As of the day this article was written (June 2017), Berkshire Hathaway (class A shares, BRK-A) traded at around $250,000 a piece! Those who invested in Buffet early on, and held unto these shares, are quite rich today. Rich or super rich.
Now, let’s continue with an analysis of what the Oracle of Omaha has to say about investing.
“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives good results.”
When you buy a stock at a great value (below its intrinsic value), you can eventually sell it at a good profit, no matter how the market is doing.
"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%”
You can’t predict the future and there will be shocking events in the markets. Buffet believes in companies he invests in, takes a long-term view, and pays little attention to what’s happening in the markets on a daily basis. He doesn’t check stock quotes throughout the day. Instead, Buffet reads financial reports to find great long-term investments. The market whims of the moment don’t concern him.
When investing, avoid overconfidence and recklessness
This is the third part in the series about Warren Buffet. Since his early days, Warren Buffet has continuously been an investing genius. He consolidated his holdings under the name of Berkshire Hathaway.
Get long-term stock picks here from this stock market millionaire.
“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.”
Buffet doesn’t look at fads and businesses whose industries and strategies are constantly changing. He wants to invest in great companies with lasting power.
”The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money.”
"When you combine ignorance and leverage, you get some pretty interesting results."
There are times of market craze such as the Dot Com speculation at the end of the last century or a recent real estate bubble. During these times, even mediocre investors can make money, only to lose it when the bubbles burst. That has happened many times throughout history- and will continue to occur. Making easy money in the market will make an investing novice feel like a genius. He will become overly confident and over leverage himself, only to fall when the markets turn.
"Derivatives are financial weapons of mass destruction."
Buffet doesn’t like gambling. Derivatives are contracts that derive their value from underlying instruments such as stocks, indices, and commodities. Those are quite risky, leveraged plays. That is not to say that one should never use or trade derivatives, but when it comes to Buffet’s style of investing, which is long term, derivatives can lead to destruction of your portfolio if you add lots of risk to your basket of eggs.
“We will reject interesting opportunities rather than over-leverage our balance sheet.”
Using leverage (such as borrowing to buy stocks) is a double-edged sword. If things move against you, you lose more than you would have if you had no leverage. Play with leverage (as well as with derivatives) very carefully.
“The investor of today does not profit from yesterday’s growth.”
"What the wise do in the beginning, fools do in the end."
There are always stories about great opportunities and these often come in the form of tips. But, sometimes it is too late to take advantage of them. Some investments get so much hype that they become highly overpriced. Don’t jump into something because you heard that your neighbor or buddy just made a little fortune on it.
“The most important thing to do if you find yourself in a hole is to stop digging.”
When many investors start losing money on their investment, they will seek to buy more of it at a lower price, hoping to recover when it rises. Sometimes there’s a reason something went down- buying more of it can compound your losses. So, be careful with so-called averaging down.
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