Buffett Money Quotes

There’s class warfare, all right, but it’s my class, the rich class, that’s making war, and we’re winning.

Rule No. 1 : Never lose money. Rule No. 2 : Never forget Rule No. 1.

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.

If you don't find a way to make money while you sleep, you will work until you die.

If past history was all that is needed to play the game of money, the richest people would be librarians.

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.

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

Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.

Money followed; it never led.

Never test the depth of the river with both feet. —WARREN BUFFETT

I don't have a problem with guilt about money. The way I see it is that my money represents an enormous number of claim checks on society. It's like I have these little pieces of paper that I can turn into consumption. If I wanted to, I could hire 10,000 people to do nothing but paint my picture every day for the rest of my life. And the GDP would go up. But the utility of the product would be zilch, and I would be keeping those 10,000 people from doing AIDS research, or teaching, or nursing. I don't do that though. I don't use very many of those claim checks. There's nothing material I want very much. And I'm going to give virtually all of those claim checks to charity when my wife and I die.

If your employees, including your CEO, wish to give to their alma maters or other institutions to which they feel a personal attachment, we believe they should use their own money, not yours.

Buffett does enjoy being a billionaire, but in offbeat ways. As he put it, though money cannot change your health or how many people love you, it lets you be in 'more interesting environments.

Debt is a four letter word and means a four word sentence - Be Prepared for Trouble.

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.

The stock market is a device for transferring money from the impatient to the patient.

Hold an index fund for 20 years or more, adding new money every month, and you are all but certain to outper-forms the vast majority of professional and individual investors alike. Late in his life, Graham praised index funds as the best choice for individual investors, as does Warren Buffett.6

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

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.

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.

Buffett has said that the stock market is designed to transfer money “from the active to the patient.

Graham’s first goal was never to make money—it was to avoid losing any.

Buffett noted that he likes to put a lot of money in things he feels strongly about. Diversification makes no sense for someone who knows what they are doing.

It’s not that I want money. It’s the fun if making money and watching it grow.

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.

Buffett quoted Marshall Fields: “We waste half of the money we spend on advertising . . . the problem is we just don’t know which half.” From

It’s not that I want money. It’s the fun of making money and watching it grow.

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

Instead, he takes those coupons from his low-return bond and—if inclined to reinvest—looks for the highest return with safety currently available.  Good money is not thrown after bad.

At their best, conglomerates enable the tax efficient transfer of cash from businesses that cannot use the money intelligently to those that can. Berkshire is a very rational conglomerate.

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.

Buffett also shared some of his classic bits of wisdom about growing wealth. Spend less than what you make. Know and stay within your circle of competence. The only businesses that matter are the ones you put your money in. Keep learning over time. Don’t lose. Insist on a margin of safety.

Warren Buffett, quoting Henry Ford, often talks about the importance of keeping all your eggs in one basket, then watching that basket very carefully. One thing that appalled me and that I’d seen too many times was the Wall Street practice of having many eggs in many baskets. Even the most reputable mutual fund companies have a practice of selling multiple funds. The ones that do well are those that then get the marketing dollars and raise more money from investors. The ones that do poorly are either shut down or merged into the better-performing funds. In the process, the failures are buried as if they’d never existed while

It is not just a human rights argument, it is the Warren Buffett argument and the Christine Lagarde argument: Countries that want to develop their economies and standards of living cannot afford to shut out one-half of their population. And it is the Virginia Woolf argument: In order to create, a woman needs money and a room of her own.

he worked with a passion for the future he saw ahead of him, right there in sight. He wanted money. “It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn’t want other people directing me. The idea of doing what I wanted to do every day was important to me.

the arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her saving in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is 'taxed' in a manner that leave her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn't seem to notice that 5 percent inflation is the economic equivalent.

Basically, when you get to my age, you'll really measure your success in life by how many of the people you want to have love you actually do love you. I know people who have a lot of money, and they get testimonial dinners and they get hospital wings named after them. But the truth is that nobody in the world loves them. If you get to my age in life and nobody thinks well of you, I don't care how big your bank account is, your life is a disaster. That's the ultimate test of how you have lived your life. The trouble with love it that you can't buy it. You can buy sex. You can buy testimonial dinners. You can buy pamphlets that say how wonderful you are. But the only way to get love is to be lovable. It's very irritating if you have a lot of money. You'd like to think you could write a check: I'll buy a million dollars' worth of love. But it doesn't work that way. The more you give love away, the more you get." — Warren Buffett

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.

gold standard,” which the United States had dropped in 1933. Ever since, the Treasury had been printing money freely to finance first the New Deal and now the war. Howard feared that someday the United States might wind up like Germany in the 1920s, when people had to cart wheelbarrows of money down the street to buy a head of cabbage—the direct result of Germany being forced to deplete its gold stock to pay reparations after World War I.1 The economic chaos that resulted was one of the major factors that had led to Hitler.

