#10 Go After What You Know
I’ve never swung at a ball while it’s still in the pitcher’s glove.Interpretation: Buffett loves baseball. He uses lots of baseball analogies to drive concepts into your brain and to simplify what seem like difficult topics.
Buying unproven companies with little history or lack of consistency is a sure way to get out. He likes companies that he can hit. Not the ones that are impossible for him to reach.
#9 Think for Yourself
Never ask a barber if you need a haircut.Interpretation: This one is related to the need to think for yourself. Getting advice from brokers and financial advisors is ok up to a certain point, but if it gets to the point where you buy into someone elses thinking and reasoning, then you have lost it.
Here’s a related quote from Munger on the same topic.
“…It’s incentive-caused bias: His professional reputation is all tied up with what he knows. He likes himself and he likes his own ideas, and he’s expressed them to other people… Once you realize that you can’t really buy your thinking — partly you can, but largely you can’t…you have learned a lesson that’s very useful in life.
#8 Swimming Naked is Cute Only for Babies
It’s only when the tide goes out that you learn who has been swimming naked.Interpretation: Things may look good and rosy up to a certain point, but if a company is leveraged too much expecting a wave to come, but instead the tide goes out, everything will be exposed.
Things were great for a while. Investors were dizzy with excitement at the way the stock price continued to rocket up. However, the tide went out and the problems at Enron began to surface and snowball.
Not only was Enron swimming naked, it was doing it in a public area.
#7 Investing is a Lifelong Journey
Someone is sitting in the shade today because someone planted a tree a long time ago.Interpretation: Here’s the cliché version: “Rome was not built in a day”.
Rome was built brick by brick. The tree was planted a long time ago by somebody so that you can enjoy its fruit and shade today.
Investing is a lifelong process and journey and there are plenty of ways to learn from others before you.
Isaac Newton said,
If I have seen further than others, it is by standing on the shoulders of giants.
#6 Patience is a Virtue
If we can’t find things within our circle of competence, we don’t expand the circle. We’ll wait.Interpretation: Being able to sit and wait if a key strength. Strengthen your core competencies instead of becoming a jack-of-all-trades master of none.
To build a profitable portfolio, you only need a few solid ideas a year. There really is no need to trade 40-50 times a month and guess which way the stock is going to move.
You should invest in businesses that you know about and understand. If you can’t find anything that is related to your competency then just wait until one pops up because it will. The world will overload you with information and want you to take action. Ignore it.
Fishing will also teach you a lot about waiting.
#5 All Good Things Come in Time
No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.Interpretation: Compounding is a subject mastered by Buffett. This quote talks about investing in business and letting the eggs hatch in due time.
There is something to be said about letting your investment grow from millions to billions. Companies take a long time to blossom so it is pointless to expect immediate returns.
#4 You Don’t Have to be a Genius to Invest
If calculus or algebra were required to be a great investor, I’d have to go back to delivering newspapers.Interpretation: All you need to know is simple math to be able to invest. Addition, subtraction, division and multiplication. That’s all.
Modern finance theories are useful for economists but for the rest of us, it only complicates simple ideas.
Simple math, common sense and emotional stability is all you need to be awesome.
#3 I Only Work with Good People
You can’t make a good deal with a bad personInterpretation: Buffett is regularly approached by people and businesses to do business or form a partnership.
Even the latest Heinz deal involved partnering with Brazilian investor Jorge Paulo Lemann because Buffett liked the way Lemann carried himself, his track record and philosophy. There is more to investing than just looking at the business.
Buffett looks for great managers to manage his businesses. With so many different divisions in Berkshire, hiring a rotten apple could spoil the barrel.
#2 Use Price as a Tool, Not an Indicator
I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.Interpretation: The stock price does not indicate anything in the business.
Look for strong businesses that lets you sleep at night and not worry about what you invested in.
Think like a private business buyer where there are no second by second stock price changes.
If happened, how would you make your decisions now?
#1 No Strikes Against You
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 are a money manager is that your fans keep yelling, ‘Swing, you bum!’Interpretation: It’s fun to watch baseball players swing.
Whether they connect and hit a home run or swing and strike out brings out different responses, but you can let as many balls go by without having any strikes against your name.
There is no need to invest in every stock idea that comes up.
If your buy list is longer than your “too hard” list, there is something wrong.
When the market goes up and everyone is hitting a homerun, it’s tempting to swing along with them, even at the pitches that are in the glove.
Investing is a waiting game. Take all the time in the world.
And when the right pitch comes along, swing with all your might.