Monday, 17 May 2021
Sunday, 16 May 2021
7 Lessons Investors Can Learn from Warren Buffett
Beyond Value Investing, Warren Buffett Is a Brilliant Strategist
By Joshua Kennon
Warren Buffett, the legendary Chairman and CEO of holding company Berkshire Hathaway, was born on August 30, 1930. During the 50+ years he has run the former New England textile mill, he's taken it from around $8 per share to $270,000 per share (as of September, 2017), having never split the stock (Buffett did introduce the Class B shares, which for many years, traded at 1/50th the value of the Class A shares, but now trades at 1/1,500th the value due to a stock split to facilitate the acquisition of the Burlington Northern Santa Fe railroad).
Along the journey, his capital allocation discipline has spawned several billionaires besides himself, and an unknown (but substantial) number of multi-millionaires, including some families that amassed hundreds of millions of dollars only to reveal the extent of their fortunes in charitable bequests at death.
What are some of the lessons we, as an investors, can learn when looking back on his career and strategies? I want to take some time to point out a few of the ones I think are particularly important.
5. Surround Yourself with the Right People and Create a Culture That Rewards the Behavior You Want Emulated
The heavy lifting is done by Berkshire Hathaway's operating subsidiaries. Those businesses, many of which would be in the Fortune 500 if spun-off, are run by CEOs who show up to work each day. They manage truly global enterprises that produce billions and billions of surplus wealth that then gets shipped to Omaha twice a year. Though occasional problems pop up, which is bound to happen in a firm of its size, Buffett's talent for attracting great executives, making them want to win, and staying loyal to the business is too important to casually dismiss. In many businesses, the quality of the people doing the work is of the utmost importance to the profitability. Get better people, enjoy better results.
Likewise, be on the lookout for perverse incentives. You want to avoid creating compensation or recognition systems that cause employees, contractors, or other parties to engage in immoral, unethical, illegal, or otherwise questionable behavior. You get more of what you subsidize so subsidize wisely.
6. Focus On Your Best Ideas
Buffett's business partner, Charlie Munger, sometimes points out that if you took the best 4-5 ideas he ever had and stripped them out of the equation, Buffett's record would be about average at Berkshire Hathaway. It was the courage of conviction to load up on shares of The Coca-Cola Company; to focus on property and casualty insurance; to take a stake in the then-Washington Post Company or Gillette that made the difference.
When something crosses your radar that is right in your sweet spot - you understand it, you know the risks, the probabilities are highly in your favor, and it's so obvious you can reach out and grab it - don't let it pass. Once every decade or so, you'll be presented with a chance to swing for the fences without hurting yourself if it goes wrong. When it happens, let it rip.
7. Do Good and Give Back to Society
Like great tycoons before him, Warren Buffett is gifting nearly all of the productive efforts of his career to the broader civilization. Through the Gates Foundation, his net worth will provide philanthropic funds to save lives, improve education, and change the world for the better. Think beyond yourself. Try to find a way to apply your talents to upgrading the experience of those around you, being a blessing to them in ways they never thought possible.
Source: www.thebalance.com
By Joshua Kennon
Warren Buffett, the legendary Chairman and CEO of holding company Berkshire Hathaway, was born on August 30, 1930. During the 50+ years he has run the former New England textile mill, he's taken it from around $8 per share to $270,000 per share (as of September, 2017), having never split the stock (Buffett did introduce the Class B shares, which for many years, traded at 1/50th the value of the Class A shares, but now trades at 1/1,500th the value due to a stock split to facilitate the acquisition of the Burlington Northern Santa Fe railroad).
Along the journey, his capital allocation discipline has spawned several billionaires besides himself, and an unknown (but substantial) number of multi-millionaires, including some families that amassed hundreds of millions of dollars only to reveal the extent of their fortunes in charitable bequests at death.
What are some of the lessons we, as an investors, can learn when looking back on his career and strategies? I want to take some time to point out a few of the ones I think are particularly important.
1. Get the Structure Right
Almost nobody seems to discuss the fact that the real secret to Warren Buffett's wealth is his ability to get the structure of his holdings put together in a way that gives him enormous personal advantages. The seven early partnerships he ran gave him an override on earnings that makes modern wealth managers look cheap in comparison, taking between 25% and 50% of profits depending on the specific limited partnership agreement.
