It is Tuesday yet again, time for a Warren Buffett quote: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” (Motley Fool)
Warren Buffett started out his career looking for substantial value. Often that would take him into companies with some possibility at great prices. However, this would lead to quite a bit of work to make the company reasonably profitable.
When Warren Buffett Bought Berkshire Hathaway
Warren Buffett bought the majority of shares in Berkshire Hathaway in 1965 (Investors Friend). Berkshire was a textile manufacturer and the industry was declining. But Buffett saw something in the company… assets. The company had more assets than its market cap. But bringing the business back to reasonable profitability was a lot of heartache and it did not earn him many friends.
What Warren Buffett Does Today
Rather than going after a declining company on the cheap, the last three decades has seen Buffett buy shares in companies with really great businesses, solid management, difficult to copy products, and within growing marketplaces. This has definitely worked to his advantage, as he often acquires companies and lets the existing management do what they do great.
Does Buying Wonderful Companies At Good Prices Work For Us?
Buying shares in great companies will definitely work to our advantage. However, getting involved early before they hit serious growth is one thing we should definitely shoot for. Large cap stocks are nice to have in the portfolio, but they honestly move very little, so we are not likely to see exciting growth. One thing large cap stocks do give us in the ability to buy and hold for long periods of time.
Yes I think we are looking to own wonderful companies at good prices. Just not always the largest ones.