Warren Buffett has never written a book on investing because he felt that Benjamin Graham’s The Intelligent Investor couldn’t be improved upon. Benjamin Graham was not only Buffett’s professor at Columbia Business School but was instrumental in developing his investing framework and philosophy. Although Buffett hasn’t written a book on investing, he’s shared his knowledge and wisdom on a wide range of topics including investing, accounting, management and valuation in his annual shareholder letters. Fortunately, Lawrence Cunningham wrote a book titled The Essays of Warren Buffett, in which he collected and organized Buffett’s thoughts on various topics from his shareholder letters. I recently read the book again after a long time and I wanted to share my top 10 favorite quotes from the book.
- “My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, of course, in any business, good or bad). Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”
- “In my opinion, investment success will not be produced by arcane formulae, computer programs or signals flashed by the price behavior of stocks and markets. Rather an investor will succeed by coupling good business judgment with an ability to insulate his thoughts and behavior from the super-contagious emotions that swirl about the marketplace.”
- “But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.”
- “In our view, what makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”
- “As Ben Graham said: ‘In the short-run, the market is a voting machine – reflecting a voter-registration test that requires only money, not intelligence or emotional stability – but in the long-run, the market is a weighing machine.'”
- “If my universe of business possibilities was limited, say, to private companies in Omaha, I would, first, try to assess the long-term economic characteristics of each business; second, assess the quality of the people in charge of running it; and, third, try to buy into a few of the best operations at a sensible price.”
- “The most common cause of low prices is pessimism – sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It’s optimism that is the enemy of the rational buyer.”
- “Other things being equal, the highest stock market prices relative to intrinsic business value are given to companies whose managers have demonstrated their unwillingness to issue shares at any time on terms unfavorable to the owners of the business.”
- “The primary test of managerial economic performance is the achievement of a high earnings rate on equity capital employed (without undue leverage, accounting gimmickry, etc.) and not the achievement of consistent gains in earnings per share.
- “We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.”
The Value Investing India Report is committed to finding Indian stocks based on Buffett’s timeless principles.
I want to show investors that investing doesn’t have to be complicated. The key is to find a handful of companies that enjoy huge (and lasting) competitive advantages, are priced reasonably and produce excellent returns on capital.
In fact, I’ve identified one such company which I’ll be highlighting in the upcoming August issue of the Value Investing India Report.
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