Warren Edward Buffett: how to invest wisely?
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  1. #1

    Warren Edward Buffett: how to invest wisely?


    Warren Buffett was born at August 30, 1930 in Omaha, Nebraska. He began his first study about business, economy and investments at Wharton School of the University of Pennsylvania in 1947 before he transferred himself to University of Nebraska at the age of 19 which he eventually graduated there. Warren Buffett in his young age also went on to graduate from Columbia Business School, where he molded his investment philosophy around the concept of value investing that was pioneered by Benjamin Graham. Later he attended New York Institute of Finance to focus his economics background and soon after began various business partnerships, including one with Graham. He created the Buffett Partnership after meeting Charlie Munger, and his firm eventually acquired a textile manufacturing firm called Berkshire Hathaway and assumed its name to create a diversified holding company until now.

    Warren Buffett's young and old figure.

    Warren Edward Buffett, which famously known as Warren Buffett is included as one of the most successful investors in the world. Not only top investor, he is also a business magnate, speaker and philanthropist who serves as the chairman and CEO of Berkshire Hathaway. Warren Buffett has a record of total wealth worth 84.4 billion USD as of November 1, 2018, making him the third-wealthiest person in the world, which the first place is taken by Jeff Bezos the CEO of Amazon and the second place is taken by Bill Gates the CEO of Microsoft according to Forbes 400 2018. Warren Buffett known as the Wizard, Oracle, or Sage of Omaha by global media outlets due to his wide experience in the business and also for his excellent knowledge in the field. It is a non questionable if people doubt his decision, which made Warren Buffett as the chairman of Berkshire Hathaway and kept the largest shares since 1970 with his company.

    Early experience of making business

    Even since his youth, Warren Buffet already participated into many shares buying. For example at his 11, he bought 3 shares of Cities Service preferred for himself, and 3 more for his philanthropic sister Doris Buffett. At the age of 15, Warren Buffet made more than $175 every month by delivering Washington Post newspapers. During his high school time, he focused on the business invested his money to a company owned by his father and bought a 40-acre farm worked by a tenant farmer. He bought the land when he was 14 years old with 1,200 USD of his savings. In 1944, Warren filed his first tax return and reached his short-term goal of having 1,000 USD. By the time he finished college, Warren Buffett had accumulated $9,800 in savings which now is equal about 101,000 USD. Such a great experience during his youth and he already showed the skills of becoming a professional in the future which now he achieved it all.

    Young Warren Buffett with his first tax payment at the age of 14.

    In grade school and high school Warren Buffett not only showed his precocious proclivity for business by delivering newspapers but he also sold stamps, Coca-Cola beverages, golf balls and magazines door-to-door while also working as an editor for a horse racing tip sheet called Stable-Boy Selections. During this period, Warren Buffet started a pinball leasing business too. He and his business partner bought cheap pinball machines, ensured they were in working order and then installed them to get his high school classmates coins.

    This is Edward Kastelic, Warren Buffett's kind of guy who sold the newspaper for living. Similar to what Warren Buffett's done in his young age.

    The beginning of successful life and mindset

    From 1951 to 1956, Warren Buffett was an investment salesman and a securities analyst. By 1956 he had 174,000 USD and a house which he decided to retire at 26 years of age under the belief that he could make enough money from his investments alone to live a comfortable life. However, Warren Buffett realized that to meet his goal of becoming a millionaire by age 35, he would have to be more active than he used to be. Fortunately for his future partners and Berkshire Hathaway shareholders, Warren Buffett changed his mind and went after the opportunity for his biggest success. In 1956, he started Buffett Partnership Ltd.

    Warren Buffett's first and most famous and influential deal was his acquisition of Berkshire Hathaway in 1964. The company started life in the 1830's as the Valley Falls Company, a textile manufacturer and then became the Berkshire Fine Spinning Associates in 1929 before eventually merging with the Hathaway Manufacturing Company in 1955. After the merger, Berkshire Hathaway was a profitable business with millions of dollars in revenue, 12,000 employees and 15 factories. Warren Buffett made his first investment in the company in 1962. Although Warren Buffett partnerships had been successful, he decided to dissolve the firm in 1969to focus on his efforts on developing Berkshire Hathaway.

    Warren Buffett with his staffs at Berkshire Hathaway.

