Category: Lessons From Warren Buffett

Warren Buffett warns that most companies that need constant large capital investments usually turn out poorly for investors.

“Most fields that require heavy capital investment, most of the time, they don’t turn out very well over time,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “There are plenty of exceptions to that, but if you find a business that has to keep adding up huge sums of money every year, there always will be a reason why they’re doing it. But the net result, after five or 10 or 20 years usually isn’t very good.”

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© 2023 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.

Investing within what Warren Buffett calls “your circle of competence” is one of his hard and fast rules. It is one that he has held to throughout his career, even when it has meant passing up tantalizing opportunities.

“Different people understand different businesses,” Buffett said at the 1999 Berkshire Hathaway annual meeting. “And the important thing is to know which ones you do understand and when you’re operating within what I call ‘your circle of competence.’”

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© 2023 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.

Since publicly traded companies report on a quarterly and annual basis it is easy to place a special importance on a company’s performance over those time periods. However, Warren Buffett points out that “there’s nothing magic about a one-year period.”

“The fact that the Earth revolves around the sun really is not totally connected to most business activities, or the fruition of most investment ideas, or anything of the sort,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “We have to report every year, and, you know, I care about the yearly figures in that sense. I don’t really care about them, totally, as a measure of what we’re doing.”

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© 2023 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.

Warren Buffett doesn’t look at stocks in terms of their daily price movements, whether the market as a whole is up or down, he focusses on individual stocks and their value as partial ownership of companies.

“We look at individual businesses. And we don’t think of stocks as little items that wiggle around on the paper and that have charts attached to them,” Buffett said at the 1999 Berkshire Hathaway annual meeting. “We think of them as parts of businesses.”

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© 2022 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.

Risk for Warren Buffett is not just the risk that a business has at the moment, but also includes the risks it may face many years in the future.

“We think of business risk in terms of what can happen, say 5, 10, 15 years from now, that will destroy, or modify, or reduce the economic strengths that we perceive currently exist in a business,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “When we look at businesses, we try to think of what can go wrong with them. We try to look [for] businesses that are good businesses now, and we think about what can go wrong with them. If we can think of very much that can go wrong with them, we just forget it. We are not in the business of assuming a lot of risk in businesses.”

Hear Buffett’s full explanation

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© 2023 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.

If a sector you know nothing about is booming, should you still buy it? Not if you are Warren Buffett.

“We will never buy anything we don’t think we understand,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “And our definition of understanding is thinking that we have a reasonable probability of being able to assess where the business will be in 10 years.”

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© 2023 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.

While financial commentary on TV and in print is often filled with predictions as to which direction the stock market will move, it is not something that Warren Buffett spends any time trying to predict. In fact, as Buffett points out, if he could be successful in predicting price movements, he wouldn’t ever need to buy stocks, as it would be totally unnecessary. He could just bet on stock futures.

“Charlie and I haven’t the faintest idea where the stock market is going to go next week, next month, or next year. We never talk about it. You know, it never comes up,” Warren Buffett said at the 2008 Berkshire Hathaway Annual Meeting. “Obviously, if we could guess successfully a high percentage of the time where the stock market was going to go, we would do nothing but play the S&P futures market. There wouldn’t be any reason to look at businesses and stocks.”

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© 2023 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.

Some sectors seem to excite investors more than others, but Warren Buffett is quick to remind investors that no matter the source all dollars are equal.

“A dollar earned from a horseshoe company is the same as a dollar earned from an internet company” Buffett said at the 1999 Berkshire Hathaway annual meeting. “It is not worth more, based on whether it comes from somebody named dot-com, you know, or somebody that named, you know, the Old-Fashioned Horseshoe Company. The dollars are equal.”

Hear Buffett’s full explanation

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© 20223David 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.