If you read any investment advice coming from Mr. Buffett, you’ll encounter the same basic rule: Always invest in great companies selling at a fair price. We spent a good deal of time talking about value. That’s the way you pick stocks; Mr. Buffett believes that it’s better to invest in a great company at a fair price than to invest in a fair company at a great price. The reason for this is that great companies prosper and grow.
As companies grow and expand, their top and bottom line get bigger. When the bottom line gets bigger, the stock goes up in value. That is how your money compounds when invested in stocks. If you invest in companies that can’t grow for some reason, the stock price will stall or fall, and your money will not grow. When you buy common stock in a company, you’ve hitched your money to the financial future of the company. You’d better choose a good one!