Warren Buffett changed the way people think about investing. He made it mainstream. When you look at his body of work, all of the investing letters, the media appearances, conferences, and portfolio research, no one has done more for the art of investing than Buffett. In this post, I wanted to write about those lessons and share my favorite moments.
“First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.” – Warren Buffett
The Traits of Great Investors According To Buffett 💰
Self-control is essential. You want to show a patient, methodical, and clever approach to taking action. Never act on impulse. As Buffett would later say:
“The most important quality to do well is temperament which would permit the control of fear and greed which have ruined many. Anyone who has become rich twice is dumb. Why would you risk what you need and have for what you don’t need? If you are already rich, there is no upside to taking on a lot more risk, but there is disgrace on the downside.”– Warren Buffett
Or as Gertrude Stein put it: “Money is always there, but the pockets change.”
The best investments happen when you wait for opportunity. You will be rewarded for being patient. You never have to swing all at once. Time is on your side. Sit back and wait. Buffett is famous for this approach, as he once said:
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons. And that we will do.”– Warren Buffett
Stock market crashes are impossible to predict. Do not assume they will happen or predict it. In-fact, according to Buffett, it’s usually the other way around. Crashes are not predicted, they instead come to us without any foresight and that’s why they are a crash.
“No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: “We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.”– Warren Buffett
Sales, in general, is underrated. Most people think money is just made in markets and in finance. The reality is most deals are made because of sales. Someone made an agreement or arrangement. Your job is find out what sales have the best intentions. Sales is what drives everything from Wall Street and beyond. Buffett has a story about this:
“Long ago, a brother-in-law of mine, Homer Rogers, was a commission agent working in the Omaha stockyards. I asked him how he induced a farmer or rancher to hire him to handle the sale of their hogs or cattle to the buyers from the big four packers (Swift, Cudahy, Wilson and Armour). After all, hogs were hogs and the buyers were experts who knew to the penny how much any animal was worth. How then, I asked Homer, could any sales agent get a better result than any other? Homer gave me a pitying look and said: “Warren, it’s not how you sell ‘em, it’s how you tell ‘em.” What worked in the stockyards continues to work in Wall Street.”– Warren Buffett
The Best Things Warren Buffett Said 🎙
1. “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
2. “I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.”
3. “Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”
4. “There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume.”
5. “Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
6. “If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.”
7. “It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.”
8. “In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
9. “Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the models. Beware of geeks bearing formulas.”
10. “If you aren’t thinking about owning a stock for ten years, don’t even think about owning it for ten minutes.”
The Habits of Warren Buffett 💪
Warren Buffett’s biographer, Alice Schroeder, once did a Q&A on Reddit. Very few people were reading this Q&A or even know it exists. In her Q&A she revealed skills and habits of Buffett. I felt compelled to share the most notable quotes here.
Time Management and Saying “No”
“Warren is a master of time management. He knows how to ease people off the phone without making them feel dismissed. He is great at saying no and I learned a lot about saying no tactfully. That’s an important time management technique. Also, he manages his energy, reading when it’s optimal, talking on the phone when he’s got the right energy for that and so forth. It’s fairly compartmentalized and he does not multitask through his day. That was a useful lesson.”Alice Shroeder Reddit Q&A
Buffett’s Incredible Brain Power
“Warren does his reading in the morning. He had cataract surgery not long ago and it’s made things much easier for him. He starts with the newspapers. He looks at them page by page but doesn’t read every article. He is very interested in news about companies and less interested in general news. Warren is outstanding at pattern recognition and prefers to do his own synthesis so when he reads he’s looking more for data points rather than other people’s conclusions.”Alice Shroeder Reddit Q&A
He Reads… And Reads Again
“The annual reports — he reads them for the most part as they are received. He’s been following some companies for fifty years or longer and as noted earlier he’s got quite a memory, so the process of reading annual reports is pretty efficient for him. He can go through one in an hour or less and get what he needs. On the other hand, say when Google went public, he spent more time on their filings because it was new information. He reads a lot of annual reports of companies he would not buy to expand his knowledge.”Alice Shroeder Reddit Q&A
Meet Buffett’s Mentor Ben Graham
Isaac Newton was famous for saying all of his great achievements were accomplished because he the people who came before him. He said he was standing on the shoulders of giants. Likewise, Buffett did learn from others. He did study the methods of other investors. One of them was his mentor and college teacher Ben Graham.
Ben Graham is the founder of value investing. He is the man who made it popular and what it is today. It’s why it’s taught in business schools. To get a sense of Ben Graham and Buffett’s mentor, read some of these quotes for which he is famous for saying to shape the art of investing.
Ben Graham was a proponent of the long-term. Stay away from day-to-day price swings and focus on the core business.
“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.”
Ben Graham was the father of value investing. He lived and taught to find undervalued companies and investments. He was looking for sales. He would later compare his investing style to shopping for groceries.
“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”
Buffett is an investor. So is Graham. They are not traders or speculators. They research, read, study, and find the opportunity they believe in. Ben Graham lays out the distinction perfectly in many of his sayings.
