Lesson One: Invest From A Business Perspective
One of the most important lessons Buffet learnt was to invest from
a business perspective. Most people treat stocks like lottery
tickets. Buying and selling based on predictions of whether the
price will go up or down in the short term.
Because stock prices go up and down randomly and erratically based
on world events, there is no way anyone can consistently beat the
market by attempting to predict its movements. Many of these
punters know every little about the business operations behind the
stocks they own.
Warren learnt that buying a stock meant becoming a part-owner of an
ongoing business. He knew that the only way to consistently make
money was to identify very good businesses run by a strong
management team.
Good businesses would over time generate higher and higher profits.
Increasing profits will increase the value of a company and hence
its share price.
By honing his expertise in sniffing out companies that had the
potential to generate huge amounts of earnings growth over time, he
was confident that the stocks he held onto would increase
significantly in price over time.
Lesson Two: The Market is Irrational, Take Advantage of It
While most financial experts teach that the market is rational and
efficient (stock prices reflect the true value of a company),
Benjamin Graham taught Buffett that stock market prices were
determined by demand & supply, which in turn are irrationally
driven by fear and greed. As a result, a stock's price did not
always reflect the true value of a company.
In times of mass investor optimism & greed, buyers rush in and push
a stock's price way above its value. In times of fear and panic
(i.e. news of a recession) investors sell their shares, causing a
stock's price to fall way below its value.
The Market tends to overvalue a company's stock when there is good
news and under-value a company's stock when there is bad news.
Benjamin Graham developed a systematic way to determine a stock's
true value (known as its intrinsic value) and taught that by buying
a stock when it was undervalued, the investor could make a huge
profit when the market eventually overvalued the stock.
Philip Fisher added another dimension to investing by developing a
way to not only find undervalued companies, but to find companies
that had the potential to also significantly grow in their earnings
and hence increase their stock value even higher.
Any investor no matter which level he is at should learn about and
make use of the lessons covered here.
To your investing success
Thursday, March 27, 2008
Thursday, March 20, 2008
The History & Psychology of Warren Buffett
From a very early age young Buffett was obsessed with making money
and had a very clear dream of becoming the world's greatest
investor.
Born during the depression when his father was close to bankruptcy,
Warren learnt about the value of money and the importance of being
financially secure at an early age.
Even before his teens, Warren knew that he wanted to be rich, very
very rich. As early as elementary school and later on in high
school, he would tell his classmates that he wanted to become a
millionaire before the age of 35 (when he turned 35, his net worth
exceeded US$6 million). Inspired by his dream, he started
researching on the secrets of wealth creation.
Through his readings, he found and memorized a book called 'A
Thousand Ways to Make $1,000'. At the age of six, he started buying
coke bottles at 25-cents per six-pack and selling them at 5-cents a
bottle, giving him a 16% gross profit, as he would tell himself.
At the age of 13, he got a job delivering newspapers and through
innovative marketing and distribution strategies, he served five
hundred customers a day (he hired the other neighborhood kids to do
the delivery for him).
At the age of 11, he took all his savings and started investing in
the stock market. His first investment was three shares in a
company called 'City Service'.
While most kids his age were reading comic books, Warren spent his
time reading company annual reports. By the age of 14, he invested
in pinball machines, which he installed in restaurants all over his
town. He was earning $175 a week, as much as the average 25-year
old was earning in 1944.
Warren later mastered the art of investing by modeling two of the
world's greatest investors during his time, Benjamin Graham (the
father of Value Investing) and Philip Fisher (the father of Growth
Investing). By combining the ideas of both geniuses and further
refining them, Buffett has become the most powerful investor in the
world!
This short history and the written insights of the psychology of
buffet should serve as an inspiration and cornerstone to anyone who
is determined to be rich and wealthy.
To your Success
and had a very clear dream of becoming the world's greatest
investor.
Born during the depression when his father was close to bankruptcy,
Warren learnt about the value of money and the importance of being
financially secure at an early age.
Even before his teens, Warren knew that he wanted to be rich, very
very rich. As early as elementary school and later on in high
school, he would tell his classmates that he wanted to become a
millionaire before the age of 35 (when he turned 35, his net worth
exceeded US$6 million). Inspired by his dream, he started
researching on the secrets of wealth creation.
Through his readings, he found and memorized a book called 'A
Thousand Ways to Make $1,000'. At the age of six, he started buying
coke bottles at 25-cents per six-pack and selling them at 5-cents a
bottle, giving him a 16% gross profit, as he would tell himself.
