Warren Buffett: On How To Pick Stocks and Invest Properly

Warren Buffett: On How To Pick Stocks and Invest Properly

In investing, few voices carry as much weight and wisdom as that of the Oracle of Omaha himself, Warren Buffett. With a storied career and unrivaled success in the fields of investing, business, and as a CEO, his insights form the bedrock of many investment strategies around the globe. Known for his profound understanding of business and the marketplace, his approach to stock selection and investment has consistently proven successful.

This blog post distills his thoughts and advice in his own words, presenting them in an accessible and practical way. Whether you’re a seasoned investor or just starting, these pearls of wisdom will guide you toward a more informed and strategic investment pathway.

Warren Buffett on the Stock Market

This transcript is from an interview Warren Buffett gave in 1985. [1]

“The first rule in investment is ‘don’t lose.’ And the second rule in investment is ‘don’t forget the first rule.’ And that’s all the rules there are. I mean, if you buy things for far below what they’re worth and you buy a group of them, you basically don’t lose money.” – Warren Buffett

The interviewer asked, “What do you consider the most important quality for an investment manager?”

Buffett replied, “It’s the temperamental quality, not an intellectual one. You don’t need tons of IQ in this business. I mean, you have to have enough IQ to get from here to downtown Omaha, but you do not have to be able to play three-dimensional chess or be in the top leagues in terms of bridge playing or something of the sort. You need a stable personality; you need a temperament that neither derives great pleasure from being with the crowd or against the crowd. Because this is not a business where you take polls, it’s a business where you think. And Ben Graham would say that you’re not right or wrong because a thousand people agree with you, and you’re not right or wrong because a thousand people disagree with you. You’re right because your facts and your reasoning are right.”

The interviewer’s next question was, “Warren, what do you do that’s different than 90% of the many managers who are in the market?”

Buffett went on to explain his stock investing strategy, “Certainly, most of the professional investors focus on what the stock is likely to do in the next year. They avail all kinds of arcane methods of approaching that, but they do not really think of themselves as owning a piece of a business. The real test of whether you’re investing from a value standpoint or not is whether you care whether the stock market is open tomorrow. If you’re making a good investment in a security, it shouldn’t bother you if they close down the stock market for five years.”

“All the ticker tells me is the price, and I can look at the price occasionally to see whether the price is outlandishly cheap or outlandishly high. But prices don’t tell me anything about a business. Business figures themselves tell me something about the business, but the price of the stock doesn’t tell me anything about a business. I would rather value a stock or a business first, and not even know the price so that I’m not influenced by the price in establishing my valuation, and then look at the price later to see whether it’s way out of line with what my value is.”

The narrator explains, “So, Buffett chose to stay in Omaha, Nebraska – this world where corn grows just minutes from downtown. Now, Omaha is a nice town, but nobody claims it’s a world financial center. Here, the only thundering heard is actually on four feet, off the beaten track.”

The interviewer continues with his next question, “Don’t you find Omaha a little bit off the beaten track for the investment world?”

Buffett explains his location doesn’t matter, “Well, believe it or not, we get mail here, and we get periodicals, and we get all the facts needed to make decisions. And unlike Wall Street, you’ll notice we don’t have 50 people coming up and whispering in our ears that we should be doing this or that this afternoon.”

“You appreciate the lack of stimulation here?” the interviewer asks. 

“I like the lack of stimulation; we get facts, not stimulation, here,” replies Buffett. 

“How can you stay away from Wall Street?” The interviewer questions. 

Buffett explains, “Well if I were in Wall Street, I’d probably be a lot poorer. You get overstimulated in Wall Street, and you hear lots of things, and you may shorten your focus. And a short focus is not conducive to long profits. And here I can just focus on what businesses are worth, and I don’t need to be in Washington to figure out what the Washington Post newspaper is worth, and I don’t need to be in New York to figure out what some other company is worth. It’s simply an intellectual process. The less static there is in that intellectual process, the better off you are.”

“What is the intellectual process?” the interviewer asked curiously. 

Buffett explains, “The intellectual process is defining your level, defining your area of competence, and valuing businesses. Then within that area of competence, find whatever sells at the cheapest price in relation to value. There are all kinds of things I’m not competent to value, but there are a few that I am competent to value.”

