The following are three quotes from Warren Buffet:
"Companies obtain the shareholder constituency they seeks and deserve. If they focus on short-term results or short-term stock market consequences, they will attract shareholders who focus on the same factors. And if they are cynical in their treatment of investors, eventually that cynicism is likely to be returned by the investment community.”
Warren Buffet, 1979.
"To obtain only high quality shareholders is no cinch. Anyone can buy any stock. Entering members of a shareholder club cannot be screened for intellectual capacity, emotional stability, moral sensitivity or acceptable dress. Shareholder eugenics therefore might appear to be a hopeless undertaking. In large part, however, we feel that high quality ownership can be attracted and maintained if we consistently communicate our business and ownership philosophy-along with no other conflicting messages-and then let self-selection follow its course.”
Warren Buffet, 1983.
"Through our policies and communications-our advertisements-we try to attract investors who understand our operations, attitudes and expectations. We want those who think of themselves as business owners and invest in companies with the intention of staying a long time. We want those who keep their eyes focused on the business results, not market prices.”
Warren Buffet, 1983.
In Chapter 15, Pabrai explains when you should sell or hold on to a stock. He offers a set of rules he uses for selling a holding, whether it is winning or losing. This logic is based on Warren Buffett’s rule 1 and 2 (from the second video):
Rule 1: Never lose money.
Rule 2: Never forget Rule 1.
Combine your knowledge of Pabrai ‘s stock rules and Warren Buffett’s stock investments tips and explain your understanding of these two positions.
Full Answer Section
- Circle of competence: Buffett believes that investors should only invest in companies that they understand well. He calls this his "circle of competence." By sticking to his circle of competence, Buffett avoids making investment decisions that are based on speculation or hype.
- Margin of safety: Buffett believes that investors should always have a margin of safety when making investment decisions. This means that they should buy companies at a significant discount to their intrinsic value. The margin of safety provides a buffer against unexpected events, such as a downturn in the market or a decline in the company's earnings.
Mohnish Pabrai's Stock Rules
Mohnish Pabrai is a successful hedge fund manager who follows many of Warren Buffett's investment principles. He has also developed his own set of stock rules, which are based on Buffett's philosophy. Some of Pabrai's key stock rules include:
- Sell a stock if you lose confidence in the story. This rule is based on Buffett's belief that investors should only hold onto companies that they have a strong conviction about. If an investor loses confidence in a company's story, they should sell the stock even if it is still going up in price.
- Don't sell a stock because it has gone up in price. This rule is based on Buffett's belief that investors should focus on the long-term value of a company rather than short-term price movements. Just because a stock has gone up in price does not mean that it is overvalued.
- Sell a stock if you can find a better use for the money. This rule is based on Buffett's belief that investors should always be on the lookout for better investment opportunities. If an investor can find a company that they believe is more undervalued than their current holdings, they should sell their current holdings and invest in the new company.
Reconciling Buffett's and Pabrai's Positions
Buffett's and Pabrai's investment philosophies are very similar. Both investors believe in long-term investing, value investing, and having a margin of safety. However, there are a few key differences between their philosophies.
Buffett is more focused on qualitative factors, such as the quality of a company's management team and its competitive advantage. Pabrai, on the other hand, is more focused on quantitative factors, such as a company's financial ratios and its track record of creating value.
Despite these differences, Buffett's and Pabrai's philosophies are ultimately aligned. Both investors believe that the key to successful investing is to buy great companies at attractive prices and hold them for the long term.
Conclusion
Warren Buffett and Mohnish Pabrai are two of the most respected investors in the world. Their investment philosophies are based on sound principles and have been proven to be successful over the long term. Investors who follow their advice are likely to achieve superior investment results.