Excess cash

Most high-return businesses need relatively little capital. Shareholders of such a business usually will benefit if it pays out most of its earnings in dividends or makes significant stock repurchases.

- Warren Buffett

Leaving excessive cash at the disposal of the managers brings a lethargic attitude or forces them to expand their empires by acquisitions. This is why managers should be made accountable to regularly return the excess cash through dividends or buy backs, thus bringing down the cash level. This discipline forces the manager to be responsible to regularly return a portion of net earnings and work with the limited working capital and optimise the asset utilisation as well as the returns. The only exception to this rule is Warren Buffett himself as he has demonstrated a better capacity than an ordinary manager to deploy the excess cash generated by his managers of individual business units over a long term with consistency.

Where you should not be

They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future - will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands.

- Warren Buffett

Lower price

If they reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today. Anything you're going to be buying in the future, you want to have get cheaper.

- Warren Buffett

The above quote goes against the principle advocated by the 'technical analysis' based investors who advocate the stop loss theories. Well, if you have fairly correct with the entry price point after a thorough analysis of the company and the reason for the current correction in the market price, you need not worry about further price corrections. Instead, it gives an opportunity to buy the company at a lower price than the 'intrinsic value' as identified by you. It is like buying a dollar for fifty cents.

But before you jump to conclusions, the responsibility lies with the investor to analyse the company and then arrive at the fair value price range. And if you are wrong in any of these two variables, the ground falls apart.

Remember over consuming hamburgers is not good for your health. The same applies to the stocks. Laying all your eggs in the same basket would also backfire. So be judicious on overindulgence knowing the pitfalls.

Know what you don't know.

One of the greatest pieces of economic wisdom is to know what you do not know.

- John Kenneth Galbraith

Here is a partial list of what I don't know.

1. Technical terms used by the pharmaceutical industry and correlate with the economic output the industry generates.
2. The way most of the real estate companies operate to earn their bread and butter.
3. To predict the year end price targets of indexes.

The threshold to meet

If the new thing you are considering purchasing is not better than what you already know is available then it hasn’t met your threshold. This screens out ninety nine percent of what you see.

- Charles Munger

The above quote is not only applicable for new stock additions to your portfolio, but also to any goods you want to buy or find it as an attractive replacement to what you already know. If I go to a departmental store and see a new brand of biscuits; attractively priced than the one I regularly buy, I would look at two things first. 1) Whether the biscuit is from a reputed manufacturer, 2) What are the ingredients and is it comparable to my regular brand.

The first question answers whether I can trust the new product (to what extent determines my trust with each company and its various products I have tried so far) and spend the money even though it is bargain. The second question makes sure whether I can quickly decide how much value I am deriving by making an apple to apple comparison with the product I am familiar with.

When I bought the new biscuit, my mind would say it is a bargain. But in true fact, it will become a bargain only after I taste it (at least few times; I always find it difficult to form an opinion on the first instance, whether it is biscuit or a shampoo). If the taste of the new product is equivalent or better than my regular brand, then only I can truly say the product is bargain. Otherwise, my purchase is 100% waste as it can't replicate the satisfaction I derive from my regular brand.

But there are various other factors also on play when we make a decision to buy a product. But keeping aside those factors, thinking along the lines of the above two questions helps me to come to a quick conclusion.

People can form their own filters which work for them based on their personality. These filters should help everyone in a long way to avoid petty expenses, which tend to have a big impact when repeated over a long period of time.

Bargain

At the company where I work, I had an interesting observation among my colleagues over the last two weeks.

One of our East Asian Country affiliate had some excess stock to clear. The regional management decided to buy the distress inventory and then sell it among the regional staff as well as their family, friends and other vendors who are interested to buy the products at nearly 60% discount to market price. This in a way helps the affiliate to write off the inventory and recover some cash.

Over several days, the marketing department fixed prices for the products based on the production cost and almost all the regional staff members were able to grab bargains. The happy faces could not betray their glee in their mind.

Subsequently the floor was opened to family members and friends. The marketing team which was constantly assessing the stock movement offered bargains for the marginal stocks to clear the space. Those who bought the same products found out the reduced prices and started regretting that they could have waited longer to get these products at 50% lesser prices than what they bought earlier.

At the end of the exercise, several off them felt, they could have got a better price, had they waited for the offers which came in at surprising frequencies. While many of them were happy they could get products at a much lower price, those who could not buy it at the further discounted price were much more unhappy and regretful.

The behavior was exactly the same exhibited by the stock investors in a falling market. Buyers who bought the stocks at a price they see value, start regretting when the stock moves southwards. If they are correct in their valuation methodology, they should be happy to buy the same stock at a much lower price and instead, they start to regret their early entry. At times, they build courage and invest further at each drop. But sometimes the market surprises them buy going down again and again, the churn in their stomach overwhelms their mind. Investors, who are confident of their investment decisions and lack further buying power, hold on to their investments, regretting their lack of fire power at an opportune time. Another group would stop looking at the stock prices, unable to tolerate the loss day-in-and-out, but will hold on to their stocks. The third group which follows the "stop-loss" theory would start to sell the stock, thus doing exactly the opposite of buy-low and sell-high they wanted to do at the beginning.

There would be several other set of behaviors investors could exhibit. But let us see what we can learn from the three groups highlighted above.

1. The first group is confident of their valuation of the company as well as the future prospects of the company and gleeful to utilise the opportunity provided by Mr. Market to increase their stakes based on their capacity. This group would be happy to look back few years later how wonderful their decision is if their judgments are correct.

2. If you had exhibited the attitude of the second group, you are not far away to join the first group. Few cycles of market downturns would increase your confidence level. These investors would have much more confidence down the line when they see that their investments done five or ten years back are still positive even after a substantial market correction, would increase their holding in the said companies confident off their future.

3. The third group helps the other two groups to buy the stocks at bargain prices. So we need this group without which the other groups can't exist. Looking at the skill set of so many investors around you, there would be so many falling in this category. If you happen to be in this group, improve your knowledge about the markets and upgrade yourself. But if the task is difficult, sell your stock holdings and invest in index or ETF's on a regular basis and concentrate on your regular job.

Efficient Markets

Observing correctly that the market was frequently efficient, they went on to conclude incorrectly that it was always efficient. The difference between these propositions is night and day.

- Warren Buffett

Benjamin Graham has said that market is a voting machine over a short term period, and over a longer period it is weighing machine truly reflecting the strength of the company. Thus markets are efficient to truly judge the best from the worst.

