...the market value of the bonds and stocks that we continue to hold suffered a significant decline along with the general market. This does not bother Charlie and me. Indeed, we enjoy such price declines if we have funds available to increase our positions. Long ago, Ben Graham taught me that “Price is what you pay; value is what you get.” Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.

Source:   Berkshire Hathaway Shareholder Letters

I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay, value is what you get. Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses).

Source:   Berkshire Hathaway Shareholder Letters

Graham, great though he was as a man, had a screw loose as he tried to predict outcomes for the stock market as a whole. In contrast, Warren and I are almost agnostic about the market.

Source:   Poor Charlie's Almanack

Of course, the best part of [Benjamin Graham's approach] was his concept of "Mr. Market". Instead of thinking the market was efficient, Graham treated it as a manic-depressive who comes by every day. And some days "Mr. Market" says, "I'll sell you some of my interest for way less than you think is worth." And other days, he comes by and says "I'll buy your interest at a price that's way higher than what you think it's worth." And you get the option of deciding whether you want to buy more, sell part of what you already have, or do nothing at all. To Graham, it was a blessing to be in a business with a manic-depressive who gave you this series of options all the time. That was a very significant mental construct. And it's been very useful to Buffett, for instance, over his whole adult lifetime.

Source:   Poor Charlie's Almanack

Once a competent analysis has been made and the salient facts presented, the intelligent investor will have the material needed to satisfy his own mind that the commitment is sound and attractive. He will not have to subordinate his own judgement to that of his advisors – which is often required of him in other types of security operations.

Source:   The Intelligent Investor

As a matter of business practice, or perhaps of thorough-going conviction, the stock brokers and the investment services seem wedded to the principle that both investors and speculators in common stocks should devote careful attention to market forecasts. The farther one gets from Wall Street the more skepticism one will find, we believe, as to the pretensions of stock-market forecasting or timing. The investor can scarcely take seriously the innumerable predictions which appear almost daily and are his for the asking. Yet in many cases he pays attention to them and even acts upon them. Why? Because he has been persuaded that it is important for him to form some opinion of the future course of the stock market, and because he feels that the brokerage or service forecast is at least more dependable that his own. This attitude will bring the typical investor nothing but regrets.

Source:   The Intelligent Investor

Aside from forecasting the movements of the general market, much effort and the ability is directed in Wall Street toward selecting stocks or industrial groups that in the matter of price will “do better” than the rest over a fairly short period in the future. Logical as this endeavor may seems, we do not believe it is suited to the needs of temperament of the true investor – particularly since he would be competing with a large number of stock market traders who are trying to do the same thing. As in all other activities which emphasize price movements first and underlying values second, the work of many intelligent minds constantly engaged in this field tends to be self-neutralizing and self-defeating over the years.

Source:   The Intelligent Investor

For years the financial services have been making stock-market forecasts without anyone taking this activity seriously. Like everyone else in the field they are sometimes right and sometimes wrong. Wherever possible they hedge their opinions so as to avoid the risk of being proved completely wrong. (There is a well-developed art of Delphic phrasing which adjusts itself successfully to whatever the future brings.) In our view – perhaps a prejudiced one – this segment of work has no real significance except for the light it throws on human nature in the securities markets. Nearly every-one interested in common stocks wants to be told by someone else what he thinks the market is going to do. The demand being there, it must be supplied.

Source:   The Intelligent Investor

The analysts hired by brokerage houses, we are convinced, are greatly handicapped by the general feeling that they are supposed to be market analysts as well. When they are asked whether a given stock is “sound”, the question often means, “Is this stock likely to advance during the next few months?” As a result may of them are compelled to analyze with one eye on the stock ticker – a pose not conducive to sound thinking or worth-while conclusions.

Source:   The Intelligent Investor

…the prime test of the competent analyst is his power to distinguish between important and unimportant factors and figures in a given situation.

Source:   The Intelligent Investor

We once likened the activities of the host of stock market-analysts to a tournament of bridge experts. Everyone is very brilliant indeed, but scarcely anyone is so superior to the rest as to be certain of winning a prize. An added quirk on Wall Street is that the prominent market analysts freely communicate and exchange their view almost from day to day. The result is somewhat as if all the participants in a bridge tournament, while each hand was being played out, gathered around and argued about proper strategy.

Source:   The Intelligent Investor

It is true that every established trend has a certain momentum, so that it is more likely to continue for at least a while longer than it is to reverse itself at the moment of observation. But this is far from saying that any trend may be relied upon to continue long enough to create a profit for those who “get aboard”. Rather extensive studies which we have made of the subject lead us to conclude that reversals of trend in every part of the financial picture occur so frequently as to make reliance on a trend a particularly dangerous matter. There must be strong independent reasons for investing money on the expectation of a continuance of past tendencies, and the investor must beware his weighing of future probabilities be unduly influenced by the trend line of the past.

