Warren Buffett – chair and CEO of Berkshire Hathaway Inc (NYSE: BRK.A)(NYSE: BRK.B) – is often regarded as the greatest investor of all time. Not only does Buffett have an incredible track record of investing, but he is also well-known for his folksy approachability and pithy wisdom when it comes to stock picking.
As such, for most investors (including yours truly), he is a great person to draw inspiration from in navigating the sometimes-treacherous waters of the financial world. Our Fool colleagues over in the US have a comprehensive list of Buffett's best quotes, so here are 3 that I think are worth keeping in mind as we embark on another week in the trenches of investing.
1) "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
Whenever I think about the 'flash crash' that S&P/ASX 200 Index (ASX: XJO) shares went through back in March, this is the quote that comes to mind. In my opinion, there was a period (around 19–24 March), where there were deals going left, right and centre in the share market. Whether it was Wesfarmers Ltd (ASX: WES) offering a price of $29.75 or Afterpay Ltd (ASX: APT) going for $8.01, there were more fish in the barrel than I had bullets.
In times like these, the more cash you have at your disposal, the more 'gold' you can collect. So if you think there are storm clouds on the ASX horizon, you better be working on converting your 'thimble' of cash to a bucket and fast!
2) "Since I know of no way to reliably predict market movements, I recommend that you purchase Berkshire shares only if you expect to hold them for at least five years. Those who seek short-term profits should look elsewhere."
I love this quote as it wittily sums up the benefits of having a long-term investing horizon. There is no way in my view that Buffett could achieve a compounded annual average return of more than 20% per annum for Berkshire if he didn't have this kind of mindset. If you own quality companies that effectively turn cash into more cash, short-term market fluctuations shouldn't bother you too much!
So, I think all investors should aim to replicate Berkshire's success in this way. You may not find Buffett's style of investing congruent with your own, but I think his attitude towards time horizons is universally applicable and advantageous for all investing types.
3) "The most important thing to do if you find yourself in a hole is to stop digging."
This one seems like common sense, but don't underestimate how emotionally difficult it can be to let go of an under-performing investment. You might be hesitant to crystallise a loss, or otherwise be holding onto some irrational hope that a misfiring company can miraculously turn things around. I once had an investment where I doubled down when I should have just held my nose and sold out. I ended up losing almost all of my capital anyway.
So, if you have a loser in your portfolio, take a breath and assess whether the investment in question is irrevocably in the hole. If it is, then perhaps it's time to put down the shovel. It's tough, but, speaking from experience, turning a 50% loss into a 90% loss is even harder to deal with.
