Warren Buffett is famous for being one of the world’s greatest investors. Despite that, he lives a relatively modest lifestyle in his hometown of Omaha, in the US, residing in the same house he bought many decades ago. While his frugal lifestyle is definitely something to be admired, he is also a man known for his wit and insightful quotes.
Here are five quotes from the man known as “The Oracle of Omaha” which all investors can learn from.
1. Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
The statement above relates to companies, acquisitions or divisions which are under-performing. Rather than spending time, effort and resources in trying to salvage a potentially hopeless situation, Buffett advises that it may actually be more productive to “change vessels”, meaning to bail out of the situation and seek better alternatives.
Remember that fire-fighting in the corporate world consumes lots of time and energy, all of which could be better spent on building up great businesses or looking for better-performing acquisitions.
2. Chains of habit are too light to be felt until they are too heavy to be broken.
When investors get into the habit of making small, persistent investment mistakes (with small amounts of money), they may not realise that such bad habits carry forward and affect them too when it comes to larger sums. This is what the phrase means by “too light to be felt” – investors just become accustomed to habits which then lead to poor outcomes. These habits, once fixed, become very tough to alter or change as they are ingrained in the investor’s psyche.
To avoid this situation, investors need to constantly review their processes and seek improvement should they discover bad habits starting to form.
3. When you combine ignorance and leverage, you get some pretty interesting results.
If an investor is fully aware of what he is doing and has the knowledge to invest wisely, then his portfolio should be safe from sharp draw-downs. However, ignorant investors should realise their limitations and stick to safer, low-risk investments. Some of the ignorant investors may fancy themselves to be experts and pile on leverage in order to juice up their returns – the result will be disastrous as they could end up losing their shirts. Ignorant investors should, therefore, be aware of the pitfalls and avoid borrowing to try to magnify their returns.
4. Time is the friend of the wonderful company, the enemy of the mediocre.
When investing in a great company, the power of compounding works wonders as the business generates high returns on capital year after year – which are then reinvested into growing the business. But if the same money was invested in average, mediocre companies, no amount of time would enable the money to compound as well as it does in great companies.
5. Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
For investors who are calm and rational amid market volatility, they will always be able to capitalise on the mistakes and folly of nervous investors who bail out at the first sign of trouble. These investors are the ones who push share prices far below their fundamental values. Therefore the astute investor should view market fluctuations as a boon, rather than a bane, given it creates many rare opportunities for you to purchase stakes in great companies.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.