Investment wisdom from leading investors

 

In this long read, we aim to honour some of the best-known investors who have shared their investment wisdom in various bestselling books and in-depth interviews by summarizing and shining some colour on some of their key investment quotes. Investment successes are not a consequence of luck or timing; instead, these successes are often the result of applying timeless principles rooted in decades of investment experience.

Some of the world's greatest investors, such as Jesse Livermore, Warren Buffett, Charlie Munger, and Peter Lynch, may not all sound equally familiar to you, but each has shared potentially important nuggets of wisdom through quotes that continue to guide both professional and retail investors across the globe and across various market cycles. In this long read, our aim is to explore some of these iconic investment quotes and elaborate on how these lessons could be used to improve decision-making and portfolio management. There are too many to share all of them in this article, but it is an interesting summary of key principles to which I feel a connection.

Jesse Livermore (1877-1940)

Jesse Livermore was a legendary trader in the early 20th century, known for making and losing several fortunes during his career. He made a fortune by shorting the stock market during the 1929 crash, reportedly earning around US$100 million. However, his success reversed in the following years, and he lost much of his wealth due to poor trades and mismanagement. His life and trading strategies have been chronicled in the book Reminiscences of a Stock Operator. While the main character in the book is fictionalized, it is widely believed to be based on Jesse Livermore.

Here are 3 of his key quotes:

1. “It was never my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

This is one of Livermore's most famous pieces of advice, emphasizing the importance of patience in trading. He believed that holding onto successful trades for the long term, rather than making frequent trades, was the key to big profits.

2. “After spending many years in Wall Street and after making and losing millions of dollars, I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting."

Again, Jesse reiterates the importance of patience as he stresses that real profits come from holding a position as long as the market trend supports it.

3. "Markets are never wrong – opinions often are."

Livermore understood the importance of not fighting the market. If the market moves contrary to an investor’s expectations, it’s the investor’s analysis or assumptions that are likely incorrect, not the market itself.

Warren Buffett (1930-….) – Berkshire Hathaway

Warren Buffett is probably the most familiar name among leading value investors of all time. Often referred to as the "Oracle of Omaha" due to his ability to consistently make wise investment decisions, Buffett is the Chairman and CEO of Berkshire Hathaway, one of the largest investment holdings in the world built on a disciplined and long-term approach to investing. He follows the principles of value investing, originally taught by his mentor, Benjamin Graham. This strategy involves buying stocks that are undervalued relative to their intrinsic worth and holding them for the long term. Berkshire Hathaway's investments span various industries, including insurance (GEICO), railroads (BNSF), consumer goods (Coca-Cola), and technology (Apple).

Here are 3 of his key quotes:

1. "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1."

Buffett emphasizes the importance of capital preservation. This quote underscores his risk-averse nature and the focus on minimizing losses as a foundation for long-term wealth creation. Instead of chasing risky gains, Buffett teaches that protecting what you already have is paramount.

2. “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down”

Buffett emphasizes here the importance of quality in both everyday purchases (like socks) and in investments (stocks), especially if it comes at a discount to what it is worth. In investing this means focusing on fundamentally strong businesses with good management, solid financials, strong free cashflow generation and competitive advantages. Buffett prefers to avoid lower-quality investments, even if they appear cheap.

3. “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years”

Buffett advocates for investing in businesses that you believe in for the long term, not for quick gains. It emphasizes the importance of having confidence in the fundamentals, rather than relying on short-term market price movements. The stock market's daily volatility shouldn’t concern you if you are invested in strong, durable businesses. It reflects Buffett’s philosophy of patience. He believes in holding investments for the long term, allowing the compounding of returns to work in your favour.

Charlie Munger (1924-2023) – Berkshire Hathaway

Charlie Munger was vice-Chairman of Berkshire Hathaway from 1978 until his passing in November 2023. Buffett described Munger as his closest partner and right-hand man and credited him with being the "architect" of modern Berkshire Hathaway's business philosophy.

Here are 3 of his key quotes:

1. "It's remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent."

