Warren Buffett is having a good year. As the stock market undergoes a correction in 2022, impacted by high inflation, and the Fed moves to raise interest rates, Berkshire Hathaway shares are making new highs, now at over $5i2,000 per share. His net worth is about $124 billion and remains a large Berkshire owner.
As CEO of Berkshire Hathaway, Buffett and Vice Chairman, Charlie Munger, seem to be having fun. Buffett is guiding Berkshire to make opportunistic acquisitions again, agreeing to buy insurance company Alleghany, and adding to his Occidental Petroleum stake. At 91, Buffett remains as relevant as ever as among the greatest investors of all time.
Sifting through his annual letters to shareholders, shareholder meetings, making addresses at colleges, and publicly sharing his vast knowledge, we found Warren Buffett quotes that are a treasure trove of investing tips that can help beginner and experienced investors alike.
Years ago, I began reading and analyzing Warren Buffett’s letters to shareholders, transcripts of annual meetings, and other sources to learn from his insights. His letters are chockful of personal finance lessons on:
- Saving for emergencies.
- Avoid overspending.
- Use debt sparingly.
- Look for bargains.
- Investing, today’s focus.
As he always says of Charlie Munger, Warren Buffett is one of a kind and an American treasure.
Table of Contents
Warren Buffett Quotes: A Treasure of 16 Investing Tips
1. Expand Your Knowledge
Warren Buffett is a voracious reader to stay on top of business developments. When asked how to prepare for an investment career, Buffett answered, “Read 500 pages like this, pointing to a pile of papers. Buffett recommends books in his letters. One of his favorites was Business Adventures by John Brooks, which he bought for Bill Gates.
2. Positive Money Habits
Before you can invest, you need to get your financial house in order. Despite being among the wealthiest investors, Warren Buffett shares his thoughts on carrying a lot of debt and having liquidity on hand for catastrophes and opportunities.
In a 1991 speech at the University of Notre Dame, Buffett told his audience, “You really don’t need leverage (i.e., leverage being borrowed money) in this world much. If you’re smart, you’re going to make a lot of money without borrowing.”
Buffett is against the use of credit cards. He added, “Interest rates are very high on credit cards. If I borrowed money at 18% or 20%, I’d be broke.”
Addressing college students at the University of Florida in 2007, Buffett said, “Most behavior is habitual, and they say that the chains of habit are too light to be felt until they are (too) heavy to be broken.” He added, “Work on building positive money habits and breaking those that hurt your wallet.”
Known to have a frugal lifestyle, Buffett still lives in the same house he bought for $31,500 in 1958. He shies away from personal purchases, saying, “I’m not interested in cars and my goal is not to make people envious. Don’t confuse the cost of living with the standard of living.”
3. Take A Long Term Perspective When Investing
Buffett takes a long-term perspective when investing for his investment portfolio or Berkshire Hathaway. By investing long term, investors can weather market volatility and be less emotional about dips in the market.
Here is a famous Warren Buffett quote about taking a long-term perspective: “Someone is sitting in the shade today because someone planted a tree long ago.”
4. Four Investing Pillars
Through shareholder letters and meetings, Warren Buffett and Charlie Munger explain their criteria for buying businesses for Berkshire they control with at least 80% ownership or small stakes in great companies through stock purchases. These four investing pillars remain essentially unchanged since the 1970s and are here in the 2007 letter for what they seek, and we as investors can learn to do:
- Understand the business.
- Favorable long-term economics with competitive advantages.
- Able and trustworthy management; and
- A sensible price tag.
They look at businesses as “castles” with competitive advantages that are moats to protect excellent returns on invested capital, like businesses like GEICO, its insurance company. This kind of moat rules out companies subject to rapid and continuous change, notably technology companies that Buffett avoids.
What is “a sensible price tag” to Buffett? He comes from the value investing school founded by Benjamin Graham, Buffett’s mentor.
Value investors see securities priced below their intrinsic value defined as the discounted value of the cash that can be taken out of the business during its remaining life. Once determined, Buffett and Munger would compare that company’s intrinsic value to its publicly traded market capitalization. A potential deal for them would be a business trading below its intrinsic value for various reasons such as “hidden assets.”
5. Investing In Real Estate
In his 2013 letter, Warren Buffett shared an experience of buying two real estate assets–a Nebraska farm and a retail property near NYU– that delivered income with a promising future. His discussion on real estate investing is priceless, but I abbreviate his comments here. He illustrates the fundamentals of investing in these productive assets:
“You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
“If you instead focus on the prospective price change of a contemplated purchase, you are speculating…
Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.”
