Warren Buffett Stocks Quotes

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

stocks of companies selling commodity-like products should come with a warning label: “Competition may prove hazardous to human wealth.

Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.

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

The attitude of our managers vividly contrasts with that of the young man who married a tycoon's only child, a decidedly homely and dull lass. Relieved, the father called in his new son- in-law after the wedding and began to discuss the future: Son, you're the boy I always wanted and never had. Here's a stock certificate for 50% of the company. You're my equal partner from now on.' Thanks, dad.' Now, what would you like to run? How about sales?' I'm afraid I couldn't sell water to a man crawling in the Sahara.' Well then, how about heading human relations?' I really don't care for people.' No problem, we have lots of other spots in the business. What would you like to do?' Actually, nothing appeals to me. Why don't you just buy me out?

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

students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices. Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable 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 these standards—so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value. Though it’s seldom recognized, this is the exact approach

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.

Every year Buffett explains that he wants Berkshire to have great long-term shareholders and that splitting the stock would only work against that.

The valuation picture is very much affected by our zero-based interest rate structure. Clearly, stocks are worth far more when government bonds yield 1% than when they yield 5%.

Yet he knew that stocks would be better than bonds or cash over the long run.

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

1. A stock must be managed by vigilant leaders. 2. A stock must have long-term prospects. 3. A stock must be stable and understandable. 4. A stock must be undervalued.

automatically compound. If you need cash, you can sell stock and pay capital gains tax at a lower rate than a dividend would be taxed.

Stocks are the things to own over time. Productivity will increase and stocks will increase with it. There are only a few things you can do wrong. One is to buy or sell at the wrong time. Paying high fees is the other way to get killed. The best way to avoid both of these is to buy a low-cost index fund, and buy it over time. Be greedy when others are fearful, and fearful when others are greedy, but don’t think you can outsmart the market. “If a cross-section of American industry is going to do well over time, then why try to pick the little beauties and think you can do better? Very few people should be active investors.

Buffett reminded folks that to buy a stock is to buy part ownership of a business. Don’t get hung up on daily price quotes. Instead, think about business performance and what you would pay for the business, just as you would a farm.

Number one rule of Wall Street: Nobody - I don't care if you're Warren Buffett or Jimmy Buffett - Nobody knows if the stock's going to go up, down, sideways, or in fucking circles, least of all stockbrokers. It's all a Fugazzi. You know what a Fugazzi is?

As a value investor, your ideal situation is to find a company increasing its intrinsic value. Ideally, the company would be one with a declining stock price, thus creating an even better bargain as time unfolds. No one has employed these principles more effectively than Buffett and Munger.

You have to understand accounting and you have to understand the nuances of accounting. It's the language of business and it's an imperfect language, but unless you are willing to put in the effort to learn accounting - how to read and interpret financial statements - you really shouldn't select stocks yourself. - Warren Buffett

If the price of a particular stock is going up, we assume good things are happening; if the price starts to go down, we assume something bad is happening, and we act accordingly. It’s a poor mental habit, and it is exacerbated by another: evaluating price performance over very short periods of time. Not only are we depending solely on the wrong thing (price), Buffett would say, but we’re looking at it too often and we’re too quick to jump when we don’t like what we see. This double-barreled foolishness—this price-based, short-term mentality—is a flawed way of thinking, and it shows up at every level in our business. It is what prompts some people to check stock quotes every day, sometimes every hour.

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.

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...

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.

financial markets will become divorced from reality — you can count on that. More Jimmy Lings will appear. They will look and sound authoritative. The press will hang on their every word. Bankers will fight for their business. What they are saying will recently have “worked.” Their early followers will be feeling very clever. Our suggestion: Whatever their line, never forget that 2+2 will always equal 4. And when someone tells you how old-fashioned that math is ---zip up your wallet, take a vacation and come back in a few years to buy stocks at cheap prices.

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.

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.

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

Businesses are nothing more than purchasing stocks, and providing loans is nothing more than purchasing bonds.

The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.”7 This

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

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

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

Warren Buffett invests according to four simple principles. Vigilant leadership Long-term prospects Stock stability Buy at attractive prices. One of the greatest strengths of Warren Buffett is his ability to make things simple. As you can see above, his principles are straightforward and easy to remember. As you navigate your way through this book, always keep these four principles at the forefront of your mind. Ensuring that all four are met at all times is paramount to anything else.

THE FOLLOWING DAY, the Apple share price fell 10 percent and the company lost $75 billion in value. The single-day decline was Apple’s biggest in six years and sank its valuation to a level it had not seen since February 2017. It shook the U.S. economy. The company had become one of the most widely held institutional stocks, included in mutual funds, index funds, and 401(k)s. Thanks in part to Warren Buffett and Berkshire Hathaway, everyone from grandmothers in Florida to autoworkers in the Midwest had an interest in Apple’s business. They all suffered.

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.

Vigilant leadership Long-term prospects Stock stability Buy at attractive prices.

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

Over the past 15 years, both Internet stocks and houses have demonstrated the extraordinary excesses that can be created by combining an initially sensible thesis with well-publicized rising prices. In these bubbles, an army of originally skeptical investors succumbed to the “proof” delivered by the market, and the pool of buyers — for a time — expanded sufficiently to keep the bandwagon rolling. But bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: “What the wise man does in the beginning, the fool does in the end.

Successful long-term investors like Warren Buffett know that bear markets are buying opportunities.

Along with his Company A and Company B teaching method, Graham used to talk about Class 1 and Class 2 truths. Class 1 truths were absolutes. Class 2 truths became truths by conviction. If enough people thought a company’s stock was worth X, it became worth X until enough people thought otherwise. Yet that did not affect the stock’s intrinsic value—which was a Class 1 truth.

Whether we are talking about socks or stocks, I like buying quality merchandise when it is marked down.

When Walter and Edwin were asked in 1989 by Outstanding Investors Digest, “How would you summarize your approach?” Edwin replied, “We try to buy stocks cheap.” So much for Modern Portfolio Theory, technical analysis, macroeconomic thoughts and complex algorithms.

Warren Buffett is one of the most successful investors of the 20th century and a self-described “value investor.” He aims to buy stocks at a discount (below intrinsic value), so that even with a worst-case scenario, he can do well. This discount is referred to as the “margin of safety,” and it’s the bedrock principle of some of the brightest minds in the investing world (e.g., Seth Klarman). It doesn’t guarantee a good investment, but it allows room for error.

Do not approach the market unless you are willing to think about stocks, first and always, as part-ownership interests in businesses. Be prepared to diligently study the businesses you own, as well as the companies you compete against, with the idea that no one will know more about your business than you do. Do not even start a focus portfolio unless you are willing to invest a minimum of five years (10 years would even be better). Never leverage your focus portfolio. An unleveraged focus portfolio will help you reach your goals fast enough. Remember, an unexpected margin call on our capital will likely wreck a well-tuned portfolio. Accept the need to acquire the right temperament and personality to become a focus investor.

Warren Buffett, the most-admired person in the investing industry has at times had a miserable family life—partly his own doing, the collateral damage of a life where picking stocks was the highest priority.

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.

Essays of Warren Buffett: Lessons for Corporate America. “Growth

Warren Buffett wird nicht müde zu betonen, dass es an ihm ist, sich selbst die Verwaltung des kleinsten Geldbetrages sehr angelegen sein zu lassen. Und eben darin bekundet sich jenes Verantwortungsbewusstsein, mit dem Staat zu machen ist.

Charlie and I believe our four criteria are essential if directors are to do their job — which, by law, is to faithfully represent owners. Yet these criteria are usually ignored. Instead, consultants and CEOs seeking board candidates will often say, “We’re looking for a woman,” or “a Hispanic,” or “someone from abroad,” or what have you. It sometimes sounds as if the mission is to stock Noah’s ark. Over the years I’ve been queried many times about potential directors and have yet to hear anyone ask, “Does he think like an intelligent owner?” The questions I instead

An old Wall Street joke gets close to our experience: Customer: Thanks for putting me in XYZ stock at 5. I hear it’s up to 18. Broker: Yes, and that’s just the beginning. In fact, the company is doing so well now, that it’s an even better buy at 18 than it was when you made your purchase. Customer: Damn, I knew I should have waited.

Stocks cannot forever overperform their underlying businesses, as they have so dramatically done for some time.

In large part, companies obtain the shareholder constituency that they seek and deserve. If they focus their thinking and communications on short-term results or short-term stock market consequences they will, in large part, attract shareholders who focus on the same factors

Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.

Most institutional and individual investors will find the best way to own common stock 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.”1 —Warren Buffett, chairman of Berkshire Hathaway

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.

We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do.

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.

