Words of Investing Wisdom from Warren Buffett

This forum is created to discuss everything about Investing, from investment principles, to theories, concepts, strategies to investment jargons to provide a easy reference for everyone

Moderators: alvin, learner, Dennis Ng

candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

For Buffett, long run still trumps quick return
Investment guru laments culture of trading to generate fees and fast profit

Published on Dec 08, 2012, The Straits Times

By andrew ross sorkin

"IF SOMEBODY bought Berkshire Hathaway in 1965 and they held it, they made a great investment - and their broker would have starved to death."

Mr Warren Buffett was having lunch with me at a private club in New York last week, lamenting the state of a Wall Street that promotes a trading culture over an investing culture and offers incentives for brokers and traders to generate fees and fast profit.

"The emphasis on trading has increased. Just look at the turnover in all of the stocks," he said, adding with a smile: "Sales people have forever gotten paid by selling people something. Generally, you pay a doctor for how often he gets you to change prescriptions."

Mr Buffett, 82, is famous for investing in companies that he sees as solid operations and essential to the economy, like railroads, utilities and financial companies, and holds his stakes for the long run. The argument that the markets are better off today because of the enormous amount of liquidity in the stock market, a function of quick flipping and electronic trading, is a fallacy, he said.

"You can't buy 10 per cent of the farmland in Nebraska in three years if you set out to do it." Yet, he pointed out, he was able to buy the equivalent of 10 per cent of IBM in six to eight months as a result of the market's liquidity.

"The idea that people look at their holdings in such a way that that kind of volume exists means that, to a great extent, it's a casino game." Of course, unlike many investors, he plans to hold his stake in IBM for years.

Mr Buffett was in a reminiscing mood about a bygone era, in part because he was in New York to make the rounds on television to discuss a new book chronicling his 61-year career, which began in 1951 at Buffett-Falk & Co in Omaha. (The book Tap Dancing To Work by long-time journalist Carol Loomis of Fortune magazine, is a compendium of articles that she and others wrote in Fortune that creates a series of narratives spanning the arc of his career.)

Ms Loomis, who met Mr Buffett in 1967, came to our lunch. She may know more about Mr Buffett than he knows about himself.

As we talked about the "good old days", it became clear that he was less enamoured of the investor class of the next generation.

When I asked, for example, if there were any private equity investors that he admired, he flatly replied: "No." When I asked if he followed any hedge fund managers, he struggled to name any, before saying that he liked Mr Seth Klarman, a low-key value investor who runs the Baupost Group, based in Boston.
warren buffett.png
warren buffett.png (21.15 KiB) Viewed 21187 times
"They're not as good as the old ones generally. The field has gotten swamped, so there's so much money playing and people have been able to raise money by just saying 'hedge fund'," he said.

"That was not the case earlier on; you really had to have some performance for some time before people would put money with you. It's a marketing thing."

He paused, and then posited that if he started a hedge fund today, "I'd probably grow faster, because a record now would attract money a lot faster", speculating that his record of returns would attract billions of dollars from pension funds and others.

But he then acknowledged a truism of investing that he knows all too well, as the manager of an enterprise that is now worth some US$220 billion (S$268 billion): "Then money starts getting self-defeating at a point, too."

Until 1969, Mr Buffett operated a private partnership that was akin in some ways to a modern hedge fund, except the fee structure was decidedly different.

Instead of charging "2 and 20" - a 2 per cent management fee and 20 per cent of profits - his investors "keep all of the annual gains up to 6 per cent; above that level Buffett takes a one-quarter cut", Ms Loomis wrote. However, in 1969, he announced he would shutter his partnership. "This is a market I don't understand," he said, according to Ms Loomis.

He believed that the stock market of 1968 had become wildly overpriced - and he was right. By the end of 1974, the market took a tumble. Instead, he remained the chief executive of Berkshire Hathaway, one of his early investments.

