Quotes by Warren Buffett

Why pay attention to Warren Buffett quotes?

Warren Buffett is very good at packaging wisdom into simple and concise statements. Warren Buffett quotes are typically easy to understand, but he usually does not elaborate too much on it. He also never tells you exactly what to do in a situation, but gives you more general guiding principles to your investing activities.

Below I list what I think are some of the best quotes as well as what they mean and how understanding the wisdom changes your actions.

Warren Buffett quotes on how to react to large market swings

Be fearful when others are greedy and be greedy only when others are fearful.

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well.

The future is never clear, and you pay a very high price in the stock market for a cheery consensus. Uncertainty is the friend of the buyer of long-term values.

The first three quotes have to do with buying low and selling high. It's simple, right? Not really. Most people get caught up in the enthusiasm of a rising market -- like the late 90s -- or a booming sub economy -- like the real estate market. These quotes can help guide you when you, and many other people, get excited about tremendous gains from the stock market.

The first quote states what you should look out for and do in the most concise manner. When people are excited about the market, be fearful. When people look upon the market with great negativity, be greedy. For example, Warren Buffett does not like it when the stock market is booming (like the late 90s) because there is nothing for him to buy. However, he really likes investing environments like the 2008 to 2009 market because there's so many good deals on the table.

The third quote also keeps one from believing that the current pessimism or optimism is different than the previous periods of the same emotion. For example, right now in early 2010 no one really knows what the world economy will do in the near term. The picture was even foggier in early 2009 and, uncoincidentally, that was a great time to buy. On the flipside, when people are very certain what will happen in the near term, that is probably a sign of optimism and high stock prices.

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

Don't mindlessly follow the tides of the masses. If you follow the wisdom from the previous quotes, staying in line with the immediately above quote becomes very easy.

Price is what you pay. Value is what you get.

During times of great optimism or pessimism, this piece of wisdom often gets forgotten. The value of a company does not change just because the stock went up or down 50% in the last week. However, the amount of bargain the stock is can change quickly, but it is typically in the opposite manner than most people think. If the stock goes up, it is less of a bargain and if it goes down, it is more bargain. Think of stocks as you would anything else that you purchase. For example, if the price of bananas triple, are you more or less likely to buy them? What if the price was slashed in half?

Investors should remember that excitement and expenses are their enemies.

The excitement part of the above quote speaks the same message as several of the other quotes above. Expenses, on the other hand, are often underestimated regarding the impact that they can make on your long-term returns. Expenses refer mainly to two things: expense ratio of index funds and mutual funds" and the commissions that you pay when you buy individual stocks or ETFs. Even very small expenses over time can really take a large bite out of your returns. You would be surprised at the huge affects a small difference in expenses can make. It is always wise to try to minimize your expenses.

For some reason, people take their cues from price action rather than from values. What doesn't work is when you start doing things that you don't understand or because they worked last week for somebody else. The dumbest reason in the world to buy a stock is because it's going up.

This follows along the same lines as when the stock market has done really well lately people tend to get in and buy more. As a result, prices spiral up, but that does not mean that they cannot come down sharply. This works in both directions as we've seen in recent years. Just because a stock has gone up recently does not mean it will continue going up and just because a stock has gone down recently does not mean it will continue to going down. This seems like a real obvious statement in hindsight, but many people get caught up in the emotion of large market swings and lose their common sense. Don't let that be you.

If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

This statement is putting all the points from the previous quotes together. If you are truly investing for long-term, then you want the prices to go down. Think about it. Would you rather pay more or less for your stocks? During a prolonged drop in stocks, you can buy them repeatedly at low prices.

It helps to ignore your account balances. This is hard for most to do, but it really will prevent you from being your own worst enemy.

I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

Our favourite holding period is forever.

All three of these quotes give you insight into how Warren Buffett thinks about his investments. If he truly believes in the long-term prospects of business, then he really does not care what the stock market does in the near term. With the exception that if the prices go down, he may be interested in buying more. The problem is that when most investors see the stock price go down, they get emotional and worry that they made a bad decision. Then they sell the stock for the wrong reasons.

He tries to think about it as going into business with the company that he's buying stock from. If he does not believe in their business or cannot understand the business, then he does not invest.

Of course, you can skip researching businesses by just buying everything with a broad index fund. If you believe in human progress over the long-term (we've been progressing as a species continually for about 500 years now), then believe that a very broad index fund will net you gains after inflation in the long run.

Warren Buffett quotes about what makes investor successful

Success in investing doesn't correlate with I.Q. Once you're above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

The most important quality for an investor is temperament, not intellect... You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.

As Warren Buffett alluded to in many of the previous quotes, it is the emotions of the investor that most frequently get in the way of quality returns. For example, when the stock market raises quickly over time people get excited and think the trend will continue. However, if they were to analyze a situation unemotionally, they would usually find that significant price increases in stocks have made them less of a deal.

On the other hand, people get extremely pessimistic about the stock market when it has fallen a lot. In early 2009, people were really depressed about the economy. Many had lost their jobs. Many companies were losing money. There was no end in sight to the economic woes. However, that was the best time to invest. Those of us that had their emotions in check realized this. Those of us that were controlled by our emotions took action that killed long-term returns.

Warren Buffett quotes about Speculation and Investing

The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. After a heady experience of that kind, normally sensible people drift into behavior akin to that of Cinderella at the ball. They know that overstaying the festivities -- that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future -- will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There's a problem, though: They are dancing in a room in which the clocks have no hands.

Remember 1999?

We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'

For investors as a whole, returns decrease as motion increases.

The more you trade, the higher your expenses and the better you have to be to match the easy returns an index fund. This is why it is so hard to trade many times a day and still be as profitable as a broad index fund -- you start off behind.

I can summarize all the above quotes with a few points. First, check your emotions at the door. Second, don't follow the crowd. Third, keep your expenses low. And fourth, always invest with the long-term in mind.

If you can do all four of these things, you will likely invest successfully.

Beware of geeks bearing formulas.

A public-opinion poll is no substitute for thought.

I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

In the business world, the rearview mirror is always clearer than the windshield.

Want a FREE book on investing?

I thought it would be fun to put together a book on the best and most prudent ways to invest money.

I'm putting together a survey to make sure I answer all the questions that regular people have about investing.

I've got a question and bonus:

• What is your #1 question about the best ways to invest money? Post your question here.
• If you post a question, I'll give you a free copy of the book.

return to beginner investing made easy home

Like this page?

Click the +1 to tell Google you like this page: