78 Warren Buffett Quotes and Advice on Finance and Investing

Short Bio of Warren Buffett: Warren Buffett is the Chairman of Berkshire Hathaway Corporation and richest investor in the world; his company “Berkshire” is one of the highest priced company stocks in the world. Warren Buffett has had a stint as the richest man in the world and he’s popularly known as the “sage of Omaha” or “Oracle of Omaha.” He will be best remembered for his shrewd, yet simple investment strategy. Below are some of Warren Buffett’s quotes, business and investment strategies.

78 Warren Buffett Quotes and Advice on Finance and Investing

1. “If you are in a poker game and after 20 minutes, you don’t know who the patsy is, then you are the patsy.”

2. “Wall street is the only place that people ride to in Rolls Royce to get advice from those who take the subway.”

3. “It is only when the tide goes out that you can see who is swimming naked.”

4. “My two rules of investing: Rule one – never lose money. Rule two – never forget rule one.”

5. “Accounting is the language of business.”

6. “Diversification is a protection against ignorance. It makes very little sense to those who know what they are doing.”

7. “The rich invest in time, the poor invest in money.”

8. “I always knew I was going to be rich. I don’t think I ever doubted it for a minute.”

9. “It takes 20 years to build a reputation and only five Minutes to ruin it. If you think about that, you will do things differently.”

10. “Chains of habit are too light to be felt until they are too heavy to be broken.”

11. “Without passion, you don’t have energy. Without energy, you have nothing.”

12. “I get to do what I like to do every single day of the year.”

13. “In the business world, the rear view is always clearer than the wind shield.”

14. “Beware of geeks bearing formulas.”

15. “Derivatives are financial weapons of mass destructions.”

16. “I don’t look to jump over 7-foot bars; I look around for 1-foot bars that I can step over.”

17. “If a business does well, the stock eventually follows.”

18. “I never attempt to make money on the stock market. I buy on assumption they could close the market the next day and not re-open it for five years.”

19. “If past history was all that is needed to play the game of money, the richest people would be librarians.”

20. “It is better to hang out with people better than you. Pick out associates whose behavior is better than yours and you will drift in that direction.”

21. “Let block heads read what block heads wrote.”

22. “It is better to buy a wonderful company at a fair price than to buy a fair company at a wonderful price.”

23. “Look at market fluctuations as your friend rather than your enemy. Profit from folly rather than participate in it.”

24. “Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.”

25. “Price is what you pay, value is what you get.”

26. “Risk comes from not knowing what you are doing.”

27. “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

28. “When a management with a reputation of brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”

29. “The business schools reward difficult complex behavior more than simple behavior. But simple behavior is more effective.”

30. “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

31. “Why not invest your assets in the companies you like? As Mae West said, ‘too much of a good thing can be wonderful.”

32. “Your premium brand had better be delivering something special, or it’s not going to get the business.”

33.“Our favorite holding period is forever.”

34. “You only have to do a very few things in your life as long as you don’t do too many things wrong.”

35. “Rule one: Preserve the principal. Rule two: When In doubt, see rule one.”

36. “The investor of today does not profit from yesterday’s growth.”

37. “The smarter the journalists are; the better off the society is to a degree. People read the press to inform themselves; and the better the teacher, the better the student body.”

38. “We enjoy the process far more than the proceeds.”

39. “You do things when the opportunity comes along. I have had periods in my life when I’ve had a bundle of ideas come along, and I have had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing.”

40. “I buy expensive suits. They just look cheap on me.”

78 Warren Buffett Quotes and Advice on Finance and Investing

41. “Let us do or die.”

42. “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”

43. “Risk is part of God’s game, alike for men and nations.”

44. “Time is the friend of the wonderful company; the enemy of the mediocre.”

43. ‘Focus on your customers and lead your people as though their lives depend on your success.”

44. “I have no idea on timing. It’s easier to tell what will happen than when it will happen. I would say that what is going on in terms of trade policy is going to have very important consequences.”

45. “Cash never makes us happy. It’s better to have the money burning a hole in Berkshire’s pocket than resting comfortably in someone else’s.”

46 .“Only when you combine sound intellect with emotional discipline, you get rational behavior.’

47. “Somebody once said that in looking to hire people, look for three qualities; Integrity, intelligence and energy. If they don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without the first, you really want them to be dumb and lazy.”

48. “Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be mis-appraised.”

49. “Never invest in a business you can’t understand.”

50. “In the short term, the market is a popularity contest. In the long term, the market is a weighing machine.”

51. ‘The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”

52. “Stop trying to predict the direction of the stock market, the economy or elections.”

53. “Risk can greatly be reduced by concentrating on only a few holdings.”

54. Unless you can watch your stock holding decline 50% without becoming panic stricken, you should not be in the market.

55. “It is optimism that is the enemy of the rational buyer.”

