In this interview with Fortune Magazine, Warren Buffett advises against speculative investing and emphasizes the importance of understanding the assets you buy. He suggests evaluating investments like a farm, apartment, or company based on their productive potential and expected returns.
For a farm, calculate expected crop yields and their value; for an apartment, consider rental income minus taxes and expenses. In contrast, he warns against impulsive stock purchases influenced by others’ opinions.
Buffett stresses focusing on the intrinsic value and productive ability of assets rather than short-term price movements. By paying a fair price for valuable assets, investors can achieve consistent long-term success.
Here’s an excerpt from the interview:
The biggest mistake people make is listening to a lot of other people and buying something because they think it’s going to go up next week or next month, for whatever reason people give you. You should understand what you buy.
If you buy a farm, you look at the farm and say, “I expect to get so many bushels per acre of corn or soybeans.” Then you figure out how much that will be worth and you figure out what the price should be.
If you buy an apartment house, you should look at what the rentals will be, what the taxes and expenses will be, and then decide how much income you’ll have. You pay a fair price for that.
But with stocks, their neighbor whispers something to them and then run out and spend money that it took them years to earn.
You always want to look at the productive ability of the assets you’re buying, whether it’s a farm, an apartment house, or a company. The company is represented by a stock. If you always get your money’s worth, you’ll do very well.
You can watch the entire interview here:
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