Buffett on terrorism

The probabilities are increasing, in an irregular and immeasurable manner, as knowledge and materials become available to those who wish us ill. Fear may recede with time, but the danger won't - the war against terrorism can never be won. The best the nation can achieve is a long succession of stalemates. There can be no checkmate against hydra-headed foes.

- Warren Buffett

Miseries of the man

Most of man’s miseries come from not being able to sit quietly in a room.

- Blaise Pascal

How many winners needed

It only takes a handful of big winners to make a lifetime of investing worthwhile.

- Peter Lynch

15 minutes a year for ....

I spend about 15 minutes a year on economic analysis. The way you lose money in the stock market is to start off with an economic picture. I also spend 15 minutes a year on where the stock market is going.

- Peter Lynch

Prejudices

With every new wave of optimism or pessimism, we are ready to abandon history and time-tested principles, but we cling tenaciously and unquestioningly to our prejudices.

- Benjamin Graham

Watch play field than scoreboard

It's true, of course, that, in the long run, the scoreboard for investment decisions is market price. But prices will be determined by future earnings. In investing, just as in baseball, to put runs on the scoreboard one must watch the playing field, not the scoreboard.

- Warren Buffett

Shares and book

Think about shares as you would a book: if you don’t understand it, put it down.

- Aberdeen Asset Management

What a fool or geinus can make

Any fool can make things bigger, more complex, and more violent. It takes a touch of genius - and a lot of courage - to move in the opposite direction.

- Albert Einstein

Grounds which don't shift forever...

Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized. But a business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.

- Warren Buffett

Trust your stocks as long as the fundamental story hasn't changed

When it comes to predicting the market, the important skill here is not listening, it’s snoring. The trick is not to learn to trust your gut feelings, but rather to discipline yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.

- Peter Lynch

...the opposite occurs

It is the rare investor who doesn’t secretly harbour the conviction that he or she has a knack for divining stock prices or gold prices or interest rates. In spite of the fact that most of us have been proven wrong again and again, it’s uncanny how often people feel most strongly that stocks are going to go up or the economy is going to improve just when the opposite occurs.

- Peter Lynch

People do wrong things

We’re forcing people to do the wrong things. They look at what’s hot. They spend so much time trying to figure out if the market is going up. That’s so unimportant. It’s about earnings. They need to follow the earnings.

- Peter Lynch

Things are never clear on Wall Street

Things are never clear on Wall Street, or when they are, then it’s too late to profit from them. The scientific mind that needs to know all the data will be thwarted here.

- Peter Lynch

Correction is not a disaster

Bargains are the holy grail of the true stock picker. The fact the 10 to 30 per cent of our net worth is lost in a market sell-off is of little consequence. We see the latest correction not as a disaster but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.

- Peter Lynch

Business to choose

Go for a business that any idiot can run - because sooner or later, any idiot probably is going to run it.

- Peter Lynch

Who can follow the stock market

Everyone has the brainpower to follow the stock market. If you made it through fifth-grade math, you can do it.

- Peter Lynch

Wasting energy in forecasts

If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes.

- Peter Lynch

Stocks on shorter and longer term

Absent a lot of surprises, stocks are relatively predictable over twenty years. As to whether they're going to be higher or lower in two to three years, you might as well flip a coin to decide.

- Peter Lynch

Investing without research

Investing without research is like playing stud poker and never looking at the cards.

- Peter Lynch

How to pick a stock

If you stay half-alert, you can pick the spectacular performers right from your place of business or out of the neighborhood shopping mall, and long before Wall Street discovers them.

- Peter Lynch

Why the stock prices go up

I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.

- Peter Lynch

Stock market and wife

The correct attitude of the investor toward the stock market might well be that of a man toward his wife. He shouldn't pay too much attention to what the lady says, but he can't afford to ignore her entirely.

- Benjamin Graham

Insight into business

The great majority of operating businesses have a limited upside potential unless more capital is continuously invested in them. That is so because most businesses are unable to significantly improve their average returns on equity - even under inflationary conditions, though these were once thought to automatically raise returns.

