Warren Buffett’s Wise Words

“The Oracle of Omaha”. Warren Buffett, the famed value investor and billionaire, is probably the most intelligent capital allocator alive. So, anytime he drops a little advice on mere mortals like myself I like to stop what I’m doing and listen.

He was interviewed on CNBC’s “Squawk Box” program this past Wednesday. Buffett was asked about a number of different issues, including his thoughts on the global economy, the upcoming election, housing and potential acquisitions among other subjects. For interested parties, you can watch the entire interview/read the transcript here.

Towards the end of the interview, Becky Quick, the beautiful host of the one-on-one session, asked Warren to play a quick game of word association. I’ll quote Becky’s question, and then Warren’s answer below:

Becky Quick:

“Andrew, thank you. Last word, Warren, is a sort of free word association game that we’ve been playing lately. I say a word, you tell me what it makes me think of. And the question we get most frequently from people about you coming on is what should they be buying right now? So if I say buy, you say…”

Warren Buffett:

“I say —I say hold —basically hold. I mean, the idea that the European news or slowdown in this or that or anything like that, that would not cause you to own a good farm and had a run by a good tenant, you wouldn’t —you wouldn’t sell it because somebody said here’s a news item, you know, this is happening in Greece or something of the sort. If you owned an apartment house and you got to raise your rents a little, it’s well located and you have a good manager, you wouldn’t dream of selling it. If you had a good business personally, the local McDonald’s franchise, you know, you wouldn’t —you wouldn’t be thinking about buying or selling it every day. Now, when you own stocks, you own pieces of businesses, and they’re wonderful businesses. So you can pick the best businesses in the world, and to buy or sell on current news is just crazy. You’re in a wonderful business, you’ve got people running it for you. You know you’re going to do well over five or 10 years, and to think news events should cause you to try and dance in and out of something that’s a wonderful game is a terrible mistake. So get into a bunch of wonderful businesses and stay with them.”

Wow! Did you just feel the bomb dropped on you? That was probably the most mind blowing 60 seconds of knowledge that I’ve ever heard. I don’t need superlatives to describe Buffett or his knowledge, as that has been done a million times. However, I never cease to be amazed at the simplicity behind his advice, yet how wise and timeless it truly is.

We, as stock investors, sometimes get caught up in the day-to-day gyrations of the market and it’s almost hypnotic swings back and forth. You see capital gains dangled in front of you and you see years of dividends that can be captured immediately – and all rational thought gets thrown out the window.

The stock market is unique. You may own many assets. You may own your own home, have a paid-off car, maybe some artwork or some farmland. But these items don’t have live streaming quotes that parade in front of you Monday through Friday 9:30 a.m. to 4:00 p.m. eastern standard time. So, you continue to live in the home you’re in until it no longer fits your needs, your artwork stays neatly hung up above your mantle and your car continues to get you to and from your work and other daily tasks. Irrational exuberance is hard to replicate when you don’t have instant access to buy and sell these items.

But this is no excuse for the intelligent investor to get caught up in the excitement of the bi-polar stock market. I try to heed Warren’s advice here and stick to buying wonderful businesses at attractive prices and stick with them. Leave the selling to people who let their emotions get the best of them, at which time long-term dividend growth investors can scoop up shares on the cheap. I’d like to think I’ve done a good job sticking to the path, as you can see over on the right side of the page that I have publicized 29 purchases since this blog went live and only three sales. I only sell when a stock meets my exit criteria. Although I regret my Exxon Mobil (XOM) sale, the liquidations of my Telefonica S.A. (TEF) and Total S.A. (TOT) holdings were justified.

What I believe dividend growth investors should take away from Warren’s wise words are to only pay attention to pricing when trying to allocate capital and purchase shares of high quality businesses. Use value as your guide and make sure you’re investing in businesses that have lasting and enduring competitive advantages. Then, sit back and allow your decision-making process to make you money for years and years and pay no mind to what other people are willing to pay for your stake. Reinvest your capital back into these high quality businesses and increase your stake. Easy as that. 

How about you? Follow Warren’s advice?

Full Disclosure: None

Thanks for reading.

Photo Credit: CNBC

Comments

    • says

      Anonymous,

      Warren is the epitome of the intelligent investor. He’s been able to capitalize on his opportunities and make the most of his talents. He’s definitely one-of-a-kind.

      Best wishes.

  1. Anonymous says

    He is in his 80’s, who will ever replace such a wise man? Every time he is on T.V. I’m glued to the screen.

    Bill from Wmsport

    • says

      Bill,

      Thanks for stopping by.

      I don’t think anyone will ever “replace” WB, but I do hope that someone eventually comes along that can provide the world with examples of continuing intelligent investing in the future.

      Best regards.

  2. says

    Agreed, very wise man. He’s basically saying we shouldnt be playing the trading game, which only makes sense, esecially since we are tiny, tiny fish. Buffet also had a great analogy about the total worth of Gold versus other commodities which I think was/is the best explanation Ive read about it, so he has a knack for explaining complex ideas plainly enough for common folks like me to understand. OTOH, and here comes my problem with Buffet, is he owns a bunch of companies that pay great dividends, but doesnt pass any of those dividends onto his shareholders, which makes me scratch my head. I am not a shareholder, and probably never will be, but I think his method of accumulating wealth for himself and his company, is at odds with his method of accumulating wealth for his shareholders. I understand his book value ratio he uses to demonstrate the worth of his holdings to his investors, but if I were one of his shareholders, I would be getting out, not in.

