Category: Lessons From Warren Buffett

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Lessons From Warren Buffett

Lessons From Warren Buffett: It’s Built Into the System That Stocks Get Mispriced

Those who believe in the Efficient Market Theory espouse that a stock’s price always reflect the total information that is known about a company, so it is impossible to “beat the market,” because it is already priced into the stock. Warren Buffett strongly disagrees.

“It’s built into the system that stocks get mispriced,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “I think Berkshire, generally speaking, has come closer to selling around its intrinsic value, over a 47-year period or so, than most large companies. If you look at the range from our high to low in a given year and compare that to the range high and low on a hundred other stocks, I think you’ll find that our stock fluctuates somewhat less than most, which is a good sign. But I will tell you, in the next 20 years, Berkshire will someday be significantly overvalued, and at some points significantly undervalued. And that will be true for Coca-Cola and Wells Fargo and IBM and all of the other securities that I don’t… I just don’t know in which order and at which times.”

Buffett’s full explanation on mispriced stocks

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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: You Don’t Have to Make It Back the Way You Lost It

Pouring more money into a money losing stock in the hope of making back your losses is not only dangerous, it is unnecessary Warren Buffett says. There are lots of ways to make money and there is no advantage to making your money back on the same stock that you have previously lost money, rather than buying something else.

“It is true that a very important principle in investing is you don’t have to make it back the way you lost it,” Warren Buffett said at the 1995 Berkshire Hathaway Annual Meeting. “And in fact, it’s usually a mistake to make, try and make it back the way that you lost it.”

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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: How to Evaluate a Company’s Management

A critical component to any successful company, especially over the long term, is the quality of its management. As an investor, Warren Buffett thinks there are two key aspects of relevance to shareholders that they should consider.

“I think you judge management by two yardsticks,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “One is how well they run the business and I think you can learn a lot about that by reading about both what they’ve accomplished and what their competitors have accomplished, and seeing how they have allocated capital over time. You have to have some understanding of the hand they were dealt when they themselves got a chance to play the hand. But, if you understand something about the business they’re in, and you can’t understand it in every business, but you can find industries or companies where you can understand it, then you simply want to look at how well they have been doing in playing the hand, essentially, that’s been dealt with them. And then the second thing you want to figure out is how well that they treat their owners. And I think you can get a handle on that, oftentimes.”

Buffett added: “It’s interesting how often the ones that, in my view, are the poor managers also turn out to be the ones that really don’t think that much about the shareholders, too. The two often go hand in hand.”

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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: Having Opinions on the Wrong Things Can Harm Your Investing

Will the stock market go up? Will it go down? There are so many different forecasts on what markets will do that it is tempting to try and form your own opinion in order to bolster your investing strategy. Warren Buffett says don’t do it. Having bullish or bearish opinions about things that are ultimately unknowable is not only a waste of time, but it can also keep you from focusing on what you can know about.

“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.”

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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.

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Lessons From Warren Buffett Value Investing Warren Buffett

Lessons From Warren Buffett: You don’t Know Who is Swimming Naked Until…

Risk is not something that is always immediately apparent. In fact, it is not until markets plunge, a company goes belly up, or a catastrophic event happens that causes insurers to pay large claims, that the degree of risk truly becomes clear.

“You don’t find out who’s been swimming naked until the tide goes out,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “You don’t, you really don’t find out who’s been swimming naked until the wind blows at them.”

Buffett pointed out that the adage applies as much to bonds and reinsurance as it does to the stock market. Investors that chase return through low-rated bonds, or insurance companies that write risky policies, can look like geniuses until circumstances turn against them and expose their true risk, often with catastrophic results.

“Reinsurance business, by its nature, will be a business in which some very stupid things are done en masse periodically,” Buffett noted. “I mean, you can be doing dumb things and not know it in reinsurance, and then all of a sudden wake up and find out, you know, the money is gone.”

Buffett’s full explanation


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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: Cash is Like Oxygen

Investing is about putting your money to work earning more money, but as Warren Buffett notes, there are times when liquidity is paramount and at those moments cash becomes all important.

“There have been a few times in history, and there will be more times in history, where if you don’t have it, you know, you don’t get to play the next day,” Warren Buffett said at the 2022 Berkshire Hathaway Annual Meeting. “I mean, it’s like oxygen, you know? It’s there all the time, but if it disappears for a few minutes, it’s all over.”

