This is my book No. 10 of the year 2015.
"Gems from Warren Buffet" by Mark Gavagan has some of the most wittiest and also the most insightful thoughts culled from 34 years of Warren Buffet's letters to Berkshire stakeholders....
Read on...
Just finished reading the e-book "Gems from Warren Buffet" by Mark Gavagan.
Here are the 27 key lessons that I learnt, after reading this book - each one a gem in itself. My comments and understanding based on my experience in the market is listed with each such gem. Enjoy reading and sharing...
# 1/ Invest in companies with great businesses AND great management, then mostly leave them alone.
Warren has always believed in "long" term investment in its true sense. He is against selling shares after one has invested, unless the fundamentals of the organisation or the business scenario itself has changed.
# 2/ In investing, it is not necessary to do extraordinary things to get extraordinary results. Do ordinary things well. Same holds true with life.
Sticking to your simple calculation and logic, even if markets are behaving irrationally, is an art - not only in stock investing but also in life. Warren believes that the results will eventually come, for sure.
# 3/ Facts do not cease to exist, either because they are unpleasant or because they are ignored.
Quite often, we are clouded by our gut feel or by the environment in which we operate. We are driven by thousand of irrational factors including what the so called "experts" broadcast on television and media. The fact, still, remains a fact - irrespective of whether we choose to ignore it or we do not like it.
# 4/ Noble intentions should be checked periodically against results.
While noble intentions are a key to great long lasting business and companies, ultimately those alone are not enough to achieve great results. To do so, you must have a solid business model as well as delivery and service capabilities. Therefore, while, one can get emotionally biased to a company with noble intentions, it is often better to check the business results at regular intervals and take corrective action, if needed.
# 5/ Accounting is but an aid to business thinking, never a substitute for it.
Accounting numbers are the language of business and as such are of enormous help to anyone evaluating the worth of a business and tracking its progress. However, accounting is but an aid to business thinking, never a substitute for it.
# 6/ Bad terminology is the enemy of good thinking.
A seemingly simple thing like using the right term for the right process can easily be overlooked. But not using the right term can often hamper our thinking capability because the mind gets diverted in the direction of the adulterated definition.
# 7/ Managers that always promise to ‘make the numbers’ will at some point be tempted to make up the numbers.
In a competitive market, where not everything is in one's control, it is very difficult to set a defined target and achieve it. The focus should be on the process that the company sets out to meet the target. If a company is promising you that it will 'surely' meet the numbers, that in itself is an alarming sign.
# 8/ The intellect should be the servant of the heart, but not its slave.
Your logic, intelligence and thinking can be superseded by your gut feel at times. However, that should not be the norm.
# 9/ It's a good idea to review past mistakes before committing new ones.
If we do not learn from the mistakes that we do, where we invested wrong, then we are not going to become a better investor with time. Learning is the key, and that is what separates a mutual fund investor from a stock investor.
# 10/ Manic-depressive personalities produce manic-depressive valuations.
One needs a stable and peaceful person to perform the right valuation of a company - which can enable us to take the right decision to buy or sell. Right valuation needs logically looking at the data in an unbiased and non emotional manner.
# 11/ Price and value can differ; price is what you give, value is what you get.
It is critical to understand the difference between the 'price' of a stock and the 'value' of a stock. Price is the amount at which a stock is trading right now. You will have to pay this amount to buy the stock. However value is the inherent worth of the stock. That is what you will get when you pay the price. A deal is worth only if the value is significantly higher than the price.
# 12/ You can't make a good deal with a bad person.
It is impossible to know all the possible intricacies of a deal before signing it, however attractive the deal may sound. Therefore, it is critical to be doing a deal with a trustworthy person.
Warren has always believed in "long" term investment in its true sense. He is against selling shares after one has invested, unless the fundamentals of the organisation or the business scenario itself has changed.
# 2/ In investing, it is not necessary to do extraordinary things to get extraordinary results. Do ordinary things well. Same holds true with life.
Sticking to your simple calculation and logic, even if markets are behaving irrationally, is an art - not only in stock investing but also in life. Warren believes that the results will eventually come, for sure.
# 3/ Facts do not cease to exist, either because they are unpleasant or because they are ignored.
Quite often, we are clouded by our gut feel or by the environment in which we operate. We are driven by thousand of irrational factors including what the so called "experts" broadcast on television and media. The fact, still, remains a fact - irrespective of whether we choose to ignore it or we do not like it.
# 4/ Noble intentions should be checked periodically against results.
While noble intentions are a key to great long lasting business and companies, ultimately those alone are not enough to achieve great results. To do so, you must have a solid business model as well as delivery and service capabilities. Therefore, while, one can get emotionally biased to a company with noble intentions, it is often better to check the business results at regular intervals and take corrective action, if needed.
# 5/ Accounting is but an aid to business thinking, never a substitute for it.
Accounting numbers are the language of business and as such are of enormous help to anyone evaluating the worth of a business and tracking its progress. However, accounting is but an aid to business thinking, never a substitute for it.
