Warren Buffett

The Best Investment Book for Starters

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We’re all aware of the importance of starting early and we all know the costly price of starting late. That last minute 10 page essay, that last minute “studying” (if you even call that studying anymore) before the math exam always ends up with you always asking yourself: “Why didn’t I start earlier ?”

Procrastination is a terrible habit and we’ve all been guilty of it, some more than others     (I, for one, am – you are too, no need to lie). On the other hand, procrastinating on that 10 page history paper isn’t the worst of the last minute bullsh***ing. It’s when you procrastinate on more important things such as learning to invest that you will pay the costliest price.

Starting your investments early will allow you to take advantage of time; giving you the ability to ride out some mistakes and more importantly use compound interest. I cannot stress the importance of compound interest. You can check out the article about why you should start early here.The earlier you learn about investing, the earlier you can start; the earlier you make capital gains. Now, you can’t learn EVERYTHING about investing, but without a doubt you need to learn the fundamentals before even thinking of starting.

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In my opinion, one of the very best investment book ever written (if not, THE best) is The Intelligent Investor by Benjamin Graham (the second investment book I’ve read). Although I strongly recommend Graham’s “investing bible” to anyone, it’s not the book of choice when people ask me what to read as their first book.

The first book I ever read, was “The Neatest Little Guide to Stock Market Investing” by Jason Kelly, and I strongly recommend it for starters as their first book. Now before, I get stoned by the crowd for thinking I’m not recommending “THE best book” first, hear me out first. When I was a beginner in investing, there would have been no way for me to fully understand and appreciate The Intelligent Investor (you need to read it a few times), had I read it first. It’s not an easy read for beginners, especially if you have no background in business. It can be intimidating, and the length can turn people off.

Let’s jump straight into it: Why “The Neatest Little Guide to Stock Market Investing” is the best book for the Jon Snows of investing (those who know nothing):

1. It’s a very easy read. It teaches you the very basics of stocks, what they are, how they work and how you can make money while owning stocks. It teaches you the basics of evaluating stocks and touches upon growth investing and value investing. Additionally, the basics on how to read stock pages.

2. It will briefly touch upon Fundamental vs Technical Analysis. You will learn the basics of fundamental stock measurements such as Dividend Yield, EPS, ROE, Net Profit Margin, etc. You’ll also learn a bit about technical analysis basic measurements such as RSI, SMA, MACD, etc.

3. It introduces you to some of the most successful investors. The highlight of this book is that it summarizes the basic points and strategies of the most successful investors, notably : Benjamin Graham, Warren Buffett, Philip Fisher, Peter Lynch, Bill Miller and William O’Neil. This allowed me to follow up on my investing journey by reading “The Intelligent Investor” which changed my life.

4. The author also gives you a list with a description of numerous resources that provide research on stocks. Furthermore, he describes a few long term strategies. He also suggests ways to get started (setting up an account) and provides a few of his very own strategies he uses/ made.

Again, I cannot stress enough the importance of starting early in your investing journey. For me, this book eased my way into the investing world; it easy to read and has the right amount of important content so I didn’t lose interest (I get bored easily). It was very well structured and the summary of the greatest investors allowed me to follow up on my learning after I finished reading the book.

It will answer most, if not all questions of the beginner investor. All in all, I’m glad it was my first book, and I’m sure you’ll enjoy it as your first investing book too. It will provide you all the information you need to start your investing journey, as it did for me, long ago. Again, like preparing for your math final: start reading (and actually learning) about investing early– not later. In the end, when you’re looking at your account, you never want to say “I wish I started earlier“, instead you want to say: “I’m glad I started early“. Remember, you can bulls**t your history paper, but don’t bulls**t with your investments. Of course, JMO (just my opinion). You can find the book here.

Why You Need To Start Investing Young

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The answer lies in the most useful, but most scarce (limited) resource ever: TIME (and yes, time does indeed equal money). You will take advantage of compound interest paired with time; along with the right investments, you can have a capital powerhouse.