Stan Druckenmiller, reflecting on his unbelievable success as an investor, said that the only way to make superior returns is to concentrate heavily. He thinks “diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it… . [T]he mistake I’d say 98 percent of the money managers and individuals make is they feel like they got to be playing in a bunch of stuff.”4

All 250 + episodes to date can be found at tim.blog/ podcast and itunes.com/ timferriss Jamie Foxx on Workout Routines, Success Habits, and Untold Hollywood Stories (# 124)—tim.blog/ jamie The Scariest Navy SEAL I’ve Ever Met . . . and What He Taught Me (# 107)—tim.blog/ jocko Arnold Schwarzenegger on Psychological Warfare (and Much More) (# 60)—tim.blog/ arnold Dom D’Agostino on Fasting, Ketosis, and the End of Cancer (# 117)—tim.blog/ dom2 Tony Robbins on Morning Routines, Peak Performance, and Mastering Money (# 37)—tim.blog/ tony How to Design a Life—Debbie Millman (# 214)—tim.blog/ debbie Tony Robbins—On Achievement Versus Fulfillment (# 178)—tim.blog/ tony2 Kevin Rose (# 1)—tim.blog/ kevinrose [If you want to hear how bad a first episode can be, this delivers. Drunkenness didn’t help matters.] Charles Poliquin on Strength Training, Shredding Body Fat, and Increasing Testosterone and Sex Drive (# 91)—tim.blog/ charles Mr. Money Mustache—Living Beautifully on $ 25–27K Per Year (# 221)—tim.blog/ mustache Lessons from Warren Buffett, Bobby Fischer, and Other Outliers (# 219)—tim.blog/ buffett Exploring Smart Drugs, Fasting, and Fat Loss—Dr. Rhonda Patrick (# 237)—tim.blog/ rhonda 5 Morning Rituals That Help Me Win the Day (# 105)—tim.blog/ rituals David Heinemeier Hansson: The Power of Being Outspoken (# 195)—tim.blog/ dhh Lessons from Geniuses, Billionaires, and Tinkerers (# 173)—tim.blog/ chrisyoung The Secrets of Gymnastic Strength Training (# 158)—tim.blog/ gst Becoming the Best Version of You (# 210)—tim.blog/ best The Science of Strength and Simplicity with Pavel Tsatsouline (# 55)—tim.blog/ pavel Tony Robbins (Part 2) on Morning Routines, Peak Performance, and Mastering Money (# 38)—tim.blog/ tony How Seth Godin Manages His Life—Rules, Principles, and Obsessions (# 138)—tim.blog/ seth The Relationship Episode: Sex, Love, Polyamory, Marriage, and More (with Esther Perel) (# 241)—tim.blog/ esther The Quiet Master of Cryptocurrency—Nick Szabo (# 244)—tim.blog/ crypto Joshua Waitzkin (# 2)—tim.blog/ josh The Benevolent Dictator of the Internet, Matt Mullenweg (# 61)—tim.blog/ matt Ricardo Semler—The Seven-Day Weekend and How to Break the Rules (# 229)—tim.blog/ ricardo

Remember one thing, Warren: Money isn’t making that much difference in how you and I live. We’re both going down to the cafeteria for lunch and working every day and having a good time. So don’t worry too much about money, because it won’t make much difference in how you live.

Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.

The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine,” Buffett said. “So if you had your choice, if you could put a hundred million dollars into a business that earns twenty percent on that capital—twenty million—ideally, it would be able to earn twenty percent on a hundred twenty million the following year and on a hundred forty-four million the following year and so on. You could keep redeploying capital at [those] same returns over time. But there are very, very, very few businesses like that...we can move that money around from those businesses to buy more businesses.

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.

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

Opportunity, Buffett knew, is where you find it. If you don’t try something, you can’t succeed. Energy and initiative count as much as talent and luck. Winners win because they work hard and hold onto their money.

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.

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.

