Buffett's Wisdom (Of Permanent Value) Part III

Here is Part III of my small collection of words of wisdom from the legendary investor Warren Buffett.

Enjoy!

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"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 Market allegory may seem out-of-date in today's investment world, in which most professionals and academicians talk of efficient markets, dynamic hedging and betas.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)

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to be continued...