Why do the greatest investors have all the best lines? Is it just a coincidence?
Repost from The Motley Fool www.fool.com
We don’t think so. Great investing and great communication are very similar in that both require focus, and the ability to decide what’s important and what’s not. Hedge fund manager Mark Sellers has said that it’s no coincidence that Warren Buffett is a fine writer. If you can’t write clearly, according to Sellers, then you can’t think clearly.
So maybe it shouldn’t surprise us that the best investors are also effective communicators. We enjoy learning from the investing greats, and have decided to share some of our favorite quotes from them. The Greek historian Plutarch, who also knew a thing or two about the power of words, once said that “the mind is not a vessel to be filled but a fire to be kindled.” Below you’ll find 21 investing quotes that have lit a fire in us. We hope you find them as valuable as we have.
1. “The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine.”
— Warren Buffett
Finding compounding machines is hard. But once you find them, they do all of the hard work for you, year in and year out. That’s why investing for the long term in companies with sustainable competitive advantages builds wealth.
2. “It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.”
— Warren Buffett
Sadly, there are far too many examples of this principle in contemporary business.
3. “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
— Warren Buffett
Whew! This is good news, since we’re pretty sure our IQs aren’t particularly high.
4. “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
— Warren Buffett
In an era of high-frequency trading, where the average holding period is just four months, a long-term view can give the average investor a huge advantage.
5. “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.”
— Warren Buffett
This is advice we’ve taken to heart. That’s why we’ve made an investment in online travel research company TripAdvisor (Nasdaq: TRIP ) . This well-managed company continues to grow, and we’re confident it can maintain that advantage for years.
6. “Spend each day trying to be a little wiser than you were when you woke up.”
— Charlie Munger
We always try to read more than just annual reports and conference calls. And we also try to learn from our mistakes — like Frank Sinatra, we’ve made a few!
7. “I believe in the discipline of mastering the best that other people have ever figured out. I don’t believe in just sitting down and trying to dream it all up yourself. Nobody’s that smart.”
— Charlie Munger
And we are grateful for all of the information that Munger has shared over the years, especially since he’s definitely dreamed up a lot of it.
8. “All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don’t work out.”
— Peter Lynch
No one likes to lose money, but it is inevitable that investors will have losses from time to time. We’ve both owned stocks that have lost 50% of their value. But we’ve also had several multibaggers over the years. We believe that investors must be willing to lose a little money in order to try and earn a lot.
9. “The best stock to buy is the one you already own.”
— Peter Lynch
Don’t neglect the great companies that are already in your portfolio. You most likely know them quite well already. If that’s an edge for you, use it.
10. “Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.”
— Peter Lynch
Investing is hard work. But that’s the way it should be. One of the things we like best about investing is that you often get out what you put into it.
11. “I think you have to learn that there’s a company behind every stock, and that there’s only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies.”— Peter Lynch
We like both the turnaround and the growth story. Within our real-money portfolio, however, we prefer to invest in businesses that can grow. One of our holdings, InvenSense (Nasdaq: INVN ) , is taking advantage of today’s mobile computing trend by supplying motion sensors for smartphones and tablets. And it’s looking to put its sensors anywhere it can to generate growth tomorrow. We think this small company is going to be much bigger in five years.
12. “The four most dangerous words in investing are: ‘this time it’s different.’”
— Sir John Templeton
If you haven’t read This Time Is Different by Carmen Reinhart and Ken Rogoff, we highly recommend it.
13. “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
— George Soros
Another way to say this is: Make sure you allocate the most money to your best ideas. And at the same time, make sure your mistakes aren’t big enough to damage your portfolio beyond repair. For example, our largest investment is in our highest-conviction idea, LinkedIn (NYSE: LNKD ) , which is changing the way people manage their careers. We also have a very small investment in biofuel maker Solazyme (Nasdaq: SZYM ) , which has lots of challenges ahead of it. We believe both positions are sized properly.
14. “The individual investor should act consistently as an investor and not as a speculator. This means … that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money’s worth for his purchase.”
— Benjamin Graham
One way to interpret this is to take advantage of the market when it wants to sell $1 worth of value at $0.50. Within our portfolio, we look at this quote a little differently. We want to invest $1 worth of capital in companies that can ultimately deliver $5 or $10 worth of value over the years.
15. “The investor’s chief problem — even his worst enemy — is likely to be himself.”
— Benjamin Graham
Here are three biases that investors should be aware of: a) hindsight bias — Looking back, we think it was easy to know the future. It wasn’t. So keep a journal in order to remember how you were thinking and feeling about an investment decision; b) the disposition effect — People tend to sell their winners too early, and hold on to their losers too long. Reverse that and you will become a better investor and generate higher returns; c) confirmation bias — It’s difficult to seek out information that goes against our thinking. But that’s what we all need to do.
16. “If you have trouble imagining a 20% loss in the stock market, you shouldn’t be in stocks.”
— John Bogle
If you’ve never had a 20% loss, then one of two things is true: a) you’re not an investor b) you are 3 years old.
17. “Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night.”
— Seth Klarman
It’s best to define risk as the permanent loss of capital, and then act accordingly.
18. “Sometimes buying early on the way down looks like being wrong, but it isn’t.”
— Seth Klarman
Buying early and on the way down is not always easy, though. Studies have shown that a drop in prices hurts twice as much as an equal gain in prices improves your sentiment. But if we understand how a business works and why it has a long-term competitive advantage, then buying more at lower prices can pay off handsomely.
19. “As time goes on, I get more and more convinced that the right method of 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.”
— J.M. Keynes
We agree. That’s why we made a big investment in LinkedIn.
20. “If you’re looking for a home run — a great investment for five years or 10 years or more — then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge.”
— Ralph Wanger
If there is one quote that captures the essence of our style of investing, it’s this one. Take Fusion-io (NYSE: FIO ) , for example. Data usage is growing exponentially and that data needs to be processed effectively. Fusion-io is using solid-state memory to facilitate that trend, which is why we’ve made an investment in the company.
21. Finally, we’ll close with a quote from the truly remarkable Benjamin Franklin, who once said that “an investment in knowledge always pays the best interest.” As Charlie Munger might say, we have nothing to add to that.