56. “As far as you are concerned, the stock market doesn’t exist; ignore it.”

57. “The ability to say no is a tremendous advantage for an investor.”

58. “Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”

59. “An investor should act as though he had a lifetime decision card with just twenty punches on it.”

60. “Wild swings in the share prices have more to do with the ‘lemming like’ behavior of institutional investors than with the aggregate returns of the company they own. As a group lemmings have a rotten image but no individual lemming has ever received bad press.”

61. “Turns around seldom turn.”

62. “The advice ‘you never go broke taking a profit’ is foolish.”

63. “Can you really explain to a fish what it’s like to walk on land? One day on land is worth a thousand years of talking about it, and one day running a business has exactly the same kind of value.”

64. “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 is going up. You can’t buy what is popular and do well.”

65. “The important thing is to keep playing, to play against weak opponents and to play for big stakes.”

66. “There all kinds of businesses that Charlie and I don’t understand but that doesn’t cause us to stay up at night. I just mean we go on to the next one and that’s what the individual investor should do.”

67. ‘In a bulls market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm thinking that its paddling skills have caused it to rise in the world. A right thinking duck would compare its position after the downpour to that of the other ducks on the pond.”

68. “Charlie and I decided long ago that in an investment lifetime, it’s too hard to make hundreds of smart decisions. That judgment became ever more compelling as Berkshire’s capital mushroomed and the universe of investments that could significantly affect our results shrank dramatically. Therefore, we adopted a strategy that required our being smart and not too smart at that, only a very few times.” Indeed, we now settle for one good idea a year.”

69. “Success in investing doesn’t correlate with I.Q. Once you are above the level of 25; once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”

70. “We don’t get paid for activity, just for being right. As to how long we will wait; we will wait indefinitely.”

71. “All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it.”

72. “If you understood a business perfectly and the future of the business, you need very little in the way of a margin of safety.”

73. “So the more vulnerable the business is, assuming you still want to invest in it; the larger the margin of safety you’d need. If you are driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle. If the bridge is 6 inches above the crevice, you may feel okay but if it’s over the Grand Canyon, you might feel you want a little larger margin of safety.”

74. “One’s objective should be to get it right, get it quick, get it out and get it over. Your problem won’t improve with age.”

75. “The future is never clear and you pay a very high price in the stock market for a cheery consensus.”

76. “Uncertainty is the friend of the buyer of long term values.”

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

78. Managers thinking about accounting issues should never forget Abraham Lincoln’s favorite riddles: ‘How many legs does a dog have if you call its tail a leg. The answer is four because calling a tail a leg doesn’t make it a leg.

How is a bonus issue different from a stock split?

Most readers seem to have some confusion about whether bonus issue and stock splits are the same or not. They may appear to be the same especially in the eyes of a person not well-versed in finance. But they are, in fact, two different things. This article will help you to get a clear picture of the difference between the two.

WHAT’S THE DIFFERENCE?

Simply put- A bonus is a free additional share. A stock split is the same share split into two.

Usually companies accumulate it’s earnings in reserve funds instead of paying it to share-holders in form of dividend. This accumulated reserve fund is then converted into share-capital and allotted to share-holders as bonus shares in proportion to their existing holding. So, Share-capital of the company increases with a concomitant decrease in its Reserve profits. Share-holders get bonus shares in compensation of dividend.

But when a share is split, say, from Rs 10 denomination to Re 1 denomination, there would neither be an increase in the share capital nor a concomitant decrease in the reserves of the company. This is because while in a bonus issue a person having one share of Rs 10 face value would get another share of the same face value should the company go for a 1:1 bonus what would happen in a stock split is his one Rs 10 share would now be converted into ten Re 1 shares.

WHY DOES A COMPANY ISSUE BONUS SHARES?

One of the major reasons why companies declare bonus issues is that a higher number of shares improves float and liquidity and thereby traded volumes of the stock. A lower price also makes the stock seem more affordable to small retail investors, who might otherwise give it a miss at high price levels. Another aspect of a bonus issue is that it reflects the confidence of the company in its ability to service a larger equity base. Thus, bonus issues are said to be a good signaling mechanism on the company’s capacity to deliver future benefits to shareholders in terms of increased dividend.

Not all is positive with a bonus issue. In some cases, a bonus share ploy is used by companies to mask flagging performance and to perk up sentiment.

For example, a company has an authorized share capital of Rs. 1,00,000. It has issued 10,000 shares with a face value of Rs. 10 each. Thus, its issued share capital is also Rs. 1,00,000.It has an accumulated reserve of Rs. 10,00,000. It decides to issue bonus shares in the ratio of 1:1 or “1 for 1” – that is, 1 bonus share for each share held. In this case, it transfers Rs. 1,00,000 from its reserves to its authorized share capital. Thus, its reserves come down to Rs. 9,00,000, and its authorized share capital increases to Rs. 2,00,000.Using this new share capital of Rs. 1,00,000, the company issues 10,000 new shares, each having a face value of Rs. 10, and gives a new share – the bonus share – for each share held. Its issued share capital also goes up to Rs. 2,00,000.