  2. #2
    Success tips from Warren Buffett

    For all Berkshire Hathaway employees, Warren Buffett is a father. Just like a father of the company, once a year Buffett wrote a special letter to Berkshire Hathaway shareholders. The letter which containing the advice is also filled with different point of views, as well as his anxiety towards the world economy. The 2018 annual letter was announced some time ago. Like other letters written by Buffett since 1965, this year's magic fold of paper also contains lessons that investors do not deserve to ignore. These points below are the following tips for Buffett's success:

    1. Treat stocks like a business, not tickers
    "I see shares owned by Berkshire as a business interest, not as a ticker symbol to buy or sell based on a 'chart' pattern, 'target' price analysis or media expert opinion." said Buffett. According to me, I take this tip as a form of seriousness to work in this business. Stocks, which similar to Forex trading must be considered as a business not as tickers or gambling. Without a focus and seriousness, traders will not make it through alive and well succeed just like Warren Buffett.

    2. Good business, will be a good investment in the long run
    "We only believe that if the investor's business is successful, our investment will be succeed too. Sometimes payments to us will be simple, sometimes the cash register will ring loudly. Overall - and excess time - we have to get decent results. In the US, equity investors have winds moving behind them." said Buffett. In my opinion, first thing to do before someone wants to do a business, they must know about the business core explanation and details first by looking into its legitimate regulation and how many people are doing the same thing for years. Only do the business with a trustworthy label and honest where we can work in long term.

    3. Do not invest with loan money
    Buffett said, "Using loan money to buy shares, or buy margins, is a risky proposition for individual investors." Why? "This can strengthen losses when stocks go down and cause you to panic," he warned. Buffett said again that, "Nobody knows how far stocks can fall in a short time. Even if your loan is small and your position is not immediately threatened by a plunging market, your mind may be worried by scary headlines and stifling comments. An uneasy mind, will not make a good decision." For me, this is has become a painful experience where I lost my deposited accounts by using loan money. Unfortunately, it was too late to realize this and get such tips after I do not have anything yet but now I gain the experience from that loss.

    4. Avoid investment with high costs and high risks
    Buffett praised his recent fortune in a bet in December 2007. 11 years ago, he bet the S & P 500 stock index will provide better results in a span of 10 years, from 5 hedge funds that invest in other hedge funds, and run by high-cost fund managers, often seen as "smart money" on Wall Street. The S & P 500 easily gained, posting an average annual increase of 8.5%, easily surpassing the 5 hedge fund portfolios. Then Buffett said, "US investors pay a surprising amount each year to advisers, often giving rise to several consequential cost layers. Overall, do these investors get their money?". "The answer to this question is very important," wrote Buffett. The answer is "No."

    Long term investment is what make Warren Buffett became one of top wealthiest people in the world. He did not get it from a short term trading in a day or a week but his success came with his hard work that he started from young age. Beginners and myself should learn how to expect logical things from Warren Buffett's view and not going too hesitate and taking things in a hurry because this business requires a lot of patience and hard work.

    Last edited by Azis Muslim; 11-22-2018 at 07:22 AM.

  3. #3
    5. Be fearful when others are greedy and greedy when others are fearful

    This attitude later, said Warren Buffet, helped him to get out in the moments of the financial crisis. Not only that, he also suggested that someone could be keen to see the opportunity to buy large company shares at low prices. "In short, bad news is an investor's best friend. This allows you to buy a future piece of America at a clear price," he said. Although Buffett's tips are not always perfect, but he still suggested that investors can see simple or fundamental things when investing.

    A quote from Warren Buffett should encourage traders to be confident while trading and be afraid on certain circumstances. Look at the bright side of being greedy, high return will come to us as the reward but this must be managed carefully with a lot of experience. Bad result still come when we do this without having any knowledge in trading and no experience to keep our psychology to market.

    6. Always reading

    Warren Buffett usually read 5 to 6 hours a day. He reads 5 daily newspapers, magazines, and annual reports. He shows an example of reading as his favorite activity and the reason why he become success now, he always read since his young age. Consider reading as a new habit that helps us change who we are and what we can do. Reading is the activity we can do with books, so it is important to get the books related to this business.

    Reading will improve ourself in many different ways and we should be thankful to the writes who created and also publisher of the books because their hard work to make a book can be learned in couple hours by us the readers while they need days, months, or years to conclude their ideas and write their experience to books which now we are currently reading. Compared to things we can find on internet, books are more organized and can be found in specific place related to the topic. Many other successful people also read everything they need to know more and better than the others. It is a truly competition in getting knowledge, so the more we know the more we can do.

