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Book - The TAO of Warren Buffett

nfwyt, quest-for-wealth37 min read

I have been listening and collecting quotes which Warren Buffett and Charlie Munger had said in interviews as they give you greater understanding of business and life on how it should be handled but thing is i didn't know there was a book with some of his best quotes.

Below quotes are from book The TAO of Warren Buffett by Mary Buffett and David Clark. I recommend to buy the book to refer and audiobook to listen as well.

  1. Rule number one, never lose money. Rule number two, never forget rule number one.
  • The great secret to getting rich is getting your money to compound for you, and the larger sum you start with, the better.
  1. I made my first investment at age eleven. I was wasting my life up until then.
  • It is good to find one’s calling early in life, and in the field of investing it allows for unparalleled opportunities for the magic of compounding sums of money to work. The time to gamble is not when one is young, when there is so much time ahead to profit from wise decisions.
  1. Never be afraid to ask for too much when selling or offer too little when buying.
  • Warren understands that people fear embarrassment if they ask too high a price when selling or offer too low a price when buying. No one wants to be seen as greedy or cheap. Simply stated, in the world of business, how much money you get from a sale or how much you have to pay when making a purchase determines whether you make or lose money and how rich you ultimately become. Once negotiations begin, you can come down in your selling price or up in your buying price. But it’s impossible to do the opposite.
  1. You can’t make a good deal with a bad person.
  • The world is filled with enough good and honest people that doing business with the dishonest ones is pure foolishness. If you even have to ask yourself the question “Do I trust this person?” you should immediately leave the negotiating table and look for more honest company with whom to do business. You don’t want to doubt that your parachute will open when you are about to jump out of a plane, and you don’t want to doubt the integrity of the person with whom you are about to jump into business.
  1. The great personal fortunes in this country weren’t built on a portfolio of fifty companies. They were built by someone who identified one wonderful business.
  • Hearst family made their money in publishing, the Walton family in retailing (WalMart), the Wrigley family in chewing gum, the Mars family in candy, the Gates family in software, and the Coors and Busch families in brewing.

  • The key to Warren’s success is that he has been able to identify exactly what the economic characteristics of a wonderful business are—a business that has a durable competitive advantage that owns a piece of the consumer’s mind. Warren has learned that sometimes the shortsighted nature of the stock market grossly undervalues these wonderful businesses, and when it does he steps up to the plate and buys as many shares as he can.

  1. It is impossible to un-sign a contract, so do all your thinking before you sign.
  • once you sign, the deal is done. Imagine all the things that could go wrong because they often do go wrong. So do all your thinking before you sign. This is easier said than done.

  • Warren forgot to put a non-compete clause in his contract with eighty-nine-year-old Rose Blumkin when he bought her Omaha based Nebraska Furniture Mart. A few years later Mrs. B. got angry at the way things were being done at the store, so she quit and started up a new store across the street—stealing tons of business from NFM. After a few years of suffering the stiff competition, Warren caved in and agreed to buy her new store for a cool $5 million. The second time around he had her sign a non-compete agreement, and it is lucky for him that he did since she continued on in the business until she was 103.

  1. It is easier to stay out of trouble than it is to get out of trouble.
  • Experience from Salomon Brothers incident. To stay out of trouble, just do the right thing at the right time. To get out of trouble, you need a lot of money and a lot of legal talent, and even then, you may end up serving a lot of time.
  1. You should invest like a Catholic marries—for life.
  • Warren knows that if you view an investment decision from the perspective that you will never be able to undo it, you’ll be certain to do your homework before taking the plunge. The conviction to stay the course can bring heavenly rewards, as long as you have chosen the right one to begin with.
  1. Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway.
  • Warren has always thought it strange that highly successful and intelligent businesspeople, who have spent lifetimes making huge sums of money, will take investment advice from stockbrokers too poor to take their own advice. And if their advice is so great, why aren’t they all rich? Maybe it’s because they don’t get rich off their advice but off charging you commissions?
  1. Happiness does not buy you money.

  2. It takes twenty years to build a reputation and five minutes to lose it. If you think about that, you will do things differently.

  • Berkshire can afford to lose money, even lots of money; it can’t afford to lose reputation, even a shred of reputation. . . . And in the long run we will have whatever reputation we deserve. There is plenty of money to be made in the center of the court. There is no need to play around the edges.
  1. The market, like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do.
  • The stock market is there to make you rich if you know what you are doing. But if you don’t know what you are doing, it will show no mercy in making you poor.

  • In 1969, WB thought market was overpriced and he got out of stock market completely. By 1973–74 the stock market had completely reversed it’self and stocks were selling at bargain prices. Warren bought them up with the appetite of, as he said, “a sex-starved man in the middle of a harem filled with beautiful women.”

  1. I don’t try to jump over seven-foot bars; I look around for one-foot bars that I can step over.
  • Warren is waiting for the perfect pitch and is staying with the sure thing: companies with products that don’t have to change, businesses that he knows will still be around in twenty years, selling now at a price that would make business sense even if he were buying the whole company.
  1. The chains of habit are too light to be felt until they are too heavy to be broken.
  • This quote is by Bertrand Russell.

  • Cost-cutting/cost-containment, cutting off unnecessary expenses should be part of BAU in a business not during the crisis.

