In episode 132 of the Investing for Beginners Podcast, Andrew and Dave talk about three key Warren Buffett investment quotes that really call for a person to think about investing like a business owner rather than someone that is purely trading prices of companies.
Quote 1 – “Well, yeah, if you own stocks like it on a farm or apartment house, you don’t get a quote on those every day or every week. And I think you look, you look at the business, and the value of American does. This depends on how much it delivers in cash to its owners over between now and judgment day. And I don’t think it changes by 10%.”
This quote really hits home with me and has a lasting impact. You know what, Buffett is exactly right – the things that I really “own” in my life are my house, my car, and a lot of junk.
If you were to ask me which of these I was most attached to, the exact same order would be followed. I think the reasoning for that is because not only does my house cost the most, the car second, and the junk costing the third most, I will likely have my house longer than my car and my car longer than my junk. So, essentially, the things that I spend the most time and money on are the things that I feel the strongest sense of ownership towards.
You should feel the same way towards stocks. Investing in stocks will likely be as long as a time horizon as will investing in your home and you’re going to require a lot more money in the market to be able to retire comfortably.
The more that you treat these stocks like you are truly an owner of the company, the more that you’re going to take the time to do the due diligence and make sure that you’re making a strong investment decision.
Quote 2 – “If you’re investing if I’m going to buy a half interest in a McDonald’s stand and you’re going to run it or a McDonald’s franchise, you’re going to run it. I look to the business to determine whether I made a good investment and I’m concerned about, you know, whether we have new competition, how we do over the year, but it’s the business I look at when you’re just looking at the price of something you’re not, you’re not investing. I mean if, if you buy something Bitcoin, for example, or some cryptocurrency, you’re not looking to the asset itself to produce anything. If you buy an apartment house, you’re looking at all of the apartments. I was still here by a farmer. You look at a farm does, if you buy a whole business, you’re looking at how the business does. If you buy a part of a business, why shouldn’t you look at how the business is going to do?”
I can relate with this quote because when I first started investing, the first place I looked for information was on CNBC and listening to Mad Money and Fast Money. While I still do watch those shows from time to time for purely entertainment reasons, I was giving myself a foundation of flawed investing philosophies.
Those shows are built off of trading charts, trends and speculation rather than actually talking about investing in strong companies. All I was doing was looking at a price and buying shares. I had no idea what the company even did let alone any knowledge about the financial health of the company. I was gambling.
That’s it – just gambling.
So many people nowadays will strictly look at the price of a company and buy the stock and that’s the extent of their research. Take it from someone with experience – this is a great way to lose your investment…quickly.
Quote 3 – “If they take of stocks as pieces of business, they’d be so much better off than things. You got those little things that move around and price. And I think with Berkshire, we have an unusual number of people. The shareholders would look at Berkshire as a bin. They look at it as a savings account. They put some money in 20 or 30 or 40 years ago. We retain it and reinvest for them, but we’re where their savings account and, and..”
Buffett hits on something here and he’s essentially saying that a lot of people treat investing in Berkshire to be a way around having to learn about investing. Personally, I don’t think that this is the worst thing in the world as long as you’re treating it as an entryway into investing.
I am a very firm believer that the best way to start investing is to start investing. Once you get your money into some stock you will be much more inclined to learn about the company and their financials because you literally have money riding on the success that the company has.
This is how I learned, and I think that many others can learn the same way. Start with a company that you’re knowledgeable on, or interested in, or maybe even the industry that you work in so that you already have a really good working knowledge of some of the things that might impact that company’s performance.
If your thought process is to invest in a company that is headed up by two of the greatest investors of all time while you learn the ins and outs of investing, then I really don’t think that that’s too awful bad of an idea. Now, if this was your entire investment strategy, we might have a different story…
Each one of these quotes have a good take-home message that you can apply right now:
- When investing, have a mindset of a business owner rather than a trader
- Look at the future outlook of the company, not just the price that it is selling for
- Don’t trust others to invest properly for you – take it upon yourself to learn the ins and outs of the market
If you can implement these three tips then you’re going to be just that much closer to financial freedom so please, don’t hesitate and get started now…
Your future self will thank you for it.