Warren Buffett is certainly one of the most interesting and successful investors of our time, and the rest of us can learn a lot from him. Here are five of our favorite things the Oracle of Omaha has ever said, and what they meant to our analysts.
Dan Caplinger: My favorite Buffett quote is also one that I struggle with the most: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." For investors who take a value approach in their investing strategy, the goal is to find stocks selling at a bargain price. Yet too often, low-priced stocks are cheap for a good reason, and what appears to be solid value turns out to be a value trap for the unwary.
Meanwhile, many value investors never bother looking at high-growth stocks trading at expensive valuations, because they see those stocks as being contrary to their investing philosophy. Yet Buffett's quote points to the true nature of what value is, emphasizing that companies with the best future prospects are often worth buying even when you can't pick up shares for less than their reasonable value. After having missed out on some great opportunities because of stubbornly refusing to pay above-market multiples for fast-growing stocks, I've recognized the importance of looking not just at share price, but also at the fundamental strength of the business itself to see whether a company is worth my investing dollars. Doing that can make you a better and more well-rounded investor.
Selena Maranjian: "All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies." -- from an interview with Janet Lowe in 1993.
Leave it to Warren Buffett to distill what can seem so complicated and mysterious to so many of us -- the world of the stock market and investing in it -- into a clear and simple sentence. He actually crams a bunch of critical investing concepts into those 23 words, though. For example...
Good companies: This means that instead of just looking for bargains (which may seem like bargains because they're headed south) or highfliers (which may not keep flying for long), it's best to focus on high-quality companies. These would be ones where you understand how they make their money and how strong their competitive position is. Ideally, the companies would be generating lots of profits, while growing their top and bottom lines, along with profit margins. Financial health is important, too, with ample cash and little debt.
At good times: Here Buffett reminds us that finding a good company is not enough. We must also buy into it at the right time -- i.e., when it's priced attractively. If you invest in a terrific but wildly overvalued company, you're likely to see it fall in value, despite its wonderfulness.
As long as: Finally, Buffett notes the importance of patience. It's hard to get rich jumping in and out of stocks, but if you find high-quality growers and stick with them through thick and thin -- as long as you still have faith in them -- you're likely to do quite well.
It's hard to pick just one Buffett quotation, since he has said so many insightful and valuable things, but in our complicated and action-driven world, this simple sentence of his can serve as grounding.
Eric Volkman: "Someone is sitting in the shade today because someone planted a tree a long time ago."
Some of the smartest investors on the market, like Buffett, are buy-and-hold specialists in the extreme. Look at some of the famous stocks in Berkshire Hathaway's (NYSE:BRK-A) (NYSE:BRK-B) portfolio: American Express (NYSE:AXP) was purchased over 50 years ago and is still a major holding for Buffett. In fact, it's one of Berkshire's top four positions. And that's only one of a host of examples.
One of the best ways for an investor to ensure strong returns from their investment is to park their money in a quality company with a proven ability to keep generating returns. The seed becomes a tree for those patient enough to wait. And sometimes that wait isn't particularly long; an investor purchasing AmEx as recently as early 2011 would have more than doubled his or her money by now.
This patient approach requires discipline, though. After all, there's a lot of noise on and around the exchange -- this stock is hot, there's a narrow window to buy those shares, SELL! SELL! But Buffett has spent his investment life proving that it's those plant-and-wait plays that produce the biggest rewards over time.
Leo Sun: Warren Buffett reportedly once told Bill Gates that a "ham sandwich could run Coca-Cola (NYSE:KO)." That quote complements Peter Lynch's equally famous quote, "Go for a business that any idiot can run -- because sooner or later, any idiot probably is going to run it."
The idea is simple -- businesses outlive their CEOs, but those built to last can keep growing regardless of whoever is in charge, which makes them ideal long-term investments.
"Ham sandwich" stocks are notoriously tough to find these days. Starbucks (NASDAQ:SBUX) and Disney (NYSE:DIS) arguably wouldn't have enjoyed their sudden spurts of growth over the past few years without the respective leadership of Howard Schultz and Bob Iger. Facebook (NASDAQ:FB) certainly wouldn't be the same without Mark Zuckerberg. Tesla Motors (NASDAQ:TSLA) would likely short circuit if Elon Musk stepped down, and the jury's still out on whether or not Apple (NASDAQ:AAPL) CEO Tim Cook can ever grow into Steve Jobs' shoes.
While it may be hard to find a company that doesn't depend on its CEO at all, it's important for investors to understand how much his or her leadership matters to the company's future. That way, you won't get stuck holding the bag if a hotshot CEO suddenly retires without a clear succession plan.
Dan Dzombak: One of my favorite Warren Buffett quotes is, "I've seen more people fail because of liquor and leverage -- leverage being borrowed money. You really don't need leverage in this world much. If you're smart, you're going to make a lot of money without borrowing." I bring this quote up because recently, there was a great reminder of the perils of leverage.
Currencies don't move that much over the course of a year, so many people use leverage to make money in the currency markets. One popular trade has been buying the Swiss franc versus the euro. Since September 2011, the Swiss National Bank has sold francs for euros to make sure the value of the Swiss franc compared to the euro remained at 1.2 Swiss francs per euro. When the Swiss National Bank unexpectedly ended their currency peg, the franc jumped 30% to trade as high as 0.805 francs per euro, before ending the day at 1.040 francs per euro.
With so many people betting on the franc versus the euro using leverage, thousands of foreign exchange traders took losses totaling more than the amount of money they had in their account. The losses mean multiple foreign exchange brokers are facing major losses, including U.S. forex brokers Interactive Brokers and FXCM (NASDAQ:GLBR), if not outright bankruptcy, which, so far, includes Alpari, ExcelMarkets, and Global Brokers NZ.
It's worth reiterating the second line of Buffett's quote, "If you're smart, you're going to make a lot of money without borrowing." Avoid using debt, and you're one step closer to being a successful investor.
Dan Caplinger owns shares of Apple, Berkshire Hathaway, and Walt Disney. Dan Dzombak has no position in any stocks mentioned. Eric Volkman owns shares of Facebook and Walt Disney. Leo Sun owns shares of Apple, Facebook, Starbucks, and Walt Disney. Selena Maranjian owns shares of American Express, Apple, Berkshire Hathaway, Coca-Cola, and Starbucks.
The Motley Fool recommends American Express, Apple, Berkshire Hathaway, Coca-Cola, Facebook, Starbucks, Tesla Motors, and Walt Disney. The Motley Fool owns shares of Apple, Berkshire Hathaway, Facebook, Starbucks, Tesla Motors, and Walt Disney and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.