IFB23: Warren Buffett Investment Advice to the Average Investor

Welcome to session 23 of the Investing for Beginners podcast. I am Dave Ahern and I am joined by my co-host Andrew Sather. In today’s session we are going to discuss some quotes from the great Warren Buffett.
Buffett is arguably the greatest investor of our generation, possibly ever and he has been a fountain of wisdom and advice for years. Needless to say, he has created some great quotes through the years either from his shareholder letters or other writings. Additionally, he is a prolific speaker and has many memorable quotes from his fantastic speeches as well.

* Rule number one doesn’t lose money, Rule number two, don’t forget rule number one.
* Look for wonderful businesses at fair prices
* Reading is one of the keys to unlocking your greatness as an investor
* Value investing is a investing style that average people can easily adopt with great results

Dave: Warren Buffett is quite the quote master, and he has come up with some very witty quotes through the years. Andrew and I are going to take turns talking about some of the favorites and give you our two cents worth on what we think of these quotes and their meanings.
I am going to go first with my favorite quote from Warren.
“Rule number one, never lose money. Rule number two, don’t forget rule number one.”
That is so apropos when we are talking about investing, Andrew made a great point in his email letter that he sends out every day. He was talking about losses, and how you need to avoid them, this is something that Warren Buffett has done an amazing, masterful job at doing, not losing money.
Because when you lost money to make it back, it is very difficult to recover the money. Andrew was coming at it as a point of looking at growth stocks, and how they can be kind of risky.
Andrew and I have talked a lot about this about the margin of safety and looking for the safety part of it, that is our emphasis. And not being aggressive and going after risky stocks, this quote from Warren Buffett sums that up.
Don’t forget rule number one, don’t lose money. It doesn’t mean that the stock won’t go down from time to time, it will, but as a long-term investor, you are more focused on the long-term horizon of a stock when you are buying it.
What Warren Buffett is talking about is talking about a long-term horizon for any stock, regardless of religious denomination. He is looking at the long-term and is more worried about that as opposed to the short term volatility.
I have a personal experience with this. When I first got into investing, I bought a stock that I had read a little bit about, again I didn’t know much about the company and didn’t know what I was trying to do and didn’t have my rules in place yet.
I bought the stock and was super excited about it, and it went up from $9 to $13, and I thought this investing thing is easy! And then about two weeks later it went back down to $9 and then a couple of weeks later it was down to $7, then $5 and $3.
And now it is around $1.22; I lost my shirt on that investment. For me to get back to even at the $9 is going to have to grow around 722%, and that is just about impossible.
This is where the numbers can hurt you when you are looking at this, and that is why investing with a margin of safety is so critical to investing. Just not taking chances with something like that.
Andrew: Yeah, that whole mathematical reality is something that is not instinctual for anybody, but it’s something that when you understand that “wow, losing money from an investment standpoint does that forcing you to realize that worst you can do is lose all of your money.”