Warren Buffett Quotes

Warren Buffett quotes on integrity. Why impeccable integrity is important to becoming a successful businessman and investor.

Warren Buffett pays very strong attention to integrity and honesty both when evaluating potential investments and when selecting managers for his businesses. As he likes to say, “There’s never just one cockroach in the kitchen”. A person or company that is dishonest about one issue is likely to be dishonest about something else as well. Any hint of dishonesty is an important red flag – that will help prevent you from investing in the next Enron.

Freddie Mac

One of the companies that Warren Buffett once invested in was Freddie Mac. However, Buffett later decided to pull out his investment. He observed that when executives offer earnings projections and realize that they cannot make the numbers, they start making up numbers. Otherwise, companies may engage in activities that do no necessary increase shareholder value, but that are motivated simply by the need to make up numbers. This is likely to lead to poor long-run performance. He also realized that earnings are unpredictable by nature – thus, any company that consistently hits earnings estimates exactly should be suspect.

Rose Blumkin

Warren Buffett cites Rose Blumkin as a formidable manager – he calls her an ‘800-pound gorilla’. Rose Blumkin, or Mrs B. ran a lean and highly admired operation at Nebraska Furniture Mart, one of the nation’s largest and most successful furniture stores. She was motivated by the simple but powerful motto, “Sell cheap and tell the truth”. This created an iron reputation for Mrs B. and her products, and generated for her a loyal following of customers.

Warren Buffett quotes on inflation. How inflation can impact your investments and why it is an important investment consideration.

In one of the Berkshire shareholder meetings, an investor asked Warren Buffett: ‘In a period of high inflation, which of your businesses will do well and not so well?’ Buffett’s answer to this illustrates another important investment consideration when making your next investment.

See’s Candy

In a time of high inflation, companies that will perform the best are those that require little capital investment to facilitate inflationary growth and that have strong market positions that allow them to easily increase prices with inflation. That is, if there are relatively few competitors providing the same product to the market.

Buffett cites the example of See’s Candy as one such business that will do well in a period of high inflation. As he notes, the value of dollar has fallen 85% since he bought that business, but See’s Candy sells 75% more pounds of candy and earns ten times the revenue in spite of that. This feat is possible because See’s has the freedom to price its products to offset inflation and does not require significant capital investment to offset that.

Utilities and Railroads

In a time of high inflation, companies that will not perform as well are those that are capital-intensive. Warren Buffett’s investments in utilities and railroads, for example, will not do as well.

Bonds will also not do as well in an inflationary era. They are unattractive if one believes that substantial inflation lies ahead, for coupon payments are fixed and do not ‘keep up’ with inflation. Also, dollar-denominated bonds carry further exchange-rate risk; the long-term outlook for the dollar remains negative, making long-term U.S. bonds less attractive as a purchase option.

Warren Buffett quotes on investing. What it takes to be the best investor in the world.

Keep your own counsel

One of the most important quotes from Warren Buffett is that successful investing that not require genius, high IQ or anything like that. Rather, it requires rationality and firmness of character.

Part of this is being able to keep your own counsel. Warren Buffett was always careful to do his own financial analysis, and did not want tipsters, advice-givers or financial soothsayers.

As he notes, the value of a stock has nothing to do with popular opinion – the kind of decision-making-by-consensus that we see on Wall Street does nothing to boost investment returns. It only leads to conventional thinking and unimpressive investment results. How can you ‘beat’ the market if you are following everyone else?

Fund managers who are constantly worried about redemptions invest with a very short time horizon. Occasionally, they have to buy into a stock just because every one else is or sell a stock just because every one else is – if they are constantly benchmarking even their short-term performance against their peers, they cannot ‘afford’ to miss the next big move.

Following public opinion results in a herd mentality that creates extreme swings in volatility as stocks fall in and out of favor. This is terrible who those who are part of the herd – and devastating if someone might have used high leverage to juice up his speculative returns. Paraphrasing one of his most commonly cited quotes: you never know who is swimming naked until the tide goes out.

As Buffett notes, the main losses to investors come from their buying low-quality companies when times are good – when everything in the market seems to be rising. For example, those who invested in Kmart took a beating when the economy took a downturn, as Kmart failed to invest in supply-chain technology while its competitor Wal-Mart was a great innovator in the space. The result was that Kmart performed terribly when the recession finally hit.

Warren Buffett quotes on hard work. If you want to become the world’s number one investor, there is no substitute for hard work.

Here is one of my favorite quotes on Warren Buffett: “By the age of 10, I’d read every book in the Omaha Public Library with the word finance in the title – some twice.”

This quote suggests that it was more than raw intelligence that got Warren Buffett to where he is today. Rather, it is the habit of continuous learning that he has developed that has gotten him so far. Buffett was very hardworking as a kid and very much wanted to learn everything he could about finance and the stock market. Charlie Munger once described Warren Buffett as a ‘learning machine’, and noted that if you observe Warren Buffett during the day, you will realize that half his time is spent ‘sitting on his ass and reading’.