But the efficient market theory has wrongly concluded a long term efficient market is also efficient in the short term.

This can be seen from the following example. During the height of the recent financial crisis, when the stock holders were assumed that all the financial sector companies were same as Lehman Brothers or Bear Stearns. This lead to the conclusion that none of the financial sectors are worth to hold and dumped the shares in droves. The result is a highly respected company like HDFC was quoting below 1300. Once the fear has subsided, the same market has re-priced HDFC at a price above 2500.

For a true "investor", market provides the opportunity to buy companies at great price and sleep well during every night.

You're never going to be right nine times out of ten.

In this business (investing) if you're good, you're right six times out of ten. You're never going to be right nine times out of ten.

- Peter Lynch

In investing, always mistakes are going to happen. This happens because there are always some variables as the investor is looking for the future which is always uncertain and there could be surprises and mistakes which the investor may have not factored in. As the objective is to minimise the mistakes and maximise the profits, doing the proper spade work before investing delivers the results.

How and when to invest

If you took our top fifteen decisions out, we'd have a pretty average record. It wasn't hyperactivity, but a hell of a lot of patience. You stuck to your principles and when opportunities came along, you pounced on them with vigor.

- Charlie Munger

Munger is referring to the python game, with the principles in mind. Patience is the virtue of the value investor. Once you have the game plan, wait for the opportunities to come by, which will happen when the Mr.Market is in a bad mood. In between relax and enjoy the dividends and read the newspapers to keep you up-to-date with the happenings around.

Think instead of calculating

People calculate too much and think too little.

- Charles Munger

Munger was 100% correct in his wordings. When looking for investing in a company, it is better to look at the business and how it functions and how the management is running the business. While the financial metrics do matter, these metrics are secondary as a result of the business functioning. To be a better investor, being a business analyst would be more important than a business valuer. The only way to become a business analyst is to think about the positives and negatives of the business and then keep up-to-date about the changes happening in the environment and its impact on the business. That would go a long way to be a successful investor.

The Fifteen Points to look for in a Common Stock

1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will further increase total sales potentials when the growth potentials of the current attractive product lines have largely been exploited?
3. How effective are the companies research and development efforts in relation to it size?
4. Does the company have an above average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company's cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholders' benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?

- Philip Fisher
from Common Stocks and Uncommon Profits

Mania

A mania is a mania, and the experts are caught in it just as the public is.

- Marc Faber

Is it possible for a layman investor to go against the crowd and avoid the trap? Yes it is possible, if you know the past history has given us enough to learn how many times the manias repeat. Once you know the valuations are stretched, make sure the business you own have solid strength to overcome any short term adversities and there is a good management in place to drive the business. If these two criterias are met, just stay on the sidelines and just watch the show. Dust off the "The Intelligent Investor" from your bookshelf and read it again and that should comfort your thoughts.

Don't rent stocks

Buy a business, don't rent stocks.

- Warren Buffett

Purchase decision of stock should not be taken as a casual decision with the intention to unload it when it reaches certain targets using the concept of "profit booking". Any stock should be purchased as business ownership in which you take part ownership of the business. The number of zeros in the percentage of your ownership in the company doesn't matter here. This way you can eliminate the tendency to buy any stock just because it is the fad of the season. For any stock you want to invest, spend some considerable effort to understand the positives and negatives of it. Finally value the stock to arrive at a reasonable purchase price. Once you are done with that, you start the python game until you catch the prey at the appropriate moment.

Diversification of the best, not the most

An investor should always realize that some mistakes are going to be made and the he should have sufficient diversification so that an occasional mistake will not prove crippling. However, beyond this point he should take extreme care to own not the most, but the best. In the field of common stocks, a little bit of great many can never be more than a poor substitute for a few of the outstanding.

- Philip Fisher

The purpose of diversification is to protect from the mistakes and not for the sake of it. By keeping the list minimum (probably less than 20), the investor keeps the list of seats available to fill to the bare minimum. Thus if a new stock looks much more attractive than your existing holdings, one of them has to give way to new stock instead of simply increasing the stock count by 1. This places an onerous responsibility on the investor to judge his decision before a new stock is added to the portfolio. I am not saying that the investor should steadfastly stick to certain limits.

This blog writer knows the fallacy of the diversification. At points in time when the list of stocks was more than 100, I found it difficult even to identify whether I own the stock or not!!!. Once I understood the foolishness of too much diversification, I took the step of moving out of the marginal stocks. Further investments were made only in the existing holdings, while I slowly eliminated the unwanted ones one by one. I deviated from the above decision only twice, when I took the conscious decision to add two wonderful stocks. While I don't have any fixed nos for my portfolio in my mind I would like to reduce it to less than 30.

Know the edge of your competency

You’ve often said that one of the keys to your success has simply been to avoid making the garden-variety mistakes that you see other people make.

Warren (Buffett) and I have skills that could easily be taught to other people. One skill is knowing the edge of your own competency. It’s not a competency if you don’t know the edge of it. And Warren and I are better at tuning out the standard stupidities. We’ve left a lot of more talented and diligent people in the dust, just by working hard at eliminating standard error.

- Charles Munger

For a small time investor like us what is the learning from Munger's answer. Looking back at the stupidities committed earlier gives us enough knowledge on that. I have listed some of them.

1. Invest in yourself to think like an investor. Reading books written by value investors help you understand how the market behaves at various points in time. Similarly reading books on individual sectors help you understand the positives and negatives of the sector which will help you to exploit it to your own advantage.

2. Invest in a company which you can understand. If you have already invested in any company which you find it difficult to comprehend, move away from it irrespective of whether it made a profit or loss. Once you have a better understanding about the company you can invest in it again.

3. Invest in a leader and not in a third rung or fourth rung company. Leader doesn't mean the said company has the highest market capitalization in the sector. Small companies growing into large company or finding another Infosys or Microsoft from the haystack is not your business. These are marketing gimmicks by fund management companies to increase their AUM. Investing in a large cap will serve most of the investors purpose.

4. Be like a python which lies motionless while hunting for its prey. To be an investor, you need not be a hyper active trader with regular buy and sell activity with up-to-minute stop loss calculations. Once you have done the homework be patient and wait for the right opportunity to invest in company. Mr.Market when feels pessimistic comes up with incredible offers. Those are the times you need to pounce on your preys. All other time, wait for the dividends to be credited to your account and give a thorough look at each of your investments.

