Today is Teachers Day. A very important day to remember the one’s who have, in many ways, moulded your thought process and taught you a way in life to earn an honest living. In many ways they are the role models and these are not just the academic’s teachers but those who teach us life lessons.
And for those in the stock market, there is no greater an inspiring teacher than Warren Buffett. We take this occasion of today to go through some of his quotes, which will motivate us , especially in the current trouble and confusing times.
Buffett’s brilliance is in the simplicity of his advice.
- Keep things simple and don't swing for the fences.
- When promised quick profits, respond with a quick "no."
- Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on.
- With regards to speculation he says - I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game.
- A real winner of an advice - the fact that a given asset has appreciated in the recent past is never a reason to buy it. (This is for all those who run after a stock after it has appreciated and get onto an already fast moving bus which is about to press on its brakes furiously – you are sure to fall).
- For those who value stocks on a day-to-day basis – when he invested in the properties he thought of the long term value, not daily valuations. He puts it so beautifully, “Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard.” He says that when he bought those two properties, he was not bothered about interest rates, economy or the stock market – he only concentrated on his long term valuations. That conviction in the future and not be bothered about short term events is what we all should learn – especially when we now bas our trades on RBI, Fed Reserve meets.
- For those investing based on macro/market predictions of others – it’s a waste of time and dangerous as it blurs your own vision of important facts. He says that his evaluation for investment is very simple – if he can estimate a earning range for the next five years and if the returns are reasonably good, then he buys; he says he never considers political factors or macro environments while making decisions and never does he listen to views of other people.
- On both the property investments, the common link was the burst of the bubble. He reiterates his advice of buying when all sell and sell when all buy. He says, “Tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.”
- He says that one should invest based on one’s “circle of competence” and make study of business they want to invest in a priority. And for those who do not have this competence, he says,” the goal should not be to pick up winners but rather be to own a cross section of businesses that in aggregate are bound to do well.” – This he explains is the ‘what’ of investing.
- With regards to ‘when’ of investing, he advices to accumulate shares over a long period and never sell when the news is bad and stocks are well off their highs. If one has a diversified portfolio and keeps acquisition costs low, no one will ever lose money.
- Regarding the distribution of investment, he says - Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund.
- Rational people don't risk what they have and need for what they don't have and don't need.
- On occasion, a ridiculously high purchase price for a given stock will cause a splendid business to become a poor investment -- if not permanently, at least for a painfully long period. Over time, however, investment performance converges with business performance.