LONDON -- Without doubt, Warren Buffett, the boss of Berkshire Hathaway (NYS: BRK.A) (NYS: BRK.B) , has said some very wise things -- which, when you think about it, isn't surprising. Buffett wouldn't have made so much money in the first place if he weren't smart, and -- let's face it -- he's a gregarious chap who's happy to share his thoughts with those investors who have put their money into Berkshire Hathaway.
At this year's investor-fest in Omaha, for instance, Buffett and co-investor Charlie Munger once again held the stage for several hours, fielding questions from all and sundry.
The trouble is that when it comes to the answers, many of us have selective hearing. One result of this is that some of his best-known quotes are only partly reproduced. Take, for instance, Buffett's famous remark that "our favorite holding period is forever." What it doesn't mean is to cling like a dog with a bone to the rubbish in your portfolio -- because Buffett can, and does, sell.
The full quote is this: "When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."
That, I think you'll agree, is a rather different proposition.
Another problem, frankly, is wishful thinking. Personally, I think this famous quote is one of his worst, devoid as it is of anything that an investor can actually do: "Rule No. 1: never lose money; rule No. 2: don't forget rule No. 1."
What does it mean? What are you actually supposed to take away from it? It might be a worthy aspiration, but it certainly isn't actionable advice.
Cometh the hour
But, interestingly, it turns out that three of his less well-known quotes are loaded with actionable advice -- and advice that plays perfectly into today's stormy and nervous markets.
And without further ado, here they are:
- "The best thing that happens to us is when a great company gets into temporary trouble. ... We want to buy them when they're on the operating table."
- "The most common cause of low prices is pessimism -- sometimes pervasive, sometimes specific to a company or industry. We want to do business in such an environment, not because we like pessimism, but because we like the prices it produces."
- "The stock market is a no‑called‑strike game. You don't have to swing at everything -- you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'"
The common refrain running through all three? It's perhaps best summarized by yet another Buffett quote: "You pay a high price for a cheery consensus."
In short, you'll make the most money by sitting on your hands in the good times, and then buying good businesses in the bad times. And if that doesn't sound like a recipe for success in today's turbulent times, I don't know what does.
Wired for failure
Human nature being what it is, many investors do the exact opposite. When they're feeling buoyant and bullish, they pile into the stock market. Look no further than 1996 to 1999, for instance, or 2005 to 2006.
Then, when markets crater, they sell -- as they did in 2008 and 2009, to choose another example. And they certainly don't buy when the market is at rock bottom, which led to an awful lot of investors getting caught out by the meteoric rise of the FTSE 100 in the months that followed March 2009.
Looking for bargains
Hopefully, you'll already have your eyes on stocks priced at bargain levels.
Personally, I'm looking at topping up my holdings in BP, BAE Systems, and GKN. The news surrounding the first two, in particular, is gloomy, but the basic businesses are sound.
Or I may just throw some money at the index via one of my tracker funds or Vanguard's new low-cost FTSE 100 ETF, the Vanguard FTSE 100 ETF -- which is now live and trading, by the way.
That's just me, of course. But if you'd like to know what Warren Buffett himself has loaded up on, then a free Motley Fool special report -- "The One UK Share Warren Buffett Loves" -- can be in your inbox in seconds. It's free, so why not grab it today?
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At the time this article was published Malcolm owns shares in BP, BAE Systems, and GKN. He does not hold any other shares mentioned here. The Motley Fool owns shares of Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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