Warren Buffett Quotes on Greed

Warren Buffett Quotes on greed. The following Warren Buffett quotes on being greedy will help you refine your investing acumen.

Market Climax of Greed: 1969-1972

When was it important to sell? In 1969, those who were greedy were caught. Back then, the bull market that lasted through 60s was about to climax, before it bubbled in 1971 and 1972, and collapsed in 1973 and 1974. At that time, Buffett decided to exit the market at just the right time. Stocks were trading at price to earnings ratios of more than 50 when he sold; they dropped to single-digit price to earnings ratios since.
The other important time to sell was in 1998. This was another time when the market was giddy with greed. Many people lost sight of their regular careers and businesses and spent all their time ‘playing’ the stock market because it seemed so easy to ride the rocket of the stock market to great riches.

Another Market Climax of Greed: 1998-2000

In 1998, most of Warren Buffett’s stocks had price to earnings ratios greater than 50. He realized that his portfolio was overpriced and quite ingeniously negotiated a giant acquisition with his overvalued Berkshire shares. Berkshire Hathaway paid for its acquisition of General RE through a stock swap, where both parties agreed to swap 100% of General Re for $22 billion in BRK stock. Since the stock of Berkshire was grossly overvalued then – the deal was actually a steal for Buffett. That the deal was all-stock also meant that it could be structured as a tax-free merger.

When is everyone too greedy

How do you know when everyone is too greedy? Here are some tell-tale signs:
  • Analysts and media pundits begin to say that earnings no longer matter and that sales multiples should be used instead – this was rampant during the Dot Com Bubble.
  • Value-oriented fund managers begin to get out of the game, as they realize that there are no longer any under-valued stocks in the market.

Warren Buffett Quotes on Hard Work

Warren Buffett quotes on hard work. If you want to become the world’s number one investor, there is no substitute for hard work.
Here is one of my favorite quotes on Warren Buffett: “By the age of 10, I’d read every book in the Omaha Public Library with the word finance in the title – some twice.”
This quote suggests that it was more than raw intelligence that got Warren Buffett to where he is today. Rather, it is the habit of continuous learning that he has developed that has gotten him so far. Buffett was very hardworking as a kid and very much wanted to learn everything he could about finance and the stock market. Charlie Munger once described Warren Buffett as a ‘learning machine’, and noted that if you observe Warren Buffett during the day, you will realize that half his time is spent ‘sitting on his ass and reading’.
Roger Lowenstein’s book on Warren Buffett describes how Buffett knew almost every balance sheet on the New York Stock Exchange. Beyond reading every business book that was available, Buffett also spent a lot of time poring over actuarial tables, reading heavy Moody’s manuals page by page, searching for companies that were on sale by Mr. Market that day.

Warren Buffett applied the same zest and hard work to his paper route. He peddled subscriptions and kept track of when each of his customers’ subscriptions expired, so he knows when to ask for new business.
Buffett’s love of reading makes it not seem like hard work to him. In fact, he often comments about how he loves his job so much that he tap dances to work every day. This love of reading is a common trait among many highly successful investors. Charlie Munger has frequently cited his own love of reading; Ron Perelman noted in an interview that he reads 10 financial reports a week.

Warren Buffett Quotes on Hiring

Warren Buffett on hiring. What Buffett focuses on when hiring his CEOs and managers.

Difficult to Teach a New Dog Old Tricks

This unconventional quote explains Buffett’s approach to hiring. He values age and experience greatly – unlike many others, Buffett is not afraid of hiring older mangers. Rather, he says, ‘It is difficult to teach a new dog old tricks.’ Many Berkshire managers are past 70 – and their experience allows them run their companies even better than when they were young.
For example, when Buffett invested in FlightSafety International, Albert Ueltschi was already past 70. Buffett saw this as a great value add in hiring Ueltschi, as he had a lifelong affair with aviation, piloted the Charles Lindbergh, and was extremely experienced in the business. His years of experience would allow him to run FlightSafety International very well.

CEO Hiring

One of his letter to shareholders, Buffett says that CEO selection is the most important. This is because no one is senior to the CEO, and of the performance of everyone in top management, the performance of the CEO is the hardest to measure. This is because the metrics for measuring a CEO’s performance are often vague and easy to manipulate. Furthermore, since the relations between the CEOs and boards are traditionally congenial, boards may not be able to serve that regulatory role.

Thus, the solution to the CEO problem is to take extreme care in identifying CEOs who do not require structural restraints to perform well.
Consequently, Buffett gives his CEOs a simple set of commands – they only need to run their businesses as if they are the company’s sole owner, the company is their only asset, and they can never merge or sell the company indefinitely. Thus, Buffett wants his CEOs to manage with a long-term rather than a short-term horizon.

Warren Buffett Quotes on Life

Warren Buffett quotes on life. Warren Buffett on what it takes to live a good life.
Wanted to make a very clean type of income. A couple of times I remember saying, “Gee, Warren, this thing isn’t reported” [to the government]. And he said, “I’m putting it in.”

Do what you love

Warren Buffett and Bill Gates attended a forum together at the University of Washington Business School many years ago. When asked on his thoughts on life, Warren Buffett noted emphatically that you have to do what you love. Those people who think they have to do this, then that, so they can get to X and Y are kind of like “saving up sex for old age”. Rather, we will be much happier and probably more successful in the long-run if we make sure we are doing what we love at every moment in time.

