Warren Buffett is no fan of shorting stocks. His aversion goes back to what he called a “particularly harrowing experience” shorting in 1954 when he found “my net worth was evaporating and my liquid assets were getting less liquid.”
“It just takes one to kill you,” Warren Buffett warned at the 2002 Berkshire Hathaway Annual Meeting. “And you need more and more money as the stock goes up. You don’t need more and more money when a stock goes down, if you paid for it originally and didn’t buy it on margin. You just sit and find out whether you were right or not. But you can’t necessarily sit and find out whether you’re right on being short a stock.”
Rebalancing your portfolio is something that is constantly preached by the financial industry, and if you don’t do it yourself, they are happy to create an account or a fund that does it for you automatically. However, Warren Buffett scoffs at the whole concept and sees it to be more about marketing than good investing.
“The idea that you have, you know, you say, ‘I’ve got 60 percent in stocks and 40 percent in bonds,’ and then have a big announcement, now we’re moving it to 65/35, as some strategists or whatever they call them in Wall Street do. I mean, that has to be pure nonsense,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “What you ought to do is have (as) your default position is always short-term instruments. And whenever you see anything intelligent to do, you should do it. And you shouldn’t be trying to match up with some goal like that. . . . But so much of what you see when you talk about asset allocation, it’s just merchandising. It’s a way to make you think that if you don’t know how to determine whether it should be 60/40 or 65/35, that you need these people. And you don’t need them at all in investing.”
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.
You have done your research and identified a great company. It’s a company that you think will grow and bring great returns for the next 20-30 years, and you are dying to add it to your portfolio. But then a little voice creeps into your head, saying “Maybe I should wait for a price decline?” So, should you wait for price declines before buying great companies?
“I think it’s better just to own them,” Warren Buffett said at the 1996 Berkshire Hathaway Annual Meeting. “So, to sit there and hope that you buy them in the throes of some panic, you know, that you sort of take the attitude of a mortician, you know, waiting for a flu epidemic or something… I’m not sure that will be a great technique.”
(Note: That this doesn’t mean that you should buy at any price, and that Buffett says that he wouldn’t buy a stock if it is selling at an “egregious price.”)
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 is a big difference between investing and speculating (gambling), but if you ask a lot of people what that difference is they won’t be able to tell you in a clear, succinct way. Thankfully, Warren Buffett did just that.
“If you’re an investor, you’re looking at what the asset is going to do,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting. “If you’re a speculator, you’re primarily focusing on what the price of the object is going to do independent of the business. . .”
For Buffett, the bottom line is simple: “Investment is putting out money to get more money back later on from the asset. And not by selling it to somebody else, but by what the asset, itself, will produce.”
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.
In 2011, in the heart of the Great Recession, Warren Buffett had the bold idea to make a $5 billion investment in Bank of America at a time when investing in banks looked extraordinarily risky. Buffett admits it was a moment of inspiration that came to him while he was sitting in his bathtub. Over the years, his Bank of America investment paid off handsomely, bringing him over $22 billion. However, Buffett is quick to note that it’s not the bathtub that is the key factor. It was the decades of knowledge he accumulated on the banking industry that enabled a moment of inspiration.
“It was mentioned how I got the idea about buying the Bank of America, or making an offer to Bank of America on a preferred stock, when I was in the bathtub, which is true. But the bathtub really was not the key factor,” Warren Buffett said at the 2013 Berkshire Hathaway Annual Meeting. “The truth is I read a book more than 50 years ago called Biography of a Bank. It was a great book, about A.P. Giannini and the history of the bank. And I have followed the Bank of America, and I’ve followed other banks, you know, for 50 years.”
Buffett’s full explanation on learning about an industry
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.
People spend a lot of time looking at P/E ratios (Share Price divided by Earnings) when deciding whether to buy a stock. However, Warren Buffett notes that “It isn’t a multiple of today’s earnings that is primarily determinate of things.”
“It’s the future that counts,” Warren Buffett said at the 1995 Berkshire Hathaway Annual Meeting, using an all-time hockey great’s words to illustrate his point. “Wayne Gretzky says to go where the puck is going to be, not where it is. . . . We want to be in the business that 10 years from now is earning a whole lot more money than it is now, and that we will still feel good about the prospects of the business at that time. That’s the kind of business we’re trying to buy all of, and that’s the kind of business that we try and buy part of.”
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.
Usually, at the end of a bull market, companies rush to go public with IPOs (initial public offerings). It feeds the public’s hunger for stocks, but it is of not much interest to Warren Buffett. For Buffett, it’s just not where you are likely to get a good price.
“An auction market, prevailing in the stock market, will offer up extraordinary bargains sometimes, because somebody will sell a half a percent, or one percent of a company at a price that may be a quarter of what it’s worth, whereas in negotiated deals, you don’t get that,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “An IPO situation more closely approximates a negotiated deal. I mean, the seller decides when to come to market in most cases. And they don’t pick a time necessarily that’s good for you.”
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.
When Price/Earnings ratios rise, it is the product of two factors, and Warren Buffett detailed them both.
“It’s very simple, the price-earnings ratio, relative price-earnings ratios, move up because people expect either the industry or the company’s prospects to be better relative to all other securities than they have been, than their proceeding view. And that can turn out to be justified or otherwise,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “Absolute price-earnings ratios move up in respect to the earning power, or the prospective earning power of, that is viewed by the investing public of future returns on equity, and also in response to changes in interest rates.”
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.
Time and investing are inextricably linked, as the time it takes for an investment directly effects your rate of return. And, Warren Buffett also sees time as both friend and foe for companies themselves.
“Time is the enemy of the poor business, and it’s the friend of the great business,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “I mean if you have a business that’s earning 20 or 25 percent on equity, and it does that for a long time, time is your friend. But time is your enemy if you have your money in a low-return business. And you may be lucky enough to pick the exact moment when it gets taken over by someone else. But we like to think when we buy a stock we’re going to own it for a very long time, and therefore we have to stay away from businesses that have low returns on equity.”
Buffett’s full explanation on companies with poor returns on equity
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 reminds investors that there is no special award for the degree of difficulty of an investing strategy. And, according to Buffett, in the end it is the execution of an investing strategy that is the most important thing.
“This is not like Olympic diving. In Olympic diving, you know, they have a degree of difficulty factor. And if you can do some very difficult dive, the payoff is greater if you do it well than if you do some very simple dive. That’s not true in investments,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “You get paid just as well for the most simple dive, as long as you execute it all right. And there’s no reason to try those three-and-a-halves when you get paid just as well for just diving off the side of the pool and going in cleanly. So we look for one-foot bars to step over rather than seven-foot or eight-foot bars to try and set some Olympic record by jumping over. And it’s very nice, because you get paid just as well for the one-foot bars.”
Buffett’s full explanation on degree of difficulty versus reward in investing
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.