The magic of compound interest

 Compound interest does wonders for young investors in the long run (it’s not magic, it’s just basic math). Here are a few monetary examples that will get you to start investing at a young age.

-If you had invested $1000 in Berkshire Hathaway (BRK-A, Buffett’s company) in 1964, and patiently waited 50 years until 2014, you would have $18,261,630 (a whoopin’ 1,826,130% gain).

 Let’s visit a few examples, with fixed variables just to show you what compound interest can do:

Let’s say you invest $8000 today, into a fund that will average out 8% a year, compounded for 33 years:

Year 1:     $8,640

Year 5:     $11,754.62                             Year 30:   $80,501.26

Year 10:   $17,271.40                            Year 31:   $86,941.36

Year 20:   $37,287.66                           Year 32:   $93,896.66

Year 27:   $63,904.49                           Year 33:   $101,408.40

Year 28:   $69,016.85

Let’s say instead of starting to invest when you’re 22 years old, you start later at 25.

That’s a 3 years difference. By the time you hit that $80,501.26 mark, someone who started 3 years earlier would have $101,408.40. Imagine what you can do with an extra $20,907.

Let’s go with a more eye-opening example, a fund that yields good results: 

 Let’s say you invest $12,000 today, and another $100 monthly into an amazing stock or fund that will yield 15% a year compounded for 23 years.

Year 1:     $15,095.42         Year 19:   $285,052.50

Year 5:     $32,870.49        Year 20:   $329,105.79

Year 10:   $74,848.51         Year 21:   $379,767.08

Year 15:   $159,281.30       Year 22:   $438,027.56

Year 17:   $213,434.67       Year 23:   $505,027.11

Year 18:   $246,745.29

Like the previous example, instead of starting at 22, you start at 25. Within those 3 years, you’re lagging behind $175,921.32 compared to someone who started at 25. You’ll have $329,105.79 (still very good) while you could have $505,027.11 (half a million dollars-even better), if you had just started 3 years earlier.

Think about it… that difference is enough for a considerable downpayment on a condo/ house in Toronto, Canada or can be used as retirement income.

Of course, this example fixes a lot of variables and requires a good return of 15% compounded over 23 years (rare, but yes, this type of performance does indeed exist): it shows the importance of time and starting early in investments.

 

“A low-cost index fund is the most sensible equity investment for the great majority of investors…by periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals”.

-Warren Buffett

Now let’s say you decide to buy an index fund, as suggested by Buffett. Let’s keep it simple and select the Dow Jones Average. In 1915, it was $1,304 (inflation adjusted) and is currently sitting at around $17,360 as I’m writing this in late spring 2016. In 101 years, it went up around a total of 1,352%. That’s a multiple of about 13 times your investment. Compound interest paired with time does wonders.

If you’re worried about the market crashes and depressions, note this:

The Dow Jones Average survived the Great Depressions and countless others, 2 World Wars, more wars that followed, oil glut, the dot-com bust, the subprime mortgage crisis, etc. and will continue to survive and strive for times to come.

Mistakes

Mistakes are inevitable, they are part of the learning curve but you want to learn from it early, not late. Starting early will leave you room for mistakes. It allows you to adjust your strategies and gives you extra time to learn.

“If you love life, don’t waste your time, for time is what life is made of.”

-Bruce Lee

In summary, the examples provided have many fixed variables. The goal was to illustrate the difference even a few years can make in compound interest output. I am not implying that investing in stocks, bonds, index funds, mutual funds, etc. is the only way to take advantage of time. You may even choose to invest in your very own business.

Therefore, first investing in yourself could prove to be an invaluable investment, paired with time, your skills will grow exponentially which may provide you with valuable breakthrough ideas and investment knowledge.

All in all, start early, not late. Perhaps the earlier you start, the earlier you get to reaching your goals, and perhaps then, the more time you’ll have to enjoy your definition of a successful life. I would recommend the following books for those beginning in investing, the knowledge I have acquired from them are invaluable.

