5 Warren Buffett Quotes to Live By.
Warren Buffett is one of the most successful investors around the world. Warren Buffett quotes, writings(especially the annual letter to shareholders) are a treasure of knowledge.
What makes him and his investment style interesting that it’s so simple, even a small investor can follow them and make a fortune. Warren Buffet does not shy away from sharing his knowledge with the world, and many of his quotes can provide to be a treasure of knowledge for most investors, especially if you are a beginner investor.
Out of hundreds of Warren Buffett quotes on the internet,we have chosen top 5 that every investor must always remember.
If implemented religiously in your investment journey, these principles of investing have the power to make you a champion investor.
Warren Buffett Quote #1:
“You don’t have to be a Rocket scientist. Investing is not a game where a guy with 160 IQ beats the guy with 130 IQ”
The most important quote of all. What Warren Buffett means in this quote is that you don’t have to dig too deep to find a great stock.
Most people who start investing in stock market think that they have to be a genius stock picker in order to be successful. That is so not true. Just use common sense.
Take a look around you and you, there are hundreds of products and services you use everyday. All of them are manufactured by some companies.
Take simple examples, the soap in your bathroom you are using for past many years, chances are it’s a product by Hindustan Unilever Ltd(HUL). In the past 5 years, HUL has given 25% CAGR returns to investor.
Using toothpaste? if its a Colgate, you have another great stock right in your bathroom. Colgate has provided 15% CAGR returns in the past 5 years.
Successful investing is all about common sense and discipline, it has very little to do with brain power. The reason why most investors fail to make money is because they over complicate things that are actually simple. So next time, before burning the midnight oil, or consulting a stock advisor, just take a stroll around your house, and you will find some great stocks for investment.
Warren Buffett Quote #2
“Be fearful when others are greedy, and greedy when others are fearful”
Another Warren Buffett quote that is preached a lot but is seldom practiced.
Warren Buffett in this quote tells you something that is based on pure common sense.Here is a simple rule of business, buy when its dirt cheap, without compromising with the quality, and sell when it’s insanely expensive.
When the market is going through tough phase, you will find many great companies (companies with great earnings growth and strong business) available at inexpensive valuations compared to their earnings growth.
At this point, most investors do not invest as they fear further decline in market. According to Buffett, this is the time to be greedy. If you think and act rationally, this is the time where great companies are available at cheaper valuations, creating great opportunity for investors to jump in and buy.
When the tides turn, and market becomes expensive, while most people become greedy, buying stocks at an expensive price, you as a rational investor will be fearful selling stocks, making big fat profits.
Warren Buffett urges you to think independently and act rationally. Market always goes through up and down cycles, and this is the very nature of it. If you really want to be successful, use market volatility to your advantage rather than being carried away by emotional ups and downs.
Warren Buffett Quote #3
“It is not necessary to do extraordinary things to get extraordinary results”
Most investors believe that more efforts will lead to better results. While this may be true for other other aspects of life, it is definitely not true in case of stock market. In order to maximize returns, many investors keep juggling stocks in their portfolio, very frequently, not realizing that it hardly ever makes any difference.
A research shows the difference between performance of portfolio juggling versus keeping stocks for long term. It turns out, that those who kept the stock for longer period of time got far better returns than those who kept switching stocks frequently.
This makes lot of sense as well, if you think logically, trying to time the market is almost impossible, unless you buy at extreme bottom and sell at extreme top, there is no way you can beat long term investing.
When you stay longer with the stocks, it not only cuts your costs (such as brokerage commissions, stamp duty and taxes), power of compounding works in your favour, creating a source of pure passive income without any effort or costs.
Warren Buffett Quote #4
“No matter how great the talent or the effort, some things take time you can’t produce a baby in a month by getting nine women pregnant”
Investing is like planting a seed, it will not show the results instantly, but over the period of time the results will be worth the wait.
Most investors see market as a place where fortunes can be made in no time. There is nothing far from truth. Investing is not a hack or a gig that will fetch huge returns in no time.
The market is a great compounding machine, but for that to happen you have to give it some time, and be patient with your investment. Thinking of stock as a lottery ticket is the biggest mistake an investor can make.
Every stock is a part ownership in a business. If the business does well, stocks will eventually follow. There is little you can achieve even if you put a lot of effort in it. The best way to get rich investing is to buy the right stocks, and give it time to grow and compound over the years.
Warren buffett says you do not have to do anything out of the box to be successful. Just follow the simple rules, and be patient, and it doesn’t even require great effort.
Warren Buffett Quote #5
“Price is what you pay, value is what you get”
Price and value are two different aspects of a stock. While price is something you pay for it, value is something you get out of it in return. The best investment is one that gives you maximum returns on the price paid for it. But how do you get that? Warren Buffet has the answer. Understand this with an example. Let’s say you are in a shop buying a shirt, you spot one that has perfect fit, excellent fabric, and great stitching quality. But as soon as you ;look at the price, you find that its too expensive. You decide not to buy and let go of that short.
A week later you encounter the same shirt, but this time, it’s available at 50% discount, you immediately buy that shirt.
So what changed? What made you changed that decision? Was it just the price? No, it was the difference between the price and value you derive out of that shirt.
In this case, while the price of the shirt declined by 50%, what didn’t change was the value of the shirt. Decline in price had no impact on the quality of fabric, stitching, and fitting of the shirt, reducing the gap between the price you paid and the value you derived from wearing it.
Every investor must look at the value derived from the price of that stock he is paying for. How has the company performed(both in terms of earnings and stock price performance) in the past years, and what are the future growth potentials?
Only after thorough analysis of all these factors, should you look at investing in a stock.
Warren Buffet is worshiped among investors for his insights, and simplicity of his investment approach. What makes his approach to investing so popular is that its universal. It does not matter how much capital you have too invest, if you follow his principles of investing and have patience to stay invested for long term, there is nothing to stop you from achieving financial freedom.