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The Smartest Thing Warren Buffett Ever Said

Wednesday - 5/1/2013, 5:02am  ET

Berkshire Hathaway   CEO Warren Buffett is never shy about sharing wisdom. The brilliant investor is known for witty quips ("Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1.") as well as longer parables (such as "The Superinvestors of Graham-and-Doddsville").

But could any one of Buffett's gems of wisdom be the best? Could there be one Buffett-ism to rule them all? To find out, I grabbed five game Fools to weigh in.

Scott Phillips: In trying to distill Warren Buffett's brilliance, many Buffett-watchers lean heavily on the Oracle of Omaha's formative years at the metaphorical knee of his mentor, the famed value investor Ben Graham.

Graham was notoriously mechanical in his investing; seeking to find companies with specific financial characteristics, then buy them in bulk. However, Buffett -- particularly after he met his business partner and Berkshire Vice-Chairman Charlie Munger -- is far from the myopically mechanical investor some would paint him to be. Indeed, in his 1982 Chairman's letter to Berkshire Hathaway shareholders, Warren Buffett wrote:

Managers and investors alike must understand that accounting numbers are the beginning, not the end, of business valuation.

Yes, the reported numbers matter -- a lot -- but they are a guide to starting to understand the business, not neatly packaged answers.

Buffett's brilliance was in taking the fundamental lessons he'd learned from Graham and improving on them by understanding the factors that build and sustain great companies. Buffett has said he has one message for the managers of Berkshire's subsidiaries -- "widen the moat." He wants them to focus on doing those things that make the business stronger and less vulnerable to the competition. Talking about Coca-Cola , he said "Give me $10 billion and how much can I hurt Coca-Cola? I can't do it." That fact won't show up in black and white on the financial statements, but is far more important than the numbers themselves.

Jason Moser: I had the great fortune of attending the Berkshire meeting last year, and while I've followed Buffett for a while now, something he said during the Q&A session last year resonated with me. Someone asked him his opinion on gold, to which he replied (and I'm paraphrasing):

Let's say you own an ounce of gold today. You hold it, love it and caress it. In 50 years you'll still own an ounce of gold. Now say you own 100 acres of farmland today. In 50 years you'll still own that same 100 acres of farmland. The difference is you'll also have had the time to produce crops to grow more stuff to buy more farmland and whatever else you want. In other words, there's a tremendous cycle of production there. Gold on the other hand is more or less an unproductive asset.

This, to me, is key to why Buffett has been such a successful investor all these years. Not only is he able to focus on longer periods of time, but also the ever-so-valuable cycles of production that can occur during that time. It should therefore come as no surprise that if you gave me a bar of gold today, I would sell it and go buy stocks.

Tim Beyers: While Buffett is often thought of as the patron saint of value investing, I find him in many ways to be the quintessential Rule Breaker. Just listen to what he said at last year's confab:

I would never spend a lot of time valuing declining businesses. The same amount of energy and intelligence brought to other businesses is just going to work out better.

I'd never have believed it had I not heard it myself. After all, what is value investing if not for figuring the worth of an oversold business that may, in fact, be in decline?

Buffett's lesson here, I think, is to be open to a broad range of stock ideas. Don't merely look for a low price-to-earnings ratio. Look instead for businesses that are surprisingly strong defenders of the majority share of a profitable niche, such as Walt Disney . The House of Mouse isn't cheap at 20 times earnings, but can you name an enterprise with more big-name brands under its belt? Marvel, Star Wars, Pixar, and all those princesses that seven-year-old girls worship? Don't be surprised if Berkshire takes a close-up tour of the Magic Kingdom.

Jacob Roche: 

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

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