Charlie and I enjoy issuing Berkshire stock (for acquisitions) about as much as we relish prepping for a colonoscopy.” -2009 letter

Course 1, Unit 1 Stock 101

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

The true investor scarcely ever is forced to sell his shares, and at all other times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons’ mistakes of judgment.10

I resurrect this “market-guessing” section only because after the Dow declined from 995 at the peak in February to about 865 in May, I received a few calls from partners suggesting that they thought stocks were going a lot lower. This always raises two questions in my mind: (1) if they knew in February that the Dow was going to 865 in May, why didn’t they let me in on it then; and, (2) if they didn’t know what was going to happen during the ensuing three months back in February, how do they know in May? There is also a voice or two after any hundred point or so decline suggesting we sell and wait until the future is clearer. Let me again suggest two points: (1) the future has never been clear to me (give us a call when the next few months are obvious to you—or, for that matter the next few hours); and, (2) no one ever seems to call after the market has gone up one hundred points to focus my attention on how unclear everything is, even though the view back in February doesn’t look so clear in retrospect. If

If a 20% or 30% drop in the market value of your equity holdings (such as BPL) is going to produce emotional or financial distress, you should simply avoid common stock type investments. In the words of the poet—Harry Truman—“If you can’t stand the heat, stay out of the kitchen.” It is preferable, of course, to consider the problem before you enter the “kitchen.

I am not in the business of predicting general stock market or business fluctuations. If you think I can do this, or think it is essential to an investment program, you should not be in the partnership.

The availability of a quotation for your business interest (stock) should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it.”1 —

Jason Zweig, senior writer and columnist at Money magazine and coauthor of the revised edition of Benjamin Graham's classic, The Intelligent Investor: "If you buy-and then hold-a total stock market index fund, it is mathematically certain that you will outperform the vast majority of all other investors in the long run. Graham praised index funds as the best choice for individual investors, as does Warren Buffett.

The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do. For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.

Of all the professional money managers, Warren Buffett’s record stands out as the most extraordinary. For over 40 years, Buffett’s company, Berkshire Hathaway, has earned a rate of return for his stockholders twice as large as the stock market as a whole. But that record was not achieved only by his ability to purchase “undervalued” stocks, as it is often portrayed in the press. Buffett buys companies and holds them. (He has suggested that the correct holding period for a stock is forever.)

Once a bull market gets under way, and once you reach the point where everybody has made money no matter what system he or she followed, a crowd is attracted into the game that is responding not to interest rates and profits but simply to the fact that it seems a mistake to be out of stocks. In effect, these people superimpose an I-can’t-miss-the-party factor on top of the fundamental factors that drive the market. Like Pavlov’s dog, these “investors” learn that when the bell rings—in this case, the one that opens the New York Stock Exchange at 9:30 A.M.—they get fed. Through this daily reinforcement, they become convinced that there is a God and that He wants them to get rich.

Thinking, Fast and Slow by Daniel Kahneman The Four Pillars of Investing by William Bernstein The Little Book of Common Sense Investing by John Bogle The Little Book of Behavioral Investing by James Montier Stocks for the Long Run by Jeremy Siegel The Warren Buffett Portfolio by Robert Hagstrom Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe Investing: The Last Liberal Art by Robert Hagstrom Success Equation: Untangling Skill and Luck in Business, Sports, and Investing by Michael Mauboussin Devil Take the Hindmost by Edward Chancellor The Most Important Thing by Howard Marks All About Asset Allocation by Rick Ferri Winning the Loser's Game by Charles Ellis

Most institutional investors in the early 1970s, on the other hand, regarded business value as of only minor relevance when they were deciding the prices at which they would buy or sell. This now seems hard to believe. However, these institutions were then under the spell of academics at prestigious business schools who were preaching a newly-fashioned theory: the stock market was totally efficient, and therefore calculations of business value—and even thought, itself—were of no importance in investment activities. (We are enormously indebted to those academics: what could be more advantageous in an intellectual contest—whether it be bridge, chess, or stock selection than to have opponents who have been taught that thinking is a waste of energy?)

An even easier route might be to just buy some B-shares of Berkshire Hathaway (ticker: BRK-B). One share of stock in this company will cost you $203.27 today. You can then sit back and relax and let Warren Buffett, Charlie Munger, and their successors do all of the hard work.

I’m convinced that there is much inefficiency in the market. These Graham-and-Doddsville investors have successfully exploited gaps between price and value. When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.

