Why He’s Warren Buffett — and You’re Not

Warren Buffett has already told the world what he’s doing in this frightful market. The Oracle of Omaha proudly proclaimed that he’s “been buying American stocks” with his personal funds.

But it should also be noted that Buffett has been putting his investors’ money on the line as well. After sitting on piles of cash for several years and lamenting the lack of attractive opportunities, Buffett has made several key acquisitions through his investment conglomerate, Berkshire Hathaway, culminating in a flurry of late- September and early-October deals.

In just a two-week span, Buffett picked up Constellation Energy for the relative bargain price of $4.7 billion. He bought $5 billion in preferred stock from Goldman Sachs, receiving a fat 10% yield. And he purchased $3 billion in preferred shares of GE, also yielding 10%.

This doesn’t mean Buffett is saying go out and buy Goldman or GE (GE) stock. In fact, there are plenty of reasons why you shouldn’t try to follow his lead, not the least of which is the fact that Berkshire gets deals that individuals simply can’t.

But that’s not the point. The opportunity here is to pick up some valuable investing wisdom from the greatest practitioner alive. In this spirit, here’s what I think you can learn from Buffett’s moves:

Be Greedy When Others Are Fearful

It’s the most famous of all Buffett-isms: “Be fearful when others are greedy and greedy when others are fearful.” Today there’s ample evidence that people are scared, as fund investors have been redeeming record amounts of money from their stock portfolios.

By contrast, Buffett is putting his money to work. Berkshire’s cash balance, by my estimate, is at its lowest level in recent memory.

Now, this doesn’t mean the market will turn around tomorrow. But Buffett’s point is that this is not the time to flee U.S. stocks. In fact, now is a great time to be looking for shares of high-quality firms that have been beaten down to affordable levels.

For examples of attractively priced industry leaders, see the suggestions to the right.

Don’t Be Hobbled by Past Mistakes

Buffett’s investment in Goldman Sachs (GS) was surprising to many, given his frequent digs at Wall Street’s casino culture and a problematic investment he made in Salomon Brothers.

In 1987, Buffett bought a stake in Salomon to ward off a hostile takeover, but the firm nearly collapsed amid a bond bid-rigging scandal a few years later, and Buffett had to step in as interim chairman.

Although the investment eventually worked out - Salomon was bought by Travelers, which merged with Citicorp to form Citigroup (C) - it’s safe to say that it was a longer and harder road than he had anticipated.

Still, Buffett understood that investment banking, for all its recent woes, is an attractive business if managed properly. The group of top-tier firms is fairly small, and it would be hard for a new competitor to break into the business, which gives Goldman Sachs tremendous bargaining power over its customers.

There’s an important lesson in this for individual investors. Just because many financial stocks in your portfolio have imploded recently, it doesn’t mean you should sell out of this sector entirely - or turn your back on these stocks for good.

Don’t Fall in Love With Your Stocks

Buffett is famous for having said that his favorite holding period is “forever.” But he will sell a stock he loves if conditions warrant. For example, late last year, as crude-oil prices were approaching $100 a barrel, Buffett jettisoned his stake in PetroChina (PTR).

Why? After multiplying more than fivefold since he bought it a few years earlier, PetroChina shares had reached fair value, so he sold. Since he cashed out, PetroChina shares have been cut in half.

Chalk this up to a lesson the Oracle learned in the late ’90s. As he admitted in 2003, “…I made a big mistake in not selling several of our larger holdings during the Great Bubble.”

Buffett similarly made what may be one of his best decisions when he sold Berkshire Hathaway’s long-held stake in Freddie Mac (FRE) in 2000. He’s never written about exactly why, but he noted presciently at his 2001 annual shareholder meeting that Freddie Mac’s “risk profile had changed.”

Keep Your Powder Dry

While the rest of the world gorged on cheap credit, Buffett maintained Berkshire’s conservative profile. This hindered his returns when times were good, but having lots of cash on hand enabled Buffett to snap up once-in-a-lifetime deals, like Constellation Energy (CEG).