5. Don't judge your investments based on how it quotes currently. If your calculations are correct, any dips in prices are opportunities to increase your holdings.

6. Never let your ego go to your head and brag about it to others. Overconfidence is the first step to the downfall. Be a eager learner, all the time.

7. And the most important of all, don't forget your mistakes. The mistakes commited by you today are the learning for the days ahead.

How to overcome inflation

... when a depression does occur it is apt to be shorter than some of the great depressions of the past. It is almost bound to be followed by enough further inflation to produce the type of general price rise that in the past has helped certain industries and hurt others. With this general economic background, the menace of the business cycle may well be great as it ever was for the stockholder in the growth company with sufficient financial strength or borrowing ability to withstand a year or two of hard times, a business decline under today’s economic conditions represents far more a temporary shrinking of the market value of his holdings than the basic threat to the very existence of the investment itself that had to be reckoned with prior to 1932.

- Philip A. Fisher

The words look prophetic as the famous author wrote in his first book "Common Stocks and Uncommon Profits" more than 50 years back.

Warren Buffett has double confirmed this through is own words as a follow up of Burlington Northern Santa Fe Railroad purchase. “I'd be more worried holding cash. I think that if you look at the side effects of the incredible dosage that we've had to give -- and I think that dosage has been 100 percent appropriate; I'm not knocking that. But when you apply the kind of medicine we've applied, you may have sort of unprecedented aftereffects, too. But the one thing about those unprecedented after effects is they're going to be very bad for cash. I would much rather own working assets than have cash in a period that well could become inflationary down the road.”

Now for the small time investors like us what are we supposed to learn from these experts whose quotes are nearly 50 years apart but still mean the same?

1. Cash is not the king during inflationary period. Keeping idle cash is the worst thing to do when the inflation is ruling the roost.
2. If not cash, how about fixed-income securities? While they look better than cash in absolute terms, they are in no way have the power to protect the investor’s capital from the daemon called inflation.
3. How about “real-assets”? A piece of land, which doesn’t earn a penny of rent to the investor or biscuits of gold locked deep inside the bank locker. While these are far better than the earlier two, they still don’t allow them to “earn” an income, particularly if his earnings are poor.
4. Commodities? These are buzz words which appear on the pink magazines over the last few years. As the experts say, commodities seem to have the real protection against the inflation. But caution is advised not to touch this asset class if you don’t know how the commodities behave. I really don’t have a clue on how to price a commodity to see whether they are cheap or expensive.
5. Working Assets? Any asset which has the capacity to earn as it is put to use has the capacity to overcome the effect of inflation. These assets could be classified under soft asset or as a hard asset. If you are consultant, the knowledge you possess is the soft asset which allows you to earn the “rent” for the service you provide. As the inflation rises, you can increase the “rent” nullifying the loss caused by the inflation. The ratio of increase depends on the uniqueness of the soft asset you possess. A real estate property which earns a rental income is a hard asset. The beauty of this asset is it provides the flexibility to increase the “rent” during the inflationary period and also the capital value rises as the years go by. Thus it retains the value adjusted to inflation. Another hard asset is a “good company” which has the financial strength and pricing power in the market. If you have learnt to deal with Mr. Market with respect and caution, and know how to select a good company with the above characteristics, you are pretty much ready to deal with the inflationary situation.
   

While high inflation has a devastating effect on the economy and the poor who are hurt more than others, nearly all the economists and governments and even ordinary people are comfortable with moderate inflation. If you don’t have inflation, the asset you bought ten years back would quote the same price even now. Nearly no one is ready to accept this principle.

How about deflation? Deflation leads to a down word spiral which is hard to control than inflation. In a deflationary situation every consumer knows that the price of a discretionary good will cost him less in next one month than the current price. He will postpone the purchase until he can carry on without buying that goods. This in turn leads to shrinking economic pie and job losses aggravating the pain the consumer is already going through. Japan is a classic example of the deflationary situation which has been aggravated by its political leaders for the past 10 years.

Read forever

I constantly see people rise in life who are not the smartest - sometimes not even the most diligent. But they are learning machines; they go to bed every night a little wiser than when they got up. And, boy, does that habit help, particularly when you have a long run ahead of you.

- Charles Munger

What is wrong

Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.

- George Soros

Understand your own psychology

To be a successful investor you need to understand your own psychology, if losing money makes you miserable, you should use a very conservative pattern of saving and investment.

- Charles Munger

As Munger says, for any investor to be successful, he should first know his tolerance level. Investors of mutual funds and stocks may have already experienced some sort of volatility. But the same investors who tend to think they have the capacity to tolerate the volatility start to panic once they see their portfolio in red 50% more.

Few cycles of investment volatility will help them overcome this fear factor, but it is the responsibility of their advisors to guide and hand hold these clients when the extremes occur in the markets. The investors would not face this situation if they have gone through risk profiling to understand their tolerance levels.

In my experience, I have seen properly guided investors won't tend to panic and trust the advisors guidance and understand the short term nature of market movements.

The same rule is applicable to non-individual investors like corporates as well.

Portfolio

Owning stocks is like having children - don't get involved with more than you can handle.

- Peter Lynch

If you expect to be a net saver ...

If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.

- Warren Buffett

The best stock to buy

The best stock to buy may be the one you already own.

- Peter Lynch

Futile near term predictions

Attempting to outperform the market in the short-run is futile since near-term stock and bond price fluctuations are random and because an extraordinary amount of energy and talent is already being applied to that objective. The effort only distracts the money manager from finding and acting on sound long-term opportunities.

- Seth Klarman

Using mediocre opportunities you don't reach the heights

It takes character to sit there with all that cash and do nothing. I didn't get to where I am by going after mediocre opportunities.

- Charles Munger

Franklin on empty sack

It is hard for an empty sack to stand upright.

- Benjamin Franklin

IPO's

Investors should be wary of new issues - which means, simply, that these should be subjected to careful examination and unusually severe tests before they are purchased. There are two reasons for this double caveat. The first is that new issues have special salesmanship behind them, which calls therefore for a special degree of sales resistance. The second is that most new issues are sold under "favorable market conditions" - which means favorable for the seller and consequently less favorable for the buyer.

- Benjamin Graham

The magic figure: Intrinsic Value

We define intrinsic value as the discounted value of the cash that can be taken out of a business during its remaining life. Anyone calculating intrinsic value necessarily comes up with a highly subjective figure that will change both as estimates of future cash flows are revised and as interest rates move. Despite its fuzziness, however, intrinsic value is all important and is the only logical way to evaluate the relative attractiveness of investments and businesses.

