05-4

New Month And The Buffet Formula

Ready or not it’s September 1st.

What did you learn in August 2014? Are you
planning on making this month better than August 2014?

Do you have some point in time that you did better
than August 2014? Which month/year was better? Use that
as a target to compare this month to.

What did you learn last month?

I watched some interesting, videos and learned some
principles that I will share below.

I was interested in the philosophies of people like Warren Buffett.

So I found a great documentary on him:

As you may or may not know, the host of this interview is
Evan Davis, the moderator of “Dragon’s Den”, the UK version of
“Shark Tank”.

From this video I learned some important principles (The Buffet Formula):

1. Invest, don’t speculate.

Interestingly, most folks playing the “stock game”, have all the efforts, but are not
as wealthy as Warren, who invests.

The investment attitude is to look to the asset itself to produce
the return.

His analogy was of buying a farm, and expecting it to produce a certain
amount per acre from its revenue.

He is looking at the farm’s daily production, not at the daily fluctuation of value
of the farm’s value. You buy the farm, knowing already it’s productive, and will
produce on a daily basis. So the farm’s value is going to increase over time because the
production daily steadily increases.

However, if you buy a stock, and hope it goes up
next week, to him is pure speculation.

2. Be a Business Owner

Don’t just buy shares of a company.
Warren, buys companies. He doesn’t just buy and sell stocks.

He has a holding company, Berkshire Hathaway, which
holds a collection of other companies.

He is a manager, as well as an investor.

3. Allocate Capital Efficiently

Take the profits of one business, and invest them into another.

4. Think Independently

In all your ways, be able to think for yourself.

Don’t let others do your thinking for you. And don’t let “the masses” control
the way you think.

Don’t follow the hype, noise, and bandwagons. The crowd is probably going to
stear you wrong.

Learn to tune that noise out, make your own appraisals based on accurate thinking

5. (Be able) to break your own rules

If your analysis, is wrong, be able to change it.

If you are on the wrong course, be humble enough to course correct,
and not stubborn enough to continue forward to destruction.

6. Give it away

After you make it, give it away.

The Warren Buffett, Charlie Munger (Warren’s right hand man) buying checklist:

A. They deal in things they understand.
B. They deal with businesses that have some sort of intrinsic characteristics that
give it some durable, competitive advantage.
C. A management already in place with a lot of integrity and talent.
D. The price has to make sense. No matter, how great the company is, it’s not worth an infinite price.

Enjoy,

Erik

PS:

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