"If you want to make a lot of money and you own a hedge fund or a private equity fund, there's nothing like 2 and 20 and a lot of leverage," he said at lunch. "If I kept my partnership and owned Berkshire through that, I would have made even more money."

Mr Buffett says he now considers himself as much a business manager as an investor. "The main thing I'm doing is trying to build a business, and now we built one. Investing is part of it but it is not the main thing."

Today, Mr Buffett is particularly circumspect about the investment strategies that hedge funds employ, like shorting, or betting against, a company's stock. He used to short companies as part of a hedging strategy when he ran his partnership, but now he says that he and Mr Charlie Munger, his long-time friend and vice- chairman of Berkshire, see it as too hard.

One of his big worries these days is about what's going to happen to all the pension money that is being invested in the markets, often with little success, in part because investors are constantly buying and selling securities on the advice of brokers and advisers, rather than holding them for the long term.

"Most institutional investors, whoever is in charge - whether it's the college treasurer or the trustees of the pension fund of some state - they're buying what they're sold."

Most pension funds probably didn't buy Berkshire in 1965 and hold it, but if they had, they would have far fewer problems today.



At the end of her book, Ms Loomis says when she mentioned Mr Buffett's name for the first time in Fortune magazine in 1966 - accidentally spelling Buffett with only one "t" - Berkshire was trading at US$22 a share. Today it is almost US$133,000 a share.

THE NEW YORK TIMES
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

Warren Buffett Shares His Secret: How You Can 'Tap Dance to Work'
Published: Wednesday, 21 Nov 2012 | 3:48 PM ET, CNBC
By: Alex Crippen, Executive Producer

Warren Buffett loves his job. If you ask him, he'll tell you he "tap dances to work" every morning. And he's happy to tell you how you can do it too.

Buffett's joyful phrase inspired Carol Loomis to call her new book Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012.

It's a collection of Fortune magazine's stories about the Berkshire Hathaway CEO, going back to 1966, along with commentary by Loomis.

She is Senior Editor-at-Large at Fortune, and a long-time friend of Buffett's. Each year, she edits Buffett's popular annual letter to Berkshire Hathaway shareholders.

In a piece about the book, Loomis writes about how she first encountered Buffett and shares some quotes from past years.

She also sat down with Buffett and Fortune Managing Editor Andy Serwer for some video clips covering her friendship with the Omaha billionaire, why Buffett is giving away his money, his online bridge hobby, and whether he ever plans to retire.

In this clip, he's asked how the rest of us can find a job that has us tap dancing to work. Here's his advice:

"Find your PASSION.

I was very, very lucky to find it when I was seven or eight years old...


You're lucky in life when you find it.

And you can't guarantee you'll find it in your first job out. But I always tell college students that come out (to Omaha),

'Take the job you would take if you were independently wealthy. You're going to do well at it.'"


And if Buffett hadn't found his passion for investing? He says he might have been a journalist.
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

Warren Buffett Got His Start With Only $9,800
The Huffington Post | By Catherine New | Posted: 03/29/2012 3:13 pm

Take it from the world's greatest investor, Warren Buffett, you don't need much money to get rich.

Back in 1955, when the Oracle of Omaha was but a young thing, he only had $9,800 to his name.

Today he is worth nearly than $40 billion.


What's the secret to his success?


In a first-person article for the April issue ForbesLife magazine, Buffett talks about getting his start:

The thing is,

~~ when I got out of college, I had $9,800,
~~~ but by the end of 1955, I was up to $127,000.

~~~~ I thought, I’ll go back to Omaha, take some college classes, and read a lot--I was going to retire! I figured we could live on $12,000 a year, and off my $127,000 asset base, I could easily make that.

I told my wife, “Compound interest guarantees I’m going to get rich.”
Compounding.png
Compounding.png (33.03 KiB) Viewed 21058 times
It's worth repeating again: The Secret to Getting Rich as an Investor is the Power of COMPOUND INTEREST. And you don't even need $9,800 to get started.

