5 Fantastic Quotes From a Brilliant Investor

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Let's be honest here, there are a lot of oft-repeated investing quotes that we're just plain tired of.  

Don't get me wrong; here at the Fool, we often quote the wisdom of Warren Buffett, Peter Lynch, and Ben Graham. They've had some truly brilliant things to say, and their investing quips have a way of explaining investing concepts clearly to even the most novice investors. But some of those quotes have simply been repeated too many times.

So today, I'd like to introduce you to an investor who is just as talented as those three, but who rarely makes headlines. He's built an empire that many equate to Buffett and Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  ) , and his more notable quotes give investors quick and useful lessons to invest better. Below are five fantastic quotes from value investing legend and Fairfax Financial (NASDAQOTH: FRFHF  ) CEO, Prem Watsa.

5. "Predicting rain doesn't count, but building an ark does."
This quote is all about one of the most important investing lessons -- capital preservation. Many investors heap their focus on what will make them the most money. "Where is the next [insert hot-for-today company here]?" is a question I hear all too often.

But with two major stock market crashes in the past 15 years, we've seen the wisdom in building a defensive portfolio. Fairfax's Watsa has certainly shown how successful that approach can be. Starting in 2003, Watsa essentially shorted the United States by using credit default swaps betting against financials and the housing market, and he was right on, as his $341 million bet turned into $2 billion for Fairfax. Score one for the best offense being a good defense.

4. "Our earnings are lumpy. We have never had guidance in 23 years because we have ups and downs and take the long-term view. In 22 years, we have lost money twice, but our book value and equity has grown dramatically."
Value investors are not short-term investors. They care little for Wall Street's quarterly beauty contest because a quarter's worth of earnings typically doesn't tell you much when you plan on owning a company for the next 10 years.

Value investing is focused on building long-term wealth. They may not benefit from the skyrocketing tech stocks and the newest disruptive company (cough, Netflix  (Nasdaq: NFLX  ) , cough), but they still seem to outperform everybody else over the long run. Value investing is a strategy that lets you sleep well at night and keep CNBC off during the day.

3. "We put our heads down and worked hard and have gotten results. Once in a while we will talk if we have anything to say."
In a world of endless opinions and attention-hungry analysts, it's nice to see a group that doesn't care about getting on TV. Watsa is a recluse in the world of high-octane finance. The next time you see someone on CNBC giving you priceless advice, remember that if they spend all day in the studio, that's an awful lot of time they're not spending finding and researching investments.

2. "Why do roman bridges historically last for a long, long time? ...the people who designed the bridges had to stand underneath it before the traffic went on. So they made sure there was a massive margin of safety."
I don't have to explain this one much, folks. Margin of safety is the name of the game, or the name of your book if you're value-investing luminary Seth Klarman. The idea here is when you are building a portfolio, or looking at a company, you want to choose one that can handle 50,000 pounds (of risk) even if you only expect 10,000 pounds to drive across.

1. "Don't ever think that the [stock] market knows more than you do about the underlying business. That's the biggest mistake you can make."
Retail investors tend to put far too much faith in the market and "professional money managers." Don't automatically assume that because your stock sank 20% in a week that you did something wrong, or that your company is going down the tubes. In contrast to what business schools all over the world like to preach, markets are inefficient. Have the faith in your own judgment to ignore the movements of the market and Wall Street.

A value investor at work
Watsa used the guiding principles of Ben Graham's value investing to not only weather the recent financial crisis, but to profit from it. He was able to look through the mire that was the meltdown and take large positions in companies such as Bank of Ireland  (NYSE: IRE  ) . While many considered this move a risky bailout bet, Watsa saw the relative underlying balance sheet strength and great long-term potential. Though the stock currently sits at roughly even with where Watsa purchased, there are solid signs -- including increased capital-markets access -- that the bank is very much on the mend.

Against-the-grain investments like Bank of Ireland have helped Watsa compile a seriously impressive record. At Fairfax, he's been able to deliver an average of 25% compounded annual growth in book value over a 25-year period. That growth translated to a stock that debuted under $4 per share and currently trades close to $400.

Watsa may not be quite as entertaining to listen to as Buffett or Munger, but this is one smart man who proves that a little contrarianism and elbow grease go a long way in the world of investing.

Warren Buffett's long track record of success has made him one of the best investors of all time. With the Buffett at the helm, Berkshire Hathaway has grown book value per share at a compounded annual rate of 19.8% for nearly 50 years! Despite an incredible historical track record, investors have to understand the key issues to watch moving forward. To help investors, The Fool's resident Berkshire Hathaway expert Joe Magyer has created this premium research report on the company. Inside you'll receive ongoing updates as key news hits, as well as reasons to both buy and sell the stock. Claim a copy by clicking here now.

Editor's note: A previous version of this article noted an incorrect stock return on Fairfax's Bank of Ireland investment. The Fool regrets the error.

Read/Post Comments (5) | Recommend This Article (12)

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 November 09, 2012, at 3:35 PM, ronbeasley wrote:

    Excellent description of Watsa, but in error on Bank of Ireland. The stock is about the same level it was when he bought it. Not to worry, Watsa will be in this one for years, just like Wells Fargo.

  • Report this Comment On November 11, 2012, at 4:02 PM, Sotograndeman wrote:

    Great selection of quotes!

    I agree with Ron B above. In addition, the rationale behind the Bank of Ireland purchase is more complex than you describe. Fairfax/Watsa had alot of dealings in Ireland and had favorable reports on BoI and the management team prior to purchase. Furthermore, Wilbur Ross was an indispensible partner, and the pair had strong confidence in Richie Boucher, its CEO.

  • Report this Comment On November 13, 2012, at 12:57 PM, aleax wrote:

    I used to agree with you about Prem's brilliance, but his enormous investments in RIMM have given me pause -- I just don't see how a long-term attitude, on its own, will ever lift RIMM's business above its fearsome competitors.

    I'm willing to grant Watsa exceptional insight into fields such as troubled banks, say, but not into high tech (and smart phones in particular); accordingly, I regretfully sold out my Fairfax position (even though it remains recommended by a TMF premium service I otherwise follow closely)...

  • Report this Comment On November 13, 2012, at 1:25 PM, superbinvesting wrote:

    Very insightful piece. One of my favourite quotes is from Peter Lynch, it goes along the lines of:

    "Know what you own, and know why you own it." - Peter Lynch

  • Report this Comment On November 13, 2012, at 4:38 PM, SaraW946 wrote:

    Interesting article. Nevertheless, I will stick to Buffett, Munger, Fisher, Bogle, and Lynch. :)

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