Avoid the herd

Mimicking the herd invites regression to the mean.

- Charles Munger

You don't succeed by doing this

If I have noticed anything over these sixty years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market.

- Benjamin Graham

Don't pick a stock

You shouldn't just pick a stock - you should do your homework.

- Peter Lynch

Patience needed for this to work

Traditional value investing strategies have worked for years and everyone's known about them. They continue to work because it's hard for people to do, for two main reasons. First, the companies that show up on the screens can be scary and not doing so well, so people find them difficult to buy. Second, there can be one-, two- or three-year periods when a strategy like this doesn't work. Most people aren't capable of sticking it out through that.

- Joel Greenblatt

Focus Investing

Our investment style has been given a name - focus investing - which implies ten holdings, not one hundred or four hundred. The idea that it is hard to find good investments, so concentrate in a few, seems to me to be an obvious idea. But 98% of the investment world does not think this way. It's been good for us.

- Charles Munger

Few winners would do

All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out.

- Peter Lynch

Business vs Manager

However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.

- Charles Munger

Times to look for

The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.

- Sir John Templeton

Shameful

There is no shame in losing money on a stock. Everybody does it. What is shameful is to hold on to a stock or worse to buy more of it when the fundamentals are deteriorating.

- Peter Lynch

Lousy teacher

Success is a lousy teacher. It seduces smart people into thinking they can't lose.

-Bill Gates

What you should buy

Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return - even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.

- Charles Munger

Inactivity also plays a part in successful investing

With short-term money returning less than 1 percent after-tax, sitting it out is no fun. But occasionally successful investing requires inactivity.

- Warren Buffett

Margin of Safety is not the one and only to consider

Even with a margin [of safety] in the investor's favor, an individual security may work out badly. For the margin guarantees only that he has a better chance for profit than for loss - not that loss is impossible. But as the number of such commitments is increased the more certain does it become that the aggregate of the profits will exceed the aggregate of the losses.

- Benjamin Graham

Easy ones in business are much better

But the interesting thing about business, it's not like the Olympics. In the Olympics, you know, if you do some dive off the - on a high board and have four or five twists - on the way down, and you go in the water a little bad, there's a degree of difficulty factor. So you'll get more points than some guy that just does a little headfirst dive in perfectly.

So degree of difficulty counts in the Olympics. It doesn't count in business. Now, you don't get any extra points for the fact that something's very hard to do. So you might as well just step over one-foot bars instead of trying to jump over seven-foot bars.

- Warren Buffett

Look for the moat

We don't do due diligence or go out kicking tires. It doesn't matter. What matters is understanding the competitive dynamics of a business. We can't be taken by a guy with a sales pitch... What really counts is the presence of a competitive advantage. You want a business with a big castle and a moat around it, and you want that moat to widen over time. Coke and Kodak both had marvelous moats 20 or 25 years ago. Kodak's has narrowed, while Coke has been building its moat. We want an economic castle.

- Warren Buffett

When to buy

The best thing that happens to us is when a great company gets into temporary trouble... We want to buy them when they're on the operating table.

- Warren Buffett

Lot of money: The disadvantage

If I was running $1 million today, or $10 million for that matter, I'd be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I've ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.

- Warren Buffett

Know the pitfalls

A lot of success in life and business comes from knowing what you want to avoid: early death, a bad marriage, etc.

- Charles Munger

Physical growth doesn't translate into profits

Obvious prospects for physical growth in a business do not translate into obvious profits for investors.

- Benjamin Graham

Be open-minded

Never adopt permanently any type of asset or any selection method. Try to stay flexible, open-minded, and skeptical.

- Sir John Templeton

Train your brain to work better

I think it is undeniably true that the human brain must work in models. The trick is to have your brain work better than the other person's brain because it understands the most fundamental models- ones that will do most work per unit.

- Charles Munger

It is not easy

Why should it be easy to do something that, if done well, two or three times, will make your family rich for life?

- Charles Munger

It is not a simple formula

Stock picking can't be reduced to a simple formula or a recipe that guarantees success if strictly adhered to.

