Archives For Warren Buffett

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:

No. 6

“It is impossible to unsign a contract, so do all your thinking before you sign.”

I love it! It reminds me of point number five from my post, Lessons From Hell.

No. 17

“You should look at stocks as small pieces of a business.”

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.

No. 35

“I look for businesses in which I think I can predict what they’re going to look like in ten to fifteen years’ time. Take Wrigley’s chewing gum. I don’t think th eInternet is going to change how people chew gum.”

I have nothing to add to that!

No. 38

“Read Ben Graham* and Phil Fisher
*, 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.

No. 40

“If principles become dated, they’re no longer principles.”

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.

No. 65

“Wall Street makes its money on activity. You make your money on inactivity.”

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.

No. 79

“When you combine ignorance and borrowed money, the consequences can get interesting.”

Hmmm… Sounds kind of like this credit crisis, doesn’t it?

And last…

No. 84

“I buy stocks when the lemmings are headed the other way.”

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.

*Affiliate Link

If you haven’t had a chance to read it yet, you need to read Warren Buffett’s editorial, Buy American. I Am. that was in last week’s New York Times (thanks to AFM reader, Tom, for sending this to me). It’s a short read. In the editorial Buffett makes the following comment:

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Of course, not everybody agrees. Alan Abelson in this week’s Barron’s had this to say (sorry to paste so much but I had to in order to get the point across):

We needn’t go through the obligatory obeisance to Buffett’s investment prowess and peerless common sense. We think he’s great. And sure, we believe the country will survive and prosper in the future. No argument most stock prices are down sharply. But we don’t agree this is the time to dive headlong into the market.

For one thing, Buffett can afford to be patient as long as he chooses. Most investors don’t have that luxury. For another, the economy is in the early stage of unraveling and we don’t think the market decline has discounted the havoc this unraveling may wreak by a long shot.

As to the shining prospects he summons up for the long term, they’re not apt to help us all that much if tomorrow’s troubles prove as harsh as we suspect they will. Then, too, as another wise man, John Maynard Keynes, famously observed, in the long run we’re all dead.

Most of all, Buffett despite his long experience and savvy hasn’t run into a crisis quite like this one because, pure and simple, it has no true precedent. That alone anyone should give anyone with fewer resources than Buffett, intellectually and otherwise, pause. Contrary to what he’s saying, we can’t remember anything that deserves to be called a bull market that had to be caught early and it certainly wasn’t true of the last two we’ve enjoyed.

As to his allusion to robins in the spring — a nice play on it’s the early bird that catches the worm — as someone has noted, it’s the second mouse that gets the cheese.

I’m not quite sure who Abelson is talking about when he says “we” because later on in the issue of Barron’s comes a rather bullish cover story ($) by Gene Epstein.

Also, I would like to compare Abelson’s net worth to Warren Buffett’s. LOL! I think it’s funny whenever Buffett says anything, there’s all these so-called experts to tell us how wrong he (Buffett) is. No he’s not always right but he’s been a lot more right than most people.

I picked up a copy of Alice Schroeder’s The Snowball – Warren Buffett and the Business of Life* yesterday. I had just barely begun reading the book when I came across a section that I wanted to share with you. It’s a talk that Mr. Buffett gave at the Sun Valley ’99 conference, which was attended by LOTS of techies and the newly-rich from the internet bubble. Here’s some tidbits from his talk:

Buffett speaking:

“…I would like to talk today about the stock market,” he said. “I will be talking about pricing stocks, but I will not be talking about predicting their course of action next month or next year. Valuing is not he same as predicting.

“In the short run, the market is a voting machine. In the long run, it’s a weighing machine.

“Weight counts eventually. But votes count in the short term. And it’s a very undemocratic way of voting. Unfortunately, they have no literacy tests in terms of voting qualifications, as you’ve all learned.”


“…What you’re doing when you invest is deferring consumption and laying money out now to get more money back at a later time. And there are really only two questions. One is how much you’re going to get back, and the other is when.

“Now, Aesop was not much of a finance major, because he said something like, ‘A bird in hand is worth two in the bush.’ But he doesn’t say when.” Interest rates—the cost of borrowing—Buffett explained, are the price of “when.” They are to finance as gravity is to physics. As interest rates vary, the value of all financial assets—houses, stocks, bonds—changes, as if the price of birds had fluctuated. “And that’s why sometimes a bird in the hand is better than two birds in the bush and sometimes two in the bush are better than one in the hand.”

The talk goes on for several more pages in the book. The author mentions that the techies didn’t much care for Warren’s speech because they represented something new and exciting. In other words, they were smarter than everyone else. We all know what happened in 2000! Those pages alone are worth the price of the book!

Anyway, to celebrate the release of the book, I thought it would be cool to give away a copy. If you’re interested in winning a copy, leave a comment below. All I ask is that you remember my two rules:

1. You must be a resident of the U.S. or Canada, and…

2. You can only enter ONE TIME!

*Affiliate Link

My sister-in-law, V, brought 10 Ways to Get Rich – Warren Buffett’s Secrets That Can Work For You to my attention, which was in this week’s Parade. These are some great pointers, but I would hardly call them “secrets.”

1. Reinvest your profits – this is the only way to take advantage of compound growth, which is money growing on money.

2. Be willing to be different – you follow the herd, you’re gonna get hurt. Going against the herd may be scary, but can pay off if done properly.

3. Never suck your thumb – If you find something good, act. Don’t sit around doing nothing.

4. Spell out the deal before you start – Get all the details in writing before you follow through.

5. Watch small expenses – The article mentions a guy who counted 500-sheet rolls of toilet paper to make sure he wasn’t being ripped off. That seems a bit extreme to me but I see the point of not wasting money.

6. Limit what you borrow – I believe that the only acceptable forms of debt are student loans, car loans (reasonable car loans), mortgages, and possible 0% deals that may pop up every once in a while. Now, don’t mistake that sentence to mean that I think it’s okay to have debt—that’s not what I’m saying. The main thing is to use debt as a tool and use it wisely.

7. Be persistent – Always remember the saying: “If at first you don’t succeed, try, try again.”

8. Know when to quit – You have to know when to say, “when.”

9. Assess the risks – Do some worst-case-scenario analysis before you proceed. In other words, count the costs before you begin.

10. Know what success really means – I love the fact that Buffett is not on an ego trip with his giving. According to the article, Buffett does not want any buildings named after him. That’s soooooo cool! I really respect that about him.

Anyway, there’s a quick summary of the article with my thoughts added. You can read the article here.