    • says

      HYS,

      His discussion on owning gold vs. owning businesses was enlightening, indeed.

      As far as dividends, his propensity to not pay out dividends to his shareholders matters not to me. However, the reason it matters not to me is because I have chosen not to own Berkshire stock because of the lack of dividend. That’s what is so great about the stock market. You get to pick and choose which companies meet your investment criteria.

      Take care!

  3. says

    High Yield Soldier -

    Buffett’s response would be that he’s a better allocator of Berkshire’s income. He reinvests it into his businesses or gets sweetheart deals on fairly-valued stocks. This provides a greater total return over the long-run to his shareholders. Whether or not you agree, that’s what I’ve heard as the argument for Berkshire not paying dividends.

    I love Buffett, but have been getting a little fed up with his taxation stance lately. Sounds like he’s got his slice of the pie and doesn’t want anyone else to get it. I get that he’s giving most of his wealth away to charity, but he’s free at any time to write a whopping check to the government.

    That being said, the man has so many common-sense investing quotes over the last 30 years that I try to abide by that you have to love him.

    • says

      I totally understand his response on this matter, and the shareholders must agree as well, because they dont seem to be complaining. He speaks with a lot of wisdom, and we definetely need more of that in this country, even though I dont always agree with his views.

    • says

      The Dividend Warrior,

      Great points there on total return for Buffett’s shareholders. If BRK paid a dividend I’d probably be highly interested in owning the stock. But, alas it does not and so I look to other companies. Hell, I’m forming my own little Berkshire Hathaway anyway!

      His taxation stance is interesting. I do believe that everyone should pay their fair share, but government spending also has to be reigned in. However, Buffett just writing “a whopping check” won’t really solve anything as even if he gave 100% of his wealth to the government it’s really just a drop in the bucket compared to the Federal Government’s budget.

      Best wishes!

  4. says

    Yes! A great wise man. Am still Reading a book about his life: Snowball. Very interesting to see that very Young was making all he could to accumulate money.

    • says

      Aspenhawk,

      I haven’t read “Snowball” yet, but I did scan it a couple times. Looks very interesting.

      Buffett’s drive to accumulate wealth is really interesting. It was obviously a fire that burned inside him ever since he was just a little child. He always knew he’d be rich and simply made decisions that optimized his opportunities.

      Take care!

  5. says

    I actually reading Securities Analysis from Benjamin Graham and David L. Dodd w/ a foreword of W. Buffet.

    It’s the timeless bible (about 720 pages) of value investing, and his words in your post resume this book: analyse the companies, buy those you want and keep them!

    It’s of course a bit more complicated but it’s the spirit.

    Like for other comments I’m not 100% for Buffet, in fact, like in the stock market, it’s always better to make its own idea on the subject

    • says

      JF Baconnet,

      Benjamin Graham and Warren Buffett were definitely cut from the same cloth. Both are able to separate emotion from investing, and that’s extremely important.

      I read parts of “Security Analysis” and it’s a fantastic read as is “The Intelligent Investor”. I view them as probably the only two books you’d ever need to read on investing, especially the latter.

      Best regards.

  6. says

    Mantra, great post! I love it.:) Anyway Buffett is right, once you have a great company, why sell it?

    In fact I look back on my sale of MCD @ $100 per share this year and wonder if it was the right move. I simply could have held, and bought more. Like yourself I rarely sell, and my recent sell of a small-cap stock was more than justified when the CEO suddenly resigned for no reason. Made a handsome profit, so no spilled milk on that one.

    I think once your perspective changes from buying stocks to buying businesses, investing just makes a lot more sense. More investors really need to think this way IMO. ;)

    Cheers, and keep up the great work!
    Dividend Ninja

    • Anonymous says

      Right on! I’ve been investing for about ten years. I “traded” for about eight of those and at best broke even. After 2008, I changed my perspective mostly because the dividend yields were unbelievable. I then started following dividend investing blogs like this one and suddenly realized how stupid I had been. Now, not only do I make money from my investments (in terms of dividends) but my net worth is increasing steadily. I now think in terms of buying businesses instead of buying stocks. In fact it is one reason why I won’t buy MCD. It is a great stock but as a matter of conscience, the fast food industry contributes a lot to America’s obesity problems (yes, I know every one has freedom to choose but MCD business model is centered on selling burgers, fries, and soda). I would not have made this kind of decision two years ago.

      Mantra, thanks for the post. Your blog as well as a few others has helped to shape my investing future and it looks bright!

      Steve

    • Anonymous says

      Dividend Ninja-
      Why are you lamenting the sale of MCD at $100 when you can purchase it now for much less than $100? I would understand if it had stood still or increased.
      Scott

    • says

      Dividend Ninja,

      Thanks for stopping by!

