We all like things presented in their simplest terms. Headlines like "Two simple steps to lose that unwanted weight" always grabs our attention, even if it is just to smile and say I wish it were true. I enjoy reading inspiring quotes. They often put life's issues in their simplest terms and in doses that are easy to swallow.
From an investing perspective, some of my favorite quotes come from Warren Buffett. Most are immediately intuitive, such as these:
It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.
Price is what you pay. Value is what you get.
- Warren Buffett
However, a few have caused me to stop and ponder their true meaning, or meanings. None more so than the following quote:
Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- Warren Buffett
My first reaction to anything I read is to take it literally as written. In this case, rule number one would prevent you from ever buying a stock. By definition, you buy stocks at market price, plus a commission, so the moment you buy the stock you have lost money (the cost of the commission).
Obviously, Mr. Buffett didn't have such a literal view in mind when he made that statement. Like every investor, he has held stocks that have declined from where they were purchased. Instead, I think the true meaning of his statement are revealed in these quotes:
I. "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
- Warren Buffett
The more complex an investment, the more likely it is to fail. There is something to be said for understanding what you are investing in and knowing what differentiates the company from its competitors. I believe the term Buffett uses is "moat".
II. "A public-opinion poll is no substitute for thought. "
- Warren Buffett
Selecting an investment is a long-term proposition. It shouldn't be a flippant decision based on what the talking heads saying on today's market report.
III. "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
- Warren Buffett
Focus on quality, it is the only thing that endures over time. It is very unlikely that you will lose money, over the long haul, with blue-chip quality stocks with a proven advantage.
From dividend-growth-stocks.com
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