When Warren Buffett speaks, the investing world listens.
And with good reason: The chairman and CEO of Berkshire Hathaway (BRK-A, BRK-B) has earned a reputation as an iconic investor and uber-successful businessman whose quips are prized for their wit and simple wisdom. He has steered his company from a textile manufacturing firm over 50 years ago into a multinational conglomerate that owns companies including Geico, Dairy Queen and BNSF Railway, as well as holdings in Coca-Cola, IBM and Kraft-Heinz. Berkshire has a market cap of over $400 billion.
As we gear up for the annual Berkshire Hathaway shareholder meeting on May 6 in Omaha, which will be live streamed on Yahoo Finance, we’ve gathered a collection of Buffett’s notable quotes and advice, from his shareholder letters, interviews and talks. Ranging from the reliability of index funds to the perils of credit card debt to the importance of basic investing principles, here’s a sampling of how Buffett thinks.
Investing isn’t too complicated, but know what you’re investing in
“Intelligent investing is not complex, though that is far from saying that it is easy. What an investor needs is the ability to correctly evaluate selected businesses. Note that word ‘selected’: You don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.”
— From Berkshire Hathaway’s 1996 shareholder letter
If you’re buying stocks, you shouldn’t want prices to keep rising
“If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. … Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.”
— From Berkshire’s 1997 shareholder letter
The term “value investing” is redundant
“We think the very term ‘value investing’ is redundant. What is ‘investing’ if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value — in the hope that it can soon be sold for a still-higher price — should be labeled speculation (which is neither illegal, immoral nor — in our view — financially fattening).”
— From Berkshire’s 1992 shareholder letter
If you can’t afford it, don’t buy it
“People who’ve run up credit card debt or facing bankruptcy … half of my letters come from people like that … and that problem is avoidable. Catastrophic illness is not. Credit card debt is something you bring on yourself. It’s way easier to stay out of trouble than to get out of trouble financially.
“I will guarantee if you run up big credit card debts, you will be in trouble probably the rest of your life in terms of your financial situation. On the other hand, if you get ahead of the game, even on a modest scale, so that money is coming in from investing and people owe you money or equities owe you ownership, you’ll be way ahead of the game as opposed to you owing your creditors every month. So my advice to you is: if you can’t pay for it, don’t buy it.”
— Speech to “Financial Future of American Youth,” 1999
Develop and build the habits you admire in others
“Chains of habit are too light to be felt until they are too heavy to be broken. … At your age you can have any habits, any patterns of behavior that you wish. It’s a matter of what you decide.”
— From an MBA Talk, 2007
Active trading can destroy decent returns
“Investors, of course, can, by their own behavior, make stock ownership highly risky. And many do. Active trading, attempts to ‘time’ market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy. Indeed, borrowed money has no place in the investor’s toolkit: Anything can happen anytime in markets. And no advisor, economist, or TV commentator — and definitely not Charlie nor I — can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet.”
— From Berkshire’s 2014 shareholder letter
Passive investing will make you more money than active trading
“Our portfolio shows little change: We continue to make more money when snoring than when active. … Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market.”
— From Berkshire’s 1996 shareholder letter
Stick with low-cost index funds
“When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients. Both large and small investors should stick with low-cost index funds. … My regular recommendation has been a low-cost S&P 500 index fund. To their credit, my friends who possess only modest means have usually followed my suggestion.”
— From Berkshire’s 2016 shareholder letter
Seriously, you cannot go wrong investing in index funds
“Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.”
-From Berkshire’s 1996 shareholder letter
The wealthy overpay for active investment management
“The wealthy are accustomed to feeling that it is their lot in life to get the best food, schooling, entertainment, housing, plastic surgery, sports ticket, you name it. Their money, they feel, should buy them something superior compared to what the masses receive. In many aspects of life, indeed, wealth does command top-grade products or services.
“For that reason, the financial “elites” — wealthy individuals, pension funds, college endowments and the like — have great trouble meekly signing up for a financial product or service that is available as well to people investing only a few thousand dollars. This reluctance of the rich normally prevails even though the product at issue is — on an expectancy basis — clearly the best choice. My calculation, admittedly very rough, is that the search by the elite for superior investment advice has caused it, in aggregate, to waste more than $100 billion over the past decade.”
— From Berkshire’s 2016 shareholder letter
Continued US prosperity is basically ‘a sure thing’
“Who has ever benefited during the past 238 years by betting against America? If you compare our country’s present condition to that existing in 1776, you have to rub your eyes in wonder. In my lifetime alone, real per-capita U.S. output has sextupled. My parents could not have dreamed in 1930 of the world their son would see.
“Though the preachers of pessimism prattle endlessly about America’s problems, I’ve never seen one who wishes to emigrate (though I can think of a few for whom I would happily buy a one-way ticket). The dynamism embedded in our market economy will continue to work its magic. Gains won’t come in a smooth or uninterrupted manner; they never have. And we will regularly grumble about our government. But, most assuredly, America’s best days lie ahead.”
— From Berkshire’s 2014 shareholder letter
Ignore all market forecasting
“We’ve long felt that the only value of stock forecasters is to make fortune tellers look good. Even now, Charlie [Munger] and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”
— From Berkshire’s 1992 shareholder letter