Price is what you pay. Value is what you get

If you work with me already, you will know that investing is one of the cornerstones of building wealth in modern society.

With Warren Buffett recently making the headlines after announcing he’s retiring as CEO and chairperson of Berkshire Hathaway, this feels like the perfect time to reflect on some of his more famous insights.

During Buffett’s time at the helm, Berkshire Hathaway delivered an average annual return of 19.9% – almost double the S&P 500’s 10.4% [1]. Now aged 95, his decision to step down certainly marks the end of an era – yet some of his words remain as relevant as ever for both new and seasoned investors.

This month, I’ve revisited some of Buffett’s more insightful investment quotes and expanded what they could mean for you.

1. “Price is what you pay; value is what you get”

Buffett thought it incredibly important to understand what he was buying before making a decision.

The lesson here is that the share price on your investment app might not tell a company’s whole story.

Indeed, it could be worth taking more time to assess the quality of your investments. The ethics of a company and the reliability of its market, as well as its current share price, could tell you its actual value and whether this value can translate into a meaningful wealth-building opportunity for you.

To use a current example, there’s plenty of speculation about AI companies and whether their share prices have been artificially inflated by overzealous investors. These companies could prove very valuable over the long term – but many will likely fail. Focus on overall value rather than price, and you’ll be able to make more informed choices.

2. “Someone is sitting in the shade today because someone else planted a tree a long time ago”

Achieving financial stability is a task that would be almost impossible overnight. It’s often built through patience, discipline, and careful planning, much like the tree that takes years to grow before it can offer shade.

The data tells us that long-term investments have historically paid off. Although short-term downturns are inevitable, those who have held onto their portfolios for several decades usually reap significant rewards. [2]

It’s vital to remember that the actions you take today will shape your finances for years to come. Investing consistently – no matter what the markets are doing – may offer future generations the “shade” they need to live comfortably.

3. “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes”

Patience is perhaps one of your most valuable tools as an investor. Markets will always move up and down, but it’s time in the market, not timing the market, that is likely to deliver your desired results.

As such, it’s important to take a long-term view when you invest, with the intention of holding an asset for years, or even decades.

Granted, it can be tempting to sell your investments in a knee-jerk reaction to downturns or headlines that spook you. However, doing so is more likely to turn paper losses into real ones. On the other side of the coin, you could find fast-growing stocks tempting, overweighting your portfolio on a whim without considering the long-term impact.

Just remember – distracting headlines could tempt you to own a stock “for 10 minutes” when in fact, holding your portfolio for several years may allow it to grow and recover from short-term shocks.

4. “Be fearful when others are greedy, and be greedy when others are fearful”

When markets fluctuate and you’re unsure what to do, it’s often easier to simply follow the crowd.

However, this behaviour – often referred to as “herd mentality” – could mean you make decisions that don’t reflect your unique circumstances or goals.

When certain stocks are the subject of media hype, ask yourself why they are experiencing a sudden rise in value, and whether this is being driven purely by speculation. That’s “being fearful when others are greedy” in action.

Likewise, if investors panic and start offloading shares during a period of turbulence, that’s when being “greedy when others are fearful” could work wonders. Stay the course and keep your mind focused on the long term.

5. “Risk comes from not knowing what you’re doing”

Many people avoid investing because they’re worried about capital loss. While risk is a vital consideration for all investors, the number one risk you’ll face is not knowing what you’re investing in and why.

Buffett has shown that both knowledge and discipline are needed when you invest. Before you commit to any asset, it’s vital to understand what it is, how it works, and whether it fits into your portfolio.

If you’d like to review your current investments or determine whether your portfolio aligns with your goals, I’d be happy to help. Email rory@brazilfinancial.ie or call + 353 86 824 7542.

Please note

This article is for information only. It does not constitute advice.

It describes financial planning services that Brazil Financial Planning can offer to you.

Brazil Financial Planning Ltd T/A Brazil Financial is regulated by the Central Bank of Ireland. Registered No. 477512.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. 

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Sources

[1] Investopedia, ‘The secret to Warren Buffett’s longevity in investing’.

[2] Forbes, ‘9 Charts Every Investor Should See’.