A slew of new websites are aimed at making it easier than ever to get everyday investors into markets--without having to go through an investment advisor. With as little as $25, you can get started saving for long-term goals--like a down payment for a house or buying a new car.

A quick example to demonstrate the power of compound interest:

=> A 25-year-old investing $500 per year until retirement at age 68 would earn $142,375 at a constant return rate of 7 percent.

http://www.huffingtonpost.com/2012/03/2 ... 88432.html
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

"Success in investing doesn't correlate with I.Q. once you're 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.
"
accord
Silver Forum Contributor
Posts: 71
Joined: Mon Oct 17, 2011 10:36 pm

Re: Words of Investing Wisdom from Warren Buffett

Post by accord »

7 Ways to Find Stocks using Low Risk Investment Strategies

1. Focus on an existing business – Look at businesses with long history of operations that you can analyze. This is less risky than trying to figure out a startup.

2. Buy simple businesses in industries with an ultra slow rate of change – Buffett tells us

“we see change as the enemy of investments…so we look for the absence of change. We don’t like to lose money. Capitalism is pretty brutal. We look for mundane products that everyone needs.”

3. Buy distressed businesses in distressed industries –

“Never count on making a good sale. Have the purchase price be so attractive that even a mediocre sale gives it good results.”

4. Buy businesses with a moat –

“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products and services that have wide, sustainable moats around them are the ones that deliver rewards to investors.”

5. Bet heavily when the odds are overwhelmingly in your favor – if the market is offering you 10 to 1 odds in your favor for a particular company, would you bet on something else or bet heavily on that one bet and look to do it again and again?

6. Buy businesses at big discounts to their underlying intrinsic value – Minimize downside risk before ever looking at upside potential. If you were to buy an asset at a steep discount to its intrinsic value, even if the future turns out completely unexpected and worse, the odds of loss in capital are low. Ben Graham first brought this concept by stating that

“…the function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimate of the future.”

7. Look for low risk, high uncertainty businesses – This is a great combination. It produces severely depressed prices for businesses. Think back to the tech bubble. Had you bought great businesses such as Adobe, Apple, Cisco etc at the depressed prices, I’m sure you would be a millionaire right now.



Buffett wrote a paper a while back called The Superinvestors of Graham and Doddsville which discusses the value investing strategies of Benjamin Graham, Warren Buffett and his coalition of “The Superinvestors of Graham and Doddsville” that shows it is indeed possible to keep risk low while producing staggering returns.
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

“Much Success can be attributed to INACTIVITY.

Image

MOST investors CANNOT Resist the Temptation to Constantly Buy and Sell.”
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

If a Business does WELL,

Image

===> the Stock EVENTUALLY Follows.


Image
candy_chia
Investing Mentor
Posts: 1731
Joined: Sun Jul 17, 2011 11:36 am

Re: Words of Investing Wisdom from Warren Buffett

Post by candy_chia »

"HONESTY is a very expensive gift,

Image

Don't expect it from cheap people."
- Warren Buffett


One should be aware of fraudulent brokers and daily intraday tips provider as they often misguide the potential investor just for making few bucks for themselves.

Warren Buffett remains in his home town of Omaha instead of following the investing herd and moving to Wall Street.

