The task I gave myself in this blog post was to distill Warren Buffett’s investing wisdom into my “Dozen Things” format but do so in only twelve sentences (instead of the usual 999 word limit). I tried to make each sentence build on the previous sentence(s). One could write a book about how Warren Buffett (there are many), but reducing it to an essential core is also valuable. I wrote this list from memory without looking at source material to make it more authentic (yes, I liberally borrow from his word choices as I do when speaking).
1. Mr. Market is valuable for his pocketbook, not his wisdom.
2. Macroeconomic forecasts are as useful to investors as the comic section of a newspaper.
3. A share of stock is partial ownership in a business.
4. The best way to profit from the inevitable cycle of Mr. Market from fear to greed is to focus on the intrinsic value of a given company (trying to “time” crowd behavior based on macroeconomic data is a sucker’s game).
5. People who have actually been involved in a real business (especially as an entrepreneur) are better equipped to determine the intrinsic value of the partial stake in another business that a share of stock represents.
6. Risk is the possibility of risk or injury and is not a computable number (for example, a number purportedly representing risk calculated based in volatility is rubbish).
7. Buying investments at a discount gives you a “margin of safety” helpful when you inevitably make mistakes.
8. You are less likely to make mistakes if you act in areas in which you are competent.
9. Unless a company has barriers to entry (a “moat”), supply created by competitors will rise to a point where lower prices will eliminate economic profit.
10. Wall Street and other promoters will sell investors anything they will buy (quality control is not a factor).
11. Excitement and expenses are the enemy of the investor.
12. Buy low fee index funds, unless you are willing to work hard/read constantly and are rational rather than emotional.
- A Dozen Things I Learned from John Templeton about Investing
- A Dozen Things I’ve Learned from James Montier about Investing
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