- Warren Buffett

What is really a good business does

Almost by definition, a really good business generates far more money (at least after its early years) than it can use internally.

- Warren Buffett

Allow the profits to grow bigger and bigger

Willingness to take small losses in some stocks and to let profits grow bigger and bigger in more promising stocks is a sign of good investment management. Taking small profits in good investments and letting losses grow in bad ones is a sign of abominable investment judgment. A profit should never be taken just for the satisfaction of taking it.

- Philip Fisher

Stable prices?

Like virginity, a stable price level seems capable of maintenance, but not of restoration.

- Warren Buffett

Tip

With a million bucks and a hot tip you can go broke in a year.

- Warren Buffett

Learn from the failures

It's customary in business schools to study business successes. But my partner, Charles Munger, says all he wants to know is where he's going to die - so he won't ever go there.

- Warren Buffett

If you can't understand

Investment must be rational; if you can't understand it, don't do it.

- Warren Buffett

Value investing ideas seem so simple

Value investing ideas seem so simple and commonplace. It seems like a waste to go to school and get a Ph.D. in economics. It's a little like spending eight years in divinity school and having someone tell you the Ten Commandments are all that matter.

- Warren Buffett

Past doesn't always tell the future

You can't see the future through a rear view mirror.

- Peter Lynch

High growth doesn't continue forever

In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor.

- Warren Buffett

Right now, not in future

We want to be right on something that will work right now, not something that might work in the future.

- Warren Buffett

Weak accounting

First, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen.

- Warren Buffett

Wall Street

First, many in Wall Street - a community in which quality control is not prized - will sell investors anything they will buy. Second, speculation is most dangerous when it looks easiest.

- Warren Buffett

Don't buy because it's cheap

You should not buy a stock because it's cheap but because you know a lot about it.

- Peter Lynch

Humour

An English baron came back home from his hunting expedition and found his wife in the arms of the local Bishop. To this he reacted in a strange way. He opened the window of his bedroom, the scene of the episcopal escapade, and began to bless the passers-by, as a Bishop would. This elicited indignant protests from the Bishop against a baron usurping his function. Thereupon the baron replied: "My Lord, if you are doing my work, shouldn’t I do yours?"

- Arthur Koestler

Seek the certainty

We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek.

- Warren Buffett

What to seek in a business

Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere.

- Warren Buffett

The stocks to look out for

We like stocks that generate high returns on invested capital where there is a strong likelihood that it will continue to do so. For example, the last time we bought Coca-Cola, it was selling at about 23 times earnings. Using our purchase price and today’s earnings, that makes it about 5 times earnings. It’s really the interaction of capital employed, the return on that capital, and future capital generated versus the purchase price today.

- Warren Buffett

Read Playboy?

Some men read Playboy. I read financial reports.

- Warren Buffett

Avoid if it is subject to constant change

We try to stick to businesses we believe we understand. If a business is complex or subject to constant change, we're not smart enough to predict future cash flows.

- Warren Buffett

Independent directors

The current cry is for 'independent' directors. It is certainly true that it is desirable to have directors who think and speak independently - but they must also be business-savvy, interested and shareholder oriented.

- Warren Buffett

It's simple, but not easy

[An education in] investing requires only two courses: How to Value a Business, and How to Think About Markets. You don't have to know how to value all businesses. Start with a small circle of competence, things you can understand. [Look for] things that are selling for less than they're worth. Forget about things you can't understand. You need to understand accounting, which has enormous limitations. [You need to] understand when a competitive advantage is durable or fleeting. Learn that the market is there to serve you, not instruct you. In the investing business, if you have an IQ of 150, sell 30 points to someone else. You do not need to be a genius. You need to have emotional stability, inner peace and be able to think for yourself, [since] you're subjected to all sorts of stimuli. It's not a complicated game; you don't need to understand math. It's simple, but not easy.

- Warren Buffett

Seek information, not price history

We'll happily forgo knowing the price history and instead will seek whatever information will further our understanding of the company's business. After we buy a stock, consequently, we would not be disturbed if markets closed for a year or two.

- Warren Buffett

Investing is ...

Investing is where you find a few great companies and then sit on your ass.

- Charles Munger

How to become rich

I will tell you how to get rich. Go home, shut the door and be fearful when others are greedy and greedy when others are fearful.

- Warren Buffett

Recognize the good and the bad

I mean I'm not smarter than the market, but I can recognize a good tape and a bad tape. I recognize when it's right and when it's wrong and that's what my strength is.

- Jim Cramer

Study business failures than business successes

I've often felt there might be more to be gained by studying business failures than business successes. I my business, we try to study where people go astray, and why things don't work. We try to avoid mistakes. If my job was to pick a group of ten stock in the Dow Jones average that would outperform the average itself, I would probably not start by picking the ten best. Instead, I would try to pick the ten or fifteen worst performers and take them out of the sample, and work with the residual. It's a inversion process. Albert Einstein said, "Invert, always invert, in mathematics and physics," and it's a very good idea in business too. Start out with the failure, and then engineer its removal.

- Warren Buffett

Price fluctuations

Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.

- Benjamin Graham

Holding stocks in high inflation period

Partly, it’s habit. Partly, it’s just that stocks mean business, and owning businesses is much more interesting than owning gold or farmland. Besides, stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices (on why he holds stocks even in times of high inflation).

- Warren Buffett

Price, rather than time your purchases

We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?

- Warren Buffett

Fashionable compensation plans

It has become fashionable at public companies to describe almost every compensation plan as aligning the interests of management with those of shareholders. In our book, alignment means being a partner in both directions, not just on the upside. Many "alignment" plans flunk this basic test, being artful forms of heads I win, tails you lose.

- Warren Buffett

Durability of the competitive advantage which gives the moat

The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

- Warren Buffett

Small caps

You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. You can't do that with big blue chips.

- Warren Buffett

Leverage

We wouldn't have liked those 99:1 odds - and never will. A small chance of distress or disgrace cannot, in our view, be offset by a large chance of extra returns. If your actions are sensible, you are certain to get good results; in most such cases, leverage just moves things along faster. Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds - though we have learned to live with those also.