Warren Buffett has said this makes him a better investor, because he doesn’t get caught up in the fear, greed or conventional wisdom that other investors fall prey to.

http://www.zimbio.com/Warren+Buffett/ar ... en+Buffett
cwe
Posts: 5
Joined: Mon Jun 03, 2013 11:39 pm

Re: Words of Investing Wisdom from Warren Buffett

Post by cwe »

Read an interesting article on `times` about how some researchers try to create some formulae to replicate Warren Buffett`s way of investment. The article is titled `Inside Buffett`s Brain` by Pat Regnier. I managed to read it on my mobile phone, but my computer is blocking the `times` website. Not sure why. If interested, you can google it.
ngtfook
Platinum Forum Contributor
Posts: 625
Joined: Sat Mar 12, 2011 8:16 pm
Location: SG

Re: Words of Investing Wisdom from Warren Buffett

Post by ngtfook »

Value Investors Hoarding Cash See Few Bargains After Rout
By Charles Stein Oct 20, 2014 12:00 PM GMT+0800
http://www.bloomberg.com/news/2014-10-2 ... -rout.html



Warren Buffett, Chief Executive Officer of Berkshire Hathaway Inc., has said he is waiting for a “fat pitch,” his phrase for an opportunity to buy a stock at a favorable price

Eric Cinnamond had 75 percent of the money in his mutual fund in cash at the end of July because he couldn’t find enough cheap small-company stocks to buy. The stock-market selloff this month hasn’t changed his mind.

“While the recent decline is refreshing, in my opinion, small caps remain expensive given the insane heights they reached this cycle,” Cinnamond, manager of the $691 million Aston/River Road Independent Value Fund, (ARIVX) wrote in an e-mail.

A global rout in stock markets has wiped $3.3 trillion from the value of equities worldwide this month through Oct. 16 and the Standard & Poor’s 500 Index has slumped 6.2 percent since reaching a peak for the year on Sept. 18. The plunge hasn’t been enough for Cinnamond and other money managers who hold unusually high levels of cash, such as Stephen Yacktman of Yacktman Asset Management LP and Wally Weitz of Weitz Investment Management Inc., who say bargains still aren’t easy to find.

“It’s not as if the world is all of a sudden dirt cheap,” Keith Trauner, co-manager of the $509 million GoodHaven Fund, said in a telephone interview from Miami. “It’s becoming more reasonable,” said Trauner, whose fund had 28 percent of its assets in cash as of May 31.


The caution of the stock pickers isn’t matched by debt investors. Firms from Pacific Investment Management Co. to Blackstone Group LP (BX) say they are poised to scoop up speculative-grade corporate bonds after yields rose to the highest level in more than a year. They’re looking for bargains after building up the biggest hoard of cash in almost three years.

Stocks Plunge

Stocks worldwide have plunged in October amid concern that economic growth in Europe and China is slowing and the U.S. winds down asset purchases. The slump also reflects fears about the effect of the spread of Ebola and a decline in energy stocks after oil prices reached bear-market territory.

The S&P 500’s decline has pared its gain for the year to 2.1 percent as of Oct. 17. The Russell 2000 Index, a benchmark for smaller stocks, is down 6.8 percent for the year and 10 percent below its 2014 peak reached in March. Energy is the worst performing industry in the S&P 500 in October, declining 8.2 percent this month, according to data compiled by Bloomberg.

Value-minded investors such as Cinnamond and Yacktman, who look for stocks that are cheap compared with a company’s earnings prospects, will build up cash when they can’t find enough securities that meet their standards. The average U.S. equity fund holds about 3.5 percent its assets in cash, data from Chicago-based Morningstar Inc. show.


Buffett, Klarman

Warren Buffett’s Berkshire Hathaway Inc. (BRK/A) held more than $50 billion in cash at the end of June, the first time it finished a quarter above that level since he became chairman and chief executive officer more than four decades ago.

Buffett has said he is waiting for a “fat pitch,” his phrase for an opportunity to buy a stock at a favorable price. He said this month in Fortune’s Most Powerful Women Summit that most of the time, stocks tend to trade in what he calls “the zone of reasonableness” and that he’ll get a chance every five to ten years to make a definitive statement.

“There is a big zone of reasonableness and anybody who thinks they can pinpoint it is crazy,” Buffett said during the conference.

