Tag Archives: Warren Buffett

Lessons From Warren Buffett: Being Contrarian Has No Special Virtue

Warren Buffett is famous for saying “Be fearful when others are greedy and greedy when others are fearful.” However, this shouldn’t mislead investors that just being contrarian is the key to investing success.

“Being contrarian has no special virtue over being a trend follower,” Warren Buffett noted at the 2006 Berkshire Hathaway Annual Meeting. “You’re right because your facts and reasoning are right. So all you do is you try to make sure that the facts you have are correct.”

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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: 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.”

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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

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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: 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

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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: 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

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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

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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: 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.

Lessons From Warren Buffett: The Big Problem With Spacs Is

The boom in interest in SPACs as a way to take companies public has drawn a huge number of retail investors to pour their money into SPACs in the hope that they will end up owning the next hot company. However, there is a key thing Warren Buffett doesn’t like about SPACs, and that is the requirement that the SPAC has to buy a company within two years or hand its money back to investors. This incentivizes SPACs to make a deal no matter what.

“If you put a gun to my head and said, ‘You’ve got to buy a big business in two years,’ you know, I’d buy one. But it wouldn’t be much of one,” Warren Buffett wryly noted at the 2021 Berkshire Hathaway Annual Meeting. “I had a call from a very famous figure many years ago who was involved in it and wanted to learn about reinsurance. And I said, ‘Well, I don’t really think it’s a very good business.’ And he said, ‘Yeah, but,’ he says, ‘if I don’t spend this money in six months, I’ve got to give it back to the investors.’ So, you know, it’s a different equation that you have if you’re working with other people’s money, where you get the upside and you have to give it back to them if you don’t do something. ”

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.