UNDERSTAND

“The noblest pleasure is the joy of understanding.” Leonardo Da Vinci

“Never invest in a business you cannot understand.” Warren Buffett

"First understand the business and then understand the stock." Mario Gabelli

"What I want to do is understand the business." Marty Whitman

“Know what you own, and know why you own it.” Peter Lynch

“Why should I expect to make money in anything I can’t understand?” Warren Buffett

"Investing is putting out money to be sure of getting more back later at an appropriate rate. And to do that you have to understand what you are doing at any time. You have to understand the business. You can understand some businesses but not all businesses." Warren Buffett

“If you understand the business, you ought to know what the business is worth. If you don’t understand the business then you probably wouldn’t know how to value it.” Mohnish Pabrai

“If the estimation of intrinsic value is deemed substantially unreliable, there is simply no way to determine the extent to which the current market price affords a margin of safety.” Frank Martin

“If you get into some complicated business, you can get a report that’s 1,000 pages thick and you can have Ph.D’s working on it. But it doesn’t mean anything. What you’ll have is a report. But you won’t have any better understanding of that business and what it’s going to look like in 10 or 15 years. The thing to do is avoid being wrong.” Warren Buffett

“If we don’t know what something is worth, how can we possibly determine whether the price is cheap or expensive?” Frank Martin

“If you don’t fully understand it, don’t invest.” Terry Smith

“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now.” Warren Buffett

“We like businesses that are simple to understand and simple to discuss.” Larry Robbins

"A big limiting factor is it has to be something we can understand. I mean, that eliminates 95 percent of the businesses." Warren Buffett

“First and foremost, the obvious: it is important to gain a thorough understanding as to what it is you’re investing in.” James Anderson

"It's really a combination of understanding businesses and understanding people. We've probably done a better job of understanding businesses, but we're still learning about both of them." Lou Simpson

“I don’t know beans about options: puts and calls and strips and straddles and all this other crap. All I do is pick stocks, and I never buy anything I don’t understand.” Ken Langone

"I would say anybody that's investing in something they consider opaque should just walk away, I mean, whether it's a common stock - or you know, a new invention or whatever it may be." Warren Buffett

“The Austrian philosopher Ludwig Wittgenstein said, ‘To understand is to know what to do.’ Could there be anything that sounds simpler than that? And yet it’s a genius line, to understand is to know what to do. How many mistakes do you make when you understand something? You don’t make any mistakes. Where do mistakes come from? They come from blind spots, a lack of understanding.” Peter Kaufman

"First and foremost make sure they [you] really understand what the company does at a very simple level. So, for example, who buys from the company, Why does a customer buy from the company? Why does a customer fire this company and buy from a competitor? and vice versa: Why do they fire a competitor and move on to buy from this company? If we took at a company like Hershey's Chocolate, you'd be able to answer that question easily. If we took a company with complicated software or business processes or other things that maybe aren't clear to people in the field it is less obvious, right? So, first and foremost, I think people need to have a very good basic understanding of why it is that the company exists and what customer base do they serve? And what do they offer the customer base that their competitors don't? Trying to get to the concept of, what is this company's advantage? And if you can't define very simply what this company's competitive advantage is, I think that's really a qualifying first step." Ken Shubin Stein

“You’ve got to first of all look at the business and get a sense you reasonably understand it. Does it appear to be a sustainable business over time. We’re not trying to be exactly right on the EPS in 18 months time but saying to ourselves … is it the kind of the business that in 3 years time there is a strong likelihood that 1) it will still be there, and 2) it will be somewhat bigger and more profitable business than it is today.” William Browne

"The first thing we do is a first-principle exercise of trying to understand what the business is solving for. What entropy exists today that they are going to reduce for the benefit of their customers and all counter-parties of the organization? MasterCard and Visa have been devouring the entropy of cash toward more efficient credit and debit transactions. That's the number one thing that we ask ourselves." Christopher Begg

"Fortunately, I never invested much money in things I didn't understand." Peter Lynch

"Unless you can visualize something you can't obtain it. Therefore, if you cannot understand a company's business or its purpose, avoid it. There are plenty of fish in the ocean. As in driving, don't invest beyond the range of your headlights." Bennett Goodspeed

"No one should ever buy a stock without knowing as much as possible about the company that issues it." J Paul Getty

"We focus on good businesses we understand because it makes everything easier." John Fox