Buffett, who owns several utilities, jumped on Constellation in September after its shares tumbled from around $60 to his purchase price of $26.50 in a mere matter of days. The result: He nabbed a company that produces nearly $1 billion in earnings a year for less than $5 billion.

Now, you may not be in a position to keep $40 billion in the bank. But as Buffett showed, it’s smart to have some cash on hand for opportunistic purchases. What’s more, there’s nothing wrong with being disciplined enough to turn your back on stocks that you’re not 100% confident in. That’s sage advice.

Why He’s Warren Buffett — and You’re Not

If investing were as simple as mimicking Warren Buffett, then all you’d have to do to retire rich would be to download a free copy of the Berkshire Hathaway annual shareholder letter and shadow the Oracle’s moves.

Given that you’re reading this article instead of relaxing at your seaside villa, it’s clear copying Buffett is no easy task. So as you marvel at the Sage, keep the following in mind:

Warren Can Strike Deals You Can’t

Buffett’s reputation and Berkshire’s financial heft are enormous advantages that regular investors simply don’t share. Take his recent investment in Goldman Sachs (GS). It was made in preferred stock that was offered only to Berkshire and pays a 10% fixed yield.

That’s twice what Uncle Sam is initially earning on the preferred shares it got from Goldman in exchange for injecting capital into the bank. But chalk that up to the Buffett premium. Firms want the Oracle to invest in them for his seal of approval.

Berkshire’s purchase of Constellation Energy offers a great example. Constellation’s shares had fallen 75% from their highs because the market was worried about the financial health of the company’s energy-trading operations.

If you or I bought the stock at that level, we would have been making a bet that Constellation would pull through. But we would not have been able to affect the odds. However, Berkshire’s financial strength and Buffett’s name assured Constellation’s survival, making the investment more valuable as soon as Warren bought the company.

Warren Is Smarter Than You Are

Many casual observers assume that Buffett simply buys great companies and hangs on to them. Simple, right? But the real key to Buffett’s success is far more complicated.

Buffett has created enormous value for Berkshire by buying all kinds of securities, from common stock and preferred shares to currencies, distressed debt and options.

He has also made money through merger arbitrage and fixed-income arbitrage. These are all areas that only the most sophisticated investor should dabble in.

Why Mimic Warren When You Can Hire Him?

Your best bet for benefiting from Buffett’s wisdom is the most obvious: Buy Berkshire Hathaway (BRK.B) stock.
It’s really an investment company. But unlike a fund, it doesn’t charge annual management fees. Buffett has deployed a lot of cash into attractive deals lately, which should add value for years to come.

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Warren Buffett wins with US Bankcorp and Wells Fargo

Warren Buffett decided to increase his stake in financial companies such as US Bancorp and Wells Fargo & Co and is reaping the benefits, the billionaires company Berkshire Hathaway Inc bank-related investments shot up 36 percent in the third quarter of 2008 as he dodged subprime lenders.

At the end of September, Buffett’s firm Berkshire ranked as the largest shareholder in US Bankcorp and Wells Fargo according to Bloomberg, whilst Standard & Poor’s 500 Financial Index fell 0.2 percent.

Warren Buffett does have the luxury of time on his side, so he can sit and wait for the right opportunities whilst other players may not have the capital to follow Buffett’s patience.

Buffett, CEO and chairman of Berkshire is the country’s richest man according to Forbes magazine, with Berkshire gaining an average yearly rate of 21 percent over the past 20 years.

Warren Buffett did cut his shares stake in Bank of America Corp from 9.1 million to 5 million after the bank brought Countrywide Financial Corp the troubled bank.

Source: Bloomberg

Some Interesting Aspects About Warren Buffett's Life

1. He bought his first share at age 11 and now he regrets that he started too late!!!!

2. He bought a small farm at the age of 14 with savings from delivering news paper.

3. He still lives in the same small 3-bedroom house in Mid town Ohama, that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or fence.

4. he drives his car everywhere and does not have a driver or security people around him.