      Glad you enjoyed the post. Yes, I think I luckily realized early on that I was interested in buying percentages of businesses through common stock instead of just buying ticker symbols. It’s an important difference.

      As far as MCD, I would just be loading up if I were you. I think it’s fairly valued up at that $100 range, but it’s definitely attractively priced for the long-term investor at today’s entry level. I plan on buying MCD next month and holding forever as long as they continue to do what they’re doing.

      Best wishes!

    • says

      Steve,

      Glad you enjoy the blog. I’m really happy to hear that you turned the corner from trading to investing. They are very different in my mind. Not to say you can’t make money by trading, but the odds are stacked against you. Investing in high quality businesses for the long-term puts the odds back in your favor.

      I understand your thoughts on MCD. There are many fine businesses available for an investor, and if one doesn’t meet your criteria for whatever reason then it’s only fair to move on and seek out another partnership.

      Keep in touch.

      Take care!

    • says

      Mantra, cheers! I’m thinking of selling some bond ETFs with the YTM at very low levels (I don’t think you would object with that). I might top up on KO and buy 50 shares of MCD.

      Cheers!
      The Dividend Ninja

    • says

      Ninja,

      Great moves there! You know I definitely approve! :)

      MCD is at the very top of my buy list for November. If it stays at current levels I’ll definitely be adding to my shares.

      KO is about as solid and blue chip as they come. Can’t go wrong with that one!

      Best wishes!

  7. says

    Great quote. This strategy has in part made him the greatest investor of all time.

    Great job not selling your companies. 3 sales in 2 years is pretty minimal! I’ve haven’t fared as well I’ve sold 6 o.O I don’t regret any of them except PSX. I am quite annoyed that they said they were targeting 5% dividend growth then went ahead and boosted it 25% like the next month… liars! That’s BS! haha

    • says

      Compounding Income,

      I only regret my XOM sale. Even though I felt it had a bit of a run I really shouldn’t have sold. It was continuing to do all of the things I initially invested in it for. TEF cut its dividend and TOT has held its dividend static, so those I don’t regret. Going forward I plan on selling even less, if at all.

      Yeah, PSX was a surprise. I find splits tend to benefit shareholders over the long-term so I knew I’d hold both upstream and downstream operations of COP after the split, much the same as I plan on holding on to both sides of ABT after the split. I’ll only sell if they give me a good reason to.

      Best wishes!

    • says

      Anonymous,

      Great question there.

      Dividend paying companies have been distributing payouts to shareholders well before the Bush tax cuts, and will continue to do so well after. I expect these Bush tax cuts to end sooner or later, but I highly doubt JNJ would suspend its dividend to all shareholders simply because of this. Dividends used to be taxed at significantly higher rates not that long ago.

      Best wishes!

  8. says

    Cool Article Dividend Mantra, I enjoy anything Warren Buffet has to say. He make it sound so simple like its just common sense, so when he says something you think thats simple enough why didn’t I think of that. I hope I can be that wise one day ha.

    • says

      Save Money Invest Smart,

      Warren Buffett definitely has that knack; the uncanny ability to take complicated concepts and word them in ways that all of us can understand. His folksy down home demeanor has always made the guy very seemingly approachable, even though he’s one of the richest men in the world. I admire that about him, personally.

      Take care!

  9. says

    I find it so unusual that guys like warren buffett seem to have been very successful over the years following a simple method when it comes to investing. I recently heard jim rogers on RT talk about how much he likes anything having to do with farming he suggests its better to learn how to drive a tractor than get an MBA this guy seems so very modest in the way he views himself even though he’s a billionare. The same is true for Warren Buffet. Warren Buffett has stated numerious times that the reason for his great success in stock investing is because he never really worries about what happens to a stock on a day to day month to month or even year to year basis. If you have great confidence in the stock of a company and believe that its future prospects are great than theirs no need to worry about short term fluctuations in the price of the stock.

    • says

      Financial Directory,

      Great points there. Successful investors invest for the long-term and don’t worry much about short-term fluctuations other than to use these fluctuations to their advantage when buying or adding to positions.

      I agree that it’s important to stay modest. The day you start thinking you are smarter and better than everyone else will likely be the start of your downfall.

      Best regards!

  10. says

    Warren definately has the secret all figured out. We are lucky to be able to learn from his wisdom and apply it to our own investing portfolios. I believe if you buy great companies at fairly valued prices and hold forever then you will end up better off than the majority of investors. The only reasons I ever want to sell is if management has given me a reason to sell such as dividend cuts or taking the company in a direction I don’t agree with. I will also sell if the valuation gets ridiculous like many did back in the dot com bubble near 2000.

    • says

      Dan Mac,

      Absolutely. We should all be glad that Buffett is more than happy to spill the beans, rather than just sit on some office high above the world and reject interviews while counting his billions. The fact that he is giving most of the money away speaks volumes about his character as well.

      I’m with you. I don’t sell often. Usually only a reduction/hold of the dividend, extreme overvaluation or significant change/erosion in company fundamentals will compel me to sell a holding, especially if it’s a high quality company.

      Best wishes.

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