“Have you ever bought a technology company?” the interviewer asks. 

“No, I really haven’t,” Buffett assures. 

“In 30 years of investing, not one?” the interviewer asks again.

“I haven’t understood any of them,” Buffett answers. 

“So you haven’t ever owned, for example, IBM? We’ve never owned IBM.” The interviewer asks for a third time, puzzled. 

“It’s a sensational company, but I haven’t known IBM.” Buffett confirms. 

“And so, here is this technological revolution going on, and you’re not going to be a participant,” asks the interviewer. 

“Going right past me,” Buffett admits without caring. 

“Is that alright with you?” questions the interviewer. 

Buffett gives a detailed response, “It’s okay with me. I don’t have to make money in every game. I mean, I don’t know what cocoa beans are going to do. There are all kinds of things I don’t know about, and that may be too bad, but why should I know all about them? I haven’t worked that hard on them. In securities business, you literally, every day, you have thousands of the major American corporations offered to you at a price and a price that changes daily. You don’t have to make any decisions; nothing is forced upon you. There are no called strikes in this business.”

“The pitcher just stands there and throws balls at you. If you’re playing real baseball, and it’s between the knees and the shoulders, you either swing or you get a strike called. If you get too many called on you, you’re out. In the securities business, you sit there, and they throw US Steel at 25, and they throw General Motors at 16. You don’t have to swing at any of them. They may be wonderful pitches to swing at, but if you don’t know enough, you don’t have to swing. You can sit there and watch thousands of pitches, and finally, get one right there where you want it, something that you understand. Then you swing.”

“So, you might not swing for six months,” asks the interviewer.

“I might not swing for two years,” Buffett explains.

“Isn’t that boring?” wonders the interviewer. 

Buffett explains, “It would bore most people. And certainly, boredom is a problem with most professional money managers. If they sit out an inning or two, not only do they get somewhat antsy, but their clients start yelling, ‘Swing, you bum!’ from the stands. And that’s very tough for people to do.”

“Warren your approach seems so simple. Why doesn’t everybody do it?” asks the interviewer.

Buffett explains his investing edge, “Well, I think partly because it is so simple. The academics, for example, focus on all kinds of variables. Because the data is there, they focus on whether if you buy stocks on Tuesday and sell them on Friday, you’re better off. Or if you buy them in election years and sell them in other years, you’re better off. Or if you buy small company stocks. All these variables because the data is there. They’ve learned how to manipulate data. As a friend of mine says, to a man with a hammer, everything looks like a nail. Once you have these skills, you’re just dying to utilize them in some way. But they aren’t important.”

“If I were being asked to participate in a business opportunity, would it make any difference to me whether I bought it on a Tuesday or Saturday or in an election year? That’s not what a businessman thinks about when buying businesses. So, I why think about it when buying stocks because stocks are just pieces of a business,” Buffett concludes. 

Key Takeaways

  • The two fundamental rules of investing, according to Buffett, are: to avoid loss and remember this rule always.
  • Investing in success is not necessarily correlated with IQ; temperament plays a crucial role.
  • Stock picking should be grounded in rationality and careful analysis, not influenced by market hype or noise.
  • Buffett emphasizes the importance of investing within your “circle of competence,” understanding the business you’re investing in.
  • It’s perfectly fine not to participate in every market trend or sector, especially if you don’t fully understand it.
  • Patience is a virtue in investing; it’s not necessary to constantly swing at every investment opportunity.
  • Investing isn’t about finding complex strategies or systems. The simplicity of the process can be its greatest strength.
  • The value of a business and its stock are often disconnected; as an investor, focus on the business’s intrinsic value rather than its stock price.


Warren Buffett’s investing philosophy is simplicity, patience, and knowledge. It’s essential to understand that investing is not about reacting to every market trend or making constant transactions. Instead, it’s about knowing what you’re investing in, waiting patiently for the right opportunity, and focusing on preserving your capital. Remember that stocks represent partial ownership in a business; thus, understanding the business is vital to making informed investment decisions. Lastly, a calm and stable temperament is crucial for long-term investing success, emphasizing the significance of emotional intelligence in this sphere. You can approach investing more grounded, focused, and profitable through these principles.