Rule No. 1: Never lose money.

Rule No. 2: Never forget rule #1.

Ensure that you have an adequate margin of safety. Price is what you pay, value is what you get. All intelligent investing is value investing – acquiring more than you are paying for. You must value the business in order to value the stock.

It’s far better to buy a wonderful company at a fair price, than a fair company at a wonderful price. Time is the friend of the wonderful company, the enemy of the mediocre. When a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. Over the long term, it’s hard for a stock to earn a much better return than the business, which underlies it, earns. If the business earns six percent on capital over forty years and you hold it for those forty years, you’re not going to make much different than a six percent return – even if you originally buy it at a huge discount. Conversely, if a business earns eighteen percent on capital over twenty or thirty years, even if you pay an expensive looking price, you’ll end up with one hell of a result.

Wide diversification is only required when investors do not understand what they are doing. Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful”. You only have to do a very few things right in your life so long as you don’t do too many things wrong. Think of investing as if you could only make 20 investments in your lifetime. Mimicking the herd invites regression to the mean.

A public-opinion poll is no substitute for thought. In the short run, the stock market is a voting machine. In the long run, it is a weighing machine. If a business does well, the stock eventually follows. The number one idea is to view a stock as an ownership of the business and to judge the staying quality of the business in terms of its competitive advantage.

Stay within your circle of competence.

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years. Our favorite holding period is forever.

We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.

I am not looking for a needle in a haystack. I am looking for haystacks. There seems to be some perverse human characteristic that likes to make easy things difficult. The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway.