- Warren Buffett has dropped numerous pieces of investing advice& in& the Berkshire Hathaway Annual Reports.
- He's said that you should try to be fearful when others are greedy, and greedy when others are fearful — loosely translating to buy low, sell high.
- He also encourages buying stock because you want to own that company — not because you want the stock& to go up.
Investing guru Warren Buffett just celebrated his 87th birthday in August. But the "Oracle of Omaha" is hardly slowing down. He made $12 billion last year and nearly another $2 billion so far in 2017, making him one of the& five wealthiest people in the world.
How does he make all that money? Well, he's chairman of Berkshire Hathaway, a multinational conglomerate holding company. Basically, that means Buffett and his company pick other companies to buy and invest in. (Among their subsidiaries are brands you might have heard of like Benjamin Moore, Dairy Queen and Geico.)
Over the past five years, Berkshire's B class shares—which, at about $180 apiece, are more accessible than a $270,000 Class A share—have leapt more than 100 percent, compared to the Dow Jones industrial average's jump of around 65 percent. Buffett himself has a current estimated net worth of more than $77 billion.
Investors and the business world have been seeking his counsel for decades. He seems to drop pithy pearls of wisdom every time he speaks. We gathered some of his greatest hits:
1. 'Try to be fearful when others are greedy and greedy only when others are fearful.'
—2004 Chairman's Letter of Berkshire Hathaway's Annual Report
Probably the most famous Buffett-ism, this quotable is essentially another way of phrasing the popular investing maxim, "Buy low; sell high." Investors frequently do the opposite because of herd mentality, our psychological desire to follow the crowd. But being a contrarian can be much savvier. For example, when current events scare investors away from a down market, you might use that opportunity to buy quality stocks on sale.
2. 'Both large and small investors should stick with low-cost index funds.'
—2016 Chairman's Letter of Berkshire Hathaway's Annual Report
Buffett may be a brilliant stock picker, but he still recognizes the strength of simple investing with a low-cost S&P 500 index fund. In fact, he's so confident about this approach that he bet $1 million on it.
Why is he so sure that passive investing beats active managers? In a word, fees. He explains that many investment professionals charge more than they can possibly earn in returns for their clients. You're better off keeping all the gains of an index fund for yourself.
3. 'The investor of today does not profit from yesterday's growth.'
—"The Security I Like Best," December 6, 1951
This oldie but goodie reminds us that past performance is no guarantee of future results, so you can't count on a hot investment continuing its streak. Instead, look to the future. Be sure any investment you're interested in has good prospects and can help you reach your goals.
4. 'Our favorite holding period is forever.'
—1988 Chairman's Letter of Berkshire Hathaway's Annual Report
Talk about investing for the long term. Of course, Buffett doesn't really expect anyone to hold onto an investment forever. His point is that you should "buy into a company because you want to own it, not because you want the stock to go up," as he put it to Forbes magazine in 1974. That means if you're trying to invest in individual stocks, you look for good businesses you believe can be profitable for the long haul. Then you'll only sell when you need the cash, not because it's time to unload a dud.
5. 'Anything can happen anytime in markets… Market forecasters will fill your ear but will never fill your wallet.'
—2014 Chairman's Letter of Berkshire Hathaway's Annual Report
Listen to Warren (and us): Ignore the noise—especially given today's media landscape, where we have constant access to information, and every minor event stands a chance at making headlines and moving the market (at least in the short term).
Don't let any of it change your long-term investing strategy. As long as you're confident in your plan and portfolio, you should be able to stick with it no matter what the talking heads say on a given day.
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