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Words of wisdom from Warren Buffett
Hannah Clark, Forbes | January 17, 2007
Warm and fuzzy aren't words normally used to describe captains of industry. That is unless you're talking about Warren Buffett. He's the second-richest man on the planet, the best investor ever, one of the most significant philanthropists in world history -- and yet he seems as down-to-earth and grandfatherly as say, Wilford Brimley.
Buffett helps perpetuate this homespun mystique with his annual investor newsletters, which are chock full of folksy words of wisdom.
Mary Buffett, who was married to Warren's son Peter for 12 years, has captured the essence of the Omaha native in several books, which she's written with co-author David Clark. Their latest, The Tao of Buffett, includes 125 Buffettesque quotes along with brief explanations. Alas, these quotes offer no sure route to billionaire-dom.
Warren advises wannabes to understand their investments and find great deals. But if his words of wisdom often sound suspiciously like common sense, at least they are delivered in his trademark style.
Mary Buffett spoke to Forbes.com about patience, discipline and Warren Buffett's pleasure dome.
Forbes.com: What's the most important lesson you've learned from Warren Buffett?
Mary Buffett: Patience and discipline. And doing something you love. So many people -- and Warren has said this -- are doing it for the money. That's really not the right reason. If you're doing something you love, you're more likely to put your all into it, and that generally equates to making money.
He always says when he gets up in the morning he goes to his pleasure dome, which is his office.
A lot of people read books like this because they want to learn from gurus. But they ignore the fact that smart investing really requires a lot of hard work and research. Just absorbing The Tao Of Buffett won't make you a good investor.
Yes and no. I think if you follow the principles of the Tao of Buffet you can be a good investor. But investors don't necessarily have the patience to wait for the great company with the great underlying economics at the right price. When Warren bought Dairy Queen, I joked, "He probably wanted to buy it when he was eight years old, but it wasn't the right price." So he waited 50 years or so.
Can you recommend any investing-related New Year's resolutions?
I wouldn't recommend anything. Of course, I'd always recommend Berkshire Hathaway as a great investment because it's an unbelievably diversified company. I guess I would just say if you're investing in something, invest in it as if you were buying the whole company.
Look at historically what its earnings have been. And have a fair amount of ability to predict what that company will do in the future.
Let's talk about the words of wisdom in your book. I like No. 44: The smarter the journalists are, the better off society is.
It's true. I mean, all of our information that we get now, whether it's for investment ideas or just the morality of life comes from the media. So we're really dependent on journalists for accuracy, and for the analysis of what's going on. You want intelligent people doing the job.
You say that investors shouldn't take risks when they're young. That seems counterintuitive. When should you take risks?
Never. I would say people that are young generally take more risks than people who are experienced. But that's something that even Warren as a child really started to evaluate.
Predictable products equal predictable earnings. So you know, for instance, that if the stock market dropped tomorrow people would still be drinking Coca-Cola, people would still be shaving, people would still be chewing gum.
Warren says, "I don't think the Internet is going to change how people chew gum." He looks for businesses that he can predict where they'll be in 10 or 15 years.
You also quote Warren saying he never gets good ideas talking to people. So where do they come from? Thin air?
He says, "My idea of a group decision is to look in the mirror." He has a history of standing alone that dates back to the early days of his investments. Living in Omaha instead of New York, I think he has less influence from Wall Street than other people.
Most of the stocks of the companies he's bought, he bought when no one wanted them. If he had taken advice from Wall Street, he would have missed some of the greatest investments.
He also says, "If we can't find things within our circle of competence, we don't expand the circle. We wait."
Warren believes that if he doesn't understand a business, it's not worth looking at it, even if the business is popular at the time.
If he can't find an investment that's selling at an attractive price, he'll wait and wait and wait. In the late 1960s he wrote to his investing partners that he couldn't find any investments that he understood at attractive prices. He waited until 1973 when the stock market collapsed and some of the best companies were selling at bargain prices.
Pick the wrong company at the right price and you lose. Pick the right company at the wrong price and you lose. You have to pick the right company at the right price and to do that you have to wait and wait -- patiently.