- Warren Buffett

Enthusiasm in Wall Street

While enthusiasm may be necessary for great accomplishments elsewhere, on Wall Street it almost invariably leads to disaster.

- Benjamin Graham

Cost-cutting companies

Whenever I read about some company undertaking a cost-cutting program, I know it's not a company that really knows what costs are about. 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.

- Warren Buffett

Temperament to control

Success in investing doesn't correlate with I.Q. once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

- Warren Buffett

How to time the buy

Stock market timing cannot be done, with general success, unless the time to buy is related to an attractive price level, as measured by analytical standards.

- Benjamin Graham

Right sector and right time

If you are in the right sector, at the right time, you can make a lot of money very fast.

- Peter Lynch

Cyclicals

Cyclicals are like blackjack: Stay in the game too long, and it's bound to take back all your profit.

- Peter Lynch

Power of compounding

Understanding both the power of compounding and the difficulty of getting it is the heart and soul of understanding a lot of things.

- Charles Munger

Quality of the business

When you mix raisins and turds, you still have turds.

- Charles Munger

Great business at a fair price

A great business at a fair price is superior to a fair business at a great price.

- Charles Munger

Change vessels instead of devoting energy on leaking boats

My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). 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.

- Warren Buffett

Secret of sound investment

Confronted with the challenge to distil the secret of sound investment into three words, we venture the motto, Margin of Safety.

- Benjamin Graham

Inflation protection by tangible asssets - wrong

For years the traditional wisdom - long on tradition, short on wisdom - held that inflation protection was best provided by businesses laden with natural resources, plants and machinery, or other tangible assets. It doesn't work that way. Asset-heavy businesses generally earn low rates of return - rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses.

- Warren Buffett

What this implies is any asset heavy business (caution for the investors who follow the book value logic) carry higher risk to deliver returns to the shareholders than any business which is asset light but have intangible assets. An asset heavy business could be laden with assets like natural resources or plant & machinery or any other tangible assets. But over a longer period, the re-investment needs of these business would leave nothing for the shareholder and thus inflation adjusted returns from these business would not be worth to speak.

But business which own intangible assets of lasting value (e.g. Colgate brand has lasted more than century) coupled with minor tangible assets are hurt the least because of inflation. These business should have enduring franchisees which and the managements should have the focus to defend their moat and fortify it on a ongoing basis. Otherwise they would be a blip in the radar.

Don't buy what you don't understand

There are all kinds of businesses that Charlie (Munger) and I don't understand, but that doesn't cause us to stay up at night. It just means we go on to the next one, and that's what the individual investor should do.

- Warren Buffett

Reality

I think that one should recognize reality even when one doesn't like it - indeed, especially when one doesn't like it.

- Charles Munger

How to deal with Mr.Market

Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.

Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.

Mr. Market has another endearing characteristic - he doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manicdepressive his behavior, the better for you. "But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice - Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren't certain that you understand and can value your business far better than Mr. Market, you don't belong in the game."

- Warren Buffett

Margin of Safety

We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.

- Warren Buffett

What you know and what you don't know

Though the mathematical calculations required to evaluate equities are not difficult, an analyst - even one who is experienced and intelligent - can easily go wrong in estimating future "coupons". At Berkshire, we attempt to deal with this problem in two ways. First, we try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character. If a business is complex or subject to constant change, we're not smart enough to predict future cash flows. Incidentally, that shortcoming doesn't bother us. What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes.

- Warren Buffett

Valuing a stock or a bond

In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. Note that the formula is the same for stocks as for bonds. Even so, there is an important, and difficult to deal with, difference between the two: A bond has a coupon and maturity date that define future cash flows; but in the case of equities, the investment analyst must himself estimate the future ‘coupons’. Furthermore, the quality of management affects the bond coupon only rarely - chiefly when management is so inept or dishonest that payment of interest is suspended. In contrast, the ability of management can dramatically affect the equity 'coupons'.

- Warren Buffett

October is a dangerous month

October is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.

- Mark Twain

Qualities of Investor

The list of qualities (an investor ought to have) include patience, self-reliance, common sense, a tolerance for pain, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research, an equal willingness to admit mistakes, and the ability to ignore general panic.

- Peter Lynch