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Warren Buffett speaks about the temperament of successful investors

I think it’s almost impossible to do well investing over time without this. If the market closed for years, we wouldn’t care. Would still keep making Sees candy, Dilly bars, etc.

If you focus on the price, you’re assuming that the market knows more than you do. That may be the truth, but in that case you shouldn’t own it. The stock market is there to serve you, not to instruct you.

Focus on price and value. If a stock gets cheaper and you have some cash, buy more. We sometimes stop buying when prices goes up. This cost us $8 billion a few years ago when we were buying Wal-Mart. When we’re buying something, we want the price to go down and down and down.

You don’t have to be right on everything or 20%, 10%, or 5% of businesses. You only have to be right one or two times a year. I used to handicap horses. You can come up with a very profitable decision on a single company. If someone asked me to handicap the 500 companies in the S&P 500, I wouldn’t do a very good job. You only have to be right a few times in your lifetime, as long as you don’t make any big mistakes.

Charles Munger: What’s funny is that most big investment organizations don’t think like this. They hire lots of people, evaluate Merck vs. Pfizer and every stock in the S&P 500, and think they can beat the market. You can’t do it. Very few people have adopted our approach.

Ted Williams, in his book The Science of Hitting, talked about how he carved up the strike zone into different zones and only swung at pitches that were in his sweet spot. Investing is the same way.

Charles Munger: We read a lot. I don’t know anyone who’s wise who doesn’t read a lot. But that’s not enough: You have to have a temperament to grab ideas and do sensible things. Most people don’t grab the right ideas or don’t know what to do with them.

The key is to have a “money mind,” which is not IQ, and then you have to have the right temperament. If you can’t control yourself, you’re going to have disasters. Charlie and I have seen it. The whole world in the late 1990s went a little mad in terms of investments. How could that happen? Don’t people learn? What we learn from history is that people don’t learn from history. Grade yourself on your temperament. Temperament is the ability to not be swayed by the market. See what you are supposed to see.

Source: Berkshire Hathaway Annual Meeting
Time: 2004

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