There are lots of banks and they shouldn’t be treated the same when it comes to investing in the banking sector. Warren Buffett notes that there are lots of banks, and there are more banks than good bank management.
“We’ve also seen all kinds of banks ruined. I think it was, what was the fellow? M.A. Schapiro, who came up with the statement, he said, ‘There are more banks than bankers,’” Warren Buffett said at the 2002 Berkshire Hathaway Annual Meeting, quoting investment banker Morris Schapiro. “And if you think about that a bit, you’ll see what I mean. There have been a lot of people that have run banks in a very injudicious manner, but that’s made for opportunities for other people.”
If you are a teenager dreaming of being a billionaire, and are wondering how you can become the next Warren Buffett, Buffett is happy to tell you what you need to learn and do. And it is good advice even if you are not still a teen.
“I definitely think you ought to learn all the accounting you can by the time you’re in your early twenties. Accounting is the language of business,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “Now, that doesn’t mean it’s a perfect language, so you have to know the limitations of that language, as well as all aspects of it. So I would advise you to learn accounting. And I would advise you to be, in terms of part-time employment or anything else, work at a number of businesses. There’s nothing like seeing how business operates to build your judgment in the future about businesses. You know, when you understand what kind of things are very competitive, and what kind of things are less competitive, and why that works that way, all of that adds to your knowledge.”
Buffett’s full explanation how to be the next Warren Buffett
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 is famous for saying “Be fearful when others are greedy and greedy when others are fearful.” However, this shouldn’t mislead investors that just being contrarian is the key to investing success.
“Being contrarian has no special virtue over being a trend follower,” 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.”
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 is such a legendary investor that it is easy to assume that it came to him so naturally that he was always successful. That actually wasn’t the case, according to Buffett.
“From eleven to nineteen, I was reading Garfield Drew, and Edwards and Magee, and all kinds of, I mean, I read every book, Gerald M. Loeb, I mean, I read every book there was on investments, and I didn’t do well at all. And I had no real investment philosophy. I had a lot of things I tried. I was having a lot of fun. I wasn’t making any money,” Warren Buffett said at the 2002 Berkshire Hathaway Annual Meeting. “And I read Ben’s book (Benjamin Graham’s The Intelligent Investor) in 1949 when I was at University of Nebraska, and that actually just changed my whole view of investing. And it really did, basically, told me to think about a stock as a part of a business. Now, that seems so obvious. You can say, you know, that why should you regard that as the Rosetta Stone? But it is a Rosetta Stone, in a sense.”
Buffett’s full explanation on the books he read that molded his investing philosophy
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.
Beta, the measurement of a stock’s volatility, is not a measurement of riskiness, according to Warren Buffett. Although many investors are taught that high beta stocks have more potential for gain but also a higher risk of loss due to their volatility, Buffett disagrees.
“It became very fashionable in the academic world, and then that spilled over into the financial markets, to define risk in terms of volatility, of which beta became a measure, but that is no measure of risk to us,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “Interesting thing is that using conventional measures of risk, something whose return varies from year to year between plus-20 percent and plus-80 percent is riskier, as defined, than something whose return is 5 percent a year every year. We just think the financial world has gone haywire in terms of measures of risk.”
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.
What are Warren Buffett’s criteria for buying a stock? They are very straightforward. They are all about understanding a company, projecting its future earnings, and evaluating the quality of a company’s management. As Buffett notes, “It is simple, but not easy.”
“The criteria for selecting a stock is really the criteria for looking at a business. We are looking for a business we can understand,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “That means they sell a product that we think we understand, and we understand the nature of the competition, what could go wrong with it over time. And then when we find that business we try to figure out whether the economics of it means the earning power over the next five, or ten, or fifteen years is likely to be good and getting better or poor and getting worse. But we try to evaluate that future stream. And then we try to decide whether we’re getting in with some people that we feel comfortable being in with. And then we try to decide what’s an appropriate price for what we’ve seen up to that point.”
