5 top tips from 5 great investors

We all benefit from the wise words of the great investors, and I think it helps to be reminded of them from time to time.

Here are five of my favourite quotes, from five of my favourite investors…

Although it’s easy to forget sometimes, a share is not a lottery ticket… it’s part-ownership of a business — Peter Lynch

I often come across people who won’t invest in the stock market because they “don’t gamble“. And if you’re trying to get in and out of get-rich-quick shares as quickly as possible, then you’re gambling — and you’ll almost certainly lose.

But is owning and running a corner shop the same as gambling? How about owning and running a large successful multinational? Or owning just a small portion of a large successful multinational that’s being run by competent managers?

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price — Warren Buffett

Of all of Warren Buffett’s great one-liners, this is the one that I think most investors forget most often, and I often see people chasing rock-bottom bargains rather than companies that will steadily grow their wealth over decades.

A share that has fallen dramatically and can be picked up for only a few pennies might actually be a bargain. But a one-off recovery is only going to get you so far, and you’ll need lots of repetitions over your lifetime — and you’ll be burned by plenty that crash. Far better, then, to put the bulk of your cash into top class, cash-generative, dividend-paying shares at fair prices, and reinvest the dividends.

The stock investor is neither right or wrong because others agreed or disagreed with him; he is right because his facts and analysis are right — Benjamin Graham

You must have heard of the South-Sea Bubble, Dutch tulip mania, and the dot com bubble? They were textbook examples of investors piling in just because everybody else was, but it happens all the time, though perhaps with a bit less drama.

We see investing fads and fashions coming and going all the time, with shares being talked about by everyone and then forgotten when the next big thing comes around. And only too often, investors are looking for reinforcement of their own opinions rather than fact-based critique.

I am […] absolutely convinced that, in the long-term, valuation and fundamentals of a company are the only things that matter and, like gravity, those things will reassert themselves — Neil Woodford

The efficient market hypothesis suggests that, as all known information about a company at any one time is analyzed, the market will produce a rational price for a share and you just can’t beat it. That’s obvious nonsense in the short term, as there are all sorts of stupid emotional reasons for people pushing shares up to ridiculous prices or running scared and forcing them down.

But over the long term, one of the few things that we can be confident of is that a company’s fundamentals will win out, and that’s all that really matters.

Invest at the point of maximum pessimism — Sir John Templeton

This is one of my favourite investing maxims of all time, and it’s been at the forefront of my mind through all of the economic turmoil of the past few years. Having a banking crisis, are we? Well, when everyone is selling their banking shares as if it’s the end of the world, that’s the time to buy. Oil is how cheap, and how much is it hurting big oil company shares? Time to get in, then, and buy when everyone else is selling.

And that reminds me of another quote from Benjamin Graham — “The intelligent investor is a realist who sells to optimists and buys from pessimists.”

Put these quotes to good use

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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.