The Tao of Warren Buffett (Money Mantras….(16))

Today (3′rd November) is my birthday and I want to begin the day by sharing with you ‘ The Tao of Warren Buffett’.

October’09 has not been a great month for my blogging. I just posted one article. This is my primarily due to 2 reasons.

1) My inconsistent health

2) Yahoo rejecting my bulk mails repeatedly as Spam thereby preventing me to send mails to you. My Wisewealthadvisors domain (from Indiatimes) does not allow me to send to more than 20 mail ids at a time. Considering the volume of people who read my mails, this was also not possible due to the limited energy levels and patience I have. If Yahoo route does not work, I’ll resort to the above model, though it is time consuming because I enjoy immensely sharing the knowledge with you. What I’m today is because of all of you and this is one of the small way of showing my gratitude.

There is a book called ‘The Tao of Warren Buffett’ written by Mary Buffett & David Clark. I read this book recently and wanted to share on my birthday some gems from my master, which I’ve not shared previously. This becomes the Money Mantras series…(16).

As my birthday gift to you all, I’ve given below 20 quotes instead of usual 10, all new ones.

1) You don’t have to make money back the same way you lost it.

2) Someone is sitting in the shade today because someone planted a tree a long time ago.

3) You pay a very high price in the stock market for a cheery consensus.

4) You want to learn from experience, but you want to learn from other people’s experience when you can.

5) We enjoy the processes far more than proceeds, though I have learned to live with those also.

6) If calculus or algebra were required to be a great investor, I would have to go back to delivering newspapers.

7) It’s hard to teach a young dog old tricks.

Can you really explain to a fish what it is like to walk on land? One day on land is worth a thousand years talking about it, and one day running a business has exactly the same kind of value.

9) If you hit a hole in one on every hole, you wouldn’t play golf for very long.

10) A friend of mine spent twenty years looking for the perfect woman; unfortunately when he found her, he discovered that she was looking for the perfect man.

11) Forecasts usually tell us more of the forecaster than of the forecast.

12) The less prudence with which others conduct their affairs, the greater the prudence with which we should conduct our own affairs.

13) In the search of companies to acquire, we adopt the same attitude one might find appropriate in looking for a spouse: It pays to be active, interested and open-minded but it does not pay to be in a hurry.

14) When you combine ignorance and borrowed money, the consequences can get interesting.

15) The most important thing to do if you find yourself in a hole is to stop digging.

16) If you don’t make mistakes, you can’t make decisions.

17) Any business craving of the leader, however foolish, will be quickly supported by studies prepared by his troops.

18) I’m very suspect of the person who is very good at one business-it could also be a good athlete or good entertainer- who starts thinking they should tell the world on how to behave on everything. For us to think that just because we made a lot of money, we’re going to be better at giving advice on every subject- well, that’s just crazy.

19) The smartest side to take in a bidding war is the losing side.

20) No matter how great the talent or effort, some things just take time: You can’t produce a baby in one month by getting nine women pregnant.

Money Mantras….(15)

It’s good to be back after a gap of 2 weeks. I was down with viral fever for last 2 weeks and hence this gap.

I am pleased to start this month article with Money Mantras, timeless wisdom from Masters.

Please read and enjoy the wit, wisdom and insights.

1) Value investing ideas seem so simple and commonplace. It seems like a waste to go to school and get a Ph.D. in economics. It’s a little like spending eight years in divinity school and having someone tell you the Ten Commandments are all that matter.- Warren Buffett

2) You can’t see the future through a rear view mirror.- Peter Lynch

3) The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price. – Warren Buffett

4) The line separating investment and speculation, which is never bright and clear, becomes blurred still further when most market participants have recently enjoyed triumphs. Nothing sedates rationality like large doses of effortless money. – Warren Buffett

5) In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond – Warren Buffett

6) In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor. – Warren Buffett

7) First, beware of companies displaying weak accounting. If a company still does not expense options, or if its pension assumptions are fanciful, watch out. When managements take the low road in aspects that are visible, it is likely they are following a similar path behind the scenes. There is seldom just one cockroach in the kitchen. – Warren Buffett

If the misery of the poor be caused not by the laws of nature, but by our institutions, great is our sin. – Charles Darwin

9) There are people in the world so hungry, that God cannot appear to them except in the form of bread. -Mahatma Gandhi

10) Fate often puts all the material for happiness and prosperity into a man’s hands just to see how miserable he can make himself with them. -Don Marquis

This is how Buffett makes his Billions

We were all surprised a year ago, when Warren Buffett bought US$ 5 Billion of Goldman Sachs preferred stock. After all, Lehman Brothers had just collapsed and Wall Street was tottering. Moreover, Buffett’s past involvement with bankers like Salomon Brothers had turned out to be time consuming affair.

But then, he rarely passes a good deal, even if there is bad news all around. In fact, especially when there is bad news all round. The next day Buffett had said, “The price was right, the terms were right, and the people were right.” Buffett also secured a margin of safety from the terms of contract – a 10% dividend and also the right to buy US$ 5 Billion of common stock at a strike price of US$ 115 per share.

A year later, his decision has turned out be correct. Buffett’s investment in Goldman has made Berkshire Hathaway richer by US$ 3 billion in twelve months! Given the current share price of Goldman Sachs at US$ 183, the warrants alone are worth US$ 3 Billion ((US$ 183 – US$115)*45 m warrants). Of course, the warrants were not available to the ordinary investor in the US . But then, all he needed to do was buy the common stock to comfortably outperform the broader market. Easier said than done! Don’t you wish that Buffett could invest for you too?

(Courtesy: Equitymaster)