Warren Buffett: Think

“We think the best way to minimize risk is to think.” —Warren Buffett. 

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Warren Buffett: Anchoring

“Charlie is a huge believer in the idea that you don’t sit around sucking your thumb when something comes along that should be done that you pour into it. And that’s generally what we’ve tried to do. But there have been times — and it’s usually happened when I’ve started buying something at X and it went up to X plus an eighth or some intolerable amount like that — and I quit or waited for it to come back. And we’ve missed, in some cases, billions of dollars of profit because of the fact that I’d gotten anchored, in effect, to some initial price when I could have paid more subsequently and it really was inconsequential.” —Warren Buffett. 

Warren Buffett: Temperament

“Phil Carret used to talk about having a ‘money mind,’ and I would call it a ‘business mind.’ And there are people…with identical IQs that are better adapted for one than the other. And the temperament is all important. I mean, if you can’t control yourself, no matter what the intellect you bring to the process…you’re going to have disasters. And Charlie and I have seen one after another. It’s not a business that requires extraordinary intellect. It does require extraordinary discipline. That shouldn’t be so difficult. But as I look around the world sometimes, apparently it is quite difficult. I mean, the whole world went a little mad a few years back in terms of investments. And you say to yourself, ‘How could that happen? Don’t they learn anything from the earlier ones?’ But what we learn from history is that people don’t learn from history. And you certainly see that in financial markets all the time.”

—Warren Buffett. 

Warren Buffett: Derivatives and risk

“Anytime you have incentives, with people who are quite smart, to mismark things, you’re going to get mismarks, or temptations to take on risk in an inappropriate manner. Originally with derivatives, the argument was made that it would disperse risk. That, you know, the Coca-Cola Company faced foreign exchange risk, or some bank faced, you know, interest rate risk. And the theory was that you would use these derivatives to spread risk around the system. And indeed, there are many people that make that argument now. I would say that that may work in that manner a great percentage of the time. But the time that counts is when the system has intensified risk and placed enormous credit risk on very, very few institutions. Believe me, the Coca-Cola Company is in a better position to accept foreign exchange or interest rate risk in a year than some derivatives dealer who has tons of positions on. And I think, actually, there is much more risk in the system because of derivatives than the proponents of derivatives would say has been dispersed because of the activities. ” –Warren Buffett. 

Warren Buffett: We regard that as nonsense

“Prices do amazing things in securities markets. And when they do something that strikes us as amazing in our direction…we will act. But we do not know today what we’re going to be doing tomorrow…. And there’s this business where somebody says, ‘You should have 50 percent of your money in bonds and 35 percent in equities, and 15 —.’ We don’t go through anything like that. I mean, we regard that as nonsense.” –Warren Buffett. 

Warren Buffett: Volume trends for everybody

“It is true that in the packaged goods industry, volume trends for everybody — whether they’re fat or lean in their operation — volume trends are not good. And the test will be over time — you know, three, five years — are the operations which have had their costs cut, do they do poor, in terms of volume, than the ones, that in my judgment, look very fat?” –Warren Buffett. 

Warren Buffett: Competitive position

“Generally speaking, if you lose your competitive position — the Packard Motor Company had the premier car in the mid-’30s. The Cadillac was not the premier — it was the Packard. 

And then they went downscale one year and they never came back. They jumped their sales that one year because everybody wanted to own a Packard, and now you could own one a little cheaper. But they never regained that upscale image again. 

And certain department stores have done that, too. They’ve had a upscale image. And you can always juice up your sales, particularly if you’ve got a great upscale image, by having, you know, this sale or that sale, and going downmarket.  

It’s very hard to back upmarket again, and you’ve seen some great department stores that have had that — or specialty stores — that had that problem.”

—Warren Buffett.