Roger Lowenstein’s book on Warren Buffett describes how Buffett knew almost every balance sheet on the New York Stock Exchange. Beyond reading every business book that was available, Buffett also spent a lot of time poring over actuarial tables, reading heavy Moody’s manuals page by page, searching for companies that were on sale by Mr. Market that day.

Warren Buffett applied the same zest and hard work to his paper route. He peddled subscriptions and kept track of when each of his customers’ subscriptions expired, so he knows when to ask for new business.

Buffett’s love of reading makes it not seem like hard work to him. In fact, he often comments about how he loves his job so much that he tap dances to work every day. This love of reading is a common trait among many highly successful investors. Charlie Munger has frequently cited his own love of reading; Ron Perelman noted in an interview that he reads 10 financial reports a week.

Warren Buffett on hiring. What Buffett focuses on when hiring his CEOs and managers.

Difficult to Teach a New Dog Old Tricks

This unconventional quote explains Buffett’s approach to hiring. He values age and experience greatly – unlike many others, Buffett is not afraid of hiring older mangers. Rather, he says, ‘It is difficult to teach a new dog old tricks.’ Many Berkshire managers are past 70 – and their experience allows them run their companies even better than when they were young.

For example, when Buffett invested in FlightSafety International, Albert Ueltschi was already past 70. Buffett saw this as a great value add in hiring Ueltschi, as he had a lifelong affair with aviation, piloted the Charles Lindbergh, and was extremely experienced in the business. His years of experience would allow him to run FlightSafety International very well.

CEO Hiring

One of his letter to shareholders, Buffett says that CEO selection is the most important. This is because no one is senior to the CEO, and of the performance of everyone in top management, the performance of the CEO is the hardest to measure. This is because the metrics for measuring a CEO’s performance are often vague and easy to manipulate. Furthermore, since the relations between the CEOs and boards are traditionally congenial, boards may not be able to serve that regulatory role.

Thus, the solution to the CEO problem is to take extreme care in identifying CEOs who do not require structural restraints to perform well.

Consequently, Buffett gives his CEOs a simple set of commands – they only need to run their businesses as if they are the company’s sole owner, the company is their only asset, and they can never merge or sell the company indefinitely. Thus, Buffett wants his CEOs to manage with a long-term rather than a short-term horizon.

Warren Buffett Quotes on Economy. Why Warren Buffett remains optimistic about the American economy.

Burlington Northern Santa Fe

With the US debt downgrade, unresolved subprime mortgage crisis, high unemployment and host of other problems in the American economy, it is easy to be bleak about the future of the American economy. However, Warren Buffett remains upbeat and continued to bet heavily on the American economy. In 2009, Berkshire Hathaway acquired national railroad company Burlington Northern Santa Fe – this was an enormous bet on America, as the success of the railroad industry was closely tied to domestic production and the success of the American economy. What is the source of this optimism?

Born on August 30 1930, Warren Buffett has always talked about how grateful he is to be born in America. Once, Buffett commented that if someone had crawled into his womb and told him what the world was like then, he might not have come out. However, as he notes, the average standard of living has increased 6 for 1 since 1930.

The American Spirit

He remains very optimistic on America because he believes we have a system that works magnificently. Although the American economy has always had troubles and crises of various proportions, the country has always been able to overcome them and come out very far ahead.

One story I remember him telling in one of the shareholder’s meetings was that when he got out of school in 1951, someone he very much admired told him that he had a good future, but not to start in stocks then because the Dow will never go above 200. But look at how far we have come since.

Thus, although the current situation may seem bleak, Warren Buffett continues to have faith in the American economy. Here is another quote by Warren Buffett on the economy: in the next 100 years, we will have 15-20 lousy years but will eventually be much much further ahead.

Warren Buffett Quotes on greed. The following Warren Buffett quotes on being greedy will help you refine your investing acumen.

Market Climax of Greed: 1969-1972

When was it important to sell? In 1969, those who were greedy were caught. Back then, the bull market that lasted through 60s was about to climax, before it bubbled in 1971 and 1972, and collapsed in 1973 and 1974. At that time, Buffett decided to exit the market at just the right time. Stocks were trading at price to earnings ratios of more than 50 when he sold; they dropped to single-digit price to earnings ratios since.

The other important time to sell was in 1998. This was another time when the market was giddy with greed. Many people lost sight of their regular careers and businesses and spent all their time ‘playing’ the stock market because it seemed so easy to ride the rocket of the stock market to great riches.

Another Market Climax of Greed: 1998-2000

In 1998, most of Warren Buffett’s stocks had price to earnings ratios greater than 50. He realized that his portfolio was overpriced and quite ingeniously negotiated a giant acquisition with his overvalued Berkshire shares. Berkshire Hathaway paid for its acquisition of General RE through a stock swap, where both parties agreed to swap 100% of General Re for $22 billion in BRK stock. Since the stock of Berkshire was grossly overvalued then – the deal was actually a steal for Buffett. That the deal was all-stock also meant that it could be structured as a tax-free merger.

