Updated December 5th, 2018 by Eli Inkrot
This article surveys the best quotes from the world’s best investors. Below we have included 34 quotes that can help you both simplify and better visualize your investing goals.
“The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.” – Warren Buffett
Related: 107 Best Warren Buffett Quotes
The financial media is particularly good at getting this sentiment exactly backward. When stock prices are up, they equate that to good news. When prices are down, it’s all doom and gloom. Yet think about it from a long-term investment prospective.
If you’re a net buyer – either with “fresh” capital, reinvested dividends or on your behalf via share repurchases – it’s lower rather than higher prices that will provide the ultimate benefit. If you’re buying shares, a lower price allows you to stake a larger claim on the company’s underlying profits and dividends. Likewise, when a company is buying out past partners on your behalf (repurchases) you would much prefer for them to do so at a discount rather than a premium.
The general public makes no much mistakes in sentiment when buying items at the grocery store – we all root for a good sale. Yet for some reason investor psychology gets in the way of carrying this through to the investing world; despite the idea that you’re going to be buying stocks next week, next year and perhaps even decades from now.
“The American stock market is similar to watching a person walk up the stairs with a yo yo. People focus on the yo yo going up and down, while the real story is the consistent movement of the person up the stairs.”
– Tom Lewis
There are dozens, perhaps hundreds of high quality publicly traded businesses (often referred to as blue chip stocks) out there that generate more and more earnings and dividends for investors. Step-by-step, year-after-year improvements are made. If stock prices went up in a likewise lock-step manner, investors wouldn’t dream of trading in and out. Yet that’s not what happens. Instead you have the daily price quotation – often swinging dramatically above and below earnings – as an unfortunate distraction.
“If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t bet bored… Never invest in any idea that you can’t illustrate with a crayon.”
– Peter Lynch
It’s been said that it’s better to learn from others’ mistakes instead of your own, but alas that isn’t always the easiest thing to do. You’re going to make mistakes. You don’t want to compound that by not having a clue why you made the mistake in the first place. Investing isn’t difficult, but it requires that you stick to what you know, your “circle of competence” and define that circle very clearly. It’s perfectly acceptable to look at an investment opportunity, acknowledge you don’t have any great insight, put it in the “too hard” pile and continue about your day.
“The stock market is a no-called-strike game. You don’t have to swing at everything – you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing you bum!’”
– Warren Buffett
This is another way to describe the “too hard pile” with a focus on valuation. As an investor, you’re thrown pitches all day long: Coca-Cola at $49! Procter & Gamble at $93! Chevron at $121! The takeaway is that you don’t have to invest in something if you don’t like the price. You can wait until something comes along that’s right in your wheelhouse and swing away. Of course if you’re a money manager the pressure to become impatient could be greater, but that alone is no reason to venture into a realm that you don’t understand or don’t find value.
“People spend all this time trying to figure out “What time of the year should I make an investment? When should I invest?” And it’s such a waste of time. It’s so futile. I did a great study. It’s an amazing exercise. In the 30 years, 1965 to 1995, if you had invested a thousand dollars, you had incredible good luck, you invested at the low of the year, you picked the low day of the year, you put your thousand dollars in, your return would have been 11.7[%] compounded. Now some poor unlucky soul, the Jackie Gleason of the world, put in [at] the high of the year. He or she picked the high of the year, put their thousand dollars in at the peak every single time, miserable record, 30 years in a row, picked the high of the year. Their return was 10.6[%]. That’s the only difference between the high of the year and the low of the year. Some other person put in the first day of the year, their return was 11.0[%}. I mean the odds of that are very little, but people spend an unbelievable amount of mental energy trying to pick what the market’s going to do, what time of the year to buy it. It’s just not worth it.” – Peter Lynch
As this is a longer quote, it generally speaks for itself, but it just has such a great message. In the short-term anything can happen. In the long-term you’re dealing with highly profitable businesses that tend to get more profitable (by a wide margin) as time goes on. Share prices can do anything in the short-term, but in the long-term they tend to track the exceptional business record in the aggregate.
Incidentally, a follow up study was done – “Forget About Timing The Market” – which extended Lynch’s study and looked at the 1996 through 2015 period. The results were the same. The incredible bad luck investor would have seen gains of about 6% annually, while the incredible good luck investor would have seen gains of roughly 8% per annum. Investing at the best versus worst possible times each year is not the difference between positive and negatives results over the long-term; far from it. The important part is to start investing and continuing to do so.
