21 Invaluable Investing Quotes

Worldwide Invest Better Day 9/25/2012

In the lead-up to Sept. 25's Worldwide Invest Better Day, The Motley Fool is reacquainting investors with the basic building blocks of investing. Here's the latest in our series of investing articles.

Why do the greatest investors have all the best lines? Is it just a coincidence?

We don't think so. Great investing and great communication are very similar in that both require focus, and the ability to decide what's important and what's not. Hedge fund manager Mark Sellers has said that it's no coincidence that Warren Buffett is a fine writer. If you can't write clearly, according to Sellers, then you can't think clearly.

So maybe it shouldn't surprise us that the best investors are also effective communicators. We enjoy learning from the investing greats, and have decided to share some of our favorite quotes from them. The Greek historian Plutarch, who also knew a thing or two about the power of words, once said that "the mind is not a vessel to be filled but a fire to be kindled." Below you'll find 21 investing quotes that have lit a fire in us. We hope you find them as valuable as we have.

1. "The ideal business is one that earns very high returns on capital and that keeps using lots of capital at those high returns. That becomes a compounding machine."
-- Warren Buffett

Finding compounding machines is hard. But once you find them, they do all of the hard work for you, year in and year out. That's why investing for the long term in companies with sustainable competitive advantages builds wealth.

2. "It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."
-- Warren Buffett

Sadly, there are far too many examples of this principle in contemporary business.

3. "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ."
-- Warren Buffett

Whew! This is good news, since we're pretty sure our IQs aren't particularly high.

4. "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
-- Warren Buffett

In an era of high-frequency trading, where the average holding period is just four months, a long-term view can give the average investor a huge advantage.

5. "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."
-- Warren Buffett

This is advice we've taken to heart. That's why we've made an investment in online travel research company TripAdvisor (Nasdaq: TRIP  ) . This well-managed company continues to grow, and we're confident it can maintain that advantage for years.

6. "Spend each day trying to be a little wiser than you were when you woke up."
-- Charlie Munger

We always try to read more than just annual reports and conference calls. And we also try to learn from our mistakes -- like Frank Sinatra, we've made a few!

7. "I believe in the discipline of mastering the best that other people have ever figured out. I don't believe in just sitting down and trying to dream it all up yourself. Nobody's that smart."
-- Charlie Munger

And we are grateful for all of the information that Munger has shared over the years, especially since he's definitely dreamed up a lot of it.

8. "All you need for a lifetime of successful investing is a few big winners, and the pluses from those will overwhelm the minuses from the stocks that don't work out."
-- Peter Lynch

No one likes to lose money, but it is inevitable that investors will have losses from time to time. We've both owned stocks that have lost 50% of their value. But we've also had several multibaggers over the years. We believe that investors must be willing to lose a little money in order to try and earn a lot.

9. "The best stock to buy is the one you already own."
-- Peter Lynch

Don't neglect the great companies that are already in your portfolio. You most likely know them quite well already. If that's an edge for you, use it.

10. "Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you'll likely find one grub; if you turn over 20 rocks you'll find two."
-- Peter Lynch

Investing is hard work. But that's the way it should be. One of the things we like best about investing is that you often get out what you put into it.

11. "I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies."-- Peter Lynch

We like both the turnaround and the growth story. Within our real-money portfolio, however, we prefer to invest in businesses that can grow. One of our holdings, InvenSense (Nasdaq: INVN  ) , is taking advantage of today's mobile computing trend by supplying motion sensors for smartphones and tablets. And it's looking to put its sensors anywhere it can to generate growth tomorrow. We think this small company is going to be much bigger in five years.

12. "The four most dangerous words in investing are: 'this time it's different.'"
-- Sir John Templeton

If you haven't read This Time Is Different by Carmen Reinhart and Ken Rogoff, we highly recommend it.

13. "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
-- George Soros

Another way to say this is: Make sure you allocate the most money to your best ideas. And at the same time, make sure your mistakes aren't big enough to damage your portfolio beyond repair. For example, our largest investment is in our highest-conviction idea, LinkedIn (NYSE: LNKD  ) , which is changing the way people manage their careers. We also have a very small investment in biofuel maker Solazyme (Nasdaq: SZYM  ) , which has lots of challenges ahead of it. We believe both positions are sized properly.

14. "The individual investor should act consistently as an investor and not as a speculator. This means ... that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase."
-- Benjamin Graham

One way to interpret this is to take advantage of the market when it wants to sell $1 worth of value at $0.50. Within our portfolio, we look at this quote a little differently. We want to invest $1 worth of capital in companies that can ultimately deliver $5 or $10 worth of value over the years.