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

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

If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh one instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty, and I [would] probably have half of [it in] what I like best.3 There

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. Such

When it comes to investing, it’s critical not to “force it.” Markets will cycle. There will be times when you too feel “out of step” with the market, just as Buffett did in the late 1960s. You’ll find that during the late bull market mania of the Go-Go years, his standards remained firmly set, while the pressure to perform caused the standards of many of even the best around him to crumble. It’s hard not to cave your principles in at the top of the cycle when your value approach has apparently stopped working and everyone around you seems to be making money easily (that’s why so many people do it). However, it’s more often than not a “buy high, sell low” strategy. Buffett set his plan, established his standards, and then entered the fray, maintaining the courage of his convictions, come what may.

At age forty-seven, Warren had already accomplished everything he had ever imagined he could want. He was worth $72 million. He ran a company that was worth $135 million.41 His newspaper had won the two highest prizes in journalism. He was one of the most important men in Omaha and increasingly prominent at a national level. He was serving on the boards of the largest local bank, the Washington Post, and a number of other companies. He had been CEO of three companies and had bought and sold successfully more stocks than most people could name in a lifetime. Most of his original partners were now enormously rich. All he wanted was to keep on making money for the thrill of it without changing anything else about his life. He

Buffett added that there is a big difference between identifying a growth industry and minting money. He noted that AT&T’s return on equity over the years has been poor. Change has hurt the company more than it has helped. Similarly,

Everyone talks about the big money made in realestate, but they forget to talk about the big money lost in real estate.” Foreign

Buffett asserted that the tendency to project out very high rates of growth has caused investors to lose tons of money. The “new economy” bubble was characterized by many such projections.4 Buffett

As long as politicians lack self-restraint, they will print a lot of money at some point.

There’s class warfare all right. But it’s my class, the rich class, that’s making war, and we’re winning. —Warren Buffett

$81.5 billion of Warren Buffett's $84.5 billion net worth came after his 65th birthday.

Jim Simons, head of the hedge fund Renaissance Technologies, has compounded money at 66% annually since 1988. No one comes close to this record. As we just saw, Buffett has compounded at roughly 22% annually, a third as much. Simons’ net worth, as I write, is $21 billion. He is—and I know how ridiculous this sounds given the numbers we’re dealing with—75% less rich than Buffett. Why the difference, if Simons is such a better investor? Because Simons did not find his investment stride until he was 50 years old. He’s had less than half as many years to compound as Buffett. If James Simons had earned his 66% annual returns for the 70-year span Buffett has built his wealth he would be worth—please hold your breath—sixty-three quintillion nine hundred quadrillion seven hundred eighty-one trillion seven hundred eighty billion seven hundred forty-eight million one hundred sixty thousand dollars.

problems never fucking go away, he said—they just improve. Warren Buffett’s got money problems; the drunk hobo down at Kwik-E Mart’s got money problems. Buffett’s just got better money problems than the hobo. All of life is like this.

But being short something where your loss is unlimited is quite different than being long something that you’ve already paid for. And it’s tempting. You see way more stocks that are dramatically overvalued in your career than you will see stocks that are dramatically undervalued. I mean there — it’s the nature of securities markets to occasionally promote various things to the sky, so that securities will frequently sell for 5 or 10 times what they’re worth, and they will very, very seldom sell for 20 percent or 10 percent of what they’re worth. So, therefore, you see these much greater discrepancies between price and value on the overvaluation side. So you might think it’s easier to make money on short selling. And all I can say is, it hasn’t been for me. I don’t think it’s been for Charlie. It is a very, very tough business because of the fact that you face unlimited losses, and because of the fact that people that have overvalued stocks — very overvalued stocks — are frequently on some scale between promoter and crook. And that’s why they get there. And once there — And they also know how to use that very valuation to bootstrap value into the business, because if you have a stock that’s selling at 100 that’s worth 10, obviously it’s to your interest to go out and issue a whole lot of shares. And if you do that, when you get all through, the value can be 50. In fact, there’s a lot of chain letter-type stock promotions that are sort of based on the implicit assumption that the management will keep doing that. And if they do it once and build it to 50 by issuing a lot of shares at 100 when it’s worth 10, now the value is 50 and people say, “Well, these guys are so good at that. Let’s pay 200 for it or 300,” and then they could do it again and so on. It’s not usually that — quite that clear in their minds. But that’s the basic principle underlying a lot of stock promotions. And if you get caught up in one of those that is successful, you know, you can run out of money before the promoter runs out of ideas. In the end, they almost always work. I mean, I would say that, of the things that we have felt like shorting over the years, the batting average is very high in terms of eventual — that they would work out very well eventually if you held them through. But it is very painful and it’s — in my experience, it was a whole lot easier to make money on the long side.

