Warren Buffett's Greatest Wisdom

Table of Contents
Warren Buffett's Greatest Wisdom Who's Swimming Naked? Buy Wonderful Companies The Best Holding Period Get 10 More Stocks -- Completely FREE!

Warren Buffett's Greatest Wisdom
According to Forbes' latest list of worldwide billionaires, Warren Buffett is worth more than $50 billion. The octogenarian’s massive fortune was built through Berkshire Hathaway (NYSE: BRK-A)(NYSE: BRK-B), the company he’s been a controlling shareholder of since 1965. Since that time, Berkshire’s stock has appreciated nearly 600,000% (no, that’s not a typo!) versus 7,400% for the S&P 500 index.

At that rate of return, a $1,000 investment in Berkshire would have become roughly $6 million. Much of the success at Berkshire has been driven by Buffett’s uncanny skill as an investor. During his career as CEO, he’s made billions for the company and its investors by buying top-notch companies like American Express (NYSE: AXP) and Coca-Cola (NYSE: KO) and holding the stocks for decades. There’s a lot we can learn from Buffett Fortunately, not only has Buffett been one of the most effective CEOs of the modern age, he’s also been one of the most transparent. For Berkshire, each year is capped by a letter to shareholders from Buffett that not only details the company’s results, but teaches readers general investing lessons in Buffett’s down-to-earth, folksy style. Outside of those letters, Buffett is also known for delivering some of the all-time most concise, elucidating quips about investing. In this report, you’ll find three of Buffett’s most insightful pieces of wisdom broken down so you can understand exactly how to apply them to your investing. You’ll also find seven stocks you can add to your buy list today using Buffett’s insight. If you’re ready to dive into the world of Buffett, click below to get started.

Who's Swimming Naked?
You only find out who is swimming naked when the tide goes out. – Warren Buffett

Unwise business plans can often lead to huge profits… over the short term. When the

Unwise business plans can often lead to huge profits… over the short term. When the economy is roaring and everything is moving up and to the right, it’s far easier for companies to hide dumb, corner-cutting, or even illegal practices as they rake in profits. Eventually though, the environment changes, those ill-advised practices are exposed, and the companies employing them -- and their shareholders -- get punished. Thinking back to the dot-com boom, online grocer Webvan is a perfect example. After pricing its 1999 IPO at $15, the stock traded up to nearly $25 -- up 66%! -- on its first day of trading. So what if the company was losing money, it had a questionable business plan, the economy was booming, and internet stocks couldn’t lose! As we know now, it couldn’t last. As the stock market boom turned to bust and the economy cooled, Webvan’s approach to online retailing -- which only led to mounting losses -- left investors cold. Unable to fund its massive cash bleed, Webvan declared bankruptcy in 2001. Of course, we have a plethora of even more recent examples of businesses caught swimming naked thanks to the housing bust and financial-market meltdown in 2008. Chief among those examples is Lehman Brothers, which was an investment bank that was raking it in prior to the crash by employing large amounts of ultra-short-term loans to finance risky, complex real-estate investments. When the market turned, Lehman’s lack of swimming trunks was painfully obvious, and in 2008, Lehman filed the U.S.’s largest corporate bankruptcy. Buffett’s “swimming naked” quote provides us with plenty of cautionary tales and gives us an idea of companies we might want to avoid investing in. If we flip it on its head, though, it also reveals companies that are great investing opportunities. For example, let’s look at the credit crisis again. Lehman Brothers declared bankruptcy, Fannie Mae (OTC: FNMA) and Freddie Mac (OTC: FMCC) were put into government conservatorship, and Bear Stearns narrowly avoided bankruptcy by agreeing to be bought out by JPMorgan Chase (NYSE: JPM). But Wells Fargo (NYSE: WFC) and U.S. Bancorp (NYSE: USB) both made it through the crisis without reporting a single unprofitable quarter. Though they both accepted government bailout money, it’s unlikely that either truly needed it. In fact, Wells Fargo’s chief executive at the time argued vociferously against taking bailout money, but regulators overruled the request. When the tide went out, we saw that both Wells Fargo and U.S. Bancorp not only had their swimming suits on, but were wearing suits of titanium. The washing out that came with the financial crisis revealed both banks as great companies to invest in for the long term. It also just so happens that both are among Buffett’s largest holdings at Berkshire Hathaway -- in fact, Wells Fargo is Berkshire’s single largest stock holding. While neither stock is as cheap as it was circa 2009, both are still reasonably priced for a long-term owner today.

