Words of Wisdom from Great Investors

Historically, stocks have proven to offer as good a return as any other investment vehicle – and nothing I’ve seen over the past 50 years of investing has shaken my faith in stocks.

Dividend stocks have several advantages, since 1926 dividends have accounted for about 42 per cent of investor returns, while being less volatile than the market. To some extent the dividend acts like an anchor, slowing the stock down. The beauty of dividends is that you get paid, whether or not the market is up.

There are 60,000 economists in the U.S., many of them employed full-time trying to forecast recessions and interest rates, and if they could do it successfully twice in a row, they’d all be millionaires by now…as far as I know, most of them are still gainfully employed, which ought to tell us something.

Don’t get the wrong idea about dividend mutual funds and ETFs. They’re still a great way to benefit from total return investing, which means dividends tacked onto share price gains. But if you want to build a flow of dividend income that grows year by year, individual stocks look better.

I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

If you want the recipe for getting rich in the stock market, here it is: Find stocks with above – average appreciation potential and safe and growing dividends, and buy them at attractive prices.

If the job has been correctly done when a common stock is purchased, the time to sell it is almost never.

Investing is not rocket science. You don’t earn more if you have the higher IQ, nor do you need to be a math genius to make money. You can spend many hours a week or just a few hours a year investing and still earn satisfactory returns.

Based on my own personal experience – both as an investor in recent years and an expert witness in years past – rarely do more than three or four variables really count. Everything else is noise.

All intelligent investing is value investing – to acquire more than you are paying for. Investing is where you find a few great companies and then sit on your ass.

Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own those shares forever.

A great course, I learned a lot and have had a solid year of success investing since completing the program. The monthly report is a ‘must have’ in my opinion.

You stick to value, to Benjamin Graham, the man who wrote the bible for the market. It’s a mistake to believe you can do more, I warn you. John Maynard Keynes was one of the most famous economists in history. He was a genius, but he failed as a macro investor. It was hard to believe at the time. But when he became a bottom-up value guy, well, he became very successful. With value investing, you don’t have to bend the truth to accommodate periods with derivatives and manias. Value investing will almost always be right.

The beauty of the high-quality, worldwide, non-cyclical approach is that it gives a good reward while being low-risk, simple, non-commission intensive, and exposed to few surprises. I have often recommended it to people who want to build a simple, sound portfolio and do not have the capital to go to investment counsel. It adapts well to a do-it-yourself approach, because there is no need for constant, high-quality security analysis to support it – which a management firm can provide, but often at a hefty price.

Look to add quality, dividend-paying, blue chips when they become irrationally oversold and undervalued. That is how and when experienced investors create blue chip investment portfolios which serve them well throughout their entire lives with growth of capital and growth of dividend income. The process is called ‘investing’ as opposed to whatever the hype and hope of the moment is in style.

Twenty years in this business convinces me that any normal person using the customary three percent of the brain can pick stocks just as well, if not better, than the average Wall Street expert.

Historical research shows that investors can achieve higher long-term returns without taking on increased risk by focusing on the factors relating to the size and valuation of companies. Dividend yield has been one such factor and the price-to-earnings ratio has been another. Over time, portfolios of stocks with higher dividend yields and lower P-E ratios have outperformed the market more than would be predicted by the efficient markets hypothesis or the capital asset pricing model.

There are no bad days in the market. When the market is down, you’ve got bargains, and it’s lovely to think of what you are buying at low prices. When the market is up, the bargains have gone, but you’re rich.

To grow your wealth to a secure and comfortable retirement, you should invest in individual stocks in companies that dominate their industries and have a long history of high dividend growth.

I also do not believe in buying companies that do not pay attractive dividends. Nobody can forecast the future. But it’s obvious that companies that have a strong uninterrupted record are more interesting than those that have not.

I don’t like stress and prefer to avoid it; I never focus too much on market news and economic data. They always worry investors.

I make no attempt to forecast the market—my efforts are devoted to finding undervalued securities.

If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.

The single greatest edge an investor can have is a long-term orientation.

Successful investing takes time, discipline and patience. No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.

You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.

If investing is entertaining, if you’re having fun, you’re probably not making any money. Good investing is boring.

The stock market is filled with individuals who know the price of everything, but the value of nothing.

The four most dangerous words in investing are: ‘This time it’s different.

Diversification is a protection against ignorance. It makes very little sense for those who know what they’re doing.

A share of stock is not a lottery ticket. It’s part ownership in a business.

First, ‘panic selling’ into a decline is typically an action that ignores valuations and likely future returns. Nobody should do that.

Patience is one of the most important virtues for making any value investment.

It is possible to make money — and a great deal of money — in the stock market. But it can’t be done overnight or by haphazard buying and selling. The big profits go to the intelligent, careful and patient investors, not to the reckless and overeager speculator. The seasoned investor buys his stocks when they are priced low, holds them for the long-pull rise and takes in-between dips and slumps in stride.

The very attention we place on rising dividends puts us squarely in the position of ‘owners’ of a company, of true investors who understand that a satisfying and reasonable return from a stock investment isn’t a gift of the market or luck or the consequence of listening to some market maven, but it is the logical and inevitable result of investing in a company that is actually doing well enough, in the real world, to both pay dividends and to increase them on a regular basis.

Eventually dividends can cover your living expenses, without dividends you are only hoping for the stock price to go up. Unfortunately hope will not cover your living expenses.

Dividends may not be the only path for an individual investor’s success, but if there’s a better one, I have yet to find it.

Invest not on optimism, but on arithmetic.

The most important quality for an investor is temperament, not intellect.

We all hope for capital gains, but the only thing we can really count on is the dividend.

Dividend investing works while other strategies fail because it’s based on discipline, not on what’s hot today.

You can improve your investment safety by focusing on stocks with long histories of dividends. Dividends are more dependable than capital gains as a source of investment income.

The disciplined application of dividend investing creates rigid guidelines for the investment process which insulates the investor from the daily pressures of newspaper headlines and peer pressure.

In the stock market there are two paths to ROI (return on investment); capital appreciation and dividends. Of the two, the one with the most certainty is the dividend.

A clever accountant can make earnings appear good or not so good, depending on the season or the objective. There can be no subterfuge about a cash dividend. It is either paid or it is not paid.

In bear markets, stocks return to their rightful owners.

We are not stock-pickers, we are business-pickers.

The individual investor should operate consistently as an investor and not as a speculator.

Far more money has been lost by investors trying to anticipate corrections than has been lost in all the corrections combined.

If you are planning to retire in ten to 15 years, we think you should consider buying stocks that have long histories of dividend increases. While investors tend to look at the current yield (indicated dividend divided by share price) of a stocks, we believe yield on cost (the indicated dividend divided by the per share purchase price) may be a more accurate measure of the long term value of a dividend.

There can be no subterfuge about a cash dividend. It is either paid or it is not paid. If it is paid, the shareholder knows that the company is making money. If it is not paid, no rhetoric can disguise the circumstances.

I put two children through Harvard by trading options. Unfortunately, they were my broker’s children.

Wealth isn’t primarily determined by investment performance, but by investor behavior.