I recently read about 40 pages of quotes from value investors around the world. The quotes were compiled by Value Investor Insight and they’ve made the entire collection free for anyone to read — you can view them all here.
But for those who don’t want to read all 40 pages, I’ve highlighted 15 of my favorite quotes below. By journaling and sharing them here, I hope they help my investment process going forward and also yours.
1. It is one of the hardest things to do and that is to remain a disciplined, long-term investor at all times.
“If the entire country became securities analysts, memorized Benjamin Graham’s Intelligent Investor and regularly attend- ed Warren Buffett’s annual shareholder meetings, most people would, nevertheless, find themselves irresistibly drawn to hot initial public offerings, momentum strategies and investment fads. People would still find it tempting to day-trade and perform technical analysis of stock charts. A country of security analysts would still overreact. In short, even the best-trained investors would make the same mistakes that investors have been making forever, and for the same immutable reason — that they cannot help it.” Seth Klarman
2. Value investors need to harness time and use it tactically.
“Time arbitrage just means exploiting the fact that most investors — institutional, individual, mutual funds or hedge funds — tend to have very short-term time horizons, have rapid turnover or are trying to exploit very short-term anomalies in the market. So the market looks extremely efficient in the short run. In an environment with massive short-term data over- load and with people concerned about minute-to-minute performance, the inefficiencies are likely to be looking out beyond, say, 12 months.” Bill Miller
3. Great investment ideas are not necessarily complicated.
“There’s a clarity that comes with great ideas: You can explain why something’s a great business, how and why it’s cheap, why it’s cheap for temporary reasons and how, on a normal basis, it should be trad- ing at a much higher level. You’re never sitting there on the 40th page of your spreadsheet, as Buffett would say, agonizing over whether you should buy or not.” Joel Greenblatt
4. There’s a perception that numbers, quants, and algorithms rule the stock market, but it’s so much more than that.
“I think my background has helped me learn to think well conceptually. Investing is not just about numbers. It’s also about imagination and structure and narrative and characters — the types of things we liberal-arts majors should know something about.” John Burbank
5. You should be able to defend your highest conviction investments at all times.
“There’s a virtuous cycle when people have to defend challenges to their ideas. Any gaps in thinking or analysis become clear pretty quickly when smart people ask good, logical questions. You can’t be a good value investor without being an independent thinker — you’re seeing valuations that the market is not appreciating. But it’s critical that you understand why the market isn’t seeing the value you do. The back and forth that goes on in the investment process helps you get at that.” Joel Greenblatt
6. Your edge is not going to come from data or news, it’s going to come from something of your creativity.
“Everyone tends to see the same things, read the same newspapers and get the same data feeds. The only way to arrive at a different answer from everybody else is to organize the data in different ways, or bring to the analytic process things that are not typically present.” Bill Miller
7. A good investment is not entirely dependent on the balance sheet, it’s also about the management team.
“We tend to be more about the jockey than the horse. It’s important to under- stand how people are going to behave under stress. You don’t have to predict the future if you know the company has the assets and management to do well in difficult times. I believe that’s when the seeds for exceptional performance are planted.” Bruce Berkowitz
8. Every investment should have a price, and if it’s not there now, you will be rewarded greatly if it ends up there down the road.
“Our best ideas tend to come from what I call “old research, new events.” That’s typically the good company you’ve studied carefully and would love to own at the right price, that gets marked down after it trips or its industry goes out of favor.” Ricky Sandler
9. Always remember that a cheap investment is cheap for a reason and cheap does not automatically make it a value.
“One of the big mistakes value investors can make is to be too enamored with absolute cheapness. If you focus on statistical cheapness, you’re often driven to businesses serving shrinking markets or that have developed structural disadvantages that make it more likely they’re going to lose market share.” Bill Nygren
10. You must know your circle of competence and when you should or should not be investing.
“I’d always said that if a guy was long the best 50 companies he knew and short the 50 worst, if that didn’t work you were in the wrong business. But that strategy was literally a recipe for bankruptcy from 1998 to 2000. I said when I closed down that it was a market I didn’t understand, and I didn’t.” Julian Robertson
11. Change your outlook on life, it will spark the little things, which in turn will lead to the big things.
“People who are in a good mood are more inclined to try learning new skills, to see things in a broader context, to think of creative solutions to problems, to work well with other people, and to persist instead of giving up. If you were writing a recipe for how to make more money, those are among the first ingredients you would include.” Jason Zweig
12. Human psychology plays a massive role in the world of investing.
“To suppose that the value of a common stock is determined purely by a corporation’s earnings discounted by the relevant interest rates and adjusted for the marginal tax rate is to forget that people have burned witches, gone to war on a whim, risen to the defense of Joseph Stalin and believed Orson Wells when he told them over the radio that the Martians had landed.” Jim Grant
13. Durability is a trait you should never overlook.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” Warren E. Buffett
14. Avoid complacency and stay vigilant.
“One of the economists who has heavily influenced the way I think is Hyman Minsky, who always said, “Stability begets instability.” The very idea is that the more stable things appear, the more dangerous the ultimate outcome will be because people start to assume everything will be all right and end up doing stupid things.” James Montier
15. I am making this investment today because… You need to be able to answer that every single time.
“I never buy anything unless I can fill out on a piece of paper my reasons. I may be wrong, but I would know the answer to that. “I’m paying $32 billion today for the Coca Cola Company because.” If you can’t answer that question, you shouldn’t buy it. If you can answer that question, and you do it a few times, you’ll make a lot of money.” Warren Buffett
