This is a guest post from Brian “The Money Guy” Preston, a certified financial planner and partner in Preston & Cleveland Wealth Management, LLC. Brian is also one of my favorite podcasters — if you like what you see here, please consider subscribing to The Money Guy Podcast.
Without a doubt, we are in an uncertain period for the financial markets. During uncertain periods in the past, you could shelter yourself from all of the bad news. But that’s just not possible in this modern era with 24 hour business news channels, financial talk radio (I am admittedly part of this noise with The Money Guy Show), daily and weekly financial newspapers and magazines, etc.
It should also be noted that even though reading, listening, and watching financial media can be entertaining, it can also be outright harmful to your long-term financial success. Indeed, it has become much easier to let your emotions rule financial decisions since you can now find an â€œExpertâ€ point of view that matches just about any crazy scenario that you can imagine. With all of this distracting noise it is probably a great time to check-in with the most successful investor of our lifetimeâ€¦ Warren Buffett, the Oracle of Omaha.
As many of you are aware Warren is a humble self-made billionaire that has been successful by being consistent and focused on what he is good at; finding good companies that have good management and healthy financial statements. Below I have compiled a list of the Oracleâ€™s quotes concerning specific investment issues and principles to help guide you during this uncertain period.
â€œThe 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 kink, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities â€“ that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future â€“ 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. Thereâ€™s a problem, though: They are dancing in a room in which the clocks have no hands.â€ (Berkshire Hathaway 2000 Chairmanâ€™s Letter)
â€œIf youâ€™re an investor, youâ€™re looking on what the asset is going to do, if youâ€™re a speculator, youâ€™re commonly focusing on what the price of the object is going to do, and thatâ€™s not our game.â€ (1997 Berkshire Hathaway Annual Meeting)
â€œThere are all kinds of businesses that Charlie and I donâ€™t understand, but that doesnâ€™t cause us to stay up at night. It just means we go on to the next one, and thatâ€™s what the individual investor should do.â€ (Morningstar Interview)
â€œSuccess in investing doesnâ€™t correlate with I.Q. once youâ€™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.â€ (Business Week Interview June 25, 1999)
â€œSomeoneâ€™s sitting in the shade today because someone planted a tree a long time ago.â€
â€œThe stock market is designed to transfer money from the Active to the Patient.â€
â€œOur favorite holding period is forever.â€ (Letter to Berkshire Hathaway shareholders, 1988)
Market Timing and Uncertain Financial Markets
â€œInvestors 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 when others are fearful.â€ (Berkshire Hathaway 2004 Chairmanâ€™s Letter)
â€œYou can only find out who is swimming naked when the tide goes out.â€ (Berkshire Hathaway 2001 Chairmanâ€™s Letter)
â€œThe most common cause of low prices is pessimism â€“ 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. Itâ€™s optimism that is the enemy of the rational buyer.â€ (Berkshire Hathaway 1990 Chairmanâ€™s Letter)
â€œIf you donâ€™t feel comfortable owning something for 10 years, then donâ€™t own it for 10 minutes.â€
â€œThe future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.â€
â€œMost people get interest in stocks when everyone else is. The time to get interest is when no one else is. You canâ€™t buy what is popular and do well.â€
The Financial Media and Market Pundits
â€œWeâ€™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.â€
Children and Money
â€œ[The perfect amount of money to leave children is] enough money so that they would feel they could do anything, but not so much that they could do nothing.â€ (Fortune article September 29, 1986 titled â€œShould You Leave It All to the Children?â€)