Intelligent Investor's Notes: Warren Buffett

Showing posts with label Warren Buffett. Show all posts

Monday, 5 October 2015

How Buffett Interprets the Cash Flow Statement

Capital Expenditures

Never invest in telephone companies because of big capital outlays
Important: company with durable competitive advantage uses a smaller portion of earnings for capital expenditure for continuing operations than those without.
To compare capex to net earnings, add up total capex for ten-yr period and compare with total net earnings over the same period
Important: if historically using less than 50%, then good place to look for durable competitive advantage. If less than 25%, probably has a competitive advantage.

The Cash Flow Statement Summary Table

Capital Expenditures	historically using < 50% then good place to look for d.c.a. < 25% probably has d.c.a.	Add up total cap exp for ten-yr period and compare w/ total net earnings over period.
Stock Buybacks	indicator of d.c.a. is a history of repurchasing/retiring its shares	Look at cash from investment activities. “Issuance (Retirement) of Stock, Net”

Read more on the Cash Flow Statement Analysis on my previous post - http://intelligentinvestor8.blogspot.my/2014/06/cash-flow-statement-analysis.html

Or, take a look on How Buffett read other financial statements:-

References:-

Uncovering How Buffett Interprets the Financial Statements - Jae Jun

How Buffett Interprets the Balance Sheet

Cash and Equivalents:

A high number means either:

The company has competitive advantage generating lots of cash
Just sold a business or bonds (not necessarily good)
A low stockpile of cash usually means poor to mediocre economics.

There are 3 ways to create large cash reserve.

Sell new bonds or equity to public
Sell business or asset
It has an ongoing business generating more cash than it burns (usually means durable competitive advantage)

When a company is suffering a short term problem, Buffett looks at cash or marketable securities to see whether it has the financial strength to ride it out.
Important: Lots of cash and marketable securities + little debt = good chance that the business will sail on through tough times.
Test to see what is creating cash by looking at past 7 yrs of balance sheets. This will reveal how the cash was created.

Inventory

Manufacturers with durable competitive advantages have the advantage that the products they sell do not change, and therefore will never become obsolete. Buffett likes this advantage.
When identifying manufacturers with durable competitive advantage, look for inventory and net earnings that rise correspondingly. This indicates that the company is finding profitable ways to increase sales which called for an increase in inventory.
Manufacturers with inventories that spike up and down are indicative of competitive industries subject to boom and bust.

Net Receivables

Net receivables tells us a great deal about the different competitors in the same industry.
In competitive industries, some attempt to gain advantage by offering better credit terms, causing increase in sales and receivables.
If company consistently shows lower % Net receivables to gross sales than competitors, then it usually has some kind of competitive advantage which requires further digging.

Property, Plant & Equipment

A company with durable competitive advantage doesn’t need to constantly upgrade its equipment to stay competitive. The company replaces when it wears out.
On the other hand, a company without any advantages must replace to keep pace.
Difference between a company with a moat and one without is that the company with the competitive advantage finances new equipment through internal cash flows, whereas the no advantage company requires debt to finance.
Producing a consistent product that doesn’t change equates to consistent profits. There is no need to upgrade plants which frees up cash for other ventures. Think Coca Cola, Johnson & Johnson etc.

Goodwill

Whenever you see an increase in goodwill over a number of years, you can assume it’s because the company is out buying other businesses above book value.
GOOD if buying businesses with durable competitive advantage.
If goodwill stays the same, the company when acquiring other companies is either paying less than book value or not acquiring. Businesses with moats never sell for less than book value.

Intangible Assets

Intangibles acquired are on balance sheet at fair value.
Internally developed brand names (Coke, Wrigleys, Band-Aid) however are not reflected on the balance sheet.
One of the reasons competitive advantage power can remain hidden for so long.

Total Assets & Return on Total Assets

Measure efficiency using ROA
Capital is barrier to entry. One of things that make a competitive advantage durable is the cost of assets needed to get in. This is why we calculate the Asset Reproduction Value along with the EPV.
Many analysts argue the higher return the better. Buffett states that really high ROA may indicate vulnerability in the durability of the competitive advantage.
E.g. Raising $43b to take on KO is impossible, but $1.7b to take on Moody’s is. Although Moody’s ROA and underlying economics is far superior to Coca Cola, the durability is far weaker because of lower entry cost.

Current Liabilities

Includes accounts payable, accrued expenses, other current liabilities and short term debt.

