BULLS & BEARS: Some New Year’s wisdom from uber-investor Buffett

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With the new year and in a reflective mood, here is a collection of quotes I find convey useful investment wisdom. All the quotes, except the last by Peter Lynch, are extracted from the speeches or writings of Warren Buffett, some of which contain thoughts ascribed to his mentor Ben Graham. Enjoy.

“I will tell you the secret of getting rich on Wall Street. You try to be greedy when others are fearful and you try to be very fearful when others are greedy.”

“The most important quality for an investor is temperament, not intellect. You don’t need tons of IQ in this business. You don’t have to be able to play three-dimensional chess or bridge. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd. You know you’re right, not because of the position of others, but because your facts and reasoning are right.”

“The market, like the Lord, helps those that help themselves, but unlike the Lord does not forgive those who know not what they do.”

“What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know. An investor needs to do very few things right as long as he or she avoids big mistakes.”

“The stock market is there only as a reference point to see if anybody is offering to do anything foolish. And at times, there is a lot of foolishness in the market. When we invest in stocks, we invest in businesses. You simply have to behave according to what is rational rather than according to what is fashionable.”

“Our stay-put behavior reflects our view that the stock market serves as a relocation center at which money is moved from the active to the patient.”

“We wouldn’t care if the market closed for a year or two. It closes on Saturday and Sunday, and we do just fine.”

“Our equities tell us by their operating results-not by their daily or even yearly price quotations-whether our investments are successful.”

“Value investing is so simple that it makes people reluctant to teach it. If you’ve gone and gotten a Ph.D. and spent years learning tough mathematics, to have to come back to this is like studying for the priesthood and then finding out that the Ten Commandments were all you needed.”

“The most common cause of low prices is pessimism-sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”

“The true investor welcomes volatility … because a wildly fluctuating market means that irrationally low prices will periodically be attached to solid businesses. It is impossible to see how the availability of such prices can be thought of as increasing the hazards for an investor who is totally free to either ignore the market or exploit its folly.”

“We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we’re not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success.”

And then this from Peter Lynch: “If I could avoid a single stock, it would be the hottest stock in the hottest industry, the one everyone’s talking about.” Best to you in the year ahead.

Ken Skarbeck is managing partner of Indianapolisbased Aldebaran Capital LLC, a money-management firm. Views expressed are his own. He can be reached at 818-7827 or ken@aldebarancapital.com.

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