“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… As in all other activities that emphasize price movements first and underlying values second, the work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and self-defeating over the years. The investor with a portfolio of sound stocks should expect their prices to fluctuate and should neither be concerned by sizable declines nor become excited by sizable advances.”
Ben Graham was a master at ignoring day-to-day price fluctuations in his stock investments. Patience and long-term thinking was the key. He passed that down to Buffett and you can read it in all of his sayings.
“The investor should always remember that market quotations are there for his convenience, either to be taken advantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down. He would not be far wrong if this motto read more simply: Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop.”
More Great Things Buffett Said 📣
“In the business world, the rearview mirror is always clearer than the windshield.”
“Only when the tide goes out do you discover who’s been swimming naked.”
“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.”
“You only have to do a very few things right in your life so long as you don’t do too many things wrong.”
“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
“We always live in an uncertain world. What is certain is that the United States will go forward over time.”
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
“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.”
“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.”
“It’s never paid to bet against America. We come through things, but it’s not always a smooth ride.”
“One word sums up our country’s achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.”
“That old line, “The other guy is doing it, so we must as well,” spells trouble in any business”
The Writings That Taught Me Most About Buffett 📚
Poor Charlie’s Almanack: The Wit and Wisdom of Charles Munger
A must-read for those who are the biggest students of Charlie Munger. There is truly no better book or item to own than this. It’s everything about Charlie Munger packaged into one colorful and masterful book. If you don’t know who Munger is, it’s Buffett’s business partner. He is known for his wit and skepticism of everything.
“Charlie and I cringe when we hear analysts talk admiringly about managements who always “make the numbers.” In truth, business is too unpredictable for the numbers always to be met. Inevitably, surprises occur. When they do, a CEO whose focus is centered on Wall Street will be tempted to make up the numbers.”Warren Buffett on how Charlie Munger and him think
Berkshire Hathaway Letters to Shareholders
One of the best ways to learn about Charlie Munger, and even more about Warren Buffett, is to read what they’ve wrote to shareholders since Berkshire Hathaway was founded. This is a special read because it is every shareholder letter compiled into one book.
The Most Important Thing: Uncommon Sense for the Thoughtful Investor
A book from Howard Marks who has become a thoughtful investment thinker and money manager. He applies things he’s learned from Munger and Buffett in all of his work. Today he manages one of the biggest funds in the world Oaktree Capital.
Oaktree Capital Investment Letters
These letters are written by Howard Marks, who is a value investor and proponent of Ben Graham and Buffett. He writes monthly and his letters are known across the investment landscape. He even sounds like Buffett at times.
The Intelligent Investor: The Definitive Book on Value Investing
This is the book that inspired both Buffett and Munger. It’s written by their investment teacher Ben Graham. He walks investors through the foundation of value investing and the book dates back now 50+ years.
The Autobiography of Benjamin Franklin by Benjamin Franklin
Both Buffett and his business partner Charlie Munger are fans of Ben Franklin. As kids, they grew up appreciating his wit and wisdom. As investors, they love his simplicity, cleverness, and peace of mind. Munger especially always says one man has inspired him and had the biggest impact on who he is. That person is Ben Franklin.
Stress Test: Reflections on Financial Crises” by Tim Geithner
A defining investment moment for Warren Buffett was the 2008/2009 Financial Crisis. At that point, the global economy almost crumbled. It was fragile and it barely made it out. Buffett recommends this book to everyone because it tells the story and complexities of finance. Especially the global growth of it.
Has Buffett Ever Made A Mistake? 🥺
The answer is yes. All great investors make mistakes. I’ve compiled this quote to share more about that, which comes from one of his investor letters:
“Despite that cautious approach, I made one particularly egregious error, acquiring Dexter Shoe for $434 million in 1993. Dexter’s value promptly went to zero. The story gets worse: I used stock for the purchase, giving the sellers 25,203 shares of Berkshire that at yearend 2016 were worth more than $6 billion.”
What Buffett Done For The Industry 👨🔬
Buffett has inspiring the financial industry more than most realize. He has been writing about Wall Street’s ways, high fees, demystifying finance, and the simplicity of markets since he began. Very few will mention this to you, though. In-fact, in the world of tech, most products are inspired by his writing and musings. Read this quote from one of his investor letters to see exactly what I mean:
“In many aspects of life, indeed, wealth does command top-grade products or services. For that reason, the financial “elites” – wealthy individuals, pension funds, college endowments and the like – have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is –on an expectancy basis – clearly the best choice.”
In a similar manner to his inspiration on personal finance and even tech products being built today, Buffett is also a pioneer of simple index investing. Dollar cost averaging and long-term planning. Yes, he runs his own fund. But he also does not shy away from the entire market:
“If a statue is ever erected to honor the person who has done the most for American investors, the hands down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in our bet, less than nothing – of added value.”
When a person with money meets a person with experience, the one with experience ends up with the money and the one with money leaves with experience.
Thanks for reading!
I hope this guide helped. For even more reading, visit his investor letters here.