“Nobody buys a farm based on whether they think it’s going to rain next year. They buy it because they think it’s a good investment over 10 or 20 years.”
– Warren Buffett“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for ten years.”
– Warren Buffett“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”
– Warren Buffett“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”
― Benjamin Graham
Here are four quotes getting at the same idea. If you were to buy a farm or rental property as an investment you would do a whole lot of work to start – figuring out what type of cash flow you believe it can provide, it’s overall quality, what a reasonable price to pay might be, potential problems that could come up, all sorts of things. Once you invest, at a price you believe is fair, you would periodically monitor the business and fixate on the cash that the business is providing.
Owning a part of a business (a stock) is the exact same as owning a farm, apartment or other productive asset. Yet people get distracted by the day-to-day quotations. Ignore the stock price. If you can own a rental property without thinking about selling it each day (heck, without getting a quote on it for years) try doing the same thing with your business partnerships.
“As I see it, a superior yield at least lets you snack on hors d’oeuvres while waiting for the main meal.”
– John Neff
This is a benefit of dividend investing and in particular investing in higher-yielding securities. There’s no set rule that requires stock prices to react as you believe they should. Even if a business is improving year-after-year, the share price can lag dramatically. Here again, focusing on the cash flow rather than the share price can keep you sane during seemingly irrational periods.
“Every decade or so, dark clouds will fill the economic skies, and they will briefly rain gold. When downpours of that sort occur, it’s imperative that we rush outdoors carrying washtubs, not teaspoons.”
– Warren Buffett
Your big ideas in investing can only turn into big results if you put a significant amount of capital to work in that area. It does you no good to recognize an opportunity without also jumping at it.
“Imagine that in some private business you own a small share that cost you $1,000. One of your partners, named Mr. Market, is very obliging indeed. Every day he tells you what he thinks your interest is worth and furthermore offers either to buy you out or to sell you an additional interest on that basis. Sometimes his idea of value appears plausible and justified by business developments and prospects, as you know them. Often, on the other hand, Mr. Market lets his enthusiasm or his fears run away with him, and the value he proposes seems to you a little short of silly.”
“If you are a prudent investor or a sensible businessman, will you let Mr. Market’s daily communication determine your view of the value of a $1,000 interest in the enterprise? Only in case you agree with him, or in case you want to trade with him. You may be happy to sell out to him when he quotes you a ridiculously high price, and equally happy to buy from him when his price is low. But the rest of the time you will be wiser to form your own ideas of the value of your holdings, based on full reports from the company about its operations and financial position.”
“The true investor is in that very position when he owns a listed common stock. He can take advantage of the daily market price or leave it alone, as dictated by his own judgment and inclination. He must take cognizance of important price movements, for otherwise his judgment will have nothing to work on. Conceivably they may give him a warning signal which he will do well to heed-this in plain English means that he is to sell his shares because the price has gone down, foreboding worse things to come. In our view such signals are misleading at least as often as they are helpful. Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pays attention to his dividend returns and to the operating results of his companies.” – Benjamin Graham
This is Ben Graham’s famous “Mr. Market” allegory. It’s such an important idea to grasp. This isn’t just a theoretical notion. Stock prices vary (both up and down) considerably more than business results would dictate. The key is keeping your emotions in check and maintaining a rationale view of valuation.
“Your money is like soap. The more you handle it, the less you’ll have.”
– Gene Fama Jr.
There are three considerations in this quick quote. First, many studies have demonstrated that trading in and out of securities leads to worse results. Second, investment fees could be described as a “sneaky inhibitor of returns.” If you go to sell one stock to buy another, you incur many potential negatives; at a minimum a transaction fee to sell, potential capital gains and a fee to buy. Not only does the replacement investment have to be better, it has to better by a degree that makes up for all the negatives. And third, any investment that carries ongoing management fees has the same hurdles to jump over.
“Obvious prospects for physical growth in a business do not translate into obvious profits for investors.”
– Benjamin Graham
There are two ideas here. First, it’s hard to pick “winners.” For instance, you could have picked automobiles, airplanes, and the Internet as clear growth industries in the past and been right. Yet only a handful of firms emerged from perhaps thousands of investment possibilities. Second, even if you get the winning company “right” this still does not guarantee success. Valuation is imperative. Terrific growth can be stymied by a falling earnings multiple.