But to quote Buffett again, who once ridiculed a different group of defunct financiers: "To make money they didn't have and didn't need, they risked what they did have and did need. And that's foolish. It is just plain foolish. If you risk something that is important to you for something that is unimportant to you, it just does not make any sense.

Current assets are also referred to as the “working assets” of the business because they are in the cycle of cash going to buy inventory; Inventory is then sold to vendors and becomes Accounts Receivable. Accounts Receivable, when collected from the vendors, then turns back into Cash. Cash → Inventory → Accounts Receivable → Cash. This cycle repeats itself over and over again, and it is how a business makes money.

the difference between interest rates creates a disparity between price and value. This disparity is where an investor makes money—especially in the stock market

Forget about buying fair businesses at wonderful prices; instead buy wonderful businesses at fair prices.”41

As Warren Buffett, America’s richest investor says, “Risk comes from not knowing what you’re doing.” My

money—not how much money we have.

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.

it's rather interesting because one of the greatest economists of the world is a substantial shareholder in Berkshire Hathaway and has been from the very early days after Buffett was in control. His textbook always taught that the stock market was perfectly efficient and that nobody could beat it.But his own money went into Berkshire and made him wealthy. So, like Pascal in his famous wager, he hedged his bet.The iron rule of life is that only twenty percent of the people can be in the top fifth Is the stock market so efficient that people can't beat it? Well, the efficient market theory is obviously roughly right-meaning that markets are quite efficient and it's quite hard for anybody to beat the market by significant margins as a stock picker by just being intelligent and working in a disciplined way.Indeed, the average result has to be the average result. By definition, everybody can't beat the market.

All things considered, the third best investment I ever made was the purchase of my home, though I would have made far more money had I instead rented and used the purchase money to buy stocks.

All this research, says Buffett, really points you back to one central issue: “My first question, and the last question, would be, ‘Do I understand the business?’ And by understand it, I mean have a reasonably good idea of what it will look like in five or ten years from an economic standpoint.” If you aren’t comfortable answering that basic question, you shouldn’t buy the stock.

All this motion can be so distracting that Warren Buffett has said, “I always like to look at investments without knowing the price—because if you see the price, it automatically has some influence on you.

But this time around, and perhaps for the first time in his career, he realized that American Express’s most important asset by far did not appear on its balance sheet—it existed in people’s minds. The company’s four historical cash cows—express, money order, travelers cheques, and charge card—all depended on safeguarding cash before it arrived at its destination.

I went to an annual meeting of Cleveland’s Worst Mill, and I flew all the way to Cleveland. I got there about five minutes late, and the meeting had been adjourned. And here I was, this kid from Omaha, twenty-two years old, with my own money in the stock. The chairman said, “Sorry, too late.” But then their sales agent, who was on the board of directors, actually took pity on me, and so he got me off on the side and talked to me and answered some questions.102

Union Street Railway was a New Bedford, Massachusetts-based bus company. With the equity trading below the net cash on the company’s balance sheet, Union Street was a classic net-net when Buffett bought the stock. This was a small, thinly traded company with a market capitalization below $1 million. The small float meant acquiring stock required a bit of work and persistence by the young, enterprising investor. Like the other stocks discussed so far, it was cheap. But in contrast to the previous investments discussed in this book, this one was actually losing money at the time of Buffett’s purchase. Yet this stock would be a huge winner for Buffett, yielding him a dollar profit worth more than 4.5x the average household yearly income at the time. After accumulating a meaningful stake in the company, Buffett took a trip to Massachusetts to meet with the company’s president. While he did not run a proxy contest or take aggressive action to prompt a capital return, the company paid a substantial dividend shortly after his visit.109 Union Street Railway was an early lesson in how positive changes in capital allocation can lead to windfall profits.

Phil Carret, the money manager who bought the stock on Howard Buffett’s recommendation in 1946, owned it all the way to his passing at the age of 101 in 1998. Carret grew to admire Greif, calling it the best-managed company he knew of. Buffett would later call Carret a hero of his. Greif was a successful investment for Carret, as the stock went from a split-adjusted $0.68 when he bought it to $36.50 when he passed.