Derivatives spread the damage throughout the world. In March 2009, when the S&P 500 had fallen 57 percent from its peak, I could not tell whether to buy stocks or to sell what I had. Either decision might have been a disaster. If we continued into a major worldwide depression, buying more would be costly. In the other scenario, the one that occurred, this was the bottom, and stocks rebounded over 70 percent in less than a year. Warren Buffett, who had better information and insight than almost anyone, later told The Wall Street Journal’s Scott Patterson that at one point he was looking into the abyss and considering the possibility that everything could go down, even Berkshire Hathaway. It was only when the US government indicated it would do whatever was necessary to bail out the financial system that he realized we were saved.

As he absorbs what he is hearing, David muses that just this morning he was taught that fundraising is part of the lifeblood of a private equity firm—and yet here he is working on a secret plan for a version of…immortality. Management fees without the ticking clock of a finite fund life, helping to drive the Firm’s stock price higher as the Firm’s profits increase year after year. The concept is not new; it is inspired by Berkshire Hathaway, the listed investment vehicle led by Warren Buffett. But the application to private equity firms is novel, and at this stage, none of the Firm’s rivals are focused on it.

It’s much harder to piece together every investment he’s made over his career. No one talks about the dud picks, the ugly businesses, the poor acquisitions. But they’re a big part of Buffett’s story. They are the other side of tail-driven returns. At the Berkshire Hathaway shareholder meeting in 2013 Warren Buffett said he’s owned 400 to 500 stocks during his life and made most of his money on 10 of them. Charlie Munger followed up: “If you remove just a few of Berkshire’s top investments, its long-term track record is pretty average.

Since I entered the business world, conglomerates have enjoyed several periods of extreme popularity, the silliest of which occurred in the late 1960s. The drill for conglomerate CEOs then was simple: By personality, promotion or dubious accounting — and often by all three — these managers drove a fledgling conglomerate’s stock to, say, 20 times earnings and then issued shares as fast as possible to acquire another business selling at ten-or-so times earnings. They immediately applied “pooling” accounting to the acquisition, which — with not a dime’s worth of change in the underlying businesses — automatically increased per-share earnings, and used the rise as proof of managerial genius. They next explained to investors that this sort of talent justified the maintenance, or even the enhancement, of the acquirer’s p/e multiple. And, finally, they promised to endlessly repeat this procedure and thereby create ever-increasing per-share earnings.

If an investor’s entry point into Berkshire stock is unusually high — at a price, say, approaching double book value, which Berkshire shares have occasionally reached — it may well be many years before the investor can realize a profit. In other words, a sound investment can morph into a rash speculation if it is bought at an elevated price. Berkshire is not exempt from this truth.

Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained. By that standard, purportedly “risk-free” long-term bonds in 2012 were a far riskier investment than a long- term investment in common stocks. At that time, even a 1% annual rate of inflation between 2012 and 2017 would have decreased the purchasing-power of the government bond

If the widget company consistently earned a superior return on capital throughout the period, or if capital employed only doubled during the CEO’s reign, the praise for him may be well deserved. But if return on capital was lackluster and capital employed increased in pace with earnings, applause should be withheld. A savings account in which interest was reinvested would achieve the same year-by-year increase in earnings—and, at only 8% interest, would quadruple its annual earnings in 18 years. The power of this simple math is often ignored by companies to the detriment of their shareholders. Many corporate compensation plans reward managers handsomely for earnings increases produced solely, or in large part, by retained earnings—i.e., earnings withheld from owners. For example, ten-year, fixed-price stock options are granted routinely, often by companies whose dividends are only a small percentage of earnings. An example will illustrate the inequities possible under such circumstances. Let’s suppose that you had a $100,000 savings account earning 8% interest and “managed” by a trustee who could decide each year what portion of the interest you were to be paid in cash. Interest not paid out would be “retained earnings” added to the savings account to compound. And let’s suppose that your trustee, in his superior wisdom, set the “pay-out ratio” at one-quarter of the annual earnings.

Legg Mason was a value shop, and its training program emphasized the classic works on value investing, including Benjamin Graham and David Dodd’s Security Analysis and Graham’s The Intelligent Investor. Each day, the firm’s veteran brokers would stop by and share their insights on stocks and the market. They handed us a Value Line Investment Survey of their favorite stock. Each company possessed the same attributes: a low price-to-earnings ratio, a low price-to-book ratio, and a high dividend yield. More often than not, the company was also deeply out of favor with the market, as evidenced by the long period the stock had underperformed the market. Over and over again, we were told to avoid the high-flying popular growth stocks and instead focus on the downtrodden, where the risk-reward ratio was much more favorable.