If he had generated the exact same investments results as a salaried member of the local bank trust department, you probably never would have heard his name.
The same goes for Berkshire Hathaway. By using the insurance float as a sort of super-efficient margin account with none of the drawbacks of margin debt, Buffett was able to parlay 11% to 15% compounding results in the equity portfolio, along with reinvested earnings from the operating subsidiaries, into 20%+ average annual gains in book value for half a century.
Had he held the exact same stocks in a non-leveraged brokerage account, his results would have looked far more ordinary. He gave himself a structural advantage. As a strategist, he's horribly underrated and should be given a lot more credit for his ability to put together systems that disproportionately reward him, his family, and his partners. You can see the influence one of his early obsessions, Henry Singleton at Teledyne, had on his behavior.
Almost nobody seems to discuss the fact that the real secret to Warren Buffett's wealth is his ability to get the structure of his holdings put together in a way that gives him enormous personal advantages. The seven early partnerships he ran gave him an override on earnings that makes modern wealth managers look cheap in comparison, taking between 25% and 50% of profits depending on the specific limited partnership agreement.
If he had generated the exact same investments results as a salaried member of the local bank trust department, you probably never would have heard his name.
The same goes for Berkshire Hathaway. By using the insurance float as a sort of super-efficient margin account with none of the drawbacks of margin debt, Buffett was able to parlay 11% to 15% compounding results in the equity portfolio, along with reinvested earnings from the operating subsidiaries, into 20%+ average annual gains in book value for half a century.
Had he held the exact same stocks in a non-leveraged brokerage account, his results would have looked far more ordinary. He gave himself a structural advantage. As a strategist, he's horribly underrated and should be given a lot more credit for his ability to put together systems that disproportionately reward him, his family, and his partners. You can see the influence one of his early obsessions, Henry Singleton at Teledyne, had on his behavior.
2. Get Really, Really Good at Something and Exploit It to Your Maximum Advantage
People get distracted in life. If you want to have outsized success, you need to hone in on a specific skill set and become extraordinary at it. If Buffett had spent the past five decades also trying to launch a chain of restaurants or attempting to become a world-class novelist, he probably wouldn't have had a modicum of the influence, wealth, and reputation he does today. Even geniuses who excel in multiple areas, like Benjamin Franklin, did not do so concurrently, but rather, focused on different areas at different times in their lives.
Figure out what you can do better than everyone else. Sam Walton and Ray Kroc were better operators and executors. Steve Jobs and Walt Disney were better showmen and visionaries.
Whether your objective in life is to become an opera star or build a Fortune 500 business from the ground up, develop a "laser-like focus", as Buffett himself has called it. Know what you want, when you want it, and how you are going to get it. Out-execute everybody.
People get distracted in life. If you want to have outsized success, you need to hone in on a specific skill set and become extraordinary at it. If Buffett had spent the past five decades also trying to launch a chain of restaurants or attempting to become a world-class novelist, he probably wouldn't have had a modicum of the influence, wealth, and reputation he does today. Even geniuses who excel in multiple areas, like Benjamin Franklin, did not do so concurrently, but rather, focused on different areas at different times in their lives.
Figure out what you can do better than everyone else. Sam Walton and Ray Kroc were better operators and executors. Steve Jobs and Walt Disney were better showmen and visionaries.
Whether your objective in life is to become an opera star or build a Fortune 500 business from the ground up, develop a "laser-like focus", as Buffett himself has called it. Know what you want, when you want it, and how you are going to get it. Out-execute everybody.
3. Reputation is a Form of Capital That Should Be Nurtured and Protected
If you become known for your integrity and fair dealing, you'll find yourself on the receiving end of a lot of grace and a lot opportunities that otherwise wouldn't have presented themselves. Buffett took advantage of this every chance he could. Even during the leveraged buyout craze of the 1980s, he wouldn't engage in unfriendly takeovers because he wanted to cast himself in the light of a friendly white or gray knight; the rich, nice guy with the checkbook who shows up and rescues you from the pirates wanting to raid your ship.
He had a vision for the type of reputation he wanted and cultivated it every step along the way. It became a brand; an image.