Stay away from companies that ‘roll over the debt’ e.g. Bear Stearns

When investing in financial institutions, Buffett shies from those who are bigger borrowers of short term than long term debt.

His favorite ‘Wells Fargo’ has 57 cents short term debt for every dollar of long term
Aggressive banks (like Bank of America) has $2.09 short term for every dollar long term

Durability equates to the stability of being conservative.

Long Term Debt coming Due

Some companies lump their yearly long term debt due with short term debt on the balance sheet. This makes it seem like there is more short term debt than the real amount.
Important: Companies with durable comparable advantages need little or no LT debt to maintain operations.
Too much debt coming due in a single year spooks investors and can offer attractive entry points.
However, a mediocre company in problems with too much debt due leads to cash flow problems and certain bankruptcy.

Long Term Debt

Buffett says that durable competitive advantages carry little to no LT debt because the company is so profitable that even expansions or acquisitions are self financed.
We are interested in long term debt load for the last ten years. If the ten yrs of operation show little to no long term debt, then the company has some kind of strong competitive advantage.
Buffett’s historic purchases indicate that on any given year, the company should have sufficient yearly net earnings to pay all long term within 3 or 4 year earnings period. (e.g. Coke + Moody’s = 1yr)
Companies with enough earning power to pay long term debt in less than 3 or 4 years is a good candidate in our search for long term competitive advantage.

BUT, these companies are targets for leveraged buy outs, which saddles the business with long term debt
If all else indicates the company has a moat, but it has ton of debt, a leveraged buyout may have created the debt. In these cases the company’s bonds offer the better bet, in that the company’s earnings power is focused on paying off the debt and not growth.

Important: little or no long term debt often means a Good Long Term Bet

Total Liabilities & Debt to Shareholders Equity Ratio

Debt to shareholders equity ratio helps identify whether the company uses debt or equity (includes retained earnings) to finance operations.
Company with a moat uses earning power and should show higher levels of equity and lower level of liabilities.
Debt to Shareholders Equity Ratio : Total Liabilities / Shareholders Equity
Problem with using as identifier is that economics of companies with durable competitive advantages are so great they don’t need large amount of equity or retained earnings on the balance sheet to get the job done.
Important: if the Treasury Share Adjusted Debt to Shareholder Equity Ratio is less than 0.8, the company has a durable competitive advantage.

Retained Earnings: Buffett’s Secret

One of the most important indicators of durable competitive advantage. Net earnings can be paid out as dividends, used to buy back shares or retained for growth.
If the company loses more than it has accumulated, retained earnings is negative.

If a company isn’t adding to its retained earnings, it isn’t growing its net worth.
Rate of growth of retained earnings is good indicator whether it’s benefiting from a competitive advantage.
Microsoft is negative because it chose to buyback stock and pay dividends
The more earnings retained, the faster it grows and increases growth rate for future earnings.

Treasury Stock

Carried on the balance sheet as a negative value because it represents a reduction in shareholders equity.
Companies with moats have free cash, so treasury shares are hallmark of durable competitive advantages.
When shares are bought back and held as treasury stock, it is effectively decreasing the company equity. This increases return on shareholders equity.
High return is a sign of competitive advantage. It’s good to know if it’s generated by financial engineering or exceptional business economics or combination.
To see which is which, convert negative value of treasury shares into a positive and add it to shareholders equity. Then divide net earnings by new shareholders equity. This will give the return on equity minus effects of window dressing.

Important: presence of treasury shares and a history of buyback are good indicators that company has competitive advantage

The Balance Sheet Summary Table
To continue seeing the full summary tables for the balance sheet and cash flow statement, just click any of the social buttons to unlock the content immediately.

