Warren Buffett’s Top 10 Investing Tips
Below is Warren Buffett’s top 10 nuggets focusing solely on his area of unquestioned expertise – investing, NOT trading:
1. The Snowball
Buffett’s definitive biography, “The Snowball,” is titled so because it sums up his life in two words. Over everything else, Buffett believes in the power of patiently compounding over time. In investing, that means starting as early as possible (he started as a pre-teen), avoiding short-term risks even if it means lower possible returns (rule No. 1: never lose money), and letting investing returns build upon itself.
2. The concept of a “moat”
Buffett looks for companies with moats, or sustainable competitive advantages. The strength of Coca-Cola’s moat (its brand) is why he believes a ham sandwich could run it. The stronger a company’s moat, the more likely it will be a leader for decades rather than years. For examples, see some of the other companies Berkshire Hathaway owns a significant stake in: Johnson & Johnson, GEICO, Procter & Gamble, and Wells Fargo.
3. “Leverage is the only way a smart guy can go broke.”
Buffett believes debt is dangerous. That’s why you can have banks rife with Harvard MBA’s (hello, Goldman Sachs and JPMorgan) that are always a few days away from bankruptcy via a crisis in confidence.
4. The concept of inner scorecard vs. outer scorecard
“If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?” Those who answer the latter have an inner scorecard. They’ll have the ability to be a true contrarian, ignoring the world’s judgment and focusing on long-term results.
5. “Intensity is the price of excellence”
When asked what the most important key to his success was, Buffett answered “Focus.” Microsoft founder Bill Gates answered the same way. Buffett reached his current heights not only because of his brilliant mind, but also because of a focus that has had him analyzing stocks for hours on end, just about every day, for decades.
6. A stock is the right to own a little piece of a business
Buffett’s mentor Benjamin Graham’s idea. We frequently divorce a stock from its underlying company, especially when Mr. Market is delivering up a volatile stock price. Remember, though, that in the long run, a stock is only as good as the company backing it up. Kind of like how a promise is only as good as the person making it.
7. Don’t fall into the false precision trap
“We like things that you don’t have to carry out to three decimal places. If you have to carry them out to three decimal places, they’re not good ideas.” It’s important to keep the big picture in mind. A 20-tab Excel model that calculates a company’s value on a discounted cash flow basis is useless unless you understand the business enough to feed in good assumptions. When Buffett made a killing on PetroChina earlier in the decade, the mispricing was so obvious that his only due diligence was reading its annual report. Not recommended for mere mortals, but you see his point.
8. “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.”
Remembering the Buffett concept of an inner scorecard, and the Rudyard Kipling admonition to “keep your head when all about you are losing theirs,” can lead to outsize returns as Mr. Market sways back and forth.
9. Margin of safety
As with many of his most beloved tenets, Buffett got this one from his mentor, Benjamin Graham. A margin of safety simply means buying in at a price well below your best estimate for a stock’s intrinsic value. In other words, don’t just buy names like Visa and Johnson & Johnson because they are great companies with strong moats. Go the extra step, and only buy them when they are great companies selling for good to great prices.
10. “A ham sandwich could run Coca-Cola.”
Believe it or not, that’s a compliment to Coke. It speaks to why it’s Berkshire Hathaway’s biggest stock holding. As Peter Lynch put it, “Go for a business that any idiot can run — because sooner or later, any idiot probably is going to run it.”
Source: Motley Fool
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
We’ll be WORSE OFF whoever’s new U.S. President : Jim Rogers on CNBC
About Jim Rogers
Jim Rogers is the CEO of Rogers Holdings. He is also an author, world traveller and successful international investor. He has been frequently featured in Time, The Washington Post, The New York Times, The Wall Street Journal, The Financial Times and most publications dealing with the economy or finance. After attending Yale and Oxford University, Rogers co-founded the Quantum Fund, a global investment partnership together with billionaire investor, George Soros. During the next 10 years, the portfolio gained 4200%, while the S&P 500 rose less than 47%. Rogers then decided to retire at age 37 but he did not remain idle. In 1990-1992, Rogers fulfilled his lifelong dream: motorcycling 100,000 miles across 6 continents, a feat that landed him in the Guinness Book of World Records. He chronicled that journey in his bestseller book:“Investment Biker”. In 1999-2001, Jim embarked on a Millennium Adventure, which he travelled for 1101 days on his round-the-world, Guinness World Record journey together with his wife. That journey of passing through 116 countries, through half of the world’s 30 civil wars and over 152,000 miles became the subject of Rogers’s second book: “Adventure Capitalist”. His also penned other bestsellers such as ”Hot Commodities” in 2004 and the recently released “A Bull in China”.
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“Neither one of these guys understands what’s going on, they don’t understand currency markets, economies, they don’t understand the world,” Rogers said. “Both of them are going to cause us more problems than they’re going to solve.”
Democratic nominee Sen. Barack Obama pledged to reverse the economic failures and blamed the Republicans for the poor shape of the U.S. economy in his speech, formally accepting to run for president for his party. But Rogers said this was unlikely. “He’s talking about spending a lot of money … I don’t consider that very good, going deeper into debt. The U.S. is already the largest debtor nation in the history of the world. I’m not sure that that’s going to solve anything.”
“Deep changes are needed in the U.S. system and big Wall Street banks should not be rescued by the authorities when they run into trouble, to avoid moral hazard. They’re bailing out Wall Street, because all their friends are on Wall Street,” Rogers said. “When Ben Bernanke gets a phone call from the head of Lehman Brothers, he takes the call. But if some poor school teacher in Oklahoma calls him, he doesn’t take the call. He’s dealing with his friends on Wall Street trying to save them when in fact he should let them fail. That would be the better solution, at least for 300 million Americans.”
“The economic stimulus package launched this year to try and fend off recession in the U.S. is unlikely to have positive consequences in the long term, despite a higher-than-forecast advance of gross domestic product in the 2nd quarter”, Rogers said. “Supporting troubled investment banks instead of letting them go bust prevents a cleansing of the economy while putting additional burdens on taxpayers, but neither of the 2 candidates is likely to stop this. If you happen to be friends with whoever wins, sure, you’re going to have a better time in the next 4 years. But the rest of us, the 300 million Americans, are going to be worse off in 4 years. In fact the world will be worse off.”
Part 1
Part 2
© 2008 CNBC.com
Disclaimer: Please be informed that the above mentioned stocks/indexes/investment instruments are solely for the purpose of education; it is NOT a recommendation or an invitation to trade/invest. For trading/investment advice, please speak to your remisier, dealer representative or financial adviser. Please understand that there is risk in every trade/investment venture, know your risk first before you venture into any of them.
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