Buffett Investment Quotes

Be Fearful When Others Are Greedy and Greedy When Others Are Fearful

Games are won by players who focus on the playing field –- not by those whose eyes are glued to the scoreboard.

It's nice to have a lot of money, but you know, you don't want to keep it around forever. I prefer buying things. Otherwise, it's a little like saving sex for your old age.

Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble

The most important investment you can make is in yourself.

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

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

I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.

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.

Never depend on single income. Make investment to create a second source.

The rich invest in time, the poor invest in money.

Warren Buffett said that he would not invest in any business where the owner hasn’t failed at least twice. I love that truly wealthy and successful people understand that failure is part of the process.

On the Ideal Business - Buffett: “Something that costs a penny, sells for a dollar and is habit forming.

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.4 —Warren Buffett

Only when the tide goes out do you discover who's been swimming naked.

Our favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hang on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds.

If you are investing in your education and you are learning, you should do that as early as you possibly can, because then it will have time to compound over the longest period. And that the things you do learn and invest in should be knowledge that is cumulative, so that the knowledge builds on itself. So instead of learning something that might become obsolete tomorrow, like some particular type of software [that no one even uses two years later], choose things that will make you smarter in 10 or 20 years.

price is what you pay; value is what you get.

Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

Yet the industry asks for more money from investors every year. The idea is to find investments that give you money, not take it.

Buffett's methodology was straightforward, and in that sense 'simple.' It was not simple in the sense of being easy to execute. Valuing companies such as Coca-Cola took a wisdom forged by years of experience; even then, there was a highly subjective element. A Berkshire stockholder once complained that there were no more franchises like Coca-Cola left. Munger tartly rebuked him. 'Why should it be easy to do something that, if done well two or three times, will make your family rich for life?

On me personally what has been the most important was to understand the value of time -- and this is something that has come from observing him, learning his story and that time compounds. What you do when you are young (and as you use time over your life) can have an exponential effect so that if you are thoughtful about it, you can really have powerful results later, if you want to. Also, that is a reason to be hopeful, because compounding is something that happens pretty quickly. If you are 50 or 60, it is not too late. He said to me one time, if there is something you really want to do, don't put it off until you are 70 years old. ... Do it now. Don't worry about how much it costs or things like that, because you are going to enjoy it now. You don't even know what your health will be like then. On the other hand, if you are investing in your education and you are learning, you should do that as early as you possibly can, because then it will have time to compound over the longest period. And that the things you do learn and invest in should be knowledge that is cumulative, so that the knowledge builds on itself. So instead of learning something that might become obsolete tomorrow, like some particular type of software [that no one even uses two years later], choose things that will make you smarter in 10 or 20 years. That lesson is something I use all the time now.

The danger of relying on historical statistics or formulas is that you end up betting on a 14-year-old horse with a great record but is now ready for the glue factory.

You can’t make a good deal with a bad person.

Common sense is the heart of investing and business management.

According to George Soros, what’s important is not whether you’re right or wrong about the market. What’s important is how much money you make when you’re right about a trade, and how much money you lose when you’re wrong.

Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are.

Buffett gave two criteria for evaluating the performance of management: 1) How well do they run the business? and 2) How well do they treat the owners?

What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know.

Buffett pointed out that when the investment tide goes out, you will see who has been swimming naked.

To make big money in the investment world you have to learn to think independently; to think independently you need to be comfortable standing alone.

Finding the next Warren Buffett is like looking for a needle in a haystack. We recommend that you buy the haystack instead, in the form of a low-cost index fund.

Too often, a vast collection of possessions ends up possessing its owner.

