About the Talk
November 30, 2016 12:00 PM
Tokyo, JapanTokyo, Japan
Many consider Warren Buffett, the world’s fourth wealthiest individual, is the greatest investor in the previous century.
Mr. Buffet is well-known for his patent folksy insight on money matters and continues to provide many investors with valuable investment advice. Here is a rundown of what many consider Warren Buffet’s best investment tips (not including the latest stock picks):
1.“It is better to buy a wonderful company at a fair price than a fair company at a wonderful price.” (From a letter to shareholders in 1989)
This advice from Buffet is a favorite quote of many investors. It contains a fundamental principle he has used effectively for years as his strategy for investing. Essentially, he chooses firms which he can completely understand and whose innate worth is clearly apparent, no matter what its present financial condition might be. Today, Buffet is # 4 only because he gives out large sums of his money to charity; otherwise, he would be the top choice -- like he was in 2008 in Forbes' choice of the richest person worldwide.
Buffett started his enterprising journey in Omaha, Nebraska as a boy selling magazines and chewing gum to families. At 14, he filed his first tax return (claiming deductions for his watch and the bike he used on his paper route). He and a friend purchased and operated a pinball machine when he was in high school. The two also set up a town barber shop and later on expanded the business around town to incorporate pinball machines.
Currently, Mr. Buffett has a personal net worth of about $55 billion and his investment company, Berkshire Hathaway, completely owns several reputable U.S. firms, such as Dairy Queen, Helzberg Diamonds, GEICO and 50% of Heinz.
2.“Rule No. 1: Do not lose money; rule No. 2: Remember Rule No. 1” (From "The Tao of Warren Buffett", 2006)
3.“Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet. That's the kind of business I like.” (From Businessweek, 1999)
Berkshire Hathaway's portfolio proves that Buffet practices what he preaches: The company invests principally in firms that have operated for many years and can be described in a few words: GEICO sells insurance, Dairy Queen sells ice cream, etc.
The story of how Buffett's relationship with GEICO began goes back as early as 1952, at the time he sought to meet one of his investment idols, Benjamin Graham, who sat on GEICO's board. He ended up accidentally meeting the firm’s vice-president then, Lorimer Davidson, who has become Buffet’s close friend since then.
4.“The stock market is a no-called-strike game. You don't have to swing at everything – you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, ‘Swing, you bum!’“ (From "The Tao of Warren Buffett", 2006)
5.“I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” (From a panel discussion after the documentary premier of "I.O.U.S.A", 2008)
6.“Price is what you pay; value is what you get. Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down.” (From a letter to shareholders in 2008)
Shareholders at Berkshire Hathaway eagerly await Warren Buffett's yearly letters and admire them for their great storytelling using simple and clear words.
7.“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.” (From a Berkshire Hathaway annual meeting in 1997)
8.“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.” (From "Buffett: The Making of an American Capitalist", 1995)
This signifies that a business that is quite unstable will also require a greater margin of safety in case you decide to invest in that business. For instance, if you drive a truck over a bridge that can only carry 5 tons and your truck weighs 4.8 tons and the bridge is less than a meter above a stream, you might feel much safer than if it were over a 20-meter ravine.
9.“We've long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.” (From a letter to shareholders in 1992)
Charlie Munger, also a native of Omaha, Nebraska, serves as vice-chairman of Berkshire Hathaway and has been Mr. Buffet’s business partner for many years. He also serves as Costco’s director. In spite of their close personal and business relationships, they differ in political preferences, Munger being a recognized Republican while Buffett has recently supported Democrats.
10.“We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely.” (From a Berkshire Hathaway annual meeting in 1998).