Of course, JMO (just my opinion).

For beginners, I would recommend the order as follows:

 1-The Neatest Little Guide to Stock Market Investing by Jason Kelly (I read this first too).

2-The Intelligent Investor by Benjamin Graham (Life changing book)

3-One Up on Wallstreet by Peter Lynch

4-Common Stocks and Uncommon Profits by Philip A. Fisher

5-Technical Analysis of The Financial Markets by John Murphy

6-Options made Easy by Guy Cohen (Just to explore derivatives)

This Book Will Change Your Life

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When Warren Buffett was 19, he stumbled upon this book that forever changed his life. He even says that it’s “By far the best book on investing ever written”. Much of Buffett’s investing style has been influenced by his mentor and the author of this book; Benjamin Graham.

The Intelligent Investor was the second book I read, and YES, it was absolutely life changing. I read it again a few times again and will continue to re-read it in the future, as you should.

It doesn’t require excessive intelligence nor does it require much math, most calculations is elementary level (lucky for us, or at least, for me).

Not only has it provided me with great investment knowledge and shaped by investment style, it also strongly shaped my business perspective. This book opened my mind to the investment world and it allowed me to easily read every other investing book that followed.

Every student, let alone business students, should read this; the sooner the better. You can get the book here. Below I outline the main concepts from a few important chapters:

Chapter 1: Investing vs Speculating

There is an important line between investing and speculating. Benjamin Graham states it as follows:

“An investment operation is one which, upon through analysis promises safety of principal and an adequate return, operations not meeting these requirements are speculative”.

Proper investing requires necessary fundamental analysis, margin of safety and excellent temperament.

You hear speculation often: “I bought shares of XYZ because the price dropped, I feel like its going to go up tomorrow, I’ll sell it when it goes back up”: this is a gamble, not an investment.

Chapter 8: The concept of Mr. Market

The stock market is paralleled with a character that Graham calls Mr.Market. Imagine you own a share of a small business with your partner, Mr. Market. Everyday Mr. Market will tell you what he thinks your interest is worth and can offer to buy or sell you shares. Mr. Market has wild mood swings; sometimes he’s very optimistic and sometimes very pessimistic. Sometimes his valuation of your interest in plausible, and often other times, his valuations are illogical and silly.

Should you let Mr. Market’s daily evaluation of your share of the business influence and determine your view of the value of the share?

Only when you agree with him or want to trade. You may be happy to sell it to him when he quotes you a very high price for your share, and would be delighted to buy from him if he sells you his share for a cheap price. The rest of the time, you’re better off thinking for yourself and forming your own ideas of your value based on the business’ financial reports and operations.

Chapter 14: Defensive Investing

Graham notes 7 criteria for defensive stock selection:

1. Adequate Size and Enterprise: “All minimum figures must be arbitrary and especially in the matter of size required”. Avoid small companies, and companies with less than $100 million of annual sales for industrial companies, and not less than $50 million of assets for public utility.

2. A Sufficiently Strong Financial Condition: Current assets should at least double liabilities. Long term debt should not exceed net current assets.

3. Earnings Stability: Earnings are stable for past 10 years.

4. Dividend Record: Constant dividend payments for last 20 years.

5. Earnings Growth: Minimum increase of one-third of earnings per share during the last 10 years, calculate it by using 3 years averages at the beginning and end.

6. Moderate Price/ Earnings Ratio: P/E should be less than 15 for the past 3 years.

7. Moderate Ratio of Price to Assets (Price to Book Value): The price should not exceed more than 1.5x the most current report of book value.

