Tag Archives: Value Investing

Lessons From Warren Buffett: There’s Nothing More Agonizing Than This

There is investing and then there is just plain gambling. It is something that Warren Buffett sees as almost inevitable for a certain type of investor. What type of investors are they? They are investors that always have their eyes on somebody else’s portfolio.

“There’s nothing more agonizing than to see your neighbor, who you think has an IQ about 30 points below you, getting richer than you are by buying stocks. And whether it’s internet stocks or whatever… and people succumb to it,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “If the market gets hot, new issues are doing well and people on leverage are doing well, a lot of people will be attracted to, not only speculation, but what I would call gambling.”

Buffett’s full explanation about speculation and markets

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: It Is a Waste of Time Having an Opinion About the Stock Market’s Direction

Turn on the financial news and you will see a steady stream of predictions as to the stock market’s overall direction. What is more routine at the beginning of the year than pundits predicting where the market will be at the end of the year? Will it hit a new high? Will it plummet? It clearly fascinates a lot of people, but not Warren Buffett, who sees those types of predictions as a waste of time.

“You may have trouble believing this, but Charlie and I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do, or anything of that sort. Because we just don’t know. And to give up something that you do know and that is profitable for something that you don’t know and won’t know because of that, it just doesn’t make any sense to us, and it doesn’t really make any difference to us.”

Buffett’s full explanation on investing and the direction of the stock market

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Don’t Try and Sell to Buy Back Later at a Lower Price

You picked a winner and it’s shot up through the roof. Time to sell and buy back later at a lower price?

Warren Buffett and Charlie Munger advise against it.

“Generally speaking, trying to dance in and out of the companies you really love, on a long term basis, has not been a good idea for most investors” Charlie Munger explained at the 1999 Berkshire Hathaway Annual Meeting.

Warren Buffett concurred: “It’s pretty tough to do,” Buffett added. “You have to make two decisions right…you have to sell it right first, and then you have to buy it right later on….If you get in to a wonderful business, best thing to do is stick with it.”

Buffett and Munger’s full explanation on trying to sell and buy back

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: There’s No Set Formula for Knowing Whether the Market, or a Company, is Undervalued or Overvalued

Warren Buffett places a strong emphasis on a company’s intrinsic value in determining whether the company should be purchased in whole or in part. Whether a company is undervalued or overvalued is at the heart of knowing whether it is a good investment. The same applies to the stock market as a whole.

So, is there a straightforward formula that you can use to determine valuation? Not according to Warren Buffett.

“It’s not reducible to any formula where you can actually put in the variables perfectly,” Warren Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “It’s just not quite as simple as having one or two formulas and, then, saying the market is undervalued or overvalued, or a company is undervalued or overvalued.”

As he noted, you can have a formula, but the hard part is knowing what variables to put in.

Warren Buffett’s full explanation on determining valuation

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Investing Doesn’t Need to Be Complicated, but It Needs This Essential Element

You don’t have to be a genius to be an investor, is something that Warren Buffett has said many times. However, there are things that he thinks are core qualities of successful investors.

So, what is it that Warren Buffett thinks is essential? Discipline.

“What we do is not a complicated business.” Buffett explained at the 2018 Berkshire Hathaway Annual Meeting. “It’s got to be a disciplined business, but it doesn’t require a super IQ, or anything of that sort.”

Buffett’s full explanation on being a disciplined investor

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: If You Want to Be a Good Investor Try Running a Lousy Business for a While

There is no one that wants to have a lousy business, but as Warren Buffett points out, you certainly learn a lot of lessons from it. Among the things you learn are “how awful it is, and how little you can do about it, and how IQ does not solve the problem…”

As Buffett noted: “I really think if you want to be a good evaluator of businesses, an investor, you really ought to figure out a way, without too much personal damage, to run a lousy business for a while,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “I think you learn a whole lot more about business by actually struggling with a terrible business for a couple of years than you learn by getting into a very good one where the business itself is so good that you can’t mess it up.”

Buffett’s full explanation about learning from running a lousy business

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Here’s What to Pay Attention To

The Dow is up 200 points, or it is down 150 points, when you turn on the nightly news the overall stock market’s gyrations are what gets attention. Is it what you should be paying attention to?

Not if you want to invest like Warren Buffett.

“Charlie and I don’t think about the market. And Ben (Graham) didn’t very much. I think he made a mistake to occasionally try and place a value on it,” Buffett explained at the 1999 Berkshire Hathaway annual meeting. “We look at individual businesses, and we don’t think of stocks as little items that wiggle around on the paper and have charts attached to them. We think of them as parts of businesses.”

Buffett’s full explanation on focusing on individual companies rather than the market

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: You Can Go Broke Short Selling

A company’s stock price goes up and up, seemingly disassociated from any meaningful metrics of valuation. So, should you short it?

It may be tempting, but Warren Buffett advises against it.

“Short selling, it’s an interesting item to study because it’s, I mean, it’s ruined a lot of people. It’s the sort of thing that you can go broke doing,” Buffett explained at the 2001 Berkshire Hathaway Annual Meeting. “Being short 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.”

Buffett’s full explanation on short selling

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Don’t Pass Up a Good Investment Because of Negative External Factors

The trade deficit is up, unemployment is sky high, and Coronovirus is taking thousands of lives a day. Negative news with sweeping impact is coming out daily.

Should you integrate macroeconomic news into your investing strategy?

Warren Buffett says no.

“We don’t really pay attention to that sort of thing,” Buffett said at the 2004 Berkshire Hathaway Annual Meeting.

He went on to point out that “You could’ve sat down in 1974, when stocks were screaming bargains, and you could’ve written down all kinds of things that would have caused you to say, you know, the future is going to be terrible.”

As Buffett noted, the stock market has survived wars, pandemics, and all kinds of negative news.

“You know, the Dow went from 66 to 10,000-plus in the hundred years of the 20th century, Buffett explained. “And we had two world wars…There‘s always problems in the future, there’s always opportunities in the future. And in this country the opportunities have always won out over the problems over time.”

So, don’t let the size of the federal deficit scare you out of making a well-researched investment in an individual stock.

Buffett’s full explanation of macroeconomic factors and investing

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Don’t Let This Error Take You Out of the Game

Warren Buffett is fond of baseball analogies. He’s often spoken about an investor being like a baseball batter waiting for the right pitch. He notes that the advantage the investor has over the batter is that there are no called strikes. You can wait for just the right pitch before swinging your bat.

It is a straightforward concept, and speaks to the patience and discipline that good investors should have.

However there is a flipside to waiting for a great deal, and it is an error that Buffett warned about at the 2011 Berkshire Hathaway Annual Meeting. The flipside is thinking that every investment you make, every stock that you buy, has to be an absolute home run.

“One of the things, one of the errors people make in business, and sometimes it can be a huge error, is that they try and measure every deal against the best deal they’ve ever made,” Buffet said. “So they say, you know, I made this wonderful deal for, maybe, an insurance policy written, or it might be a company bought, it might be a stock bought, and they’re determined that they’re never going to make a deal that isn’t that attractive in the future. So, they in effect, sometimes take themselves out of the game.”

For Buffett, it is all about the opportunities that are available to the investor at a particular time.

As Buffett noted, opportunity costs are different for every investment.

“The goal is not to make a better deal than you’ve ever made before. The goal is to make a satisfactory deal that’s the best deal you can make at the time,” Buffett explained.

So, don’t let the search for the perfect investment be the enemy of the good investment.

See Buffett’s full explanation of opportunity costs as it related to five different Berkshire Hathaway investments.

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.