- Peter Lynch

Swings in stock returns

The boom and the bust were normal—just two more swings in stock returns over the past century. Reversion to the mean is the iron rule of the financial markets.

- John Bogle

Be prepared for the emergency

We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits.

- Warren Buffett

Learn every day

Learn every day, but especially from the experiences of others. It's cheaper!

- John Bogle

Unpopularity as a measure

Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them.

- Charles Munger

Three steps

Determine value apart from price; progress apart from activity; wealth apart from size.

- Charles Munger

Entitled to opinion

I'm not entitled to have an opinion unless I can state the arguments against my position better than the people who are in opposition. I think that I am qualified to speak only when I've reached that state.

- Charles Munger

IPO's

Investors should be very wary of purchasing today's hot issue. Most initial public offerings underperform the stock market as a whole. The managers of the companies themselves try to time their sales to coincide with a peak in the prosperity of their companies.

- Burton Malkiel

Bet big when you have the odds

It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a mispriced bet - that they can occasionally find one. And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time they don't. It's just that simple.

- Charles Munger

How to succeed

If you are honest, hardworking, reasonably intelligent and have good common sense, you can do well in the investment field as long as you are not too greedy and don't get too emotional when things go against you.

- Walter Schloss

Stare at the ticker?

What's the sense in getting rich if you just stare at the ticker tape all day?

- Warren Buffett

It will happen again

I'm sure a crash like 1929 will happen again. The only thing is that one doesn't know when. All it takes for another collapse is for the memories of the last insanity to dull.

- John Kenneth Galbraith

Wisdom

Acknowledging what you don't know is the dawning of wisdom.

- Charles Munger

Address the problem immediately

Some people seem to think there's no trouble just because it hasn't happened yet. If you jump out the window at the 42nd floor and you're still doing fine as you pass the 27th floor, that doesn't mean you don't have a serious problem. I would want to address the problem right now.

- Charles Munger

Look differently

Everyone tends to see the same things, read the same newspapers and get the same data feeds. The only way to arrive at a different answer from everybody else is to organize the data in different ways, or bring to the analytic process things that are not typically present.

- Bill Miller

Don't dip your toes where you don't have a clear understanding

On one point, I am clear. I will not abandon a previous approach whose logic I understand (although I find it difficult to apply) even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don't fully understand, have not practiced successfully, and which possibly could lead to substantial permanent loss of capital.

- Warren Buffett

Wall Street way

There seems to be an unwritten rule on Wall Street: If you don't understand it, then put your life savings into it. Shun the enterprise around the corner, which can at least be observed, and seek out the one that manufactures an incomprehensible product.

- Peter Lynch

Count no more than ten

Our life is frittered away by detail. An honest man has hardly need to count more than his ten fingers, or in extreme cases he may add his ten toes, and lump the rest. Simplicity, simplicity, simplicity! I say, let your affairs be two or three, and not a hundred or thousand; instead of a million count a half a dozen, and keep your accounts on your thumb-namil.

- Henry David Thoreau

Responsibilities

Questioning GAAP figures may seem impious to some. After all, what are we paying the accountants for if it is not to deliver us the "truth" about our business. But the accountants' job is to record, not to evaluate. The evaluation job falls to investors and managers.

- Warren Buffett

Why companies are valuable

What makes a company valuable, and why it will be more valuable tomorrow than it is today... earnings and assets.

- Peter Lynch

Why people are buying stocks?

Volatility is a symptom that people have no idea of the underlying value - that they have stopped playing the asset game. They're not buying because it's a company with certain attributes. They're buying because the price is rising.

- Jeremy Grantham

Retailed earnings

Since the long-term corporate outlook changes only infrequently, dividend patterns should change no more often. But over time distributable earnings that have been withheld by managers should earn their keep. If earnings have been unwisely retained, it is likely that managers, too, have been unwisely retained.

- Warren Buffett

Value business in order to value the stock

All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.