- Warren Buffett

Conservative financial policies stood well for Buffett

Our consistently conservative financial policies may appear to have been a mistake, but in my view were not. In retrospect, it is clear that significantly higher, though still conventional, leverage ratios at Berkshire would have produced considerably better returns on equity than the 23.8% we have actually averaged. Even in 1965, perhaps we could have judged there to be a 99% probability that higher leverage would lead to nothing but good. Correspondingly, we might have seen only a 1% chance that some shock factor, external or internal, would cause a conventional debt ratio to produce a result falling somewhere between temporary anguish and default.

- Warren Buffett

Admission of mistake

Some of my worst mistakes were not publicly visible. These were stock and business purchases whose virtues I understood and yet didn't make. It's no sin to miss a great opportunity outside one's area of competence. But I have passed on a couple of really big purchases that were served up to me on a platter and that I was fully capable of understanding. For Berkshire's shareholders, myself included, the cost of this thumb-sucking has been huge.

- Warren Buffett

Do few things right and avoid big mistakes

An investor needs to do very few things right as long as he or she avoids big mistakes.

- Warren Buffett

Better of, if you know nothing

To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses - How to Value a Business, and How to Think About Market Prices.

- Warren Buffett

Read books

In my whole life, I have known no wise people who didn't read all the time - none, zero. You'd be amazed at how much Warren (Buffett) reads - at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out.

- Charles Munger

20 times PE

People who habitually purchase common stocks at more than about 20 times their average earnings are likely to lose considerable money in the long run.

- Benjamin Graham & David Dodd

Modern investment banking

There is so much that’s false and nutty in modern investing practice and modern investment banking, If you just reduced the nonsense, that’s a goal you should reasonably hope for.

- Warren Buffett

What causes people real trouble

Leverage is what causes people real trouble in this world.

- Warren Buffett

Growth doesn't always benefit

Growth benefits investors only when the business in point can invest at incremental returns that are enticing - in other words, only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor.

- Warren Buffett

Don't worry about one quarter's results

As long as we can make an annual 15 percent return on equity, I don't worry about one quarter's results.

- Warren Buffett

Never hold off buying

It is far from certain that the typical investor should regularly hold off buying until low market levels appear, because this may involve a long wait, very likely the loss of income, and the possible missing of investment opportunities. On the whole it may be better for the investor to do his stock buying whenever he has money to put in stocks, except when the general market level is much higher than can be justified by well-established standards of value. If he wants to be shrewd, he can look for the ever present bargain opportunities in individual securities.

- Benjamin Graham

Lethargy: required for investment

Lethargy, bordering on sloth should remain the cornerstone of an investment style.

- Warren Buffet

High prices for the best common stocks

According to our view, the high prices paid for 'the best common stocks' make these purchases essentially speculative, because they require future growth to justify them.

- Benjamin Graham & David Dodd

Marking up or down the value of capital

Obviously the stock market is quite irrational in thus varying its valuation of a company proportionately with the temporary changes in its reported profits. A private business might easily earn twice as much in a boom year as in poor times, but its owner would never think of correspondingly marking up or down the value of his capital investment.

- Benjamin Graham

Patsy?

If you’ve been playing poker for half an hour and you still don’t know who the patsy is, you’re the patsy.

- Warren Buffett

Impatient to patient

The stock market is a device for transferring money from the impatient to the patient.

- Warren Buffett

Who can be in the stock market

Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.

- Warren Buffett

What they are going to look like in ten to fifteen years time

I look for businesses in which I think I can predict what they're going to look like in ten to fifteen years time. Take Wrigley's chewing gum. I don't think the internet is going to change how people chew gum.

- Warren Buffett

Buy on the assumption that ....

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 five years. As far as you are concerned, the stock market does not exist. Ignore it. Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.

- Warren Buffett

Economic cycles and their timings

If Fed Chairman Alan Greenspan were to whisper to me what his monetary policy was going to be over the next two years, it wouldn't change one thing I do.

- Warren Buffett

Common cause of low prices

The most common cause of low prices is pessimism - sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.

- Warren Buffett

Fair price for a wonderful company than a fair company at a wonderful price

It's far better to buy a wonderful company at a fair price, than a fair company at a wonderful price. Charlie (Buffett's business partner) understood this early; I was a slow learner. But now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements. Good jockeys will do well on good horses, but not on broken-down nags. The same managers employed in a business with good economic characteristics would have achieved fine records. But they were never going to make any progress while running in quicksand.

- Warren Buffett

Warren Buffett's guidelines

Your goal as an investor should be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.

Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years and so also will the portfolio's market value.

- Warren Buffett

Standard diversification dogma

The strategy we've adopted precludes us from following standard diversification dogma. Many pundits would therefore say our strategy must be riskier than that employed by more conventional investors. We disagree. We believe that a policy of portfolio concentration may well decrease risk if it raises, as it should, both the intensity with which an investor thinks about a business and the comfort level he must feel with its economic characteristics before buying into it.

- Warren Buffett

Diversification?

Diversification is a protection against ignorance. It makes very little sense for those who know what they're doing.

- Warren Buffett

Define the circle

Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management, and limited exposure to hard times.

- Warren Buffett

Which is better

I'd rather have a $10 million business making 15 per cent than a $100 million business making 5 per cent.

- Warren Buffett

Investing in simple words

All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.

- Warren Buffett

Concentrate on companies and not on accounting mathematics

To be successful, you should concentrate on the world of companies, not arcane accounting mathematics.

- Warren Buffett

If the markets are efficient

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

- Warren Buffett

Look at the value not at the price

I own a farm about 30 minutes from here, and if you own a farm, you don't get a price on it every day. Look at the asset for value, not the price - as you would with a farm. People let the stock price, not business results, (affect their assessment of a company).

- Warren Buffett

Cheerful about the future

As I move close to the edge of death, I find myself getting more cheerful about the economic future,a final breakthrough that solves the main technical problem of man.

By harnessing the power of the sun, electrical power will become more available around the world. That will help humans turn sea water into fresh water and eliminate environmental problems, Munger explained.

If you have enough energy you can solve a lot of other problems.

- Charles Munger

You should not buy if you need a ...

If you need to use a computer or a calculator to make the calculation, you shouldn't buy it.

- Warren Buffet

Higher mathematics

Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something.

- Charles Munger

Circle of competence

What an investor needs is the ability to correctly evaluate selected businesses. Note that word "selected": You don't have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

- Warren E. Buffett

Hard look ... not a hawk like watch

Most businesses change in character and quality over the years, sometimes for the better, perhaps more often for the worse. The investor need not watch his companies' performance like a hawk; but he should give it a good, hard look from time to time.