 Chapter 20: Margin of Safety

“The risk is not in our stocks, but in ourselves”

This is one of the most important chapters (along with chapter 8) according to Warren Buffett. This chapter explores the risk factor. Determining a stock’s “true” value can be highly subjective, therefore intrinsic value isn’t a concrete value. By purchasing a “good company” at a significant discount, you leave yourself a margin for unforeseen errors (margin of safety). Think of it like this: “If I’m right, I can make a good sum of money, but what if I’m wrong”? You want to determine and minimize your exposure to risk.

If you’re building a sofa to support 6 people weighing 1000 lbs, you really want it to be able to support 1500 lbs; in case of a rainy day.

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need”.

If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it’s over the Grand Canyon, you may feel you want a little larger margin of safety“

-Warren Buffett

I strongly recommend this book to anyone, it will help shape the way you think as an investor and a businessmen or businesswomen, as it did for The Oracle; Warren Buffett, myself, and all those whom have read it.

You can get a copy of The Intelligent Investor here.

“The fault, dear investors, is not in our stars- and not in our stocks, but in ourselves”

– Benjamin Graham, The Intelligent Investor

5 CEO Qualities You Need

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Some of the greatest leaders and CEOs share very similar qualities and traits. There are so many factors that contributed to their success. We might not be able to reproduce their exact skills or knowledge, but we can gain their qualities! Below is your quality checklist:

1. Humility & Kindness 

Many of the greatest CEOs, including Ken Iverson, Mark Zuckerberg, Warren Buffett and Chuck Feeney are very quiet and modest individuals.
Inside The F8 Facebook Developers Conference
Photo from Wired.com
In fact, Zuckerberg doesn’t wear fancy chains or shoes, but wears a hoodie and t shirt to work. He plans to give away 98% of his Facebook stock during his lifetime.
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Photo from Freebeacon.com
Warren Buffett still lives in his 50 year-old home in Omaha he bought for $31,500. For a long time, he drove a 2006 Cadillac DTS. Already donating more than $21 billion, he plans to donate more than 99% of his fortune.
Chuck Feeney
Photo from Wisdomspoon.com
Chuck Feeney, Co-Founder of Duty Free Shoppers, nearly donated his whole fortune, an estimated $7 billion to various education and health organizations. He even wears an under $15 Casio watch during interviews. His estimated worth today is $2 million.

Own up to your mistakes.

Top CEOs will acknowledge when they have made a mistake. No one is perfect and mistakes are part of learning.
Warren Buffett publicly speaks out about his mistakes. Of course, admitting is not enough, you must prepare a course of action so mistakes do not repeat themselves.
“Most of you have never heard of Energy Future Holdings. Consider yourselves lucky; I certainly wish I hadn’t…About $2 billion of the debt was purchased by Berkshire, pursuant to a decision I made without consulting with Charlie. That was a big mistake”… “we suffered a pre-tax loss of $873 million. Next time I’ll call Charlie.”
-Berkshire Hathaway Annual Letter 2013

WE, not I.

The greatest CEOs have always credited the individuals whom contributed to the company. They seldom spoke about themselves during interviews and when they did, they never boasted.Be humble and understanding. The expert was once a beginner:
“Don’t be in a hurry to condemn because he doesn’t do what you do or think as you think or as fast. There was a time when you didn’t know what you know today.”
– Malcom X

2. Ever-growing passion

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“Without passion, you don’t have energy, without energy, you have nothing.”
– Warren Buffett
Many of the greatest entrepreneurs and CEOs work in fields they love. Bill Gates loves computers and the technology sector. Warren Buffett loves investing and businesses. Richard Branson has a passion for space and innovations. Steve Jobs had a passion for simple innovations.
“…the only way to do great work, is to do love what you do. If you haven’t found it yet, keep looking. Don’t settle. As with all matters of the heart, you’ll know when you find it”.
– Steve Jobs
With passion, comes continuous learning.
A true passion of a subject will drive you to learn everything you can about it. To be curious and to master it. To continuously innovate and envision.
“Vision is perhaps our greatest strength… it has kept us alive to the power and continuity of thought through the centuries, it makes us peer into the future and lends shape to the unknown.”
-Li Ka Shing