- Charles Munger

Risk of being a value investor

To thrive as a value investor, you have to risk being called a dummy from time to time.

- Christopher Browne

What to look for in "record" earnings

Most companies define "record" earnings as a new high in earnings per share. Since businesses customarily add from year to year to their equity base, 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

Graham's idea will never obsolete

The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete.

- Charlie Munger

Man's imperfect

Man's imperfect, limited-capacity brain easily drifts into working with what's easily available to it. And the brain can't use what it can't remember or when it's blocked from recognizing because it is heavily influenced by one or more psychological tendencies bearing strongly on it.

- Charlie Munger

When not to speculate

There are two times in a man's life when he should not speculate - when he can't afford it and when he can.

- Mark Twain

Take advantage if your judgement is right

Over many decades, our usual practice is that if [the stock of] something we like goes down, we buy more and more. Sometimes something happens, you realize you're wrong, and you get out. But if you develop correct confidence in your judgment, buy more and take advantage of stock prices.

- Charlie Munger

Stop loss? Buffett doesn't do it.

I have no idea whether people get friendlier or crazier. That is not my game. My game is simply to buy something worth a dollar for 50 cents. Then if they go crazy in the right direction it helps me and if they go crazy in the other direction I just buy more.

- Warren Buffett

Investment idea in simple terms

Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong.

- Warren Buffett

Impact of too much of currency printing

Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress.

- Warren Buffett

Strike when the opportunities come along

You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.

- Warren Buffett

Fewer opportunities today!

If you have only a little capital and are young today, there are fewer opportunities than when I was young. Back then, we had just come out of a depression. Capitalism was a bad word. There had been abuses in the 1920s. A joke going around then was the guy who said, 'I bought stock for my old age and it worked - in six months, I feel like an old man!' It's tougher for you, but that doesn't mean you won't do well - it just may take more time. But what the heck, you may live longer.

- Charles Munger

Admission

I would like to point out that the last time I made any stock market predictions was in the year 1914, when my firm judged me qualified to write their daily market letter, based on the fact that I had one month's experience in Wall Street. Since then I have given up making predictions.

- Benjamin Graham

Those expensive words

The four most expensive words in the English language are, 'This time it's different'.

- Sir John Templeton

You don't need to leverage!

I've seen more people fail because of liquor and leverage - leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing.

- Warren Buffett

Wait until Mr.Market is nutty

High prices inside of a year will typically be 100% of the low price. Businesses don't change in value that much. That is simply crazy. There are extreme degrees of fluctuation, and Mr. Market will call out the prices. Wait until he is nutty in one direction or the other.

- Warren Buffett

Beta and Modern Portfolio theory

Beta and modern portfolio theory and the like - none of it makes any sense to me.

- Charles Munger

What is risk

Risk comes from not knowing what you're doing.

- Warren Buffett

Inflation

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

- John Maynard Keynes

Keep it simple will do

Keep it simple and remember what you set out to do.

- Charles Munger

Be disciplined

We don't have to be smarter than the rest; we have to be more disciplined than the rest.

- Warren Buffett

It is an art, not a science

As I look back on it now, it's obvious that studying history and philosophy was much better preparation for the stock market than, say, studying statistics. Investing in stocks is an art, not a science, and people who've been trained to rigidly quantify everything have a big disadvantage. If stockpicking could be quantified, you could rent time on the nearest Cray computer and make a fortune. But it doesn't work that way. All the math you need in the stock market you get in the fourth grade.

- Peter Lynch

Two extreme behaviors of the market participants

While we were writing, we had to combat a widespread conviction that financial debacle was to be the permanent order; as we publish, we already see resurgent the age-old frailty of the investor-that his money burns a hole in his pocket. But it is the conservative investor who will need most of all to be reminded constantly of the lessons of 1931-1933 and of previous collapses. ... We have striven throughout to guard the student against overemphasis upon the superficial and the temporary. Twenty years of varied experience in Wall Street have taught the senior author that this overemphasis is at once the delusion and the nemesis of the world of finance.

