensive to see if they really are. Most, in fact, are, but some are not. To the extent we get that right, we will benefit shareholders and clients. Bill Miller
One of the most remarkable things about the investing world is how (correctly) venerated Warren Buffett is and how completely people ignore his investing advice. Bill Miller
Margin of Safety Seth Klarman
The Future For Investors Jeremy Siegel
Stocks for the Long Run Jeremy Siegel
The Most Important Thing Howard Marks
One Up On Wall Street Peter Lynch
Beating The Street Peter Lynch
The Warren Buffett Way Robert G. Hagstrom,
The New Buffettology Mary Buffett & David Clark
The Little Book of Value Investing Christopher H. Browne
Common Stocks and Uncommon Profits Philip Fisher
The Intelligent Investor Benjamin Graham
The Essays of Warren Buffett Lawrence Cunningham
You Can Be a Stock Market Genius Joel Greenblatt
The Little Book That STILL Beats the Market Joel Greenblatt
Buffett: The Making of an American Capitalist Roger Lowenstein