Warren Buffett: 92 Years of Wisdom

IN THE NEWS

 💪 Another Strong Labor Market Report… (WSJ)

Explained:

• In the bizarro world of equity investing lately, certain types of good news is actually bad news for share prices. Stronger earnings, for example, is good, good news, while today’s report from the Labor Department highlighting two job openings for every person counted as unemployed in the country is bad, good news.
• As investors hope desperately for an easing of the sharp rise in interest rates this year facilitated by the Federal Reserve, any reports that highlight the economy’s strength, while inflation remains high, make it easier for the Fed to continue hiking rates.
• So not all news is created equal. The primary determinants of stock prices are earnings and interest rates (which also impact earnings, but we digress).
• Good news for earnings, such as higher profit margins for companies, is great for stock prices. Good news for Main Street though, such as a tight labor market that favors job seekers, means that the Fed may still have room to push rates higher to combat inflation. But higher rates, especially if markets believe they will topple the economy into a harsh recession, are quite negative for asset prices.

What to know:

• In other words, based on the sudden selloff on Wall Street today after a July jobs report indicated an acceleration in hiring, it’s clear that good economic news isn’t always good news to investors.
• This is primarily because markets are forward-looking discounting machines, meaning that prices today reflect expectations for events years out into the future. While more jobs today is great, if investors believe this will serve as justification for larger rate hikes that jeopardize the economy’s future growth rates, then stock prices will adjust accordingly, which means selling off.
• Today’s “JOLTS’ report showed 11.2 million job openings in July while increasing the odds of a 0.75% interest rate increase next month. Later this week, we’ll see a report on whether the U.S. economy sustained in August the 50-year low in unemployment that it reached in July.

🐉 Evergrande Bondholders Push Their Own Plan For Restructuring (FT)

Explained:

• Remember China Evergrande? This is the bankrupt (massive) property developer in China that appears to be systemically important to the Chinese economy.
• While its bankruptcy sparked a doom and gloom news cycle about the collapse of China’s notoriously overleveraged real estate markets, the story is playing out slowly. However, the outcome remain quite important still to the entire world.
• Evergrande’s global bondholders, frustrated by the restructuring process thus far for $20 billion of offshore debts, are proposing their own plans for repayment and demanding that the company’s chairman make payouts from his own personal fortune.

What to know:

• The troubled developer faces over $300 billion of total liabilities, and its high-profile default last year triggered a liquidity crisis across the Chinese property sector.
• The proposed plan suggests that the company should issue new shares and its chair, Hui Ka Yan, should purchase the shares and therefore inject capital into the firm that can be used to pay back debts.
• Investors broadly have priced in about $130 billion in losses for Evergrande, and some fear that without larger bailouts from Beijing, the entire housing market may face a protracted crisis.

 ✨ The Fed Gives A Timeline For Its New FedNow Platform (Axios)

Explained:

• Payments platforms sound boring, but they’re pretty important, and the Federal Reserve ha a major upgrade in the works that’ll help to modernize the U.S. economy.
• The FedNow platform is expected to launch next summer, and its payments infrastructure is anticipated to impact everyone by enabling instant payment settlement.
• You may not realize it, but every time you swipe your debit card, it costs the merchant $0.23. That adds up quickly and likely results in higher sticker prices. The Fed’s new platform will have a fifth of the cost though.

What to know:

• Using FedNow, banks will be able to build on top of the platform and create payment features for products. The Fed’s Vice Chair said, “Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck…Having the capacity to manage money in real-time could help households avoid costly late payment fees”
• Another hope is that payment services built on top of FedNow will be interoperable, meaning it won’t matter which app or bank you use to send money to friends and family, unlike, for example, Venmo, Zelle, and Cash App.
• FedNow isn’t a central bank digital currency, but it certainly helps to make traditional systems more competitive with blockchain-based alternatives.

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WARREN BUFFETT: 92 YEARS OF WISDOM

We’ve compiled our favorite 92 quotes from Warren Buffett to celebrate his 92nd birthday.

It may seem long, but it’s a quick read and how can you pass up 92 years of investing lessons? Grab a drink and enjoy!

• Rule No. 1: Never lose money. Rule No. 2: Never forget rule No. 1.
• Remember that the stock market is a manic depressive.
• The most important thing to do if you find yourself in a hole is to stop digging.
• Price is what you pay. Value is what you get.
• Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
• Beware the investment activity that produces applause; the great moves are usually greeted by yawns.
• For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
• Risk comes from not knowing what you are doing.
• Never invest in a business you cannot understand.
• If returns are going to be 7 or 8 percent and you’re paying 1 percent for fees, that makes an enormous difference in how much money you’re going to have in retirement.
• In the business world, the rearview mirror is always clearer than the windshield.
• Time is the friend of the wonderful company, the enemy of the mediocre.
• The three most important words in investing are margin of safety.
• It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price.
• 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.
• On the margin of safety, which means, don’t try and drive a 9,800-pound truck over a bridge that says it’s, you know, capacity: 10,000 pounds. But go down the road a little bit and find one that says, capacity: 15,000 pounds.
• If a business does well, the stock eventually follows.
• Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.
• For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments.
• All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.
• I never attempt to make money on the stock market. I buy on the assumption that they’d close the market the next day and not reopen it for 10 years.
• It is a terrible mistake for investors with long-term horizons — among them pension funds, college endowments, and savings-minded individuals — to measure their investment ‘risk’ by their portfolio’s ratio of bonds to stocks.
• Successful investing takes time, discipline and patience. No matter how great the talent or effort, something just take time: You can’t produce a baby in one month by getting nine women pregnant.
• The stock market is designed to transfer money from the active to the patient.
• Calling someone who trades actively in the market an investor is like calling someone who repeatedly engages in one-night stands a romantic.
• If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.
• Our favorite holding period is forever.
• An investor should act as though he had a lifetime decision care with just twenty punches on it.
• Do not take yearly results too seriously. Instead, focus on four or five-year averages.
• Why not invest your assets in the companies you really like? As Mae West said, ‘Too much of a good thing can be wonderful.’

