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Business // Thinking Smart
David S. Chang

More Tips From Warren Buffett

Warren Buffett is considered to be the world’s greatest investor. The annual meeting for his fund, Berkshire Hathaway, is dubbed the “Woodstock for Capitalists,” where many shareholders eagerly await the yearly pilgrimage. With almost 40,000 people in attendance this year, Buffett and partner Charlie Munger answered shareholder questions about investing, the economy and others for hours. At the meeting, Buffett announced that Berkshire Hathaway is now the fifth most valuable company in the world!

Last week we covered the amazing performance of Buffett’s fund and important investment advice he has given throughout the years. (Please visit artofthinkingsmart.com to read the series.) We continue this week with more nuggets of wisdom and what it means for the average investor.

* “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy, and greedy only when others are fearful … When people get fearful, they get fearful en masse. Confidence comes back one at a time. When they get greedy, they get greedy en masse … Four or five times during their lifetimes, (investors will) see incredible opportunities probably in equity markets … (they) have to have the mental fortitude to jump in when most are jumping out.” Buffett’s success is based on being disciplined, patient and avoiding emotional investing. When Munger was asked at the annual meeting how to explain Berkshire Hathaway to a 13-year-old, he stated, “We always tried to stay sane when other people, a lot of them, go crazy. That’s a competitive advantage.” Good investors will not let emotions get in the way.

* “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 best time to buy a company stock is when it’s in trouble but can be turned around.

* “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.” Buy businesses that can be run easily. Experts can be wrong, so invest in things you understand. Complicated investments don’t have an advantage.

* “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price … Long ago, Ben Graham (Buffett’s mentor) taught me, ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” Buying a stock is about more than just the price, since price and value are not the same.

* “Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong.” Buffett’s value investing strategy is about investing rationally in businesses that have a lasting advantage.

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