Investors must appreciate that, while there is a pattern to events, no pattern is perpetual. The more widely-held the belief in the persistence of a current trend, the less likely it is to continue.
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By owning great companies, you can just forget about all the noise and the irrational market fluctuations. And slowly get rich.
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As an investor in businesses, which generate enormous cash flows, my single most important issue to get right is what management will do with cash flow through reinvestment. Do they care about the owner, or do they care about themselves?
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Investing is kind of a game of connecting the dots. The nice thing about it is the longer you are in the business, as long as you are intellectually curious, your collection of data points of dots gets bigger and bigger.
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All of the great investing periods begin when things are terrible and end when they are wonderful.
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Our memory provides continuity and context to our daily activities, enabling us to recognize familiar situations, see their similarities and differences, integrate experience into a broader context, draw lessons from the past, and so on. Investment memory, though, seems considerably more short-term, selective, and sub-optimal.
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We practice the Taoist wei wu wei, the “doing not doing” as regards our portfolio, otherwise known as creative non action.
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The most common error in investing is confusing business fundamentals with investment merit.
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Being wrong is something anyone involved in capital markets has to get used to, though being used to it and being comfortable with it are two different things.
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My view is that it is different every time, and that the relevant analytical exercise is to figure out what the differences are, what the similarities with past periods are, and what it all means, so that one can make sensible investment decisions.
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We believe successful investing involves anticipating change, not reacting to it.
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Investing is all about probabilities, and just because there appears to be a strong consensus prices are going to keep going up, doesn’t mean that is wrong, or right. The consensus does tend to be wrong at the turning points, being invariably bullish at the top and bearish at the bottom.
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While markets constantly change and adapt, grow ever more complicated, interconnected and global, the principles that underlie successful, long-term investing have remained pretty much the same as they have always been.
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In any investing environment, the scarce resource becomes more valuable relative to the abundant resource.
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When I started, I didn’t realize that the biggest profits usually come from sitting on a great position — from doing what looks like nothing to the outside world. You have more time than you think, so be patient.
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In investing, where doing nothing often prevents blunders, a certain style of laziness is adaptive, but mental laziness isn’t, and not thinking independently is absolutely toxic.
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Call it humility, call it honesty with yourself, but failing to admit to investment mistakes means failing investing.
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The best investors I’ve seen all have an above-average ability to change their mind.
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There is a tendency to look to the past and say, these things have done well and therefore that’s the way you should invest — as opposed to saying where are the greatest investment opportunities going forward.
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The investor is bombarded with staggering amounts of information, staggering amounts of stimuli that are designed to get the investor to buy and sell and trade, to do exactly the wrong thing, to create excessive profits for these intermediaries that aren’t acting in the investor’s best interests.
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Our approach can be summarized with the phrase “lowest average cost wins.”
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Regardless of yield, when investments are absent of value, cash is always a better option than permanently losing money.
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So many investors today focus on earnings, but I focus on assets and don’t try to predict next months’ earnings, which is a much more difficult approach to investing.
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Institutional investing, as it is structured today, simply makes it more difficult to make a high-conviction, long-term decision than to make a low-conviction, short-term decision. The rewards of short-term results substantially superior to the market, and the penalties of short-term results well below the market, are awesome.
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Over the very long run, it is the economics of investing — enterprise — that has determined total return; the evanescent emotions of investing — speculation — so important over the short run, have ultimately proven to be virtually meaningless.
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The important question for the investor is not whether conditions are good or bad (if, in fact, they can be measured on such a scale), but whether they are changing for the better or for the worse relative to expectations.
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Early on I adopted a philosophy I call the Eleventh Commandment, “Thou shalt not take thyself too seriously,” and it became a governing principle in my life. Big investment deals can get heady at times, and it can be easy to start thinking your brand is bigger than your performance.
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Successful investing requires the management of your own ego and temperament and usually that of your clients as well.