5. he never travels by private jet. although he owns the world's private jet company.

6. His Company, Berkshire Hathaway, owns 63 companies. He writes only one letter each year to the CEO's of these companies, giving them goals for the year. He never hold meetings or call them on a regular basis.

7. He has given his CEO's only two rules:

• Rule Number 1 Donot lose any of your shareholder's money.
• Rule Number 2 Never forget Rule Number 1.

8. He doesnot socialize with high society crowd. His past time after he gets home is to make some pop corn and watch Television.

9. He doesnot carry cell phone nor has a computer on his desk.

10. Bill Gates, the world riches man met him only 5 years ago. Bill Gates did not think he had anything in common with Warren Buffett. So he scheduled his meeting for only half an hour. But when Gates met him, the meeting lasted for 10 hours and Bill Gates became a devotee of warren Buffett.

11. His advice to Young People:

• Stay away from Credit Cards and Bank Loans. Invest in yourself and remember:
• Money doesn't create man but it is the man who created money.
• Live your life as simple as possible.
• Don't do what others say-listen to them, but do what you feel good doing.
• Don't follow brand names, just wear those things in which you feel comfortable.
• Don't waste your money on unnecessary things, rather spend on those things you really need.
• After all its your life, so why allow others to rule your life.

THE HAPPIEST PEOPLE DONOT NECESSARILY HAVE THE 'BEST' THINGS, THEY SIMPLY APPRECIATE THE THINGS THEY HAVE.

Warren Buffett says automakers need bailout or bankruptcy

Billionaire investor Warren Buffett says U.S. automakers need a new business model to better compete, whether it takes bankruptcy or a government bailout to achieve.

Warren Buffett also says he would never serve as U.S. Treasury Secretary. The Berkshire Hathaway Inc. CEO is a member of President-elect Obama's Transition Economic Advisory Board.

Warren Buffett says any automaker bailout package should include a business solution, and be negotiated by the president, not Congress. Buffett spoke to Fox Business News in an interview scheduled to air Friday afternoon.

Warren Buffett says the government should insist top executives at Ford Motor Co., General Motors Corp. and Chrysler LLC invest a significant percentage of their own net worths in the Detroit-based companies, ensuring both executives and taxpayers would share in any profits or losses.

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Warren Buffett sees 'very painful' five months

Warren Buffett expects a "very painful" next five months for the economy but believes it will recover starting in mid-2009.

In an interview with Fox Business Network, to be aired at 3 p.m. Friday Central Standard Time, Warren Buffett says the Federal Reserve's prediction of a 5.9 percent unemployment peak is "just plain wrong." He says the rate will pass 8 percent.

Warren Buffett also says he would not accept the job of U.S. Treasury secretary, that the proposed auto bailout plan has a fundamental flaw and that Goldman Sachs will survive the current crisis.

Warren Buffett says the price decline of Berkshire Hathaway Inc. stock -- to its lowest level since 2003 -- "doesn’t make any difference" as long as investors haven't borrowed money to buy it at a higher price.

"I look to the business to determine my results. I'll say it's happened to me three other times in my life, too," in 1974, 1987 and bertween 1998 and 2000, he said. "I hope I live long enough so it happens a couple more times to me (Warren Buffett).”

Warren Buffett on Market Meltdown: It's Happened Before And It's Been Even Worse

Warren Buffett doesn't appear to be worried about multi-year lows in the stock market. In a videotaped interview with Liz Claman of Fox Business Network, a smiling Warren Buffett says:

"Well, it's happened before. It's happened a lot worse than that. I mean, in 1929, it went from 381 down to 42, an 89 percent decline. So, we've had it. I mean, most people don't even remember from '37 and '38 that it went down 50 percent, for example...

That 66 to 11497 for the Dow in the last century was not in a straight line. A capitalistic system overshoots, it overshoots in markets, it overshoots in terms of leverage and all kinds of things. But it works very well over time."