HOW DOES BONUS SHARE AFFECT INVESTORS?

Immediately, It doesn’t affect your investments anyway. Post the bonus, the share price should fall in proportion to the bonus issue, thereby making no difference to the personal wealth of the share holder. However, more often than not, a bonus is perceived to be a strong signal given out by the company and the consequent demand push for the shares causes the price to move up.So, when stock prices move up in the long run, there will be dramatic increase in the wealth you’re holding.

WHY DOES A COMPANY SPLIT IT’S STOCK?

The primary reason is to infuse additional liquidity into the shares by making them more affordable. It needs to be reiterated here that the shares only appear to be cheaper, though it makes no difference whether you buy one share for Rs 3,000 or two for Rs1,500 each.

HOW DOES IT AFFECT YOU?

It is like cutting an eight-inch pizza into 12 slices from four slices before. But if you want to buy the shares of a company which are frightfully expensive, you can now buy them for less. Except for that , in a stock split, fundamentals about the company does not change, the issued share capital remains the same, the revenue remains the same, and the profit remain the same too! But, since the number of shares issued increases, the profit per share (or the Earnings Per Share – EPS) decreases by the same factor.

So, if EPS is Rs. 15 per share for a share having a face value of Rs. 10, after a 10:1 stock split, the EPS would come down to Rs. 1.5. But since you would be holding 10 shares now, your share of EPS remains the same: Rs. 1.5 * 10 shares = Rs. 15, which is as before!

So, if the PE of the stock is 20 in our example, the price would go down from Rs. 300 (EPS of Rs. 15 * PE 20 = Rs. 300 per share) to Rs. 30 (EPS of Rs. 1.5 * PE 20 = Rs. 30 per share). But again, since you would be holding 10 shares now, your actual holding remains the same: Rs. 30 * 10 shares = Rs. 300, which is as before!

So, there is absolutely no change anywhere, except for the number of shares traded!

WHY DOES MARKET CHEER STOCK SPLITS?

Stock market interprets a stock split as a statement of confidence by the company – it interprets a split as a signal from the company that it is confident about its future growth. Also, a stock split increases the number of shares traded in the market, which increases liquidity.These factors are considered positive, and therefore the market reacts positively!

TAX IMPLICATIONS

Bonus shares- As far as tax is concerned, since no money is paid to acquire bonus shares, these have to be valued at nil cost while calculating capital gains. The originally acquired shares will continue to be valued at the price paid at the time of acquisition. An incidental tax planning benefit is that since the market price of the original shares falls on account of the bonus, there may arise an opportunity to book a notional loss on the original shares. This is known as bonus stripping. The Indian Income-Tax Act has introduced measures to curb bonus stripping.

Stock splits – As far as the tax implications for stock splits are concerned, well, there aren’t any. A stock split, like a bonus issue, is tax neutral. However, when the shares are sold, the capital gains tax implications are different that what is applicable for bonus issues. Here, the original cost of the shares also has to be reduced. For instance, if the cost of the 100 shares at Rs 1,500 per share was Rs 1, 50,000, after the split the cost of 500 shares would be reduced to Rs 300 per share, thereby keeping the total cost constant at Rs 1, 50,000.

CONCLUSION

So, if you are an investor in the company, you have reason to celebrate when you get a bonus. But don’t celebrate when your company splits stock. It’s is just a technical change in the face value of the stock. But if you want to buy more shares, it is good news because now, you will be able to afford them or at least get them cheaper!

How to Be a Disciplined Stock Trader

This is a brief look at how to inculcate discipline when trading stocks.

Unlike in the forex or commodities market, trading profits in the stock market can only be gained when the value of the equity in which the trader has invested in appreciates in value. This puts a lot of responsibility on the shoulders of the stock trader or the manager of a stock-based investment club to make sure that trade calls are in order and that the stock is purchased at the right time to allow for appreciation and profitability.

The key to making money from stocks is to buy low, sell high. Put another way, finding and buying stocks that are presently undervalued, but have appreciative potential. It takes a lot of discipline to trade the stock market successfully. Many traders have been undone by not following the rules of stock trading, or by not knowing how to exert some discipline when trading stocks.

Trading discipline will root out many investment mistakes, and we shall now look at some ways a trader can bring some discipline into his stock trading. One of the easiest ways to lose money in the market is by being greedy. Warren Buffett, arguably the greatest stock investor of our time put it succinctly: “be fearful when the market is greedy, and be greedy when the market is fearful”. What exactly did he mean when he made these statements?

