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Sunday, July 5, 2009

Warren Buffett -- "The Best Advice I Ever Got"

Fortune magazine is presenting a series from several famous people called "The Best Advice I Ever Got." Fortunately, they were able to ask this question to Warren Buffett, who many believe is the top stock market investor ever. Since acquiring Berkshire Hathaway in 1965, Buffett's annual return-on-investment has approximated an amazing 20% versus the 9% average of the S&P 500.

So what would you think he would say was "the best advice I ever got"?
It occurred when he was 19 years old when he read "The Intelligent Investor" by Benjamin Graham. He refers us specifically to Chapter 8, "The Investor and Market Fluctuations"; and Chapter 20, "Margin of Safety as the Central Concept of Investment". It is fascinating to me how great minds process complex information -- they understand the myriad details, but their true genius lies in their ability to synthesize that complexity down to some essential, basic truths. In short, they can see the big picture when most people get bogged down with the details. Said another way, they see the forest when others only see some of the trees. When it comes to investing, Buffett certainly qualifies as a genius.

From these two chapters, Buffet's "best advice" is to "take the emotion out of investing and simply stick with good businesses." He explains that people "get all excited when stocks have gone up recently and they get depressed when they go down". You might recall from my "Investing Pyramid of Success" article (link) that 'emotional maturity' is one of the cornerstones of the pyramid, and to "take the emotion out of investing" is a key component of emotional maturity.

Taken within the context of Buffett's comments, re-reading chapters 8 and 20 of "The Intelligent Investor" has been a very rewarding experience. Some of the key topics include market timing and pricing, not following the crowd, how to view "Mr Market", margin of safety, and the four business principles of investing. Needless to say, I highly recommend that you obtain this book and carefully read these two chapters. Concentrate on all the details, but remain focused on Buffett's big-picture advice and seek to "take the emotion out of investing and simply stick with good businesses."

Regards and Godspeed to All,


1 comment:

  1. Jeff,

    I agree with your recommendation. "The Intelligent Investor", especially Chapters 8 & 20, completely changed that way I invest and improved my success.

    This is the best investment book ever written. Although it was first published in 1949, the basic principles of investing it presents is timeless. I own the 1973 Revised Edition with commentary by Jason Zweig, which updates the original work and is the best edition in my opinion.