More than 2,000 books are dedicated to how Warren Buffett built his fortune. Many of them are wonderful. But few pay enough attention to the simplest fact: Buffett’s fortune isn’t due to just being a good investor, but being a good investor since he was literally a child. As I write this Warren Buffett’s net worth is $84.5 billion. Of that, $84.2 billion was accumulated after his 50th birthday. $81.5 billion came after he qualified for Social Security, in his mid-60s. Warren Buffett is a phenomenal investor. But you miss a key point if you attach all of his success to investing acumen. The real key to his success is that he’s been a phenomenal investor for three quarters of a century. Had he started investing in his 30s and retired in his 60s, few people would have ever heard of him. Consider a little thought experiment. Buffett began serious investing when he was 10 years old. By the time he was 30 he had a net worth of $1 million, or $9.3 million adjusted for inflation.16 What if he was a more normal person, spending his teens and 20s exploring the world and finding his passion, and by age 30 his net worth was, say, $25,000? And let’s say he still went on to earn the extraordinary annual investment returns he’s been able to generate (22% annually), but quit investing and retired at age 60 to play golf and spend time with his grandkids. What would a rough estimate of his net worth be today? Not $84.5 billion. $11.9 million. 99.9% less than his actual net worth. Effectively all of Warren Buffett’s financial success can be tied to the financial base he built in his pubescent years and the longevity he maintained in his geriatric years. His skill is investing, but his secret is time. That’s how compounding works. Think of this another way. Buffett is the richest investor of all time. But he’s not actually the greatest—at least not when measured by average annual returns.

In modern portfolio theory, beta is used as a measure of the volatility and, thus, the risk of an investment. However, Buffett sees the use of beta as nonsense, emphatically stating, “Volatility is no measure of risk to us.

On traditional economic theory: We do not play chess as if we were a grandmaster, invest as if we were Warren Buffett, or cook like an Iron Chef. It is more likely we cook like Warren Buffett, who loves to eat at Dairy Queen.

Eighty-five percent of small businesses in this country fail within the first two years. Eight-five percent! That’s a whole lot of failure. Warren Buffett said that he would not invest in any business where the owner hasn’t failed at least twice. I love that truly wealthy and successful people understand that failure is part of the process.

Buffett also noted that book value is seldom meaningful in analyzing the value of a business. Book value simply records what was put into the business. The key to calculating value is determining what will come out of the business.

Your goal as an investor should be simply to purchase, at a rational price, a part interest in an easily understood 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 those standards-so when you see one that qualifies, you should buy a meaningful amount of stock.

Buffett is known for thinking carefully when those around him lose their heads. “Success in investing doesn’t correlate with IQ,” he has said. “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

Buffett's uncommon urge to chronicle made him a unique character in American life, not only a great capitalist but the Great Explainer of American capitalism. He taught a generation how to think about business, and he showed that securities were not just tokens like the Monopoly flatiron, and that investing need not be a game of chance. It was also a logical, commonsensical enterprise, like the tangible businesses beneath. He stripped Wall Street of its mystery and rejoined it to Main Street -- a mythical or disappearing place, perhaps, but one that is comprehensible to the ordinary American.

occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. As

Being able to think and invest very long term and not worry about current earnings or Wall Street analysts can be a major competitive advantage in certain businesses. Acquire

No business has ever failed with happy customers. You are selling happiness.

In the business world, the rearview mirror is always clearer

The best education you can get is investing in yourself. But this doesn’t always mean college or university.” In

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

Honesty is a very expensive gift. Don’t expect it from cheap people.

There are certain things that cannot be adequately explained to a virgin either by words or pictures.

Warren Buffett wisely stated, “The rich invest in time; the poor invest in money.

If you invested in a low-cost index fund--where you don't put the money in at one time, but average in over 10 years--you'll do better than 90% of people who start investing at the same time.

If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. If you have to have a prayer session before raising the price by 10%, then you’ve got a bad business.

Munger, like Buffett, believes a successful investment career boils down to only a handful of decisions. So when Charlie likes a business, he makes a very large bet and typically holds the position for a long period.

A partner who is not subservient and who himself is extremely logical . . . is probably the best mechanism you can have.” Munger, the ideal foil, has shot down so many investment ideas that Buffett refers to him as “The Abominable No-Man.

An investment philosophy is a set of beliefs about: the nature of investment reality: how markets work, why prices move; a theory of value, including how value can be identified, and what causes profits and losses; and the nature of a good investment.

Buffett explained that buying a business is much like buying a bond with no maturity and with a blank coupon. You must write in the coupon, and the accuracy of that coupon is the essence of intelligent investing. If you cannot guess the coupon with any accuracy, then do not invest in the business.

