Tag: Value Investing

Every investor has a circle of competency that encompasses the companies and types of investments that they understand. What do you do when you can’t find anything that fits in that circle? In Warren Buffett’s case, he prefers to wait rather than hoping he can enlarge the circle.

“If we have trouble finding things within our circle, we will not enlarge the circle,” Warren Buffett said at the 1995 Berkshire Hathaway Annual Meeting. “You know, we’ll wait. That’s our approach.”

Warren Buffett is quick to point out that just because something in not in your circle of competency, it doesn’t mean it isn’t in somebody else’s. What Buffett understands when it comes to technology companies and what Bill Gates understands are vastly different. However, Buffett wants to understand it himself, not just take a recommendation from someone more expert than him.

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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.

Corporations that rely on the franchise model can’t just focus on squeezing the maximum amount of revenue out of their franchises if they want to truly be successful. According to Warren Buffett, who in 1998 purchased International Dairy Queen, a quick service restaurant chain that relies on the franchise model, you have to focus on building a great business that franchisees can be successful owning, and even eventually selling at a profit down the road.

Investors looking to buy shares in companies that rely heavily on the franchise model, would be wise to look beyond corporate financial reports, and personally visit franchisees to learn whether they feel they own a business that they can be successful with over the long term.

“You have to have a good business for the franchisee to, over time, have a good business for the parent company,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “A successful franchisee can sell his operation for significantly more than he has invested in tangible assets. And we want it that way, obviously, because that means he’s got a successful business, and it means that, over time, we will have a successful business. You want the franchise operator to make money and you want him to create a capital asset that’s worth more than he’s put in it. That’s the goal.”

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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.

Investing can be such an active process that it is easy to forget that you don’t have to do anything. It is a point that Warren Buffett makes when he notes that the stock market gives you a constant stream of prices that you can buy or sell at, but you don’t have to accept them.

“The stock market is the most obliging, money-making place in the world because you don’t have to do anything,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “You know, you sit there with thousands of businesses being priced at the same price for the buyer and the seller…and it changes every day, and you’ve got lots of information about most of those businesses, and you don’t have to do 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.

Too many investors focus on price to make their investing decisions. When a stock drops substantially from its all-time high, to them it has become cheap. However, Warren Buffett reminds us that long term investing success is based on buying companies based on what they are worth, not based on the prices they are selling for on any given day.

“The important thing is that you make your decisions based on what you think the business is worth,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “And if you make your buy and sell decisions based on what you think a business is worth, and you stick with businesses that you’ve got good reason to think you can value, you simply have to do well in stocks.”

Hear 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 doesn’t just see stocks as a series of buy and sell prices that are constantly being offered. He always looks at investing as an opportunity to buy a business, whether it is buying the whole business or just a small number of shares.

“It’s very important to have that mindset that we are buying businesses, whether we’re buying 100 shares of something or whether we’re buying the entire company,” Warren Buffett said at the 2013 Berkshire Hathaway Annual Meeting. “We always think of them as businesses.”

Buffett’s full explanation on evaluating the qualitative and the quantitative properties of a business

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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 a 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.

One of the most influential books the young Warren Buffett read was Benjamin Graham’s The Intelligent Investor. Buffett has called it “By far the best book on investing ever written.”

In chapter 8 of the book, Graham famously anthropomorphizes the actions of the stock market into the erratic “Mr. Market.” Graham wrote 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.”

“It’s a marvelous game,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “The rules are stacked in your favor, if you don’t turn those rules upside down and start behaving like the drunken psychotic instead of the guy that’s there to take advantage of it.”

Hear 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.

If you are songwriter and you copy somebody else’s song, you are going to get sued for plagiarism. However, when it comes to investing, there is no downside to copying someone else’s strategy, as long as you understand it. Warren Buffett credits reading Benjamin Graham’s The Intelligent Investor and Phil Fisher’s Common Stocks and Uncommon Profits for many of his ideas.

“I think you can learn a lot from other people,” Warren Buffett said at the 1995 Berkshire Hathaway Annual Meeting. “In fact, I think, if you learn reasonably well from other people, you don’t have to get any new ideas or do much on your own. You can just apply the best of what you see.”

Hear 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 living proof that you don’t have to spend your energy timing the stock market to be a successful investor. As Buffett notes, “we haven’t the faintest idea what the stock market is going to do when it opens on Monday.” For Buffett, more important than trying to time the market, is recognizing when a particular stock is undervalued.

“I totally missed, you know, in March of 2020,” Warren Buffett said at the 2022 Berkshire Hathaway Annual Meeting. “We have not been good at timing. We’ve been reasonably good at figuring out when we were getting enough for our money. And we had no idea when we bought anything (well, we always hoped it would go down for a while so we could buy more) and we hoped even after we were done buying and ran out of money that if it was cheap the company would keep buying, in effect, taking our interest up. I mean, that’s stuff you can learn it in fourth grade. But it’s not what’s taught in school.”

Hear 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.

There are so many public companies, each producing an annual report, that it can overwhelming as to where to start if you want read annual reports. Warren Buffett uses a very simple approach, he starts with reading the reports of companies that he understands and avoids the rest. How valuable is an annual report? Buffett believes it has all you need to know in order to decide whether to buy a stock. He cites his purchase of Coca-Cola stock as a prime example.

“We start by looking at the reports of companies that we think we can understand,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “And then we see from that report whether the management is telling us about the things that we would want to know about if we owned a hundred percent of the company. . . . For example, I would say that the Coca-Cola annual report over the last good many years is an enormously informative document. I mean, I can’t think of any way if I’d have a conversation with Roberto Goizueta, or now Doug Ivester, and they were telling me about the business, they would not be telling me more than I get from reading that annual report. We bought that stock based on an annual report. We did not buy it based on any conversation of any kind with the top management of Coca-Cola before we bought our interest. We simply bought it based on reading the annual report, plus our knowledge of how the business worked.”

Hear 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.

Is there a best time to start saving? Warren Buffett says there definitely is.

“Any money you save before you get out and start having a family … any dollar is probably worth $10 later on simply because you can save it,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “The time to save is young, and you’ll never have a better time to save than really, pre-formation of a family. Because the expenditures come along then whether you like them or not.”

Buffett’s full explanation on the best time to start saving

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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.