Warren Buffett is one of – if not the – greatest businessmen and investors of all time. He has managed to come from relatively small means to build a US$70 billion fortune and the gigantic US$430 billion company Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B) over his long life.
But not only that, Buffett has also made a name for himself as a talented teacher – often dispensing his investing wisdom in a trademark folksy style complete with colourful and memorable quotes.
Here are three that I think all ASX investors will benefit from keeping in mind this week:
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
This is one of my personal favourites. In this single pithy sentence, Buffett captures the essence of the long-term mindset that we Fools love. Consider investing as buying ownership of quality businesses, not as the daily trading of ticker symbols on a screen.
Thus, we should all be looking for that company we would want to own for at least a decade, just like Buffett has with Coca-Cola or American Express.
“Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.”
This quote addresses the strange nature of a stock market crash – the only marketplace in the world where buyers want to run out the door if things go on sale. Buffett loves buying shares when everyone wants to sell them.
That’s because when real panic gets a hold in the share market, investors have the tendency to sell everything and get as much cash as possible, with no discrimination between whether what they’re selling is a good or a bad company.
Again, you can use this to your advantage as an investor.
“Price is what you pay, value is what you get”
This fantastic nugget of wisdom is the essence of Buffett’s ‘value investing’ style. It’s a reminder that while the stock market is often a rational place (meaning the price of a company’s shares is equal to its value), this isn’t always the case.
That’s why we’ve seen businesses like Afterpay Ltd (ASX: APT) fluctuate between being priced at $9 a share and $40 a share over the last 3 months. Has the value of Afterpay as a company changed by 400%? Not really (in my opinion). Has its price? Absolutely, and to extreme levels.
Taking advantage of this kind of disparity is how you can outperform the S&P/ASX 200 Index (ASX: XJO) over time.
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Sebastian Bowen owns shares of American Express and Coca-Cola. 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 June 2020 $205 calls on Berkshire Hathaway (B shares). The Motley Fool Australia owns shares of AFTERPAY T FPO. 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.