Explanation on Warren Buffett's famous quote
In the short term the market is a popularity contest In the short run which in value investing time can extend even to many years, an equity is subject to the vicissitudes of the whims by every scale of panic and elation. This can be seen by examining the daily chart of any large cap equity in the US.  Even such large holdings can be affected by any set of fear and greed in the market and in the subset of traders trading the equity. Quantitatively, this statement means that equities experience high variance in the short rurn. in the long term [the stock market] is a weighing machine In the long run which in value investing time can extend to even multiple decades, an equity is more or less subject only to the variance of the underlying value. This can be seen by examining the annual chart of even the smallest cap equities over decades.  An equity over such time periods is almost exclusively affected by its changes in value. Quantitatively, this statement means that equities experience low variance in the long run. I think he was trying to say that in the long term the company's fundamental intrinsic value will drive the price of a company's stock, but in the short term stocks move on emotion and publicity that are not necessarily a reflection of their true underlying value.
"What you are seeking is termed ""Alpha"", the mispricing in the market. Specifically, Alpha is the price error when compared to the market return and beta of the stock. Modern portfolio theory suggests that a portfolio with good Alpha will maximize profits for a given risk tolerance. The efficient market hypotheses suggests that Alpha is always zero. The EMH also suggests that taxes, human effort and information propagation delays don't exist (i.e. it is wrong). For someone who is right, the best specific answer to your question is presented Ben Graham's book ""The Intelligent Investor"" (starting on page 280). And even still, that book is better summarized by Warren Buffet (see Berkshire Hathaway Letters to Shareholders). In a great disservice to the geniuses above it can be summarized much further: closely follow the company to estimate its true earnings potential... and ignore the prices the market is quoting. ADDENDUM: And when you have earnings potential, calculate value with: NPV = sum(each income piece/(1+cost of capital)^time) Update: See http://finance.fortune.cnn.com/2014/02/24/warren-buffett-berkshire-letter/ ""When Charlie Munger and I buy stocks..."" for these same ideas right from the horse's mouth" Perhaps something else comes with the bond so it is a convertible security. Buffett's Negative-Interest Issues Sell Well from 2002 would be an example from more than a decade ago: Warren E. Buffett's new negative-interest bonds sold rapidly   yesterday, even after the size of the offering was increased to $400   million from $250 million, with a possible offering of another $100   million to cover overallotments. The new Berkshire Hathaway securities, which were underwritten by   Goldman, Sachs at the suggestion of Mr. Buffett, Berkshire's chairman   and chief executive, pay 3 percent annual interest. But they are   coupled with five-year warrants to buy Berkshire stock at $89,585, a   15 percent premium to Berkshire's stock price Tuesday of $77,900. To   maintain the warrant, an investor is required to pay 3.75 percent each   year. That provides a net negative rate of 0.75 percent. Warren Buffett answered this question very well at the 2009 Berkshire Hathaway annual meeting.  He said that it was important to read everything you can about investing.  What you will find is that you will have a number of competing ideas in your head.  You will need to think these through and find the best way to solve them that fits you. You will mostly learn how to invest through good examples.  There are fewer good examples out there than you might think, given how many books there are and how many people get paid to give advice in this area.  If you want to see how professional investors actually think about specific investments, over a thousand investment examples can be found at www.valueinvestorsclub.com, just login as a guest.  The site is run by Joel Greenblatt (you would benefit from reading his books also), and it will give you a sense of the work that investors put into their research. Good luck. It is only wise to invest in what you understand (ala Warren Buffet style). Depending on how much money you have, you might see fit to consult a good independent financial advisor instead of seeking advice from this website. A famous quote goes: “Those who say, do not know. Those who know, do not say” &gt; but most recognize that money can't buy happiness.  The acquisition of money is quite exhilarating though. People don't easily part with it, so it feels like you're doing something pretty awesome every time new money flows your way.  Money is like a drug. That feeling quickly fades, leaving you wanting more. I imagine that's why people who have all the money they could ever possibly spend still seek more. While Warren Buffett is an amazing investor, he does have the benefit of having his working career start around mid-WW2 and ride the baby boomer phenomena afterward.  While there were bear blips in the past decades, there never really was much of a bear market outside the 70s energy crisis and inflation of the early 80s that nevertheless still could be leveraged for gains unlike the Great Depression.  The question really is, will the next generation be so lucky?  Idk, could be but I'm a doubter.  He's right in his criticism (I wouldn't bet my retirment on Bitcoin) but the same critique could apply to the US dollar in parts (which admittedly has the fundamental strength as being accepted for US taxes, but as a consequence also severe drawback in being tied to the economic welfare and trust in the US Government).  In the end, bitcoin and Warren Buffett are at fundamental odds.  Bitcoins is for, among other niches, Currency and Market pessimists (around the world btw and not just US-centric) and Warren Buffet is a product of his time and generally an US-centered optimist. &gt;*Every economist knows that if you allow it, banks will max out their leverage*  So to follow that argument then we should push for increased regulation as the banks/free market will not police themselves.  The flood gate referred to was a removal of previous regulations restricting lending practices. (Also -8year delay in impact doesn't really lend to the flood gate analogy - more like they increased the flow behind the dam) "The first article you link clearly refers to Warren Buffet and doesn't, in regard to taxes, refer in any way to Berkshire Hathaway. The second article you link is titled, ""Ways Professional Traders Can Save Big At Tax Time."" Berkshire Hathaway is not a firm primarily engaged in trading. It is engaged in investing in companies that it feels offer long-term growth and appreciation. In some cases, their investment is in the entire company; in others, a very large percentage of its total capitalization. Trading, on the other hand, involves buying stocks, bonds, futures, etc. for near-term resale, ideally at a profit. Stock speculation is a risky and complex occupation because the direction of the markets are generally unpredictable and lack transparency.  As has been mentioned above, we are confident that Berkshire Hathaway use every technique at its disposal to reduce its tax burden. I am confident, as well, that they spend considerable effort and expense to be certain that they are never discovered making errors in their tax returns."