5 of the Best Warren Buffett Quotes

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Warren Buffett is widely regarded as one of the most successful investors of all time, with his acquisition of Berkshire Hathaway and its subsequent transformation into the world’s largest holding company the stuff of legend. It goes without saying then, that many investors aspire to invest like Warren Buffett and dream of achieving just a fraction of his success.

How better to learn how to invest like Warren Buffett than from the man himself? In this article, we highlight 5 Warren Buffett quotes and explain what lessons investors can take away from his wisdom.

Investing Takes Time

One of the key differences between trading and investing is the time horizon. Whereas trading generally focuses more on short-term price movements, investing is about growing wealth over the long-term.

A key part of Buffett’s investment philosophy is to take a long-term approach when it comes to buying stocks. Indeed, on another occasion, Buffett once quipped “our favourite holding period is forever”. In other words, when he buys stocks, he buys them because he wants to own a piece of that company for a long time, perhaps even forever.

One of the most common mistakes beginner investors make is limiting themselves to only thinking with a short-term mindset, dreaming of finding the next popular growth stock which will make them rich overnight. But identifying these types of companies is next to impossible – and good companies, with good management in good sectors tend to grow and grow; so why sell out early?

If investors want to invest like Warren Buffett, they should take a long-term approach and focus on buying stocks which they would happily hold for 10, 20 or 30 years. Holding investments for these longer periods gives them more opportunity to grow and also allows investors to potentially benefit from the compounding effect over time.

Stick to What You Know

Overall Buffett’s investing career has been phenomenally successful. However, he has made mistakes and is not above admitting to them. One such mistake is missing out on investing in Google, with Buffett once admitting “I blew it”.

What was his reason for not investing in Google? The same as his historic aversion to technology stocks in general, Warren Buffett avoids investing in companies which he does not fully understand.

When we talk about understanding a business, we don’t simply mean being familiar with its products or services, we mean understanding how that business works, how it makes money, what makes it successful, what gives it an edge over its competitors, and so forth.

If you don’t fully understand these points, then how can you be sure that your investment has a chance of success? And, if you can’t be sure that your investment has a chance of success, why are you making that investment in the first place?

Look for a Company with a “Moat”

By ‘moat’, Buffett is referring to a competitive advantage which gives a company a unique edge over its rivals. Just like a traditional moat protects a castle from attackers, here, a moat protects businesses from being squeezed out of the market by competitors.

A couple of examples of competitive advantages often cited are when a company is a low-cost producer in a specific area or when a company owns a powerful brand, such as Coca-Cola.

Once Buffett identifies a moat, he looks to establish what is keeping that moat intact, and what will keep it standing in the future. Does the moat depend on the current management? Or will it endure regardless of who is in charge?

Given Buffett enters into each investment with a long-term mindset, the moat principle is an important part of his investing philosophy. If a successful business can maintain a significant competitive advantage over its rivals in the long-term, it can potentially translate in to greater returns for investors.

Don’t Follow the Crowd

Most people will be familiar with the classic stock market mantra: buy low, sell high. Nevertheless, inexplicably, often, human nature compels investors to do the exact opposite.

When a popular stock, such as Tesla, begins soaring, many less-experienced investors feel obligated to jump on the bandwagon, without doing proper research, in the hope of sharing the gains. On the other hand, when share prices fall, many investors panic and head for the exit, without looking into why prices are falling.

Apply this concept to any other scenario and it seems ridiculous. If a car you wanted to purchase went up in price, would you be more or less inclined to buy it? If it dropped in price, would you look elsewhere for a car which hadn’t fallen in value?

Of course, more often than not, if a stock falls in value there is a logical explanation for it. But the markets are not always efficient and, here is a key principle of Buffett’s value investing philosophy, a stock’s price does not necessarily reflect what it is worth.

The point is that you should never blindly follow the crowd. Just because everybody is buying or selling a particular stock, don’t let that sway your own opinion. In fact, as Buffett says, when other investors are being greedy, you should be fearful and wary of paying too much. Whereas when other investors are fearful and prices are falling, you may have an opportunity to pick up what is actually a quality stock for a lower price.

Focus on Quality

We touched on this in the previous section, but, to end our article of learning from some of the best Warren Buffett quotes, we will look at a quote which sums up the basis of his investing principles.

Warren Buffett is a value investor, the principle of which is that a public company’s share price does not necessarily reflect the intrinsic value of that company.

There are many who do not believe this and instead are of the opinion that the markets are totally efficient, in other words, that price always reflects value. However, Buffett is definitely not one of those. As he wrote in his most recent shareholder letter, “It’s crucial to understand that stocks often trade at truly foolish prices, both high and low. ‘Efficient’ markets exist only in textbooks.”

Value investing consists of identifying quality businesses which are trading for less than what they are actually worth, and then buying these “wonderful” companies with the expectation that, at some point, the market will correct itself and prices will reflect value.

Final Thoughts

In this article, we have highlighted 5 of the best Warren Buffett quotes and explained what lessons you can take away in order to learn how to invest like Warren Buffett. Of course, there is more to investing than just reading quotes and there are also many other ways to approach the financial markets than value investing like Buffett.

Investing requires time, effort, practise and lots of patience. Before you get started, it’s best to educate yourself thoroughly on the topic, something which you can start now with our Free Academy.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.