  • Benjamin Graham inspired investment strategy of buying bargain stocks that were selling below Book Value worked between 1950s to 1960s but it didn't work after 60s but Warren continued to stay with that strategy for a decade as it had become a habit which is hard to change. Later he woke up in the late 1970s to the fact that the Graham bargain ride was over, he shifted over to a strategy of buying exceptional businesses at reasonable prices and then holding them for long periods. With old strategy he made millions with new strategy he made billions.

  1. Marrying for money is probably a bad idea under any circumstances, but it is absolutely nuts if you are already rich.

  2. it’s not necessary to do extraordinary things to get extraordinary results

  • Warren is shooting for a 20% annual rate of return. Invest $100,000 for twenty years at 20% a year and you end up with $3.8 million; hold it for thirty years and you end up with $23.7 million.
  1. You should look at stocks as small pieces of a business
  • Warren multiplies the stock price by the number of shares outstanding, then asks himself whether this would be a good deal or a bad deal if he were buying the whole business. If the price is too rich to be buying the whole business, then it is too rich to be buying even a single share.
  1. My idea of a group decision is to look in the mirror
  • To make big money in the investment world you have to learn to think independently; to think independently you need to be comfortable standing alone.
  • He chose to live in Omaha instead of NYC because there was less influence from Wall Street. He bought into Berkshire Hathaway when no one wanted it; he bought into American Express when no one wanted it; he bought into the Washington Post Company when no one wanted it; he bought into General Foods when no one wanted it; he bought into RJR Tobacco when no one wanted it; he bought into GEICO when no one wanted it; he bought the bonds of the Washington Public Power Supply System when no one wanted them; and he bought into junk bonds when no one wanted them. Some of these investments he still owns, some of them he sold after holding them a number of years, but on each and every one of them he made a fortune.
  1. If I can’t make money in a $5 trillion U.S. market, it may be a little bit of wishful thinking to think that all I have to do is get a few thousand miles offshore and I’ll start showing my stuff.
  • The odd thing about this quote is that ten years later Warren did go offshore to show his stuff. In 2003 he bought around $500 million worth of PetroChina, an oil company that is 90% owned by the Chinese government, which means, as Warren jokingly remarked, “Between the two of us we control the company.” PetroChina is the fourth most profitable oil company in the world.
  1. You should invest in a business that even a fool can run, because someday a fool will
  • There are businesses with great underlying economics and businesses with poor underlying economics. You want to invest in companies with great underlying economics because it is hard to damage these kinds of businesses. Companies in which Warren has invested, such as Coca-Cola, Budweiser, Wal-Mart, Wrigley’s, Hershey, and H&R Block, are almost dumb proof. You know you are going to make money with these businesses, even if a fool becomes CEO.
  1. With each investment you make, you should have the courage and the conviction to place at least 10% of your net worth in that stock
  • Conviction is based on what you know will happen; faith is based on what you hope will happen. To make money in the investment game you need to have conviction, which means that you need to know what you are doing.
  1. Money to some extent sometimes lets you be in more interesting environments but it can’t change how many people love you or how healthy you are.
  • Truth is excessively large amount of money can create great deal of misery. Your children won’t work because they think they are going to inherit your fortune due to that they never work and develop self-esteem that work creates which means they end up bitter and wish you would die soon.
  1. Anything that can't go on forever will end
  • Stock price will stop rising when the economic reality of the business finally sets in
  1. When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.
  • There are great businesses with great underlying economics that have the financial wherewithal to turn themselves around when they get into trouble and there are mediocre businesses with poor underlying economics that are impossible to save regardless of the brilliance of managers. A great business is usually wash and cash carries little or no debt and is in a great position to either buy it’s way out of trouble or ride out any downturn in the economy. Mediocre businesses are always struggling for cash and loaded with debt and if they get into problems they usually have to rob peter to pay Paul.
  1. Accounting is the language of business
  • If you can't read scorecard, you can’t keep score which means you can't tell winners from losers.
  1. Turnarounds seldom turn
  • World is filled with business with poor economics selling at what seem to be bargain prices. Warren is looking for good business selling at fair price or even great business at bargain price. Poor business will remain poor business regardless of the stock price underlying character of the business tends to remain the same.
  1. If a business does well, the stock eventually follows
  • Long term value of the company has a way of rectifying the situation no matter which direction.

  • For stock price to improve business must do well and to do well it will help immensely if it was a great business to begin with Washington post, coke, Disney, American Express, general foods, Wells Fargo and GEICO were all companies that had excellent economics working in their favor at the time warren bought them. But stock prices did suffer from either one-time solvable problem or industry recession or bear market eventually with these companies long term economics they possessed caused stock market to revalue their stock prices upward.