Cash and Equivalents	lots of cash and marketable securities + little debt	Test to see what is creating cash by looking at past 7 yrs of balance sheets
Inventory	Look for an inventory and net earnings that are on a corresponding rise	inventories that spike up/down are indicative of competitive industries prone to (boom/bust)
Net Receivables	consistently shows lower % net receivables to gross sales than competitors	d.c.a. no need to offer generous credit
Goodwill	increase in goodwill over number of years assume because company out buying companies >BV	d.c.a.’s never sell for less than BV
LT Investments	can have valuable assets on books at valuation < market price (booked at lowest price)	tells us about investment mindset of management (Looking for d.c.a.?)
Intangible Assets	Internally developed brands not reflected on BS
Total Assets + ROA (Measure efficiency using ROA)	Higher return the better (but: really high ROA may indicate vulnerability in durability of c.a.)	Capital = barrier to entry
ST Debt	financial institutions. Buffett shies from those who are bigger borrowers of ST than LT debt
LT Debt Due	d.c.a. need little or no LT debt to maintain operations
Total CL + Current Ratio	higher the ratio, the more liquid, the greater its ability to pay CL	d.c.a.’s don’t need ‘liquidity cushion’ so may have <1
LT Debt	LT debt load for last ten yrs. ten yrs w/ little LT debt = d.c.a.	earning power to pay their LT debt in <3/4 yrs = good candidates
Total Liabilities + Treasury Share-Adjusted debt to Shareholder Eq Ratio	If <.80, Good chance company has d.c.a.
Preferred + Common Stock	in search for d.c.a. we look for absence of preferred stock
Retained Earnings	Rate of growth of RE is good indicator
Treasury Stock	presence of treasury shares and a history of buyback are good indicators that company has d.c.a.	convert –ve value of treasury shares into +ve and add shareholder eq. Divide net earnings by new shareholders eq. give us return on equity minus dressing.
Return on Shareholder equity	d.c.a. show higher than average returns on shareholders equity	If company shows history of strong net earnings, but shows –ve sholder equity, probably d.c.a. because strong companies don’t need to retain

Read more on the Balance Sheet Analysis on my previous post - http://intelligentinvestor8.blogspot.my/2014/05/balance-sheet-analysis.html

Or, take a look on How Buffett read other financial statements:-

References:-

Uncovering How Buffett Interprets the Financial Statements - Jae Jun

How Buffett Interprets the Income Statement

It is important to investigate further & drill down to detect what the quality of earnings are made up of and what the numbers intepret.

Gross Profit Margin: firms with excellent long term economics tend to have consistently higher margins

Durable competitive advantage creates a high margin because of the freedom to price in excess of cost
Greater than 40% = Durable competitive advantage
Less than 40% = competition eroding margins
Less than 20% = no sustainable competitive advantage
Consistency is key

Sales Goods and Administration: Consistency is key. Companies with no durable competitive advantage show wild variation in SG&A as % of gross profit

Less than 30% is fantastic
Nearing 100% is in highly competitive industry

R&D: if competitive advantage is created by a patent or tech advantage, at some point it will disappear.

High R&D usually dictates high SG&A which threatens the competitive advantage

Depreciation: Using EBITDA as a measure of cash flow is very misleading

Companies with durable competitive advantages tend to have lower depreciation costs as a % of gross profit

Interest Expenses: Companies with high interest expenses relative to operating income tend to be either: 1) in a fiercely competitive industry where large capital expenditure required to stay competitive 2) a company with excellent business economics that acquired debt in leveraged buyout

Companies with durable competitive advantages often carry little or no interest expense.
Warren’s favorites in the consumer products category all have less than 15% of operating income.
Interest expenses varies widely between industries.
Interest ratios can be very informative of level of economic danger.
Important: In any industry, the company with the lowest ratio of interest to Operating Income is usually the one with the competitive advantage.

Net Earnings

Look for consistency and upward long term trend.
Because of share repurchase it is possible for net earnings trend to differ from EPS trend.
Preferred over EPS
Durable competitive advantage companies report higher % net earnings to total revenues.
Important: If a company is showing net earnings history greater than 20% on total revenues, it is probably benefiting from a long term competitive advantage.
If net earnings is less than 10%, likely to be in a highly competitive business

The Income Statement Summary Table

	(DCA = Durable Competitive Advantage)	Comments
Gross Profit Margin	>40% = D.C.A. < 40% = competition eroding margins < 20% = no sustainable competitive advantage	Consistency is Key
SG&A (SGA as % of gross profit)	< 30% is fantastic Nearing 100% is in highly competitive industry	Consistency is Key
Depreciation (depreciation costs as a % of gross profit)	Company with moat tend to have lower %
Interest Expenses (interest expenses relative to operating income)	Durable competitive advantages carry little or no interest expense. Buffett’s favorite consumer products have <15%	Company with lowest ratio of interest to Operating Income = competitive advantage. Varies widely between industries.
Net Earnings (% net earnings to total revenues)	Net earnings history >20% = Long Term moat < 10% = in highly competitive business	consistency and upward LT trend
EPS	10-year period showing consistency and upward trend. Avoid erratic earnings pictures.	Consistency = sign products don’t need to change. Upward trend = strong

Read more on the Income Statement Analysis on my previous post - http://intelligentinvestor8.blogspot.my/2014/05/income-statement-analysis.html

Or, take a look on How Buffett read other financial statements:-

References:-

Uncovering How Buffett Interprets the Financial Statements - Jae Jun

Wednesday, 25 June 2014

Warren Buffett Trap by Evan Bleker - Should we value stock based on Earning Power?