Always be humble

Warren Buffett emphasizes how important it is to always be humble. When you are feeling that you are ‘on a roll’, you should all the more be circumspect. For example, when writing his letters to his shareholders, Buffett was always careful not to over-promise. Instead, although he had been beating the market consistently more many years, he always noted that his advantage over the Dow may not be sustainable, and sometimes even comments in certain terms that what he has attained should be considered ‘decidedly abnormal’, and that the Buffett partnership will have ‘loss years’ where it is ‘inferior to the Dow’.
Such an attitude helps Warren Buffett always stay on his toes and never be complacent. Charlie Munger advises that one should always use checklist routines to ensure that we avoid big mistakes or omissions in our thinking. This is all part of always staying humble regardless of how much success one has already attained; that is the only way to sustain that success – too many have risen and then fallen because of the burden of their hubris.

Warren Buffett Quotes on Leverage

Warren Buffett quotes on leverage. Why Warren Buffett avoids debt – and what alternatives to debt he uses to still gain leverage.

Debt/Borrowed money is the weak link

Warren Buffett writes that debt can often be the fatal weak link that leads to the terrifying collapse of a fund that might always have had a stellar record of outperforming the market. In 1998, it was Long Term Capital Management. Exactly a decade later, it was Lehman Brothers. History has a way of repeating itself that we should all take heed as aspiring investors.

Senior notes through Salomon Brothers

However, there were still a few times when Warren Buffett did use debt. In 1973, he borrowed money when he saw too many opportuntieis in the market but had too little cash to invest. Thus, he raised $20 million in senior notes through Salomon Brothers, but made sure that the borrowed money satisfied two conditions: first, it was cheap; second, it could be structured on a long-term fixed rate basis (so it would remain cheap).

To finish first, you must first finish

Another way to explain the point above is another quote from Buffett: “As one of the Indianopolis ‘500’ winners said, ‘To finish first, you must first finish.’” Buffett has always felt a strong sense of obligation to his investors, who may have entrusted a significant portion of their wealth to him. Instead of worrying about whether he may be forced into a compromising position because of the debt he might have assumed, he tries to avoid the situation altogether. He observes that in retrospect, he could probably have used debt to juice up his returns a little and have succeeded on most occasions, but he values a good night’s sleep more than a few extra percentage points in return.

Alternative Sources of Leverage

Instead, Buffett prefers the following alternative sources of leverage: float, and deferred taxes. These alternatives are cost-free, have no covenants or due dates attached, and thus are much safer sources of leverage.

Warren Buffett Quotes on Management

Warren Buffett quotes on management. What Buffett looks for in his managers and what it takes to create quality management teams.

Avoid the Big Egos

Buffett has said on many occasions that his managers are extremely important. A large part of making good investments is selecting good managers who are reliable, motivated, and can be trusted. According to Buffett, the reason many acquisitions do not work well is that they either lack excellent managements or the nature of the business has poor economics.
The problem is that many of these mergers are motivated by big egos, with the notion that making deals is sexy; existing managers can often be caught up with the notion of making deals just for the sake of making deals. This leads to almost nonsensical deals at times – these deals create big splashy headlines but might add little shareholder value.

Management Warren Buffett likes

What kinds of management does Warren Buffett like? He likes managers who are frugal – the CEO drives an ordinary car and lives in an ordinary house and does not feel anything weird about that. The managers he would avoid are those who have a large tendency to want to brag.
He also likes managers who are not self-aggrandizing. His ‘sort of guy’ would be the manager who would not waste money on painting his office.

Managing his own Managers

Buffett has a very hands-off management approach. For example, with Berkshire Hathaway when it was still a textile company, he asked Ken Chace for monthly financial reports, but did not want any quarterly projections and other reports that were largely a waste of time.
Warren Buffett emphasizes having a personal connection with each CEO. ‘Like a kid on report-card day, managers hated to bring Buffett bad news’ – great way to ensure that managers do their best.

Warren Buffett Quotes on Options

Warren Buffett quotes on options. Why Warren Buffett disapproves of options and his thoughts on options backdating.

Options as Executive Compensation

Warren Buffett often states that he does not approve of options. This is because options carry with them a perverse risk-reward system that he does not like. Options gave its holders the potential for significant rewards without any risk – thus, those who hold options have nothing to lose when they are taking business risks and everything to gain. They might thus be more likely to engage in risky behavior that would not be in the interest of shareholders.
In contrast, if management were given shares instead of options, the interests of management and shareholders would be better aligned, as management would then share in both the risks and the rewards of their business decisions.

Limited Executive Compensation

Buffett likes to limit executive compensation in the form of salaries in general, as over the top executive compensation hurts shareholders directly. Thus, the perk of working as a manager might not be the compensation, but this is often outweighed by the significant autonomy that Buffett gives his managers. He is very trusting of his managers and also a good motivator who can get his managers to put in their very best.

Warren Buffett: Options Backdating

The other options-related issue that Warren Buffett has spoken out strongly about is the issue of options backdating. In the past, some companies have retroactively adjusted the grant dates of options in order to increase their value. Apple, for example, discovered issues with options backdating during the Dot Com Bubble, leading to the resignation of Apple CFO Fred Anderson. Buffett argues that regardless of whether this is legal, it is unethical and would not be tolerated in any of the Berkshire subsidiaries.