Andrew is a self-educated business owner and entrepreneur with plenty of free advice (which is worth exactly what you pay for it!).
Why So Much Buffett?
Warren Buffett is almost certainly the most often quoted investor of all time. His blend of folk wisdom along with incredibly perceptive observations about the long history of investing make his wisdom indispensable for any investor with a long term horizon. Besides that, Buffett is half Benjamin Franklin, half preacher, meaning he is more than willing to proselytize and pontificate when given a platform. For the last half century and beyond, that platform has been his annual letters to shareholders, and starting all the way back with Buffett Partnership Limited, all the way from 1957 through to the present day, I've devoured every single one of them. Throughout the years, he's always been fond of using quotations from famous historical figures in order to reinforce a concept to his readers, and he's come up with a few of his own quotes that are likely to be shared for generations to come. Let's take a look at three of Buffett's most famous and profound quotes here, and answer why they might be worth remembering.
“Keep buying it through thick and thin, and especially through thin.”
Why do 90% of investors typically do worse than the S&P 500 and other market indices over time? A great deal of this can be attributed to what I like to think of as intestinal fortitude, probably at least as important as knowledge of investing concepts. The old axiom of "buy low, sell high" is self-evidently true, and if you do this, you can't lose in investing. The problem is that individual investors are often swayed by market psychology, doom and gloom stories in the news, and a follow-the-herd mentality that can be tough to ignore. When markets are exuberant and it seems like trees will grow to the sky, everyone wants to buy, no matter what the price. This is around the time when most investors start thinking about jumping into the market, and this couldn't be a worse long term strategy. Instead, invest consistently over time, and while it doesn't hurt to reserve some "dry powder", it really doesn't make sense to keep all of your money out and try to time the market. As another common truism goes, "time in the market beats timing the market."
The "especially through thin" part of the quote is a huge part of the equation. It's important to always keep in mind that you are purchasing a percentage of a company when you buy a stock. If you're able to spend more on a stock when the price is cheaper, you'll get a greater share of ownership in the company. That's the time to buy the most!
"The stock market is a no-called-strike game. You don't have to swing at everything -- you can wait for your pitch."
Sports analogies can be really useful, especially since we spend so much time watching them growing up as kids (and, often, well into adulthood). A great batting average in baseball might be around .333, meaning the batter got a hit about a third of the time (on-base percentage might be a better indicator of performance, but I'm a child of the 70s and 80s, so bear with me). Part of the reason nobody is able to do much better than this consistently is that if you allow a good pitch to go by, it is called a strike, and you only get three of those before you're out. This forces batters to swing at pitches they don't really like, or which might not yield the highest percent chance of them getting on base.
Imagine for a moment that there is a new form of baseball where you don't have to swing at any pitches, ever, and the only way you can strike out is if you swing at pitches and miss. You'd be a lot more judicious in picking your pitches, and you would very likely have a much higher batting average than .333. This is the world of investing. There are no "called strikes", and unless you feel very, very good about buying a business, there's simply no need to. Avoiding the herd mentality of the fear of missing out is important here, and once again, the psychological aspect of investing can be just as important as understanding the balance sheet of a business or how markets work. Simply put, you don't have to swing at any pitches unless you want to, and this is a tremendous advantage to an individual investor.
"Only when the tide goes out do you discover who's been swimming naked."
This quote confronts the market psychology and herd mentality I was talking about earlier head-on. When times are good and you look around at your friends, they are making tons of money by investing. Everyone seems to be doing incredibly well, and it seems like you can't lose. As a result of all this great news and "water cooler talk", many more people continue to invest, and so on. This creates conditions that inflate prices far above where they should be, because any time you have too many people buying too few assets, you're going to run into this, just like you would at a closed auction for a car, where 10 people are bidding on a car with no engine that should sell for a couple hundred bucks, but the competition itself drives the price up in the thousands. This happens with stocks all the time.
When it does happen, there is an inevitable (and often painful) correction in price, or a crash. During those aforementioned good times, everyone is doing great just by throwing their money in without a care as to due diligence. Then, the tide goes out, and you get to see who actually thought about what they were investing in and whether it was for a fair (or cheap) price. If it was much higher than a reasonable price, or if they've employed leverage (borrowed money to buy more stocks), you get to see their nakedness as the tide goes out. When times are good, everyone's junk is underwater; when the tide goes out, it can get really ugly unless you took the time to put on your swimwear.
Buffett and Munger at Their Best
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.
© 2020 Andrew Smith
Andrew Smith (author) from Richmond, VA on September 16, 2020:
Thanks, guys! Nikki, Buffett is an amazing place to begin. Read everything you can by him.
Ashleigh Nicole from Florida on September 15, 2020:
Pretty good read. Especially since I've just recently started buying into stocks.
Binoy from Delhi on September 11, 2020:
Very interesting and informative article.