Warren Buffett’s Guide to Intelligent Investing, Part 1

One of the great tricks the market and the financial media play on unsuspecting participants is to make them believe that in order to become rich, they must move fast. Glued to a news terminal 24/7, sensitive to every rumor coming out of Wall Street and willing to change out of a position at the drop of a hat: these are the qualities of the supposedly savvy investor. We previously discussed what Graham and Dodd would have thought about such behavior. It is no surprise, then, their most famous student has a similarly dim view of such frantic activity.

Make more money snoring than when active

In his 1996 letter to Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) shareholders, Warren Buffett (Trades, Portfolio) outlined his thinking on the merits of inactivity:

“Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve’s discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.”

This is obviously not to say that making money in the stock market is easy – far from it. Successful investing requires deep introspection, open-mindedness and a tremendous amount of hard work to make sure your plays are truly worth it. But having done all that, why make your life more difficult by being spooked every time the Dow Jones closes down 2%

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