主题： Investing

If you own a farm and somebody said, you know, Italy’s got problems. Do you sell your farm tomorrow? If you own a good business locally in Omaha and somebody says Italy’s got problems tomorrow, do you sell your business? Do you sell your apartment house? No. But for some reason, people think if they own wonderful businesses indirectly through stocks, they’ve got to make a decision every five minutes.

(A) investors, overall, will necessarily earn an average return, minus costs they incur; (b) Passive and index investors, through their very inactivity, will earn that average minus costs that are very low; (c) With that group earning average returns, so must the remaining group—the active investors. But this group will incur high transaction, management, and advisory costs. Therefore, the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group—the “know-nothings”—must win.

Long ago, sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.

If you really know businesses, you probably shouldn’t own six of them. If you can identify six wonderful businesses, that is all of the diversification you need, and you’re going to make a lot of money, and I will guarantee you that going into a seventh one …, rather than putting more money into your first one, has got to be a terrible mistake. Very few people have gotten rich on their seventh best idea.

Anything that causes people to think they can trade actively in stocks and do better than if they sat on their rear is a terrible mistake. American business has done wonderfully for investors over the years, yet many investors have managed to turn in bad performances. You can say to yourself, if the Dow started the 20th century at 66 and is now at 12,000, how could anybody lose money? But people do lose money. But they lose money by trying to jump in and out of this and that, and think that they should buy this stock because the earnings are going to surprise on the upside or some crazy thing like that. If they just buy good businesses, they’ll do fine.

Wall Street makes its money on activity. You make your money on inactivity. If everybody in this room trades their portfolio around every day with every other person, you’re all going to end up broke. The intermediary is going to end up with all the money. On the other hand, if you all own stock in a group of average businesses and just sit here for the next 50 years, you’ll end up with a fair amount of money and your broker will be broke.

My idea quota used to be like Niagara Falls—I’d have many more than I could use. Now it’s as if someone had dammed up the water and was letting it flow with an eyedropper.

When I got started, the bargains were flowing like the Johnstown Flood; by 1969 it was like a leaky toilet in Altoona.

I believe in owning productive assets … whether it’s farms, apartment houses, or businesses. And they’ll do very well over time, and sometimes one class is doing better than another. But if you own any of those things over the next 20 years in the United States, I think you’ll do well.

We don’t want to own things where the world is going to change rapidly because I don’t think I can see change that well or any better than the next fellow. So, I really want something that I think is going to be quite stable, that has very good economics going for it.