Charlie and I have many reasons to be thankful for our association with Chuck and See’s. The obvious ones are that we’ve earned exceptional returns and had a good time in the process. Equally important, ownership of See’s has taught us much about the evaluation of franchises. We’ve made significant money in certain common stocks because of the lessons we learned at See’s. Warren Buffett, annual letter to shareholders, 1991

​“Intrinsic value can be defined simply: it is the discounted value of the cash that can be taken out of a business during its remaining life.” -Warren Buffett

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” - Warren Buffett

Financial strength and capital structure. The most basic possible definition of a good business is this: It generates more cash than it consumes. Good managers keep finding ways of putting that cash to productive use. In the long run, companies that meet this definition are virtually certain to grow in value, no matter what the stock market does. Start by reading the statement of cash flows in the company’s annual report. See whether cash from operations has grown steadily throughout the past 10 years. Then you can go further. Warren Buffett has popularized the concept of owner earnings, or net income plus amortization and depreciation, minus normal capital expenditures. As portfolio manager Christopher Davis of Davis Selected Advisors puts it, “If you owned 100% of this business, how much cash would you have in your pocket at the end of the year?” Because it adjusts for accounting entries like amortization and depreciation that do not affect the company’s cash balances, owner earnings can be a better measure than reported net income. To fine-tune the definition of owner earnings, you should also subtract from reported net income: any costs of granting stock options, which divert earnings away from existing shareholders into the hands of new inside owners any “unusual,” “nonrecurring,” or “extraordinary” charges any “income” from the company’s pension fund. If owner earnings per share have grown at a steady average of at least 6% or 7% over the past 10 years, the company is a stable generator of cash, and its prospects for growth are good.

Buy into a company because you want to own it, not because you want the stock to go up.

One of the most fundamental concepts of making money in the stock market is buying a company that you can hold forever.

Simply estimate where earnings per share (EPS) will be in 5 years from now. Slap a 15 multiple (P/E) on that number and you have a reasonable price target for the stock. Warren Buffett uses a similar trick all the time.

We have to decide whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate.

Always remember that when you are buying a stock, you are really buying part ownership of a business.

For indisputably skilled investors like Warren Buffett, wide diversification would be foolish, since it would water down the concentrated force of a few great ideas. But for the typical fund manager or individual investor, not diversifying is foolish, since it is so difficult to select a limited number of stocks that will include most winners and exclude most losers. As you own more stocks, the damage any single loser can cause will decline, and the odds of owning all the big winners will rise. The ideal choice for most investors is a total stock market index fund, a low-cost way to hold every stock worth owning.

Stocks During Fear Cycles (Recessions): These are the least risky and most profitable times for purchasing stock. During Greed Cycles (Bull Markets): These are the most risky and least profitable times for purchasing stocks. Bonds During Fear Cycles (Recessions): These are the most risky and least profitable times for purchasing bonds.

To summarize, a great business will show the following characteristics in its financial statements: Earnings show a smooth upward trend Consistent return on equity (ROE) greater than 20% Consistent return on total capital (ROTC) greater than 15% Long-term debt less than 4 times earnings Pays a dividend and/or buys back stock

Seasoned investors like Warren Buffett, Thomas Rowe Price Jr., John Neff, Jesse Livermore, Peter Lynch, and many more, practice this strategy of finding the best available alternative before investing a considerable sum.

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.

Before you start trying to pick individual stocks and/or fund managers ask yourself this simple question: “Am I Warren Buffett?” If the answer is “no,” keep your feet firmly on the ground with indexing.

The fact is almost anyone can achieve positive absolute returns in a trending up market. Watch TV and listen to market pundits, buy the hot stocks of the day, and ignore valuation. Growth and momentum have been the lessons learned by new portfolio managers in the 2010s. Only when the tide goes out, do you discover who has been swimming naked. —Warren Buffett When the tide goes out, good investors create outperformance. Global central banks have made sure the tide has not gone out for a decade. US equity market drawdowns of more than 10% have occurred only four times in the last decade and each drawdown has lasted less than 60 days.

When you build a bridge, you insist that it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. You require a margin of safety, and rightly so.” Warren Buffett