Warren Buffett, the legendary investor and one of the wealthiest men in the world, has used exactly the attributes we’ve explored in this chapter—intellectual persistence, prudent thinking, and the ability to see and act on warning signs—to make billions of dollars for himself and the shareholders in his company, Berkshire Hathaway. Buffett is known for thinking carefully when those around him lose their heads. “Success in investing doesn’t correlate with IQ,” he has said. “Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

We will not go into businesses where technology which is way over my head is crucial to the investment decision. I know about as much about semi-conductors or integrated circuits as I do of the mating habits of the chrzaszcz. (That’s a Polish May bug, students—if you have trouble pronouncing it, rhyme it with thrzaszcz.) Furthermore,

Warren Buffett, chairman of Berkshire Hathaway and investor of legendary repute: "Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

Many security analysts still believe that agencies are a poor investment. Not so Warren Buffett, one of the most successful investors in the world. He has taken substantial positions in three publicly held agencies, and is quoted as saying, ‘The best business is a royalty on the growth of others, requiring very little capital itself … such as the top international advertising agencies.’ If

Burry did not think investing could be reduced to a formula or learned from any one role model. The more he studied Buffett, the less he thought Buffett could be copied; indeed, the lesson of Buffett was: To succeed in a spectacular fashion you had to be spectacularly unusual. “If you are going to be a great investor, you have to fit the style to who you are,” Burry said. “At one point I recognized

Nevertheless, their dishonesty upset Buffett. They were trying to chisel him out of 12.5 cents per share. So Buffett went the other way and started buying increasingly more shares of Berkshire until he took control. He then booted out the guy who had tried to chisel him out. In 1964, Warren Buffett took control of that small New England textile firm, and it became his new base for making investments.

Warren Buffett, the “Sage of Omaha” whose shrewd investments have made him one of the world’s richest men, has a stake in the marijuana industry via Cubic Designs, a company that provides mezzanine floor-space for warehouses. Cubic Designs dropped flyers off at 1,000 marijuana dispensaries, urging them to “double your growing space,” with a picture of metal flooring loaded with cannabis plants. The Sage himself made no comment.

I could improve your ultimate financial welfare by giving you a ticket with only 20 slots in it so that you had 20 punches—representing all the investments that you got to make in a lifetime. And once you’d punched through the card, you couldn’t make any more investments at all. Under those rules, you’d really think carefully about what you did and you’d be forced to load up on what you’d really thought about. So you’d do so much better.

If you've thought that investment advisors were hired to invest, you may be bewildered by this technique. After buying a farm, would a rational owner next order his real estate agent to start selling off pieces of it whenever a neighboring property was sold at a lower price? Or would you sell your house to whatever bidder was available at 9:31 on some morning merely because at 9:30 a similar house sold for less than it would have brought on the previous day? p213

The results of these [investment] companies in some ways resemble the activity of a duck sitting on a pond. When the water (the market) rises, the duck rises; when it falls, back goes the duck. … I think the duck can only take the credit (or blame) for his own activities. The rise and fall of the lake is hardly something for him to quack about. The water level has been of great importance to BPL’s performance … however, we have also occasionally flapped our wings.”5 While

Living frugally even when you can afford to live luxurious will not only help you to save money. It will also help you to realize what is truly important in life. The secret that Warren Buffett knows is that money truly cannot buy you happiness. It can buy you a sense of security and it can open many doors for you. However, happiness comes from being engaged in fulfilling work; from strengthening your relationships with those who are most important to you; from doing those things that make you happy.

On 3 timeless ideas for investing Benjamin Graham, three fundamentally basic ideas: 1. You should look at stocks as part of ownership of a business. 2. You should look at market fluctuations in terms of his "Mr. Market" example & make them your friend rather than your enemy by essentially profiting from folly rather participating in it, & finally, 3. The 3 most important words in investing are "margin of safety" - ...always building a 15,000 pound bridge if you're going to be driving 10,000 pound truck across it...

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.” —Warren Buffett, 19931

Charles Munger, right-hand adviser to Warren Buffett, the richest man on the planet, is known for his unparalleled clear thinking and near-failure-proof track record. How did he refine his thinking to help build a $3 trillion business in Berkshire Hathaway? The answer is “mental models,” or analytical rules-of-thumb4 pulled from disciplines outside of investing, ranging from physics to evolutionary biology. Eighty to 90 models have helped Charles Munger develop, in Warren Buffett’s words, “the best 30-second mind in the world. He goes from A to Z in one move. He sees the essence of everything before you even finish the sentence.

