By JLP | October 30, 2008
I was reading through Mary Buffett & David Clark’s The Tao of Warren Buffett* this morning while waiting to get my oil changed. It’s a great little book that takes different sayings and thoughts from Warren Buffett and explains them. Anyway, here are a few of my favorites from the book:
I love it! It reminds me of point number five from my post, Lessons From Hell.
As the book points out, when you buy a share of stock, you are actually buying a fractional interest in the business. Follow Buffett’s example before you buy a stock: multiply the share price by the number of shares outstanding and then ask yourself if that price would be a good deal or not if you were buying the entire business. If the answer is no then don’t buy the stocks. Good advice.
I have nothing to add to that!
*, read annual reports, but don’t do equations with Greek letters in them.”
Buffett’s approach to investing is a combination of Ben Graham’s approach and Phil Fisher’s approach. Ben believed in buying at a low price and Phil said to buy great companies. Buffett likes both.
The author’s explain that Buffett figured out that Ben Graham’s approach of buying cheap companies regardless of their underlying economics, no longer worked because there were too many people doing it. So, Buffett had to alter his approach and began buying great companies that had a competitive advantage.
I remember listening to a broker on the phone with her client, telling them that they need to sell a particular stock because it was up 25%. That was her only reason for wanting this client to sell. Oh, and yes, she made a commission on the transaction.
Hmmm… Sounds kind of like this credit crisis, doesn’t it?
Yes, it takes guts to buy stocks that everyone else is selling but it makes much more sense than buying the same stocks that everyone else is buying. Just be sure you know what you’re buying.