    7. Be patience and discipline

    There are many pairs in market we can choose to trade. According to Warren Buffett's tip, do not trade with multi pairs but focus to one. He knows that more pairs offers bigger opportunities but there should be enough we can get from 1 pair and keep our focus to that one all the time. Understand the characteristic and price movements of the pair we use, then patience while waiting for the right time to trade. Handling one pair to trade and make the analysis is much easier to do than organize many trades from different pairs at the same time. We know some people can do that, but for how long? I am sure that is tiring to do and not suggested by Warren Buffett as well.

    Consider of having the time to focus and trade on the things we understand and avoid trading when we do not understand about current price and movement. Waiting for the right timing is important to give us the joy of trading and the result in huge profits. Maybe we lose plenty of opportunities in market but we do not take them because we do not have the analysis to trade them. Safety and guaranteed trading is better to do rather than making random speculation or analysis with half of accuracy. We do not need to make a lot of correct decisions in trade because making enough of them should guarantee us to success as long as we trade on things we understand.

    8. Accept your mistakes

    Even a big investor like Warren Buffett made a lot of mistakes too. He admitted that he did many mistakes in his past which he accepted it later in the next couple years. He knows it is wrong so we here to learn from his story and take his experience so every time we make mistakes, accept it soon to be able to do the best thing after without wasting more time in guilt. A good trader is how good he or she can admit their mistakes in life and learn from it.

  4. #4
    9. Never give up and believe in yourself

    Warren Buffett started his career since his young age at 11 years old and he completely did everything by his own hard work. He did not go for a shortcut, not looking for easy way, and not complaining about his own mistakes and blame things for them. He patiently worked, saved all his earning as paper boy and did a lot of job such as selling beverages because he knew he was selling the right products everyone currently looking for and he was fulfilling the supply and demand as the market maker. Warren Buffett has a target since his youth which also his own promise to his parents that "I will make my first million dollars by 35 or I will throw myself off the tallest building in Omaha." Now we can all see where is he and he does not need to jump off the building because he fulfilled his promise.

    10. Invest in yourself first, then invest your money

    A trader's true skills may be still hidden inside themselves which need to be revealed sooner or later. We can not do much with our money and can not decide what to do while trading or taking decision because we do not know who we are. Try to understand ourself by looking deep down into our knowledge and limitations. If we realize that we are still lack of patience then find the way to change our habit from impatience to patience. Another thing is when we can not control our temper while trading then we must train ourself to keep as calm as possible. High IQ is not a guarantee for traders to make profits in the business unless they also learn how to stay calm while trading, not to get easily angry and make it as bad temperament.

    Warren Buffett is also a real proof to us all that everyone can become anything they want as long as they work hard to achieve their dream. Going into college and get high degree not always a guarantee of success because success is determined by efforts. The more we work and the patience we are while doing it, we can make it out even without having a regular education from college or school. Many businessmen and entrepreneurs not only Warren Buffett that I know in Indonesia, such as Bob Sadino who only finished his high school but succeed with his business. His track record also proved that hard work is what determine his success and it is not happening in an instant way. These men has all it takes to become success from the beginning.

    11. Find your own passion

    Know what we can do and understand most in this life. There should be some or few things we really like to do and when we do it, we feel relax, happy, and got no tension. There is a saying "make your hobby as your money making machine" is really suitable with this tips. So whatever we can do, find our passion and we can not get it by doing one jobs. Maybe we need to quit and test the others until we can find what we are good at and how we like to do it. Warren Buffett become successful from stocks trading because he really interested and found his passion in math and investments while thinking about the possible futures of the company. And to make our own story, we must choose and find our own passion in any business.

    12. Hire the right people for your company

    This tips applies when you finally gather some money to create your own company with you as the boss. I also remember a quote from Bob Sadino which I previously mentioned above, he said "no matter how high your position is in the company, you are still an employee. However, it does mot matter how small your company is, but you are the boss." For an example, when we got enough money to open a small restaurant or a food truck, it is a small business to do but we can not underestimate the tittle we get and we will be working as the boss, the owner.

    With this small business, we must find trustworthy employees that, according to Warren Buffett must have these 3 requirements: intelligence, energy, and integrity. If they all have the first 2 requirements but not fulfilling the last one with integrity, we better skip and do not hire that kind of people because they will soon kill our business sooner or later.

