Warren Buffett is widely acclaimed as one of the world’s most successful investors. Even after donating over $45bn to charity, the Oracle of Omaha’s wealth still exceeds $100bn. At 91, Buffett has been investing for eight decades. The company he runs, Berkshire Hathaway, is one of the 10 largest US-listed corporations (valued at close to $650bn).
Over the past 35 years, I’ve read extensively about Buffett and his investment style. And sometimes, but not always, I’ve taken his investing advice to heart. But the lessons I learnt from him have been the most valuable of my life. Thus, here are three quotes from the great man that helped guide me through my investment journey.
1. Warren Buffett on losing money
Perhaps the most important thing I learnt from Warren Buffett was one deceptively simple instruction. He once stated: “Rule number one: never lose money. Rule number two: never forget rule number one.” Indeed, not losing money may be the hardest thing to do when investing. Even the great man himself has placed bets that lost billions of dollars.
Having lost money on shares in just about every way imaginable, my way of thinking about this Warren Buffett adage has evolved over time. Nowadays, I take it to mean the following for me. 1) Don’t invest money I can’t afford to lose. And 2) Investing isn’t gambling. Take my time doing my research before placing my bets wisely.
2. On investing in US stocks
Earlier this year, Warren Buffett repeated some advice he’d given in an earlier one of his regular shareholder letters. He counselled investors: “Never bet against America.”
Until the global financial crisis (GFC) of 2007/09, my portfolios were heavily skewed towards the UK (chiefly cheap FTSE 100 stocks). But as the world economy rebounded from the GFC, my investments became more global and US-weighted. Then, in mid-2016, the UK narrowly voted in favour of leaving the European Union. The closeness of this Brexit vote worried me and my wife. This led us to pull almost all of our investments out of the UK, reinvesting it mostly in the US. More than five years later, I’m delighted to have backed America over Great Britain. The S&P 500 index is up a handsome 108.3% over the past half-decade, versus a tiny 3.9% gain for the FTSE 100 (both excluding dividends). Thanks for the tip, Uncle Warren.
3. On buying fairly priced shares
Warren Buffett wisely knows that shares in the very best businesses rarely trade at bargain-basement prices. For example, many US tech stocks trade at high multiples of their earnings. But these powerhouses are global market leaders, with growth records to be marvelled at. Hence, the billionaire once offered this advice to shareholders: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Perhaps more than any other quote, this Warren Buffett proverb has guided me in recent years. Instead of waiting for once-in-a-lifetime deals, I make the best of the share prices I see. These days, I scour the market looking for top businesses with great management teams. Even if these shares are pricey, I weigh up whether their valuations are justified. And if they are, then I’m happy to buy the best and leave the rest. Thanks again, Mr B!