The (stock) market is there only as a reference point to see if anybody is offering to do anything foolish. When we invest in stocks, we invest in businesses.
Interpretation
The market serves as a gauge for foolish actions, while true investment is based on the value of businesses.
Warren Buffett emphasizes that the stock market should not be viewed merely as a fluctuating number indicative of profit or loss. Instead, it is a reference tool that helps investors determine the behavior of others, often highlighting distractions that can lead to unwise decisions. Genuine investment requires a focus on the fundamentals of the businesses themselves rather than reacting to market noise.
In practice
In a finance seminar discussing smart investment strategies, this quote emphasizes investing in companies, not just stocks.
I have no views as to where it will be, but the one thing I can tell you is it won't do anything between now and then except look at you. Whereas, you know, Coca-Cola (KO) will be making money, and I think Wells Fargo (WFC) will be making a lot of money and there will be a lot - and it's a lot - it's a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.
If the world couldn't see your results, would you rather be thought of as the world's greatest investor but in reality have the world's worst record? Or be thought of as the world's worst investor when you were actually the best?
Cash never makes us happy, but it's better to have the money burning a hole in Berkshire's pocket than resting comfortably in someone else's.
I think you should read everything you can. In my case, by the age of 10, I'd read every book in the Omaha public library about investing, some twice. _x000D_ You need to fill your mind with various competing thoughts and decide which make sense.
The most common cause of low prices is pessimism - some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.
Oneβs objective should be to get it right, get it quick, get it out and get it over. Your problem wonβt improve with age.
Whenever you hear a discussion about the short-term swings in any given stock's price, your immediate thought should be whether it matters to why you are investing.
Everyone has the idea of owning good companies. The problem is that they have high prices in relations to assets and earnings, and that takes all of the fun out of the game.
Value investing is risk aversion.
The worst thing you can do is invest in companies you know nothing about. Unfortunately, buying stocks on ignorance is still a popular American pastime.
Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of good business conditions. The purchasers view the good current earnings as equivalent to 'earning power' and assume that prosperity is equivalent to safety.
Owning equities is an essential part of anyone's portfolio. You just can't ignore it over time. It's going to add the real pop to anyone's overall performance.
Subscribe for the occasional hand-picked quote. No noise.