Warren Buffett's Wisdom (Of Permanent Value)

As per requested here is the the full compilation of all the famous Warren Buffett's quotes I have in my closet in one single posting.

Enjoy.

======================================================

The course of the stock market will largely determine... when we'll be right, but the accuracy of our analysis will determine whether we'll be right. In other words, we.... concentrate on what should happen, not when it should happen... If we start deciding, based on our guesses or emotions, whether we will... participate in a business where we.... have some long-run edge, we're in trouble. We will not sell our interests in businesses when they are attractively priced just because some astrologer thinks the quotations may go lower even though forecasts... will be right some of the time... The availabilty of a quotation for your business interests should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn form your judgements.

(Buffett Partnership letter, July 1966)

All of our investments usually appear undervalued to me - otherwise we wouldn't own them.

(Buffett Partnership letter, July 1966)

I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.

(Buffett Partnership letter, July 1966)

As Ben Graham said: "In the long run, the market is a weighing machine - in the short run, a voting machine." I have always found it easier to evaluate the weights dictated by fundamentals then votes dictated by pyschology.

(Buffett Partnership letter in 1969)

We ordinarily make no attempt to buy equities favourable short-term price behavior. In fact, if the business experience continues to satisfy us, we welcome lower prices as an opportunity to acquire even more of a good thing.

(1977 Annual Report)

(The) argument is made that there are just too many (investment) question marks about the be near-term future; wouldn't it be better to wait until things clear up a bit? You know the prose: "Maintain buying reserves until current uncertainties are resolved," etc. Before reaching for that clutch, face up to two unpleasant facts: the future is never clear; you pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values.

(Forbes, August 6, 1979)

The market, like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do.

(1982 Annual report)

I have seen no trend toward value investing in the 35 years I've practised it. There seems to be some perverse human characteristic that likes to make easy things difficult.

(Talk to ColumbIa Business School in 1985)

The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.

(Channels magazine, talk to Patricia Bauer, 1986)

Money, to some extent, sometimes lets you to be in more interesting environments. But it can't change how many people love you or how healthy you are.

(Channels magazine, talk to Patricia Bauer, 1986)

Business schools "reward complex behavior more than simple behavior, but simple behavior is more effective."

(Channels magazine, talk to Patricia Bauer, 1986)

I like the fact it's a big transaction. 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.

(Wall Street Journal, Sept 30, 1987, shortly after Berkshire's $700 million investment in Solomon)

It looks... impressive if it comes out of a computer. But it's frequently nonsense. The person who's making the decision is far more important.

(Outstanding Investor Digest, Oct 7, 1987)

I'm an analyst basically. I try to figure out what businesses are worth, then divide bu the number of shares outstanding.

(Omaha World-Herald, October 18, 1987, quoting Money magazine)

The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.

(Fortune, Jan 4, 1988)

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

(Widely quoted)

On turnarounds:
The projections will be dazzling -- the advocates will be sincere -- but in the end, major additional investment in a terrible industry usually is about as rewarding as struggling in quicksand.

(Widely quoted)

I don't know what it'll (the stock market) do tomorrow or next week or next year. But I do know that over a period of 10 to 20 years you'll have some very enthusiastic markets and some very depressed markets. The trick is to take advantage of the markets rather than letting them panic you into the wrong action.

(Widely quoted)

It's just not neccessary to do extraodinary things to produce extraodinary results.

(Widely quoted)

On properly valuing a business:

To properly value a business, you should ideally take all the flows of money that will be distributed between now and judgement day and discount them at an appropriate discount rate. That's what valuing a businesses is all about. Part of the equation is how confident you can be about those cash flow occurring. Some businesses are easier to predict than others. For example, water companies are generally easier to predict than building contractors. We try to look at businesses that are predictable.

(Annual meeting in 1988)

Anything can happen in stock markets and you ought to conduct your affairs so that if the most extraodinary events happen, that you're still around to play the next day.

(Buffett on Adam Smith's Money World show, June 20, 1988)

Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.

(Fortune, December 19, 1988)

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

(1989 Annual Report)

It's no sin to miss a great opportunity outside one's area of competence.

(1989 Annual Report)

I've often felt there might be more to be gained by studying business failures than business successes. It's customary in business schools to study business successes. But my partner, Charlie Munger, says all he wants is to know where he is going to die -- so he won't ever go there.

(Talks to Emory Business College, November, 1989)

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 these shares forever.

(Forbes, Aug 6, 1990)

You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy woth a 130 IQ. Rationality is essential.

