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