I got three ideas out of Ben’s book that have been the cornerstone of everything I’ve done, which are to look at stocks as part of a business rather than simply little things that go up and down. And then I took to heart his Mr. Market saga, which I think is vital to having the right attitude toward market fluctuations. Then third, the margin of safety.
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In general, the batting average of doomsayers in the U.S. is terrible. Our country has consistently made fools of those who were skeptical about either our economic potential or our resiliency.
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The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability — the reasoned probability — of that investment causing its owner a loss of purchasing power over his contemplated holding period.
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As “bandwagon” investors join any party, they create their own truth — for a while.
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What motivates most gold purchasers is their belief that the ranks of the fearful will grow.
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You have to really understand the businesses that you’re buying through the medium of stocks. And unless you’re willing to put a lot into that, you shouldn’t expect to get much out of it.
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Most people on Wall Street don’t have principles to begin with. And if they have them, they don’t stick to them.
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The propensity to gamble is always increased by a large prize versus a small entry fee, no matter how poor the true odds may be.
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When people think there’s easy money available, they’re not inclined to change.
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I make no attempt to forecast the general market — my efforts are devoted to finding undervalued securities.
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I would rather sustain the penalties resulting from over-conservatism than face the consequences of error, perhaps with permanent capital loss, resulting from the adoption of a “New Era” philosophy where trees really do grow to the sky.
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There is nothing at all conservative, in my opinion, about speculating as to just how high a multiplier a greedy and capricious public will put on earnings.
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Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results. The better sales will be the frosting on the cake.
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I like dealing with someone who is not trying to figure how to get the fixtures in the executive washroom gold-plated.
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Investment decisions should be made on the basis of the most probable compounding of after-tax net worth with minimum risk.
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It is obvious that a variation of merely a few percentage points has an enormous effect on the success of a compounding (investment) program. It is also obvious that this effect mushrooms as the period lengthens.
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Our business is making excellent purchases — not making extraordinary sales.
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More investment sins are probably committed by otherwise quite intelligent people because of “tax considerations” than from any other cause.
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The addition of the one-hundredth stock simply can’t reduce the potential variance in portfolio performance sufficiently to compensate for the negative effect its inclusion has on the overall portfolio expectation.
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I believe the investor operates at a distinct advantage when he is aware of what path his thought process is following.
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We don’t buy and sell stocks based upon what other people think the stock market is going to do (I never have an opinion) but rather upon what we think the company is going to do.
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The course of the stock market will determine, to a great degree, when we will be right, but the accuracy of our analysis of the company will largely determine whether we will be right. In other words, we tend to concentrate on what should happen, not when it should happen.
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Our investments are simply not aware that it takes 365 ¼ days for the earth to make it around the sun.
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The availability of a quotation for your business interest (stock) should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations, in turn, formulate your judgments.
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I am willing to trade the pains (forget about the pleasures) of substantial short term variance in exchange for maximization of long term performance. However, I am not willing to incur risk of substantial permanent capital loss in seeking to better long term performance.
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The evaluation of securities and businesses for investment purposes has always involved a mixture of qualitative and quantitative factors.
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Any form of hyper-activity with large amounts of money in securities markets can create problems for all participants.
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I will not abandon a previous approach whose logic I understand even though it may mean foregoing large and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital.
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I have observed many cases of habit patterns in all activities of life, particularly business, continuing (and becoming accentuated as years pass) long after they ceased making sense.
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We live in an investment world, populated not by those who must be logically persuaded to believe, but by the hopeful, credulous and greedy, grasping for an excuse to believe.
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It is possible for an old, overweight ballplayer, whose legs and batting eye are gone, to tag a fastball on the nose for a pinch-hit home run, but you don’t change your line-up because of it.
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I have always found it easier to evaluate weights dictated by fundamentals than votes dictated by psychology.
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Market prices for stocks fluctuate at great amplitudes around intrinsic value but, over the long term, intrinsic value is virtually always reflected at some point in market price.
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My approach to bonds is pretty much like my approach to stocks. If I can’t understand something, I tend to forget it.
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The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’re got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.
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The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.
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The inescapable fact is that the value of an asset, whatever its character, cannot over the long term grow faster than its earnings do.
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You want to be greedy when others are fearful. You want to be fearful when others are greedy. It’s that simple.
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The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital.
