Warren Buffett: One-foot and seven-foot bars

“We know how to step over one-foot bars. We don’t know how to jump over seven-foot bars. But we do know how to recognize, occasionally, what is a one-foot bar. And we know enough to stay away from the seven-foot bars, too.”

—Warren Buffett.

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Warren Buffett: Human behaviour involved

“Markets will do crazy things over time. When Charlie and I were at Salomon, they’d always talk to us about five sigma events or six sigma events, and that’s fine if you’re talking about flipping coins, but it doesn’t mean anything when you get human behavior involved. And people do things that — intelligent people do things — very intelligent, educated people do things — that are totally irrational, and they do them en masse. And you saw it in 1998. You saw it in 2002. And you’ll see it again.”

—Warren Buffett (2007).

Warren Buffett: Dollar on the dollar

“What we really want to do is buy a business that’s a great business, which means that business is going to earn a high return on capital employed for a very long period of time, and where we think the management will treat us right. We don’t have to mark those down a lot when we find those factors. We’d love to find them when they’re selling at 40 cents on the dollar but we will buy those as much closer to a dollar on the dollar. We don’t like to pay a dollar on the dollar, but we’ll pay something close.” –Warren Buffett.

Warren Buffett: Private equity activity

“The nature of the private equity activity is such that it really isn’t a bubble that bursts. Because if you’re running a large private equity fund and you lock up $20 billion for five or longer years and you buy businesses which are not priced daily, as a practical matter — even if you do a poor job, it’s going to take many years before the score is put up on the score board, and it takes many years, in most cases, for people to get out of the private equity fund even if they wished to earlier…. The investors can’t leave and the scorecard is lacking for a long time. What will slow down the activity — or what could slow down the activity — is if yields on junk bonds became much higher than yields on high-grade bonds. Right now the spread between yields on junk bonds and high-grade bonds is down to a very low level, and history has shown that periodically that spread widens quite dramatically. That will slow down the deals, but it won’t cause the investors to get their money back.” —Warren Buffett.

Warren Buffett: Shorted

“I’ve probably had a hundred ideas of things that should be shorted, and I would say that almost every one of them have turned out to be correct. And I’ll bet if I’d tried to do it and make money out of it, I probably would have lost money, I would have had no fun, and the opportunity cost, as Charlie said, would have been enormous. Because if somebody’s running something that’s semi-fraudulent, they’re probably pretty good at it and they’re working full time at it and they’ve succeeded for a while and they may keep succeeding. And if they succeed and you go in at X and it goes to 5X, you know, all you’re hoping after a while it that it goes back to X again or something of the sort. It’s a very tough psychological game to play. Few people may be well-suited for it. I would never put any money with a short fund, but not because I would think it would be ethically wrong. I just think they’re unlikely to make money.” –Warren Buffett.

Warren Buffett: Strategic buyer

“A strategic buyer is some guy that pays too much. And he wants to justify it, so he says it’s strategic. I have never understood being a strategic buyer. Every time somebody calls me up and says, ‘We think, maybe, you’re the logical strategic buyer for that,’ I hang up faster than Charlie would…. The idea that we’re going to find a business to buy from some guy who, from the moment he bought it a few years ago, has been thinking, ‘How do I get out of this thing?’ ‘What do I do to have…those figures for a couple years look a certain way so that I can get the maximum amount in a couple years?’ We’re just not going to make any attractive buys there. We won’t trust the figures. What we like is a business where the guy before was running with the idea of running it a hundred years, and taking care of the business in every way possible and was not contemplating sale, but, for one reason or another, finally needs to monetize the company. ” –Warren Buffett.