Munger stresses the importance of winning by not losing or by avoiding mistakes rather than striving for brilliance. This approach is rooted in simplicity and the belief that staying rational and avoiding major errors leads to better outcomes in the long run. Hence, it reflects that significant wealth is built by holding onto great investments for long periods, allowing the power of compound growth to take effect rather than trying to time the market.

2. "The big money is not in the buying and selling, but in the waiting."

Munger repeats himself here as he cannot stress enough that patience is a virtue as this quote reflects the idea that significant wealth is built by holding onto great investments for long periods, allowing the power of compound growth to take effect rather than trying to time the market.

3. "Invert, always invert."

Munger promotes thinking in reverse to solve problems. It means identifying what could go wrong with an investment and working backward to avoid those potential pitfalls and minimize errors.

Peter Lynch (1944-…) – Fidelity Magellan Fund

Peter Lynch is a renowned mutual fund manager best known for his work at Fidelity, where he managed the Fidelity Magellan Fund from 1977 to 1990. During his time the fund's AUM grew from $18 million to over $14 billion, making it the best-performing mutual fund in the world for over a decade. Lynch achieved an average annual return of 29.2% during his tenure. In the late 1980s and early 1990s he wrote three well-known books (One Up on Wall Street, Beating the Street and Learn to Earn) explaining his investment philosophy to retail investors, aimed at teaching young people about the basics of the stock market.

Here are 3 of his key quotes:

1. "Know what you own, and know why you own it."

This stresses the importance of understanding your investments inside out. Investors should have a clear rationale for why they invest and hold a particular stock, grounded in knowledge of the business and its prospects, not just market trends or tips from others.

2. "In the long run, it's not the stock market, but the business behind the stock that determines your investment return."

This highlights Lynch’s focus on the fundamentals of the business rather than the daily fluctuations of the stock market. He believed that the underlying performance of a company is what drives long-term returns, not short-term market price movements.

3. "The person that turns over the most rocks wins the game. And that's always been my philosophy."

Lynch encourages investors to do their homework in finding great investment opportunities at a reasonable price. Success in investing often comes from uncovering hidden gems that others may have overlooked.

 

Summary

These abovementioned quotes are just a brief summary of a long list of many wise individual quotes from these 4 leading investors. As the list is too long to disclose them all it has been decided to just select a few of them, which could be helpful by making future investments. It is fair to conclude that these quotes reflect their core philosophies of investing, albeit all with a different angle or focus. Livermore and Buffett’s focus was on value and patience, whereas Munger emphasised avoiding mistakes and Lynch insisted on knowing what you own and doing the extra mile of homework, And the list with quotes would have been far larger if we had included quotes from other leading investors such as John Maynard Keynes (British Economist), Benjamin Graham (father of value investing), Ray Dalio (Bridgewater Associates) and John Bogle (Vanguard). 

Scrolling through many of these quotes often brings a smile on my face as their wisdom often comes with a sense of humour. But it also teaches us the value of sticking to your investment criteria, albeit perhaps slightly different criteria for a value-oriented fund than for instance for a thematic investment fund. Investment criteria that could have easily been taken from the aforementioned leading investors, but in this case are not as these are applicable to a technology-oriented fund:

• Quasi-oligopolistic market environment (not too many providers in a non-fragmented market)
• Operating in a growth market (market growth at least 2x GDP growth)
• Revenue growth > market growth (market share gains)
• Strong, well-defensible market positions (high barriers to entry)
• Strong operational leverage (for example 5% revenue growth leads to >15% operating income growth and >25% net profit growth)
• Major investments behind them (this leads to superior free cash flow growth)
• A rock-solid balance sheet
• Shareholder-friendly policy (free cash flow is used, among other things, for dividend growth and/or share buybacks)
• Stable management

As these criteria are combined with the wisdom from the above investors, including but not limited to:

• Do the extra mile of homework, know what you own
• In the long run, it's not the stock market, but the business behind the stock that determines your investment return
• Patiently sit on these investments as long as the investment cases are intact

This has been in the past and could in our (humble) opinion remain a value adding recipe for a well-diversified investment portfolio.