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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: The Magic of Stock Buybacks

American Express, Apple, Coca-Cola, what do they all have in common? They are among the myriad companies that regularly buy back their own stock. For example, Apple bought back $81 billion of its share in 2021 alone. Warren Buffet is quick to point out the incredible advantages of stock buybacks (as long as the company repurchasing its shares is doing so at a price below their intrinsic value). It’s the easiest investing there is. As a shareholder, you are gaining an ever larger stake in a company, tax free, all without doing a thing.

“We owned 150 million shares of American Express. I think we bought our last share in 1998, or something like that, and we then owned 11.2% of the American Express company. And since then, they’ve sent us a check every quarter as a dividend. And so, we’ve taken some cash a little bit as they’ve gone along. And now we own 20% of American Express. Now, that’s what’s happened because they repurchased shares,” Warren Buffett said at the 2022 Berkshire Hathaway Annual Meeting. “And like I say, we’ve gone from 11.2% to 20%. And if you’re using your American [Express] card, or whatever it may be, 20% of whatever earnings contribute a little to our interest that used to be 11.2%, and we’ve done it without putting up any money. Now, imagine if you owned a farm, and you had 640 acres, and you farmed it every year, and you made a little money on it, and you enjoyed farming, and somehow, twenty or so years later, it had turned into 1,100 or 1,200 acres. . . . If you do it at the right price, there’s nothing better than buying in your own business. . . . It is the simplest thing in the world, and then I read all this stuff. It is unbelievable how people can’t figure out something that, you know, if they owned a farm and the guy next to them had a farm and somehow you were getting more of his farm all the time without putting up any money, while you farmed your own farm . . . you’d feel very good about it.”

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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

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Lessons From Warren Buffett Value Investing

Lessons From Warren Buffett: You’re Neither Right nor Wrong Because People Agree With You or Disagree

Warren Buffett believes firmly that the work of the investor is to find opportunities, and it makes no difference if other people agree with you or not.

“Ben Graham said long ago that you’re neither right nor wrong because people agree with you or disagree with you,” Warren Buffett noted at the 2006 Berkshire Hathaway Annual Meeting. “You’re right because your facts and reasoning are right. So all you do is you try to make sure that the facts you have are correct. . . . And then once you have the facts, you’ve got to think through what they mean. And you don’t take a public opinion survey. You don’t pay attention to things that are unimportant. I mean, what you’re looking for is something — things that are important and knowable. If something’s important but unknowable, forget it. I mean, it may be important, you know, whether somebody’s going to drop a nuclear weapon tomorrow but it’s unknowable. It may be all kinds of things. So you — and there are all kinds of things are that knowable but are unimportant. In focusing on business and investment decisions, you try to think — you narrow it down to the things that are knowable and important, and then you decide whether you have information of sufficient value that — you know, compared to price and all that, that will cause you to act. What others are doing means nothing.”

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© 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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: When They Say the Word Synergy They Really Mean

While discussing what makes Berkshire Hathaway an attractive place to sell your successful business to, Warren Buffett noted that the term synergy is really just another way of saying that that a lot of people are going to get fired. And often first in line to get fired are the people that helped make a company successful in the first place.

“They would have all these ideas about synergy, and synergy would mean that the people that had helped him build the business over 30 years would all get sacked,” Warren Buffett said at the 2013 Berkshire Hathaway Annual Meeting. “And that the acquiring company would come in like Attila the Hun and be the conquering people, and he just didn’t want to do that to the people that helped him over the years.”

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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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: Read Everything in Sight

If there is one piece of wisdom that Warren Buffett has shared that he believes is key to becoming a good investor it is “to read everything in sight.” It is how he got started, and it has continued throughout his life.

“I just read a lot. I probably took every book in the Omaha Public Library, every book they had on investing, or the stock market, basically,” Warren Buffett said at the 2005 Berkshire Hathaway Annual Meeting. “. . . . I took all the books out. I read them. And finally, when I was 11, I bought three shares of stock and I didn’t know, I was fascinated by the subject. My dad got elected to Congress, so now the library became even bigger, and I took all the books I could out of there on markets. And I used a chart and do all that sort of thing. And then, finally, I read [Benjamin] Graham’s book when I was at the University of Nebraska, The Intelligent Investor, when I was 19, and that just changed my whole framework. But the advice I would give is to read everything in sight.”

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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.