    13. Unconditional love

    What makes a young Warren Buffett worked hard from his young age until now is the unconditional love from his parents, especially his father, Howard Buffett who encourage him to do anything he like as long as he do it seriously. Not only by giving the trust to his son, Howard Buffett also supported everything that his son want to do in all aspects. It is the reason that make Warren Buffett success now. However, if we do not get this support from people around us especially from our family, we still can make friends with other people who got the same situation. Let our family disagree on us about this, do not feel sad. The best thing we can do is to prove them with our success and show them that we can make it even without their supports.

    14. Trade with managed risk

    Big reward does not always come in big risk, it depends on the timing and patience to go at perfect moment. A trader who practice one same strategy for a year is better than the other who practice different strategies in a year. Believe in traders who consistently learning with basic rather than those who trying to understand complicated things. Our result will answers all the question and it is a great proof.

    15. Do not make small mistake be repeated and ruined everything we have achieved

    Have your performance keep in safe place and managed. Do not ever fall or tempted to make mistakes by doing things without analysis and calculation. Ignore our feeling and emotions while we work to prevent mistakes and make us lose the trades. Focus on what we have with our trading system, and let other traders do whatever they believe because they also have their own trading system. Do not try to copy them because it will interrupt our concentration with our own things and could blown everything we have achieved so far.

  5. #5
    Warren Buffett's 5 Biggest Wins

    1. GEICO (1951)

    At 20 years old, Buffett was attending Columbia Business School, and was a student of Benjamin Graham’s. When young Buffett learned that Graham was on the board of the Government Employees Insurance Company (GEICO), he immediately took a train to Washington, D.C. to visit the company’s headquarters. On a Saturday, Buffett banged on the door of the building until a janitor let him in, and Buffett met Lorimer Davidson – the future CEO of GEICO. Ultimately, Davidson spent 4 hours talking to this “highly unusual young man”.

    By Monday, Buffett was “more excited about GEICO than any other stock in his life” and started buying it on the open market. He put 65% of his small fortune of $20,000 into GEICO, and the money he earned from the deal would provide a solid foundation for Buffett’s future fortune. Although Buffett sold GEICO after locking in solid gains, the stock would rise as much as 100 multiplied over time. Buffett bought his favorite stock again a few years later, loaded up further during the 1970's, and eventually bought the whole company in the 1990's.

    2. Sanborn Maps (1960)

    This early deal may not be Buffett’s biggest, but it’ is the clearest case of Benjamin Graham’s influence on his style. Sanborn Maps had a lucrative business around making city maps for insurers, but eventually its mapping business started dying and the falling stock price reflected this trend. Buffett, after diving deep into the company’s financials, realized that Sanborn had a large investment portfolio that was built up over the company’s stronger years. Sanborn’s stock was worth $45 per share, but the value of the company’s investments tallied to $65 per share.

    In other words, these investments held by the company were alone worth more than the stock and that did not include the actual value of the map business itself. Warren Buffett accumulated the stock in 1958 and 1959, eventually putting 35% of his partnership assets in it. Then, he became a director and convinced other shareholders to use the investment portfolio to buy out stockholders. Later, he walked away with a 50% profit.

    3. The Salad Oil Swindle (1963)

    For a value investor like Warren Buffett, every mishap is a potential opportunity. And in 1963, a con artist named Anthony “Tino” De Angelis inadvertently set Buffett up for a massive home run. After De Angelis attempted to corner the soybean oil market using false inventories and loans, the market subsequently collapsed.

    American Express, the world’s largest credit card company at the time got caught up in the disaster, and its stock price halved as investors thought the company would fail. Although everyone else panicked, Buffett knew the scandal would not affect the overall value of the business. He was right, and he bought 5% of American Express for $20 million. By 1973, Warren Buffett’s investment increased 10 times in value.

    4. Capital Cities / ABC (1985)

    In the 1980's, corporate raiders and takeover madness reigned supreme. The massive TV network ABC found itself vulnerable, and sold itself to a company that promised to keep its legacy intact. Capital Cities, a relative unknown and a fraction of the size, had somehow managed to buy ABC. The CEO of Cap Cities, Tom Murphy, one of Buffett’s favorite managers in the world, gave Warren a call which shown in picture below:

    Berkshire dropped $500 million to finance the deal. This turned Buffett into Murphy’s much-needed “900-lb gorilla”, a loyal shareholder that would hold onto shares regardless of price, as Murphy figured out how to turn the company around. It turned out to be a fantastic gamble for Buffett, as Capital Cities/ABC sold to Disney for $19 billion in 1995.

