WHEN the world’s richest investor speaks, people listen.
Warren Buffett, an 82-year-old American worth about $44 billion and nicknamed the “Oracle of Omaha”, is the most quoted investor on the planet and countless financial experts swear by his words of wisdom.
Here are 10 of the most common Buffett quotes, and some lessons we can learn from them.
1. “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.”
It’s a handy rule to follow, but even an expert such as Buffett lost billions in the global financial crisis and said he did some “dumb things”.
However, over the long term he has benefited by being conservative with his share investments and avoiding fads.
Bourke Shaw Financial Services principal Lawrence Orlando says that people can minimise losses by doing their research and avoiding a potentially fatal “she’ll be right” attitude. “Investing ultimately is about making money, not losing it,” he says.
2. “It is better to hang out with people better than you … you’ll drift in that direction.”
Orlando says people should never be afraid to ask successful investors what they did and how they got there.
“I have found that experts are always willing to help out where possible,” he says.
Catapult Wealth director Tony Catt says people should look for attributes in others that can help them.
“Success leaves clues,” Catt says.
Wealth For Life Financial Planning principal Rex Whitford says you should avoid people who like to point out they are better than you.
3. “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
“Huge gains often only come from taking huge risks where the chances of losing everything are magnified.
“Too often investors go for a single big win rather than do the many small things that are already available such as having a strategy, reviewing regularly and diversifying,” Whitford says.
4. “I buy on the assumption that they could close the market the next day and not reopen it for five years.”
Catt says this mindset is crucial for investing in shares. “The quote truly tests your decision-making and your ability to think long term,” he says.
5. “Someone’s sitting in the shade today because someone planted a tree a long time ago.”
This is one of Catt’s favourite Buffett quotes and illustrates perfectly why taking a long-term view is important.
“We should never forget why we enjoy some of today’s luxuries – most of them are because someone else had a long-term vision and was prepared to invest for the future,” Catt says.
Orlando uses a bank savings account as an example.
“Saving $50 a week over 10 years will allow you to save $26,000, not including interest, and like the tree it has taken years to grow,” he says.
6. “Price is what you pay. Value is what you get.”
The price of an investment can mask its true value because of factors such as emotion, market booms or busts, and even tax considerations. “Sadly, all most people see is the price,” Whitford says. “They are often unable to perceive value.”
Orlando suggests following Buffett’s strategy of seeking undervalued assets.
“Sometimes buying the worst house in the best street may provide good value for money,” he says.
7. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
This is probably Buffett’s most famous quote and is at the heart of his belief in avoiding the herd mentality.
Catt says sharemarkets are often priced on emotional reaction and not logic.
8. “The investor of today does not profit from yesterday’s growth.”
Many investors like to jump on an investment that’s doing well – that’s why we have booms and busts – but they really should look to the future.
However, Assist Finance chief executive Jason Di Iulio says that people should still use historical trends, past performance and research data as important tools for making investment decisions.
9. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
Orlando says waiting for the right time to buy can be an opportunity within itself.
Whitford uses ANZ shares as an example. “Did anyone really think ANZ shares were only worth $11.83 in February 2009, down from $31.74? ANZ was and is quality merchandise and it still has not recovered to its previous high,” he says.
Di Iulio says investing should never be a search for the next big thing.
10. “If a business does well, the stock eventually follows.”
Catt says a key to sharemarket investing is to find good-quality businesses that will grow over time. “The share price will take care of itself,” he says. Di Iulio says getting a return is important, but so too is the return of your investment. “Only invest in relatively liquid assets or those assets that can be easily redeemed,” he says.