  1. Managing your career is like investing – the degree of difficulty does not count. So you can save yourself money and pain by getting on the right train
  • One not only needs to learn what kind of business to invest in but also work in. If one goes to work for company with poor long term economics then he can never expect to really do well as company doesn't do well. Salaries will be below average and raises will be few and long between and there is greater risk of losing your job because management will always be under pressure to cut costs. If you go and work for a company with great economics then there is lots of room advancements like higher salaries, tons of raises and promotions. You want to work for company that has high margins and makes lots of money. Stay away from a business that has low margins and lose money.
  1. The reaction of weak management to weak operations is often weak accounting
  • Business in weak economics with management lacking in integrity which manifests it’self by creating earnings where there really aren't any. Eg-Enron
  1. There's a huge difference in the business that grows and requires a lot of capital to do so, and the business that grows, and doesn't require capital.
  • This is the big secret in warrens buy and hold forever strategy

  • If you buy a business that requires lots of capital to grow your stock is never going to grow in value, reason is constant drain of capital just to keep the business from sinking in the wake of competition. If you are spending billions in redesigning that can't be spent on expanding operation, buying new businesses or buying back stock. Eg-GM or Intel

  • Business that can grow without new infusion of capital can afford to spend it’s excess cash doing those things all of these will increase company per share earnings which will inturn cause share price to increase. Eg-Wrigleys and Coke

  1. In a difficult business, no sooner is one problem solved than another surfaces – never is there just one cockroach in the kitchen
  • A business with poor economics is a slow boat to nowhere and makes a lousy long term investment and intensely competitive nature of the business mean it will suffer slim margins on sales and have a constant need to upgrade the plant to stay competitive. These businesses have constant battle with costs, competition from overseas labor; you may find yourself in a business that is no longer operationally viable in it’s present form. In long-term investment these are the businesses that you want to stay away from.
  1. You can always juice sales by going down market but it’s hard to go back up market.
  • Some great products own a piece of consumers mind and consumers have set of expectations regarding that product. If manufacturer in the name of increasing profit’s reduces the quality of the product, it’s really hard to get that status back up.
  1. If a CEO encouraged by his advisors to make deals he responds much as would a teenage boy who is encouraged by his father to have a normal sex life. It’s not a push he needs.
  • All man miseries derive from not being able to sit in a room quietly alone.
  • Warren jumps on only companies where he sees it has durable competitive advantage.
  1. You don't have to make money back same way you lost it.
  • Beginning investors, buy stocks they lost money on thinking their luck will change, just like in the casino.

  • In stocks risk is based largely on two factors

    • the quality of the company and price you pay for it’s shares in relation to that quality
    • the higher the quality the lower the risk and lower the price in relation to the quality of the business the lower the risk.
  1. i look for businesses in which i think i can predict what they are going to look like in 10 to 15 years in time. Take wrigleys chewing gum. I don't think the internet is going to change how people chew gum.
  • If product doesn't change, there is no need for R&D. Think of Beer, Soda and Candy. Budweiser, Coke and Wrigley’s haven’t changed recipe over 100yrs.
  1. Someone is sitting in shade today because someone planted a tree a longtime ago
  • If it wasn’t for mentor Benjamin Graham in developing the Value Investing concept, warren would have been a normal business man.

  • It’s easy to become brilliant at what you do, when you stand on the shoulders of giant. Trick is picking the right giant. In warrens case, he chose Graham, the dean of Wall Street.

  1. With enough insider information and a million dollars, you can go broke in a year
  • Face it by the time inside information gets to you, everyone else has heard it and traded on it.
  • Living in Omaha has it’s advantage as there is no one to whisper inside information over lunch.
  1. Read Ben Graham and Phil fisher annual reports but don't do equations with Greek letters in them.
  • Ben Graham taught you should buy stock when it is selling at a low price in relationship to it’s long term value. Low price will give you a margin of safety against calamity
  • Phil fisher said you need to buy a high quality company and hold it for a long, long time and let the retained earnings build up the value
  • Warren combined both the above ideas and combined it. Buy high quality companies at low prices in relation to their value and then hold them for a long long time.
  1. I am a better investor because i am a businessman and better businessman because i am an investor.
  • A smart businessman knows a good business from a bad one.
  • A smart investor knows when a business is being sold cheap or overpriced
  1. If principles become dated they are no longer principles
  • Warren one day woke up and understands that the principles he learned from Graham are no longer useful. This is mainly because large group of investor started practicing it and it became hard to find the golden eggs. So warren jumped ship to buy exceptional companies that had a durable competitive advantage as long as they were selling at reasonable prices.
  1. You pay a very high price in the stock market for a cheery consensus
  • If everybody agrees that a particular stock is next Microsoft, you have to pay a steep price which leaves little upside and lots of downside.
  • We are interested in rise again part.
  1. If calculus or algebra were required to be a great investor i'd have to go back delivering newspapers
  • According to warren skills you require are +, -, *, / and ability to rapidly calculate percentages and probability.
  1. You have to think for yourself.
  • It always amazes me how high IQ people mindlessly imitate. Many IQ types think that the way to get rich is to imitate others this is in part due to an education. In Wall Street, the thought process is, it’s easy to sell you something that’s popular opposed to something that is unpopular.
  • Warren gotten rich by identifying stocks that Wall Street doesn't want today and will be dying for tomorrow.
  1. The smarter the journalists are the better off society is.
  • It’s a bad idea to wait for journalists and research analysts to publish about information stocks and companies.
  • Better the teacher, the smarter the student body.
  1. You want to learn from experience but you want to learn from other peoples experience when you can.
  • Warren has a regular practice studies to dissect business and investing mistakes of others.
  • You need to study not only what to do but what not to do.
  1. it’s hard to teach a young dog old tricks.
  • In warrens world 65 is just getting started.
  1. In looking for someone to hire you look for three qualities integrity, intelligence and energy and most important is integrity because if they don't have that other two qualities are going to kill you.
  • If people you hire are smart and hardworking they are going to make you lots of money. If they aren't honest, they will find lots of clever ways to make all your money theirs.
  • When buying NFM, Warren asked Mrs.B, what’s the worth of the company and she told him, he did not get it audited and next day he brought her a cheque for $40Million dollars. When Mrs.B asked about this later, he replied he trusted her more than he trusted his accountants.
  • Warren gives his managers full autonomy to run businesses and he couldn't give his managers this much freedom if they lacked integrity.
  1. Can you really explain to a fish what it's like to walk on land? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value
  • Dealing with real manufacturing problems and getting and keeping real customers is what separates the academics from the managerial real world at the Berkshire owned NFM in Omaha company found and top manager Mrs.B rode victory after victory, decade upon decade with the front line troops at the mart. Age and Experience before youth and enthusiasm has become warrens battle cry and that makes Berkshires cash register ring and ring.
  1. It’s only when tide goes out that you learn who's been swimming naked
  • Creative accounting has lead few wall street darlings rise to the top but if real money doesn't show up at some point the enthusiasm and illusion fall away and all that is left is an empty bank account and bankruptcy filing.
  • The problem is finding out who is swimming naked before the tide goes out.
  1. When ideas fail words come in very handy -- Greta
  • CEOs will use words for great excuse so you won’t look at them as incompetent
  1. The really good manager does not wake up in the morning and say, "This is the day I'm going to cut costs," any more than he wakes up and decides to practice breathing.
  • Time to get vaccinations is not the day after you contract the diseases.

