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Warren Buffett - Words of Wisdom

Below you will find a series of quotes Warren Buffett has said throughout his investing lifetime. Warren Buffett has always been known to have a very down to earth, common way of explaining very difficult concepts. What you will find is that when he talks about a topic, in a sentence or two, he will say more than most financial wizards can say in an entire page. This is really his genius at work. Take a moment or two, and enjoy 10 precious pearls of wisdom. It doesn’t get any better than Warren Buffett , and by the way, we have provided our own understanding of this man in our translation of each quote.

I’VE NEVER SWUNG AT A BALL WHILE IT’S STILL IN THE PITCHER’S GLOVE.

Translation: Warren Buffett  loves baseball, and consequently, he likes to use baseball analogies which seem to translate very well in terms of his financial advice. In this case Warren Buffett  is talking about not buying untested companies, or ground floor situations. A company without earnings, or a startup is like swinging at a ball while it is still in the pitcher’s glove.

Warren Buffett  only wants companies that have been tested. Well known brands with great balance sheets, and a decent entry price would be the same as swinging just as the ball is passing the plate and you know exactly how it’s going to move. He likes SURE THINGS and you should too.

NEVER ASK A BARBER IF YOU NEED A HAIRCUT.

Translation: We personally love this one. It’s really the story of Wall Street. Ask a surgeon if you need an operation, the answer is yes. Ask a dentist if you need a cleaning and the answer is yes. Ask a financial advisor if you need to make changes to your portfolio and the answer is yes. Many mergers and acquisitions are done on Wall Street because the deal takes on a life of its own. There’s a need to get deals done.

The corollary to the above statement is never fix a problem that doesn’t need fixing. Warren Buffett doesn’t trade. He gives his investments time to work out. The key is always to try to get the initial investment right. If you can get the initial investment right, and Buffett is very get at that, then TIME will give you the expected profits.

IT’S ONLY WHEN THE TIDE GOES OUT THAT YOU LEARN WHO’S BEEN SWIMMING NAKED.

Translation: Warren Buffett would tell you that the perfect example of the above statement is Enron, the company that collapsed after assorted frauds, embezzlements, and accounting practices that you wouldn’t believe took place.

World Com, the cell phone company is another example of this quote in action. While these stocks were flying, no one had a clue that there was a problem. We remember the CFO’s of both companies being on the cover of CFO Magazine in different years after being selected CFO of the Year. Both individuals wound up in jail. We had to wait until the TIDE went out, or the schemes were uncovered to know what was going on. Warren Buffett is right.

SOMEONE IS SITTING IN THE SHADE TODAY BECAUSE SOMEONE PLANTED A TREE A LONG TIME AGO.

Translation: Isaac Newton, the greatest mind of the last five hundred years is quoted as saying, “If I have seen further than others, it is by standing On The Shoulders Of Giants (OTSOG). Others have used this quote as well, including Albert Einstein in the early 20th century.

Warren Buffett believes the same thing as other giants in the mentoring concept. In his case he was fortunate to have been mentored by Benjamin Graham, the father of security analysis who taught at Columbia University in NYC where Buffett got his MBA after being rebuffed by Harvard Business School. Without Graham there probably would have been no Warren Buffett .

We all need someone to help us learn the wisdom of our chosen professions. The carpenter teaches, measure twice, cut once. Ross Perot is fond of stating that one. Yes, there is the concept that cream always rises to the top, but does it? We all need a helping hand, and just the right touch at the right time, is sometimes all one needs to completely fulfill themselves in this life.

IF WE CAN’T FIND THINGS WITHIN OUR CIRCLE OF COMPETENCE, WE DON’T EXPAND THE CIRCLE. WE’LL WAIT.

Translation: This is another statement of genius. The idea of the Circle of Competence came from Benjamin Graham, Warren’s professor and mentor at Columbia University. Graham always talked about doing what you know, and only what you know. If you are good at something, that’s what you do.

I’ve met brilliant research doctors who know more about drugs and drug creation than anybody else in the world. In their own portfolios they buy software companies that they know nothing about.

Warren Buffett would implore you to buy only what you know about. Invest only in what you understand thoroughly. Warren Buffett will never, ever go outside his Circle of Competence. Remember in the late 1990’s when just about everyone was buying Internet stocks, only because they were going up. Buffett did not invest in a single Internet stock during the entire cycle. He was one of the few big investors not to get taken in. Learn from the Master.

NO MATTER HOW GREAT THE TALENT OR EFFORTS, SOME THINGS JUST TAKE TIME. YOU CAN’T PRODUCE A BABY IN ONE MONTH BY GETTING NINE WOMEN PREGNANT.