With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”
Ultimately, Buffett urged new investors to avoid going into stocks “at times of extreme exuberance,” and ignore headlines (e.g., macro opinions).
6. Avoid Fear, Greed, And Emotions In the Market
1986 letter contains one of most famous Warren Buffett quote:
On not making a stock market prediction, Warren Buffett said in his 1986 letter, “..we have no idea – and never have had – whether the market is going to go up, down, or sideways in the near- or intermediate future…What we do know, however, is that occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community…. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
At the company’s 2015 shareholder meeting, Warren Buffett said of investing, “It’s an easy game if you can control your emotions. “
7. On Diversification Strategy
At the 1996 Berkshire Hathaway shareholder meeting, someone asked Warren Buffett about diversification, and he said, “Diversification is protection against ignorance. It makes little sense if you know what you are doing.” He explained that diversification is a good approach if you aren’t able to analyze businesses, but you will only achieve average returns as you own 30 or 50 stocks, and asked the audience, “Do I need to own 28 stocks?”
However, in later years, Warren Buffett expanded Berkshire’s portfolio owning minority stakes in companies like Coca-Cola, which it continues to hold since its original purchase in 1988.
Few individual investors have the ability or time to invest, like Warren Buffett. He believes you can do well with three stock ideas or understand a couple of businesses very well. As of February 2022, Berkshire owns stakes in over 15 companies, a reasonably diversified portfolio separate from its owned and controlled businesses.
8. Comparing Investing and Risk
2017 shareholder letter
On investing and risk, Warren Buffett said, “Investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. ‘Risk’ is the possibility that this objective won’t be attained … As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.”
9. Dealing With Market Volatility
Warren Buffett has a healthy perspective of market volatility as he shares in the 2017 shareholder, “Though markets are generally rational, they occasionally do crazy things. Seizing the opportunities then offered does not require great intelligence, a degree in economics or a familiarity with Wall Street jargon like alpha and beta. What investors need is an ability to disregard mob fears or enthusiasms and to focus a few fundamentals…”
Buffett likes market volatility as they provide buying opportunities to buy stocks at more attractive valuations that fit four investing pillars. He never panics as he takes a long-term perspective on Berkshire’s businesses or stakes and advocates that investors should remain patient and worry about market downfalls.
10. Accumulate Cash
It is somewhat related to market volatility and the opportunities they create. Warren Buffett favors having cash for liquidity purposes. In its most recent letter to shareholders released in 2022, Berkshire Hathaway revealed that Berkshire’s balance sheet had $144 billion of cash and cash equivalents, excluding the holdings of the company’s railroad and energy businesses.
Berkshire keeps about $120 billion in US Treasury bills, all maturing in less than a year. Buffett tells us that Berkshire is financing half of 1% of the US national debt, not an insignificant amount.
In the 2021 letter released a month ago:
“Charlie and I have pledged that Berkshire (along with our subsidiaries other than BNSF and BHE) will always hold more than $30 billion of cash and equivalents. We want your company to be financially impregnable and never dependent on the kindness of strangers (or even that of friends). Both of us like to sleep soundly, and we want our creditors, insurance claimants and you to do so as well.
But $144 billion?
That imposing sum, I assure you, is not some deranged expression of patriotism. Nor have Charlie and I lost our overwhelming preference for business ownership.”
I always think of Berkshire Hathaway’s cash position as its emergency fund.
11. Favors Low-Cost Index Funds
In an interview with CNBC Becky Quick at the company’s shareholder meeting in May 2021, Warren Buffett referred to his first-ever purchase of shares on March 11, 1942, saying that he put a $10,000 investment into an index fund, the stake would have been worth $51 million.
In his 2016 letter:
“The bottom line: When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds.
Over the years, I’ve often been asked for investment advice, and in the process of answering, I’ve learned a good deal about human behavior. My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.
I believe, however, that none of the mega-rich individuals, institutions, or pension funds has followed that same advice when I’ve given it to them.
Instead, these investors politely thank me for my thoughts and depart to listen to the siren song of a high-fee manager or, in the case of many institutions, to seek out another breed of hyper-helper called a consultant. That professional, however, faces a problem. Can you imagine an investment consultant telling clients, year after year, to keep adding to an index fund replicating the S&P 500? That would be career suicide.”
The low-cost index fund and ETFs that track the S&P 500 are desirable for all investors to get decent stock market returns over the long term. It is difficult for the best investors, let alone the average investor, to time the market so that you buy and sell at the right time.