  • Warren believes in proactive management fixing the potential problem before it becomes a problem, you keep costs low from the start which keeps more powder dry for an attack from your competitors and creates more profit’s when things are good.

  • If you read a company is instigating a cost cutting program then you know the management has been slacking in keeping costs low from the start. What do you think of a company that doesn't have grip on costs ? Do you think t hey are going to make their shareholders a lot of money

  1. Wouldn't be great if we could buy love for one million dollars.
  • But only way to be loved is to be lovable. You don't give any, you won't get any.
  • He only hires people who love what they are doing, if you love what you are doing, you will treat others well so they will inturn also love what they do.
  • Love and Respect really do beget love and respect.
  1. We enjoy the process for more than the proceeds
  • People who enjoy what they do, they love the process more than the money and funny thing about passion money usually follows it.
  1. If you hit a hole in one on every hole you wouldn't play golf for very long.
  • Jobs with challenges keeps things interesting creates high self-esteem, promotes creativity and attracts highest quality people.
  • Jobs without challenges are boring creating low self-esteem and attracts least motivated people.
  • For challenges to be present there has to be risk in world of business when challenges arise, decisions have to be made and inevitably mistakes happen. It’s the nature of making decisions and thats what makes it interesting.
  1. There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don't like because you think it will look good on your resume, isn't that like saving up sex for old age.

  2. A friend of mine spent 20 years looking for the perfect woman unfortunately when he found her he discovered that she was looking for the perfect man.

  • Business is all about selling, You have to be interested in knowing the needs of other person because ultimately we are selling to those needs.
  1. Never ask a barber, if you need a haircut
  • Ask an advisor, if there is a problem and he will find a problem even if there isn't one. Warren found this to be true with investment bankers, management advisors, lawyers, auto mechanics, consultants and the like.
  • People who are paid to fix problems always find problems because if there isn't a problem there is nothing to fix.
  1. Forecasts usually tell us more of the forecaster than of the forecast.
  • Most forecasters has agenda that reflect the interest of the people who are paying their salary.
  • If forecaster says, interest rates are going up, you will sell your stocks and if it’s going down, you buy and likewise in earnings report.
  • Wall Street makes money by making you move around investments.
  1. Public opinion poll is no substitute for thought
  • There is a great deal of comfort when you invest with the crowd, everyone agrees with you, however when you invest with crowd you have to worry about when the crowd will leave the party.
  1. Business schools reward difficult complex behavior more than simple behavior but simple behavior is more effective.
  • Franciscan monk, William of Ockham put forth the idea, "Simplest of explanation is usually the best explanation"
  • Problem with this idea is that, Priests of any profession need complexity to keep the laity from performing their priestly magic
  • If you understood the investment process, there is no need of investment analysts and advisors.
  • Find a great business and buying it at a great price and holding it for 20yrs is not that hard to learn and profit from when all the so called priests of wall street are preaching short-term investment strategies which in truth are geared towards making the advisor and not the advisee rich.
  1. There seems to be some perverse human characteristic that likes to make easy things difficult
  • Every profession has a conspiracy that when it is made difficult, there is a need for an expert who can charge high fees for having figured it all out.
  • Brokers in the Wall Street have made investing so complicated that you need their expertise to invest and they will get rich off making you rich and you will keep coming back as it’s complicated. As long as they keep moving you from investment to investment they get paid off commissions they charge you.
  1. Recommending something to be held for 30yrs is a level of self-sacrifice you will rarely see in a monastery let alone a brokerage house
  • Long term investments won’t create wealth for your broker as they make money on the commissions. The more you get in and out more money they make.
  1. I can't be involved in 50 or 75 things, that’s a Noah’s ark way of investing you end up with a zoo that way. I like to put meaningful amount of money in few things.
  • If you were to invest in 50 stocks then your attention and ability to keep track of the business economics of each and every one would be severely limited.
  • It’s like being a juggler too many balls in the air you don't just drop one and you end up dropping them all.
  1. Diversification is a protection against ignorance. It makes very little sense for those who know what they are doing.
  • If investment advisor recommends broad diversification, he is telling he doesn't know what he is doing and he wants to protect you from his ignorance.
  1. Wall street makes it money on activity, you make your money on inactivity.

