3 of My Favourite Warren Buffett Quotes

Warren Buffett has been an inspiration for professional and individual investors alike. Despite his success, he constantly takes time to talk to journalists to impart his vast amount of knowledge to eager listeners.

So without further ado, here are three of my favourite Warren Buffett quotes that have inspired me.

“Smart doesn’t always equal rational. To be a successful investor you must divorce yourself from the fears and greed of the people around you, although it is almost impossible.”

Buffett has repeated numerous times about the irrationality of investors’ actions due to emotions. Fear and greed can make investors do stupid things. Even the smartest and most financially sound investors can often make this same mistake.

To act rationally in investing, we need to remove hindering emotions from our mind and act based on sound investment principles, rather than with fear or greed.

“We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings — which is usually the case — we simply move on to other prospects.”

You would think that Warren Buffett’s success is built on complex financial models and deep quantitative analysis beyond the scope of retail investors. How wrong we are.

Warren Buffett’s investing strategies are surprisingly simple and require simple estimation of the future cash flows of a company. If he believes that the future earnings are favourable and the share price is reasonable, then he will buy the company.

Buffett also realises that there are hundreds of stocks to choose from and if you are unsure about one, there’s no harm in putting it aside and moving on to the next one.

“If you buy a wonderful business at an attractive price you’re certain to make money. [But] most, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power.” 

As a master stock picker who truly believes in the simplicity of beating the market, you may wonder why Buffett is so insistent that most retail investors should buy index funds rather than pick their own stocks.

This is because, despite his success, he is aware of the realities of the lay investor who has little knowledge of the stock market. These investors are more likely to lose money if they attempt to manage their portfolio and would be better off investing in an index fund.

Having said that, investors who are willing to put in the effort to learn about stocks and can develop a long-term mindset should manage their portfolio as they can easily outperform the market.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.