Wednesday, 2 September 2015

Buffet only has 3 types of quotes

We have often seen Mr Buffet's quotes being thrown left right center in all occasions, and it seems like his quotes are telling us a lot of things. But all his quotes actually fit into 3 main categories.

Don't anyhow invest - Stop doing stupid shit.
Chill - Stop predicting, thinking too much about share price movements
Generic advice about value - His not going to give you all his secrets

Out of the 3 categories, the one I like best is about telling people not to anyhow invest?

Why? Because we keep doing the same mistakes over and over again. Its all well and good to quote warren about how to make money (buy stocks below intrinsic value, economic moat bla bla bla), but most retail investors forget the 1st step of making money is not to lose it.


Here are my top 3 favorite quotes:

“The first rule is not to lose money. The second rule is not to forget the first rule.

Everyone states their goal is to earn double digit returns/beat the market/whatever. For my personal portfolio, it has always always been 'don't lose money'

When I analyze I stock, I always start of with, is this cheap enough? Why the hell am I paying for stock when its trading so and so discount/premium to its 5 year average PE? After that then I start looking at the company's prospects going forward and its financials.

Its like jobs, wanting a job that has good career prospects, high pay, fulfilling out is all good. But my overriding factor is 'I don't want to wake up dreading going to work 5/7 times a week' or 'a job that makes me dread the least when I wake up'

Ground yourself by looking at the value/downside first, then we talk about making money

“I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that …I’m paying $32 billion today for the Coca Cola Company because… If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.“

I stated this in the previous post, but grounding yourself is important so I'll say it again, before buying a stock, write your reasons why you are buying this stock, and then read and ask yourself 'Am I really really going to put $5,000 of my hard earned money because of these few lines?'

Additional questions include

'Where the fuck did I get that 10% earnings growth number from?'

'Did I really believe that the company is going to turnaround with new store openings, like how do I even know that the new stores will succeed. Faith? Crystal Ball? Good management?

'Ok so the company has a good cash flow management and balance sheet, so what? 400 other companies have that. Am I really going to buy it because its historical fundamentals look nice?

'Why am I buying it at $5? Why not $4? Whats my selling price? $10?, $1, 'see how?'

Is my entire argument based on 'commodities are finite and the world population is growing so I should buy commodities because... demand and supply'. You'd be amazed how many people make this type of argument (yes even me), other variations include

'this company is going to china, I like china growth'
'more and more people will take the mrt'
'property values in Singapore always go up because not enough land'

If you want to make this argument, fine. But make sure this is point 1 out of the 20 reasons to invest

“It is not necessary to do extraordinary things to get extraordinary results.”

This quote along with 'step over 1 foot bars', 'know your circle of competence', 'I get maybe 2-3 good ideas a year' mean the same thing

Don't know anything about commodities? Screw it, don't buy olam. 'Have no idea what capitaland is doing is china?' Fuck it then, I rather play dota.

Stick to what you know, if you don't know anything stick to easy to understand companies like consumer goods. Warren Buffet gets about 2-3 good ideas a year where he goes all in, and sometimes even less, so I'm not sure how can people come up with 10-20 must buy things in 6 months.

When you don't know what to buy with your money, don't buy. Losing money by inflation is better than losing money by buying the wrong stock (+ you still get hit by inflation, double sucky)

Anywhere here is the rest of the quotes I can find on Warren Buffet that can be classified into these few categories

Don't anyhow invest - Stop doing stupid shit.
  1. “Never invest in a business you cannot understand.”
  2. “We will only do with your money what we would do with our own.
  3. “If you don’t feel comfortable owning something for 10 years, then don’t own it for 10 minutes.”
  4. “I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.”
  5. “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.”
  6. “The first rule is not to lose money. The second rule is not to forget the first rule. 
  7. “It is not necessary to do extraordinary things to get extraordinary results.”
  8. “You only have to do a very few things right in your life so long as you don't do too many things wrong.”
  9. “I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that …I’m paying $32 billion today for the Coca Cola Company because… If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.“
  10. “You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making, or whatever it may be. And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it.“
 
Chill - Stop predicting, thinking too much about share price movements

  1. Always invest for the long term.
  2. No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.
  3. “We have long felt that the only value of stock forecasters is to make fortune-tellers look good.”
  4. “A prediction about the direction of the stock market tells you nothing about where stocks are headed, but a whole lot about the person doing the predicting.”
  5. Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”
  6. “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 ten years.
  7. The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch.
  8. 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.”
  9. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
 
Generic advice about value - His not going to give you all his secrets
  1. “I am a better investor because I am a businessman and a better businessman because I am an investor.”
  2. “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”
  3. “Buy companies with strong histories of profitability and with a dominant business franchise.”
  4. “When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.”
  5. “The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”
  6. “I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable.“
  7. “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price

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