Click here to continue with Buffett’s second best piece of investing wisdom.

Buy Wonderful Companies
It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. – Warren Buffett Interestingly enough, Buffett’s mentor, Benjamin Graham, was quite fond of jumping at fair companies trading at wonderful prices. Graham termed this “cigar butt” investing -- as in, he was looking for discarded cigars that still had a few good puffs left in them. In Buffett’s pre-Berkshire days, he ran with this page from Graham’s book. To be sure, Berkshire Hathaway itself looked a lot like a cigar butt when Buffett bought it - at the time it was a bedraggled textile business that was markedly unprofitable. Through his career, though, Buffett realized that the real money wasn’t in puffing on dirty cigar butts. Instead, the big profits in investing come from finding well-run companies that dominate their industries and hanging onto those companies for a long time. Of course, Buffett isn’t one to pay any crazy price for a stock, though, so part of the investment process is determining what a fair price is for the stock and looking for an opportunity to buy the stock at that price. Costco (Nasdaq: COST) is a great example of a company that dominates its industry. Sure, there are other warehouse-shopping clubs out there, but in terms of quality of operations and management, none stack up. And Buffett -- and even more so his right-hand man, Charlie Munger -- are not shy about professing their admiration for the low-price giant. The problem for investors is that it’s highly unlikely we’ll see shares of Costco trade at true bargain levels unless something dramatically changes the quality and outlook for the company. In a similar vein, Visa (NYSE: V) and MasterCard (NYSE: MA) are among a very small, very dominant group in the growing and highly profitable credit card industry. As the nature of the global payment system continues to move rapidly away from cash and toward cards and electronic payments, both of these payment-network operators stand to rake it in. Just like Costco, though, investors looking for a “blue light” special on Visa or MasterCard shares will likely find themselves with their hands in their pockets as long as the major growth and success continue. It’s not just academic to say that investors who balk at a premium price for these companies missed out. Over the past five years, the S&P 500 is up 35%. Costco is up 93%. As for Visa and MasterCard, they’ve tacked on an amazing 162% and 127%, respectively. And investors that bought those companies five years ago weren’t buying on the cheap. In 2008, Costco fetched an average price-to-earnings multiple of 23.5, while Visa and MasterCard sported respective multiples of 53 and 45. Today, the stocks of all three of these companies still sport higher-than-average earnings multiples. But all three are also still top-notch businesses with stellar growth and profit potential.

Click here to read our final invaluable bit of Buffett’s investing wisdom.

The Best Holding Period
When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever. -- Warren Buffett What do Procter & Gamble (NYSE: PG), Coca-Cola, and Wal-Mart (NYSE: WMT) have in common? If you said that all three are in Berkshire Hathaway’s portfolio, you’d be correct. If you said all three are up more than 1,000% over the past three decades, you’d also be correct. Finally, if you said that at some point during that 30-year span, each of the stocks lost more than 30% of its value in a relatively short period of time… well, you’d be correct there, too. Although the attraction of fast riches in the stock market can have a strong pull, real investing wealth is built over decades, not months or even years. And if you’re curious what “real investing wealth” means, consider that a $10,000 investment in Wal-Mart 30 years ago would be worth roughly $600,000 today. But there were at least five periods over that stretch when Wal-Mart’s stock fell more than 20% over the course of a year. An investor with a quick trigger finger and a lack of long-term focus might have been shaken out at any one of those times and missed out on the truly great gains made possible from owning for the whole period. If we look at the stocks in Berkshire Hathaway’s portfolio today, it’d be hard to argue that Coca-Cola is anything but a company worth owning for that “forever” timeframe. Sure, the stock isn’t particularly cheap (see the previous quote if that concerns you), and it’s faced headwinds lately in the form of a lousy European economy and a lackluster soda market in the U.S. But when you think bigger picture in the form of the company’s brand -- it was ranked the No. 1 global brand in 2012 by brand expert Interbrand -- its strong market position in its established markets, and continued growth opportunity in emerging markets, it’s obvious there’s still good reason to own Coke stock for the next year, five years from now, and 20 years from now. When it comes to finding an outstanding business with outstanding managers, Berkshire Hathaway itself would almost certainly need to make the list of companies worth owning for forever. To be sure, Warren Buffett won’t always be the CEO of the company, but the way he’s built the business has ensured that there are many great managers running its many wholly-owned businesses. And with a highly diversified and high-quality business mix that includes everything from The Pampered Chef and Dairy Queen to GEICO and NetJets, the company has many avenues for growth the casual observer may not appreciate. If that’s not enough, consider that there’s a team of investors -- not only Warren Buffett, but his hand-selected protégés Todd Combs and Ted Weschler -- that is expertly investing in publicly-traded stocks using all of the wisdom we’ve just discussed here. Get 10 More Stocks -- Completely FREE!

