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Nuggets of Wisdom From Warren Buffett

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warrenbuffett When you listen to the financial news, normally they would put an analyst on the spot to ask for their analysis of where the market will go next.

It is interesting to see the analyst squirm and give a “cover his/her ass” answer with a answer which will invariably add a qualifying statement.

Let’s see how the master investor answer this type of question, while drawing on his 67 years of experience in investing (since he bought his first stock in 1942):


QUESTION: I'm Peter Lawrence, first-year student from Columbia. And, first of all, thank you both so much for coming here. Mr. Buffett, the recent run-up in the market has been historic. And it seems that many people question the sustainability of the current price level. Do you think the rally is for real?

BUFFETT: What's going to happen tomorrow, huh? [APPLAUSE]

Let me give you an illustration. I bought my first stock in 1942. I was 11. I had been dillydallying up until then. I got serious. [LAUGHTER]

What do you think the best year for the market has been since 1942? Best calendar year from 1942 to the present time. Well, there's no reason for you to know the answer. The answer is 1954. In 1954, the Dow … dividends was up 50%. Now if you look at 1954, we were in a recession a good bit of that time. The recession started in July of '53.

Unemployment peaked in September of '54. So until November of '54 you hadn't seen an uptick in the employment figure. And the unemployment figure more than doubled during that period. It was the best year there was for the market. So it's a terrible mistake to look at what's going on in the economy today and then decide whether to buy or sell stocks based on it.

You should decide whether to buy or sell stocks based on how much you're getting for your money, long-term value you're getting for your money at any given time. And next week doesn't make any difference because next week, next week is going to be a week further away. And the important thing is to have the right long-term outlook, evaluate the businesses you are buying. And then a terrible market or a terrible economy is your friend. I don't care, in making a purchase of the Burlington Northern, I don't care whether next week, or next month or even next year there is a big revival in car loadings or any of that sort of thing. A period like this gives me a chance to do things. It's silly to wait. I wrote an article. If you wait until you see the robin, spring will be over.


Now you have it, pearls of wisdom from the master himself that the time you buy doesn’t matter but the price-value and time held matters more.


Source: CNBC Transcript of Interview of Warren Buffett and Bill Gates published on 13 Nov 2009.

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Musicwhiz said...
November 19, 2009 at 7:50 AM  

That's actually very true Lemizeraq.

Waiting too long has always been the problem of investors. Too much fear.

When they see the Index and share prices moving up slowly but surely, they jump in cause they fear missing out; and then it becomes greed.

That's the problem with evaluating price instead of value, I feel. Someone once mentioned that it's easy to "win" at trading a few times, but just 1 "loss" will wipe out your wins due to trading costs. I believe that to be the true state of affairs for most traders.


Lemizeraq said...
November 20, 2009 at 1:16 AM  

Hi Musicwhiz,

Thank you for popping by and giving your insights to issues raised here.

Value over a longer term is always better than short term punting on market direction or stock direction.

As you say it is sad that there are contra traders who still believe they can be the "One". The lucky one :)

Have a good weekend.


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