Category: Lessons From Warren Buffett

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Lessons From Warren Buffett

Lessons From Warren Buffett: If You Can’t Fly a Cessna, What Makes You Think You Can Fly a Jumbo Jet?

One thing Warren Buffett thinks CEOs would benefit from is if they better understood investing. And one thing that confounds him is when managers aren’t confident enough to manage their own personal portfolio, yet they still think they should be the ones to make the decisions on enormous acquisitions and mergers. It is like being too scared to fly a Cessna but still thinking you can pilot a 747 jumbo jet.

“I will have friends who are CEOs of companies and they’ll have somebody else handle their money. If you say to them, you know, should you buy Coca-Cola or Gillette or something like that, they’ll say that’s much too tough. I don’t understand that sort of thing. What do I know about investing?” Warren Buffett said at the 2005 Berkshire Hathaway Annual Meeting. “And then some investment banker walks in the next day with the idea they buy a $3 billion company, which is just buying a lot of shares of stock in one company, and they’ll run through some little two-hour presentation and turn it over to a strategic planning group and think that they are then the ones that should make that decision as to whether to buy multibillion-dollar businesses when they really don’t feel they’re qualified to make $10,000 decisions with their own money.”

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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

Lessons From Warren Buffett: Do Anything That Makes Sense and Don’t Limit Yourself

While many mutual funds and ETFs limit themselves to a particular area, this is not Warren Buffett’s approach. He wants the maximum flexibility to take advantage of opportunities, and he also doesn’t want to be forced to do any particular thing.

“I would say that we think the most logical fund is the one we have at Berkshire where, essentially, we can do anything that makes sense and are not compelled to do anything that we don’t think makes sense,” Warren Buffett said at the 2007 Berkshire Hathaway Annual Meeting. “So any entity that is devoted to a limited segment of the financial market we would regard as being at a disadvantage to one that has total authority if you have the right person in charge… So we would not want to devote our funds to something that was only going to buy bonds, something that was only going to buy futures, or anything of the sort.”

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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: Risk and Time Horizon are Inextricably Linked

Risk and the amount of time you intend to hold a stock are inextricably linked, according to Warren Buffett. That linkage is what makes day trading stocks so risky, as the shorter the holding period, the more likely that short term price movements will sink you.

“Well, we do define risk as the possibility of harm or injury. And in that respect we think it’s inextricably wound up in your time horizon for holding an asset,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “If you intend to buy XYZ Corporation at 11:30 this morning and sell it out before the close today, I mean, that is, in our view, that is a very risky transaction. Because we think 50 percent of the time you’re going to suffer some harm or injury. If you have a time horizon on a business, we think the risk of buying something like Coca-Cola at the price we bought it at a few years ago is essentially, is so close to nil, in terms of our perspective holding period. But if you asked me the risk of buying Coca-Cola this morning and you’re going to sell it tomorrow morning, I say that is a very risky transaction.”

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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: There’s More Than One Way to Get Into Heaven

Warren Buffett’s such a legendary investor that you might think that he has found the ultimate way to get rich, but that’s not what Buffett himself believes. His comment on the differences between his approach and Peter Lynch’s shows just that.

“I’ve said in investing, in the past, that there’s more than one way to get to heaven,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “And there isn’t a true religion in this, but there’s some very useful religions.”

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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: What Adversity Tells you About the Underlying Strength of a Business

How a company weathers adversity tells you interesting things about a business, according to Warren Buffett. Among the things it shows you is not only the resiliency of a company, but also how wide its moat truly is.

“If you see a business take a lot of adversity and still do well, that tells you something about the underlying strength of the business,” Warren Buffett said at the 2000 Berkshire Hathaway Annual Meeting. “So, occasionally, you will find that an interesting test of the strength of a business. Coca-Cola had some problems, you know, in Europe. But it comes back stronger than ever. They certainly had problems with New Coke, and they came back stronger than ever. So you do see that underlying strength. And that’s very impressive as a way of evaluating the depth and impenetrability of the moat that we talked about earlier.”

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Lessons From Warren Buffett

Lessons From Warren Buffett: First, Don’t Go Broke

While Warren Buffett is always looking to buy stocks and whole businesses that are undervalued, he always keeps in mind that you need to maintain enough reserves to have adequate liquidity.

“We know we don’t want to go broke,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “I mean, we start with that. And we know you can’t go broke if you’ve got a fair amount of liquid reserves around and you don’t have any near-term debts and so on.”

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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: “Mr. Market” is There to Serve, Not Advise

Warren Buffett is fond of reminding investors about “Mr. Market,” Benjamin Graham’s personification of stock market fluctuations that he describes in Chapter 8 of The Intelligent Investor. Graham notes that sometimes the prices for stocks that Mr. Market quotes are reasonable, but sometimes “Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”

This brings us to a key point that Warren Buffett is keen to emphasize. The market is there to serve you not instruct you.

“The beauty of stocks is they do sell at silly prices from time to time,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “Ben Graham writes about it in Chapter 8 of The Intelligent Investor. . . Chapter 8 says that in the market you’re going to have a partner named ‘Mr. Market,’ and the beauty of him as your partner is that he’s kind of a psychotic drunk, and he will do very weird things over time and your job is to remember that he’s there to serve you and not to advise you. And if you can keep that mental state, then all those thousands of prices that Mr. Market is offering you every day on every major business in the world, practically, that he is making lots of mistakes, and he makes them for all kinds of weird reasons. And all you have to do is occasionally oblige him when he offers to either buy or sell from you at the same price on any given day, any given security.”

As Graham wrote:

“If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position. “

Buffett’s full explanation on the stock market and stock prices

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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: Avoid This Type of Business

It probably seems obvious that investors should avoid declining businesses, but sometimes the share prices can seem so low, as compared to the cash they are giving out in dividends, that it can lure in investors none the less. As a whole, trying to find some remaining life in a dying business is not a strategy Warren Buffett recommends, even though he began his career searching for “cigar butt” businesses. He notes that “the same amount of energy and intelligence brought to other types of businesses is just going to work out better.”

“Generally speaking, it pays to stay away from declining businesses,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “It’s very hard. You’d be amazed at the offerings of businesses we get where they say, you know, it’s — I don’t want to upset Charlie, but they say, you know, it’s only six times EBITDA, and then they project some future that doesn’t have any meaning whatsoever. If you really think a business is declining, most of the time you should avoid it. . . . The real money is going to be made by being in growing businesses, and that’s where the focus should be.”

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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: Growth is Value

With so much talk about growth stocks versus values stocks, Warren Buffett notes that growth is a form of value. Using insurer GEICO as an example, he believes that you can add projected growth to a company’s assets, and in the case of an insurance company, to its float. That is provided that you know a company is going to grow.

“I think it’s quite rational to assume a significant underwriting profit at GEICO over the next decade or two decades, and I think it’s likely that it will have significant growth, Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “And both of those are value, items of enormous value. So that adds to the present float value. . . .”

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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: Start Young, If You Want a Big Snowball

As the world’s most successful investor, Warren Buffett often gets asked his advice on building a fortune. He credits Charlie Munger with the metaphor of a snowball.

“Start young. Charlie’s always said that the big thing about it is we started building this little snowball on top of a very long hill. So we started at a very early age in rolling the snowball down,” Buffett explained at the 1999 Berkshire Hathaway Annual Meeting. “And, of course, the snowball, the nature of compound interest is it behaves like a snowball of sticky snow. And the trick is to have a very long hill, which means either starting very young or living very, to be very old.”

Buffett’s full explanation about building your own fortune

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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.