20 Quotes from Investing Greats to Make You a Better Dividend Stocks Investors by Sure Dividend
Individual investors benefit when investing greats share their wisdom. Warren Buffett, Seth Klarman, Peter Lynch, and Joel Greenblatt are all investing greats who have written books and/or shared their wisdom in annual reports. See their thoughts on investing applied to dividend stocks.
Warren Buffett’s $70+ billion fortune makes him one of the wealthiest men in the world. Warren Buffett’s quotes are concise and filled with investing wisdom.
Over the years Warren Buffett has evolved from a strict value investor to an investor that looks for shareholder friendly businesses with strong competitive advantages trading at fair or better prices. Warren Buffett’s portfolio is loaded with dividend growth stocks like Coca-Cola, Deere & Company, and Wal-Mart.
Warren Buffett’s approach to investing is to buy excellent businesses and let them compound wealth over time.
“Time is the friend of the wonderful company, the enemy of the mediocre”
Time is the friend of the wonderful company because over time wonderful companies will continue to gain market share, grow earnings, and reward shareholders. For a mediocre business, time is the enemy. The mediocre business will slowly succumb to the competitive forces of free markets.
“It’s far better to buy a wonderful business at a fair price than a fair business at a wonderful price”
Time + wonderful business = wealth. Time + fair business = mediocre results. When one buys a fair business at a wonderful price, they are relying on the stock market to generate their returns; hoping that the business’ valuation will rise. When one buys a wonderful business, they can sit back and let the business grow over time; increasing value on its own.
“Our approach is very much profiting from lack of change rather than from change”
Businesses that must undergo continuous change to stay relevant will eventually lose pace with the market. Businesses that rarely have to change their products have a much lower risk of product obsolescence.
What will the smart phone industry look like 20 years from now? I have no idea. Very few people (could anyone?) could have predicted the rise of Apple 20 years ago. On the other hand, think about the tissue industry. Kimberly-Clark manufactures Kleenex brand tissue. I find it very difficult to imagine that the tissue industry will be much different 20 years from now than it was 20 years ago.
Changing industries are exciting, but they reduce the durability of a businesses’ competitive advantage.
“I don’t look to jump over 7-foot bars; I look around for 1 foot bars that I can step over”
Warren Buffett’s strategy of buying excellent businesses reduces risk and complexity. It isn’t hard to see that Coca-Cola or American Express have strong competitive advantages. It is orders of magnitude more difficult to examine a biopharmaceutical start-ups expected value. There is no reason to take chances on overcomplicated analysis when you can buy easy-to-understand high quality businesses. There are no bonus points for difficulty in investing.
Warren Buffett’s investment strategy matches well with dividend growth investing. While Warren Buffett does not require the businesses in which he invests to pay dividends, most of them do. All of Warren Buffett’s top 5 holdings pay increasing dividends year-after-year – and 2 of his top 5 are Dividend Aristocrats. Warren Buffett’s 5 largest holdings are listed below:
- Wells Fargo (WFC) – 24% of portfolio
- Coca-Cola (KO) – 15% of portfolio (Dividend Aristocrat)
- IBM (IBM) – 12% of portfolio
- American Express (AXP) – 11% of portfolio
- Wal-Mart (WMT) – 5% of portfolio (Dividend Aristocrat)
Seth Klarman is the 58 year old founder of the Baupost Group hedge fund. Baupost Group has about $30 billion in assets under management. Seth Klarman is a risk-averse value investor. He wrote the preface for the 6th edition of Margin of Safety. Seth Klarman’s own book, Margin of Safety sells for over $1,000.
Like Warren Buffett, Seth Klarman prefers to invest for long periods of time. While he is not in the ‘hold forever’ camp, Seth Klarman does advocate a long-term mindset.
“The single greatest edge an investor can have is a long-term orientation”
The above Seth Klarman quote is incredibly powerful. It spells out in no uncertain terms how important investing for the long-run is. Having a long-term orientation prevents speculation by forcing investors to focus on business fundamentals rather than short-term price movement.
“The trick of successful investors is to sell when they want to, not when they have to”
To have a long-term orientation, one must not be forced to sell their stocks. Dividend stocks are unique in their ability to provide both current income while maintaining long-term growth prospects. The ultimate goal of building a dividend growth portfolio is to have dividend income fully cover all expenses. In this scenario, investors only have to sell when they want to, never because they have to.
“The avoidance of loss is the surest way to ensure a profitable outcome”
Taking unnecessary risk will lead to large losses. Loss avoidance is critical for investing success. When investors focus on minimizing downside risk, the upside tends to take care of itself. Investing in businesses with strong competitive advantages trading at fair or better prices is perhaps the best way to avoid long-term losses.
“Many investors insist on affixing exact values to their investments, seeking precision in an imprecise world, but business value cannot be precisely determined”
Investing would be extremely easy if there were a way to precisely determine the value of a business. Discounted cash flow analysis uses various inputs and estimates and produces an ‘exact business value’. Of course, this value is not ‘real’, it is only a projection based on the various inputs used in the formula. investors would be wise to avoid trying to label businesses with an exact value as such a task is impossible.
“If you don’t quickly comprehend what a company is doing, then management probably doesn’t either”
As discussed in the Warren Buffett section above, investors don’t get bonus points or extra return for degree of difficulty. If a business is exceptionally difficult to understand, then anyone’s analysis will likely miss important details. Further, it is more difficult to manage a complex business. Simple business models are easier to manage, measure, and improve.
Peter Lynch averaged an investment return of 29.2% between 1977 and 1990 when he ran the Magellan Fund. He has shared his investing wisdom in several books including One up on Wall Street and Beating the Street.
Peter Lynch’s investing philosophy focuses on buying fast-growing stocks (typically small-caps) for cheap. Peter Lynch pioneered the PEG ratio. The PEG stand for price-to-earnings-to-growth. It is the P/E ratio divided by the growth rate. A PEG ratio under 1 signals a ‘buy’ for Peter Lynch.
Like Warren Buffett and Seth Klarman, Peter Lynch likes simple stocks – maybe even more than the two previously mentioned investors. The two quotes below emphasize simplicity in investing.
“The simpler it is, the better I like it” and “If you’re prepared to invest in a company, then you ought to be able to explain why in simple language that a fifth grader could understand, and quickly enough so the fifth grader won’t get bored.”
The ‘5th grader’ test above is an excellent litmus test to see if you really