# 6/ Bad terminology is the enemy of good thinking.
A seemingly simple thing like using the right term for the right process can easily be overlooked. But not using the right term can often hamper our thinking capability because the mind gets diverted in the direction of the adulterated definition.
# 7/ Managers that always promise to ‘make the numbers’ will at some point be tempted to make up the numbers.
In a competitive market, where not everything is in one's control, it is very difficult to set a defined target and achieve it. The focus should be on the process that the company sets out to meet the target. If a company is promising you that it will 'surely' meet the numbers, that in itself is an alarming sign.
# 8/ The intellect should be the servant of the heart, but not its slave.
Your logic, intelligence and thinking can be superseded by your gut feel at times. However, that should not be the norm.
# 9/ It's a good idea to review past mistakes before committing new ones.
If we do not learn from the mistakes that we do, where we invested wrong, then we are not going to become a better investor with time. Learning is the key, and that is what separates a mutual fund investor from a stock investor.
# 10/ Manic-depressive personalities produce manic-depressive valuations.
One needs a stable and peaceful person to perform the right valuation of a company - which can enable us to take the right decision to buy or sell. Right valuation needs logically looking at the data in an unbiased and non emotional manner.
# 11/ Price and value can differ; price is what you give, value is what you get.
It is critical to understand the difference between the 'price' of a stock and the 'value' of a stock. Price is the amount at which a stock is trading right now. You will have to pay this amount to buy the stock. However value is the inherent worth of the stock. That is what you will get when you pay the price. A deal is worth only if the value is significantly higher than the price.
# 12/ You can't make a good deal with a bad person.
It is impossible to know all the possible intricacies of a deal before signing it, however attractive the deal may sound. Therefore, it is critical to be doing a deal with a trustworthy person.
# 13/ Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.
We often tend to hold on to loss making stocks - some of us do so for our entire life in the hope that some day they will be back in green. We even try buying them at dips, to reduce the average cost. Warren says that once you are absolutely clear that this stock is not worth keeping, you should not waste too much time on it - rather take out whatever money you get, even if it is in loss, and invest it at the right place.
# 14/ It's not what you've got - it's what you do with what you've got.
# 15/ We are willing to look foolish as long as we don't feel we have acted foolishly.
There will be times when an irrational market may make you look foolish, but that is just fine. That is the nature of the market. It is ok as long as you are sure about your calculations.
# 16/ Speculation is most dangerous when it looks easiest.
When everyone is speculating an 'endless' bull run, that is the time when the market is most dangerous for an investor. That is the time when the skill and art of investing is needed. One needs to stick to the core value calculations, with emotions detached to take an informed decision.
# 17/ You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about.
# 18/ The declines make no difference to us, given that we expect all of our businesses to now and then have ups and downs. (Only in the sales presentations of investment banks do earnings move forever upward.)
If someone shows you an ever increasing growth, be sure that it is just a sales presentation. Do not get too much swayed away by it. Ups and Downs are a part of the business. You need to stick to the business, as long as the management and fundamentals hold good.
# 19/ In the stock market, what the wise do in the beginning, fools do in the end.
When everyone is selling, the wise are buying and when everyone is buying, wise get a great opportunity to sell and make handsome returns.
# 20/ We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community. The timing of these epidemics will be unpredictable. And the market aberrations produced by them will be equally unpredictable, both as to duration and degree. Therefore, we never try to anticipate the arrival or departure of either disease. Our goal is more modest: we simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
#21/ Stocks can’t outperform businesses indefinitely.
While the stocks are swayed in price by market sentiments, they cannot continue to do so for ever. The Stock Price, sooner or later, will meet its value. Therefore, value calculations and value investing is the key.
# 22/ When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.
Invest always in a business you trust, even if it is not as lucrative and profitable as the other one, which is less trustworthy.
# 23/ The most important thing to do when you find yourself in a hole is to stop digging.
As soon as you realise that you have done a mistake, try and come out of the situation. There is no point continuing with the mistake and keeping your fingers crossed, hoping God to intervene and do some miracle on your 'mis' investment.
# 24/ It's only when the tide goes out that you learn who's been swimming naked.
You would realise and you can differentiate between an 'investor' and a 'speculator' only when the good times are gone.
# 25/ A promise is no better than the person or institution making it.
When going by the business goals of a company, make sure you understand who is promising those goals, make sure you understand the management that is actually running the business.
# 26/ The most elusive of human goals - keeping things simple and remembering what you set out to do.
Keeping things simple and sticking to your simple and trusted calculation seems easy, but is one of the most difficult things to do in this world of hyped media.
# 27/ Anyone who says money can’t buy happiness simply hasn’t learned where to shop.
Earning money is not bad. Money is a very good thing, if you just know how to use it. It can even buy happiness for you, if you understand how to use it the right way.
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The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.
Cheers
Manoj Arora
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Superb article...!! Good one Manoj
ReplyDeleteThanks buddy !! :)
Deletevery informative post for me as I am always looking for new content that can help me and my knowledge grow better.
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