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Taking risks today for tomorrow’s reward is both the most challenging and difficult of tasks. Unbridled optimism must be tempered with reality.
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I don’t write to make investing easy. I write to show how hard it is so that people won’t try tricks that they can’t do.
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People make changes in their lives and their portfolios because they are confident they are making a change for the better. Without that confidence, they would merely sit still.
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Investing isn’t about beating others at the game, it’s about controlling yourself at your own game.
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A lot of people look to hit singles and sacrifice bunts and make small returns. But statistically you are far better off with huge gains because you are going to make mistakes. And if you are playing small ball and you make a few mistakes, you can’t recover.
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Investing is a funny business. It’s really easy to be average. Just buy an index fund. It’s really hard to be above average.
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If a money manager cannot explain in plain English what their investment principles are, they probably don’t have any. And if they cannot explain their process for finding and researching an investment idea, they probably don’t have that either.
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There are two principal mistakes that nearly all amateurs in the stock market make. The first is to have an inexact knowledge of the securities in which one is dealing, to know too little about a company’s management, its earnings, and prospects for future growth. The second mistake is to trade beyond one’s financial resources, to try to run up a fortune on a shoestring.
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The stockholder wants both income and appreciation, but in general the more he gets of one the less he realizes of the other.
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We live in a society that changes, so you can’t be too strict about the rules you had 40 or 50 years ago. You can’t buy stocks on the basis you did then.
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If you’re going to invest in stocks for the long term, or real estate, of course, there are going to be periods when there’s a lot of agony and other periods when there’s a boom. I think you just have to learn to live through them.
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If you’re investing with a long time horizon, having an equity bias makes sense; stocks go up in the long run.
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If you talk to a businessman, a businessman is going to feed the winners and kill the losers. But in the investment world, when you’ve got a winner you should be suspicious about what’s next. And if you’ve got a loser, you should be hopeful — although not naively hopeful.
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Investing is not a discipline based on absolutes or precise mathematics. There simply aren’t enough data points available to work out the exact odds.
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You know, we make mistakes. Some go from 12 to 10 and we sell them. Some go from 20 to nothing. In a 10-year period, you are going to have one or two that go from 20 to nothing. If you have more, it is bad.
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I have learned that the great opportunities are the places that have been neglected, where other people are not looking.
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The very best investors are the ones who invest according to their own psyche. You find that their investment styles are consistent with their personalities, their intellects, their approaches to work. It’s not somebody else’s style; it’s their own, and it’s deeply ingrained.
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There is a considerable tendency for common stock investors to do the greater part of their buying, both of “good” and “bad” securities, at high levels of the market. They are equally inclined to do the greater part of their selling at low levels of the market, a procedure which is not conducive to successful results.
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Intelligent speculators and investors who do not play the market feverishly do not need to spend the day beside a ticker or before a quotation board.
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All successful investment involves trying to get into something where it’s worth more than you’re paying.
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If you want to succeed in investments, start early and try hard and keep doing it. All success comes that way, by and large.
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I think you have to be an undying optimist, and perhaps a Pollyanna to enjoy and to be successful at managing common stock portfolios over a long period of time.
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To beat the market is not easy. In addition to a good investment manager, the investor needs perspective, patience, and courage — qualities that do not abound in today’s intensely competitive world.
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The investment counsel business, as it is traditionally practiced, and probably as it should be practiced, is a simple process of making sure that clients never have so much risk exposure that their capital or standard of living can be impaired by some specific negative surprise.
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When picking a list of growth stocks for long-term investment, broad diversification of the risk is the first and most important principle to follow. No one can look ahead five or ten years and say what is the most promising industry or the best stock to own.
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Investors should seek a company that can lower the cost of production and develop an expanding market without materially reducing the return on capital invested in the business.
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There are two sound reasons for investing in common stocks — growth of income and growth of principal.
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In planning an investment program, it is extremely important that the investor, before purchasing any securities, should ask himself, “What is my objective?”
