Warren Buffett is one of the most quoted businessmen in the world. No matter what advice you’re looking for, there’s a good chance that the down-to-earth Warren Buffett has something to say about it. However, in being so often quoted and re-quoted (and sometimes even misquoted) the Oracle of Omaha has some advice that just seems to get lost in translation.
While the list of things that people take out of context and misconstrue is long, these five quotes are the ones that I hear over and over and, sadly, people widely misunderstand the meaning behind them.
“Beware of geeks bearing formulas.”
What people hear: The formulas and numbers don’t matter
What he actually meant: Be skeptical and look at all of the factors; not just the numbers. They do matter, but they aren’t the most or only important thing when evaluating a business.
“The difference between successful people and really successful people is that really successful people say no to almost everything.”
What people hear: Doing nothing is fine—preferable, actually
What he actually meant: Stay focused on what is really important to you. It’s okay to say no; don’t over schedule yourself or let other people dictate what you do with your time just because you feel like you should.
“Success in investing doesn’t correlate with IQ once you’re above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.”
What people hear: You don’t have to be smart or educated to be good at investing
What he actually meant: Anyone can do investing; all it takes is willingness to learn and the right temperament. That doesn’t mean you can be uneducated and successful; only that you don’t have to be a genius.
“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
What people hear: Buy any company that is in trouble, because it’s cheaper
What he actually meant: Buy strong companies whose prices are lower due to a momentary problem. If without that problem, they would be doing great, then they’re a good investment.
“Diversification is protection against ignorance. It makes very little sense for those who know what they’re doing.”
What people hear: Diversification is not necessary.
What he actually meant: Diversification protects your portfolio against risk; if you are educated and make good decisions, then you don’t have to diversify as much. A few different areas is enough to protect from basic market fluctuations.