Basically, Graham breaks the art of investing down into two simple variables – price and value. Value is what a business is worth. Price is what you have to pay to get it. Given the stock market’s manic-depressive behavior, numerous occasions arise where a business’ market price is distinctly out of line with its true business value. In such instances, an investor may be able to purchase a dollar of value for just 50 cents. Note that there is no mention here of interest rates, economic forecasts, technical charts, market cycles, etc. The only issues are price and value. I should also note that Graham emphasizes a large margin of safety. The strategy is not to buy a dollar of value for 97 cents. Rather, the gap should be dramatic so as to absorb the effects of miscalculation and worse-than-average luck.

Ben Graham told a story forty years ago that illustrates why investment professionals behave as they do. An oil prospector, moving to his heavenly reward, was met by St. Peter with bad news. “You’re qualified for residence,” said St. Peter, “but, as you can see, the compound reserved for oil men is packed. There’s no way to squeeze you in.” After thinking a moment, the prospector asked if he might say just four words to the present occupants. That seemed harmless to St. Peter, so the prospector cupped his hands and yelled, “Oil discovered in hell.” Immediately, the gate to the compound opened and all of the oil men marched out to head for the nether regions. Impressed, St. Peter invited the prospector to move in and make himself comfortable. The prospector paused. “No,” he said, “I think I’ll go along with the rest of the boys. There might be some truth to that rumor after all.” —WARREN BUFFETT, 1985

Buffett declared the best inflation hedge is a company with a wonderful product that requires little capital to grow. As a test, he invited each of us to look at our own earning ability. In inflation, your compensation can go up without any additional investment. As a business example, Buffett noted that when See’s Candy was purchased in 1971, it had the revenues of $25 million and sold 16 million pounds of candy annually with $9 million in tangible assets. Today, See’s sells $300 million of candy with $40 million of tangible assets. Berkshire needed to invest only $31 million to generate a more than 10-fold increase in revenues. In aggregate, Buffett noted that Berkshire has earned $1.5 billion in profits at See’s over the years. See’s inventory turns fast, has no receivables and has little fixed investment – a perfect inflation hedge. Buffett allowed that if you have tons of receivables and inventory, that’s a lousy business in inflation. The railroad and MidAmerican Energy both have these undesirable characteristics, but that is offset by their utility to the economy and subsequent allowable returns. Buffett rued that there simply aren’t enough “See’s Candys” to buy. Buffett added that being an investor has made him a better businessman and that being a businessman has made him a better investor.(125) Munger noted that they didn’t always know this inflation-business element, which shows how continuous learning is so important.

The Keoughs were wonderful neighbors,” he said. “It’s true that occasionally Don would mention that, unlike me, he had a job, but the relationship was terrific. One time my wife, Susie, went over and did the proverbial Midwestern bit of asking to borrow a cup of sugar, and Don’s wife, Mickie, gave her a whole sack. When I heard about that, I decided to go over to the Keoughs’ that night myself. I said to Don, ‘Why don’t you give me twenty-five thousand dollars for the partnership to invest?’ And the Keough family stiffened a little bit at that point, and I was rejected. “I came back sometime later and asked for the ten thousand dollars Clarke referred to and got a similar result. But I wasn’t proud. So I returned at a later time and asked for five thousand dollars. And at that point, I got rejected again. “So one night, in the summer of 1962, I started heading over to the Keough house. I don’t know whether I would have dropped it to twenty-five hundred dollars or not, but by the time I got to the Keough household, the whole place was dark, silent. There wasn’t a thing to see. But I knew what was going on. I knew that Don and Mickie were hiding upstairs, so I didn’t leave. “I rang that doorbell. I knocked. Nothing happened. But Don and Mickie were upstairs, and it was pitch-black. “Too dark to read, and too early to go to sleep. And I remember that day as if it were yesterday. That was June twenty-first, 1962. “Clarke, when were you born?” “March twenty-first, 1963.” “It’s little things like that that history turns on. So you should be glad they didn’t give me the ten thousand dollars.

