It pays to listen closely to anything and everything Warren Buffett has to say on business and investing. Continuing from the first part of this article, we've gathered more prudent words of investment wisdom from the Oracle of Omaha.
"You should invest like a Catholic marries -- for life."
When investing, you should look for businesses strong enough to endure for decades. And just as with marriage, you should be sure that this particular investment is better than any other alternative. If you invest with this lifelong approach, you will begin to focus on the important attributes of the business, rather than concerning yourself with insignificant hiccups. Buffett never concerns himself with a business's temporary setbacks, as long the important factors -- good management, low capital requirements, and durable economic advantages -- remain intact.
"You should invest in businesses that a fool can run, because someday, a fool will."
We're talking about small-f fools here, of course. A really good business will be able to withstand the poor decision-making of incompetent management. Every business life cycle will undoubtedly contain periods of superior and inferior management alike. Coca-Cola (NYSE: KO) was doing fine before the legendary Roberto Goizueta took the helm, and thereafter the company skyrocketed. Yet Coke is a sufficiently remarkable and simple business to do well without superstar management. Ironically, Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B) should also do just fine without Buffett at the top. Buffett is truly extraordinary, and over the years, he's worked to ensure that Berkshire will manage just fine after he departs.
"My idea of group decision-making is to look in the mirror."
Long-term success in investing requires the ability to go against the herd. Buffett's best investments have come at some of the direst moments in a company's history. If Buffett had relied on public opinion, he would have never invested in Berkshire Hathaway, American Express (NYSE: AXP), or GEICO -- nor, more recently, in Goldman Sachs (NYSE: GS) and General Electric (NYSE: GE).
It's extremely difficult to invest when all the "smart money" is going against you. Buffett, unlike most investors, possesses an unwavering conviction and discipline when making investment decisions. He learned this trait at age 11, when he made his first investment of three shares of city services. After he bought the stock, the price dropped. Buffett sweated it out and sold for a small gain. Shortly thereafter, the stock skyrocketed.
"You pay a very high price in the stock market for a cheery consensus."
If you let Mr. Market guide you, you'll pay a costly price indeed. As we now know all too well, the market overcharged many for the investment du jour last year, but what went up had to come down, and vice versa. A few years back, financial stocks like Bank of America (NYSE: BAC) were seen as impregnable. Yet the dramatic fall of the financial sector proves that those who followed the crowd paid up and suffered. It's best to use Mr. Market to serve you, not guide you.
"If you lose money, I will be understanding. If you lose our reputation, I will be ruthless."
That's what Buffett told the staff of Salomon Brothers during the Treasury securities scandal in 1991. It's also what Buffett tells his managers: Berkshire can afford to lose money, but not an ounce of reputation. In business and life, your reputation is the most important attribute. Buffett's reputation for integrity is so unquestionable that he's often sought out as the buyer of choice for companies seeking a good home. Buffett has earned his reputation over the past 50 years, and he's acutely aware that it would only take seconds of poor judgment to destroy that reputation.
Lessons for corporate America
Lawrence Cunningham has assembled a wonderful book: The Essays of Warren Buffett: Lessons for Corporate America. Buffett himself has stated that it's one of his favorites, since the book is a compilation of Buffett's direct words. Even the Fool has a quote on the back, praising the book as "one of the top investment books of all time." Cunningham does a masterful job of collating some of Buffett's best philosophies, making his book -- and Buffett's words -- an excellent tool for any serious investor.
Do you think Warren Buffett paid too much for Burlington Northern. Morgan Housel does -- but he still thinks it was a good move.