When you look into his life, and study it deeply, you see that the avuncular façade masks a shrewd, ruthlessly brilliant man with an IQ that is off the charts and a tendency toward avarice (which, ultimately, benefits society since he's giving 99% of it back to improve civilization). He will let businesses fail. He will abandon his friends if it risks his reputation capital. He will put the needs of himself, and Berkshire Hathaway, above all other considerations. He is no fool. He knows exactly how to attain, increase, and take maximum advantage of power through financial, political, and social means.
If you become known for your integrity and fair dealing, you'll find yourself on the receiving end of a lot of grace and a lot opportunities that otherwise wouldn't have presented themselves. Buffett took advantage of this every chance he could. Even during the leveraged buyout craze of the 1980s, he wouldn't engage in unfriendly takeovers because he wanted to cast himself in the light of a friendly white or gray knight; the rich, nice guy with the checkbook who shows up and rescues you from the pirates wanting to raid your ship.
He had a vision for the type of reputation he wanted and cultivated it every step along the way. It became a brand; an image.
When you look into his life, and study it deeply, you see that the avuncular façade masks a shrewd, ruthlessly brilliant man with an IQ that is off the charts and a tendency toward avarice (which, ultimately, benefits society since he's giving 99% of it back to improve civilization). He will let businesses fail. He will abandon his friends if it risks his reputation capital. He will put the needs of himself, and Berkshire Hathaway, above all other considerations. He is no fool. He knows exactly how to attain, increase, and take maximum advantage of power through financial, political, and social means.
4. Take Advantage of the Tax Code and Understand the Power of Small Gains Over Time
The small things that Buffett has done throughout his career to get an extra risk-free 2% or 3% here or there, especially as it relates to tax efficiency, are truly remarkable. In some ways, the tax efficiency he's built into Berkshire Hathaway, which allows him to move capital like engine oil throughout the whole empire to the most productive use, is a huge part of the secret to his success. From the obvious things, like only making acquisitions of at least 80% of the subsidiary equity so he can take dividends tax-free out of the operating companies and redeploy it, to the quirks that were found decades ago in the Nebraska tax code as it pertains to the insurance industry itself, by hitting a lot of singles and doubles, he's materially added to the end result of his life's work. (Therein lies another quirk - Buffett himself is one of the biggest dividend investors on the planet, yet refuses to pay them to his own stockholders for reasons he has well-articulated in the past.)
Smaller investors can take advantage of this, too. Invest through a Roth IRA, which is the closest thing to the perfect tax shelter as exists in the United States. Don't take on non-deductible debt for depreciating assets. Take advantage of deferred taxes by keeping turnover low (have you seen the built-in unrealized capital gains in Berkshire Hathaway's portfolio!? They're beautiful!).
The small things that Buffett has done throughout his career to get an extra risk-free 2% or 3% here or there, especially as it relates to tax efficiency, are truly remarkable. In some ways, the tax efficiency he's built into Berkshire Hathaway, which allows him to move capital like engine oil throughout the whole empire to the most productive use, is a huge part of the secret to his success. From the obvious things, like only making acquisitions of at least 80% of the subsidiary equity so he can take dividends tax-free out of the operating companies and redeploy it, to the quirks that were found decades ago in the Nebraska tax code as it pertains to the insurance industry itself, by hitting a lot of singles and doubles, he's materially added to the end result of his life's work. (Therein lies another quirk - Buffett himself is one of the biggest dividend investors on the planet, yet refuses to pay them to his own stockholders for reasons he has well-articulated in the past.)
Smaller investors can take advantage of this, too. Invest through a Roth IRA, which is the closest thing to the perfect tax shelter as exists in the United States. Don't take on non-deductible debt for depreciating assets. Take advantage of deferred taxes by keeping turnover low (have you seen the built-in unrealized capital gains in Berkshire Hathaway's portfolio!? They're beautiful!).
5. Surround Yourself with the Right People and Create a Culture That Rewards the Behavior You Want Emulated
The heavy lifting is done by Berkshire Hathaway's operating subsidiaries. Those businesses, many of which would be in the Fortune 500 if spun-off, are run by CEOs who show up to work each day. They manage truly global enterprises that produce billions and billions of surplus wealth that then gets shipped to Omaha twice a year. Though occasional problems pop up, which is bound to happen in a firm of its size, Buffett's talent for attracting great executives, making them want to win, and staying loyal to the business is too important to casually dismiss. In many businesses, the quality of the people doing the work is of the utmost importance to the profitability. Get better people, enjoy better results.