At the age of 13, he got a job delivering newspapers and through
innovative marketing and distribution strategies, he served five
hundred customers a day (he hired the other neighborhood kids to do
the delivery for him).
At the age of 11, he took all his savings and started investing in
the stock market. His first investment was three shares in a
company called 'City Service'.
While most kids his age were reading comic books, Warren spent his
time reading company annual reports. By the age of 14, he invested
in pinball machines, which he installed in restaurants all over his
town. He was earning $175 a week, as much as the average 25-year
old was earning in 1944.
Warren later mastered the art of investing by modeling two of the
world's greatest investors during his time, Benjamin Graham (the
father of Value Investing) and Philip Fisher (the father of Growth
Investing). By combining the ideas of both geniuses and further
refining them, Buffett has become the most powerful investor in the
world!
This short history and the written insights of the psychology of
buffet should serve as an inspiration and cornerstone to anyone who
is determined to be rich and wealthy.
To your Success
Tuesday, March 4, 2008
The power of Compounding:Would You Bet 10-Cents On A Game of Golf?
Let me give you an example to illustrate the power of compounding. Let’s say we played a game of golf and we made a friendly bet of 10-cent on the first hole, with the bet doubling on each hole. Would you take on this bet? Now, if you were familiar with the game of golf, you would know that there are only 18 holes, so how much can the bet be on the 18th hole?
Well let’s see how the bet increases on the first 9 holes:
Hole 1 10 cents
Hole 2 20 cents
Hole 3 40 cents
Hole 4 80 cents
Hole 5 $1.60
Hole 6 $3.20
Hole 7 $6.40
Hole 8 $12.80
Hole 9 $25.60
At the 9th hole, the bet is $25.60. We are already half way there, so how much could it be on the 18thhole? $100? $300? $500? Let’s go on…
Hole 10 $51.20
Hole 11 $102.40
Hole 12 $204.80
Hole 13 $409.60
Hole 14 $819.20
Hole 15 $1,638
Hole 16 $3,276
Hole 17 $6,553
Hole 18 $13,107
As you can see on the 18th hole, the bet becomes a whopping $13,107! When given enough time, the power of compounding can turn very small amounts of money into huge sums.
A more important lesson I want to illustrate is that initially, the money grows very slowly. Even at the halfway mark, it is only $25.60. However, the moment it reaches a critical point, the growth becomes exponential! In fact, between Hole 15 and Hole 18, within just 3 holes, it grows from $1,638 to $13,107, a $11,469 difference!
What does this mean to you? You see when you start your investment program of say $200 a month, initially the growth is extremely slow. However, once it hits a certain period of time, the growth explodes exponentially! The trouble with most people is that when they see the slow growth during the first few years, they lose patience and abandon their investment plan.
How $300 saved every month will grow under different rates of return within 30 years.
• Without the power of compound interest, $300 saved every month would accumulate to merely $108,000.
• At a 5% annual compounded rate of return, $300 a month would grow into $245,609 (2.3 times the principal sum)
• At a 8% annual compounded rate of return, $300 a month would grow into $425,283 (4 times the principal sum)
• At a15% annual compounded rate of return, $300 a month would grow into $1.69 million (15.6 times the principal sum)
• At a 25% annual compounded rate of return, $300 a month would grow into a whopping $13.14 million (121.6 times the principal sum)
Have the patience to wait, for the power of compounding will work and reward you with millions.
Well let’s see how the bet increases on the first 9 holes:
Hole 1 10 cents
Hole 2 20 cents
Hole 3 40 cents
Hole 4 80 cents
Hole 5 $1.60
Hole 6 $3.20
Hole 7 $6.40
Hole 8 $12.80
Hole 9 $25.60
At the 9th hole, the bet is $25.60. We are already half way there, so how much could it be on the 18thhole? $100? $300? $500? Let’s go on…
Hole 10 $51.20
Hole 11 $102.40
Hole 12 $204.80
Hole 13 $409.60
Hole 14 $819.20
Hole 15 $1,638
Hole 16 $3,276
Hole 17 $6,553
Hole 18 $13,107
As you can see on the 18th hole, the bet becomes a whopping $13,107! When given enough time, the power of compounding can turn very small amounts of money into huge sums.
A more important lesson I want to illustrate is that initially, the money grows very slowly. Even at the halfway mark, it is only $25.60. However, the moment it reaches a critical point, the growth becomes exponential! In fact, between Hole 15 and Hole 18, within just 3 holes, it grows from $1,638 to $13,107, a $11,469 difference!
