Tuesday, November 18, 2014

RULE #1 NEVER LOSE MONEY ….



Last week my favourite investor Warren Buffett’s bought battery maker Duracell only days after he took a multi-million dollar loss in selling his company’s interest in embattled UK retailer Tesco.

Buffett’s company Berkshire Hathaway will pay $4.7b to Proctor & Gamble (P&G) using shares it owns in the consumer products company, a transaction which already has activists labeling it a tax dodge. Because the capital gains in his P&G holding will be rolled into the Duracell purchase he will not suffer the maximum capital gains tax applicable.

You don’t get to be the third richest man in the world by accident.

Every time Buffett pulls one of these deals out of the hat a rehash of his illustrious career is dusted up and paraded online, and it never fails to make for interesting reading.

Business insider had an online article “17 facts about Warren Buffett and his wealth that will blow your mind”, which among other things pointed out that 99% of his $63.3b was made after his 50th birthday. Never mind that up to that point he had been investing in shares for 39 years or ever since he was 11!

Buffett is a real live example of the power of compounding. Fondly referred to as “The sage of Omaha”, Buffett turned 84 at the end of August.

There other jaw dropping facts like that last here he made $37m a day or about $1.5m an hour or about $25,000 a second last year.

Never mind too that in his life time he has donated more than $20b or the entire GDP of Uganda.

The facts about his wealth are always interesting reads but what serves as an eye opener is the thinking that generated this huge cash pile – by the way his company holds $50b in cash.


"The article “Warren Buffett’s most brilliant insights about investing” should be considered essential reading for business students, businessmen and anyone who wants to put his money on the line in entrepreneurial endeavour...


There is no space to list them here so one is best advised to Google the said articles, but several are enduring gems.
·        
 Rule number one, Never lose money; Rule number two, see rule number one – Buffet has lost money, every investor does. But by following a time tested model, where he buys companies that undervalued compared to their intrinsic value means the odds are in his favour in most of his investments. If he employs this method and he loses money he knows there is nothing he could do about it. Stick with the percentages so as not to lose money.

·         To be a successful investor you only need to know two things, how to value a company and how to think about market prices – with age has come wisdom from Buffett. And wisdom has a way of simplifying things in his experience that is all you need to know to be a successful investor. And he should know.

·         If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes – he says his best holding period is for ever. He has worked out that a good company, with good economics will appreciate in value beyond your wildest imagination over the long term. Some of his holdings like in American Express, Coca Cola and GEICO date back to the 1970s.

·         I am a better investor because I am a businessman, and a better businessman because I am an investor. – Whereas he has huge stock holdings his company also owns numerous businesses dealing in as varied products as ceramic tiles, paint, insurance, chocolate makers, jewelry, private jet leasing and precision tools. He applies the same criteria in judging his companies as he does his stock and vice versa.

Buffett’s methods are an open book and given his long experience – he bought his first share in 1941, he should be a reference for all business people of ambition.