  2. Why not invest your assets in the companies you really like as May West said too much of a good thing can be wonderful

  • Warren is famous for his highly concentrated stock positions and he is willing to add to those positions as long as the economics of the business are there and the price is right.
  1. Wide diversification is only required when investors do not understand what they are doing.
  • Diversification strategy is based on the winners and losers cancelling each other out, it will however never leave you poor
  1. You only have to do very few things right in your life, so long as you don't do too many things wrong.
  • The principles of life and investing often parallel each other to succeed in life you really only have to get few things right the only way that you can screw it up is to makes a series of bad decisions that doesn't mean that you cant make mistakes you just cant make too many big ones.
  • Warren decided early in his investing career that it would be impossible for him to make hundreds of right investment decisions, so he decided that he would invest only in the businesses that he was absolutely sure of and then bet heavily on them.
  • Sometimes what you don't do is just as important as what you do.
  1. If you let yourself be undisciplined on the small things you will probably be undisciplined on large things as well.

  2. There is nothing like writing to force you to think and get your thoughts straight.

  • If you cant write about it you haven't really thought about it. This is why warren writes letters to shareholders explaining past years events this exercise has helped him immensely to fine-tune his thoughts on how to make billions.
  1. The less prudence with which others conduct their affairs the greater the prudence with which we should conduct our own affairs.
  • In bull market, warren becomes prudent as to what he buys.
  1. I have never swung at a ball while it’s still in the pitchers glove.
  • You should look for perfect pitch. To be a great investor you have to wait for the right opportunity.
  • Warren likes a great business wiht a predictable future that is selling at a discounted price that was brought on by a correctable mistake by management or industry recession or a bear market.
  1. Imagine that you had a car and that was the only car you'd have for your entire lifetime. Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. ou can enhance your mind over time. A person’s main asset is themselves, so preserve and enhance yourself.

  2. I buy expensive suit’s they just look cheap on me.

  • Warren is cheap because he knows the compounding sum of money. Even when being a millionaire, he was driving VW Beetle
  1. In the search for companies to acquire, we adopt the same attitude one might find appropriate in looking for a spouse. It pays to be active, interested and open-minded but it does not pay to be in a hurry.
  • It is one thing looking for something you will never find and it is another to look for something that you know from experience you will occasionally see that is what warren is looking for an investment situation that he knows shows up occasionally under the right circumstances what are the circumstances bear market, industry recession, one-time event that doesn't destroy the underlying great business, a panic selloff. All these situations, stocks of some great companies sell for some amazingly low prices and only thing have to do is to be patiently and wait for those events to occur, which they do.
  1. When proper temperament joins up with the proper intellectual framework then you get rational behavior
  • Best temperament in investing is to be greedy when others are scared and scared when other are greedy that coupled up with investment philosophy that focuses on businesses with superior long term economics working in their favor is his secret to successful investing
  • Twice in warrens career he completely stopped buying stocks as they gotten way to high in price, first time in late 60s bull market and second time in late 90s bull market.
  1. The fact that people full of greed, fear or folly is predictable, the sequence is not predictable
  • Avoid the greed, let fear and folly create the opportunity that is the way of intelligent investor.
  1. A stock doesn't know that you own it

  2. When you combine ignorance and borrowed money the consequences can get interesting

  • Ignorance will blind you from folly, borrowed money will allow you to blindly follow your ignorance till you reach the point of folly. Folly is where you lose the money which you owe the banks and banks like elephant don’t forget.
  1. Of the seven deadly sins, envy is the silliest, if you have it, you don't feel better you feel worse. I have had some good times with gluttony we won’t get into lust.
  • Greed is a wonderful thing if it is thy servant and not the master. You can't get rich without a dose of it and you can’t be happy if you have too much of it. Too much greed leads to envy.
  1. We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. Remember when the prices are in the sky it’s time to say goodbye but when prices fall it’s time to give your broker a call.

