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May 13 - November 2, 2018
When promised quick profits, respond with a quick “no.”
Know your limitations as an inexperienced investor. Keep things simple.
the fact that a given asset has appreciated in the recent past is never a reason to buy it.
tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values.
It's important to be careful when hearing macro opinions and opinions concerning how the market will move and change from pundits. Buffet advises looking at the value of an investment over the possible price it may deliver in the future.
Additionally Buffet highlights how useful daily market evaluations are. If you see a day where a stock's price is lower than the value of a company you can buy more of said stock.
climate of fear is your friend when investing; a euphoric world is your enemy.
Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.
We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.
through Berkshire you own major positions in companies that consistently repurchase their shares.
If you expect to be a net saver overtime, it can make sense to be happy to see a fall in the price of a stock you already own. It allows for investers to buy back more of a company through repurchase of shares.
Some people might call this scalping: it won't surprise you that practitioners opted for the French term, arbitrage.
What is arbitrage?
The simultaneous purchase of securities or foreign exchange on two different markets. The goal usually being to exploit price differentials that may exist.
also likened to scalping as this is the term used to describe reselling of shares for a large or quick profit.
“risk arbitrage,” as it is now sometimes called—has expanded to include the pursuit of profits from an announced corporate event such as sale of the company, merger, recapitalization, reorganization, liquidation, self-tender, etc.
Alt. Arbitrage
To evaluate arbitrage situations you must answer four questions: (1) How likely is it that the promised event will indeed occur? (2) How long will your money be tied up? (3) What chance is there that something still better will transpire—a competing takeover bid, for example? and (4) What will happen if the event does not take place because of anti-trust action, financing glitches, etc.?
But we do know that the less the prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.
Highlights Buffet's hesitancy and care to not jump head first into very uncertain territory.
(As Wall Streeter Ray DeVoe says: “Fools rush in where angels fear to trade.”)
An investor cannot obtain superior profits from stocks by simply committing to a specific investment category or style. He can earn them only by carefully evaluating facts and continuously exercising discipline. Investing in arbitrage situations, per se, is no better a strategy than selecting a portfolio by throwing darts.
Buffet crushes the idea of Efficient Market Theory. Markets are efficient most of the time, not ALL the time. Investors will only obtain these superior profits if they research and carefully evaluate facts.
This method will always be better than throwing darts at a board to select stocks or simply not doing anything at all.
In fact, the true investor welcomes volatility.
Over beta based theory
The theoretician bred on beta has no mechanism for differentiating the risk inherent in, say, a single-product toy company selling pet rocks or hula hoops from that of another toy company whose sole product is Monopoly or Barbie.
“Too much of a good thing can be wonderful.
Why overly diversify your portfolio instead of further investing in the companies you know well?
“If at first you do succeed, quit trying.”
“As time goes on, I get more and more convinced that the right method in investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes. It is a mistake to think that one limits one's risk by spreading too much between enterprises about which one knows little and has no reason for special confidence. One's knowledge and experience are definitely limited and there are seldom more than two or three enterprises at any given time in which I personally feel myself entitled to put full confidence.”
Keynes to a business associate
Second, and equally important, we insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying.
Consider when deciding to purchase equites
The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.
Obviously many companies in high-tech businesses or embryonic industries will grow much faster in percentage terms than will The Inevitables. But I would rather be certain of a good result than hopeful of a great one.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees.
In our view, though, investment students need only two well-taught courses—How to Value a Business, and How to Think About Market Prices.
the choice is between a questionable business at a comfortable price or a comfortable business at a questionable price, we much prefer the latter. What really gets our attention, however, is a comfortable business at a comfortable price.
“Fools give you reasons, wise men never try.”
If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible. I call this the “cigar butt” approach to investing.
I've said many times that 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.
From a risk standpoint, it is far safer to have earnings from ten diverse and uncorrelated utility operations that cover interest charges by, say, a 2:1 ratio than it is to have far greater coverage provided by a single utility.
Although you may receive better coverage from a single utility, there is far less risk involved in investing in mutiple companies at the loss of more coverage.
Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball in-field.) At $1,750 per ounce—gold's price as I write this—its value would be $9.6 trillion. Call this cube pile A. Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases,
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Argument against the long term disadvantages of gold purchase. An ounce of gold now is still an ounce of gold 20 years from now. That's not entirely useful compared to purchases that enable additional long term value.
My own preference—and you knew this was coming—is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment.
Buffet notes that this in his opinion will always be superiour to the many currency based approaches to investing.
Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk.
Buffet keenly notes that despite the medium of exchange - seashells, rocks etc. A businesse's value will instead be determined by their ability to deliver their product/service.
“institutional imperative:”31 the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate.
The institutional imperative is Buffet's name for the managerial failings of executives. Specific to their tendencies to blindly imitate their peers no matter how obviously poor the decisions are.
The most common cause of low prices is pessimism—sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