• The business schools reward difficult, complex behavior more than simple behavior, but simple behavior is more effective.
• There seems to be some perverse human characteristic that likes to make easy things difficult.
• The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.
• Success in investing doesn’t correlate with IQ…what you need is the temperament to control the urges that get other people into trouble in investing.
• The stock market is a no-called-strike game. You don’t have to swing at everything — you can wait for your pitch.
• You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.
• What counts for most people investing vs. saving is not how much they know, but rather how realistically they define what they don’t know.
• There is nothing wrong with a ‘know nothing’ investor who realizes it. The problem is when you are a ‘know nothing’ investor but you think you know something.
• Forecasts may tell you a great deal about the forecaster/ they tell you nothing about the future.
• Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.
• It’s better to have a partial interest in the Hope diamond than to own all of a rhinestone.
• You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.
• Diversification is protection against ignorance. It makes little sense if you know what you are doing.
• Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.
• For 240 years it’s been a terrible mistake to bet against America, and now is no time to start.
• American business — and consequently a basket of stocks — is virtually certain to be worth far more in the years ahead.
• Widespread fear is your friend as an investor because it serves up bargain purchases.
• Whether we’re talking about socks or stocks, I like buying quality merchandise when it is market down.
• The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.
• Speculation is most dangerous when it looks easiest.
• Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
• Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
• Most common cause of low prices is pessimism; sometimes pervasive, sometimes 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’s the enemy of the rational buyer.
• After 25 year of buying and supervising a great variety of businesses; Charlie and I have not learned how to solve difficult business problems. We have learned to avoid them.
• Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game.
• If past history was all that is needed to play the game of money, the richest people would be librarians.
• You do things when the opportunities come along. I’ve had periods in my life when I’ve had a bundle of ideas come along, and I’ve had long dry spells. If I get an idea next week; I’ll do something. If not, I won’t do a damn thing.
• The investor of today does not profit from yesterday’s growth.
• What we learn from history is that people don’t learn from history.
• We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful

• Today people who hold cash equivalents feel comfortable. They shouldn’t. they have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value.
• Only when the tide goes out do you discover who’s been swimming naked.
• Predicting rain doesn’t count, building the ark does.
• This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions.
• It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.
• Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
• It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
• Lose money for the firm, and I will be understanding. Lose a shred of reputation for the firm, and I will be ruthless.
• If you get to my age in life and nobody thinks well of you, I don’t care how big your bank account is, your life is a disaster.
• I always knew I was going to be rich. I don’t think I ever doubted it for a minute.
• Basically, when you get to my age, you’ll really measure your success in life by how many of the people you want to have love you actually do love you.
• Honesty is a very expensive gift. Don’t expect it from cheap people.
• You only have to do a very few things right in your life so long as you don’t do too many things wrong.
• Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway.
• When trillions of dollars are managed by Wall Streeters charging high fees, it will usually be the managers who reap outsized profits, not the clients.
• Someone’s sitting in the shade today because someone planted a tree a long time ago.
• If you’re in the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%.
• The difference between successful people and really successful people is that really successful people say no to almost everything.
• You’ve gotta keep control of your time, and you can’t unless you say no. You can’t let people set your agenda in life.
• In the world of business, the people who are most successful are those who are doing what they love.
• It is not necessary to do extraordinary things to get extraordinary results.
• Tell me who your heroes are and I’ll tell you who you’ll turn out to be.
• The best thing I did was to choose the right heroes.
• Chains of habit are too light to be felt until they are too heavy to be broken.
• The most important investment you can make is in yourself.
• Read 500 pages like this every day. That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee no many of you will do it.
• I insist on a lot of time being spent, almost every day, to just sit and think. that is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business.
• Imagine that you had a car and that was the only car you’d have for your entire lifetime. Of course, you’d care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and body.
• All day you wait for the pitch you like; then when the fielders are asleep, you step up and hit it. There are no strikes for not swinging.
• You can enhance your mind over time. A person’s main asset is themselves, so preserve and enhance yourself.
• American magic has always prevailed and it will do so again.
• Just buy something for less than it’s worth.

Whew…Nice work if you made it all the way!

Shout out to our Twitter friend, Dividend Growth Investor, for the quote inspiration.

Let us know, what are you favorite Buffett quotes?

Happy 92nd Birthday to Mr. Buffett. Thank you for all your inspiration and wisdom 🎂

SEE YOU NEXT TIME!

That’s it for today on We Study Markets!

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