A friend and colleague of mine (thank you Alice) gave me a book recently of sayings by Warren Buffett. I wanted to share a few of them because I thought they were pretty sharp.
“When you combine ignorance and borrowed money, the consequences can get interesting”.
That in a nutshell sums up the whole subprime business doesn’t it? Not only did borrowers not understand their mortgages, but many of the supposedly sophisticated buyers were clueless. They bought baskets of mortgages in the billions without really understanding what they were getting.
“We like to buy businesses. We don’t like to sell, and we expect the relationships to last a lifetime”.
and
“It’s an old principle, you don’t have to make it back the way you lost it”.
These are nuanced ideas. Buy a good business, and hang onto it. When it’s just no longer a good business, sell it even if the stock is down. You can make the money back in a different way. But an important point is that you sell because it’s no longer a good business, not because a stock has declined.
“The dumbest reason in the world to buy a stock is because it’s going up”.
People get excited about a stock going up and figure it must be a wonderful stock. After all it must be because it’s going up. Price tells you what you have to pay. It doesn’t tell you if it’s a good business.
“If the business does well, the stock eventually follows”.
Probably the key idea of Buffett’s investing philosophy. Buy a good business and hold it. And in 1 year, 5 years, 10 years, if the business is good the stock price will follow.
That Warren is kind of a sharp guy. I’ll bet he’ll do okay.