Warren Buffett recognizes that stock market prices periodically get disconnected from fundamentals. For Buffett, it’s both a caution and an opportunity.
“People get captivated simply by the notion of rising prices without going back to the underlying rationale. And that’s when you get very dangerous conditions in terms of possible bubbles,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting.
Buffett notes that this applies to the market’s extremes both going up and falling.
“It’s just people behave in extreme ways in markets,” he adds. “And over time, that’s very good for people that keep their heads.”
Buffett’s full explanation on bubbles and market extremes
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.
The news is full of headlines. On any given day the Federal Reserve is taking an action (or indicating that it won’t take any), trade relations are going well or going badly, or the IMF is making a prediction on economic growth. So, does any of this plethora of news matter to Warren Buffett when he makes an investment decision? Not in the slightest. “There’s always going to be good and bad news out there,” Buffett notes.
“We look to value, and we don’t look to headlines at all,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “If we find a business that we think we understand, and we like the price at which it’s being offered, we buy it. And it doesn’t make any difference what the headlines are. It doesn’t make any difference what the Federal Reserve is doing, and it doesn’t make any difference what is going on in Europe. We buy it.”
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 look at the mistakes that investors commonly make, one is not truly understanding their investment, and another is leveraging a poorly understood investment through borrowing. Combining those two, as Warren Buffett points out, usually means that investors are really heading for trouble.
“Any time you combine ignorance and borrowed money, you can get some pretty interesting consequences,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “The ability to borrow enormous amounts of money combined with a chance to get either very rich or very poor very quickly, has historically been a recipe for trouble at some point.”
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.
Whenever inflation kicks up, gold always gets touted as an inflation hedge. However, Warren Buffett is quick to point out that there is nothing special about gold in that regard, and, most importantly, that he always prefers productive assets to non-productive assets.
“People, historically, have felt that was the first refuge from a currency that was going to decline in value. But, so is a barrel of oil. So is an acre of land. So is a piece of Coca-Cola. So is See’s Candy,” Warren Buffett noted at the 2005 Berkshire Hathaway Annual Meeting. “See’s candy, if the dollar goes down fifty percent, we will be selling See’s candy for double the present price. We’ll be getting the same real price for See’s candy. People will work the same number of minutes or hours per week in order to buy a pound or two-pound box of the candy. So we would much prefer some asset that is going to be useful whether the currency is worth what it is today, or ten percent of what it is today, or whether people are using seashells in order to transact business. Because people will go on eating and they’ll go on drinking and doing various things. And their preferences will translate, in real dollars, into more or less the same economics for us. And we would not trade the ownership of those kind of assets for us for a hunk of yellow metal, which has very little real utility except for people who are looking to flee from the dollar and, in our view, really haven’t thought through the consequences of what fleeing would — where they should flee… My dad was a huge gold enthusiast. So I sat around the dinner table…We sat around listening to the virtues of gold, and that was in, we’ll say, 1940. And gold, at that time, was $35 an ounce. And we would’ve had some storage and insurance costs. And, you know, here it is, 65 years later. World wars, nuclear bombs, all kinds of things. And the compound rate from $35 to a little over $400, less those expenses, is not something that causes me to salivate.”
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.
Gold is pitched endlessly to investors as an inflation hedge and a great investment, so should gold, or any precious metal, be a major part of your portfolio? As an asset class, Warren Buffett is less than impressed. “When we took over Berkshire, gold was at twenty dollars and Berkshire was at fifteen. Gold is now at $1,600 and Berkshire is at $120,000,” Buffett noted in 2012.
Almost a decade later, gold stood at $1,798 and Berkshire Hathaway’s A shares were over $443,000.
For Buffett, it all comes down to the advantage of the earning power that companies have over commodities, such as gold.
“It’s very hard for an unproductive investment to beat productive investments over any period of time,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “The one thing I would bet my life on is over a 50-year period not only will Berkshire do considerable better than gold, but common stocks as a group will do better than gold, and probably farmland will do better than gold.”
Buffett’s full explanation on why productive assets ultimately outperform unproductive assets over time
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 secret formula to success in the stock market? Warren Buffett says absolutely not. The tools you need to be successful are right there out in the open. He points to Benjamin Graham’s The intelligent Investor as one example, and Buffett says “the advice I would give is to read everything in sight.”
“There are no secrets in this business that only the priesthood knows,” Warren Buffett said at the 2005 Berkshire Hathaway Annual Meeting. “We do not go into temples and look at tablets that are only available to those who have passed earlier tests or anything. It’s all out there in black and white. It’s a simple business.”
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 is a never ending stream of investment advice and opinion, and there are lots and lots of investing approaches, but one thing Warren Buffett is very clear on is that constantly changing your strategy based on what people are saying is not the path to wealth.
“You cannot get rich with a weather vane,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “Anytime I see some article that says, you know, these analysts say this or that about some business, it just, it doesn’t mean anything to us.”
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.
To some investors, “meme stocks” that are bid up to the stratosphere, or stocks with no earnings that have sky-high valuations, or other examples of wild speculation, are a warning sign that they should get out of the market, or at least move to a more conservative position. However, crazy behavior is not of great concern to Warren Buffett, and as he pointed out, long before meme stocks, that speculation is not a new part of the market and that he has seen an awful of it over the course of his lifetime. “We’re trying to find wonderful businesses. And the fact that a part of the market is kind of screwy, that’s unimportant to us,” Buffett noted.
“Throughout the careers Charlie and I have had in investing, there have always been hundreds of cases, or thousands of cases, of things that are ridiculously priced, and phony stock promotions, and the gullible being led in to believe in things that just can’t come true.” Warren Buffett said at the 1996 Berkshire Hathaway Annual Meeting. “So that’s always gone on. It always will go on. And it doesn’t make any difference to us.”
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 has learned a lot over the years from studying the mistakes that other people have made. In fact, he and Charlie Munger are students in the study of folly.
“In terms of reading of financial history and all that sort of thing, I’ve always been absolutely absorbed with reading about disasters,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “And there’s no question. I mean, when you look at the folly of humans — you know, I’ve focused on the folly in the financial area — there’s all kinds of folly elsewhere — but just the financial area will give you plenty of material if you like to be a follower of folly. And I do think that understanding, and that’s what gave us some advantage over these people that have IQs of 180, you know, and can do things with math that we couldn’t do. They just, they really just didn’t have an understanding of how human beings behave and what happens. 2008 was a good example of that, too. So, we’ve, we have been a student of other people’s folly, and it’s served us well.”
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 lots of banks and they shouldn’t be treated the same when it comes to investing in the banking sector. Warren Buffett notes that there are lots of banks, and there are more banks than good bank management.
“We’ve also seen all kinds of banks ruined. I think it was, what was the fellow? M.A. Schapiro, who came up with the statement, he said, ‘There are more banks than bankers,’” Warren Buffett said at the 2002 Berkshire Hathaway Annual Meeting, quoting investment banker Morris Schapiro. “And if you think about that a bit, you’ll see what I mean. There have been a lot of people that have run banks in a very injudicious manner, but that’s made for opportunities for other people.”
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.