Warren Buffett's contemporary investment style - buying very profitable large cap companies with sizeable moats at fair prices might not be the best strategy for people like you and me (Portoflio value < $10 million USD)
Warren Buffet has shifted his investment style from Benjamin Graham philosophy since 1950 - he turned to finding good businesses at decent prices instead of look for classic benhamin Graham value stock (like what he did when he ran his investmenet partnership.)
Warrent Buffet's stock selection process become very simple and only consists of 4 filters:-

We have to deal in things we’re capable of understanding, and then, once we’re over that filter, we have to have a business with some intrinsic characteristics that give it a durable competitive advantage, and then, of course, we would vastly prefer a management in place with a lot of integrity and talent, and then, finally, no matter how wonderful it is it’s not worth an infinite price so we have to have a price that makes sense and gives a margin of safety given the natural vicissitudes of life.

Warrent Buffet hold his investment for an exceptionally long time - he holding on his investments for decades of life.

Our favorite holding period is forever.
Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

Investor seem to think that the best strategy for success is to buy firms with deep moats at adequate prices and to hold them forever. Typically this means buying medium or large cap companies that have been in the spotlight for years — firms with market capitalizations that reach well beyond a billion dollars. Unfortunately, this strategy is far from ideal, and could be outright dangerous.
Warren Buffett is great at assessing people, able to sport trends and draw conclusions based on details that a typical investor might not even notice, and judging whether a business has a strong competitive advantage or not - everybody can recognize a competitive advantage after it’s been pointed out but picking them beforehand is a whole other story.
Even, Seth Kalrman doesn't think he can do it well. Seth Kalman said that "I think Buffett is a better investor than me because he has a better eye for what makes a great business. And, when I find a great business I’m happy to hold it …most businesses don’t look so great to me."
Joel Greenblatt share his view - "The problem is that you’re not likely to be the next Buffett or Lynch. Investing in great businesses at good prices makes sense. Figuring out which are the great ones is the tough part. Monopoly newspapers and network broadcasters were once considered near perfect businesses; then new forms of competition and the last recession brought those businesses a little bit closer to earth. The world is a complicated and competitive place. It is only getting more so. The challenges you face in choosing the few stellar businesses that will stand out in the future will be even harder than the ones faced by Buffett when he was building his fortune. Are you up to the task? Do you have to be? Finding the next Wal-Mart, McDonald’s, or Gap is also a tough one. There are many more failures than successes."
Warren Buffett will perform valuation on the selected company. But, the intrinsic value is not easy to be computed. It is very easy to be off by a small margin on any one of your assumptions that make up discounted cash flow. If you’re off by more than a hair, you will inevitably be off on your assessment of intrinsic value by a large margin.

The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised.

A margin of safety is there to absorb the errors you make, and guard against uncertainty. It’s unfortunate, then that investors who are emulating Warren Buffett are electing to invest in wonderful companies at fair prices rather than fair companies at wonderful prices. Overestimating the value of a company can lead to significant losses.
Warren Buffett moved away from Benjamin Graham's investment style because his portfolio grew far too large to take advantage of classic Benjamin Graham investment opportunities. And, he was able to rack up the best investment results by using Graham strategy during 1950s and 1960s.

Warrent Buffet - "Yeah, if I were working with small sums, I certainly would be much more inclined to look among what you might call classic Graham stocks, very low PEs and maybe below working capital and all that. Although — and incidentally I would do far better percentage wise if I were working with small sums — there are just way more opportunities. If you’re working with a small sum you have thousands and thousands of potential opportunities and when we work with large sums, we just — we have relatively few possibilities in the investment world which can make a real difference in our net worth. So, you have a huge advantage over me if you’re working with very little money."

References:-

Have You Been Sucked Into the Warren Buffett Trap? - Evan Bleker

Monday, 5 May 2014

Owner Earning by Warren Buffett

Net Income = an accounting number that show how much profit does a company make.
Some items doesn't affect the amount of cash but reduce the "earnings"

A company could be hemorrhagin money with net income largely unaffected
Capex are depreciated over many years
Non Cash Charge - e..g write off

Free Cash Flow (FCF) is a better options to justify company's profit.

measure of actual cash generated by a company

Owner Earning (defined by Warren Buffett in his 1985 letters to shareholder) is another better options

Profit that owner would be able to pull out each year
Owner Earnings = Net Income + Depreciation, amortization, etc. + Non-cash charges (not related to working capital) - Average maintenance capital expenditures - Permanent changes in working capital
Avg Annual CAPEX is a guess number
Nearly identical to FCF, but there are some important differences

limited to maintenance CAPEX (but not growth CAPEX); and maintenance CAPEX should be averaged for few years to smooth out result
FCF includes change in working capital - working capital fluctuates from year to year and it should not be counted.

!!! if only maintenance capex is subtracted then projecting growth faster than inflation doesn't make sense - since the growth isn't being paid for. --> use the total capex if you would like to proect "real" growth

Warren Buffett defined owner earnings in his 1985 letter to shareholders.

These represent (a) reported earnings plus (b) depreciation, depletion, amortization, and certain other non-cash charges...less (c) the average annual amount of capitalized expenditures for plant and equipment, etc. that the business requires to fully maintain its long-term competitive position and its unit volume....Our owner-earnings equation does not yield the deceptively precise figures provided by GAAP, since (c) must be a guess - and one sometimes very difficult to make. Despite this problem, we consider the owner earnings figure, not the GAAP figure, to be the relevant item for valuation purposes...All of this points up the absurdity of the 'cash flow' numbers that are often set forth in Wall Street reports. These numbers routinely include (a) plus (b) - but do not subtract (c).Warren Buffet

References:-

What Are Owner Earnings?

Sunday, 4 May 2014

Warren Buffett's Style

A sucessful stock investment is a result first and foremost of the underlying business. The business should able to generate earnings at an increasing rate each year.
Stock is a bonds with variable yields - the yields equate to firm underlying earnings. A good business with predicatable and consistent earning growth more valuable than a risk free bond with unchanging yield.
Stock Criteria

Company produce products or services will be in constant and growing demand.
High annual rate of return - >= 15% annualy over many years - exclude new companies where only a few years of financial data exists.
Business that are easy to understand. Buffett adamantly restricts himself to his "circle of competence" - businesses he can understand and analyze. Investment success is not a matter of how much you know but rather how realistically you define what you don't know.
Two basic types of businesspr

Commodity- based firms

Product sold in highly competitive markets where price plays the key role in a consumer purchase decision.
Highly competitive and dominated by lowest-cost producer.
Compaies need to spend high capex to maintains the existing operations and leave less budget for new products.
Companies need top-notch management to survive.
Low profit margin, low ROE, no brand name, multiple competitors, substantial production capacity, profit erratic;
Buffett does not purchase this type of business.

Consumer monopolies

No effective competitor due to economic moat.
Inflation-adjusting ability - Companies can pass the cost to customer.
Real value is in their intangibles - brand-name loyalty, regulatory
licenses, and patents. Do not have to rely heavilly on investment in land, plant, and equipment and they tend to have large cash flow and low debt.
Question to check if a company is a consumer monopolies - If he had access to billions of dollars and the top 50 managers in the country, could he start a business and compete with the business in question?
Businesses that make products that wear out or are used up quickly and have brand-name appeal that merchants must carry to attract customers. E.g. Coke, Leading Newspaper, Drug Companies with patents, Popular Brand Name Restaurant - McDonald. Higher product turnover implies more revenue for the company.
Communications firms that provide services businesses must use to reach consumers. E.g. advertising agenciens, magazine/newspaper publisher, and telco networks.
Boring Consumer services (essential) that always in demand - low capex and low paid work force. A stable, efficient, easy-to-operate business that will have a long-lasting life E.g. tax preparers - H & R Block; Mad Service - ServiceMaster, Credit Card - Amex & Dean Witter Discover.

How to judge management’s ability?

