Better to Avoid than Fight Dragons

Warrior attempting to slay the dragon

"Overall, we have done better by avoiding dragons than by slaying them."

Warren Buffett

Insider Information will Make You Broke

Investor armed with Insider Information and a million dollars dreaming to get rich quick

"With enough insider information and a million dollars, you can go broke in a year."

Warren Buffett

Article explaining the above quote:

• With Enough Insider Information and a Million Dollars, You Can Go Broke in a Year

Buy Wonderful Stocks at Fair Price

Man happy at having bought a wonderful company at a fair price

"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Warren Buffett

Related Article:

• It is Far Better to Buy A Wonderful Company at a Fair Price than a Fair Company at Wonderful Price

Consequences of Investments at High Valuations

Picture depicts how low tide exposes things beneath

"You only find out who is swimming naked when the tide goes out"

Warren Buffett

Buy and Sell Stocks for Value Reasons

Picture Conceptualises Buy-Sell Only For Value Reasons

"People who buy [stocks] for non-value reasons are likely to sell for non-value reasons. Their presence in the picture will accentuate erratic price swings unrelated to underlying business developments."

Warren Buffett

Hold Outstanding Stocks Forever

Picture portraying the concept of holding outstanding stocks forever

"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

Warren Buffett

I am constantly besieged by the questions wanting to know the best stocks for holding periods ranging from six months to an year, maximum. never is the investment horizon more than three years. And I have been advising aspiring investors about holding the investments intact for long periods, which is the norm for value-investors.

Here, Warren Buffett, Chairman of Berkshire Hathaway, is advising investors to hold shares of outstanding companies forever. Such companies not only reward investors with copious dividends for their lifetimes, but also generate immense wealth through capital appreciation or increase in the market value.

Does Warren Buffett Make Money on the Stock Market?

Picture Shows Electronic Display Board of the New York Stock Exchange

"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"

Warren Buffett

These beautiful words from Warren Buffett, Chairman, Berkshire Hathaway, are worth setting on stone are the guide post to aspiring value-investors.

Legendary investors do not invest in a hundred stocks with an objective of making a short/ medium term gain from the price the price rise. They make lifetime investment in best businesses like Gillette and Coca-Cola and simply forget the investments.

On the contrary ordinary mortals like me are tempted to sell the investments from the prise rise. Today, after a month I opened the online stock broking account to prepare for February 2017 investment, and found that our academic collection 'Portfolio 2K15' had appreciated 40% in less than two years. There is an irresistible temptation to liquidate the portfolio and en-cash the clear profit of Rs.200,000 on the cost of investment of Rs.480,000. 

Why should the portfolio be not liquidated? Why not make the significant profit and put the proceeds in a bank fixed deposit?

The answer is that this portfolio if  left untouched for the next 30 years and continue the self developed systematic investment plan (SIP) of Rs.10,000 every month, the portfolio could grow to the size of Rs.80 millions (Rs.8 Crores or US$ 1.20 millions).

Therefore, like Warren Buffett's Bershire Hathaway, budding value-investors everywhere should make investments considering that the stock markets are going to close tomorrow and remain closed for the next five or ten years - not to en-cash the handsome but in reality tiny gains made in two to three years.

Picture shows Warren Buffett and conceptualises his Inspirational Quotes

Worth of the Advice of Wall Street Experts

Wall Street Expert Taking the SubwayAdvising Rich Man Coming in a Rolls-Royce

"Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway"

Warren Buffett

How true!

Warren Buffett, Berkshire Hathaway, wants to highlight this ridiculous but true reality. Indeed Wall Street is the only place that people ride to in a Rolls-Royce to get advice from those who take the subway. 

Warren Buffett's contention is that if these people truly had valuable investment advice to offer they will be employing it first to enrich themselves and would not be taking the subway.

Buffett intends no insult to stockbrokers nor is he against using the subway, but is advising the investors to take the advice of so called experts with a pinch of salt.

Value-investors who have read "The Intelligent Investor" by Benjamin Graham and following in the footsteps of legendary value-investors like Walter Schloss, Charles Munger, Warren Buffett,  of Berkshire Hathaway, do not require the tips and advice of stockbrokers to obtain significant investment success.