  2. The most important thing to do if you find yourself in a hole is to stop digging. If you find you're in a bad investment, stop throwing money at it. Though it's painful to pull out, in the end it is far more profitable

  • Have the courage to admin you were wrong and get out of the situation before you go broke.
  1. If at first you do succeed, quit trying
  • Once you make a good investment, it is better to rest on your merit’s than to sell the business for a modest profit and go looking for another company to invest in. This is why it is important to know what an excellent business is, so you know when you finally get one, but if you find yourself in a mediocre business that doesn't have great long term economics working in it’s favor you could best follow the advice of Bernard Baruch and sell it soon.
  1. I buy stocks when lemmings are headed the other way
  • All Buffett buys have been on bad news. Since he knew business, he knows which will survive and which doesn't. He bought Disney in 1966, bought Washington post in 1973, General Foods was bought in 1981 and Coke was bought in 1987 and in the 1990 he bought Wells Fargo.
  1. 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
  • All exceptional businesses which warren has bought was during bear market.
  1. We don't go into companies with the thought of affecting a lot of changes that doesn't work any better in investments than it does in marriages
  • Warren has found in most cases underlying economics of businesses remain constant regardless of the managers in charge. A great business will produce great results regardless of of who is in charge and a poor business will produce mediocre results with even the best manager at it’s helm
  1. Risk comes from not knowing what you are doing
  • In buying unpopular stocks and if you don't have the ability to ascertain the long-term economics of the business you are engaging in some risky business. You won't know whether you paid too much of it until it is too late, understanding what you are investing in is the only way to remove the risk.
  • Take a paper and fill in the reason why you bought it. Format would be "I am paying 32 billion today for Coca-Cola company because ....". If you can’t answer, don't buy it.
  1. The only time to buy these is on a day with on why in it
  • Warren doesn't buy during IPO because bank has already fully priced in the issue there is no chance investor going to get an bargain price.
  • Investment banker will never serve you a bargain but the stock market will.
  1. We also believe candor benefit’s us as managers, the CEO who misleads others in public may eventually mislead himself in private
  • CEO who is honest about his mistakes is more likely to learn from them.
  • Willingness to misrepresent one set of numbers will eventually lead to a willingness to represent all the numbers.
  1. That which is not worth doing at all is not worth doing well.
  • People spend many years working hard on business with poor economics which means prospects of making money are equally poor, so why good at something that is not going to benefit you, why learn to be good at a business that has inherently poor economics and is never going to make you any money if you find yourself sailing on a business ship that is going nowhere you should jump and find one that is headed to the seas of good fortune instead of trying to become captain of a slow boat to a financial nowhere this was warrens experience with Textile business.
  1. a good managerial record is far more a function of what business boat you get into than it is of how effectively you row
  • When you find yourself in a leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
  • Best jockey in the world is never going win races riding a lame horse but even a mediocre jockey can win races riding a champion. When you get out of school, go to work for a company that has great underlying economics for no matter what your level of ambition the great economics of business will always make you look good and pay you more.
  1. We never look back, we just figure there is so much to look forward to that there is no sense thinking of what we might have done, it just doesn't make any difference. You can only live life forward.
  • In investment world each day bring new batch of opportunities in an endless procession.
  • You need not focus on mistakes more than is necessary to learn their lessons. What you need to do is apply the lessons learned to the problems of today.
  • In the investment game you will make countless errors of omission none of which will hurt you. It is the error made in taking action that you have to watch out for and they are found in the road ahead.
  1. I want to be able to explain my mistakes this means i do only the things i understand
  • if you don't understand what you are doing then why are you doing it, the proper investment approach is not intuitive, it is rational mixed with right temperament. Ignorance is bliss unless you are investing then it usually leads to nightmares.
  1. If you don't make mistakes you can't make decisions.
  • Some people can make decisions and some people can’t, the ones who can will lead and the ones who can’t will follow.
  • For anyone who make dozen decisions a day will sometimes be wrong. Be wrong too many times though, you won’t be the leader anymore, your followers will find someone to replace you.
  • Make a decision, so that you can go on to next decision.
  • When you make a wrong decision, it’s best to not to dwell on it but you should move on to next one.
  1. Investment must be rational, if you don't understand it don’t do it.
  • Changing rapidly industries are unpredictable warren stays away from them like tech companies.
  • Let’s say you can buy Yahoo for $44 billion and it would earn you $1.8 billion a year. You can also invest $44 billion in 10yr treasury bonds and make you $2.2 billion a year risk-free which look like a better investment? Which one looks like a gamble? Which one do you understand and which one you not understand? Which investment is rational and which one isn’t? Yahoo might be forgotten tech history in 10yrs (it is) but United States should still be going strong. See it isn't that hard to think like Warren Buffett
  1. If you can understand an idea you can express it so others can understand it.
  • This is warrens way of testing whether he really understands a business before investing in it. If he cant explain it, he can't really understand it. He will not invest in a business he does not understand nor should you.
  1. If they need my help to manage the enterprise, we are probably both in trouble. Just because you're a great investor, that doesn't mean you're a skilled business manager. Recognizing talent is different from having talent.
  • A investor has to recognize talent just as football coach has to be able to recognize a great player.
  • Knowing your abilities and abilities of others and being able to exploit both to their advantage is the key to running a highly successful business.
  • Warren says his secret for growing a corporation through diverse acquisitions is to buy a good business for reasonable price that already has competent management running it then get out of the way and let them do their thing.