Seth Klarman, founder of Boston-based Baupost Group LLC, had almost 40 percent of his hedge fund in cash at the beginning of the year, according to his 2013 year-end letter to shareholders. Klarman is a bargain hunter who wrote the preface to the sixth edition of “Security Analysis,” a landmark 1934 book by Benjamin Graham on value investing.

‘Lost Capital’

“We prefer the risk of lost opportunity to that of lost capital,” Klarman wrote in a letter to clients a decade ago.

Buffett didn’t respond to a message left with an assistant seeking comment on Berkshire’s cash hoard. Klarman declined to comment on his view of the market.

Cinnamond has a history of piling up cash. At his last job, as manager of the Intrepid Small Cap Fund he boosted cash in 2007, saying that small-cap names were expensive. The decision helped Cinnamond beat 96 percent of peers in 2007 and 99 percent in 2008 as small stocks tumbled. Cinnamond ran the Intrepid fund until 2010.

“I was fully invested in March 2009,” he said in a telephone interview from Ponte Vedra, Florida, referring to the low point for the stock market.

At the Aston fund, his cash levels have climbed sharply, which caused him to trail more than 99 percent of rivals last year, according to data compiled by Bloomberg. This year, he is beating 92 percent. Cinnamond said small stocks would need to fall an additional 30 percent to 50 percent to bring their valuations down to normal historical levels.

“These stocks are nowhere near the price they need to be for us to be aggressive buyers,” he said.

‘Asinine’ Valuations

Jayme Wiggins, who succeeded Cinnamond on the $650 million Intrepid Small Cap Fund in 2010, shares his predecessor’s concerns. Wiggins, who had 74 percent of his fund in cash as of Sept. 30, has been able to put a little of that money to work recently in energy stocks, which he said, “have felt more pain.”

“Small-cap valuations are still quite asinine,” he wrote in an e-mail.

The Russell 2000 Energy Index is down 24 percent for the year, according to data compiled by Bloomberg. Oil has slipped into a bear market as shale supplies boost U.S. output to the highest level in almost 30 years amid signs of weakening global demand.

‘Wish List’

Matt Lamphier, a manager at the $3 billion First Eagle U.S. Value Fund, (FEFAX) has also found some bargains in energy of late. He can’t find them elsewhere in the market, he said in a telephone interview from New York. The fund, which has about 18 percent of its assets in cash, hasn’t been an aggressive buyer of stocks since 2011, the last time the broader market fell significantly, said Lamphier.

“We have a wish list of stocks, but we need to see prices a bit lower than they are before we would buy,” he said.

Weitz, who manages more than $5 billion in mutual funds and separate accounts, has pared cash levels in his funds by 5 to 10 percentage points since they peaked at about 30 percent in the third quarter, he said.

Weitz, whose $1.1 billion Weitz Partners III Opportunity Fund beat 97 percent of peers over the past five years, said he has found a few new companies to buy in the past few days.

“But it’s nothing like 2008 and 2009 where bargains were screaming at us,” he said in a telephone interview from Omaha, Nebraska.

Fruit Picker

Yacktman, chief investment officer at Austin, Texas-based Yacktman Asset Management, has been telling investors for the past few quarters that stocks in general were expensive. In one conference call, he likened the plight of a stock picker in today’s market to that of a fruit picker, high up on a ladder. In both cases, there is not much to pick and the job has become more dangerous. The $10.6 billion AMG Yacktman Focused Fund (YAFFX), held 16 percent of its assets in cash as of Sept. 30, according to the fund’s website.

“We are glad to see it,” he said of the recent market selloff, in a telephone interview. “It brings us back into the game.”

At the Goodhaven Fund, Trauner said the best time to buy stocks is when markets are depressed.

“Although we wish ill will on nobody, the best opportunities usually show up after some segment of investors has suffered -- and we are working hard to make sure that we’re not the ones in great pain,” he and his co-manager Larry Pitkowsky told shareholders in their semi-annual report.
Price is what you pay; Value is what you get
RayNg
Post Reply