- Preface to the First Edition of Security Analysis by Benjamin Graham & David L. Dodd.

The authors bring two extreme behaviors of the market participants in one sentence. During market collapses, people tend to extrapolate the severity and justify the permanency of what has already occurred. But market tends to ignore these opinion and bounce back even before people could realise it. Similarly, as the market rise up further and further, the investor loses his patience and jumps in into market. In both the situations, emotions would have overruled the investors logical investment decisions. The underlying cause in both the situations is to view the permanency of the current situation into the future. A conservative investor has to overcome this tendency and have to take logical decisions overcoming the emotions which are formed by what we see and read day in and out.

Act decisively

When proper circumstances present themselves, act with decisiveness and conviction.

- Charles Munger

What can be too much

I have owned one stock since 1969, two since 1988 and one I started buying in 1986 or so. That's my portfolio. Six stocks. I once owned 17, but that was way too much.

- Philip Fisher

Thanks God

Proper accounting is like engineering. You need a margin of safety. Thank God we don't design bridges and airplanes the way we do accounting.

- Charles Munger

Your ideas and future

We have been trying to point out that this concept of an indefinitely favorable future is dangerous, even if it is true; because even if it is true you can easily overvalue the security, since you make it worth anything you want it to be worth. Beyond this, it is particularly dangerous too, because sometimes your ideas of the future turn out to be wrong. Then you have paid an awful lot for a future that isn't there. Your position then is pretty bad.

- Benjamin Graham

Why 'growth stocks' would go wrong

There was nothing wrong with these ideas, except that it was almost impossible not to carry them too far. With encouragement from the past and a rosy prospect in the future, the buyers of 'growth stocks' were certain to lose their sense of proportion and pay excess prices. For no clear-cut arithmetic sets a limit to the present value of a constantly increasing earning power. Such issues could become worth any value set upon them by an optimistic market.

- Benjamin Graham

Function of Margin of Safety

The function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future. If the margin is a large one, then it is enough to assume that future earnings will not fall far below those of the past.

- Benjamin Graham

Question to managers and directors

Managers and directors might sharpen their thinking by asking themselves if they would sell 100% of their business on the same basis they are being asked to sell part of it. And if it isn't smart to sell all on such a basis, they should ask themselves why it is smart to sell a portion. A cumulation of small managerial stupidities will produce a major stupidity - not a major triumph.

- Warren Buffett

Buffett's 'high-probability insight'

Although I consider myself to be primarily in the quantitative school, the really sensational ideas I have had over the years have been heavily weighted toward the qualitative side where I have had a 'high-probability insight'. This is what causes the cash register to really sing.

- Warren Buffett

Be skeptical

If everybody's thinking the same way, it probably means somebody's not thinking.

- Jim Rogers

Smart strategy

Charlie and I decided long ago that in an investment lifetime it's too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire's capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart - and not too smart at that - only a very few times. Indeed, we'll now settle for one good idea a year.

- Warren Buffett

Margin of Safety

If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety...".

- Warren Buffett

Less surprises

Obviously, we can never precisely predict the timing of cash flows in and out of a business or their exact amount. We try, therefore, to keep our estimates conservative and to focus on industries where business surprises are unlikely to wreak havoc on owners.

- Warren Buffett

The worst business

The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers.

- Warren Buffett

The risk is ...

When reward is at its pinnacle, risk is near at hand.

- John Bogle

Don't expect miracles

It's in the nature of stock markets to go way down from time to time. There's no system to avoid bad markets. You can't do it unless you try to time the market, which is a seriously dumb thing to do. Conservative investing with steady savings without expecting miracles is the way to go.

- Charles Munger

Differ from crowd

If you want to have a better performance than the crowd, you must do things differently from the crowd.

- Sir John Templeton

Where it should begin

All investment evaluations should begin by measuring risk, especially reputational.

- Charlie Munger

Chains of habit

Chains of habit are too light to be felt until they are too heavy to be broken.

- Warren Buffett