Quotes

The biggest problem that people have isn't selecting the right money managers. It's the way they change managers all the time in response to fluctuations of short-term performance.

For most investors in general, selling the expensive asset, and buying the cheap asset, seems like a logical strategy -- except when you actually try to do it. Because most people are actually not wired to be selling what's expensive and going up, and buying what's cheap and going down.

If you have a valuation discipline, then you know that stock prices change more rapidly than business value. You also know that rising stock prices mean lower future rates of return and falling stock prices mean higher rates of return.

The problem is that real risk and perceived risk are two different things. And that's where people get into trouble, because they perceive risk to be high when prices are low, and they perceive risk to be low when prices are high.

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.

Valuation is determined by the relation between a stock price and the present value of the free cash the business will generate over one's forecast time horizon. The problem comes with assessing the future free cash flow. It is a highly subjective and uncertain exercise.

In general, stocks are not undervalued because they go up over some short time frame. But it’s hard to make a case that they’re not undervalued if they go up year after year over long periods of time -- especially when they've provided excess rates of return over the market.

There is very little value added trying to predict where the market is going or guessing whether it’s overpriced or underpriced.

Managers should start out with the belief that if they are trying to actively manage money and outperform the market, the odds are against them.

Passive management does not give investors the return of the index; it gives them the return of the index less costs. So, the longer they have their money passively managed, the greater their underperformance will be relative to the index.

Never before had there been such gambling as there was in those last turbulent years of the '20s, but few people realized they were gambling -- they thought they had a sure thing.

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.