“The advantage of low-tech stuff for us is that we think we understand it fairly well. The other stuff we don’t. And we’d rather deal with what we understand.” Charlie Munger

“We try to stick to businesses we believe we understand. That means they must be relatively simple and stable in character.” Warren Buffett

“I look for great companies in businesses I understand and which I believe have competitive advantages.” Francois Rochon

“I will not abandon a previous approach whose logic I understand even though it may mean foregoing large and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully and which, possibly, could lead to substantial permanent loss of capital.” Warren Buffett

“First and foremost, we’re trying to understand the business.” Lee Ainslee

"The first thing, is it an easily understandable business." Kevin Daly

"As an investor you want to find businesses that you know, you understand and you like so you can have deep insights that can profit the investor." Thomas Russo

"Investing is tough enough when you think you know something. When you have to start guessing, forget it." Bruce Berkowitz

"Over an investing lifetime, passing on things you do not understand is in the aggregate the best policy, even if it is not always the best policy." Robert Vinall

“Understand what you own. This is the simplest lesson of all, and the easiest to violate. In those cases where I have violated this lesson I have never made money. I find this lesson the hardest because nobody wants to be left out of a hot issue or a new way to make money. It's the instant gratification gene in all of us.” David Ellison

“The most important thing in investing is to know what you’re invested in, and if your confident in the outcome it’s important to stay true to your position.” John Paulson

"The first rule of trading - there are probably many first rules - is don't get caught in a situation in which you can lose a great deal of money for reasons you don't understand." Bruce Kovner

"We are seeking a level of Mastery in understanding the fundamental truths that enable a business to earn superior returns, with a healthy margin of safety over the longest duration possible." Christopher Begg

"I need to get a general understanding of what a business does in a few minutes. If I cannot generally grasp how it makes money and how it works in I would say the first 30 minutes, then in general I am wasting my time. I may not understand all the intricate details but I should at a high level understand." Mohnish Pabrai

"I first try to understand if it's a good business. Then, if I don't understand the business, can I do the work to understand it. Those are the key things we think about first." Jeff Gramm

"I like businesses that I can understand. Let‘s start with that. That narrows it down by 90%. There are all types of things I don‘t understand, but fortunately, there is enough I do understand." Warren Buffett

"The source of a business' strength may not always be obvious. Therefore, understanding that first leg of the stool, the business model, has its own level of difficulty. It's also where the fun is, I might add, and we believe it is absolutely critical." Chuck Akre

"I think that in order to be a great investor, it's very helpful to understand business and how to run a business." Bill Ackman

"You have to be an expert in what you invest in. You need to understand why you are invested. If you don't understand why you are in a trade, you won't understand when it is the right time to sell, which means you will only sell when the price action scares you. Most of the time when price action scares you, it is a buying opportunity, not a sell indicator." Martin Taylor

“To have enough conviction to hold a stock when the market is moving against you, you have to be able to understand it, which is why we endeavor to remain within our circle of competence.” Jake Rosser

"The key thing is when the stock goes from 10 to 6, if you understand what they do and you know they're financially solvent you're fine. But if you don't understand it you'll probably going to do the wrong thing. You know if you understand exactly what they're doing it's gone 10 to six you'll buy more. If you're confused to start with you'll say well there must be something wrong here. And then you're out." Peter Lynch

"We have on occasion been able to add to positions in time of turmoil, because the confidence in understanding a business allowed us to see through all the noise in the marketplace." Chuck Akre

"The further you stray from stocks you really understand, the more likely you are gambling rather than investing." Ralph Wanger

"There are two principal mistakes that nearly all amateurs in the stock market make. The first is to have an inexact knowledge of the securities in which one is dealing, to know too little about a company's management, its earnings and prospects for future growth. The second mistake is to trade beyond one's financial resources, to try to run up a fortune on a shoestring." Bernard Baruch

"I like to stick to businesses we understand and for which there is an ongoing need. If there is something you do not understand or are not comfortable with, in the no-thank-you pile it should go." Chris Browne

"Investment must be rational; if you can't understand it, don't do it." Warren Buffett

"The best way to keep downside risks under control is by sticking to simple ideas you understand well." Allan Mecham