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The three main objectives of investors are: (1) Capital conservation, or stability of market value of invested principal; (2) Liberal income at a fixed rate; and (3) Capital growth.
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Once a business is well established, the greatest opportunity for gain is afforded during the period of growth in earning power. The risk factor increases when maturity is reached and decadence begins.
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In any diversified portfolio, there will be both winners and losers, and the consideration that should determine which you should sell, if any, is certainly not the price at which you bought it originally.
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When deciding to sell, people have control over whether to give themselves pleasure or give themselves pain, and they tend to give themselves pleasure. In other words, they tend to sell winners and hang on to losers. It turns out to be a bad idea.
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It turns out that when people have to sell a stock from their portfolio, they are not rational between winners and losers. People tend to sell winners and hang on to their losers. The psychology of that is quite straightforward.
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Individual investors tend to churn their accounts, they tend to trade too much, and that they trade too much seems to be due to over-confidence. They believe they know something that they do not know and this is one essential characteristic of human beings, which makes them different from rational beings.
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There are people that own electronic stocks that don’t know the difference between an EEPROM and the senior prom and they’re trying to buy stocks.
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Almost everybody on this planet has the brain power to make money in the stock market. The question is whether you have the stomach for it and whether you’re willing to do a little bit of work? Those are the key elements.
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People are very careful with their money. When they buy a refrigerator, they do some work. When they buy an apartment or rent an apartment, they’re careful. For some reason, when it comes to stocks, they just go coo-coo. They don’t do any work at all.
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You only need one or two good stocks a decade. You don’t need a lot of action.
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Attempting to guess short-term swings in individual stocks, the stock market or the economy is not likely to produce consistently good results. Short-term developments are too unpredictable.
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One lesson I have learned is to make fewer decisions. Sometimes the best thing to do is to do nothing. The hardest thing to do is to sit with cash. It is very boring.
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We are sort of the polar opposites of a lot of investors. We do a lot of thinking and not a lot of acting. A lot of investors do a lot of acting, and not a lot of thinking.
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The more you trade, the harder it is to add value because you’re absorbing a lot of transaction costs, not to mention taxes.
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Large losses are forever – in investing, in teenage driving, and in fidelity. If you avoid large losses with a strong defense, the winnings will have every opportunity to take care of themselves. And large losses are almost always caused by trying to get too much by taking too much risk.
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Tradition, sentiment, vague generalizations, unsubstantiated rumors, can never be made the basis of sound investment or intelligent speculation. Now and then large profits are realized on no better foundation — merely proving that sometimes luck laughs at logic.
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I think great investors to some extent are like great chess players. They’re almost born to be investors.
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Good investing requires a weird combination of patience and aggression. And not many people have it.
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I have made bad business decisions. You can’t live a successful life without doing some difficult things that go wrong. That’s just the nature of the game.
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I think people have the theory that any intelligent, hard-working person can get to be a great investor. I think any intelligent person can get to be pretty good as an investor and avoid certain obvious traps. But I don’t think everybody can be a great investor.
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I’m constantly making mistakes where I can, in retrospect, realize that I should have decided differently. And I think that that is inevitable because it’s difficult to be a good investor.
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I don’t think the objective of investment should ever be to take a risk in order to get a return. I think the objective of shrewd investment should be to find opportunities which offer a larger return than the average, combined with adequate safety.
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The only sound distinction in investment policies for one type of investor or another is based not on his financial position but on his financial competence and financial preparation.
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To me, the primary task in investing is to test and then retest some more the parameters and paradigms that appear to govern daily events. Betting against them is dangerous when they look solid, but accepting them without question is the most dangerous step of all.
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Liquidity is a concern of the short-term investor and a minor matter for the long-term investor.
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Worldly wisdom teaches that it is better for reputation to fail conventionally than to succeed unconventionally.
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Businessmen play a mixed game of skill and chance, the average results of which to the players are not known by those who take a hand.
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The actual results of an investment over a long term of years very seldom agree with the initial expectation.
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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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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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