My name is Matt Koppenheffer. As a writer for The Motley Fool, I closely read the stock analysis of Motley Fool Cofounders David and Tom Gardner, who have run their flagship Motley Fool Stock Advisor newsletter for over 11 years now. I suspect you're familiar with The Motley Fool. Meaning you're probably aware that it's our passion to help investors like you build lasting wealth. But we both know that it takes more than just one or two stocks to get there. After all, a stock is not a lottery ticket -- it's an ownership stake in a living, breathing business. Which is why I want to send you a FREE copy of Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future -- a brand-new premium report featuring 10 more timely stock recommendations.

Get ready to cash in on...

The 5 Stock Rivalries Shaping the Future
(Introducing our BRAND NEW special report -- a $99 value -- yours 100% FREE when you sign up today!) Any investor can identify a hot industry trend. But the real profits come when you can pick out the handful of winners from the ocean of losers. That's why Motley Fool co-founders David and Tom Gardner recently rounded up a crack team of 10 of our top stock analysts to go head to head in: Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future. We're taking five of the biggest industries in the world, and letting each analyst argue their case (with their words, not their fists)... all to identify the one company that they see controlling each industry in the coming years... The headline bout features Netflix facing off against Amazon.com -- and the winner emerges as the owner of ultimate TV/movie streaming supremacy. Both of these companies have already made over 1,000% returns for The Motley Fool, but we think that's only the beginning... And the undercard is just as juicy... Find out who's winning the battle royale for 3D printing

dominance -- many are calling it the third industrial revolution. Think insurance is boring? Not with profits like these... Discover who's catching their second wind in big banking after getting knocked down in 2008. Plus, meet the new “King of Beers.” You'll uncover all 10 of these Motley Fool recommendations, and find out who stands to rule the ring for years to come! One of these stocks already shot up 157.80% in 2012 alone! And the 10 of them had an average return of 42.43%... nearly triple the S&P 500. Remember, this is a BRAND NEW special report hot off the presses. And it won't be available for long. So sign up today to get 100% FREE access... and find out exactly why these 10 companies are uniquely positioned to bring you knockout profits!

Don't delay! Get your copy of Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future right now — ABSOLUTELY FREE! But only if you act today... Now obviously, the high-quality nature of this research and stock advice isn't something I can hand to just anyone. But by taking the time to read this report, you've proven that you're a committed investor with a long-term focus. So in return for me sharing this brand-new report with you, I'd like to invite you to join Motley Fool Co-founders David and Tom Gardner as members of their Motley Fool Stock Advisor investment newsletter. Better yet, I'm going to let you in for a specially reduced rate for new members. An entire year of honest, straightforward advice and stock recommendations for more than 75% OFF! Here's how it works... Every month, you'll receive the Motley Fool Stock Advisor newsletter in the mail. We'll also alert you by email the moment it's available online, so you can access it instantly. Each Motley Fool Stock Advisor issue reveals not one but TWO top stocks handpicked and thoroughly researched by David and Tom Gardner -- that are poised to CRUSH the S&P 500 over the next three years. Just like the three companies I shared with you above.

You'll get the full rationale behind every recommendation (including potential risks) so you'll have everything you'll need to make your own sound investment decisions. Plus, when you accept this invitation today, you'll also receive these features, benefits, and bonuses: Live Interactive Stock Scorecard -- Our scorecard lets you keep track of how we're doing relative to the S&P 500 and how David and Tom are doing against each other. You'll receive a scorecard in each printed issue. And the scorecard is online as well, where it's updated throughout the trading day. You can click through to get more information on all our picks, including back issues, discussion boards, and much more. Weekly Updates -- We'll send you updates every week so you get all the important information you need to know about right away -- from buying and selling a stock to our analysis of a specific development. You'll also have access to all previous updates on our members-only website. All Back Issues -- Every back issue of our newsletter is archived on the site, so you can read every recommendation we've ever published. Discussion Boards -- Where else can you learn about a company directly from the candid experiences of the company's employees, customers, and investors? I don't know of any other newsletter or investment advisor or brokerage house that would welcome this type of frank exchange between its customers. But it's all part of the philosophy here at The Motley Fool. Some members have told me that Motley Fool Stock Advisor is like an investment university. It's certainly an active community of smart investors. You can join David and Tom Gardner -- along with your fellow members -- in spirited online discussions. Or you can sit back and simply follow the wealth-building recommendations... Now I'm well aware that some advisory services charge hundreds of dollars for access to their "premium" services. But access to our world-class, members-only website... and all its powerful moneymaking resources... is yours today at a DEEP DISCOUNT... When you join today, an entire year of Motley Fool Stock Advisor only costs you $49. That's a savings of more than 75%! PLUS, Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future, a $99 value, is also yours FREE the instant you sign up.

