Investment lessons of a lifetime
Widely regarded as one of the most successful investors in the world, Warren Buffett is as famous for his wit as he is for the investment skills that have put him among the world’s most wealthy people. But what can you learn from the insights that have made him so successful?
On investing when the market is falling:
Buffett says, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”1 One of his most famous quotes of all: “Be fearful when others are greedy, and be greedy when others are fearful.2
On value investing:
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price” or, more succinctly, “Price is what you pay. Value is what you get.3
Buffett’s advice is to invest in the future of the business: “If a business does well, the stock eventually follows.” He studies annual reports in detail, but warns that “Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation”4 and, with typical Buffett cynicism: “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.5
On timing the market:
Buffett is a long-term investor. As he says of shares, “Our favourite holding period is forever.”6 He freely admits that he has “… no idea of market timing. It’s easier to tell what will happen than when it will happen,”7 and adds that “The fact that people will be full of greed, fear or folly is predictable. (But) the sequence is not predictable.”8 He also agrees it is deceptive to judge future performance by events of the past, pointing out that “The investor of today does not profit from yesterday’s growth.”
These are not just pithy quotations. Buffett has revisited and expanded these themes many times. He attributes his wealth to sticking with the investment basics – value investing in the shares of quality companies while making a long-term commitment, and staying with the market through good and bad times rather than trying to pick the market’s rising periods.
When it is boiled down, Buffett’s most valuable secret is no secret at all. Sticking with it is the secret!
