Warren Buffett is one of the greatest investors of all time. Thankfully, he has been very outspoken on how to be successful when investing. Here are ten lessons that investors can learn from Warren Buffett.
1) Warren Buffet was quoted in the 2008 letter to shareholders saying “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” This is a reminder to buy not just cheap, but buy high quality as well.
2) During an interview in the documentary IOUSA, Warren was quoted as saying “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” An investor can learn from this by buying a business that is not overly complicated or dependent on key employees.
3) Near the bottom of the 1974 market correction, Forbes magazine asked how Warren felt, he answered, "Like an oversexed guy in a whorehouse.” The point was that when everyone else was depressed about the prices of stocks, he was very excited for the opportunity to obtain quality business at discounted prices.
4) In Business Week, Warren was quoted as saying, “success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” This is a reminder that are emotions can have more to do with bad decisions then are research.
5) Warren has been outspoken regarding the need to protect your capital, it is better than taking chances on high-risk gains. He was quoted as saying “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
6) Warren has had limited interest in precious metals, he has preferred common stocks. His views on gold were expressed when quoted at Harvard saying, “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”.
7) It is good to be patient, Warren reminds investors of this when he said, “I call investing the greatest business in the world because you never have to swing. You stand at the plate; the pitcher throws you General Motors at 47! U.S. Steel at 39! And nobody calls a strike on you. There's no penalty except opportunity lost. All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”
8) Warren also reminds us that the market will never be rational; he was quoted as saying “the fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.”
9) If investors are still saving for retirement, they should hope for market declines. Warren reminded investor by saying, "if you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall."This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices”.
10) Some of his best advice came when he was only 21, at Columbia University he said, “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful”.
Warren Buffett is the world’s greatest investor; he buys quality businesses on sale at times when most people are too frighten to invest.
William McNarland, CFA has been working in the investment industry for 15 years. He is a co-founder of PMCMG Inc. and My Global Analyst Inc. He has appeared as a guest on Money Line and taught at the University of Toronto. He resides in Alberta Canada. He can be contacted at firstname.lastname@example.org.