In late 1967, Buffett wrote: 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.297

The valuation analysis was simple—anyone could see the stock was incredibly cheap. But it had been traded below net cash for several years before the company distributed cash to shareholders. Returning the cash was the critical factor in driving excellent returns. Assuming Buffett bought the stock in 1954 at $35 and sold in 1957 (having received the $50 per share distribution and a few dollars extra in dividends) when it traded between $20 and $28, he would have more than doubled his money and earned around a 30% IRR.135 The stock didn’t work because it was cheap—it worked because management returned capital to shareholders. The other securities discussed in this book were also incredible bargains—but it took action to drive wonderful returns for shareholders.

While the company made some money from the sales charge levied when a customer purchased a money order, it primarily benefited from investing the float created by outstanding money orders that had been paid for at their origin office but not yet cashed at their destination office. Plus, the money order business had an added benefit that helped later on: Immigrants sent the money order abroad, which forced American Express to create a network of banking relationships throughout Europe.238

Formed in 1950, Diners’ Club initiated the first universal restaurant charge card that prominent New York restaurants would accept. Cardholders charged for a meal, and the restaurant collected from the Club less a 5%–10% discount (which restaurants were willing to accept since cardholders typically spent more than those paying with cash on hand). Diners’ Club paid the restaurant and had to collect from cardholders. In the 1950s, credit cards took off in the United States. There were cards for specific companies as well as universal travel and entertainment charge cards.244 American Express debated the merits of creating a card. But by the 1950s, the company’s executives realized that people were using the cards for travel-related services, posing a risk for the travelers cheque. Furthermore, the money order business was becoming less important, with the rise of personal checking accounts stealing business away from money orders. The company finally decided it would be better for American Express to protect itself by making its own card rather than lose all that business.245 American Express debated entering the business by acquiring Diners’ Club. After that deal fell through, American Express decided to go forward by launching its own American Express Credit Card in 1958. The American Express Credit Card was, in reality, a charge card, not a credit card. The latter had a revolving line of credit whose balance could be carried over from month to month. While technically still an extension of credit, the charge card required all outstanding balances to be paid in full each month.246,247 Before launching, American Express reached a deal with the American Hotel Association, providing Amex with 150,000 cardholders and 4,500 participating hotels. American Express then bought 40,000 members from the Gourmet card.248 And when rumors spread that American Express was thinking of starting a card, people wanted in. In contrast to the banks, who literally had to mass-mail cards to people when they rolled out their offerings (a practice made illegal in 1970), people flocked to American Express.249 The brand, whose image had evolved from a guard dog to ‘the guardian of Rome,’ the centurion, had now become a status symbol.

What became known as ‘the salad oil scandal’ was a textbook case of management incompetence and stupidity, and investors abandoned the company in droves. The 33-year-old Buffett had kept his eye on the scandal since it broke, but he waited months to start buying. And he started building his investment—the best of the Partnership—during a particularly trying time for him and his family, as his father Howard lay hospital-ridden in the final weeks of his life in April 1964. To the extent he was known at all at the time, Buffett was known for his ability to find quantitative bargains among the semi-anonymous flotsam and jetsam of American capitalism, but American Express was an extremely well-known company. Moreover, Buffett proceeded to write a remarkable letter to Clark in which he rather breezily absolved Amex management of any responsibility for the scandal, encouraged it to use shareholder money (which included Buffett’s) to pay creditors harmed by the scandal, and more or less encouraged Clark to forget the whole thing. Finally, and most importantly, Buffett continued adding to his American Express position long after the scandal had diminished in importance. By the time he sold his position years later, American Express had become the most important individual contributor to the results of the Buffett Partnership and arguably the biggest turning point in Buffett’s career.

As more lives and communities are destroyed by the system that creates vast amounts of wealth for the few,” philanthropists were frequently left “searching for answers with their right hands” to problems that they had “created with their left.” Whether their motives were virtuous or venal, in the course of a few decades a handful of enormously rich right-wing philanthropists had changed the course of American politics. They created a formidable wealth defense movement, which had become a sizable part of what Buffett dubbed “the charitable-industrial complex.

Warren Buffett summed up the conventional view with his usual pith: “Gold gets dug out of the ground . . . we melt it down, dig another hole, bury it again and pay people to stand around guarding it. . . . Anyone from Mars would be scratching their head.”2

an unvaryingly strong liquid position and avoidance of money-market borrowings;

Money will always flow toward opportunity, and there is an abundance of that in America. Commentators today often talk of ‘great uncertainty.’ But think back, for example, to December 6,

...earnings can be as pliable as putty when a charlatan heads the company reporting them. Eventually truth will surface, but in the meantime a lot of money can change hands. Indeed, some important American fortunes have been created by the monetization of accounting mirages.