“The chains of habit are too weak to be felt until they are too strong to be broken.”
– Warren Buffet (from Samuel Johnson)
The negative side to this quote is obvious – if you develop a bad habit, by the time you recognize this it might be too late to do something about it. However, there is a positive side as well. If you start investing early and often, this habit too might be hard to break. Moreover, it becomes more and more difficult to not get richer over time and stop the snowball from rolling downhill.
“Owning stocks is like having children — don’t get involved with more than you can handle.”
– Peter Lynch
You said it Pete.
“If the job has been correctly done when a common stock is purchased, the time to sell it is—almost never.”
– Phil Fisher“Our favorite holding period is forever.”
– Warren Buffett“The big money is not in the buying and selling. But in the waiting.”
– Charlie Munger
Related: The 56 Best Charlie Munger Quotes
This is three-fer quote, all expressing the same sentiment. Investing homework is down upfront – first to learn about the business and second to find a place to put your money in a company that 1) you believe in and 2) at a price that makes sense to you. Thereafter, great companies tend to get better over time. This won’t always be the case, but if you pile up a good collection of excellent businesses you’re going to do a whole lot more holding than trading.
“I don’t look to jump over 7-foot bars; I look around for 1 foot bars that I can step over.”
– Warren Buffett
Here again the “too hard” concept comes to mind. If a business needs to perform exceptionally or grow as it has never grown before to justify an investment thesis, this could be a sign that you’re reaching on the value side. Buffett talks about if you need to break out a calculator; it’s probably too close. The business and valuation should jump out to you.
“Risk is not inherent in an investment; it is always relative to the price paid. Uncertainty is not the same as risk. Indeed, when great uncertainty – such as in the fall of 2008 – drives securities prices to especially low levels, they often become less risky investments.”
– Seth Klarman
Klarman makes a great point here that is often misjudged by the typical investor. So many people fear the dropping share price and consider increased volatility as a sure sign of increased risk. Yet consider a pair of socks that you’re considering buying that just went down in price from $2 to $1. There’s risk at either price – they may not suit you and in that scenario you’ve wasted time, money or perhaps both. Yet one thing is clear: the sock purchase at $1 is less risky than the sock purchase would be at $2, given that they represent the same thing. Now just add a “t” to sock in that illustration and you’ll be way ahead of the game.
“The margin-of-safety idea becomes much more evident when we apply it to the field of undervalued or bargain securities. We have here, by definition, a favorable difference between price on the one hand and indicated or appraised value on the other. That difference is the safety margin. It is available for absorbing the effect of miscalculations or worse than average luck. The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments. For in most such cases he has no real enthusiasm about the company’s prospects. True, if the prospects are definitely bad the investor will prefer to avoid the security no matter how low the price. But the field of undervalued issues is drawn from the many concerns – perhaps a majority of the total – for which the future appears neither distinctly promising nor distinctly unpromising. If these are bought on a bargain basis, even a moderate decline in the earning power need not prevent the investment from showing satisfactory results. The margin of safety will then have served its proper purpose.” – Benjamin Graham
Ben Graham is known as the “father of security analysis” for a reason. This concept of “margin of safety” along with “Mr. Market” have stood the test of time as perhaps the two most important ideas in investing. Making guesses about the future worth of a business is imperative – it gives you a clue as to a businesses value and provides a comparison point for making investment decisions. Yet equally important is to acknowledge the high likelihood of your estimates being wrong (by a small or material amount) and thus requiring a price that reflects both your view of a company’s value and then a little extra safety.
“Go for a business that any idiot can run – because sooner or later any idiot probably is going to be running it.”
– Peter Lynch“Invest in a business any fool can run, because someday a fool will. If it won’t stand a little mismanagement, it’s not much of a business.”
– Charlie Munger
Lynch and Munger are getting at the same idea here. Excellent management is great, but what you’re really looking for is an excellent business. A company has a much greater economic moat if internal attacks, which will happen from time to time (perhaps inadvertently), can be handled.
“Someone will always be getting richer faster than you. This is not a tragedy.”