When is everyone too greedy

How do you know when everyone is too greedy? Here are some tell-tale signs:

• Analysts and media pundits begin to say that earnings no longer matter and that sales multiples should be used instead – this was rampant during the Dot Com Bubble.
• Value-oriented fund managers begin to get out of the game, as they realize that there are no longer any under-valued stocks in the market.
  

Warren Buffett quotes on business. What Warren Buffett thinks about what it takes to do good business.

Warren Buffett Quote on Berkshire

‘When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.’

What is this quote about? The first investment that Warren Buffett made, Berkshire Hathaway. It serves as a reminder of the limits of even the very best managers. When Warren Buffett purchased Berkshire Hathaway, it had an accounting net worth of $22 million. He later realized that its intrinsic business value was considerably less because its textile assets were unable to earn returns commensurate with their accounting value. From 1976-1985, Berkshire’s aggregate sales of $530 million produced an aggregate loss of $10 million.

At first, Warren Buffett thought that the business could be turned around by good managers. However, Berkshire never became a good earner, not even in secular upswings in the business cycle. That led to the Warren Buffett quote above.

Worst kind of business

In his annual shareholders’ meetings, Warren Buffett noted that the worst kind of business is one with tons of receivables and inventories – this is because if volume stays flat and price level doubles, one needs to come up with double the amount of money to do that kind of business.

Ideal kind of business

What is the ideal kind of business? Warren Buffett frequently cites See’s Candy as such an example of an ideal business. See’s Candy was doing $25 million of business in volume when bought (with $9 million in tangible assets), and now doing $300 million worth of business (with $40 million in tangible assets). Even if the price of candy doubles, See’s has no receivable to speak of and no inventory to store.

Warren Buffett Quotes on Airlines. Why does Warren Buffett shuns airlines? Quotes from Warren Buffett on the airline industry.

Warren Buffett Investment in US Air

In 1989, Buffett purchased $358 million of US Air preferred with 9.25% dividend, mandatory redemption in 10 years, and right to convert into common at $60 a share.

Although Buffett eventually made money on this investment, he almost lost all of it as US Air neared bankruptcy in the interim. Buffett would not have invested in retrospect. As he says, ‘Stay away from the airline industry’. He shuns the airline industry in general, as it is a high fixed cost and highly competitive industry that has on the whole made negative returns for its investors.

Nonetheless, it is true that his timing also played a factor – during that time period, Midway, Pan Am, and America West all entered bankruptcy. This made 1991 a disastrous year for the airline industry.

Warren Buffett Investment in NetJets

Buffett acquired NetJets for $725 million in 1998, with 50% in cash and 50% in stock. The company pioneered the notion of ‘time sharing’ of corporate jets, allowing customers to own fractions of business jets. This lowers the cost of the plane by reducing the opportunity cost of idle time. Under this scheme, NetJets profits in two ways: first, it purchases steeply-discounted planes from manufacturers and sells them to customers at retail price; second, its customers pay NetJets fees to manage the time sharing.

NetJets has been an excellent investment for Buffett, who has also been a fervent unpaid salesman for the company. NetJets has a strong international presence and counts among its customers such public figures as Roger Federer, Carrie Underwood, Wayne Gretzky, Arnold Schwarzenegger and Sylvester Stallone.

Prior to purchasing the company, Buffett had been a satisfied customer for three years. He thus could testify to how well-managed and well-run the company was. NetJets had also built a strong brand name with its promise of quality service, safety and security.

Warren Buffett quotes on success – this collection draws from the large collection of wit and wisdom from Warren Buffett. The following quotes focus on what he has to say about success in life:

As one of the Indianopolis ‘500’ winners said, ‘To finish first, you must first finish.’
– This was Warren’s exhortation against taking on debt. He was never in a hurry to make a lot of money, and did not like the minor chance that taking on debt might throw him out of the game completely.

We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen… Fear is the foe of the faddist, but the friend of the fundamentalist.

An intelligent person can make more money over time thinking about productive assets rather than speculating in commodities. If we had done only oil from the beginning, we would not have done any better than what we have done. What we have done is much easier than what you are trying to do – and we like easy. Don’t know how to get an edge in that activity; don’t know people who actually have an edge in trading oil.
– This was Warren musing on how difficult it is to try to time the oil market.

Warren Buffett Success Quote

Secret of success in a field is getting very interested in it. Every Thanksgiving, Ajit flies to London, because they don’t have a Thanksgiving holiday. (Working hard was really the secret behind how Warren Buffett beat the market)

Doing a lot of reading — I did a lot of reading; practically lived in the Omaha Public Library for 3-4 years as a teenager

Find something you are passionate about early on and work on improving your skills, will do much better later on.

Anything you can do to improve your own skills will pay off
– The one diploma he has hanging in his office: Dale Carnegie diploma that cost him $100 back in 1951.
– Communication skills the first you would work on to enhance your value throughout life no matter what you do. If had stayed in same position he was in back in 1951, his life would have turned out very differently.