12. Favors Share Repurchases
Warren Buffett has been more vocal about Berkshire Hathway using its enormous cash pile to buy back its shares at attractive levels. Buffett has not been able to find large acquisitions to purchase in recent years and has a larger amount of cash on hand than it prefers.
In his 2016 letter, Buffett wrote:
“It is important to remember that there are two occasions in which repurchases should not take place, even if the company’s shares are underpriced. One is when a business both needs all its available money to protect or expand its own operations and is also uncomfortable adding further debt. Here, the internal need for funds should take priority. This exception assumes, of course, that the business has a decent future awaiting it after the needed expenditures are made.
The second exception, less common, materializes when a business acquisition (or some other investment opportunity) offers far greater value than do the undervalued shares of the potential repurchaser. Long ago, Berkshire itself often had to choose between these alternatives. At our present size, the issue is far less likely to arise. My suggestion: Before even discussing repurchases, a CEO and his or her Board should stand, join hands and in unison declare, “What is smart at one price is stupid at another.”
13. When Company Management Manage “The Numbers”
The 2016 letter:
“Charlie and I cringe when we hear analysts talk admiringly about managements who always “make the numbers.” In truth, business is too unpredictable for the numbers always to be met. Inevitably, surprises occur. When they do, a CEO whose focus is centered on Wall Street will be tempted to make up the numbers. Let’s get back to the two favorites of “don’t-count-this” managers, starting with “restructuring.”
In many letters, Buffett talks about management who use less conservative accounting to reflect better earnings. He is also very critical of Wall Street bankers and analysts who pressure company management to focus on short-term results to satisfy investors but may have long-term consequences.
14. What To Do About High Inflation
Warren Buffett has a lot to say about inflation and writes extensively in his 1981 letter to shareholders when inflation was close to15%, and interest rates were at 20%. Such favored businesses during high inflationary environments should have two characteristics:
- “an ability to increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume, and
- an ability to accommodate large dollar volume increases in business (often produced more by inflation than real growth) with only minor additional investment of capital.”
Buffett added that it is hard to find businesses with both characteristics. His advice works for companies seeking businesses to acquire, take stakes, or investors looking for favorable stocks for their portfolios that work well in an inflationary environment.
Several examples of companies that can satisfy these traits are in Berkshire’s portfolio like Apple, American Express, and Coca-Cola. Apple can raise prices of their products like iPhones with little incremental technological benefits without losing market share because of the strength of their ecosystem and loyal customers. In high inflation, commodities do well and Buffett recently added a sizable stake to his Occidental Petroleum holding as inflation was rising in 2022.
Coca-Cola is an example of having a recession-proof business as people will continue to drink affordable Cokes in most economic conditions. American Express can easily raise prices on its Platinum cards for those willing to pay the premium offering. Ask Buffett, who is a loyal drinker of Coke with his bag of chips when I met him in his cafeteria in Omaha.
15. Rising Interest Rates
Like stock prices, Warren Buffett doesn’t predict interest rates levels, but the level of interest rates often impact asset values. As a result of the Great Recession in 2008-2009, the Fed kept the fed funds at zero to 0.25% until December 2015, when they began raising rates gradually. The fed funds is a short-term overnight borrowing rate between banks and, while not available to consumers or businesses, influence interest rates in our economy.
At the May 2015 shareholder meeting, Warren Buffett said, “If we get back to interests that are normal interest rates, these stock prices will look high. If these interest rates stay at these levels, stocks will look cheap.” These comments are as relevant today in March 2022, following the Fed’s action to raise its rates for the first since Spring 2020.
16. America’s Prosperity
Warren Buffett is a proud American and tributes his success and Berkshire Hathaway’s success to our country. He is an unabashed patriot and in every letter, he pays tribute to America and its prosperity providing us with its tailwinds.
His 2016 letter is one such example. He writes:
“You need not be an economist to understand how well our system has worked. Just look around you.
See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.”
“This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”
You can learn about investing from Warren Buffett quotes. He is often referred to as “The Oracle of Omaha.” At 91, he remains an active Chairman and CEO of Berkshire Hathaway and doesn’t look like he will retire any time soon. He and his partner, Charlie Munger continue to provide investing lessons to beginner and experienced investors.
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With a passion for investing and personal finance, I began The Cents of Money to help and teach others. My experience as an equity analyst, professor, and mom provide me with unique insights about money and wealth creation and a desire to share with you.