- Benjamin Graham

Buffett's criteria for selecting a business

We continually search for large businesses with understandable, enduring and mouth-watering economics that are run by able and shareholder-oriented managements. This focus doesn’t guarantee results: We both have to buy at a sensible price and get business performance from our companies that validate our assessment. But this investment approach - searching for the superstars - offers us our only chance for real success. (We) are simply not smart enough to get great results by adroitly buying and selling portions of far-from-great businesses.

- Warren Buffett

Focus on value not on trend

Too many investors focus on outlook and trend. Therefore, more profit is made by focusing on value. In the stock market the only way to get a bargain is to buy what most investors are selling.

- Sir John Templeton

Ignore noise

We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%. But, surprise: None of these blockbuster events made the slightest dent in Ben Graham’s investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices... a different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results.

- Warren Buffett

Distinction between Investor and the speculator

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell.

- Benjamin Graham

Most of the time...

Most of the time stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble … to give way to hope, fear and greed.

- Benjamin Graham

Investor's best friend

Bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.

- Warren Buffett

Rationality is essential

You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential.

- Warren Buffett

Sensible actions leads to good results

If your actions are sensible, you are certain to get good results; in most such cases, leverage just moves things along faster. Charlie and I have never been in a big hurry: We enjoy the process far more than the proceeds - though we have learned to live with those also.

- Warren Buffett

Ego

There is a complicating factor that makes the handling of investment mistakes more difficult. This is the ego in each of us. None of us likes to admit to himself that he has been wrong. If we have made a mistake in buying a stock but can sell the stock at a small profit, we have somehow lost any sense of having been foolish. On the other hand, if we sell at a small loss, we are quite unhappy about the whole matter. This reaction, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

- Philip Fisher

Where to be

In any business, there are going to be all kinds of factors that happen next week, next month, next year, and so forth. But the really important thing is to be in the right business.

- Warren Buffett

Know where others go wrong

Avoiding where others go wrong is an important step in achieving investment success. In fact, it almost ensures it.

- Seth Klarman

Can't succeed: Good deal with a bad person

We do not wish to join with managers who lack admirable qualities, no matter how attractive the prospects of their business. We've never succeeded in making a good deal with a bad person.

- Warren Buffett

Stick to the easy and obvious

In both business and investments it is usually far more profitable to simply stick with the easy and obvious than it is to resolve the difficult.

- Warren Buffett

The markets aren't accurate

The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it's bad, and too optimistic when it's good.

- Bill Miller

Make money out of forecasts?

It is absurd to think that the general public can ever make money out of market forecasts.

- Benjamin Graham

With whom to associate

A second-class textile or department store company won't prosper simply because its managers are men that you would be pleased to see your daughter marry. However, an owner - or investor - can accomplish wonders if he manages to associate himself with such people in businesses that possess decent economic characteristics.

- Warren Buffett

The primary test

The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.

- Warren Buffett

Only three or four variables count

Based on my own personal experience, both as an investor in recent years and an expert witness in years past, rarely do more than three or four variables really count. Everything else is noise.

- Marty Whitman

Sounds of cannons and trumpets

Buy to the sound of cannons, sell to the sound of trumpets.

- Mayer Rothschild

I made a big mistake

I made a big mistake in not selling several of our larger holdings during the Great Bubble. If these stocks are fully priced now, you must wonder what I was thinking four years ago when their intrinsic value was lower and their prices far higher. So do I.

- Warren Buffett

Best business

Leaving the question of price aside, the best business to own is one that over an extended period can employ large amounts of incremental capital at very high rates of return.

- Warren Buffett

Mispriced?

One of the first questions we ask about a possible investment is 'Why is it mispriced?' If you don't have a reason, there's a good chance it isn't really mispriced.

- Jeffrey Tannenbaum

Avoid difficult problems

Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers.

- Warren Buffett

Investment in knowledge

An investment in knowledge always pays the best interest.

- Benjamin Franklin

Learn from others

Q&A with Warren Buffet at Berkshire Hathaway Shareholders meeting, 2008, Omaha.

You personally know many of the Financial executives who are engineers of the current turmoil in the financial world, surprisingly even after record losses, those executives receive astronomical salaries and bonuses and arrogantly declare that they deserve it, why dint you advice them from making such decisions and what's your view on their justification for their pay?

I like sharing my ideas but don't like imposing my ideas on anybody. It doesn't make sense and is a waste of time. If somebody has decided that they know everything that is there to know, nobody can help them. The best way to learn and succeed is to know that we know nothing. There is an entire universe out there and still some of us think we can know everything. In the world of investing a few people after making some money tend to imagine they are invincible and great. This is the worst thing that could happen to any investor, because it surely means that the investor will end up taking unnecessary risks and end up losing everything - arrogance, ego and overconfidence are very lethal. Personally I don't feel too comfortable with too much extravagance, because I always think like an investor. My thought process doesn't see a lot of value in a fancy car or a designer suit. Thinking like an investor always is very important to bring in a sense of discipline and focus. Before reading balance sheets and investing you need to make sure your outlook and mindset is that of an investor. Never let ego, arrogance and over-confidence control you - not just as an investor but also as a human being. You will never have internal peace if you are unable to look at everybody around you with love, compassion and understanding. Irrespective of who the person is, he or she can teach you something you don't know. I have learnt so much from people all around me and I wouldn't have been able to learn all these wonderful things if I had not spoken to them with a smile. To quote Sir Isaac Newton- If I have seen farther than others, it is because I have stood on the shoulders of giants.

Invest in yourself

Q&A with Warren Buffet at Berkshire Hathaway Shareholders meeting, 2008, Omaha.

What is the 1 biggest advice you would impart to a young investor like me?

Think for a moment that you are given a car and told this is the only car you would get for the rest of your life. Then you would make sure that you car is taken care of well, it is oiled and detailed every now and then. You would make sure that it never gets rusted, and you would garage it. Think of yourself as that car. You just get 1 body, 1 mind and 1 soul. Take care of it well. Invest in yourself that would be my advice.

Be patient

Q&A with Warren Buffet at Berkshire Hathaway Shareholders meeting, 2008, Omaha.

I am a small time businessman from Dallas, Texas, what do I need to do to hit big time?

