Tag: Value Investing

Aesop, the legendary storyteller of antiquity, had one of the most important lessons for investors in his fables, according Warren Buffett.

“The first investment primer that I know of, and it was pretty good advice, was delivered in about 600 B.C. by Aesop. And Aesop, you’ll remember, said ‘A bird in the hand is worth two in the bush,’” Warren Buffett said at the 2000 Berkshire Hathaway Annual Meeting. “Now, Aesop was onto something, but he didn’t finish it, because there’s a couple of other questions that go along with that. But it is an investment equation, a bird in the hand is worth two in the bush. He forgot to say exactly when you were going to get the two in the — from the bush — and he forgot to say what interest rates were that you had to measure this against. But if he’d given those two factors, he would have defined investment for the next 2,600 years. Because a bird in the hand is, you know, you will trade a bird in the hand, which is investing. You lay out cash today. And then the question is, as an investment decision, you have to evaluate how many birds are in the bush. You may think there are two birds in the bush, or three birds in the bush, and you have to decide when they’re going to come out, and when you’re going to acquire them.

Now, if interest rates are five percent, and you’re going to get two birds from the bush in five years, we’ll say, versus one now, two birds in the bush are much better than a bird in the hand now. So you want to trade your bird in the hand and say ‘I’ll take two birds in the bush,’ because if you’re going to get them in five years, that’s roughly 14 percent compounded annually and interest rates are only five percent. But if interest rates were 20 percent, you would decline to take two birds in the bush five years from now. You would say ‘that’s not good enough,’ because at 20 percent, if I just keep this bird in my hand and compound it, I’ll have more birds than two birds in the bush in five years.

Now, what’s all that got to do with growth? Well, usually growth, people associate with a lot more birds in the bush, but you still have to decide when you’re going to get them. And you have to measure that against interest rates, and you have to measure it against other bushes, and other, you know, other equations.

And that’s all investing is. It’s a value decision based on, you know, what it is worth, how many birds are in that bush, when you’re going to get them, and what interest rates are.”

Buffett’s full explanation on Aesop and interest rates

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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.

Famed investor Phil Fisher, author of Common Stocks and Uncommon Profits, believed that there was a lot more work for a successful investor to do besides just reading financial reports. He also focused on scuttlebutt (a word meaning rumor or gossip) to find out what people were saying about a company. It is a method that Warren Buffett endorses.

“When I started out, and for a long time I used to do a lot of what Phil Fisher described. I followed his scuttlebutt method,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “ I believe that as you’re acquiring knowledge about industries in general, companies specifically, that there really isn’t anything like first doing some reading about them, and then getting out and talking to competitors, and customers, and suppliers, and ex-employees, and current employees, and whatever it may be.”

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.

Those who believe in the Efficient Market Theory espouse that a stock’s price always reflect the total information that is known about a company, so it is impossible to “beat the market,” because it is already priced into the stock. Warren Buffett strongly disagrees.

“It’s built into the system that stocks get mispriced,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “I think Berkshire, generally speaking, has come closer to selling around its intrinsic value, over a 47-year period or so, than most large companies. If you look at the range from our high to low in a given year and compare that to the range high and low on a hundred other stocks, I think you’ll find that our stock fluctuates somewhat less than most, which is a good sign. But I will tell you, in the next 20 years, Berkshire will someday be significantly overvalued, and at some points significantly undervalued. And that will be true for Coca-Cola and Wells Fargo and IBM and all of the other securities that I don’t… I just don’t know in which order and at which times.”

Buffett’s full explanation on mispriced stocks

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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.

Pouring more money into a money losing stock in the hope of making back your losses is not only dangerous, it is unnecessary Warren Buffett says. There are lots of ways to make money and there is no advantage to making your money back on the same stock that you have previously lost money, rather than buying something else.

“It is true that a very important principle in investing is you don’t have to make it back the way you lost it,” Warren Buffett said at the 1995 Berkshire Hathaway Annual Meeting. “And in fact, it’s usually a mistake to make, try and make it back the way that you lost 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.

A critical component to any successful company, especially over the long term, is the quality of its management. As an investor, Warren Buffett thinks there are two key aspects of relevance to shareholders that they should consider.

“I think you judge management by two yardsticks,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “One is how well they run the business and I think you can learn a lot about that by reading about both what they’ve accomplished and what their competitors have accomplished, and seeing how they have allocated capital over time. You have to have some understanding of the hand they were dealt when they themselves got a chance to play the hand. But, if you understand something about the business they’re in, and you can’t understand it in every business, but you can find industries or companies where you can understand it, then you simply want to look at how well they have been doing in playing the hand, essentially, that’s been dealt with them. And then the second thing you want to figure out is how well that they treat their owners. And I think you can get a handle on that, oftentimes.”

Buffett added: “It’s interesting how often the ones that, in my view, are the poor managers also turn out to be the ones that really don’t think that much about the shareholders, too. The two often go hand in hand.”

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.

Will the stock market go up? Will it go down? There are so many different forecasts on what markets will do that it is tempting to try and form your own opinion in order to bolster your investing strategy. Warren Buffett says don’t do it. Having bullish or bearish opinions about things that are ultimately unknowable is not only a waste of time, but it can also keep you from focusing on what you can know about.

“Charlie and I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do, or anything of that sort. Because we just don’t know. And to give up something that you do know and that is profitable for something that you don’t know and won’t know because of that, it just doesn’t make any sense to us, and it doesn’t really make any difference to us.”

Hear Buffett’s full explanation

See the complete Lessons From Warren Buffett series

© 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.