15. "The investor's chief problem -- even his worst enemy -- is likely to be himself."
-- Benjamin Graham

Here are three biases that investors should be aware of: a) hindsight bias -- Looking back, we think it was easy to know the future. It wasn't. So keep a journal in order to remember how you were thinking and feeling about an investment decision; b) the disposition effect -- People tend to sell their winners too early, and hold on to their losers too long. Reverse that and you will become a better investor and generate higher returns; c) confirmation bias -- It's difficult to seek out information that goes against our thinking. But that's what we all need to do.

16. "If you have trouble imagining a 20% loss in the stock market, you shouldn't be in stocks."
-- John Bogle

If you've never had a 20% loss, then one of two things is true: a) you're not an investor b) you are 3 years old.

17. "Investors should always keep in mind that the most important metric is not the returns achieved but the returns weighed against the risks incurred. Ultimately, nothing should be more important to investors than the ability to sleep soundly at night."
-- Seth Klarman

It's best to define risk as the permanent loss of capital, and then act accordingly.

18. "Sometimes buying early on the way down looks like being wrong, but it isn't."
-- Seth Klarman

Buying early and on the way down is not always easy, though. Studies have shown that a drop in prices hurts twice as much as an equal gain in prices improves your sentiment. But if we understand how a business works and why it has a long-term competitive advantage, then buying more at lower prices can pay off handsomely.

19. "As time goes on, I get more and more convinced that the right method of investment is to put fairly large sums into enterprises which one thinks one knows something about and in the management of which one thoroughly believes."
-- J.M. Keynes

We agree. That's why we made a big investment in LinkedIn.

20. "If you're looking for a home run -- a great investment for five years or 10 years or more -- then the only way to beat this enormous fog that covers the future is to identify a long-term trend that will give a particular business some sort of edge."
-- Ralph Wanger

If there is one quote that captures the essence of our style of investing, it's this one. Take Fusion-io (NYSE: FIO  ) , for example. Data usage is growing exponentially and that data needs to be processed effectively. Fusion-io is using solid-state memory to facilitate that trend, which is why we've made an investment in the company.

21. Finally, we'll close with a quote from the truly remarkable Benjamin Franklin, who once said that "an investment in knowledge always pays the best interest." As Charlie Munger might say, we have nothing to add to that.

We hope you enjoyed reading the quotes. Click the button below for more on Worldwide Invest Better Day.

David Meier owns shares of InvenSense. John Reeves does not own shares in any of the companies mentioned. You can follow both John and David on Twitter @TenBaggers.

The Motley Fool owns shares of LinkedIn, InvenSense, Solazyme, Fusion-io, and Tripadvisor. Motley Fool newsletter services have recommended buying shares of LinkedIn and Tripadvisor. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (19) | Recommend This Article (107)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 21, 2012, at 11:31 AM, Seanickson wrote:

    thanks. A very good collection of quotes. "The best stock to buy is the one that you already own" definitely stuck out to me. I don't see the attractiveness of lnkd but it may be a good investment, I just have no way of approximating what it might be earning in 5-10 years.

  • Report this Comment On September 21, 2012, at 1:53 PM, TheJellyman wrote:

    My favorite Buffett quote, "...be fearful when others are greedy and greedy when others are fearful." It works very well for me.

  • Report this Comment On September 21, 2012, at 3:07 PM, dgmennie wrote:

    "Nobody ever sells you a stock with the expectation that its value will increase."

  • Report this Comment On September 21, 2012, at 5:46 PM, MCCrockett wrote:

    Most IQ tests place me in the 160+ range. That's extremely helpful for someone that is engaged in network, security, and system engineering. These are, essentially, 24X7 jobs.

    I don't have the spare cycles available to compete with Warren Buffet, Charlie Munger, George Soros, etc. in the financial markets. I am better off behaving like someone with an IQ in the 130- range by hiring a financial management team that has spent 40 years studying the financial market.

    After I retire and if I don't score any consulting gigs, I will have more time to spend on financial market analysis.

  • Report this Comment On September 21, 2012, at 6:28 PM, TMFBane wrote:

    Thanks for all of the comments so far! It's great hearing everyone's favorite investing quotes.

  • Report this Comment On September 21, 2012, at 6:51 PM, ranaxy wrote:

    One of the quotes that I go by is that "The market can stay irrational longer than you can stay solvent"

    Dont bet the farm and the house on one thesis unless you have the Delorean :)

    Best,

    Ramesh

  • Report this Comment On September 22, 2012, at 12:08 AM, Zinj wrote:

    I hear what you're saying, MCCrockett. Most IQ tests put me in the 90,000 range. Yeah, I'm pretty awesome and smell like fresh cut roses 24/7.

    I'd be interested in seeing an exam which could result in precisely defining a 160+ IQ. That would be more than 4 standard deviations above the mean.

    Supposing IQ to be normally distributed, which is how IQ is usally drawn up, you're talking about a test telling you you fall within the top 0.006334% of humanity. While undoubtedly SOMEONE does have that distinction, I suspect there are not enough people who can be located in that range in order to properly calibrate an IQ test which would then be able to identify a test subject as belonging in that group.

