Warren Buffett compares buying stocks to being a farmer

imagine for a moment that you decided to invest money now and you bought a farm and the farmland around here let's say you about 160 acres and you bought it at X per share urban per acre and the farmer next you had a hundred and sixty identical acres same contour you know same quality of soil quality some it was it was identical and that farmer next door to you it was a very peculiar character because every day that farmer when the Dinoco farm said I'll sell you my farm or I'll buy your farm at a certain price which he would name now that's a very obliging neighbor I mean that's got to be a plus to have a fellow like that with the next farm ah you don't get that with farms you get it with stocks do you want a shares of General Motors and on Monday morning somebody will buy your hundred shares or sell you another hundred shares at exactly the same price and that goes on five days a week but just imagine if you had a farmer doing that when you bought the farm you look to what the farm would produce that was what went through your mind you are saying to yourself I'm paying X dollars per acre I think I'll get so many bushels of corn or soy beans on average some years good some years bad some years the price will be good some years the price will be bad etc but you think about the potential of the farm and now you get this idiot that buys a farm next to you and and on top of that he's sort of a manic-depressive and drinks maybe smokes a little pot so his numbers just go all over the place now the only thing you have to do is to remember that this guy next door is there to serve you and not to instruct you you bought the farm because you thought the farm with had the potential you don't really need a quote on it you know if you bought in with john d rockefeller or andrew carnegie and there were never any quotes while there were quotes later on but but basically you bought into the business and that's what you're doing when you buy stocks but you get this added advantage that you do have this neighbor who you're not obliged to listen to it all was going to give you a price every day and he's going to have his ups and downs and maybe he'll name a selling price the dell biotin in which case you sell if you want to or maybe he'll name a very low price and you'll you'll buy his farm from him but you don't have to and you don't want to put yourself in a position wouldn't organ where you have to sow stocks have this enormous inherent advantage of people yelling out prices all the time to you and many people turn that into a disadvantage and of course many people could profit in one way or another from telling them telling you that they can tell you what this farmers gonna yell out tomorrow or next your neighboring farmers in the ottoman tomorrow or next week or next month there's huge money and so people tell you that it's important and they know and that you should pay a lot of attention to their thoughts about what price changes should be or you tell yourself that there should be this great difference but the truth is if you owned the businesses you liked prior to the virus arriving it changes prices and it changes but nobody's forcing you to sell and if you really like the business and you like the management you're in with and the business hasn't fundamentally changed and I'll get to that a little one report on Berkshire which I will soon I promise the stocks have an enormous advantage and you still can bet on America but you can't debt unless you're willing and have an outlook to independently decide that you want to own a cross-section of America because I don't think most people are in a position to pick single stocks a few maybe but but on balance I think people are much better off buying a cross-section of art and just forgetting about it if you've done that if I had done that when I got out of college it's all I had to do to make a hundred for one and I collect dividends on top of it which increased would increase substantially over time the American tailwind is marvelous American business represents it's gonna have interruptions and you're not going to foresee the interruptions and you don't not want to get yourself in a position where those interruptions can can't affect you either because you're leveraged or because you're psychologically unable to handle looking at a bunch of numbers if you really had a farm and you had this neighbor and Monday offered you two thousand dollars an acre and the next day he offers you twelve hundred dollars an acre and maybe then they after that he offers you eight hundred dollars an acre are you really going to feel that at two thousand dollars an acre when you had evaluated what the farm would produce are you gonna let this guy drive you into thinking I better sell because his number keeps coming in lower all the time it it's a very very very important matter to bring the right psychological approach dawning common stocks but I will tell you if you bet on America and sustain that position for decades you're going to do better than then in my view far better than owning Treasury securities or far better than following people who tell you that what the farmers gonna yell out next there's huge amounts of money that people pay for advice they really don't need hay investors sack Guzman here are you interested in learning more about the markets and getting the latest financial news well then click right here to subscribe to our Yahoo Finance youtube channel get the latest up-to-the-minute market analysis big interviews in the world of finance and information on how to manage your money every day wherever you are

Channel: Yahoo Finance

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Keywords: Yahoo Finance, Personal Finance, Money, Investing, Business, Savings, Investment, Stocks, Bonds, FX, Currencies, NYSE, Equities, News, Politics, Market, Markets, Market Movers, Midday Movers, Buffett, Warren Buffett

Id: _sb6RKc_g_g

Length: 7min 11sec (431 seconds)

Published: Mon May 04 2020