What does this mean to you? You see when you start your investment program of say $200 a month, initially the growth is extremely slow. However, once it hits a certain period of time, the growth explodes exponentially! The trouble with most people is that when they see the slow growth during the first few years, they lose patience and abandon their investment plan.
How $300 saved every month will grow under different rates of return within 30 years.
• Without the power of compound interest, $300 saved every month would accumulate to merely $108,000.
• At a 5% annual compounded rate of return, $300 a month would grow into $245,609 (2.3 times the principal sum)
• At a 8% annual compounded rate of return, $300 a month would grow into $425,283 (4 times the principal sum)
• At a15% annual compounded rate of return, $300 a month would grow into $1.69 million (15.6 times the principal sum)
• At a 25% annual compounded rate of return, $300 a month would grow into a whopping $13.14 million (121.6 times the principal sum)
Have the patience to wait, for the power of compounding will work and reward you with millions.
Sunday, March 2, 2008
The myths of Money
Today we shall deviate a little from our talks on investment and investment strategies and really look at why most if not everyone wants to go into investing......MONEY. We shall be looking at the myths of money and how it affects us.
The truth is that many of these beliefs and attitudes that some people hold have about money are nothing but inaccurate generalizations and excuses that keep them from living a truly a happy and wealthy life.
In order to truly align your mind to wealth creation, you must debunk these negative myths and really look at the facts.
Myth: Having a lot of money will change you (into a bad person).
Fact: Money is a personality magnifier.
It brings out the true person within you. If you are a selfish and nasty person by nature, having money will make you even more nasty and selfish.
However, if you are a kind, generous and loving person deep down inside, money will magnify your goodness.
Myth: Money isn't everything.
Fact: This is the top excuse given by poor people who are in
denial. The truth is that everything is money.
Without money, you cannot maximize other important values such as family, career, health, spirituality and relationships.
Myth: Money will make you less spiritual
Fact: If you are by nature a spiritual person, having money will
allow you to touch more lives and help you do more of god's work.
In fact, the wealthiest people in the world are extremely spiritual. Not having to worry about money anymore allows many of the rich to focus on the more important things in life.
Many truly wealthy people believe they don't own their money. They are just custodians of God's wealth.
Myth: Rich people are materialistic. They worship money.
Fact: It is the people who lack money who worship it.
Who works all day, year after year in a job which they hate, just for the money?
Who are those who constantly sacrifice their health and family to make more money?
In fact, the rich rarely work because of money. They work because
of passion and a sense of personal mission. Bill Gates, Warren
Buffett, George Lucas, Michael Jordan & Steve Jobs certainly don't
work for money...they don't need to.
Myth: To have more money, I will be depriving others of it.
Fact: When you become rich, you actually create more wealth for
other people. Wealth multiplies into more wealth.
Bill Gates is the richest man in the world because he has created the most value in people's lives through the creation of Microsoft and Windows.
Because of his invention, so many more millionaires have been created as a result. Think about it, if Microsoft Windows, Word and Excel did not exist, would you have been able to create as much wealth as you have today?
Myth: Money is the 'root of all evil'.
Fact: The lack of money is the root of all evil.
The number one cause of murder, cheating, stealing, lying is poverty (the lack of
money).
Get your beliefs and attitudes right and you will start to attract more of it into your life!
To Your Success
The truth is that many of these beliefs and attitudes that some people hold have about money are nothing but inaccurate generalizations and excuses that keep them from living a truly a happy and wealthy life.
In order to truly align your mind to wealth creation, you must debunk these negative myths and really look at the facts.
Myth: Having a lot of money will change you (into a bad person).
Fact: Money is a personality magnifier.
It brings out the true person within you. If you are a selfish and nasty person by nature, having money will make you even more nasty and selfish.
However, if you are a kind, generous and loving person deep down inside, money will magnify your goodness.
Myth: Money isn't everything.
Fact: This is the top excuse given by poor people who are in
denial. The truth is that everything is money.
Without money, you cannot maximize other important values such as family, career, health, spirituality and relationships.
Myth: Money will make you less spiritual
Fact: If you are by nature a spiritual person, having money will
allow you to touch more lives and help you do more of god's work.
In fact, the wealthiest people in the world are extremely spiritual. Not having to worry about money anymore allows many of the rich to focus on the more important things in life.
Many truly wealthy people believe they don't own their money. They are just custodians of God's wealth.
Myth: Rich people are materialistic. They worship money.
