He was interviewed on CNBC's "Squawk Box" program this past Wednesday. Buffett was asked about a number of different issues, including his thoughts on the global economy, the upcoming election, housing and potential acquisitions among other subjects. For interested parties, you can watch the entire interview/read the transcript here.
Towards the end of the interview, Becky Quick, the beautiful host of the one-on-one session, asked Warren to play a quick game of word association. I'll quote Becky's question, and then Warren's answer below:
"Andrew, thank you. Last word, Warren, is a sort of free word association game that we've been playing lately. I say a word, you tell me what it makes me think of. And the question we get most frequently from people about you coming on is what should they be buying right now? So if I say buy, you say..."
"I say —I say hold —basically hold. I mean, the idea that the European news or slowdown in this or that or anything like that, that would not cause you to own a good farm and had a run by a good tenant, you wouldn't —you wouldn't sell it because somebody said here's a news item, you know, this is happening in Greece or something of the sort. If you owned an apartment house and you got to raise your rents a little, it's well located and you have a good manager, you wouldn't dream of selling it. If you had a good business personally, the local McDonald's franchise, you know, you wouldn't —you wouldn't be thinking about buying or selling it every day. Now, when you own stocks, you own pieces of businesses, and they're wonderful businesses. So you can pick the best businesses in the world, and to buy or sell on current news is just crazy. You're in a wonderful business, you've got people running it for you. You know you're going to do well over five or 10 years, and to think news events should cause you to try and dance in and out of something that's a wonderful game is a terrible mistake. So get into a bunch of wonderful businesses and stay with them."
Wow! Did you just feel the bomb dropped on you? That was probably the most mind blowing 60 seconds of knowledge that I've ever heard. I don't need superlatives to describe Buffett or his knowledge, as that has been done a million times. However, I never cease to be amazed at the simplicity behind his advice, yet how wise and timeless it truly is.
We, as stock investors, sometimes get caught up in the day-to-day gyrations of the market and it's almost hypnotic swings back and forth. You see capital gains dangled in front of you and you see years of dividends that can be captured immediately - and all rational thought gets thrown out the window.
The stock market is unique. You may own many assets. You may own your own home, have a paid-off car, maybe some artwork or some farmland. But these items don't have live streaming quotes that parade in front of you Monday through Friday 9:30 a.m. to 4:00 p.m. eastern standard time. So, you continue to live in the home you're in until it no longer fits your needs, your artwork stays neatly hung up above your mantle and your car continues to get you to and from your work and other daily tasks. Irrational exuberance is hard to replicate when you don't have instant access to buy and sell these items.
But this is no excuse for the intelligent investor to get caught up in the excitement of the bi-polar stock market. I try to heed Warren's advice here and stick to buying wonderful businesses at attractive prices and stick with them. Leave the selling to people who let their emotions get the best of them, at which time long-term dividend growth investors can scoop up shares on the cheap. I'd like to think I've done a good job sticking to the path, as you can see over on the right side of the page that I have publicized 29 purchases since this blog went live and only three sales. I only sell when a stock meets my exit criteria. Although I regret my Exxon Mobil (XOM) sale, the liquidations of my Telefonica S.A. (TEF) and Total S.A. (TOT) were justified.
What I believe dividend growth investors should take away from Warren's wise words are to only pay attention to pricing when trying to allocate capital and purchase shares of high quality businesses. Use value as your guide and make sure you're investing in businesses that have lasting and enduring competitive advantages. Then, sit back and allow your decision-making process to make you money for years and years and pay no mind to what other people are willing to pay for your stake. Reinvest your capital back into these high quality businesses and increase your stake. Easy as that.
How about you? Follow Warren's advice?
Full Disclosure: None