(Widely quoted)

The most common cause of low price is pessimism -- sometimes pervasive, somtimes specific to a company or an 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. None of this means, however, that a business or a stock is an intelligent purchase because it is unpopular; a contrarian approach is just as foolish as follow the crowd strategy. What's required is thinking rather than polling.
(1990 Annual report)

The most important thing to do when you find yourself in a hole is to stop digging.

(1990 Annual Report)

Someone's sitting in the shade today because someone planted a tree a long time ago.

(NewsInc, January, 1991)

To swim a fast 100 meters, it's better to swim with the tide than to work on your stroke.

(Annual meeting in 1991)

There are a lot of profitable things you can do but you have to stick to what you can do. We can't find a way to knock out Mike Tyson.

(Annual meeting in 1991)

On learning from mistakes:

I guess I had too much inclination originally to buy mediocre, or worse than mediocre, businesses at a very cheap price. That works OK, in the sense that you never lose money; but you never end up with a great business that way either. Sp that emphasis has shifted over the years. We don't want to buy the worst furniture store in town at the cheapest price; we want to buy the best one at a fair prcie.

(Widely quoted)

His biggest strength:

I'm rational. Plenty of people have higher IQs, and plenty of people work more hours, but I am rational about things. But you have to control yourself; you can't let your emotions get in the way of your mind.

In 1986, my biggest accomplishment was not doing anything stupid. There is not much to do; there is not much available right now. The trick is, when there is nothing to do, do nothing.

I love what I do. All I want to do is do what I'm doing as long as I can. Every day I feel like tap dancing through the day. I really do.

(Widely quoted)

Investment must be rational; if you don't understand it, don't do it.

(Forbers, Oct 19, 1992)

On Growth:

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.

(1992 Annual Report)

What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistake.

(1992 Annual Report)

Two kind of information:

Those things you can know and those important things to know. Those things you can know that are important constitute an extremely small percentage of the total known.

(Widely quoted)

On investing:

Investing is not that complicated. You need to know accounting, the language of business. You should read The Intelligent Investor. You need the right mindset, the right temperament. You should be interested in the process and be in your right circle of competence... Avoid overstimulation. Read Ben Graham and Phil Fisher, read annual reports and trade reports, but don't do equations with Greek letters in them.

(Annual meeting in 1993)

Restructurings -- That's a word for mistakes.

(Annual meeting in 1993)

Buffett as an admirer of the British economist and invester John Maynard Keynes:

Keynes essentially said don't try and figure out what the market is doing. Figure out business you understand, and concentrate. Diversification is protection against ignorance, but if you don't feel ignorant, the need for it goes down drastically.

(Forbes, Oct 19, 1993)

Picking the right business for a long term holding. If you're going to have a Catholic marriage, you'd better do it right.

(Omaha World-Herald, October 28, 1993)

Risk is not knowing what you're doing.

(Omaha World-Herald, Oct 28th 1993)

I would think very hard about getting into a business with fundamentally good economics. I would think of buying from people I can trust. And I'd think about the price I'd pay. But I wouldn't think about the price to the exclusion of the first two.

And that is essentially, is what we're trying to do at Berkshire. And if I did that, would I think about whether I could buy it cheaper on Monday rather than on Friday or would I think about the January effect or other nonsense?

(Omaha World-Herald, Oct 28, 1993)

Communication investments:

I don't like business where the technology are changing fast. Basically, I don't think I'm a great one for seeing the future when the future looks way different than the present. Generally, anything that is subject to a lot of change and technology, I tend to be critical of rather than excited by.

(Omaha World-Herald, Oct 28, 1993)

Diversification is a hedge against ignorance.

(Widely quoted)

Diversification:

The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it. In stating this opinion, we define risk, using dictionary terms, as "the possibility of loss or injury."

Academics, however, like to define investment "risk" differently, averring that it is the relative volatility of a stock or portfolio of stocks - that is, their volatility as compared to that of a large universe of stocks. Employing data bases and statistical skills, these academics compute with precision the "beta" of a stock - its relative volatility in the past - and then build arcane investment and capital-allocation theories around this calculation. In their hunger for a single statistic to measure risk, however, they forget a fundamental principle: It is better to be approximately right than precisely wrong.

(1993 Annual Report)

There's 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.

(Annual meeting 1994)

Thinking for yourself:

"You have to think for yourself. It always amazes me how high-IQ people mindlessly imitate. I never get good idea talking to other people."

(US News & World Report, June 20, 1994)

A good business:

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.

(US World & News Report, June 20, 1994)

Compound interest is a little bit like rolling a snowball down a hill. You can start with a small snowball and if it rolls down a hill long enough (and my hill is now 53 years long - that's when I bought my first stock), and the snow is mildly sticky, you'll have a real snowball at the end.

