Warren Buffet’s Words of Wisdom

On 05/24/2011, in Investment Strategies, by Jordan Wilson

Warren Buffet has done exceptionally well as an investor and businessman over the long run.

That said, I do not believe that the average investor can emulate Buffet’s approach.

But Buffet, in his folksy Nebraskan way, does offer some great advice.

This linked article from Business Insider shares 15 of his top short snappers.

A few thoughts from my side on some of the points Buffet makes. 

Never Lose Money

If you lose money you cannot grow your capital. An obvious point.

But the same applies to investment fees and expenses. Cash paid out of your pocket to others cannot compound on your behalf. And, as we saw in our discussions of compound returns, compounding is vital to investment success.

Business Knowledge

I always wanted to be an investor. I learned the technical skills and developed investment experience.

But I quickly realized that to properly evaluate investments, especially equities, requires an understanding of business and related areas. That is the main reason I initially became a Chartered Accountant. So that I could better analyze companies for potential investment.

If you want to succeed in investing, develop accounting and economic expertise. Work in the business world to better understand how companies operate. Learn about product development and marketing. All these areas will greatly aid in your investing results.

Wonderful Versus Fair

Quality usually wins out.

Yes, even a dead cat can bounce. That is, terrible investments can rebound. Especially if you can buy them at distress or bankruptcy prices. But over the long run, that dead cat will normally fall back to the ground.

It is better to pay a fair price for a quality product.

Note that Buffet uses the term “fair value”. You want to buy quality assets, but you do not want to overpay for them. Always make certain the numbers make sense. If it is too expensive, it might not be wise to buy just because it is a wonderful asset.

Never fall in love with a fantastic asset. Always consider both the price and growth potential in conjunction before investing your capital.

No Need to be a Genius

I think you need some basic smarts and some experience. But most investors can do well if they apply themselves.

You do not need to be a rocket scientist to succeed. But you do need certain traits to excel.

A rational approach to investing, particularly risk, is important.

Confidence and determination in following your game plan, even when the market falls or the masses are taking contrary positions.

The ability to objectively access your performance and take the necessary remedial measures to get back on track.

These are all more important than brain power.

Fourth Law of Motion

Less trading.

Less volatile investments.

Stay on an even keel.

Timing is Everything

Avoid market timing and you will avoid investment bubbles.

And again, expenses and fees paid to others are enemies to your portfolio.

Maximize what you reinvest for yourself. Minimize that which is paid to others.

Socks and Stocks

Investments are like any other good or service that you purchase.

Do you go buy a new television or car simply on a whim?

Probably not.

Instead, you do your homework and find the best available television or car in your price range. What we call “best of breed”.

Then you typically wait until there is a sale or promotion that allows you to acquire the asset for less than retail.

Take the same approach to investing.

Find quality assets and buy them at sale prices. Dollar cost averaging helps in this effort.


1 Response » to “Warren Buffet’s Words of Wisdom”

  1. Nathan says:

    Well stated.

    Another superb blog posting.

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