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Warren Buffett’s Best Quotes Analyzed

Warren Buffett is arguably the greatest investor of all time. (Floyd Mayweather of boxing)

This post examines Warren Buffett’s best quotes. Each quote details a different concept of Warren Buffett’s core investment philosophy. To follow his ideas you can begin to form your own strategies of what you think is best for you and your family.

“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes”

You must be happy holding for long periods of time; at least five to ten years. It’s very simple just look for high quality businesses you can hold for a long period of time.

“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

There are very few businesses that have competitive advantages sustainable that they can grow profitably for over 100 years.  A few that have accomplished this are Coca-Cola (a Warren Buffett holding) and ExxonMobil (also a Warren Buffett holding) through its various parent companies dating back to Standard Oil. (John D. Rockefeller)

Hopefully the companies in the Skyy Fund will have as much success in the years to come.

“Time is the friend of the wonderful company, the enemy of the mediocre.”

High quality businesses tend to continue growing through time.  This compounds your wealth in the business over many years.  Mediocre businesses without a sustainable advantage will fall to the competitive forces of capitalism and die over time.

“Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1”

At first, this quote seems rather obvious.  By preventing losses, your investments are protected on the downside and only have room to increase in value.  By focusing on not losing money, you will skip risky investments to focus on only your highest investments.

I try to buy stock in businesses that are so wonderful that an idiot can run them because sooner or later, one will.”

The long term investor cannot focus only on the management of a business today.  Companies with truly sustainable competitive advantages will have “idiot proof” business models that can withstand the impact of a poor CEO and continue to grow.

“Be fearful when others are greedy and greedy only when others are fearful.”

This quote is about taking advantage of human psychology.  We tend to overreact to bad news and unnecessarily discount the price of a high quality stock due to short term underperformance or a steep and temporary market decline. Buy the dip and when there is blood in the streets!

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

Warren Buffett makes the claim that deep value stocks are not as good an investment as high quality businesses trading at fair prices.  The reasoning is that a deeply undervalued fair business can reward you only when it returns to fair value.  A fairly valued company will provide returns year after year and decade after decade as it pays growing dividends and reinvests additional profits back into the business to fund future growth.

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

If one of your investments begins to lose its competitive advantage, do not hold on in hopes that it will somehow improve.  Instead, cut your losses and move on. Personally I have to do better with this myself and watch my emotions.

“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”

Investing in high quality businesses does not have to be overly difficult.  We are all familiar with companies that have long-term competitive advantages (who hasn’t had a Coca-Cola?).  Fight the urge to make things more difficult for yourself in hopes of outsmarting the market. Don’t take unnecessary risks on businesses you don’t understand when simple to comprehend businesses are available.

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.

Warren Buffett is an opportunist.  You can generate decent returns from investing in high quality businesses at fair prices.  Even better returns come to investors who identify high quality businesses in temporary trouble.  Short term trouble can result in depressed stock prices which allow you to add positions to your portfolio. Buy the dip.

Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

The advice here is simple.  Wait to buy your socks when they are on sale. When looking for high quality businesses to invest in, do not pay full price.  Wait until the price falls due to market fluctuations or a short term loss. Honestly I have to do better with this myself, sometimes I tend to jump the gun.

“I am a better investor because I am a businessman, and a better businessman because I am no investor.”

It is important to draw the distinction between purchasing a stock and purchasing fractional shares of a business.  A businessman sees his stock ownership as a fractional share of a company’s business.  A regular speculator in the stock market sees his shares as lottery tickets that go up and down based on the whims of the market.

Being a business man, Warren Buffett analyzes the fundamental value of a business and its competitive position in the market.  As an investor, one analyzes the sentiment surrounding a stock.  If sentiment is negative while the long-term forecasts of the business are favorable due to a strong competitive advantage, an investment is wise!

“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me.”

Eventually, all businesses fail as the competitive landscape changes.  Some businesses have longer life spans than others due to the nature of their products. Wrigley gum is an example of a business in a slow changing industry.  Consumer taste for gum may change, but the gum industry is unlikely to experience a radical shift other than changing flavors and ingredients. I hope the companies that Skyy owns will be around for the next 50 years while continuing to pay their dividends.

Final Thoughts

Warren Buffett is able to make complex financial topics into easy to understand quotes that investors like you and I can learn from. I want Skyy to be a mini Warren Buffett and take his advice along with what she will learn, and make it her own.

In the end this is basically what Warren Buffett is trying to get across whether you plan on using this to your advantage or having it going in one ear and out the other.

Buy high quality businesses with a strong competitive advantage below their fair value and hold them until they lose their competitive advantage (which is hopefully never).

Live Long & Prosper

Full Disclosure: Skyy is long KO

 

 

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