• A public-opinion poll is no substitute for thought.
• We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

True success does not come from copying what everyone else is doing. You Can’t Beat the Herd by Following the Herd.

• Time is the friend of the wonderful company, the enemy of the mediocre.
• Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
• Chains of habit are too light to be felt until they are too heavy to be broken.
• If a business does well, the stock eventually follows.
• Our favorite holding period is forever.

When buying a dividend stock, the quality of the company is the number one consideration. Given enough time, a quality company will always rise above lesser competition.  When your holding period is forever, it is inevitable that a superior stock will eventually out-perform second tier players. Buffett has used the quality + time formula for decades.

• If past history was all there was to the game, the richest people would be librarians.
• In the business world, the rearview mirror is always clearer than the windshield.

With the internet, everyone has access to massive amounts of financial data on public companies. Never confuse data with information – the former takes up space while the latter is useful.  Your stock evaluation process should include quantitative and qualitative analysis. While it is important to understand how a company has performed using a quantitative analysis, it is more important to determine how the company will perform in the future using a qualitative analysis. This is much more difficult since no internet site provides an instant glimpse into the future.

• You only have to do a very few things right in your life so long as you don’t do too many things wrong.
• Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
• Wide diversification is only required when investors do not understand what they are doing.
• Risk comes from not knowing what you’re doing.

Have a plan for managing risk.  Buffett has spent a lifetime perfecting his process and abilities. Though he shuns diversification, we would be wise not to do so until our abilities are on par with his.

• It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
• It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.

Life is much more than just making money. The above rings true in so many aspects of our lives. Success is measured in many different ways.

• There seems to be some perverse human characteristic that likes to make easy things difficult.
• Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.
• I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
• Price is what you pay. Value is what you get.

Over time we make all things overly difficult and complex. Sometimes it is good to step back, focus on the basics and avoid the needless mistakes.

• I always knew I was going to be rich. I don’t think I ever doubted it for a minute
• We enjoy the process far more than the proceeds.

Life is a journey. Find something you love and enjoy the trip! We can all learn something from like-minded individuals who have been successful in their field. Still wanting more Buffett quotes?

(Photo Credit)

After the collapse of AIG driven by derivatives, many investors fear the same could happen to other insurance companies including BRK.A. Berkshire could have to pay as much as $37 billion between 2019 and 2027 under some derivative contracts if the S&P 500 index and three other stock indexes are lower than when Berkshire entered the contracts.

Most insurance companies shares are significantly down since October 1st compared to the S&P 500. During that period, AFLAC Inc. (AFL) is down 41.9%, Manulife Financial Corp (NYSE:MFC) is down 60.5% and BRK.A is down 34.7%, while the S&P 500 is down 31.1%.

Derivative exposure is not the only problem facing BRK.A. The stock price of General Electric Co. (GE) and Goldman Sachs Group Inc. (GS), have fallen, rendering Mr. Buffett’s warrants to buy common shares worthless for the time being.

Personally, I think the situation is playing to BRK.A’s strength – a strong balance sheet. As its competitors lose capital, they will be more conservative in writing new business. BRK.A may well step in and fill the void. What BRK.A currently owns may be worth less, but Buffett will get more opportunities to buy things at cheap prices and once again come off looking like a genius.

Full Disclosure: Long AFL, MFC, GE

Reference: Has Warren Buffett lost his touch?

D4L: Mr. Buffett, what do you see happening in the near-term?

WB: In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

D4L: Mr. Buffett, what are you holding in your personal portfolio?

WB: I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway (BRK.A) holdings, which are all committed to philanthropy.)

D4L: You said “previously owned”. Has something changed?

WB: I’ve been buying American stocks.

D4L: Really!? There are a lot of scary things happening in the market. Why would you be out there buying?

WB: A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

D4L: Yeah, but the talking heads are telling us that things have never been this bad.

WB: Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

D4L: Wow. So the stock market is a wonderful money making machine where you just can’t lose?

WB: You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

D4L: I guess for some they would be better off holding cash, right?

WB: Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Obviously, Mr. Buffett was way too busy to take my call, probably picking the stocks he will buy in the morning, so I took his responses from this wonderful October 17, 2008 NY Time article titled “Buy American. I Am“. There is a lot of wisdom in Mr. Buffett’s words.