Fact: It is the people who lack money who worship it.
Who works all day, year after year in a job which they hate, just for the money?
Who are those who constantly sacrifice their health and family to make more money?
In fact, the rich rarely work because of money. They work because
of passion and a sense of personal mission. Bill Gates, Warren
Buffett, George Lucas, Michael Jordan & Steve Jobs certainly don't
work for money...they don't need to.
Myth: To have more money, I will be depriving others of it.
Fact: When you become rich, you actually create more wealth for
other people. Wealth multiplies into more wealth.
Bill Gates is the richest man in the world because he has created the most value in people's lives through the creation of Microsoft and Windows.
Because of his invention, so many more millionaires have been created as a result. Think about it, if Microsoft Windows, Word and Excel did not exist, would you have been able to create as much wealth as you have today?
Myth: Money is the 'root of all evil'.
Fact: The lack of money is the root of all evil.
The number one cause of murder, cheating, stealing, lying is poverty (the lack of
money).
Get your beliefs and attitudes right and you will start to attract more of it into your life!
To Your Success
Saturday, March 1, 2008
Four Powerful Investing Strategies
There are many very different philosophies and strategies that experts use to select stocks to achieve above average returns.
Growth Strategy 1: Buying Markets & Sectors
The first growth strategy will be on how to achieve the same returns as the whole US stock market or Singapore Stock market by buying the market indexes such as the
S&P 500 index, Dow Jones Index, Nasdaq composite Index and the Straits Times Index.
This is the most basic strategy that all novice investors should start off with. Executing this strategy successfully involves the lowest level of financial competence but can make you consistent annual compounded returns of 10%-12.08%.
Growth Strategy 2: Value Investing
Value investing is the strategy employed by Warren Buffett, the world's greatest investor and second richest man.
In value investing, you will buy high performing companies at a fraction of what they are worth.In other words, you buy great companies when they are undervalued and to sell them for a huge profit once the market realizes its true value. This strategy will consistently make profits of 15%-25% annually!
Growth Strategy 3: Momentum Investing
Momentum investing involves finding the hottest stocks that are ready to make great gains. Momentum stocks tend to already be priced above their fair value. However, because of the entire market's optimism about the stock's potential, these stocks tend to increase significantly in price within a very short period of time before they are overbought and come tumbling down (this is when you sell and make huge profits).
Growth Strategy 4: Options Trading
This strategy will show you how to make 100%-500% return on your money within 1-3 months.This final strategy requires you to have the highest level of financial competence and skill. This strategy is known as trading (as opposed to investing)
and it involves the use of buying (or selling) stock options.
Trading is different from investing in a few ways. Investing usually involves making money by buying a stock and predicting that it will increase in value over a few months to a few years. However, in trading you are able to make profits whether the stock price moves up or down and you usually enter and exit a trade within a very short period of time.
To your Success
Growth Strategy 1: Buying Markets & Sectors
The first growth strategy will be on how to achieve the same returns as the whole US stock market or Singapore Stock market by buying the market indexes such as the
S&P 500 index, Dow Jones Index, Nasdaq composite Index and the Straits Times Index.
This is the most basic strategy that all novice investors should start off with. Executing this strategy successfully involves the lowest level of financial competence but can make you consistent annual compounded returns of 10%-12.08%.
Growth Strategy 2: Value Investing
Value investing is the strategy employed by Warren Buffett, the world's greatest investor and second richest man.
In value investing, you will buy high performing companies at a fraction of what they are worth.In other words, you buy great companies when they are undervalued and to sell them for a huge profit once the market realizes its true value. This strategy will consistently make profits of 15%-25% annually!
Growth Strategy 3: Momentum Investing
Momentum investing involves finding the hottest stocks that are ready to make great gains. Momentum stocks tend to already be priced above their fair value. However, because of the entire market's optimism about the stock's potential, these stocks tend to increase significantly in price within a very short period of time before they are overbought and come tumbling down (this is when you sell and make huge profits).
Growth Strategy 4: Options Trading
This strategy will show you how to make 100%-500% return on your money within 1-3 months.This final strategy requires you to have the highest level of financial competence and skill. This strategy is known as trading (as opposed to investing)
and it involves the use of buying (or selling) stock options.
Trading is different from investing in a few ways. Investing usually involves making money by buying a stock and predicting that it will increase in value over a few months to a few years. However, in trading you are able to make profits whether the stock price moves up or down and you usually enter and exit a trade within a very short period of time.
To your Success
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