    Quick and dirty calculation on the US population means we're talking about the smartest 20,000 people out of a population of more than 314,000,000.

    I guess the smartest 20,000 people HAVE to be somewhere....I do still wonder, however, why any one of them would feel it necessary to volunteer that they have a 160+ IQ. Perhaps it's that famous incongruity/disconnect between IQ and 'emotional intelligence'?

  • Report this Comment On September 22, 2012, at 12:10 AM, Zinj wrote:

    Oops! I forgot to cut that % in half (two tails and all). So, were really talking about the top 10,000 people, not the top 20,000. Congrats!

  • Report this Comment On September 22, 2012, at 8:09 AM, stillwater9999 wrote:

    While I am a big fan of Peter Lynch Quote 11 is not correct there are other reasons stocks go up. Unrecognized companies become recognized or bought out. Hawkins and Genlyte are some examples of that. Companies where there is an older majority owner can go up when the owner retires or dies and the company is sold. Valley National Gas is one of many examples.

  • Report this Comment On September 23, 2012, at 9:45 AM, DefenseFirst wrote:

    "if you don't want to sell your highy appreciated stock because of the large capital gains tax that would be owed, don't worry... in not too much time, the market will get rid of your capital gains for you."

  • Report this Comment On September 23, 2012, at 12:30 PM, NickD wrote:

    JNJ GIS PG PEP MCD KO CL WMT CHD YUM NKE no reason to ever sell great companies

  • Report this Comment On September 23, 2012, at 12:33 PM, Darwood11 wrote:

    All good, but my favorite is Benjamin Graham's "The individual investor should act consistently as an investor and not as a speculator. This means ... that he should be able to justify every purchase he makes and each price he pays by impersonal, objective reasoning that satisfies him that he is getting more than his money's worth for his purchase."

    I like it because it forms a key question for me to consider as an investor.

    For several years now, that quote comes to mind when I read about how lousy the stock market is, or about what a lousy purchase a home is.

    I think a lot of people are going to do very well as "investors" in real estate, as they did in 1970s New York when people were dumping condos because the city was going bankrupt. However, I didn't purchase my current abode as an "investment." I purchased it as a place to live and compared the cost to rent versus cost to own.

    Speculation in real estate, as in purchasing stock, is not investing. It's taken a few decades and some bad mistakes for me to learn that difference. I think that's the entire "buy and hold" discussion in a nutshell. The question I ask myself is "Am I a trader and speculator and am I dealing in perception, or am I an investor?"

    Thank you, Mr. Graham.

  • Report this Comment On September 23, 2012, at 2:36 PM, greenumbers1 wrote:

    I don't know who said it, but one of my favorite quotes is..."I made my millions by selling too soon."

  • Report this Comment On September 23, 2012, at 3:35 PM, Darwood11 wrote:

    @ greenumbers1:

    "I made my money by selling too soon" is attributed to Bernard Baruch

  • Report this Comment On September 24, 2012, at 12:00 AM, portefeuille wrote:

    13. "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."

    -- George Soros

    -------------------

    indeed.

    see a pretty example in comment #2 here -> http://caps.fool.com/Blogs/763415.

  • Report this Comment On September 24, 2012, at 9:22 AM, leocat9 wrote:

    If I had a 160 IQ like McCrockett I would get a job that didn't require being on call 24/7.

    I would probably loan my brainpower out by the hour, perhaps $600 per hour, and leave my weekends free.

    That would be the "smart" thing to do right?

  • Report this Comment On September 24, 2012, at 10:33 AM, maniladad wrote:

    By not replying to those who seem to read something into his statement that he has a high IQ, McCrockett seems to demonstrate that his intelligence is not limited to his test scores. The point of the reference to IQ in the quotes was that in investing a high score is not particularly beneficial. That, to me was his point: HIs IQ is helpful in his profession but not in investing. He has limited time and chooses to hire professionals to handle his investments. Been there done that. No big deal. I also had a fairly high IQ test score but it was not particularly helpful in my coming to understand that I have never been as smart as I thought I was. Investing on my own has been very effective in convincing me of that. McCrockett seems to have figured that out for himself already which suggests that he is smarter than most of us.

  • Report this Comment On September 25, 2012, at 11:42 AM, PublicWireless wrote:

    "I think you have to learn that there's a company behind every stock, and that there's only one real reason why stocks go up. Companies go from doing poorly to doing well or small companies grow to large companies."-- Peter Lynch

    ...is wrong. Stocks also go up when analysts discover they were wrong about the business and hence the P/E of the stock moves back into the industry norm. You'll see that with MSFT in the coming years.

  • Report this Comment On September 27, 2012, at 3:05 PM, boogerface02211 wrote:

    Regrets (not mistakes), I've had a few, but then again, too few to mention.

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