As for Berkshire's sharp stock drop that has taken it down almost 50 percent from last December's high, that's happened before, too. Three times. "It happened when it went from 90 to 40 back in 1974 and '5, it happened in 1987, it went down 50 percent, in 1998 to 2000 ... I hope I live long enough so it happens a couple more times to me."

Asked how Henry Paulson is doing as Treasury Secretary, Warren Buffett acknowledged that the economy and markets are in a "very, very tough situation" with "no silver bullets" available to make everything better immediately. "We are in a negative feedback cycle that's going to last for a while."

Warren Buffett predicts that unemployment will get worse over the next several months, although eventually the U.S. economy will recover and "go to new heights." And, no surprise here, he says he wouldn't take the job of Treasury Secretary even if it was offered to him by President-elect Barack Obama, although he's happy to help in other ways. Warren Buffett expects an announcement in the next few days on who will run Treasury.

Warren Buffett jokes that he hasn't been asked and won't be asked. "I'm like a girl sitting at home on Saturday night. I haven't been called. I might like to think I was, but I wasn't."

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Berkshire Hathaway stocks fall after Warren Buffett's risky bets

Bloomberg is reporting that Warren Buffett’s company Berkshire Hathaway is at risk of making massive losses after a series of share market bets by its billionaire owner.

The cost of protecting Berkshire Hathaway debt against default has almost tripled in two months, from 140 basis points to 415, meaning insuring $10 million of debt will cost $415,000 a year.

This is more than four times that of rival insurer Travelers Cos, and worse than the median for companies rated Baa3, the worst credit rating given by Moody’s Investors Service.

According to Bloomberg, the rise in cost is due to billions of dollars of credit-default swaps by the company and a $US37 billion dollar bet against four share markets around the world including the Standard and Poor’s 500 Index.

However, Berkshire Hathaway won’t have to pay out on the bets until 2019, if it indeed does lose them. The company also has around $US4.8 billion cash to invest as a result of the credit-default swaps, despite Mr Buffett previously describing derivatives as “financial weapons of mass destruction”.

Berkshire Hathaway ( Owned by Warren Buffett) stocks dipped below $US100,000 for the first time in two years last week.

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$300 million shares of USG Corporation are being sold to Warren Buffett's Berkshire Hathaway Inc

In the deal, it looks like $300 million shares of USG Corp. are being sold to Warren Buffett's Berkshire Hathaway Inc. and $100 million to Fairfax Financial Holdings Limited. This is not a new investment for Buffett. Berkshire Hathaway already holds the largest independent share of this stock.

The notes will bare a rate of 10% initially. USG will also seek shareholder approval to allow conversion of the notes into shares of USG common stock and if approved these will come at a conversion price of $11.40 per share.

Here is where this deal gets interesting. If shareholder approval is not obtained prior to the 135th day after closing of the sale of the notes, the notes will come to 20% per year until after shareholder approval is obtained.

This shareholder approval should be easy to get considering that Berkshire owns a significant chunk of it already. Berkshire Hathaway (Warren Buffett) and Fairfax have agreed to vote all shares in favor of the proposal to permit conversion of the notes.

As per Sep 08 share holding of USG Corp., Warren Buffett is holding 17,072,192 shares of USG Corp.

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When Value Means Nothing

After the success of Warren Buffett, there is a whole class of investor called the value investor. Normally, this is not a bad way to invest; some of the most famous investors of all time used this method. The first official value investor I’m aware of is Benjamin Graham. Graham is the man who defined and codified this investing style in the book, "The Intelligent Investor." The most notable recent icon of value investing has to be Warren Buffett.

Pure value investing assumes that, in the long run, if your estimation of the value of a company and stock are correct and you buy a stock that is undervalued, the market will eventually recognize it and reward you with profits. Graham himself famously said in The Intelligent Investor, "In the short run, the market is a voting machine, but in the long run it is a weighing machine."

When the market is rational, value investing is a viable and generally profitable investing method. However, during manias (where greed controls) or during crashes (where fear controls), the method breaks down because the market is no longer rational; it’s emotional. Manias and crashes are stages where the market is clearly ONLY a voting machine.

