The stock market does have a life of its own.
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Forecasting is a notoriously underpaid profession, and extremely risky to boot, so I avoid it.
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The market’s very emotional but over time, doing something logical and systematic does work. The market eventually gets it right.
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The secret to successful investing is relatively simple: Figure out the value of something and then pay a lot less.
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There’s no such thing as a good idea or bad idea in the investment world. It’s a good idea at a price, it’s a bad idea at a price.
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Anybody that says that they see five and ten standard deviation events every couple of years is obviously not thinking correctly about probabilities.
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There’s good assets and bad assets but good prices and bad prices supersede whether the assets are good or bad.
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The first and foremost responsibility of every investor is preservation of capital.
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Whenever we consider an investment, we think just as much or more about what can go wrong as about what can go right, and we put the avoidance of losses on a high pedestal.
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The point is to consider risk control, loss avoidance, at least as important as return.
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The market doesn’t know everything, but it doesn’t know nothing, and knowledge is cumulative. The market knows stuff now that it didn’t know forty years ago, so it’s harder to outperform.
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The true measure of common stock values, of course, is not found by reference to price movements alone, but by price in relation to earnings, dividends, future prospects and, to a small extent, asset values.
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Mathematics is ordinarily considered as producing precise and dependable results; but in the stock market the more elaborate and abstruse the mathematics the more uncertain and speculative are the conclusions we draw therefrom.
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We know from experience that eventually the market catches up with value. It realizes it in one way or another.
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Many mistakes have been made in buying growth stocks on the theory that the future will duplicate the past.
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The psychological mood of people changes more drastically than anything else in finance. Human nature changes least of all.
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To some degree, it is the consequence of the very instability of investors’ thinking — the very variation in investor confidence — which leads them to view the picture through rosy glasses one year and through dark glasses the next year.
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The market cycle of the future may prove to be surprisingly independent of the business cycle, and it may even exist if there is no business cycle — which is in itself quite an assumption, but not an entire impossibility.
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Warren and I are chicken about buying stocks on margin. There’s always a slight chance of catastrophe when you own securities pledged to others. The ideal is to borrow in a way no temporary thing can disturb you.
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If you totally divorce economics from psychology, you’ve gone a long way toward divorcing it from reality.
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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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Beating the market averages, after paying substantial costs and fees, is an against-the-odds game; yet a few people can do it, particularly those who view it as a game full of craziness with an occasional mispriced something or other.
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Perhaps the most important rule in management is “Get the incentives right.”
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