“If I have seen further, it is by standing on the shoulder of giants” – Isaac Newton.
There have been so many great minds in investing that it is not hard to understand what Newton meant when he spoke that line.
Given the number of investing books out there, some of them written by truly astonishing individuals, every new investor has the opportunity to see further by standing on the shoulders of those who did it best. Here are some of our favourite quotes:
Warren Buffett, Confidence Game:
“If you’re willing to do dumb things in insurance, the world will find you. You can be in a rowboat in the middle of the Atlantic; just whisper ‘I’m willing to write this,’ and then name a dumb price. You will have brokers swimming to you – with their fins showing, incidentally.”
Warren Buffett was referring to US bond insurer MBIA here, but the point is relevant to all insurers, which are often treated as very safe businesses by investors.
It would later turn out that MBIA had been charging too low a price to customers on its insurance. This meant that, when bad events happened, the insurer lost a titanic amount of money – and so did its investors, as the MBIA share price went from $50 in 2007 to $2.50 in 2009.
MBIA, once one of a mere handful of companies that was rated ‘AAA’ – as safe as US Treasury bonds – had its rating cut to ‘junk’ and almost collapsed.
Phil Fisher, Common Stocks And Uncommon Profits:
“I suspect John Q. Public’s composite picture of such an (investing) expert would be an introverted, bookish individual with an accounting-type mind. This scholastic-like investment expert would sit all day in undisturbed isolation poring over vast quantities of balance sheets, corporate earning statements, and trade statistics. From these, his superior intellect and deep understanding of figures would glean information not available to the ordinary mortal. This type of cloistered study would yield invaluable knowledge about the location of magnificent investments.
Like so many other widespread misconceptions, this mental picture has just enough accuracy to make it highly dangerous for anyone wanting to get the greatest long-term benefit from common stocks.”
Fisher meant that, while you do need to work hard and research, you do not need to be the smartest of the pack to succeed at investing. Fisher, and others including Peter Lynch and Warren Buffett, often said that other attributes such as patience and a long term holding period for investments would deliver the bulk of the rewards.
Peter Lynch, Beating The Street:
“90 seconds is plenty of time to tell the story of a stock. If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.”
This quote from Lynch was built on the logical premise that if you can’t easily explain what a company does, you probably don’t understand it well enough to be able to make any money by investing in it.
Joel Greenblatt, Fooling Some Of The People All Of The Time
“In the short run, the good guys may get dragged through the mud and the bad guys may get away with millions. But in the long run, the good guys may get dragged through the mud and the bad guys may get away with millions.”
A sobering quote from eminent investor Joel Greenblatt, reminding investors that investing is a venture for grown-ups. Poor conduct from management is not always caught and punished – or at least not quickly. Each investor must be certain to invest their capital only with trustworthy managers. Perhaps this is also the reasoning behind the famous Warren Buffett quote:
“Rule No.1: Never lose money.
Rule No.2: Never forget rule No.1.”
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