Gold isn’t the only rare metal. Yet there is an obsession for it. Warren Buffett thinks gold lust is bizarre. He juxtaposes my journeys to the African mine and the New York Fed’s vault when he says, “Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”95

Government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.

It’s only when the tide goes out that you learn who’s been swimming naked.” Warren Buffett

Rather than attempt to time the market or pick individual stocks, it is more productive to invest and stay invested. As Warren Buffett said: “We continue to make more money when snoring than when active.” Mr. Buffett also said: “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 expenses and fees) delivered by the great majority of investment professionals.

When management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact’ Warren Buffett

When Warren was a little boy fingerprinting nuns and collecting bottle caps, he had no knowledge of what he would someday become. Yet as he rode his bike through Spring Valley, flinging papers day after day, and raced through the halls of The Westchester, pulse pounding, trying to make his deliveries on time, if you had asked him if he wanted to be the richest man on earth—with his whole heart, he would have said, Yes. That passion had led him to study a universe of thousands of stocks. It made him burrow into libraries and basements for records nobody else troubled to get. He sat up nights studying hundreds of thousands of numbers that would glaze anyone else’s eyes. He read every word of several newspapers each morning and sucked down the Wall Street Journal like his morning Pepsi, then Coke. He dropped in on companies, spending hours talking about barrels with the woman who ran an outpost of Greif Bros. Cooperage or auto insurance with Lorimer Davidson. He read magazines like the Progressive Grocer to learn how to stock a meat department. He stuffed the backseat of his car with Moody’s Manuals and ledgers on his honeymoon. He spent months reading old newspapers dating back a century to learn the cycles of business, the history of Wall Street, the history of capitalism, the history of the modern corporation. He followed the world of politics intensely and recognized how it affected business. He analyzed economic statistics until he had a deep understanding of what they signified. Since childhood, he had read every biography he could find of people he admired, looking for the lessons he could learn from their lives. He attached himself to everyone who could help him and coattailed anyone he could find who was smart. He ruled out paying attention to almost anything but business—art, literature, science, travel, architecture—so that he could focus on his passion. He defined a circle of competence to avoid making mistakes. To limit risk he never used any significant amount of debt. He never stopped thinking about business: what made a good business, what made a bad business, how they competed, what made customers loyal to one versus another. He had an unusual way of turning problems around in his head, which gave him insights nobody else had. He developed a network of people who—for the sake of his friendship as well as his sagacity—not only helped him but also stayed out of his way when he wanted them to. In hard times or easy, he never stopped thinking about ways to make money. And all of this energy and intensity became the motor that powered his innate intelligence, temperament, and skills.

1. Investors give fund managers money at the wrong time. Now that you’ve had some time to read this book and understand the importance of buying stocks during fear cycles and holding during greed cycles, this first indicator should make sense. To understand this principle, imagine that you’re the fund manager of a $100 billion investment fund. When the stock market crashes and you’re able to purchase severely undervalued businesses with minimal debt, not only do you lack funds to invest, but all your resources are being depleted by scared investors. Instead of receiving money to buy the great deals, your investors are selling their shares in the fund and you don’t have the capacity to take advantage of the market behavior. This reason alone severely handicaps fund managers as they attempt to beat the market.

A few major opportunities, clearly recognizable as such, will usually come to one who continuously searches and waits, with a curious mind loving diagnosis involving multiple variables. And then all that is required is a willingness to bet heavily when the odds are extremely favorable, using resources available as a result of prudence and patience in the past.” Charles T. Munger Frequently overshadowed by Warren Buffett, his partner in the $300 billion Berkshire Hathaway holding company, Charlie Munger is a quiet, reclusive figure. Rarely making public appearances, the unostentatious billionaire spends most of his time as Buffett does: reading, thinking, and managing Berkshire Hathaway from his home in Southern California. Buffett and Munger have, over the course of their careers, amassed a multi-billion dollar empire with a brilliant-in-its-simplicity investment strategy: value investing.

The goal of the nonprofessional should not be to pick winners—neither he nor his “helpers” can do that—but should rather be to own a cross section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal. —WARREN BUFFETT, 2013 letter to shareholders

you can simply buy wonderful companies at reasonable prices, and let those companies compound cash over long periods of time. Surprisingly, there aren’t all that many money managers who follow this strategy, even though it’s the one used by some of the world’s most successful investors. (Warren Buffett is the best-known.)