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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It is one of the maxims of speculation that stocks never go up, but must be put up.
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Stocks are the long duration asset, and their level reflects people’s optimism about the future and their attitude toward risk.
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Rates of return on stocks are a function of three things: beginning dividend yields, growth of earnings, and changes in valuation.
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The reason to own commodities may be that one believes they provide equity like returns with little correlation with equities. The time to own commodities is (or at least has been) when they are down, when everybody has lost money in them, and when they trade below the cost of production.
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One can predict the course of a comet more easily than one can predict the course of Citigroup’s stock. The attractiveness, of course, is that you can make more money successfully predicting a stock than you can a comet.
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Stoic detachment combined with emotional awareness is the perfect combination for stocks. Feel the fear, but let reason decide.
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Stocks tend to bottom when the earnings bottom, or when the fundamentals bottom.
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While the Stock Exchange list exhibits the widest diversity, in both directions, between market prices and book values, the underlying explanation is simple enough. In general, prosperous enterprises sell for more than their assets, and unsuccessful ones sell for less.
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For us the principal test is creditworthiness, don’t buy common stocks of companies that need continuous access to capital markets.
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It is dangerous for any speculator to set up preconceived ideas as to how low or how high a stock or a group of stocks should go. His judgment should be formed from a series of observations, continuous from the time of his original purchase.
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The word preferred does not add anything to the value of an issue. If a common stock has just as large earnings applicable to it and no greater deduction ahead of it, it must be more valuable than a similarly situated preferred — because the common stock is entitled to all future earnings and the preferred only to a restricted portion thereof.
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People always have this emotional relationship with stocks, and once they have been bitten by something, it takes a while to get back into it.
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I know that stocks represent fractional ownership in businesses and that, over time, the stock market will reflect their true intrinsic values. And crises bring worries and fears that make many investors forget that simple fact.
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I learned from great investors like Warren Buffett and Peter Lynch that you have to look at stocks not based on world events or economic data but almost in spite of them.
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The stock market’s been the best place to be over the last 10 years, 30 years, 100 years. But if you need the money in 1 or 2 years, you shouldn’t be buying stocks.
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I believe in stocks. If you look at the returns of the last 72 years, stocks are the undisputed champs.
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People go to the library and they do incredible research on a microwave oven. And then they’ll go out and spend $10,000 on a stock because they heard a tip on the bus.
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The only way one makes money in the market is when the market’s perception of a stock changes.
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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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All experienced investors know that earning power exerts a far more potent influence over stock prices than does property value.
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I think people trade too much, looking for short-term gains. But I don’t think you should hold stocks indefinitely.
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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 we take a long look at the performance of common stocks over recorded market history, we find that they have indeed been a good investment — providing, of course, that the investor has had a hundred years or so to play the market.
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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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With stocks, you have to worry about the market. With debt, I just have to understand the contract. If my analysis is right, I’ll make money.
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We don’t get involved in all the analytical baggage of trying to figure out where a stock is going to sell. Just try to figure out what it’s worth. And I dare say all the really great investors do it the same way.
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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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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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There’s an old market saying about stocks to the effect that they all go down together.
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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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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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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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It is easy, of course, to pick out good companies, companies that are better than other companies. But that is not the same thing as picking out good stocks to buy at their current prices.
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Please do not forget that as the common stock level advances, the advantages of common stocks appear to be more attractive and the basic need for owning them becomes more persuasive in everybody’s reasoning. Yet in fact, common stocks undoubtedly become riskier as the price advances, and thus the risk increases as the widespread acceptance of common stock develops.
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The trading favorites of 1928 were high-priced, untried, and unseasoned stocks that made one wonder whether the public did not think that the higher the price the better the stock.
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It is one of the common pieces of Wall Street experience that when the public goes stock mad and the market leaders are filled with the arrogance of prolonged success, such little things as high money rates or decreases in earnings or unraised dividends have no instant effect on the market — that is, on the state of mind of the speculating public. In the end, of course, all violations of the fundamental laws of economic and financial common sense are paid for; but every bull thinks he will unload before the break.
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“Easy money” means only one thing when it means money that has come easy: It means money goes even more easily than it came.
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Happy is the man who has no past! The same seems to be true of corporations in a bull market.
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Buying stocks of prosperous concerns may be good business — but only at a certain price. But if you will make sure you know what you are getting for your money, you will be doing what nobody does in a bull market.
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The P/E ratio is only a reflection of what most investors expect to happen at a point in time, and that is neither here nor there in terms of what actually will happen.
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Neither the corporate executive nor the investment manager can allow himself to be lulled into the belief that any company, regardless of its record of achievement, must necessarily provide satisfactory rates of growth.