Likewise, be on the lookout for perverse incentives. You want to avoid creating compensation or recognition systems that cause employees, contractors, or other parties to engage in immoral, unethical, illegal, or otherwise questionable behavior. You get more of what you subsidize so subsidize wisely.
6. Focus On Your Best Ideas
Buffett's business partner, Charlie Munger, sometimes points out that if you took the best 4-5 ideas he ever had and stripped them out of the equation, Buffett's record would be about average at Berkshire Hathaway. It was the courage of conviction to load up on shares of The Coca-Cola Company; to focus on property and casualty insurance; to take a stake in the then-Washington Post Company or Gillette that made the difference.
When something crosses your radar that is right in your sweet spot - you understand it, you know the risks, the probabilities are highly in your favor, and it's so obvious you can reach out and grab it - don't let it pass. Once every decade or so, you'll be presented with a chance to swing for the fences without hurting yourself if it goes wrong. When it happens, let it rip.
7. Do Good and Give Back to Society
Like great tycoons before him, Warren Buffett is gifting nearly all of the productive efforts of his career to the broader civilization. Through the Gates Foundation, his net worth will provide philanthropic funds to save lives, improve education, and change the world for the better. Think beyond yourself. Try to find a way to apply your talents to upgrading the experience of those around you, being a blessing to them in ways they never thought possible.
Source: www.thebalance.com
Quote for the day
"Anyone can give up; it is the easiest thing in the world to do. But to hold it together when everyone would expect you to fall apart, now that is true strength." - Chris Bradford
Saturday, 15 May 2021
The Journey to Profitable Trading
Here are fourteen common steps on the path to profitable trading.
1. You start trading with a lack of knowledge, not even knowing the right questions to ask. Your trades and results are random.
2. You lose money and learn that every trade is not going to be profitable.
3. You try to follow gurus thinking they can predict the future but learn that they do not have a crystal ball.
4. You lose more money but start to learn that trading isn’t as easy as you though it would be.
5. You start to educate yourself through quality trading books and courses.
6. You have a little success and start to think you know something. You are confident before you are competent.
7. Losses after you think you know something educate you.
8. You start to learn you better trade your own plan and system and avoid being swept away with the herd.
9. Your losses become smaller and smaller and your winning percentage and the size of your wins gets bigger.
10. You learn trading is not about expectations, predictions, and opinions but about a positive
expectancy system.
11. You start getting to almost break even in your trading.
12. You begin to learn that the majority of trading comes down to your own psychology and self discipline.
13. Everything starts to make sense and fit together.
14. You start to make money consistency over the long term.
Source: www.newtraderu.com
Friday, 14 May 2021
10 Types of Toxic People You Should Be Careful Of
By Casey Imafidon
Stressors are ever present in our lives. In order to achieve more and be more productive we need to get toxic people and stressors out of our lives. Focusing on priorities and ridding the weeds in our lives can be beneficial to our forward momentum. But first we have to identify these toxic people.
1. The Egotist
Pride sometimes is a virtue. But being arrogant means you are full of yourself and believe you are better or superior to everyone around you. Being around someone who doesn’t treat you with respect but rather intimidates and belittles you can be toxic to your personal development.
7. The Liar
It’s true that lies are common and some lies aren’t harmful; however, toxic people who lie frequently can destroy you because in order to grow, you have to surround yourself with trustworthy people who will support you and offer candid and honest opinions.
8. The Gossiper
These types of people are insecure and use their tongue to twist facts and distort information. They want to be accepted and recognized and doing so may just be the only way they can get the attention they want. Even when you try to solve the problems they have caused, the only way you can truly solve the issue is to kick them out of your life, because they can be cancerous.
Stressors are ever present in our lives. In order to achieve more and be more productive we need to get toxic people and stressors out of our lives. Focusing on priorities and ridding the weeds in our lives can be beneficial to our forward momentum. But first we have to identify these toxic people.