(Talk to University of Nebraska students, Oct 10, 1994)

The professional in almost any field achieve a result which is significantly above what the layman in aggregate achieves. It's not true in money management.

(New York Society of Security Analysts, December 6, 1994)

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 cornerstones of investing."

(New York Society of Security Analysts, December 6, 1994)

We just try to buy businesses with good to superb underlying economics, run by honest and able people and buy them at sensible prices. That's all I'm trying to do.

(New York Society of Security Analysts, December 6, 1994)

When you find a really good business run by first-class people, chances are a price that looks high isn't high.

(London Indendent, Feb 19, 1995)

I'd be a bum on the street with a tin cup if the market is efficient.

(Fortune, April 3, 1995)

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?

(1994 Annual Report)

You don't have to make money back the same way you lost it.

(Annual meeting in 1995)

A stock doesn't know who owns it. You may have all of those feelings and emotions as the stock goes up or down, but the stock doesn't give a damn.

(Annual meeting in 1995)

We like stocks that generate high returns on invested capital where there is a strong likelyhood that it will continue to do so. For example, the last time we bought Coca-Cola, it was selling at about 23 times earnings. Using our purchase price and today's earnings, that makes it about five times earnings. It's really the interaction of capital employed, the return on that capital, and future capital generated versus the purchase price today.

(Annual meeting in 1995)

There are certain kinds of businesses where you have to be smart once and the kind that you have to stay smart every day to defend it. Retailing is one of them. If you find a retailing concept that catches on, you have to defend it every day.

(Annual meeting in 1995)

I have no use whatsoever for projections or forecasts. They create an illusion of apparent precision. The more meticulous they are, the more concerned you should be. We never look at projections but we care very much about, and look very deeply at track records. If a company has a lousy track record, but a bright future, we will miss the opportunity.

(Annual meeting in 1995)

If you have to choose between a terrific management and a terrific business, choose the terrific business.

(Annual meeting in 1995)

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

(PBS TV program produced by Univeristy of North Carolina, 1995)

If you find three wonderful businesses in your life, you'll get very rich.

(Annual meeting in 1996)

You can gain some insight into the differences between book value and intrinsic value by looking at one form of investment, a college education. Think of the education's cost as its "book value." If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job.

For this exercise, we will ignore the important non-economic benefits of an education and focus strictly on its economic value. First, we must estimate the earnings that the graduate will receive over his lifetime and subtract from that figure an estimate of what he would have earned had he lacked his education. That gives us an excess earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. The dollar result equals the intrinsic economic value of the education.

Some graduates will find that the book value of their education exceeds its intrinsic value, which means that whoever paid for the education didn't get his money's worth. In other cases, the intrinsic value of an education will far exceed its book value, a result that proves capital was wisely deployed. In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value.

(Berkshire's Owner's Mannual, June, 1996)

With enough inside information and a million dollars, you can go broke in a year.

(Widely quoted)

I would not want you to panic and sell your Berkshire stock upon hearing that some large catastrophe had cost us a significant amount. If you would tend to react that way, you should not own Berkshire shares now, just as you should entirely avoid owning stocks if a crashing market would lead you to panic and sell.

(1996 Annual Report)

Inactivity [in investing] strikes us as intelligent behavior.

(1996 Annual Report)

If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.

(1996 Annual Report)

"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."

(Morningstar Interview)

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.

(1998 Annual Meeting)

We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.

(1998 Annual Meeting)

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.

(1998 Annual meeting)

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'?

(1987 Shareholders Letters)

We will reject interesting opportunities rather than over-leverage our balance sheet.

(Berkshire's Owners Manual)

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 epressed 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.

(Warren Buffett, 1997 Chairman's Letter to Shareholders)

The strategy we've adopted precludes our following standard diversification dogma. Many pundits would therefore say the strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort-level he must feel with its economic characteristics before buying into it.

(Warren Buffett, 1993 Chairman's Letter to Shareholders)

An irrisistable footnote: in 1971, pension fund managers invested a record 122% of net funds available in equities - at full prices they couldn't buy enough of them. In 1974, after the bottom had fallen out, they committed a then record low of 21% to stocks.

(Warren Buffett, 1978 Chairman's Letter to Shareholders)

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

(Warren Buffett lecturing to a group of students at Columbia U. He was 21 years old.)

When returns on capital are ordinary, an earn-more-by-putting-up-more record is no great managerial achievement. You can get the same result personally while operating from your rocking chair. just quadruple the capital you commit to a savings account and you will quadruple your earnings. You would hardly expect hosannas for that particular accomplishment. Yet, retirement announcements regularly sing the praises of CEOs who have, say, quadrupled earnings of their widget company during their reign - with no one examining whether this gain was attributable simply to many years of retained earnings and the workings of compound interest.

