Warren Buffett Talks about Investing

As a follower of Buffett and his principles on investing, I always find it useful to refer back to the wit and wisdom of Buffett. Through his letters, interviews and speeches, Buffett has racked up an enormous database of insightful timeless quotes.

Buffett has a distinct philosophy when it comes to investing.

"Rule No. 1: Never lose money. Rule No. 2: Never forget rule no. 1."

Buffett learned from his great teacher Ben Graham the importance of Rule No.1 in the form of a margin of safety.

"I consider there to be three basic ideas, ideas that if they are really ground into your intellectual framework, I don't see how you could help but do reasonably well in stocks. None of them are complicated. None of them take mathematical talent or anything of the sort. Graham said you should look at stocks as small pieces of business. Look at fluctuations as your friend rather than your enemy - profit from folly rather than participate in it. And he said the three most important words of investing: 'margin of safety.' I think those ideas, 100 years from now, will still be regarded as the three cornerstones of sound investing."

The reason why this works and why Buffett has always been a value investor is because he believes that

"if principles can become dated, they're not principles."

What attracted Buffett to become value investing and Ben Graham was the philosophy Graham taught in the Intelligent Investor.

"Graham wasn't about brilliant investments and he wasn't about fads or fashion. He was about sound investing, and I think sound investing can make you very wealthy if you're not in too big of a hurry. And it never makes you poor, which is better."

"It baffles us how many people know of Ben Graham, but so few follow. We tell our principles freely and write about them extensively in our annual reports. They are easy to learn. They should be easy to follow. But the only thing anyone wants to know is, 'what are you buying today?' Like Graham, we are widely recognized but least followed."

Being a value investor is being a contrarian. It is to be against the crowd and having the confidence to remain calm and steadfast when the rest is laughing and pointing their fingers at you.

"I'd be a bum on the street with a tin cup if the markets were always efficient."

Plus, Buffett has never believed that you need to be a genius or have an MBA to do well in the markets.

"Current finance classes can help you do average."

While modern finance and schools teach that the markets are efficient, Graham and Buffett teach those willing to listen about Mr Market and why you should ignore it.

"The market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses."

 

"For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it is going up."

Buffett also has gone through periods where he couldn't find any attractive investments. This is reminiscent of the current market situation where the market is valuing most companies fairly or dearly.

"Currently liking neither stocks nor bonds, I find myself the polar opposite of Mae West as she decalred, 'I only like two kinds of men: foreign and domestic.'"

The important thing to realize with any investment in any sort of market situation is to understand the difference price and value.

"Price is what you pay. Value is what you get."

"It doesn't have to be rock botom to buy it. It has to be selling for less than you think the value of the business is, and it has to be run by honest and able people. But if you can buy into a business for less than it's worth today, and you're confident of the management, and you buy into a group of businesses like that, you're going to make money."

Thankfully, Buffett's philosophy is simple, yet regardless of how simple it is, value investors are safe knowing their techniques will always remain.

"I have seen no trend toward value investing in the 35 yeras I've practiced it. Tehre seems to be some perverse human characteristic that likes to make easy things difficult."

Jae Jun runs Old School Value, a value investing service providing stock valuation spreadsheets, stock analysis and value stock screens for the DIY investor. He writes a weekly Tuesday column for Benzinga.