Whether you are a seasoned investor or just starting out, there's always something to be learned. One of the best ways to become a better investor is to take a page out of the playbooks of some of the best investors of our time, such as Warren Buffett and Charlie Munger. Below, three Motley Fool contributors share one quote that helped them become better investors.
Joe Tenebruso: "And, by the way, the bulk of the billions in Berkshire Hathaway has come from the better businesses ... And most of the other people who've made a lot of money have done so in high-quality businesses." – Charles Munger
At Tier 1 Investments, a Motley Fool Real-Money Portfolio, I seek out and invest in elite businesses. These include companies with the strongest competitive advantages, largest growth opportunities, and best management. They possess the most valuable brands, superior products and services, and most profitable business models. They are the innovators, disruptors, and best of breed. These businesses are ... Tier 1.
I seek out the best businesses because, as Charlie Munger would attest, they often turn out to be the best investments. However, investors often miss out on these opportunities because the stocks of premium companies almost always look expensive, except in the rearview mirror. And so while I strive to buy stock in these businesses at great prices, I am willing to pay a reasonable price for quality. Examples of this include Tier 1's purchases of Under Armour(NYSE:UAA) and Amazon.com, both of which appeared expensive on traditional valuation measures when I added them to Tier 1, yet have gone on to deliver gains of 176% and 76% respectively.
It's an investment philosophy that has handily outperformed the market, with Tier 1 earning a time-weighted return of 98.26% since inception on Sept. 1, 2011, compared to the S&P 500's 82.72% return during that time. More importantly, it's my hope that sharing Munger's quote will encourage you to consider focusing on high-quality businesses during your investment selection process, and thereby help you improve your investment returns.
Tamara Walsh: Often referred to as the "Oracle of Omaha," Warren Buffett is regarded as one of the greatest investors in history. What's his secret, you ask? It's simple: invest for the long term. In a 1996 letter to Berkshire Hathaway shareholders Buffett wrote, "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes." This is one sentence of a much longer quote, which we will get to in a minute.
How much time you have to let your money grow can be the difference between outsized gains and losing money in the market. As Buffett famously said, "Our favorite holding period is forever." That is a smart strategy because your initial investment compounds over time. Here is more from Buffett's 1996 statement on how to become a successful investor:
Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily understandable business whose earnings are virtually certain to be materially higher five, ten, and twenty years from now. Over time, you will find only a few companies that meet these standards -- so when you see one that qualifies, you should buy a meaningful amount of stock.
Buffett's wisdom taught me to find great companies and invest for the long -term -- a strategy that has undoubtedly made me a better investor.
Andres Cardenal: Back in 2008 the economy was crashing, both in the U.S and around the world; things seemed to be getting worse by the day. Lehman Brothers filed for bankruptcy protection in September of that year, fear was rampant, and there was no way to tell how deep the crisis could be or how serious the impact on global stock markets.
Warren Buffett published an op-ed in The New York Times on Oct. 16 of that year, explaining how investors were doing the wrong thing by running away from stocks in times of maximum opportunity. The smart strategy is buying when everyone else is selling, even if it can be difficult to stomach in times of rising uncertainty.
Buffett explained how a focus on the long term can provide the strength to capitalize on short-term volatility to maximize gains:
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
Since Buffett's letter, the S&P 500 Index has risen by nearly 150% when including dividends. The lesson is quite clear, in Buffett's own words: "In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price."