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The fact that people will be full of greed, fear, or folly is predictable. The sequence is not predictable.
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The business schools reward complex behavior more than simple behavior, but simple behavior is more effective.
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To some degree, I’m betting on the continuation of what is now. I’m not betting it will continue exactly, but I’m betting against dramatic discontinuities.
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We don’t go into companies with the thought of effecting a lot of change. That doesn’t work any better in investments than it does in marriages.
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I feel the same way about managing that I do about investing: It’s just not necessary to do extraordinary things to get extraordinary results.
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You need a temperament that neither derives great pleasure from being with the crowd or against the crowd because this is not a business where you take polls, it’s a business where you think.
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The first rule of an investment is: Don’t lose. And the second rule of investment is: Don’t forget the first rule. And that’s all the rules there are.
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The tour we’ve taken through the last century proves that market irrationality of an extreme kind periodically erupts — and compellingly suggests that investors wanting to do well had better learn how to deal with the next outbreak.
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If you quantify, you won’t necessarily rise to brilliance, but neither will you sink to craziness.
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Don’t think for a moment that small investors are the only ones guilty of too much attention to the rear-view mirror.
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People are habitually guided by the rear-view mirror and, for the most part, by the vistas immediately behind them.
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At all times, in all markets, in all parts of the world, the tiniest change in rates changes the value of every financial asset.
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While Wall Street may not like rules, it adjusts its thinking immediately to the question of what pays off under any new rules that are promulgated.
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The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.
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I am a better investor because I am a businessman, and a better businessman because I am an investor.
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When a manager with a reputation for brilliance tackles a business with a reputation for bad economics, the reputation of the business remains intact.
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Diversification is protection against ignorance, but if you don’t feel ignorant, the need for it goes down drastically.
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If somebody is going to be unfair with you in salary, they’re probably going to be unfair with you in a hundred other ways.
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There seems to be some perverse human characteristic that likes to make easy things difficult.
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The greater the potential reward in a value portfolio, the less risk there is.
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When the price of a stock can be influenced by a “herd” on Wall Street with prices set at the margin by the most emotional person, or the greediest person, or the most depressed person, it is hard to argue that the market always prices rationally. In fact, market prices are frequently nonsensical.
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It is extraordinary to me that the idea of buying dollar bills for 40 cents takes immediately with people or doesn’t take at all.
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You’re not buying a stock, you’re buying part ownership in a business. You will do well if the business does well. And if you didn’t pay a totally silly price.
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If you risk something that is important to you for something that is unimportant to you it just doesn’t make sense.
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In business, you don’t have to do extraordinary things to get extraordinary results. You have to have a sound approach, but you don’t have to be brilliant.
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In the stock market, you don’t base your decisions on what the markets are doing, but on what you think is rational.
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When you find a really good business run by first-class people, chances are a price that looks high isn’t high. The combination is rare enough, it’s worth a pretty good price.
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When proper temperament joins with proper intellectual framework, then you get rational behavior.
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I really believe it’s better to learn from other people’s mistakes as much as possible.
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We learned in the ’20s that markets with participants playing heavily on margins could be more dangerous than markets where people are dealing in cash.
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Any time you offer a big prize for a small amount of money, you encourage stupid behavior on behalf of those you’re appealing to.
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We try to get fearful when others are greedy. We try to get greedy when others are fearful. We try to avoid any kind of imitation of other people’s behavior.
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If you just buy businesses that your idiot nephew can run, you’re going to do all right.
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The best kind of business to be in is something where you sell something that costs a penny and sells for a dollar and is habit forming.
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If you really know businesses, you probably shouldn’t own more than six of them. If you can identify six wonderful businesses, that is all the diversification you need and you’re going to make a lot of money.
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What you really want to do in investments is figure out what’s important and knowable. If it’s unimportant or unknowable, you forget about it.
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The disadvantage of being in any kind of a market type environment – Wall Street would be the extreme – is that you get over-stimulated. You think you have to do something every day.
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Wall Street makes its money on activity. You make your money on inactivity.
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If you are not a professional investor, if your goal is not to manage money in such a way so you get a significantly better return than the world, then I believe in extreme diversification.
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I am certainly not going to predict what general business or the stock market are going to do in the next year or two since I don’t have the faintest idea.
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You will be right, over the course of many transactions, if your hypotheses are correct, your facts are correct, and your reasoning is correct.
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