  1. Our method is very simple, we just try to buy businesses with good to superb underlying economics run by honest and able people and buy them at sensible prices thats all i am trying to do.
  • To know if a business has good to superb underlying economics, it is necessary to understand the business.
  • To know if it is run by honest and able people, it is necessary to understand the business
  • To know if it is selling at a senible price it is necessary to understand the business
  • Key is to understand the business
  1. If we can't find things within our circle of competence, we don't expand the circle, we'll wait.
  • In 1967, warren wrote to investment partners telling them that he was returning their money since it was getting harder and harder to find investments that he understood and that were selling at attractive prices and he then stood on the sidelines until 1973, when entire stock market collapsed and suddenly even the best companies were selling at bargain prices.
  • In investment game it pays to be stubborn, principled and patient in choosing a company to invest in.
  1. Any business craving of the leader however foolish will be quickly supported by studies prepared by his troops.
  • If you make your living pleasing the boss, you will get ahead in career for a short time, but in the long run business will suffer.
  • Misery loves company even to the point of stupidity that’s why warren looks in the mirror when he wants advice. It’s speedier, cheaper and right or wrong it always leads to the same brilliant decision.
  1. In the business world, rear view mirror is always clearer than the wind shield
  • In the business world, hindsight is always perfect but future is always hidden in a rapidly changing environment it is hard to tell where you are going if you can’t see the road ahead this is one of the reasons why warren has always stayed away from technology stocks, he simply has no idea what the road ahead looks like and neither he says does his best friend bill gates, a man who knows a thing or two about technology. This is why warren stays with tried and true products; he can see where they are going to be in 15 years.
  • Do you think people are going to stop shaving, stop drinking coke, stop buying car insurance, stop chewing gum, stop taking their kids to dairy queen on a hot summer night, highly unlikely?
  • He is interested in products that allow him to see road ahead.
  1. I'm very suspect of the person who is very good at one business; it also could be a good athlete or a good entertainer who starts thinking they should tell the world how to behave on everything. For us to think that just because we made a lot of money, we're going to be better at giving advice on every subject, well, that’s just crazy.
  • This goes back to the thinking that warren only invests in companies he understands and he won’t give advice outside his circle of competence. It’s his secret, just stay with what you know.
  • One shouldn't assume being rich doesn't make you intelligent on all things.
  • Mrs.B died richer than all the Harvard educated kings of Wall Street and she couldn’t read or write. She knows to make profit by buying and selling furniture. Secret is she knows if she got it at low enough price and she could sell it at lower price than her competitors and still keep her margins. How ? Her competitors bought on credit and full price and she bought with cash with huge quantities and got big discounts and additionally she owned a building so she didn't pay any rent.
  1. It won’t be the economy that will do in investors, it will be investors themselves
  • Investors don’t get rich, it’s because of themselves not the economy. Investors jump from stock to stock, overpaying for companies that doesn't have earnings to support stock price.
  • Money managers charge for each transaction as investors are not willing to do any homework.
  • Investing based on popularity and not fundamentals
  • Investors with shortsighted quest for quick profit’s blinding them from the long-term economics of the business.
  • These are the things that will bring them down not the Gross Domestic Product (GNP)/Consumer Price Index, FED rates
  1. For some reason people take their cues from price action rather than from values, price is what you pay, value is what you get
  • How much you pay determines how much you get. You pay too much, you get little and less you pay more you get.
  1. That which goes up doesn’t necessarily have to come down
  • Company which is expanding its intrinsic value may keep rising and rising like Berkshire which was $19 in 1965 and in 2006 it’s $95k.
  1. The key is that stock market basically just sets prices so it exists to serve you not instruct you
  • In stock market companies are valued on their short-term economic prospects. This creates a lot of gyrations sometimes pushes the value high and sometimes low from their long term value. As a general rule stock market overvalue stocks.
  • Warren wait’s and buys stocks when they go below their long term value of the business.
  • Over long periods, the economic power of an exceptional business will correct any short-term underpricing mistakes that the stock market makes.
  • A business is worth, what it is worth over long term, regardless of what’s it’s price today and you are in control of when and what you buy.
  1. At the beginning, prices are driven by fundaments and at some point speculation drives them. It’s that old story, what the wise man does in the beginning; the fool does in the end.
  • A wise man buys when the fundamentals are in his favor; that way he has a margin of safety as to how low prices can go.
  • When speculation steps in, fundamentals are thrown out the window and the rising price motivates more and more buying.
  • Savvy investor knows at some point in time, the only real demand is the fundamental demand and when the speculation demand end, it will fall back to reflect the fundamental demand.
  1. The smartest side to take in a bidding war is the losing side
  • Bidding war means that the price is going higher and higher which means return on investment shrinks lower and lower.
  • It’s always easier to pay too much for something when you are using other people’s money.
  1. A pin lies in wait for every bubble and when the two eventually meet, a new wave of investors learn some very old lessons.
  • Bubble happens once in 30yrs, advent of new tech.
  • Last 100yrs it had happened during invention of radio, airplanes, autos, computers, biotech and internet.
  • In the bull market, prices that were being paid were for future earnings that might never appear and in most cases it did not appear.
  1. I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 5 years.
  • If you buy the right company at right price, the only thing time does is, increase the value of the business which makes you richer and richer.
  • Stock market is just a place where you can get a price quote on what it thinks a company is worth over the short term period.
  1. The stock market is a no-called-strike game. You don't have to swing at everything; you can wait for your pitch. The problem when you are a money manager is that your fans keep yelling. Swing, you bum.
  • Money managers are slaves to quarterly and yearly figures. With bad quarterly or yearly results, they will lose their clients.
