Warren Buffett has established himself as one of the greatest investors of all time in both size of operations and consistent long term return on capital. He has created the sixth largest company in the U.S. with corporate conglomerate Berkshire Hathaway. From 1965 to 2017, Berkshire Hathaway’s rising market value generated a 20.9% annual return compared to the S&P 500′s 9.9%, resulting in a cumulative gain of 2,404,748% versus the market’s 15,508% return. What is more stunning is that he transformed Berkshire Hathaway from a failing textile business into a clever insurance and holding company that would use the free cash flow of the insurance business to acquire the best cash flowing businesses and also run an investment portfolio of the best stocks. His investing strategy is buying high quality businesses with great cash flows when the price is at a good valuation. He is a value investor who also looks for quality.
Here are his best ten quotes that his us a look at his wisdom and investment strategy:
“The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.” – Warren Buffett
You can be patient in the stock market you don’t get penalized for waiting for the price you want to buy at. Look for the right opportunities and be patient until you find them. Patience is an edge that pays.
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” – Warren Buffett
Trade your best investment opportunities with the biggest position size.
“Widespread fear is your friend as an investor because it serves up bargain purchases.” – Warren Buffett
The best risk/reward ratios happen when their is extreme fear in the market.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” – Warren Buffett
Buy when the major market sentiment is at bearish extremes, don’t buy when the market is at peak optimism and everyone seems to be bullish.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” – Warren Buffett
Look to buy only the best companies when they are at their lowest prices. Some companies are at low prices for a reason.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” – Warren Buffett
The key to long term investing is buying companies with the biggest competitive edge that will be the most difficult for a competitor to disrupt.
“On the margin of safety, which means, don’t try and drive a 9,800-pound truck over a bridge that says it’s, you know, capacity: 10,000 pounds. But go down the road a little bit and find one that says, capacity: 15,000 pounds.” – Warren Buffett
Have a big margin of safety at your entry price, buy at a price where the downside possibilities are limited but the upside gains could be huge over time.
“Do not take yearly results too seriously. Instead, focus on four or five-year averages.” – Warren Buffett
Buffett judges success over 4-5 year time frames understanding how long it takes for a good investment to pay off and how random short term market price action can be.
“The one thing I will tell you is the worst investment you can have is cash. Everybody is talking about cash being king and all that sort of thing. Cash is going to become worth less over time. But good businesses are going to become worth more over time.” – Warren Buffett
There is danger in a long term cash position over a long period of time as currency is designed to be a depreciating asset as more and more dollars are chasing a set amount of commodities, services, products, and real estate. Inflation and currency devaluation is the long term risk in a cash position as your savings lose a percentage of buying power each year.
“Risk comes from not knowing what you’re doing.” – Warren Buffett
The biggest risks in the stock market come from ignorance of what you are doing. You have to have a strategy with an edge that you understand. You have to know your own time frame and the risks and rewards involved in any investment.