One of the smartest things new investors, and even experienced ones, can do is to learn from some of the most successful investors who ever lived. And these people generally have quite a bit in common -- they don't "trade," they don't chase beaten-down stocks, and they don't let emotions dictate their investments, just to name a few traits.
With that in mind, here are five of my favorite quotes from some of the best investors all time, and why they can be so helpful for other investors to understand.
1. Someone is sitting in the shade today because someone planted a tree a long time ago. -- Warren Buffett.
Investing is a long-term game, and I don't know of any investor who has sustained the kind of success Warren Buffett has over such a long period of time. Since he took the helm of Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B) in 1964, the company stock is up by more than 2,400,000%.
So, it shouldn't come as a surprise that Buffett advises investors to keep an eye on their long-term goals. Buffett never buys stocks because he thinks they're going to perform well over the next few months, or even over the next few years. Rather, he views stocks as the seeds that could eventually grow into massive trees.
2. The intelligent investor is a realist who sells to optimists and buys from pessimists. -- Benjamin Graham
This goes hand-in-hand with the famous Warren Buffett quote, "Be fearful when others are greedy and greedy when others are fearful." In a nutshell, Graham (who was Warren Buffett's mentor, by the way) is saying that when everyone is optimistic, and stocks keep going up and up, that's the time to sell. Conversely, when everyone is panicking about how bad the economy is, or how low the market has fallen, that's the best time to buy. In other words, the smartest investors avoid having a herd mentality.
3. Behind every stock is a company. Find out what it's doing. -- Peter Lynch
Many new investors forget what they're actually doing when investing in stocks -- they're buying a piece of a business.
Therefore, Lynch is reminding us that the most important things to look at aren't the stock's price, or what it's been doing over the past few weeks or months. Instead, the most important thing is how the company is doing. Is its market growing? Are its competitive advantages sustainable? Are profits steadily climbing? These are the types of questions investors should be asking.
4. Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes. -- John Bogle
Bogle, the founder of Vanguard, is widely considered to be the pioneer of the index fund -- that is, funds that passively invest in all of the stocks in a particular index and charge a relatively small fee.
There are several serious mistakes that are quite common, such as over-trading (moving in and out of stock positions), or letting emotions get the best of you by buying when stocks are overpriced and selling when stocks crash. The reason Bogle loves index fund investing so much is because index funds allow everyday investors to avoid making these serious mistakes while doing the most important thing -- creating a diversified portfolio of rock-solid companies -- right.
5. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. -- Warren Buffett
I mentioned earlier that Warren Buffett is probably the most successful long-term investor who ever lived, so it makes sense that he made this list of quotes twice. This one is perhaps my favorite Buffett quote of all time, and it has saved me considerable money from chasing cheap but broken companies on their way down.
In Buffett's view, valuation is important, but it's not more important than investing in a great business. Buffett won't buy troubled businesses, no matter how cheap their stocks get. This is why you'll never see stocks like Sears or J.C. Penney in Berkshire's portfolio. However, Buffett is more than willing to pay a comparably high valuation for a company with a thriving business.