Warren Buffett is the Greatest Investor---Here are His 10 Best Lessons
Warren Buffett is the greatest investor ever.
He compounded at 19% annually since 1964.
He has been giving free investing masterclasses at Berkshire Hathaway annual meetings since 1970.
Here are his 10 best lessons:🧵 $Berkshire Hathaway(BRK.B)$
1/ Price is what you pay, value is what you get.
Intrinsic value is the sum of all future cash flows, discounted to the current day.
It depends on three things:
- Operating profit of the business.
- Return on retained capital.
That's it.
2/ The moat is the most important thing.
Some companies own disproportionately high market shares in their industries.
This could be because of:
- Cost advantages.
- Unique product.
- Brand power.
Once you find such a business, you should analyze whether it's durable.
3/ High return on capital is the key to long-term compounding.
An ideal business has two properties:
- It has a high return on capital.
- It employs a lot of capital.
This way, it can grow very large pretty fast.
This way, it leaves more money for shareholders on the table even after the opportunities to deploy large amounts of capital dry up.
4/ Volatility doesn't mean risk.
Real risk comes from two sources:
- Industry characteristics.
- Lack of knowledge about the business.
Volatility could be due to many reasons like small float, illiquidity, etc.. It doesn't measure risk.
5/ Invest in small companies for a higher return.
Investing in big companies has two disadvantages:
- The upside is naturally capped.
- The market is better at assessing them.
So, if you are working with a small capital, you'll be better off investing in small companies.
6/ Don't wait for a dip to buy stocks.
If you aren't buying stocks with the mindset of owning them for decades, you shouldn't own them at all.
If you are thinking really long-term, leaving a few percent on the table won't harm you.
7/ Don't over-diversify.
Diversification is a measure against your own ignorance.
If you really know what you own, you won't need much diversification.
Buffett only owns Berkshire stock; it's a business he knows.
8/ Don't fall into the share repurchase trap.
Some companies repurchase shares at any price to artificially boost their stocks.
There are two conditions for buybacks:
- Shares should be undervalued.
- There should be nothing better to do.
If not, buybacks destroy value.
9/ Insist on a margin of safety.
Investing is a predictive task.
Regardless of how informed, nobody can predict the future with 100% accuracy.
Margin of safety provides you with security against negative and unpredictable events.
Insist on a margin of safety.
10/ The real money is not in buying or selling but holding.
You should only sell in three cases:
- Fundamentals start deteriorating.
- The stock is excessively overvalued.
- There are way better opportunities available.
Otherwise, you should just hold.
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
