Understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things.
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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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When people are desperately trying to sell, I buy. When people are desperately trying to buy, I sell. It has worked out very well over the years.
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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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Many years ago, an older partner taught me to distinguish between outcomes that are unlikely and outcomes that are catastrophic. The latter are to be avoided even if the odds on them are tiny.
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Financial markets are a kind of time machine that allows selling investors to compress the future into the present and buying investors to stretch the present into the future.
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The whole institutional structure of the marketplace rests on the assumption that the other side of the trade will always be there; without that assumption, even the gutsiest of market-makers would refuse to stay in business.
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History shows us, over and over, that bull markets can go well beyond rational valuation levels as long as the outlook for future earnings is positive.
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