    5. Freddie Mac (1988)

    Warren Buffett started loading up on shares of Freddie Mac in 1988 for $4 per share. By 2000, Buffett noticed the company was taking unnecessary risks to deliver double-digit growth. This risk, and its short-term focus, turned Buffett off the company. As a result, at a share price close to $70, he sold virtually all of his holdings and enjoying a return of more than 1,500%. Later on, Freddie Mac’s business would collapse in the housing crisis, only to be taken over by the U.S. federal government. Today, its stock sells for a mere $1.50 per share.

    Warren Buffett's 3 Biggest Mistakes

    1. Berkshire Hathaway (1962)

    When Buffett first invested in Berkshire Hathaway, it was a fledgling textile company. Buffett eventually tried to pull out, but the company changed the terms of the deal at the last minute. Buffett was spiteful, and loaded up with enough stock to fire the CEO that deceived him. The textiles business was terrible and sucked up capital and Berkshire unintentionally would become Buffett’s holding company for other deals. This mistake, he estimates, costed him an estimated $200 billion.

    2. Dexter Shoes (1993)

    Dexter Shoe Co. had a long, profitable history, an enduring franchise and suberb management. In other words, it was the exact kind of company Buffett liked. Buffett dropped $433 million in 1993 to buy the company, but the company’s competitive advantage soon waned. To make matters worse, Warren Buffett financed the deal with Berkshire’s own stock, compounding the mistake hugely. It ended up costing the company $3.5 billion. Later on, Buffett would say that this deal deserved a spot in the Guinness Book of World Records as a top financial disaster.

    3. Amazon.com (2000's)

    Warren Buffett says not buying Amazon was one of his biggest mistakes. Given that Amazon has shot up in value to become one of the most valuable companies in the world, and that Jeff Bezos is by now the far richest person globally, it’s fair to say this whiff continues to haunt Warren Buffett to this day.

  6. #6
    Warren Buffett and Cryptocurrency

    1. "Now if you buy something like bitcoin or crypto currency, then you don't have anything that can produce. You just hope other people will pay more."
    2. "In addition to call buying cryptocurrency, Bitcoin is more like gambling and not investing."

    3. “If I could buy a 5 year put on every one of the cryptocurrencies, I would be glad to do it but I would never short a dime’s worth.”
    4. “They’re non-productive assets. It is essentially will not deliver anything other than supposed scarcity. What does it produce itself? Anytime you buy non-productive assets, you are counting on someone later on buying a non-productive asset. It does come to a bad ending. Cryptocurrencies will come to a bad ending.”

    5. “We don’t think of whether we should be in tech companies or not, we do get into durability and competitive advantage.”
    6. “It is something where people who are of less than stellar character see an opportunity to clip people who are tying to get rich because their neighbors are getting rich buying this stuff that neither of them understands.”
    7. "Investing in cryptocurrencies or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment. Disclosure: I do not own any Bitcoin."
    8. "If you buy a farm, an apartment house, or an interest in business, you can do it privately. And it is a truly perfect investment. You can see for yourself how that investment makes you profitable."
    9. “We do not own any, we are not short any, we will never have a position in them.”

    10. "If you ban trading in ... bitcoin, which nobody knows exactly what it is, people would say, 'Well why in the world would I buy it?'"

    While it is hard for everyone to debate Warren Buffett, some cryptocurrency experts think that he is wrong on his opinion about cryptocurrency especially with Bitcoin. Darren Marble, CEO of CrowdfundX, is one of them. "Although Warren Buffet has made the right call on many investments, he is dead wrong on Bitcoin, because he is totally clueless to the technology,” says Marble. “How could someone who doesn't use email possibly appreciate Bitcoin? They can't.”

    Responding to this statement, me, deep inside my awareness to compare between him and Warren Buffett, he is not in a good position to call Warren Buffett that way because it is our success that show who we are and what we have achieved in many years of work. Not by getting influenced by new things like technology which Darren Marble argued with Warren Buffett's commentaries about cryptocurrency. If we can become a billionaire without using technology and do things in traditional way, why would we need to use them? Technology is complicated and updated almost every minutes, we can never follow it. But money and value are what we must get from our hard work, thanks to Warren Buffett that he showed us how to do that.

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