Be patient, Achieving your financial goals and dreams will not happen overnight. As much as we would all really love to accomplish our goals in a few years, this is an ongoing process. Defining your financial goals is not a one-time task; you need to keep adding new plans at different stages in your life. We all admire the skills of Olympic ice skaters, pro golfers, and concert pianists. But do we remember that they didn’t acquire their skills overnight? They had to practice hours on end for years to achieve their dreams. The key to success is to continue learning throughout your life with a voracious appetite.

IPO

It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors).

- Warren Buffett

Inflation

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislature. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation or pays no income taxes during years of 5% inflation. Either way, she is ‘taxed' in a manner that leaves her no real income whatsoever. She would find outrageous a 120% income tax but doesn't seem to notice that 5% inflation is the economic equivalent.

- Warren Buffet

A baby in one month

You can't produce a baby in one month by getting nine women pregnant.

- Warren Buffett

Investing is simple, but it's not easy

Investing is simple but it's not easy. Because emotions get in people's way or greed and that sort of thing. They get all excited about stocks when they've gone up recently, and they get depressed when they've gone down.

- Warren Buffett

Keep emotion out of investing

The best advice I've received on investing I received in chapters eight and 20 of 'The Intelligent Investor'. That's the framework for what I do in investing.

- Warren Buffett

The emotion Buffet refers to here is nothing but "keeping emotion out of investing". In his own words he said "Take the emotion out of it (investing) and just simply stick with good businesses."

Annual Reports

Warren was so successful because he sits on his ass and reads (those annual reports).

- Charles Munger

Those who are ahead

If you simply read the annual report of a company, you're ahead of 98% of the people on Wall Street. If you read the footnotes, you're ahead of 100% of them.

- Jim Rogers

Certainty

I put a heavy weight on certainty. If you do that, the whole idea of a risk factor doesn't make any sense to me.

- Warren Buffett

Illustrate

Never invest in any idea you can't illustrate with a crayon.

- Peter Lynch

Right a few times

I need only need to be right a few times and can let thousands of ideas go by.

- Warren Buffett

What you don't understand

On not investing in technology stocks ... It means we miss a lot of very big winners. But we wouldn't know how to pick them out anyway. It also means we have very few big losers - and that's quite helpful over time. We're perfectly willing to trade away a big payoff for a certain payoff.

- Warren Buffett

If you can't explain, don't do it

You ought to be able to explain why you're taking the job you're taking, why you're making the investment you're making, or whatever it may be. And if it can't stand applying pencil to paper, you'd better think it through some more. And if you can't write an intelligent answer to those questions, don't do it.

- Warren Buffett

Quality merchandise

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

- Warren Buffett

Plant and reap the benefit

Someone's sitting in the shade today because someone planted a tree a long time ago.

- Warren Buffett

Single wonderful business

A lot of great fortunes in the world have been made by owning a single wonderful business. If you understand the business, you don't need to own very many of them.

- Warren Buffett

Sound investing

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.

- Warren Buffett

No success is worthwhile if ...

No success or achievement in material terms is worthwhile unless it serves the needs or interest of the country and its people, and is achieved by fair and honest means.

- J.R.D.Tata

Clarity comes with ideas

There's a clarity that comes with great ideas: You can explain why something's a great business, how and why it's cheap, why it's cheap for temporary reasons and how, on a normal basis, it should be trading at a much higher level. You're never sitting there on the 40th page of your spreadsheet, as Buffett would say, agonizing over whether you should buy or not.

- Joel Greenblatt

Conventional diversification makes no sense

If you are a know-something investor, able to understand business economics and to find five to ten sensibly priced companies that possess important long-term competitive advantage, conventional diversification makes no sense for you.

- Warren Buffett

Wall street and you

Wall Street makes its money on activity. You make your money on inactivity.

- Warren Buffett

Sucess by business and not by share prices

Charlie and I let our marketable equities tell us by their operating results-not by their daily, or even yearly, price quotations-whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it.

- Warren Buffett

Wall street's confusion

Wall Street sometimes gets confused between risk and uncertainty, and you can profit handsomely from that confusion. The low-risk, high-uncertainty [situation] gives us our most sought after coin-toss odds. Heads, I win; tails, I don’t lose much!

- Mohnish Pabrai

Holding stocks in high inflation period

Partly, it’s habit. Partly, it’s just that stocks mean business, and owning businesses is much more interesting than owning gold or farmland. Besides, stocks are probably still the best of all the poor alternatives in an era of inflation - at least they are if you buy in at appropriate prices.

- Warren Buffett (on why he holds stocks even in times of high inflation)

Business schools

The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.

- Warren Buffett

Fortunes built from ...

A disproportionate number of the great business fortunes built up during the inflationary years arose from ownership of operations that combined intangibles of lasting value with relatively minor requirements for tangible assets.

- Warren Buffett

Human nature

Human beings are subject to wild swings in their levels of fear, risk tolerance and greed. That won’t change. I base my whole approach on buying when others are fearful and selling when others are greedy. The reason Shakespeare is so relevant still today is that his plays were all about human nature, and human nature never changes.

- Mark Sellers

Not to panic is still a decision

You can wait for opportunities that fit your criteria and if you don’t find them, patiently wait. Deciding not to panic is still a decision.

- Seth Klarman

Sir John Templeton's method

Sir John Templeton had one of the best methods for keeping emotion out of the process. He used to do his calculations of intrinsic value when there wasn't a lot going on in the market. He'd then place a margin of safety on those intrinsic values and place buy orders with his broker at, say, 40% below the current market price.

- James Montier

Uncertainty of the future

An argument is made that there are just too many question marks about the near future; wouldn't it be better to wait until things clear up a bit?...face up to two unpleasant facts: The future is never clear [and] you pay a very high price for a cheery consensus. Uncertainty actually is the friend of the buyer of long term values.

- Warren Buffett

Buy troubled companies with ...

When purchasing depressed stock in troubled companies, seek out the ones with the superior financial positions and avoid the ones with loads of bank debt.

- Peter Lynch

Unfavorable industries?

It is natural to assume that industries which have fared worse than the average are "unfavorably situated" and therefore to be avoided. The converse would be assumed, of course, for those with superior records. But this conclusion may often prove quite erroneous. Abnormally good or abnormally bad conditions do not last forever. This is true not only of general business but of particular industries as well. Corrective forces are often set in motion which tend to restore profits where they have disappeared, or to reduce them where they are excessive in relation to capital.

- Benjamin Graham

Bear market after every christmas

Bear markets happen for a simple reason. The owners of the merchandise can't get their asking price. The shortage of buyers forces them to lower the fare, until a buyer can be coaxed into making a deal. It's a common occurrence in retail. Stores have a bear market after every Christmas rush.