  • Fund managers are slaves to their clients who wishes for short term profit’s
  • All this focus on short-term fluctuations of the stock creates all kinds of pricing mistakes which warren exploit’s.
  • If you want to make big money in the stock, stay away from professional fund managers.
  1. What we learn from history is that people don’t learn from history
  • People make same mistakes over and over in the stock market, they overpay for a business in the hope of making money in the short term.
  • Warren made money exploiting this inherent shortsightedness and pricing mistakes.
  1. Look at stock market fluctuations as your friend rather than your enemy, profit from folly rather than participate in it.
  • Stock market ignore long term economic value of an enterprise and trade on short-term prospects of the business
  • Bad short-term prospects mean that stock prices can fall dramatically all the while ignoring long-term potential of the enterprise this creates buying opportunities in companies that have good long-term economic prospects but are experiencing few short-term problems.
  1. Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.
  • Warren learned that great companies occasionally make correctable mistakes that, over the short term, destroy the price of their stock. The key here is being able to determine whether the error is correctable. that is why it is important to know the economic nature of the business in which you are investing.
  • Warren's initial invest in GEICO was made during as the company was on the verge of insolvency. It was a low-cost producer but in a push to get more business, it let it’s underwriting discipline sliip to the point that it was writing insurance on anyone and everyone without increasing it prices to compensate for the risk. Warren knew that if it returned to base concept of the business, it not only would survive but thrive and it did turning $43M into $2.3B in 15yrs. Warren saw that GEICO made a correctable mistake that once solved would not damage the long-term economics of a great business.
  1. Uncertainty actually is the friend of the buyer of long-term values
  • Uncertainty in the stock market creates fear and fear creates panic selling, which forces prices downward regardless of a business long-term economic prospects. This chain reaction creates a buying opportunity if the long-term economic value of the business is in excess of it’s selling price. For it is the long-term economics of the business that will eventually pull the stock price back up in line with the realities of the business.
  • Warren with the knowledge about long-term economics of a business enables him to be certain about which companies will go back up.
  1. To many on Wall Street, both companies and stocks are seen only as raw materials for trades
  • Professional money managers tend not to see companies and stocks as businesses, but as bouncing numbers on a screen on which they can place bets. Warren takes money off these gamblers when they oversell a business and drive down a company’s share price to the point that is is chat relative to the long-term value of the underlying business.
  1. No matter how great the talent or effort, some things just take time, you cant produce a baby in one month by getting nine women pregnant
  • It takes time for business values to build up, it doesn’t happen overnight. Just as children take time to grow into adults.
  • If you buy a great business, eventually the values add up to a handsome sum.
  1. If past history was all there was to the game, the richest people would be librarians
  • Understanding business history is important to understanding what can happen, but it won’t tell you what will happen and when it will happen.
  • Warren has tried to predict the future by staying with businesses that make products that don't change over time. Predictable product equates to predictable profits.
  • Think beer, candy, car insurance, coke, chewing gun and razor blades all has predictable future and product is not going to change. If company has to change its product continuously in the future to cope up, then future becomes unpredictable.
  1. Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years
  • One of the question all the value investors between 60s and 90s would discuss about is "If you had to put all your money into one stock and go away to a deserted island for 10yrs, what would it be ?" another variant of the same question is, "What would you buy today and feel comfortable with if they closed the stock market for the next 10yrs ?". These questions cause you to stop thinking in short-term and start thinking in the long term.
  • When you are thinking in long term, you start thinking quality and economic nature of the business. This leads you to ask whether the company’s product has a durable competitive advantage that means high margins, plant and equipment never go obsolete, never have to retool and you have low research and development costs. Low cost means high margins and high margins means more money.
  1. The investor of today does not profit from yesterday's growth
  • It is the growth of tomorrow that the investor of today will profit from.
  • If i buy a business today the profit i would be taking out of it is all in the future. I don’t make any money out of the past. The question is, will the growth be there, if it is there, what am i willing to pay for it.
  • If you pay too much for the stock, you will essentially reduce the amount of money you will make in the future on the investment which reduces your annual rate of return.
  1. I'd be a bum on the street with a tin cup if the markets were efficient
  • Stock market is fairly efficient in short-term perspective but often makes pricing mistakes from a long-term perspective meaning it’s inefficient in long-term perspective.
  • Thing you have to exploit this inefficiency to make yourself superrich.
  1. As far as i am concerned, the stock market doesn't exist. It is only there as a reference to see if anybody is offering to do anything foolish
  • Wall Street always predicts/talks about the direction where the stocks are heading. Warren is least concerned about it, he is only concerned with whether the shortsighted stock pickers who run the large mutual funds have done anything foolish from a long-term perspective for that he reads Wall Street Journal.
  1. We believe that according the name investors to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a romantic
  • Mutual and Hedge funds use a strategy called Momentum Investing buying during quarter-point drop in interest rates and sell the same stocks during quarter-point rise in interest rates.
  • Buy during rise in earnings and sell during drop in earnings. Sell during war and buy during peace.
  • Investing is buying a piece of a business and watching it grow
  • Speculating is throwing the dice on the short-term direction of the stocks price
  • One will make you super-rich and other will make fund managers who are throwing the dice super-rich.
  1. We do not have, never have had and never will have an opinion about where the stock market interest rates or business activity will be a year from now

  2. Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars

# References

  • Wealth Education
  • Other Warren Buffett's quotes