Warren Buffett is considered the most successful investor. His letters to shareholders of Berkshire Hathaway provide insights into his investing philosophy and are regarded like gospel in investment world.
He is considered a champion of Value Investing and is frequently addressed as “Sage of Omaha”. Lets look at some of his key insights:
General Principles
- Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1
- You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.
Buffett debunks the myth that Stock investing is complex or that it should be best left to experts.
Buying Stocks
- I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.
- Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down
- It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Buffett suggests that its best to buy a good company. A good company is a moat – one which will do well even in difficult times.
Holding Stocks
- When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.
- Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s 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.
Buffett believes that stocks should be held forever, like a farm.
Selling Stocks
- Do not think of yourself as merely owning a piece of paper whose price wiggles around daily and that is a candidate for sale when some economic or political event makes you nervous. … Instead visualize yourself as a part owner of a business that you expect to stay with indefinitely, much as you might if you owned a farm or apartment house in partnership with members of your family.
- We continue to make more money when snoring than when active. … [Y]ou simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
Buffett suggests that stocks should only be sold when either management is no longer honest or market environment has turned against the company.
Adding to the Pool of Shared Meaning. 