Warren Buffett is one of the greatest investors of all time and an idol for many here at the Motley Fool. The company he is chair and CEO of, Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B), is one of the best and most consistent performers on the American stock market since Buffett took it over back in the mid-1960s.
Despite being nearly 90 years old, Warren Buffett is still looked up to around the world for his sagely investing advice and no-nonsense approach to the share market. So, as I’ve been wont to do in recent weeks, I thought we’d canvas some of Buffett’s wisdom this Monday so we can all start our week on the share market on the front foot. So, fresh from our Fool colleagues over in the great man’s homeland, here are 3 of Buffett’s best quotes to mull over:
“For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favourable business developments.”
This is a problem that keeps cropping up in today’s rather inexplicably strong share market. Investors get so caught up in a company’s perceived strength or positive narrative and are so excited that they might buy the shares at any cost, regardless of the share’s fundamentals or intrinsic value. As Warren Buffett so eloquently warns, this is not a path that will typically lead to long-term wealth creation. So if a company you absolutely love is trading at a price that assumes 10 years of sky-high growth in its share price today, it might instead be worth considering how much you should pay if the next decade doesn’t go as well as investors are hoping.
“If you like spending six to eight hours per week working on investments, do it. If you don’t, then dollar-cost average into index funds.”
Here at the Fool, we think all investors have the potential to outperform the S&P/ASX 200 Index (ASX: XJO) over time. But this is no easy feat and (as Buffett reminds us) requires a lot of research, work and dedication. So if you simply don’t find investing exciting enough to dedicate at least a few hours a week to, it might be worth following Buffett’s advice and sticking primarily to investing in index funds like the Vanguard Australian Shares Index ETF (ASX: VAS). Even though using index funds won’t deliver the gains that a market-beating investor might, it’s still a lot better than not investing at all.
“Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.”
What a great quote to end on. Buffett is known as a voracious reader and he credits this habit with much of his success. So if you think all it takes to become a great investor is mastering spreadsheets and maths, think again. Buffett reads because it helps him understand the companies he invests in, the economy in which those companies reside and the world in which they interact and trade. I think all investors would profit from this advice and should aim to improve their knowledge about all things investing as much as possible.
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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.