Words of Wisdom From Warren Buffett

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 “Expert” 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 lifetime… 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 Oracle’s quotes concerning specific investment issues and principles to help guide you during this uncertain period.

Investing

“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 kink, 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.” (Berkshire Hathaway 2000 Chairman’s Letter)

“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.” (1997 Berkshire Hathaway Annual Meeting)

“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)

“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.” (Business Week Interview June 25, 1999)

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

“The stock market is designed to transfer money from the Active to the Patient.”

“Our favorite holding period is forever.” (Letter to Berkshire Hathaway shareholders, 1988)

Market Timing and Uncertain Financial Markets

“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 when others are fearful.” (Berkshire Hathaway 2004 Chairman’s Letter)

“You can only find out who is swimming naked when the tide goes out.” (Berkshire Hathaway 2001 Chairman’s Letter)

“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.” (Berkshire Hathaway 1990 Chairman’s Letter)

“If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

“The 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.”

“Most people get interest in stocks when everyone else is. The time to get interest is when no one else is. You can’t buy what is popular and do well.”

The Financial Media and Market Pundits

“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.”

Children and Money

“[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.” (Fortune article September 29, 1986 titled “Should You Leave It All to the Children?”)

12 Responses to “Words of Wisdom From Warren Buffett”

  1. Anonymous

    Thanks again to nickel for inviting me to be a guest writer. I enjoyed the experience immensely and hope to be back again.

    If you share my interest in Warren Buffett, please give a listen to my latest podcast. I share my perspective on his latest Berkshire Hathaway shareholder letter:

    link to podcast

  2. Anonymous

    I tried reading his “letter to the shareholders” one day, yet I didn’t find him fascinating or exhilarating, or anything else in that matter.

    If the tide goes out, the one who swims will go out too… plus if I want to know I’ll learn here and now, why will I wait? He doesn’t wait either.

    A part of his “letters”, and some “lessons” he doesn’t tell you much of “his way”. So you read books about him, not his books. Let me see… if you wish to know a person do you look at him or at his reflection in the mirror, do you listen his words or the description that someone else will give you? Hummm

    My favorite quote is actually very recent… couple of days ago. He said… “Party is over folks”. I would sure respect him for one think He did what he wanted, not what he was advised to do. That I think is his secret trick, the rest is junk.

  3. Anonymous

    “If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”

    This could be my favorite quote by Warren Buffett, it separates investing from speculation.

    “You can only find out who is swimming naked when the tide goes out.”

    Yeah, I’m not quite sure about this one.

  4. Anonymous

    I’m currently reading Warren Buffet’s “The Essays of Warren Buffet: Lessons for Corporate America.” It’s a great read! I definitely recommend picking it up…

  5. Anonymous

    Love Mr Buffett and not just because I grew up in Omaha!

    I especially love that about every five years (around the time a new bubble starts) the pundits pop out telling how BRK is out of touch with the New-new Economy!

  6. Anonymous

    @Mark
    Read his letters to shareholders. He speaks of “dancing in and out of the markets” and laments the fact that it is more difficult with billions of dollars.

    He times the market, he just does it better than anyone else.

  7. Anonymous

    @ Ron

    Agreed that Warren’s the king, but I’m not sure I’d call him a market timer! He seems to mostly ignore the market and put all of his focus on individual businesses and their merits, and leaves the market out of it.

    His great choices come from the ability to understand the fundamental nature and value of a business, and he buys whenever the right opportunity presents itself.

  8. Anonymous

    Great list of quotes. Buffet is the king of market timers and is seldom wrong. One of my favorite quotes of his is that he hopes business schools keep teaching efficient market theory because it helps him make money.

    When everyone zigs, Buffet zags.

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