3. Independent thinker

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“You are right not because others agree with you, but because your facts and reasonings are sound.”
-Benjamin Graham
The greatest leaders were never afraid to stand alone, go against the status quo and defend their beliefs. They are able to ignore the noise and concentrate on the facts and their own ideas. They don’t allow the opinion other’s to drown out their own.
Steve Jobs believed and stood firm on his designs when they were deemed unconventional and highly probable to fail.
Warren Buffett bought shares of companies (such as Goldman Sachs) during the financial meltdown in 2007-2008 while everyone else was selling and panicking. Learning to hold your head in while everyone else is losing theirs is crucial. One contributing factor that will help you in times of mayhem is emotional intelligence.
“The key to success is emotional stability.” -Warren Buffett

4. Adaptability & Open-mindedness

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 Photo from Maniacworld.com
“Notice how the stiffest tree is most easily cracked, but the bamboo or willow survives by bending with the wind.”
-Bruce Lee
The top of the food chain has seen it all; from the flash- crash in 1987, dot-com bust, the sub-prime mortgage crisis to falling crude oil prices (again): their company will go through hell, but they adjusted their strategies and afterwards, not only survived, but excelled. Change when the facts change and always having the ability to adapt will help you overcome unforeseen obstacles.
 
“In Chinese we have a saying: If you want to be successful, whatever your business or position, you need to accept different opinions and different people.”
– Li Ka-Shing
Viewing the opinions of peers and competitors will always be beneficial. The more knowledge, the better your chances are at success. The open-minded individual is able to extract ideas from all sources; studying their weaknesses and strengths may contribute to innovative ideas.
“Why did the Yangtze become a long river? It’s because it can accept smaller rivers and become big.”
-Li Ka-Shing

5. Patience & Persistence

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 “Patience is a key element of success.” – Bill Gates
These are self-explanatory qualities. Rome wasn’t built in a day, neither was Microsoft, Apple or Berkshire Hathaway. The latter required more than 50 years of consistently good management and decision making for it to become the giant it is today.
It takes time to master skills, to implement business strategies and to see results. Long term objectives paired with persistent day to day actions are key.
“The stock market is designed to transfer money from the active to the patient.”
– Warren Buffett
Notice that the qualities of some of the greatest CEOs are very simple. Nothing too fancy requiring excessive human intellect (lucky for us, eh?).
Here is a quick summary:
1. Humility: Practice humility. Be Humble and give back when you can.
2. Passion: Be passionate, love what you do. It will give you the energy to excel in it.
3. Independent thinking: Think for yourself, know the facts and stand your ground when
needed.
4. Be open-minded: be open to new knowledge, be curious and also have the willingness to adapt when needed.
5. Patience: Great things take time to build. It’s not gonna be easy, but nothing of value comes easy. Time is the ally of the one who is passionate and willing to learn.
I would recommend the following combination on leadership:
–The Outsiders by William N. Thorndike
–Good To Great by Jim Collins
–The Boston Consulting Group on Strategy by Carl W. Stern & Michael S. Deimler
Of course, JMO (just my opinion) Cheers 🙂

8 Life Lessons From Warren Buffett

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Photo from Freebeacon
Warren Buffett, CEO of Berkshire Hathaway, billionaire, conglomerate king, philanthropist, and the greatest investor of all time. There are numerous lessons you can learn from “The Oracle”. Luckily, he believes that success and great investing doesn’t require too much intelligence (so we’re both in luck). Here are some quotes and lessons we can learn and incorporate:

1. Be King, not the Jack-of-all trades

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In various interviews, the legendary investor states:
“You only have to do a very few things right in your life, so long as you don’t do too many things wrong.”
You don’t have to be the best at everything, just one or a few is good enough. Concentrate on your “circle of competence” and know your limitations (be honest and acknowledge what you do not know). In times, concentration is better than diversification.
“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”
– Warren Buffet

2. Make time your friend

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Patience (young grasshopper…?). In some cases, it just takes time for good things to unfold. This can be reflected in his Buffett’s long term stock positions; the results in the long-run takes time to come (or else it would be called the short run).
Here’s the magic of patience coupled with a great stock: If you had invested $1000 in Berkshire Hathaway (BRK-A, Buffett’s company) in 1964, and patiently waited 50 years until 2014, you would have $18,261,630 (a whoopin’ 1,826,130% gain).
“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
-Warren Buffett
Learning and growing takes time, remember; the expert was once a beginner.
 