Buffett’s full explanation of his criteria for buying a stock
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.
Should you be investing in growth stocks or value stocks is a common question. And TV pundits spend a lot of time discussing which category is outperforming the other. However, Warren Buffett dismisses such talk, as he doesn’t believe those categories are separable from each other.
“Well, the question about growth and value…they are not two distinct categories of business,” Warren Buffett said at the 2000 Berkshire Hathaway Annual Meeting. “If you knew what it was going to be able to disgorge in cash between now and Judgment Day, you could come to a precise figure as to what it is worth today. Now, elements of that can be the ability to use additional capital at good rates, and most growth companies that are characterized as growth companies have that as a characteristic. But there is no distinction in our minds between growth and value. Every business we look at as being a value proposition. The potential for growth and the likelihood of good economics being attached to that growth are part of the equation in evaluation. But they’re all value decisions. A company that pays no dividends growing a hundred percent a year, you know, is losing money. Now, that’s a value decision. You have to decide how much value you’re going to get.”
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 points out that focusing on a stock’s price, rather than its value, is not the path to success.
“I think it’s almost impossible if you’re to do well in equities over a period of time if you go to bed every night thinking about the price of them. I mean, Charlie and I, we think about the value of them,” Warren Buffett pointed out at the 2003 Berkshire Hathaway Annual Meeting. “If they closed the Stock Exchange tomorrow. . . It wouldn’t bother me and Charlie [Munger], at all. We would keep selling bricks, selling Dilly Bars, selling candy, writing insurance. You know, a lot of people have private companies and they never get a quote on them. You know, we bought See’s Candy in 1972. We haven’t had a quote on it since. Does that make us wonder about how we’re doing with See’s Candy? No, we looked at the company results. . . . There’s nothing wrong with focusing on company results. Focusing on the price of a stock is dynamite, because it really means that you think that the stock market knows more than you do…So you need to formulate your ideas on price and value, and if the price gets cheaper and you have funds, you know, logically, you should buy more . . . and we do that all the time. Where we make our mistakes, frankly, is where we focus on price and value and we start buying, and the price goes up a little and we quit, you know, like Charlie referred to, we might have done on See’s Candy. A mistake like that cost us $8 billion in the case of Walmart stock a few years ago, because it went up in price. And you know, we are not happy when things we’re buying go up in price. We want them to go down, and down, and down. And we’ll keep buying more, and hopefully we won’t run out of money.”
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.
Investors are often searching for great companies at bargain prices, but Warren Buffett cautions against passing up great companies just because the price is slightly higher than what you think is the ideal price.
“Generally speaking, I think if you’re sure enough about a business being wonderful, it’s more important to be certain about the business being a wonderful business than it is to be certain that the price is not ten percent too high or five percent too high, or something of the sort,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting. “And that’s a philosophy that I came slowly to. I originally was incredibly price conscious. We used to have prayer meetings before we would raise our bid an eighth, you know, around the office. But that was a mistake. And in some cases, a huge mistake. I mean, we’ve missed things because of that.”
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.
Excessive speculation, it’s the downfall of investors and markets time and time again, but as Warren Buffett notes, it often begins benignly when early investors see a previously unrecognized opportunity. However, as word of the opportunity starts to spread, it soon loses all relationship to underlying fundamentals and becomes nothing but sheer speculation and is doomed to end badly.
“It’s that old story of what the wise man does in the beginning, the fool does in the end,” Warren Buffett noted at the 2006 Berkshire Hathaway Annual Meeting. “And with any asset class that has a big move, that’s based initially on fundamentals, is going to attract speculative participation at some point, and that speculative participation can become dominant as time goes by. And, you know, famous case always being tulip bulbs, I mean, tulips may have been more attractive than dandelions or something, so people paid a little more money for them. But once a price history develops that causes people to start looking at an asset that they never looked at before and to get envious of the fact that their neighbor made a lot of money without any apparent effort because he saw this early and so on, that takes over.”
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.