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Lessons From Warren Buffett

Lessons From Warren Buffett: Why Buffett Ignores Book Value

Book Value, the total of a company’s tangible assets minus its liabilities, is not a factor for Warren Buffett in buying stocks. In fact, the need for a business to retain cash is the exact opposite of what he is looking for because “the really wonderful businesses require no book value.”

“Book value is not a bad starting point in the case of Berkshire. It’s far from the finishing point. It’s no starting point at all of any kind in whether it’s The Washington Post or Coca-Cola or Gillette,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “It’s a factor we ignore. We do look at what a company is able to earn on invested assets and what it can earn on incremental invested assets. But the book value, we do not give a thought to.”

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© 2023 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: A Dollar Is a Dollar No Matter Where It Comes From

Some sectors seem to excite investors more than others, but Warren Buffett is quick to remind investors that no matter the source all dollars are equal.

“A dollar earned from a horseshoe company is the same as a dollar earned from an internet company” Buffett said at the 1999 Berkshire Hathaway annual meeting. “It is not worth more, based on whether it comes from somebody named dot-com, you know, or somebody that named, you know, the Old-Fashioned Horseshoe Company. The dollars are equal.”

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© 20223David 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: In the Short Run the Market Is a Voting Machine, in the Long Run a Weighing Machine

Stock prices can become disassociated from the underlying value of companies, especially in times when extreme speculation grips the market, but in the long run they more closely align. It is something that Benjamin Graham noted years ago in The Intelligent Investor, and Warren Buffett firmly agrees.

“Ben Graham was right when he said that in the short run it’s a voting machine, and the long run it’s a weighing machine,” Buffett said at the 2000 Berkshire Hathaway annual meeting. “Sooner or later, the amount of cash that a business can disgorge in the future governs the value it has, that the stock commands in the market. But it can take a long time.”

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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: How Even Bright, Rich People Go Broke

Leverage, the use of borrowed money to increase your return, may be tempting, but Warren Buffett warns against it. Even, rich, successful investors can be ruined when circustances turn against them.

“Whenever a bright person, a really bright person, goes broke that has a lot of money, it’s because of leverage,” Buffett said at the 1999 Berkshire Hathaway annual meeting. “It would be almost impossible to go broke without borrowed money being in the equation.”

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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: How a Hockey Great’s Method Relates to Investing

Warren Buffett cites hockey legend Wayne Gretzky for an important principal in investing when it comes to looking at formulas, such as P/E ratios.

“It’s the future that counts,” Buffett said at the 1995 Berkshire Hathaway annual meeting. “It’s like what I wrote there, what Wayne Gretzky says, to go where the puck is going to be, not where it is.”

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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: People Always Want a Formula

Disciplined investors are often trying to find the key investing principals that they can apply that will tell them when to make an investment. However, Warren Buffett points out that it is not that simple.

“People always want a formula. They go to The Intelligent Investor and they think, you know, somewhere they’re going to give me a little formula and then I can plug this in and I know I’ll make lots of money. And it really doesn’t work that way,” Warren Buffett said at the 2002 Berkshire Hathaway Annual Meeting. “What you’re trying to do is look at all the cash a business will produce between now and judgment day, and discount it back at a rate that’s appropriate, and then buy it a lot cheaper than that…So, I wouldn’t want to have a single yardstick, or a, you know, relative P/E that I went by.”

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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: We Don’t Pay Any Attention to a Stock’s Beta

Beta, a measure of a stock’s historical volatility, is of no relevance to Warren Buffett when making an investment decision.

“We don’t pay any attention to beta or any of that sort of thing. It just doesn’t mean anything to us,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “We’re only interested in price and value. And that’s what we’re focusing on all the time, and any kind of market movements or anything don’t mean anything.”

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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: This Is the Best Investment a Young Person Can Make

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.

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Lessons From Warren Buffett

Lessons From Warren Buffett: A Great Moat Is Even Better Than Great Management

Having an invincible fortress of a business run by great management is the ideal situation for an investor, but forced to choose between the two, Warren Buffett would take the moat over the management. “If you have a big enough moat, you don’t need as much management,” Buffett notes.

“It gets back to Peter Lynch’s remark that he likes to buy a business that’s so good that an idiot can run it, because sooner or later one will,” Buffett said at the 1999 Berkshire Hathaway annual meeting. “He was saying that what he really likes is a business with a terrific moat where nothing can happen to the moat, and there aren’t very many businesses like that.”

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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: Why I Don’t Worry About Selling at the Top

It would seem logical that an investor wants to buy low and sell high, and that ideally that sale should be at or near the highest share price that a stock reaches. However, Warren Buffett sees it differently, and he has no fear that others make money off a stock that he’s sold. In fact, he thinks it is an indicator that as an investor you are on the right track when it comes to looking for superior businesses.

“I would worry, frankly, if I sold a bunch of things right at the top, because that would indicate that, in effect, I was practicing the bigger fool-type approach to investing, and I don’t think that can be practiced successfully over time,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “I think the most successful investors, if they sell at all, will be selling things that end up going a lot higher, because it means that they’ve been buying into good businesses as they’ve gone along.”

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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.