Category: Lessons From Warren Buffett

Warren Buffett has learned a lot over the years from studying the mistakes that other people have made. In fact, he and Charlie Munger are students in the study of folly.

“In terms of reading of financial history and all that sort of thing, I’ve always been absolutely absorbed with reading about disasters,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “And there’s no question. I mean, when you look at the folly of humans — you know, I’ve focused on the folly in the financial area — there’s all kinds of folly elsewhere — but just the financial area will give you plenty of material if you like to be a follower of folly. And I do think that understanding, and that’s what gave us some advantage over these people that have IQs of 180, you know, and can do things with math that we couldn’t do. They just, they really just didn’t have an understanding of how human beings behave and what happens. 2008 was a good example of that, too. So, we’ve, we have been a student of other people’s folly, and it’s served us well.”

Hear Buffett’s full explanation

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.

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.”

Hear Buffett’s full explanation

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.

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.”

Hear Buffett’s full explanation

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.

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

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.

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.”

Hear Buffett’s full explanation

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.

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

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.

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.”

Hear Buffett’s full explanation

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.

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.”

Buffett’s full explanation

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.