1. The Egotist
Pride sometimes is a virtue. But being arrogant means you are full of yourself and believe you are better or superior to everyone around you. Being around someone who doesn’t treat you with respect but rather intimidates and belittles you can be toxic to your personal development.
2. The Envious
It seems such people appreciate your difficult times more than your periods of victory. They believe they deserve your moment of success and not you. Although you may try to make them your supporters and fans by letting them know they are a part of your success, such people only prefer to resent you for your humility and reasonableness. This type should be avoided at all cost.
3. The Pretentious
These types only act as friends on comfortable terms. When you need their help they tend to depart and stay away. They can’t be leaned on; rather, you have to recognize their pretentious traits and establish boundaries within such relationships.
It seems such people appreciate your difficult times more than your periods of victory. They believe they deserve your moment of success and not you. Although you may try to make them your supporters and fans by letting them know they are a part of your success, such people only prefer to resent you for your humility and reasonableness. This type should be avoided at all cost.
3. The Pretentious
These types only act as friends on comfortable terms. When you need their help they tend to depart and stay away. They can’t be leaned on; rather, you have to recognize their pretentious traits and establish boundaries within such relationships.
4. The Retrogressive
These types have a way of distorting your progress and dragging you backwards to old habits. They believe in being stagnant and want you to be the same person you were. This type may be hard to pinpoint, but they are people who have always being an integral part of your life and may seem difficult to ignore. But it will be better to make them aware and remind them how important success is to you. if they can’t live with it, they can walk out the door.
5. The Judgemental
Nothing is ever good enough for this type of person. They believe everyone should be criticised and scolded rather than praised. Even when intentions are good and you try to make them understand your genuine motives, they wouldn’t listen. They are terrible communicators since they are not good listeners. Squashing their negative talk or avoiding their disdainful speech could be helpful to your progress.
These types have a way of distorting your progress and dragging you backwards to old habits. They believe in being stagnant and want you to be the same person you were. This type may be hard to pinpoint, but they are people who have always being an integral part of your life and may seem difficult to ignore. But it will be better to make them aware and remind them how important success is to you. if they can’t live with it, they can walk out the door.
5. The Judgemental
Nothing is ever good enough for this type of person. They believe everyone should be criticised and scolded rather than praised. Even when intentions are good and you try to make them understand your genuine motives, they wouldn’t listen. They are terrible communicators since they are not good listeners. Squashing their negative talk or avoiding their disdainful speech could be helpful to your progress.
6. The Controller
This type is a control freak. They want you to their bidding. They can be devious, mischievous and sly in trying to twist or out-muscle you to fulfill their desires. Rising above such people may be your best option since you really can’t convince or try to make them better.
This type is a control freak. They want you to their bidding. They can be devious, mischievous and sly in trying to twist or out-muscle you to fulfill their desires. Rising above such people may be your best option since you really can’t convince or try to make them better.
7. The Liar
It’s true that lies are common and some lies aren’t harmful; however, toxic people who lie frequently can destroy you because in order to grow, you have to surround yourself with trustworthy people who will support you and offer candid and honest opinions.
8. The Gossiper
These types of people are insecure and use their tongue to twist facts and distort information. They want to be accepted and recognized and doing so may just be the only way they can get the attention they want. Even when you try to solve the problems they have caused, the only way you can truly solve the issue is to kick them out of your life, because they can be cancerous.
9. The Parasite
Such people are only in your life to suck you dry and feed off of you. Being used can be helpful sometimes, but not with the parasitic. Their intentions are only for their self interest. Such people have to be avoided at all cost.
10. The Victim
The victims never accept responsibility. They are great at pointing their fingers at others and never accepting that they have made a mistake. What chain reaction they cause can be detrimental to your success. It is best to get rid of such people and get them out of your life.
Such people are only in your life to suck you dry and feed off of you. Being used can be helpful sometimes, but not with the parasitic. Their intentions are only for their self interest. Such people have to be avoided at all cost.
10. The Victim
The victims never accept responsibility. They are great at pointing their fingers at others and never accepting that they have made a mistake. What chain reaction they cause can be detrimental to your success. It is best to get rid of such people and get them out of your life.
Source: www.lifehack.org
Quote for the day
"Don't try to rush progress. Remember -- a step forward, no matter how small, is a step in the right direction. Keep believing." - Kara Goucher
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