Investment Nuggets by Warren Buffett

No one can ignore the sage advice from the Oracle of Omaha, Warren Buffett, widely considered as the greatest value investor around. The investment philosophy of Berkshire Hathaway run by him is:

“We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be one that we can understand; with favourable long-term prospects; operated by honest and competent people; and available at a very attractive price. We ordinarily make no attempt to buy equities for anticipated favourable stock price behaviour in the short term. In fact, if their business experience continues to satisfy us, we welcome lower market prices of stocks we own as an opportunity to acquire even more of a good thing at a better price.”

1977 Letter to Shareholders

“Earnings per share, of course, increased somewhat (about 20 per cent) but we regard this as an improper figure upon which to focus. We had substantially more capital to work with in 1979 than in 1978, and our performance in utilising that capital fell short of the earlier year, even though per-share earnings rose. “Earnings per share” will rise constantly on a dormant savings account or on a US Savings Bond bearing a fixed rate of return simply because `earnings’ (the stated interest rate) are continuously plowed back and added to the capital base. Thus, even a “stopped clock” can look like a growth stock if the dividend payout ratio is low.”

1979 Letter to Shareholders

“My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Some years ago I wrote: “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

1985 Letter to Shareholders

“…Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. As this is written, little fear is visible in Wall Street. Instead, euphoria prevails — and why not? What could be more exhilarating than to participate in a bull market in which the rewards to owners of businesses become gloriously uncoupled from the plodding performances of the businesses themselves. Unfortunately, however, stocks cannot outperform businesses indefinitely.”

1986 Letter to Shareholders

Additional Readings:
Off-Topic Readings:

Parting Thought:
  • Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing. – Warren Buffett
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