3 Buffett Sayings That Will Make You Money

Published in Investing on 24 May 2012

Some of the Sage's less well-known sayings are perfect advice for times like these.

Without doubt, Warren Buffett, the boss of Berkshire Hathaway (NYSE: BRK-B.US), has said some very smart things. Which, when you think about it, isn't surprising.

Because he wouldn't have made so much money in the first place if he wasn't smart, and -- let's face it -- he's a gregarious chap who's very happy to share his thoughts with those investors who have put their money into Berkshire Hathaway.

At this year's investor-fest in Omaha, for instance, Buffett and co-investor Charlie Munger once again held the stage for several hours, fielding questions from all and sundry.

Sage words

The trouble is, when it comes to the answers, many of us have selective hearing. One result of this is that some of his best known quotes are only partly reproduced.

Take, for instance, Buffett's famous remark that "our favourite holding period is forever". What it doesn't mean is cling like a dog with a bone to the dross in your portfolio. Because Buffett can, and does, sell.

The full quote is this: "When we own portions of outstanding businesses with outstanding managements, our favourite holding period is forever."

And that, I think you'll agree, is a rather different proposition.

Another problem, frankly, is wishful thinking. Personally, I think that this famous quote is one of his worst quotations, devoid as it is of anything that an investor can actually do or influence: "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1."

What does it mean? What are you actually supposed to take away from it? It might be a worthy aspiration, but it certainly isn't actionable advice.

Cometh the hour

But, interestingly, it turns out that three of his less well-known quotes are loaded with actionable advice. And it's advice, what's more, that plays perfectly to today's turbulent and nervous markets.

And without further ado, here they are:

  • "The best thing that happens to us is when a great company gets into temporary trouble... We want to buy them when they're on the operating table."
  • "The most common cause of low prices is pessimism -- sometimes pervasive, 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."
  • "The stock market is a no‑called‑strike game. You don't have to swing at everything -- you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'"

The common refrain running through all three? It's perhaps best summarised by yet another Buffett quote: "You pay a high price for a cheery consensus."

In short, you'll make the most money by sitting on your hands in the good times, and then buying good businesses in the bad times.

And if that doesn't sound like a recipe for success in today's turbulent times, I don't know what does.

Wired for failure

Now, human nature being what it is, many investors do the exact opposite.

When they're feeling buoyant and bullish, they pile in to the stock market. Look no further than 1996-1999, for instance. Or 2005-2006.

Then, when stock markets crater, they sell -- as they did in 2008 and 2009, to choose another example.

And they certainly don't buy when the market is at rock bottom. Which led to an awful lot of investors getting caught out by the meteoric rise of the FTSE 100 in the months that followed March 2009.

Looking for bargains

Hopefully, you'll already have your eyes on stocks priced at bargain levels.

Personally, I'm looking at topping up my holdings in BP (LSE: BP), BAE Systems (LSE: BA) and GKN (LSE: GKN). The news surrounding the first two, in particular, is gloomy. But the basic businesses are sound.

Or I may just throw some money at the index, via one of my tracker funds, or via Vanguard's new low-cost FTSE 100 ETF, the Vanguard FTSE 100 ETF (LSE: VUKE) -- which is now live and trading, by the way.

That's just me, of course. But if you'd like to know what Warren Buffett himself has loaded up on, then a free Motley Fool special report -- "The One UK Share Warren Buffett Loves" -- can be in your inbox in seconds.

It's free, so why not grab it today?

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Further investment opportunities:

> Malcolm owns shares in BP, BAE Systems and GKN. He does not hold any other shares mentioned here.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

apprenticeDRL 24 May 2012 , 2:01pm

Topped up on BP yesterday and they are already rising. Also looking at topping up on BAE unfortunately cant buy everything I want at the moment

trmeer 25 May 2012 , 11:55am

"Never lose money" is a great quote and it is actionable advice. What he means is make sure you do your research, make sure the company is in good shape and that it is selling well below intrinsic value giving you a solid margin of safety. Also it is good advice because if kept in mind, it should prevent investors getting scared into selling low at a loss during market panics.

mufuliraman 29 May 2012 , 2:20pm

"The news surrounding the first two, is gloomy"

How about BAE's new Saudi contract then? Thats not gloomy!

RobinnBanks 29 May 2012 , 7:45pm

To have and to hold, from this day forward, forever, until death do us part: this is one of the main reasons investors sell at the bottom - because they did not sell at the top!
We have had the long-term buy and hold, and the shortened version of Buffett's quote, hold forever, rammed down our throats by all investing expert pundits for years; while the institutional investors flog them off at the top!

dukindiva 30 May 2012 , 11:00am

bought into BP when the FTSE fell below 5000 last year at 386p, smiled when the price got close to 500p and frowned whilst it dipped again ... this is a share for the long haul I think, at least they are starting to pay dividends again.

Maybe Buffets other quote "be fearful when others are being greedy and be greedy when others are fearful" fits the stock markets better today than for years ... as long as you pick the right stocks.

MikeCaple 30 May 2012 , 1:06pm
MikeCaple 30 May 2012 , 1:14pm

"stock markets...don't buy when the market is at rock bottom"

This can't be true. If nobody buys, the price can't rise off the rock bottom.

Clearly if the rock bottom has been identified, the market has already bought.

AleisterCrowley 30 May 2012 , 3:21pm

Using the quote "be fearful when others are being greedy and be greedy when others are fearful" is the equivalent of playing 'Stairway to Heaven' in a guitar shop. Should be banned, or at least heavily taxed !

Chancer9 31 May 2012 , 8:44pm

"Never lose" is one of the best quotes as it focuses the mind on the downside. It's all too easy to be sucked in by the prospect of making some cash from a rising share price. It's just as easy to lose money, if not more so, than make it in the stock market.

In the long run the people who do well are those who do their homework, seize the opportunity but above all don't lose. After all this is capitalism, one of the most destructive things known.

But you don't heed it, you can always use another quote "you don't have to make it back the same way that you lost it"

atilliator 11 Jul 2012 , 7:35am

Can't quote it all here, but there was an article WB wrote in 1977 called How Inflation Swindles the Equity Investor. This article changed my life.

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