To understand the quote, let us explain what market greed is all about. Market greed is a situation where traders plunge into the market during a bull market to buy stocks for a quick profit run, especially when there are no justifiable fundamentals to support such a bullish momentum in the markets. At this point, what is driving the market is herd buying, a situation that arises because so many people want to profit from the bull that there is a demand surge, creating rising prices. Usually when prices have risen so high, professional investors “become fearful” of losing profits, and sell to the ready group of “greedy” herd buyers to take profits. Volumes begin to taper off as high prices begin to scare off more people from buying. The inevitable price collapse that follows causes many retail investors to lose money. Prices eventually hit rock bottom, and because many retail investors who are uninformed about how the market works would be “too fearful” to buy at this time, the smart money investors who recognize bargain opportunities when they present themselves, “get greedy” and buy into the opportunities cheaply, waiting for another round of bullishness to play out.

If you want to be a disciplined trader, you need to adopt the mindset of the smart money investors. They only buy into bargain opportunities. If prices have risen to a point where the effects of fundamentals have worn off, they exit the market. They know when to buy, when to take profits and when to take cover.

Smart money investors usually use some data from earnings reports such as the price-earnings ratio to make trade calls. It is a hallmark of market discipline to look at some of these figures as well in order to achieve the same results as the smart money investors.

Learn to Identify Breakouts in Trading Charts

The breakout is one of the most important concepts in technical analysis. It’s a direct, graphic representation that something happened to change the market’s sentiment toward a security. In the simplest terms, a breakout implies that a trend is over, at least in its present form. After a breakout, the price can go up, down, or sideways, but it seldom resumes at exactly the same level and rate of change you had before the breakout.

The first line of defense 

Your first line of defense is the configuration of the breakout bar. A simple judgment is to see whether the breakout is a violation of the channel line by the close, and not just the high or low.

A special version of the close rule is to evaluate whether the bar that breaks the line is a key reversal bar:

In an uptrend: The key reversal bar has a promising open — above yesterday’s close. The price even makes a new high over yesterday’s high, but then the price crashes and delivers a close at or near the low and below yesterday’s low. The market psychology isn’t hard to read — the day started out well but then something happened to make negative sentiment rule the day, right into the close.

In a downtrend: The key reversal bar initially confirms the trend — the open is below yesterday’s close and the price even makes a lower low. But then the price reverses direction and rallies strongly into the close, so that the close is above yesterday’s high. Good news must have come out.

Does volume verify?

Breakouts are often accompanied by a change in volume, usually an easily noticed higher level. Consulting volume for confirmation is in keeping with interpreting events on the chart in terms of supply and demand. You can verify that the breakout isn’t random by seeing an equivalent change in volume:

Increase in volume: Extraordinarily high volume on one or two days is named a volume spike and often accompanies the end of a strong trend, either a rally or a crash. Buying and selling interest is frenzied.

Decrease in volume: If volume declines steeply after holding steady at about the same level over the life of your trend, demand is falling off but so is selling interest. You don’t necessarily know what falling volume means, but it may foreshadow a breakout. All the people who wanted to sell have done so, and the people still holding an inventory aren’t willing to sell at the current price.

Size matters — and so does duration

You can use a filter to estimate whether a breakout is meaningful or can be ignored. Afilter is a formula or a procedure used to modify an indicator. In this instance, the indicator is the break of the channel line. A filter can modify the amount or duration of the breakout:

To modify the size of the indicator: Add some percentage of the total range to the channel line. You stipulate that to constitute a real break of the channel line, the new high or low must surpass this extra amount.

You can also specify that the close has to break the line by x percent to qualify as a real breakout. In either case, the result is a new channel line that is a little farther out, effectively widening the channel.

To modify the duration: Specify that you’re willing to accept one price bar violating the channel line, but not two. Or perhaps two days of violation, but not three. Also, you can combine the duration rule with the close rule and specify that the close beyond the line for x number of days is the sign of a true breakout.

Experienced technical analysts warn against making size and duration filters too complex and fancy, for a number of reasons:

Rules count. The breakout principle is a powerful and well-known concept. A lot of other traders in your security are likely to heed a breakout in a black-and-white way. They always exit on a downside breakout of a support line by the low, for example.

One size doesn’t fit all. No single correct filter exists for every security under all circumstances. You only know whether a filter is usable by testing different filters on the price history of each security, one by one.

Blending works only with coffee. The orderliness of your security can change without warning. Looking back over historical data to find the best filter has an enormous flaw: Chances are that you’ll come up with a blended percentage filter that’s too small for an orderly move and too big for a volatile one. And if today is the breakout day, you don’t know how volatile the upcoming move is going to be.

from the pages  of book, Technical Analysis For Dummies, 2nd Edition By Barbara Rockefeller