And if saving $150 off the regular membership rate and receiving our $99 Motley Fool

And if saving $150 off the regular membership rate and receiving our $99 Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future report FREE is something you like -HERE'S AN EVEN BETTER DEAL! If you join me right now through this special offer -- because it's only available for a limited time to new members -- I'll send you a bundle of timely investment reports, also free!

6 Danger Signs in 5 Minutes – (a $29 value – YOURS FREE!) – These quick and easy checks will help you sniff out "creative accounting," fictitious revenue, and other ways companies can seek to deceive their stockholders. These shortcuts will help you cut through balance-sheet chicanery like a laser.

How to Know When to Sell – (a $29 value – YOURS FREE!) – David and Tom don't believe in selling before a company's fundamentals change dramatically (or you find an even better company). But it is necessary now and then. In this special report, "How to Know When to Sell," they reveal their simple, easy methods for quickly assessing your stocks, based on fundamentals.

Investing the Stock Advisor Way – (a $29 value – YOURS FREE!) – What's the secret formula behind Stock Advisor's success? All is revealed in "Investing the Stock Advisor Way." Discover the strategies The Motley Fool cofounders use to pick so many triple-digit winners and help their readers beat the market by 61 percentage points. Inside this special report you'll learn the full details of their seven key investment principles, plus the individual stockpicking rules they follow to uncover their biggest wins. If you're serious about your investments (and who isn't these days?), this is one report you won't want to miss.

These three reports, along with Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future, are yours free the instant you join.

PLUS, here’s why you can join me at Motley Fool Stock Advisor today with complete confidence: Your Special “Keep Everything” & “Lose Nothing” DOUBLE GUARANTEE Because we stand behind every piece of advice, insight, and recommendation, I’d like to offer you the opportunity to position yourself to make a pile of money with all the recommendations that Motley Fool Stock Advisor has to offer – WITHOUT ANY RISK WHATSOEVER. Here's how it'll work... You can tell us to send your money back, up to the last day of your first month. And we'll give you a COMPLETE REFUND -- NO QUESTIONS ASKED. The new special report, Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future... the bundle of 3 exclusive investment reports... Plus all the content you can access on the Motley Fool Stock Advisor members-only website: all the reports... all the recommendations from past issues... all the articles full of proven investment lessons -- ALL YOURS TO KEEP, WITH MY COMPLIMENTS. That's 4 reports, valued at more than $180 -- FREE! Of course, this kind of guarantee makes it possible to snap up everything we have to offer and pay nothing. But that's OK! That's how confident we are in what we have to offer you. So let's get started... But please remember, this is a limited-time offer. I can only guarantee you a FREE copy of these reports and Motley Fool Fight Night! 5 Stock Rivalries Shaping the Future, which includes 10 more companies set to soar, plus your 75% discount to Motley Fool Stock Advisor -- if you join me right now AND if you join through this special invitation. I urge you to start now, because there will never be a better or easier time to position yourself for explosive profits in the coming year... and from a trusted source -- Motley Fool Stock Advisor!
(https://www.fool.com/shop/secure/order-01.aspx?

src=isaeditxt0900069&dc=6bd01ea2-4839-4c2b-ba302fcac0de1382&sf=1112_bigbutton_clean&iid=51553406&vsaid=6680&email=prashant.gulati%40gmail.com&dest_ur report%2Fstock-advisor%2Fwarren-buffetts-greatest-wisdom%2Fpage1)

All Stock Advisor numbers as of August 13, 2013. All other numbers as of August 16, 2013. Fool contributor Matt Koppenheffer owns shares of JP Morgan Chase, Berkshire Hathaway, and Wal-Mart Stores, but he holds no other position in any company mentioned. The Motley

Fool owns shares of Mastercard Incorporated Common, Costco Wholesale, Berkshire Hathaway, and Wells Fargo.
Legal Information (http://www.fool.com/help/index.htm?display=about03). ©1995-2014 The Motley Fool. All rights reserved.