What can we learn from Warren Buffett?
Where do you start with Warren Buffett? Widely recognised as the world’s shrewdest investor, the “Sage of Omaha” is now 90 years young and still doling out nuggets of advice to investors across the globe. Using his investment expertise, he had amassed a fortune of some $79 billion as of August 2020, making him the 4th wealthiest individual in the world.
Buffett is chairman and CEO of the Omaha (Nebraska) headquartered conglomerate, Berkshire Hathaway. His annual letter to shareholders is highly valued and their annual shareholder’s meeting has grown into an enormous event, attracting crowds some years in excess of 40,000 people! People want to hear what Buffett has to say.
The only infuriating factor in all of this is that he makes it all sound so simple… While of course it is not, he is guided by a series of principles that he sticks to and he regularly speaks of these through pithy and highly valued quotes. The challenge we faced in picking out some of his best quotes was reducing them to the number below. Here are seven of Warren Buffett’s best quotes.
1. “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”
This is known as his golden rule and is actually a bit of an odd one. He is certainly not saying that one should invest only in instruments that can never fall, as this would rule out investing in the likes of shares. Instead he is saying that one should not invest in instruments that have real potential to be lower over a reasonable timeframe. He believes that rationality must sit at the heart of investing.
Losing in the short term is a part of winning over the long term. This never includes taking unnecessary risk such as investing in single or speculative assets that can lead to catastrophic losses. If you want to make money, you need to preserve your capital over any reasonable timeframe.
2. “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
There is a theme of time running through many of Buffett’s best quotes, no more so than this one. A tree takes many years to grow and provide shade – when faced with an empty space in a garden or field, it can be tempting simply not to bother planting it and waiting for it to grow.
It’s the same with investing. Don’t expect immediate results. Smart investments require you to initially take action, they need a lot of time and you need to be patient. Don’t look for quick results – that’s speculating.
3. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
In this quote, Buffett explains that the route to success for the average investor is not through short term bets on particular stocks, even though their growth may look like a dead cert. He believes that success for the average investor is achieved through long-term passive investing across an index, as opposed to trying to achieve quick wins through active management decisions.
4. “Price is what you pay, value is what you get.”
This is another of his famous quotes. In this he demonstrates his support for value investing as opposed to growth investing. Value investing is investing in businesses where the share price is deeply discounted to the value of the company, and you are effectively buying it on sale at a low price. Another quote that he also came out with about value investing was, “Whether we’re talking about stocks or socks, I like buying quality merchandise when it is marked down.” It makes sense – but you might be amazed at the number of people who want to buy stocks after they’ve had a really good run… and are now very expensive to buy.
5. “Risk comes from not knowing what you are doing.”
Warren Buffett places tremendous store in taking time out every day for reading and just thinking. While others are taking impulsive action and often just blowing a hole in their investments, he counsels the importance of educated and researched decisions. Taking your time and taking wise, careful decisions reduces your investment risk.
6. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Another famous quote that if people in Ireland had listened to in the noughties, we would have saved ourselves a lot of pain. As Irish people bought second and third rental properties, and holiday villas in places they couldn’t find on a map, friends and family members followed them. Greed took over and a very expensive fall was the inevitable result. In hindsight, this was the time to be fearful and run away from such investments.
We see this in stock markets too. As markets climb high, novice investors get greedy and buy in when stocks are very expensive. Likewise after market crashes, we see uneducated, fearful investors sell up at a low price when this is the best time to be greedy and buy in.
7. “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
Back to the theme of time – there are some things that just cannot be rushed! Is there any better example than producing a baby? Buffett often reminds us that investments are similar, they take time to grow. Looking for quick results often ends up as an expensive mistake.
Warren Buffett teaches us a lot of valuable and common sense lessons about investing. He also teaches us about linkages between investments, money and life in general. We’ll leave you with a final, refreshing thought from him about being a wealthy man and the potential impact this could have on his children – there’s a lesson in here for all of us.
"I’ll give my kids enough money so that they would feel they could do anything, but not so much that they could do nothing."