Market Fluctuations Are Investor's Friend

Picture Depicts Markets Fluctuating Like a Pendulum Between Enthusiasm and Pessimism

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

Warren Buffett

In these golden words Warren Buffett, Chairman of Berkshire Hathaway is advising investors to consider market fluctuations in the form of ups and slides as a friend rather than an enemy.

Why?

Without market fluctuations - extreme once in a decade - extraordinary gains cannot be obtained. In the absence of market fluctuations there is no scope for capital appreciation. Stocks too will be bland like fixed deposits in a bank.

This is the first part.

The second part is to profit from the folly (of others) than participate in it.

What does this mean?

Buy stocks at or below their intrinsic value - not at their market peaks.

Innocent investors make the folly of entering the market when it is at its peak and buy shares at extremely high and unjustified prices. When the price slides or steeply corrects they panic and sell the investment at a loss. This is the folly Warren Buffett the Chairman of Berkshire Hathaway is advising not to participate in.

But how to profit from the folly?

Buy the shares of excellent companies at throw away prices when they are being dumped by others in panic.

In conclusion fluctuations are natural and inherent to markets. Capital appreciation or wealth creation takes place only on account of market fluctuations. My guru Warren Buffet, the siren of Omaha and Chairman of Berkshire Hathaway is advising investors to consider market fluctuations in the form of ups and slides as a friend rather than an enemy and to profit from and not participate in them.

Warren Buffett the Siren from Omaha

Saying No to Investment Opportunities

"It is more important to say "no" to an opportunity, than say "yes."

Warren Buffett

While investing, especially during evaluation stocks a value investor will confront with a number of opportunities seemingly attractive and often tempting. Warren Buffett is advocating a bias towards rejection – saying no, rather than saying yes.

This rule is similar to the rule for discarding junk at homes and offices during the process of cleaning. We will come across a number of items where our minds tell us to keep the items for potential future use. If we follow the advice, we will accumulate unwanted junk. The rule to junk is simple and harsh – if in doubt - discard! The rule is advocating a positive bias for junking.

As with the rule for discarding, Warren Buffet is advocating a positive bias towards rejecting – saying “no” to an opportunity than saying “yes”. The logic behind this advice is far better to err on the side of caution than otherwise.

Picture Conceptualises Bias Towards Saying No to Opportunities

Hindsight Versus Foresight

Automobile Rearview Mirror Picture Conceptualising Hindsight

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

Warren Buffett

Warren Buffett wants to say through the crisp sentence that in business hindsight is far clearer than foresight - it is far better to draw conclusions based on past data rather than divining the future.

These golden words do apply to investing, nay, life itself. Don’t you think so?

Value investors burn midnight oil analyzing annual reports of the companies, going back into the past as deeply as possible, but not less than 10 to 15 years, to draw meaningful conclusions about the business model, management philosophy, integrity and so on.

On the contrary the so-called experts, the filler material of print and television media do not hesitate to make predictions about future prospects of companies at the drop of the hat. Such predictions not only prove to be fallacies but dangerous for innocent investors.

Related Posts:

• Predicting the Market Versus Reacting To It
• How Stock Markets will Behave in 2017?

Warren Buffett's Portrait Depicting Inspirational Quotes

Risks of Moving In and Out of Investments

Portrait of Warren Buffett Depicting Inspirational Quotes

"Since the basic game is so favourable, Charlie and I believe it's a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of "experts" or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it." Warren Buffett

First and foremost emphasis everywhere in italics is mine to highlight the importance.

What Warren Buffett means in this expression is that he and his partner and close friend Charles Munger had realised that moving in and out of investments in wonderful companies like Gillette (the word it in the quote) based on minor and irrelevant changes, news and so called experts who generate unwanted noise over television channels, day in and day out, is a terrible mistake. 

Wonderful companies have a long track record of successfully navigating occasional business difficulties. Business problems are a natural part of doing business and every company worth it's salt encounters such difficulties and resolves them.

Warren Buffett say that he and Charles Munger had figured out that selling highly valuable stocks of such great companies can keep you out of the game (remaining un-invested or divested) which is far more greater risk than remaining invested (being in the game).

Risks of Dancing In and Out of Investments

In conclusion, the moral of the story is once you have identified excellent companies after a rigorous process of filtering and scrutiny, stay invested unmindful of frivolous news and predictions of so called experts.