The Wisdom of Warren Buffett

To many on Wall Street, both companies and stocks are seen only as raw materials for trades.


Professional money managers tend not to see companies and stocks as businesses, but as bouncing numbers on a screen on which they can place bets. Warren makes his money off these gamblers when they oversell a business and drive down a company's share price to the point that it is cheap relative to the long-term value of the underlying business.

The casino aspect of the stock market has been in place since its conception; people simply like to gamble, it makes things exciting. With stocks you can borrow money, lots of money, to place your bets, which is great if things go your way, but real bad if they go against you. This explains why there are such wild price swings -- sometimes money managers have to get out regardless of the price of the shares.

As Warren said, "Think about a burning theater. The only way to leave your seat in a burning financial market is to find someone to take your seat, which isn't easy." This, of course, creates all kinds of buying opportunities for those who know the true long-term value of a business.

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