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All stocks are “two-decision” stocks; and no such thing as a “one-decision” stock exists.
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The influence on stock prices are so numerous and so complex that no person has ever been able to predict the trend of stock prices with consistent success.
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I have nothing against a stock split. I did two in the Sixties, but this is really a non-event. So is the stock dividend. It’s really paper shuffling.
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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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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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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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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 history of the stock market shows many periods of twenty years or more when stock prices ended up precisely where they began.
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Common stocks properly selected and long-range will prove so attractive that I don’t believe that other forms of assets are a more attractive or suitable vehicle.
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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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So long as a capitalist system persists and the financial markets hold together, equities do have a built-in long-term rate of return. That rate of return is a nominal measure of the economy.
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Discrepancies — and hence opportunities — in securities originate most often when events move faster than quotations.
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It’s not earnings changes that cause stock price changes, but earnings changes that come as a surprise.
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I am much more inclined to buy a stock that has been kicked out of an index because then it may have value characteristics — it has underperformed.
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A cheap stock can stay cheap forever, but if you own a bankrupt bond, the process of emerging from bankruptcy and distributing new securities offers a practical catalyst to realize the value.
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Investing is buying a fractional interest in a business and buying debt claims on a business.
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If the stock market has a period of outperformance of its long-term return, it is inevitably followed by some period of underperformance. But people being optimistic and greedy by nature take the recent short-term outperformance of stocks as a sign of good things to come, rather than a warning of bad things to come.
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One of the illusions that people on Wall Street have is that they can have perfect information on a stock.
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If discounting terrific things are already in the stock, I don’t want to own it.
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I always thought if you looked at ten companies, you’d find one that’s interesting, if you’d look at 20, you’d find two, or if you look at hundred you’ll find ten. The person that turns over the most rocks wins the game.
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Just because we think a stock is undervalued doesn’t mean we’re right. We may be wrong in our judgment.
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I don’t think people understand there’s 100% correlation with what happens to a company’s earnings over several years and what happens to the stock.
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Some stocks go up 20-30 percent and they get rid of it and hold onto the dogs. And it’s sort of like watering the weeds and cutting out the flowers. You want to let the winners run.
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I think the secret is if you have a lot of stocks, some will do mediocre, some will do okay, and if one or two of ’em go up big time, you produce a fabulous result.
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You can lose money very fast, in two months, but you very rarely make money very fast in the stock market. When I look back, my great stocks took a long time to work out.
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While we can learn from the long run about how bonds and stocks respond to changing environments and to each other, the long run can tell us perilously little about what kinds of environments lie ahead.
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The best companies often thrive even as their competitors struggle to survive.
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I can’t say enough about the fact that earnings are the key to success in investing in stocks. No matter what happens to the market, the earnings will determine the results.
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If a stock has gone sideways for a couple of years, and the fundamentals are decent, and you can find something new that’s positive in the company, then if you’re wrong, the stock will probably continue to go sideways, and you won’t lose a lot of money. But if you’re right, that stock is going north.
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The history of business the world over is full of examples of businesses which have grown from modest beginnings to stupendous earning power.
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The novice soon learns that stocks are likely to maintain an upward or downward trend for long periods of time with minor interruptions of the major trend.
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The general state of business thus does not forecast the course of stock prices except in the apparently paradoxical fashion that great prosperity affords an advantageous time for selling stocks, extreme business depression an opportunity for purchase.
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Don’t buy “cheap” stocks just because they’re cheap. Buy them because the fundamentals are improving.
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Stocks do well for a reason and do poorly for a reason. Make sure you know the reasons.
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If your only reason for picking a stock is that an expert likes it, then what you really need is paid professional help.
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People worry about the riskiness of stocks, but bonds can be just as risky.
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If you don’t believe corporate profits will continue to rise, and you can’t stomach a decline in the market, don’t buy stocks or equity mutual funds.
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A correction is a wonderful opportunity to buy your favorite companies at a bargain price.
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Ultimately, to be an investor in stocks, you have to believe that American business has a decent future, as well as business worldwide, and that corporations will continue to increase their profits.
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As corporate profits increase, corporations become more valuable, and sooner or later, their shares will sell for a higher price.
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What makes stocks valuable in the long run isn’t “the market.” It’s the profitability of the shares in the companies you own.
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Long-term bonds can be almost as volatile as stocks. They have their own corrections.
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It’s worth reminding ourselves from time to time that gyrations in a stock price may tell us absolutely nothing about the prospects of the company involved.
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Just because the good news is already out doesn’t mean it’s too late to invest.
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The very existence of doubt creates the conditions for a big gain in the stock once the fears are put to rest. The trick is to put your fears to rest by doing the research and checking the facts — before the competition does.
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