Category Archives: Value Investing

Lessons From Warren Buffett: This Changed Warren Buffett From a Poor Investor to a Great One

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

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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.

Lessons From Warren Buffett: Warren Buffett Disagrees With Beta as a Measurement of Risk

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

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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.

Lessons From Warren Buffett: Here Are Buffett’s Criteria for Buying a Stock

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.

Lessons From Warren Buffett: No Distinction Between Growth and Value

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

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.

Lessons From Warren Buffett: We Think About Value, Not Price

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

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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.

Lessons From Warren Buffett: It’s Okay to Pay Slightly More for a Wonderful Company

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.

Lessons From Warren Buffett: What the Wise Man Does in the Beginning, the Fool Does in the End

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.”

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.

Lessons From Warren Buffett: What We Learn From History Is

Despite all the boom and bust cycles of the past, Warren Buffett notes that when it comes to people learning from the past, there is one very important lesson that can benefit investors.

“What we learn from history is that people don’t learn from history,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “And you certainly see that in financial markets all the time.”

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.

Lessons From Warren Buffett: You Can Overpay Even if It’s an Outstanding Company

Are some companies so outstanding that it is worth paying any price for them? It is a question that is worth asking when stock prices reach truly stratospheric heights.

Back in 1997, in his Chairman’s Letter to Berkshire Hathaway’s shareholders, Warren Buffett singled out Coca-Cola and Gillette as companies that he labeled as “The Inevitables.” Buffett was referring to companies that “will dominate their fields worldwide for an investment lifetime.” However, at that year’s annual meeting, in response to a shareholder’s question, he did clarify that even a company that is an “Inevitable” can be priced too high to be a good investment.

“But you can pay too much, at least in the short run, for businesses like that,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting. “So, I thought it was only appropriate to point out that no matter how wonderful a business it is, that there always is a risk that you will pay a price where it will take a few years for the business to catch up with the stock. That the stock can get ahead of the business.”

Buffett’s full explanation on paying too much

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.

Lessons From Warren Buffett: Intelligent Investor Chapters 8 & 20 Are All You Need to Get Rich

If you are looking for a book that can show you how to get rich, Warren Buffett points to Benjamin Graham’s The Intelligent Investor as the only book you need.

“Chapters 8 and Chapters 20 are really all you need to do to get rich in this world,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “And 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.”

Buffett’s full explanation on getting rich with The Intelligent Investor

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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.