(Warren Buffett, 1985 Chairman's Letter to Shareholders)

If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety...

(Warren Buffett, 1997 Berkshire Hathaway Annual Meeting)

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.

(Warren Buffett, 1997 Berkshire Hathaway Annual Meeting)

"You pay a high price for a cheery consensus."

(Widely quoted)

“The important thing is to keep playing, to play against weak opponents and to play for big stakes."

(Warren Buffett, Nov. 2002 talking with students at Gaston Hall)

"Sometimes you're outside your core competency. Level 3 is one of those times but I've made a bet on the people and I feel I understand the people. There was a time when people made a bet on me."

(Warren Buffett, Oct. 2002 when questioned about his investment in Level 3)

"The only way to be loved is to be loveable, which really irritates me."

(Warren Buffett, speaking at the CityClub in Seattle, July 21, 2001)

"First, many in Wall Street - a community in which quality control is not prized - will sell investors anything they will buy."

(Warren Buffett, 2000 Letter to Shareholders)

"Charlie and I decided long ago that in an investment lifetime it's too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire's capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart - and not too smart at that - only a very few times. Indeed, we'll now settle for one good idea a year. (Charlie says it's my turn.)"

(Warren Buffett)

"We're more comfortable in that kind of business. It means we miss a lot of very big winners. But we wouldn't know how to pick them out anyway. It also means we have very few big losers - and that's quite helpful over time. We're perfectly willing to trade away a big payoff for a certain payoff."

(Annual Meeting 1999)

"I am out of step with present conditions. When the game is no longer played your way, it is only human to say the new approach is all wrong, bound to lead to trouble, and so on. On one point, however, I am clear. I will not abandon a previous approach whose logic I understand ( although I find it difficult to apply ) even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully, and which possibly could lead to substantial permanent loss of capital."

(Partnership letter 1969)

"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."

(Warren Buffett)

"I just don't see anything available that gives any reasonable hope of delivering such a good year and I have no desire to grope around, hoping to 'get lucky' with other people's money. I am not attuned to this market environment, and I don't want to spoil a decent record by trying to play a game I don't understand just so I can go out a hero."

(Warren Buffett )

"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."

(Warren Buffett, July 1999 at Herb Allen's Sun Valley, Idaho Retreat)

"The most common cause of low prices is pessimism-some times pervasive, some times 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."

(Warren Buffett, 1990 Chairman's Letter to Shareholders)

"I don't read economic forecasts. I don't read the funny papers."

(Warren Buffett)

"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!'"

(Annual Meeting 1999)

"Success in investing doesn't correlate with I.Q. once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

(BusinessWeek Interview, June 25 1999)

The key to investing is not accessing how much an industry is going to affect the 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 the investor.

(Warren Buffett)

We think diversification, as practiced generally, makes very little sense for anyone who knows what they're doing. Diversification serves as protection against ignorance. If you want to make sure that nothing bad happens to you relative to the market, you should own everything. There's nothing wrong with that. It's a perfectly sound approach for somebody who doesn't know how to analyze businesses.

But if you know how to value businesses, it's crazy to own 50 stocks or 40 stocks or 30 stocks, probably because there aren't that many wonderful businesses understandable to a single human being in all likelihood. To forego buying more of some super-wonderful business and instead put your money into #30 or #35 on your list of attractiveness just strikes Charlie and me as madness.

-Warren Buffett (1996 Annual Meeting)

What Is “Cigar Butt” Investing?

If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the "cigar butt" approach to investing. A cigar butt found on the street that has only one puff left in it may not offer much of a smoke, but the "bargain purchase" will make that puff all profit.

Warren Buffett 1989

"To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.

"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 five, ten and twenty 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. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value."

--Warren Buffett, 1996 Berkshire Hathaway Shareholder Letter

Modern Portfolio Theory

We have "professional" investors, those who manage many billions, to thank for most of this turmoil. Instead of focusing on what businesses will do in the years ahead, many prestigious money managers now focus on what they expect other money managers to do in the days ahead.

(1987 Chairman's Letter)

We try to price, rather than time, purchases.

(1994 Chairman’s Letter)

The strategy we've adopted precludes our following standard diversification dogma.

(1993 Chairman’s Letter)

It has no utility. It will tell you how to do average. But I think almost anybody can figure out how to do average in the fifth grade. It's just not that difficult. Modern portfolio theory is elaborate. There are lots of little Greek letters and all kinds of things to make you think you're in the big leagues. But there is no value added.