Source:   The Intelligent Investor

Our approach to the [Management Quality] problem may be concentrated and simplified by pointing out that there are just two basic questions to which stockholders should turn their attention: 1) Is the management reasonably efficient and 2) Are the interests of the average outside stockholder receiving proper recognition?

Source:   The Intelligent Investor

Efficiency of Management: The attitude of the financial world toward good and bad management to this writer seems to be utterly childish. First, we have the solemn assurance that quality of management is the most important consideration in selecting an investment. Second, we have the complete absence of any serious effort to determine the quality of management by any rational tests? It is all a matter of hearsay and obvious deductions from the degree of success of the company. Third, we find no interest of any kind in the common-sense objective of improving or replacing weak managements – even though their existence is freely admitted. The first and last word of wisdom [given by the financial world] to owners of American business is: “if you don’t like the management, sell your stock.”

Source:   The Intelligent Investor

There are three clear-cut signs that a management has been unsuccessful and is presumably inefficient unless it can convince the proprietors otherwise. These are: 1) Its failure to earn a satisfactory return on the stockholders’ investment during a period of several years in which the industry as a whole is prosperous, 2) Its failure to maintain its approximate share of the total sales volume of the industry, 3) Its failure to show a profit margin on sales reasonably close to that of the industry as a whole.

Source:   The Intelligent Investor

It is time now to say a word about the role of boards of directors in the determination of managerial ability. One reason why stockholders have largely ignored this question is their belief that the directors they elect are the ones who have both the duty and opportunity to pass critical judgement on the executive staff. Since the stockholders are much farther removed from the scene than are the directors, their traditional inertia is reinforced by a certain logic, which limits their expression of ownership to voting for the directors whose names appear on the official proxy statement. The rest is then up to the directors. The trouble with this idea is that the directions are rarely independent of management. They should be, of course, but it does not work out that way. Our observation is that the officers choose the directors more often than the directors choose the officers. In many cases, the executives actually constitute a majority of the board. Where this occurs, the notion that the directors serve as a check on management is patently incorrect. But in most of the other cases the situation is not really different, for even the non-officer directors are generally bound closely to the executives by ties of friendship and often of business dealings. When a president has outlived his usefulness, or fails to measure up to the growing requirements of his job, he is not going to be removed by his personal friends.

Source:   The Intelligent Investor

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions. The purchasers view the current good earnings to “earning power” and assume that prosperity is synonymous with safety.

Source:   The Intelligent Investor

The danger in a growth-stock program lies precisely here. Fop such favored issues the market has a tendency to set prices which will not be adequately protected by a conservative projection of future earnings. (It is a basic rule of prudent investment that all estimates, when they differ from actual performance, must err at least slightly on the side of understatement.) The margin of safety is always dependent on the price paid.

Source:   The Intelligent Investor

The margin-of-safety idea becomes much more evident when we apply it to the field of undervalued or bargain securities. We have here, by definition, a favorable difference between price on the one hand and indicated or appraised value on the other. That difference is the safety margin. It is available for absorbing the effect of miscalculations or worse-than-average luck. The buyer of bargain issues places particular emphasis on the ability of the investment to withstand adverse developments. For in most cases he has no enthusiasm about the company’s prospects.

Source:   The Intelligent Investor

[Margin of Safety] guarantees only that he has a better chance for profit than loss – not that loss is impossible.

Source:   The Intelligent Investor

Investment is most intelligent when it is most businesslike.

Source:   The Intelligent Investor

Developing an investor’s attitude, Graham said, is a matter of being prepared, both financially and psychologically, for the market’s inevitable ups and downs—not merely knowing intellectually that a downturn will happen, but having the emotional ballast needed to react appropriately when it does. In Graham’s view, an investor’s appropriate reaction to a downturn is the same as a business owner’s response when offered an unattractive price: ignore it. “The true investor,” says Graham, “scarcely ever is forced to sell his shares and at all other times is free to disregard the current price quotation.”

Source:   The Warren Buffett Way

As I write this, our recent stock performance has been positive, but we constantly remind ourselves of an important point – as I frequently quote famed investor Benjamin Graham in our employee all-hands meetings – “In the short run, the market is a voting machine but in the long run, it is a weighing machine.” We don’t celebrate a 10% increase in the stock price like we celebrate excellent customer experience. We aren’t 10% smarter when that happens and conversely aren’t 10% dumber when the stock goes the other way. We want to be weighed, and we’re always working to build a heavier company.

Source:   Amazon Shareholder Letters

Practitioners spanning the centuries have documented the role of sentiment in investing and speculation. Perhaps the best way to think about sentiment is Ben Graham’s Mr. Market metaphor. Graham suggested imagining market quotes coming from an accommodating fellow named Mr. Market, who never fails to show up and offer you a price to either buy or sell your interest in a business.

Source:   More Than You Know