A strong upward trend in earnings: Buffett seeks year-by-year increases in earning - an indication that management able to turn consumer monopoly advantage into shareholder value.
Conservative financing: consumer monopoly companies have strong cash flow and seldom need a long term financing. Buffett does not object to the use of debt for a good purpose, e.g. to purchase another consumer monopoly (Capital Cities acquired ABC television and radio); buffett does object if added debt to produce mediocre result, e.g. purchase commodity business.
A consistently high return on shareholder’s equity: ROE > 15% prove that management can make money from its existing business and can profitably employ retained earnings
A high level of retained earnings: real growth in stock value comes from reinvesting earnings to expand operations or purchase new ventures. Buffett don't like company paying out high percentage of profits as dividends.
Low level of spending needed to maintain current operations: then more money can be allocated to finance expansions or new ventures.
Profitable use of retained earnings: it requires managerial talents to determine which alternative (buy profitable business ventures, expand operations, repurchase existing shares) offers the greater investment return to shareholders. Buffett views share repurchases favorably - EPS increase.

Stock Price

Graham would buy a stock below their intrinsic value and this will provide investors with a margin of protection.
Buffett - If a business is mediocre, the stock will do poorly even if purchased cheaply. And the gain will be limited to the difference between the purchase price and
intrinsic value (only if stock price eventually reaches that level and it is very rare).
Buffett views the underlying business as the investor’s “margin of protection.” He targets successful businesses with expanding intrinsic values, and buy at a price that makes economic sense.

What it can reasonably earn based on the kind of business it is in, and based on the quality of the management running the company
He purchases the stock if he believes he can earn an annual rate of return of at least 15% for at least five or 10 years.
Earnings Yield - EPS/Price - a quick & crude method of comparing similiar stocks.
Stock Price formula 1 - What Stock Price to pay? EPS/Long term gov bond yield. Same initial return with government bonds; if eps growing each year - the return will increase.
Stock Price formula 2 - Use pass 10 year EPS CAGR to forecast EPS on next 10 yr, then use the avg P/E to determine the stock price on next 10 yr. And discount the stock price and dividend received each year to present value with return rate at least 15%. Or alternately, use the future price to calculate the rate of return based on current price.
Stock Price formula 3 - projects the future owner's earnings, then discounts them back to the present. Owner's earnings = net income + D&A - CAPX - (change in W/C).
Take advantages of "bargains" - bear market drives all price down.
Buffet is not adverse to buy stocks at higher valuation if he is confident of earning expansions.

When to Sell?

Benjamin Graham, favored a sale when a company’s share price reached its intrinsic value.
Buffett believes it makes more sense to hold indefinitely, putting off capital gains taxes, and enjoying the fruits of compounding intrinsic value if business continues to have earnings growth greater than alternative investments.
Sell if

the nature of the business changes
management changes
an alternative investment offered a better return.

Portfolio & Risk Management

Buffett does not favor extensive diversification.
Buffet does not diversify based on industry sectors - the avoidance on commodity type business leads to the exclusion of certain groups.
How to control risk?

investing in expanding businesses
understand and analyze the nature of the businesses
do not pay too much for the shares.

Warren Buffett Quotes

Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1
Honesty is a very expensive gift, Don't expect it from cheap people.
The most important thing to do if you find yourself in a hole is to stop digging.
Risk comes from not knowing what you're doing.
You never know who's swimming naked until the tide goes out.
The stock market is a no-called-strike game. You don't have to swing at everything - you can wait for your pitch.
I have pledged... to always run Berkshire with more than ample cash... I will not trade even a night's sleep for the chance of extra profits.
Be fearful when others are greedy and greedy when others are fearful.
It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction.
I always knew I was going to be rich. I don't think I ever doubted it for a minute.
I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.
Wide diversification is only required when investors do not understand what they are doing.
We will only do with your money what we would do with our own.
In the short run, the market is a voting machine, but in the long run it is a weighing machine.
Cash combined with courage in a time of crisis is priceless.
The Stock Market is designed to transfer money from the Active to the Patient.
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.
Buy companies with strong histories of profitability and with a dominant business franchise.
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.
If you don't feel comfortable owning something for 10 years, then don't own it for 10 minutes.
Price is what you pay. Value is what you get.
You shouldn't own common stocks if a 50 per cent decrease in their value in a short period of time would cause you acute distress.
Risk can be greatly reduced by concentrating on only a few holdings.
Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misappraised.
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.
Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.
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.
Wide diversification is only required when investors do not understand what they are doing.
Chains of habits are too light to be felt until they are too heavy to be broken.
Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years.
We don't have to be smarter than the rest. We have to be more disciplined than the rest.
If you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor.
Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.
Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.
If a business does well, the stock eventually follows.
Time is the friend of the wonderful company, the enemy of the mediocre.

References:-