Warren Buffett – Chairman and CEO of Berkshire Hathaway – is almost universally regarded as the best investor of all time. Perhaps the epitome of the American dream, Mr Buffett took over a flailing textile mill in the mid-1960s and (through unrivalled stock market prowess) transformed it into the gigantic international conglomerate it is today. It now owns dozens of private businesses as well as massive stakes in other publicly traded companies such as Apple, American Express and Coca-Cola.
It's estimated that Mr. Buffett has achieved a compounded average rate of return of over 21% since 1965 – more than double the average market return for almost 55 years. So needless to say there's a few things we can probably all learn from this folksy godfather of investing.
So here are two Warren Buffett quotes that (in my humble opinion) every investor should live by on the ASX.
"Be fearful when others are greedy, and greedy when others are fearful"
I'm sure you may have heard this one, but it's so simple that it's brilliant (and overlooked as a result). If you see a stock shoot up by 20% in a day, more investors than you think would be instinctively pulling out the chequebook and jumping on the bandwagon. And if you read that a stock that you own is plummeting, you might be tempted to push the sell button before understanding why – you know, 'to get out before the bottom' or some other fallacy.
The truth (according to Warren) is that price jumps are a warning sign and anyone who's focused on the horizon looks to buy when others are panic selling and selling to suckers who want to buy after a 20% jump.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price"
This one is a little more cryptic but highlights the methodology behind Mr. Buffett's rise to the top – by only selecting businesses that can consistently compound cash internally at a high rate of return. Most of Berkshire's wealth has come from a very small number of investments (wonderful companies) that have displayed this trait. This is how he gets a 60% return on his original investment in Coca-Cola stock every year in dividends, for example. By finding businesses yourself that (hopefully) do the same, you can't lose.
Foolish takeaway
Warren Buffett has a nasty habit of making successful investing sound easy, when really he is one of a kind. Still, I think by taking his advice on board, you can do yourself (and your portfolio) wonders.
