From time to time, I like to draw from the wisdom of the great Warren Buffett in order to start my week off right. Warren Buffett — chair and CEO of Berkshire Hathaway Inc. (NYSE: BRK.A)(NYSE: BRK.B) — is often regarded as one of, if not the, best investors of all time. Even though he turns 90 years old this year, Buffett is still a font of wisdom and good investing practice. And we are lucky enough that he is more than happy to pass on his knowledge to all aspiring investors who want to learn from him.
Luckily, our Fool colleagues over in the United States have compiled a comprehensive list of Buffett’s best quotes. So here are 3 that I think are relevant as we start a new week.
“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.”
I love this quote as it perfectly encapsulates one of the greatest follies growth investors often make. People often mistake a company’s ‘first mover’ status in a new growth area as permanent dominance. If this were so, then it would be Nokia and Blackberry that would control the smartphone market today, rather than Apple, Alphabet and Samsung. So don’t mistake a company’s initial innovation for a sign of permanent success.
Of course, sometimes the first mover manages to retain their edge — just look at how Afterpay Ltd (ASX: APT) shares have performed in recent weeks. But equally common is a company that sparks a trend being unable to follow this through. For every Afterpay, there are 3 Kodaks and BlackBerrys. As such, I think all growth investors should pay attention to this one.
“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
This is a doozy. Buffett here perfectly nails why buying a share because ‘you hope it goes up’ isn’t the right way to go about things. We have seen growing signs in this market today that many investors (especially newer share market converts) are playing a ‘chase the winner’ strategy.
Shares like Afterpay, Zip Co Ltd (ASX: Z1P) and Openpay Group Ltd (ASX: OPY) have delivered triple-digit gains to investors over just the past 3 or so months. This (in my view) has the same mental effect of winning a high-stakes game of roulette for newer investors – after one win, you just want more. These investors may be better of just following Buffett’s advice here and buy for the long-term.
“The best chance to deploy capital is when things are going down.”
This one may sound obvious, but too many investors don’t follow it at all. Too often, a market panic or crash (like we saw in March) scares investors into pulling out their shares from the market when it’s too late — cementing ugly losses of capital.
The best time to sell shares is usually just before a crash when the market tends to get a little carried away. Making sure you have a small-but-potent cash pile ready to go if things turn south is a prudent way to have a ‘foot in both camps’ in my view.
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More reading
- Has Warren Buffett lost his magic?
- 3 Warren Buffett quotes to start your week off right
- How to be like Warren Buffett and not lose money investing in ASX 200 shares
Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short September 2020 $200 calls on Berkshire Hathaway (B shares). The Motley Fool Australia has recommended Berkshire Hathaway (B shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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