- John Rothchild

Run at speed ...

You should run at a speed that would strengthen your muscles and if you run too fast it will affect your health.

- Dr Yaga Venugopal Reddy

Best protection against inflation

The best protection against inflation is your own earning power. If you are the best teacher, you will command earning power and get your share of the national economic pie, regardless of the value of the currency. The second best investment is in a good company.

- Warren Buffett

Buy part of business instead of ...

Regardless of the impact upon immediately reportable earnings, we would rather buy 10% of Wonderful Business T at X per share than 100% of T at 2X per share. Most corporate managers prefer just the reverse, and have no shortage of stated rationales for their behavior.

- Warren Buffett

Recognizing the direction of a trend

The genius of investing is recognizing the direction of a trend - not catching highs and lows.

- Anonymous

Predicting rain doesn't count...

Predicting rain doesn't count, building the ark does.

- Warren Buffett

You gotta hit a few in the woods

The best advice is to learn from mistakes and move on. "If every shot you hit in golf was a hole-in-one, you'd lose interest," Warren Buffett has said. "You gotta hit a few in the woods."

- Anonymous

Reddy can recognise the devil

I cannot define God, but I can recognise the devil. And whenever I see the devil, I take precautionary measures to avoid being affected.

- Dr Yaga Venugopal Reddy

Buy the stocks when the business is bad

In 1954 the Dow was up 50 % and the country was in a recession. It was the best year I ever had in my life. It's a big mistake to say business is bad, therefore I shouldn't buy stocks. That usually is the time to buy stocks. And when everything is wonderful, it's not usually a very good time to buy stocks.

- Warren Buffett

Share buy back

The competitive nature of corporate acquisition activity almost guarantees the payment of a full - frequently more than full price when a company buys the entire ownership of another enterprise. But the auction nature of security markets often allows finely run companies the opportunity to purchase portions of their own businesses at a price under 50% of that needed to acquire the same earning power through the negotiated acquisition of another enterprise.

- Warren Buffett

Opinion poll

A public-opinion poll is no substitute for thought.

- Warren Buffett

Too big to be venal

We need to remove from the investment banking and the commercial banking industries a lot of the practices and prerogatives that they have so lovingly possessed. If they are too big to fail, they are too big to be allowed to be as gamey and venal as they've been -- and as stupid as they've been.

- Charles Munger

Risk-taking

Never test the depth of the river with both feet.

- Warren Buffett

Auditing

Beware of little expenses; A small leak can sink a large ship.

- Warren Buffett

Accounting

It's no use carrying an umbrella, if your shoes are leaking.

- Warren Buffett

Borrowings

The borrower becomes the lender's slave.

- Warren Buffett

Savings

Don't save what is left after spending; Spend what is left after saving.

- Warren Buffett

Spending

If you buy things you don't need, you'll soon sell things you need.

- Warren Buffett

Earnings

Never depend on single source of income.

- Warren Buffett

Lazy

A sleeping lobster is carried away by the water current.

- Warren Buffett

Stop predicting

Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.

- Warren Buffett

Downturn is an opportunity

A market downturn, doesn't bother us. For us and our long term investors, it is an opportunity to increase our ownership of great companies with great management at good prices. Only for short term investors and market timers is a correction not an opportunity.

- Warren Buffett

Independence of solitude in the midst of crowd

It is easy in the world to live after the world's opinion; it is easy in solitude to live after our own; but the great man is he who in the midst of the crowd keeps with perfect sweetness the independence of solitude.

- Ralph Waldo Emerson

Believe nothing unless it agrees with your own reason

Believe nothing, no matter where you read it, or who said it, no matter if I have said it, unless it agrees with your own reason and your own common sense.

- Gautama Buddha

Buy it today, if it is attractive

If I find something that is attractive today, I am going to buy it today. I am not going to wait and hope that it sells cheaper 6 months from now. Because who knows when stocks will hit a low or a high? Nobody knows that. All you know is whether you're getting enough for your money or not.

- Warren Buffett

Investor's misery index

The inflation rate plus the percentage of capital that must be paid by the owner to transfer into his own pocket the annual earnings achieved by the business (i.e., ordinary income tax on dividends and capital gains tax on retained earnings) - can be thought of as an "investor's misery index". When this index exceeds the rate of return earned on equity by the business, the investor's purchasing power (real capital) shrinks even though he consumes nothing at all. We have no corporate solution to this problem; high inflation rates will not help us earn higher rates of return on equity.

- Warren Buffett

The key to making money in stocks is not to get scared out of them.

- Peter Lynch

Derivatives business

Upon leaving the derivatives business, our feelings about the business mirrored a line in a country song: "I liked you better before I got to know you so well."

- Warren Buffett

Investor & Speculator

If you're an investor, you're looking on what the asset is going to do, if you're a speculator, you're commonly focusing on what the price of the object is going to do, and that's not our game.

- Warren Buffett

Feudal structure was responsible

What happened in Satyam is that it was a huge scandal. Nobody could stand up and say, what is happening is wrong. Even those who thought what was happening is wrong did not have the courage and were not in an environment to say that it was wrong.

- N.R. Narayana Murthy

Money

Money to some extent sometimes let you be in more interesting environments. But it can't change how many people love you or how healthy you are.

- Warren Buffett

Opportunity and the means to grab it

One lucky break, or one supremely shrewd decision-can we tell them apart?-may count for more than a lifetime of journeyman efforts. But behind the luck, or the crucial decision, there must usually exist a background of preparation and disciplined capacity... these opportunities will knock at his particular door. One must have the means, the judgment, and the courage to take advantage of them.

- Benjamin Graham

Savings account better than this management

We find nothing particularly noteworthy in a management performance combining, say, a 10% increase in equity capital and a 5% increase in earnings per share. After all, even a totally dormant savings account will produce steadily rising interest earnings each year because of compounding.

- Warren Buffett

Accounting issues

Managers thinking about accounting issues should never forget one of Abraham Lincoln's favorite riddles:

How many legs does a dog have if you call his tail a leg?

The answer: Four, because calling a tail a leg does not make it a leg.

- Warren Buffett

Past history

If past history was all there was to the game, the richest people would be librarians.

- Warren Buffett

Goal

Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value.

- Warren Buffett

Prosperity and Depression

You do not gain as much from periods of unusual prosperity as you lose in periods of depression when you are in business. That is almost an axiom.

- Benjamin Graham