The nine most important words ever written about investing - "Investing is most intelligent when it is most businesslike."

A person who holds stocks has the choice to become

• the owner of a business or 
• the bearer of tradable securities.

Bearer of tradable securities

Owners of common stocks who perceive that they merely own a piece of paper are far removed from the company's financial statements.

• These owners behave as if the market's ever-changing price is a more accurate reflection of their stock's value than the businesses' balance sheet and income statement.  
• They draw or discard stocks like playing cards.

Owner of a business

For Buffett, the activities of a common-stock holder and a businessperson are intimately connected.  Both should look at ownership of a business in the same way.

"I am a better investor because I am a businessman, and a better businessman because I am an investor.  (Warren Buffett)

Buffett's investment philosophy is the clear understanding that, by owning shares of stock, he owns businesses, not pieces of paper.  

The idea of buying stock without understanding the company's operating functions is unconscionable, says Buffett.  These include:

• a company's products and services, 
• labour relations, 
• raw material expenses, 
• plant and equipment, 
• capital reinvestment requirements, 
• inventories,
•  receivables, and 
• working capital needs.

This mentality is reflected in the attitude of a business owner as opposed to a stock owner.




Types of companies to purchase in the future

Buffett is often asked what types of companies he will purchase in the future.

First, he says, he will avoid commodity businesses and managers in which he has little confidence.

What he will purchase is the type of company that

• he understands, 
• one that possesses good economics and 
• is run by trustworthy managers.

"A good business is not always a good purchase," Buffett says, "although it is a good place to look for one."