Category: Value Investing

As you develop an interest in investing it is natural to look around and wonder what is the best thing for you to invest in. Is it stocks, real estate, commodities, or foreign currencies? Warren Buffett has a very straight forward answer to that question, and it is one investment that he would happily make. It is investing in yourself. By that he means improving your capabilities.

“I think that the best investment you can have, for most people, is in your own abilities,” Warren Buffett noted at the 2005 Berkshire Hathaway Annual Meeting. “I would pay a student, in many cases, I would be glad to pay them one hundred thousand dollars, cash up front, for ten percent of all their future earnings. So, I’m willing to pay one hundred thousand dollars for ten percent of them, I’m valuing the whole person at a million dollars, just capital value standing there in front of me.”

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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.

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.

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.

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

© 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.

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.”

Buffett’s full explanation on growth and value

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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.

Investors can spend a lot of time rehashing the mistakes they’ve made, be it the money they have lost, or just from imagining the money they could have made if they had done something differently. However, Warren Buffett points out that “You know, if every shot you hit in golf was a hole-in-one…the game would soon lose interest. So you have to hit a few in the woods occasionally just to make it a little more interesting.”

Now, Buffett is not really preaching that you should go out and deliberately make mistakes, and he has tried hard to learn from his own, including the investments he didn’t make.

“Well, the mistakes we made, and we made them, some of them big time, are of two kinds. One is when we didn’t invest at all in something that we understood that was cheap, maybe because we weren’t even working hard enough at looking at the whole list, or because, for one reason or another, we just didn’t, we didn’t take action,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “And the second was starting in on something that could have been a very large investment and not maximizing it. Charlie (Munger) is a huge believer in the idea that you don’t sit around sucking your thumb when you can, when something comes along that should be done that you pour into it.”

Hear Buffett’s full explanation

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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.

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.”

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 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.”

Warren Buffett on the Investor and the Speculator

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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.