– Charlie Munger
This is an easy one to get caught up with in the investing world – always comparing yourself to someone else. Yet you can step back and avoid this folly. If you make an investment goal, and are working nicely toward it, let that be your measure of success.
“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”
– Benjamin Graham
A stock doesn’t know you own it. You may have emotions toward it, but it has no emotions back toward you. It will not be impressed by the price you paid, or the dear things you traded, for it. What you’re hoping to do is find quality pieces of a business at reasonable or better prices.
“The liabilities are always 100% good. It’s the assets you have to worry about.”
– Charlie Munger
Here Charlie is pointing out where you might want to take caution when evaluating a business. On the balance sheet things like goodwill, intangible assets and receivables will be listed right alongside cash, but that doesn’t necessarily mean that you could realize those listed values. Discount items you’re less confident in to remain conservative.
“If you can follow only one bit of data, follow the earnings — assuming the company in question has earnings… I subscribe to the crusty notion that sooner or later earnings make or break an investment in equities. What the stock price does today, tomorrow, or next week is only a distraction.”
– Peter Lynch
Granted you should probably follow more “bits of data” than earnings alone, but the idea is still an important one. Think of Tom Lewis’ man walking up the stairs with a yo yo. In the short-term anything can happen. In the long-term a security’s stock price will largely reflect the underlying earnings of the business.
“It is not necessary to do extraordinary things to get extraordinary results.”
– Warren Buffett
Consider that an investment generating 7% annual returns will increase 15 times over the course of 40 years. An investment returning 10% annually multiples your starting investment by 45 times over that same four-decade stretch. Those types of returns are not outside of possibility of an average index fund. On your part it only takes intelligently allocating the surplus between what you make and spend and a long runway to see spectacular results.
“Successful Investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.”
– Warren Buffett
So many people want the investing world to happen on their schedule. It doesn’t work that way. It works in fits and starts. Sometimes you will have tons of activity, other times it seems that nothing happens all year. The key is focusing on incremental improvements and not getting wrapped up in activity just for the sake of activity. Speaking of which:
“If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.”
– Warren Buffett“Inactivity strikes us as intelligent behavior.”
– Warren Buffett
Charlie Munger calls this “sit on your hands” investing. The idea is to own excellent companies for as long as they remain excellent and the price is reasonable.
“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
– Warren Buffett
With wonderful companies, they get better through time. Paying a fair price rewards you with fair returns. With average companies, you have problems that become more and more difficult to deal with. While it might look like a great price at the beginning, this can change if earnings begin to deteriorate.
“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
– Warren Buffett
The maxim that is well known, but so hard to follow. At the moment of panic not only are stocks the safest, as Seth Klarman mentioned, but they also provide the best opportunity for outsized returns moving forward. Alternatively, when enthusiasm is at its height, valuations reflect this and future returns are difficult to formulate.
“I want to quickly acknowledge that in any upcoming day, week or even year, stocks will be riskier – far riskier – than short-term U.S. bonds. As an investor’s investment horizon lengthens, however, a diversified portfolio of U.S. equities becomes progressively less risky than bonds, assuming that the stocks are purchased at a sensible multiple of earnings relative to then-prevailing interest rates.”
“It is a terrible mistake for investors with long-term horizons – among them, pension funds, college endowments and savings-minded individuals – to measure their investment “risk” by their portfolio’s ratio of bonds to stocks. Often, high-grade bonds in an investment portfolio increase its risk.” – Warren Buffett
Common “wisdom” suggests that stocks are riskier than bonds because stocks generally (but not always) wiggle about in price more than bonds. This takes the “volatility equals risk” view. Yet there is a more logical definition of risk: “the likelihood of an adverse outcome.”
When you think about risk in these terms, that changes everything. Consider if your “adverse outcome” is losing purchasing power over time. In that case, if you’re looking at tomorrow, stocks are riskier than bonds and bonds are in turn riskier than cash. Yet if you’re looking at say twenty years from now, the opposite holds. Cash is by far the riskiest asset – almost certain to lose purchasing power over time. Bonds are likely in-between, and dependent on prevailing rates. Meanwhile, with a long-term view stocks are easily the least risky. Stocks are the least likely to lose purchasing power over time.
This example holds even more weight as your “adverse outcome” turns from simply “lost purchasing power” to the much more common “reach financial independence with adequate cash flow.” Toss aside old ideas of risk and determine what risk means to you personally.