(1996 Annual Meeting)

He has two concrete rules for all who seek riches:

Rule No.1. Never lose money.

Rule No.2 Never forget Rule No.1.

- Of Permanent Value

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.

(Fortune, Dec 10 2001)

"The wise ones [investors] bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple."

(Warren Buffett)

We think the best way to minimize risk is to think.

(Annual meeting 2004)

The key is to have a “money mind,” which is not IQ, and then you have to have the right temperament. If you can’t control yourself, you’re going to have disasters. Charlie and I have seen it. The whole world in the late 1990s went a little mad in terms of investments. How could that happen? Don’t people learn? What we learn from history is that people don't learn from history,"

(Annual meeting 2004)

On missed investment opportunities (ie Walmarts) :

If every shot was a hole in one it wouldn't make the game very interesting. You have to hit balls in the woods a few times.

(Annual meeting 2004)

If we were to do it over again, we’d do it pretty much the same way. The world hasn’t changed that much. We’d read everything in sight about businesses and industries we think we’d understand. And, working with far less capital, our investment universe would be far broader than it is currently.

There’s nothing different, in my view, about analyzing securities today vs. 50 years ago.

(Annual meeting 2004)

If you think you’ll see an opportunity every week, you’re going to lose a lot of money.

(Annual meeting 2004)

If you pay way too much for a business, you’ll get a poor return on what you paid, even if the return on tangible equity is very good.

(Annual meeting 2004)

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 [if they use] leverage. If you can hold them [the positions you own during a crisis], then you’re OK. But even smart people can get clobbered with leverage – it’s the one thing that can prevent you from playing out your hand.

(Annual meeting 2004)

Thinking About Growth Rates When Estimating Valuation

When the [long-term] growth rate is higher than the discount rate, then [mathematically]
the value is infinity. This is the St. Petersburg Paradox, written about by Durant 30 years ago.

Some managements think this [that the value of their company is infinite]. It gets very dangerous to assume high growth rates to infinity – that’s where people get into a lot of trouble. The idea of projecting extremely high growth rates for a long period of time has cost investors an awful lot of money. Go look at top companies 50 years ago: how many have grown at 10% for a long time? And [those that have grown] 15% is very rarified.

Charlie and I are rarely willing to project high growth rates. Maybe we’re wrong sometimes and that costs us, but we like to be conservative.

(Annual meeting 2004)

"To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.

"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 five, ten and twenty 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. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value."

--Warren Buffett, 1996 Berkshire Hathaway Shareholder Letter

"If you want to succeed, it's common sense to study success."

- annual letter 2004

Investors should remember that excitement and expenses are their enemies, and if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.

-- annual letter 2004

If you could pick 10% of one person in this room to own or 'go long' for the next 30 years, who would it be? It wouldn't be the person with the highest IQ; it wouldn't be the star athlete; you would look for certain other qualities… And if you had to pick one person to 'short' for the next 30 years, who would it be? Now ask yourself why you have made those selections. If you've considered these questions properly, the person you've gone long is probably someone who is honest, courageous, and dependable; the person you've shorted is probably someone who is egotistical and likes to take the credit. The point is that success is mostly dependent upon elective qualities, not anything with which you are born. You can choose to be dependable or not. And it's not easy to change, so choose correctly now. Bertrand Russell once said, "The chains of habit are too light to be felt until they're too heavy to be broken." So ask yourself, "Who do I want to be?" At the end of this process you should determine that the person you want to buy is yourself. You all are holding winning tickets.

(Warren Buffett)

Q: When you consider an acquisition, what are the first things you look for in a management team?

A: Well, what do you look for in a girl? Seriously, you look for the logical things - passion, an interest in running the business, honesty. Such as, do they love the business, or do they love the money? This is the first filter. I mean real passion; Mrs. B ran Nebraska Furniture Mart until she died at the age of 103 - that's passion. If temperament is the most important personal asset in managing money, in business, it's passion. Secondarily, if you've been doing it a while, you get to know how to do it. But obviously no management team is perfect, so you're often stuck making a judgment call. You don't want to wait forever to find the perfect team. Incidentally, a friend of mine spent twenty years looking for the perfect woman; unfortunately, when he found her he discovered that she was looking for the perfect man.

---

To get rich, you find businesses with durable competitive advantage and you don't overpay for them.

---

There is no shame in making a mistake. Despite a great deal of research and analysis, I make plenty of them -- and so does every other investor -- because the future is inherently unpredictable. But there is shame in refusing to acknowledge a mistake and rectifying it.