Translation: Buffett is talking about compounding, and that it takes time for compounding to KICK IN. This is a vital point that 99% of the investors never learn. They are all looking for stocks that are going to double in a year or two years. They should be looking for stocks that are going to go up 20% or 25% a year for the next 20 years. That’s where the fortunes are made.

Warren Buffett invested only a few million dollars in the Washington Post newspaper, and it became worth a billion dollars over a period of years. Buffett believes you can’t produce big results in months, or even a few years. If you buy at the right price, the right stock, you will make a fortune, but it will take time. You need COMPOUNDING.

IF CALCULAS OR ALGEBRA WERE REQUIRED TO BE A GREAT INVESTOR, I’D HAVE TO GO BACK TO DELIVERING NEWSPAPERS.

Translation: I have seen the most detailed projections based on estimates carried to the fourth decimal place. It’s ludicrous, and investments based on such projections are ludicrous as well. John Templeton the finest mutual fund manager of the 20th century, (Peter Lynch is his rival) once told me that investments are simply common sense.

Too many investors want to make more out of an investment than common sense. They want to use the most advanced formulas, or mathematical models that simply don’t stand up to the test of time. Warren Buffett would tell you that simple mathematics is all you need, and a logical brain that can withstand the emotional pitches of the moment.

YOU CAN’T MAKE A GOOD DEAL WITH A BAD PERSON.

Translation: If a person is a BAD person, there isn’t a contract in the world that’s strong enough to protect you from that person. Think about it. Why would you want to make a deal with a bad person when there are enough GOOD people in the world who will do the right thing without you having to look over your shoulder to make sure they are staying straight with you?

When Warren Buffett cuts a deal with an owner of another company, it’s always on the basis of a handshake. The lawyers simply memorialize the handshake understanding. Buffett is adamant that he only wants to deal with GOOD people. If he can’t handshake a deal, how good can the deal be.

Allow us to give you another example of this, many years ago, we were involved in the original IPO of Home Depot. Prior to the IPO there was a private placement done for pennies a share. There was a gentleman in Boston who was considering putting up several million dollars. Actually the deal was done, then he came back and said, he didn’t want the company to pay for 2 cars that the founders were driving. A week later, he came back and said he didn’t want the company to pay for health insurance for the 2 founders. The deal died right there. This fellow lost out on his couple of million becoming at least $10 billion because he wanted to keep haggling, and changing the deal. You need to get the big things right in a deal. If you want to spend hours haggling over the small things, the movers and the shakers will never deal with you.

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.

Translation: This is classic Warren Buffett . It is the man who says that unless I can envision what the balance sheet will look like in 10 years, I won’t invest. That is why he never ever buys a technology company. He can’t imagine the balance sheet years out. It is leaving too much to chance. Buffett deals with probabilities.

Buffett has also said that one should never confuse short-term quotational losses with permanent erosion of capital. Only in the stock market can one acquire a piece of a company for a price that one would never ever be able to negotiate in a private transaction.

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!’”

Translation: Many years ago, I saw Sandy Koufax, one of the two best pitchers I have even seen (Bob Gibson was the other) pitching against Henry Aaron, the man who broke Babe Ruth’s record. It was getting near midnight and it was the end of the game, 9th inning two out. Aaron had fouled off twelve consecutive pitches.

Koufax approached the plate and said, “Hank, I’m tired, you’re tired, the next pitch is going to be a fast ball down the middle, either you strike out or hit a home run, we’re out of here.” Koufax stroke him out.

The point is that in the baseball game that Warren Buffett plays in, you get to stand at the plate all day, and you never have to hit if you don’t want to. You get to see every pitch. You learn the pitcher, his moves, his technique, his faults, and then only when you want to, if you want to at all, you get to swing the bat. Only in the stock market can you use this technique. You can wait a year or two for the perfect situation to come along, and only then, you play, or you can trade every day as a momentum investor, and see where you wind up.

Conclusion

Learn from the wisdom of the greatest investor of the 20th century. Some may disagree, but nobody would argue that everybody else would have to be compared to Warren Buffett .

We hope you have enjoyed this bit of wisdom that we have furnished you. Do take a look at the rest of our Award Winning website, and see whether or not you think we can be of service to you in helping you make a great deal of money by investing in stocks. We are not day traders. We are VALUE PLAYERS, just like Warren Buffett

We are VALUE PLAYERS who seek to conservatively increase your capital while keeping an ever watchful eye on the potential downside as well. Over the last seven years, we have averaged a 30 percent rate of return per year, finding the types of stocks that would fit right in with the value screens that Warren Buffett has in his office at Berkshire Hathaway in Omaha, Nebraska.Good luck to you.

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Lewis Glucksman
Former Chairman, Lehman Brothers

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