3. Force yourself to form good habits

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“Chains of habits are too light to be felt, until they are too heavy to be broken.”
– Warren Buffett
Make it a routine to do small tasks that will contribute to your long term goals. Buffett spends much of his everyday time reading and over the years has built an invaluable habit that contributes to his learning. I suggest the book: The 7 Habits of Highly Effective People by Stephen R. Covey.

4. Learn to value

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One of the greatest skill that an investor can develop is the ability to estimate “true” value. Whether it’s a stock, an opportunity or even a relationship, being able to know the true worth of something is always in your benefit.
Buffett states that long ago, his mentor, Ben Graham taught him:
“Price is what you pay. Value is what you get.”
“Whether were talking about socks or stocks, I like buying quality merchandise when they’re marked down”
-Warren Buffett
(good quality at a discounted price; one of the principles of margin of safety)

5. Surround yourself with people who are better than you

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One of the best ways to improve your own skill set is to surround yourself with others whom are better than you, and whom you admire. Buffett went straight to work for his mentor, Benjamin Graham, without even knowing what he was gonna get paid. Warren says:
“People always ask me where they should go to work, and I always tell them to work for whom they admire most.”
Here’s an exercise:  Think/Pick out people you admire the most (try not to pick yourself) and think of the qualities that make up that person. Now pick out someone you cannot stand and notice the qualities that turn you off.
“The qualities of the one you admire are traits that you, with a little practice, can make your own, and that, if practiced, will become habit-forming.”
– Warren Buffett
It is equally important to pick out great figures and heroes to look up to, for they will provide you with quality guidelines and inspiration for continual self-improvements.

6. Honesty and Integrity are essentials

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“Honesty is a very expensive gift, don’t expect it from cheap people.”
-Warren Buffett
It is great to associate yourself with intelligent and hardworking individuals, as it may bring out the best of you, but if they lack honesty and integrity; you may not know when that knife goes in your back.
“…when you hire someone you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire someone without (integrity), you really want them to be dumb and lazy.”
– Warren Buffett
It is important to associate yourself with the right people, notably honest ones; so choose your close ones carefully!

7. Always remind yourself of your long term goals

longterm goals

 
In everything you do, try to see how it will affect your long term goals. Buffett invests in quality stocks at discounted prices for the long term:
“Our favorite holding period is forever.” -Warren Buffett
You do not have to make your long term vision forever, but always plan for it; making sure you’re taking the right steps to reach it.

8. Investing in yourself is invaluable

selfmeditation

“The most important investment you can make is in yourself.”
– Warren Buffett
 At a young age, Buffett discovered investing and spent much of his time reading books about investing at the library. Knowledge is one of the best investments you can make for yourself. But it’s not the only one, your health is crucial to the equation (arguably even more important), The Oracle says:
 “Imagine that you had a car and that was the only car you’d have for your entire lifetime. Of course, you’d care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person’s main asset is themselves, so preserve and enhance yourself.”
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Photo by Michael Prince for Forbes
“Rule No.1: Never lose money.
Rule No. 2: Never forget rule number 1.” 
-Warren Buffett
I would strongly recommend reading “The Intelligent Investor” by Benjamin Graham; it covers the important lessons of value investing, intellectual framework in investing, margin of safety and much more! But don’t take my word for it, Buffett recommends it, as he says that stumbling upon that book was one of his luckiest moments in life.