Naval’s Laws The below is Naval’s response to the question “Are there any quotes you live by or think of often?” These are gold. Take the time necessary to digest them. “These aren’t all quotes from others. Many are maxims that I’ve carved for myself.” Be present above all else. Desire is suffering (Buddha). Anger is a hot coal that you hold in your hand while waiting to throw it at someone else (Buddhist saying). If you can’t see yourself working with someone for life, don’t work with them for a day. Reading (learning) is the ultimate meta-skill and can be traded for anything else. All the real benefits in life come from compound interest. Earn with your mind, not your time. 99% of all effort is wasted. Total honesty at all times. It’s almost always possible to be honest and positive. Praise specifically, criticize generally (Warren Buffett). Truth is that which has predictive power. Watch every thought. (Always ask, “Why am I having this thought?”) All greatness comes from suffering. Love is given, not received. Enlightenment is the space between your thoughts (Eckhart Tolle). Mathematics is the language of nature. Every moment has to be complete in and of itself. A Few of Naval’s Tweets that are Too Good to Leave Out “What you choose to work on, and who you choose to work with, are far more important than how hard you work.” “Free education is abundant, all over the Internet. It’s the desire to learn that’s scarce.” “If you eat, invest, and think according to what the ‘news’ advocates, you’ll end up nutritionally, financially, and morally bankrupt.” “We waste our time with short-term thinking and busywork. Warren Buffett spends a year deciding and a day acting. That act lasts decades.” “The guns aren’t new. The violence isn’t new. The connected cameras are new, and that changes everything.” “You get paid for being right first, and to be first, you can’t wait for consensus.” “My one repeated learning in life: ‘There are no adults.’ Everyone’s making it up as they go along. Figure it out yourself, and do it.” “A busy mind accelerates the passage of subjective time.

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.

Bundy sternly tool his fellow endowment fund managers to task - not for being too bold, but for being insufficiently so: We have the preliminary impression that over the long run caution has cost our colleges and universities much more than imprudence or excessive risk-taking.

When Buffett was asked by business students in 2008 about his views on portfolio diversification and position sizing, he responded that he had “two views on diversification:”13 If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. If it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. . . . [Berkshire vice-chairman] Charlie [Munger] and I operated mostly with five positions. If I were running $50, $100, $200 million, I would have 80 percent in five positions, with 25 percent for the largest. In 1964 I found a position I was willing to go heavier into, up to 40 percent. I told investors they could pull their money out. None did. The position was American Express after the Salad Oil Scandal.

If you are going to be a lifelong buyer of food, you welcome falling prices and deplore price increases. So should it be with investments.

From peak to trough (June 1998 through March 2000), Warren Buffett's Berkshire Hathaway fell 51% in value! During this time, I estimated that Buffett's net worth fell by more than $10 billion. How much Berkshire did Buffett sell? How much Cisco did he buy? Zero point zero. Not tempted by tech stocks, Buffett remained committed to value investing, and it paid off.1 One of the keys to successfully managing your money is to accept, like Buffett did, that there will be times when your style is out of favor or when your portfolio hits a rough patch. It's when you start to reach for opportunities that you can do serious damage to your financial well‐being.

Just because something is conventional doesn't mean it's conservative or correct

sustainable,

Nancy Peretsman of Allen & Co., a top Wall Street banker and a specialist in internet and media deals. Buffett was high on Peretsman, who had been a budding star at Salomon Brothers, the investment bank in which he was a large investor, before she joined forces with Herbert Allen. It was Peretsman who placed the first call to Amazon CEO Jeff Bezos, a casual friend of Graham’s for 15 years, to tell him the Post was for sale.

When dealing only with his own money, investment losses never bothered Munger much. To him it was like a losing night in a regular poker game where you knew you were one of the best players—you'd make up the difference later. But he now found that reported, temporary quotational losses in the Wheeler, Munger limited partnership accounts gave him tremendous pain. And so, by the end of 1974, he had resolved, like Buffett, to stop managing money for others in a limited partnership format. He would liquidate Wheeler, Munger after its asset value made a substantial recovery. And he would liquidate soon enough so that he would not take any general partner's override when the main investment positions were distributed. In 1975, Wheeler, Munger did make an impressive recovery with a gain of 73.2 percent, and Munger and Marshall liquidated the partnership early in 1976.

Ben Graham taught me 45 years ago that in investing it is not necessary to do extraordinary things to get extraordinary results. In later life, I have been surprised to find that this statement holds true in business management as well. What a manager must do is handle the basics well and not get diverted.

Bad terminology is the enemy of good thinking. When companies or investment professionals use terms such as "EBITDA" and "pro forma," they want you to unthinkingly accept concepts that are dangerously flawed.

Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

long periods of substantial undervaluation and/or overvaluation will cause the gains of the business to be inequitably distributed among various owners, with the investment result of any given owner largely depending upon how lucky, shrewd, or foolish he happens to be.

Warren Buffett complains about it every year; it is a lot harder to manage billions than millions. The investable market is much smaller.

the smaller hedge funds tend to do better performance-wise than the large funds. Their management fees are not enough to keep the doors open so they have to make good returns and take those incentive fees, creating a sort of Darwinian eat-what-they-cook situation. And it is just easier to invest a tiny fund (again, just ask Warren Buffett).

In his investing, he has said he is governed by three easy rules: One, never lose money; two, never forget rule number one; and three, never go into debt.

When you have identified your long-term objectives, defined your tolerance for risk, and carefully selected an index fund or a small number of actively managed funds that meet your goals, stay the course. Hold tight. Complicating the investment process merely clutters the mind, too often bringing emotion into a financial plan that cries out for rationality. I am absolutely persuaded that investors’ emotions, such as greed and fear, exuberance and hope—if translated into rash actions—can be every bit as destructive to investment performance as inferior market returns. To reiterate what the estimable Mr. Buffett said earlier: “Inactivity strikes us as intelligent behavior.” Never forget it.

But it is the long-term merits of the index fund—broad diversification, weightings paralleling those of the stocks that comprise the market, minimal portfolio turnover, and low cost—that commend it to wise investors. Consider these words from perhaps the wisest investor of all, Warren E. Buffett, from the 1996 Annual Report of Berkshire Hathaway Corporation: Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.

You can gain great insights about investing from a careful study of Buffett’s Generals. He was constantly appraising the value of as many stocks as he could find, looking for the ones where he felt he had a reasonable ability to understand the business and come up with an estimate for its worth. With a prodigious memory and many years of intense study, he built up an expansive memory bank full of these appraisals and opinions on a huge number of companies. Then, when Mr. Market offered one at a sufficiently attractive discount to its appraised value, he bought it; he often concentrated heavily in a handful of the most attractive ones. Good valuation work and proper temperament have always been the two keys pillars of his success as an investor. Buffett

The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors. At the one extreme, the analyst exclusively oriented to qualitative factors would say, “Buy the right company (with the right prospects, inherent industry conditions, management, etc.) and the price will take care of itself.” On the other hand, the quantitative spokesman would say, “Buy at the right price and the company (and stock) will take care of itself.” As is so often the pleasant result in the securities world, money can be made with either approach. And, of course, any analyst combines the two to some extent—his classification in either school would depend on the relative weight he assigns to the various factors and not to his consideration of one group of factors to the exclusion of the other group. Interestingly enough, although I consider myself to be primarily in the quantitative school (and as I write this no one has come back from recess—I may be the only one left in the class), the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a “high-probability insight.” This is what causes the cash register to really sing. However, it is an infrequent occurrence, as insights usually are, and, of course, no insight is required on the quantitative side—the figures should hit you over the head with a baseball bat. So the really big money tends to be made by investors who are right on qualitative decisions but, at least in my opinion, the more sure money tends to be made on the obvious quantitative decisions. As

In the great majority of cases the lack of performance exceeding or even matching an unmanaged index in no way reflects lack of either intellectual capacity or integrity. I think it is much more the product of: (1) group decisions—my perhaps jaundiced view is that it is close to impossible for outstanding investment management to come from a group of any size with all parties really participating in decisions; (2) a desire to conform to the policies and (to an extent) the portfolios of other large well-regarded organizations; (3) an institutional framework whereby average is “safe” and the personal rewards for independent action are in no way commensurate with the general risk attached to such action; (4) an adherence to certain diversification practices which are irrational; and finally and importantly, (5) inertia.6 Classical

a declining Dow gives us our chance to shine and pile up the percentage advantages which, coupled with only an average performance during advancing markets, will give us quite satisfactory long-term results. Our target is an approximately ½% decline for each 1% decline in the Dow and if achieved, means we have a considerably more conservative vehicle for investment in stocks than practically any alternative.8 Buffett

The willingness and ability to see investment capital as completely fungible, whether it is capital tied up in the assets of a businesses or capital that’s invested in securities, is an exceedingly rare trait. With

It doesn’t work that way … we have to work extremely hard to find just a very few attractive investment situations.” The

We live in an investment world, populated not by those who must be logically persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe. Finally,