Financial Wisdom # 4

Warren Buffett is the most successful investor of our time, perhaps of any time. He is famous for his pithy and witty quotes, which often appear in his annual letter to shareholders. Taken together, his quotes pretty well sum up his investment philosophy and approach.

Here are his best sound bites of all time on being a sensible investor.

1. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.

2. Investing is laying out money now to get more money back in the future.

3. Never invest in a business you cannot understand.

4. I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

5. I put heavy weight on certainty. It's not risky to buy securities at a fraction of what they're worth.

6. If a business does well, the stock eventually follows.

7. It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

8. Time is the friend of the wonderful company, the enemy of the mediocre.

9. For some reason people take their cues from price action rather than from values. Price is what you pay. Value is what you get.

10. In the short run, the market is a voting machine. In the long run, it's a weighing machine.

11. The most common cause of low prices is pessimism. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces. It's optimism that is the enemy of the rational buyer. None of this means, however, that a business or stock is an intelligent purchase simply because it is unpopular; a contrarian approach is just as foolish as a follow-the-crowd strategy. What's required is thinking rather than polling.

12. Risk comes from not knowing what you're doing.

13. It is better to be approximately right than precisely wrong.

14. All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.

15. Wide diversification is only required when investors do not understand what they are doing.

16. You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I'll do something. If not, I won't do a damn thing.

17. [On the dot-com bubble:] What we learn from history is that people don't learn from history.

18. You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.

19. You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.

20. You should invest in a business that even a fool can run, because someday a fool will.

21. When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact.

22. The best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.

23. Diversification may preserve wealth, but concentration builds wealth.