"I would rather stay away from businesses that I don't understand. When I say I don't understand I mean I do understand what a certain business does and how it makes money, but I don't understand what it will look like in the next five to ten years. When I say that I understand a business I mean I have a reasonable fix on the earning power of the business in five or ten years - so I've got some notion on how the industry will evolve and where the company will sit in the industry in the future.” Warren Buffett

“Don’t do things you don’t understand. And remember that understanding something means being able to make accurate forecasts over a long period of time with a high degree of confidence.” Li Lu

"Understand the nature of the companies you own and the specific reasons for holding the stock ("It is really going up!" doesn't count)" Peter Lynch

"I don't invest in things I don't understand. If I don't understand something, I've learned to walk away." Bruce Berkowitz

"You play an easier game when your'e very selective and you just go for companies you understand." Francois Rochon

"There are two ways to get clobbered in investing: by over-paying or by investing in things you don't understand." Allan Mecham

"We're always looking to understand the best businesses in the world, regardless of price. We want to know them well so that when there is a potential opportunity, whether it be an overall market sell-off or something specific that might be temporary, we’re aware." Christopher Begg

“Try to stay away from things that don’t make sense. If I don’t understand something I’m not going go invest in it because other people are saying it’s fine. I want to invest in things that I understand and If I don’t think I’m getting paid enough for that risk then I’m going to stay away.” Marc Lasry

“The best way to avoid unnecessary losses is by understanding what you own (or might own) – the business and its industry.” Steve Romick

"It goes back to understanding the business. Once you have that understanding you can extend it to understanding an industry. A certain industry might have characteristics that make it different than others. In certain industries you might have better prospects than others. Find the best of the players in the industry and the worst players. And see how they perform over time. And if the worst players perform reasonably well relative to the great players — that tells you something about the characteristics about the industry. That is not always the case but it is often the case. Certain industries are better than others.
So if you can understand a business inside out you can then eventually extend that to understanding an industry. If you can get that insight, it is enormously beneficial. If you can then concentrate that on a business with superior economics in an industry with superior economics with good management and you get them at the right price — the chances are that you can stay for a very long time." Li Lu

"If you don't understand something - I mean truly understand it - you will never be successful." Jim Rogers

“Choosing individual stocks without any idea of what you're looking for is like running through a dynamite factory with a burning match. You may live, but you're still an idiot.” Joel Greenblatt

“The way you learn about businesses is by absorbing information about them, thinking, deciding what counts and what doesn’t count, relating one thing to another. And, you know, that’s the job. And you can’t get that by looking at a bunch of little numbers on a chart bobbing up and down about a — or reading, you know, market commentary and periodicals or anything of the sort. That just won’t do it. You’ve got to understand the businesses. That’s where it all begins and ends.” Warren Buffett

"We have to have an idea that is A, a good idea, and B, a good idea that we can understand. It’s just that simple. And so those filters are filters against consequences from our own lack of talent." Charlie Munger

“Some businesses are a lot easier to understand than others. And Charlie and I don’t like difficult problems. I mean, if something is hard to figure, you know, we’d rather multiply by three than by pi. I mean it’s just easier for us.” Warren Buffett

"If we have any strength, it's really in understanding businesses and, hopefully, management." Lou Simpson

"The biggest lesson from my father was that investing was all about businesses and people. He’d talk about McDonald’s vs. Burger King or the rise of Nike or how Steve Jobs started Apple, all in a way that was very interesting for a kid. There was nothing about P/E ratios or market caps – things he figured we could learn later. He wanted us to understand the essence of business and what made a business successful." Christopher Davis

"We try not to get into things that we don’t understand. And if we’re going to lose your money, we want to be able to come before you, you know, next year and tell you we lost your money because we thought this and it turned out to be that. We don’t want to say, you know, somebody wrote us a report saying if, you know, “This is what’s going to happen,” in some field that we don’t understand and that, therefore, we lost your money by following someone else’s advice. So, we won’t do it ourselves." Warren Buffett

“The question is how do you decide if something goes down a lot, that you decide you’re wrong and leave, or do you decide you’re right and want to add to it? I think in public security, what we try to do is understand what the market is thinking. Understand why they’re down. To me, that’s an important part of investing in public markets, is understanding the psychology of the market. By the way, I don’t necessarily do this by reading Wall Street research. I don’t actually think that’s a helpful thing to do. I think the way I do it, is to understand the business and then understand where it’s being priced and then understanding effectively what the volatility and the drivers or the earnings going forward are.” David Abrams