Editor’s note: This article was first published in November 2013; Buffett’s remark about having worked with Charlie Munger for 54 years reflects the time it was said. Munger died in 2023.
When it comes to investing in the stock market, there are only two kinds of advice we can follow: 1. The advice of the great investors who have built large fortunes by focusing on a real, objective valuation of companies and on finding that margin of safety when investing in a share. 2. Advice that leads us nowhere.
(Read: 5 principles of value investing)
Anyone can get carried away by economists’ forecasts or by analysts’ reports that recommend buying a share one week and then advise you to sell it three days later. We are all human, but investing, like any other business, requires focus. Lose focus, and your decisions come down to luck.
Every so often it is very useful to remind ourselves what investing is, and how important it is to concentrate on the real value of companies, on long-term investing and on the search for a margin of safety.
“It is better not to invest at all than to buy without a reasonable margin of safety.” (John Templeton)
“I never ask myself whether the market is going to go up or down, because I don’t know. In fact nobody knows, but I don’t care either. I look for one stock after another to buy by asking myself a simple question: ‘Where is the price lowest in relation to what I believe it’s worth?'” John Templeton
(Read: quotes from the best investors to help you understand the stock market)
“Macroeconomic questions are very hard to figure out. I’m not trained to be an economist, but even economists have no idea about half of what they preach. You have to try to focus solely on the company we want to buy and the profits that buying shares in that company will bring us. Leave the economy to the economists.” Michael Price
See also: The 10 cheapest stocks according to Goldman Sachs
“Charlie and I pay no attention to economic forecasts. We have worked together for 54 years and I can’t remember what the economy was doing when we bought a particular company, but I do remember the price we paid for it.” Warren Buffett
“Don’t focus on macro forecasts. It is far more profitable for an investor to focus on the micro aspects of the individual company.” Charlie Munger
“When the market is full of fear, it will be easy to find micro bargains among stocks. When greed rules the market, you won’t see micro opportunities in individual stocks.” W. Buffett
“We don’t know what lies ahead in macroeconomic terms. Nobody knows more than the rest of the market consensus about the economy, interest rates and so on. So an investor’s time is better spent trying to gain an edge in knowledge of the industries and companies we are interested in. That is where you can gain a competitive advantage over those who try to guess the future, which is not our business.” Howard Marks
We could collect hundreds of statements from great investors, and the message would be exactly the same: focus on the company and forget about everything else. That said, a bad economic moment can give us an excellent opportunity on the price of some shares.
Further reading
- Probably the mother of all stock market investing mistakes
- Economist wins a grant for proving that most investors are “idiots”
Featured image: Marsilar, CC BY-SA 4.0, via Wikimedia Commons.