In both crashes and in manias, you cannot count on rational valuation to protect your investments or to use as a basis for investing, respectively, since most investors are not acting rationally. Therefore, do not take comfort in your value assessments of stock investments in the current crash. As Lord John Maynard Keynes, one of the most famous economists in history, famously said, “The market can stay irrational longer than you can stay solvent.”

If you’re waiting for the “long run” to bail you out, remember another of Keynes’s famous sayings: “In the long run, we’re all dead.”

Welcome to the 2008 market crash.

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Buffett not immune to derivative troubles

If you are a Berkshire Hathaway Inc. shareholder right now, you might be questioning just how well you knew Mr. Warren Buffett after all these years. The “Oracle of Omaha,” who famously wouldn’t invest in Microsoft Corporation because he didn’t understand the business, the same man who prudently called derivatives “financial instruments of mass destruction,” couldn’t help but play with fire himself.

Of course, it was widely known that Berkshire Hathaway was involved with credit default derivative transactions worth some $40 billion as it is clearly stated in its financial reports, but the long-term (often 20 years) nature of the contracts combined with Buffett’s aura of invincibility allowed people to put his derivatives in a different category from other people’s.

Unfortunately, with the cost of protecting its own debt from default over the next year having more than doubled over the last two months – from 140 to 388 base points – investors are starting to wonder just how immune Berkshire Hathaway actually is to all the ongoing financial turmoil.

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Buffett's Berkshire Falls Most in at Least 23 Years

Warren Buffett's Berkshire Hathaway Inc. fell the most in at least 23 years, dropping for the eighth straight day since reporting a 77 percent decline in third- quarter profit.

The stock plunged $11,550, or 12 percent, to $84,000 in New York Stock Exchange composite trading and has slipped 41 percent this year, compared with the 45 percent drop in the Standard & Poor's 500 Index. Berkshire, based in Omaha, Nebraska, rose in 17 of the past 20 years.

``There's nothing fundamentally wrong with Berkshire, what's really happening is people are wondering if there's something fundamentally wrong with the economy, and Berkshire is in some ways a bit of a proxy for that,'' said Michael Yoshikami, president of YCMNet Advisors in Walnut Creek, California, which manages $850 million including Berkshire shares.

Berkshire has posted four straight profit declines, the worst streak in at least 13 years, on falling returns at insurance businesses and investment losses. Buffett, ranked by Forbes magazine as the richest American, has committed at least $28 billion this year to acquire companies, finance buyouts and purchase securities as prices fell and competitors were hobbled by limited access to credit.

Berkshire's shareholder equity, a measure of assets minus liabilities, fell by about $9 billion in October on declines in debt and equity markets, the firm said Nov. 7. American Express Co., the credit-card company that is one of Berkshire's top 10 stock holdings, plunged 47 percent since Sept. 30 as borrower defaults increased. Wells Fargo & Co., Berkshire's No. 2 investment, dropped about 35 percent.

`Under Pressure'

``Many of the companies Berkshire owns, such as American Express, are under pressure,'' Yoshikami said. ``What you're seeing is a systematic de-leveraging process taking all financials down, including good-quality financials.''

Berkshire shareholders including Mohnish Pabrai, head of Pabrai Investment Funds, have said investors are concerned about losses on the company's $37 billion bet on world equity values more than a decade from now. Buffett sold contracts to undisclosed counterparties for $4.85 billion protecting the buyers against declines in four stock indexes including the S&P 500.

Under the agreements, Berkshire will pay as much as $37 billion if, on specific dates beginning in 2019, the indexes are below the point where they were when he made the agreements. By Sept. 30, Berkshire had written down the contracts by $6.73 billion as the S&P declined for a fourth straight quarter.

Credit-Default Swaps

The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, has more than tripled in two months.

The swaps jumped to 475 basis points today from 129 points two months ago, according to CMA Datavision. That translates to $475,000 a year to protect $10 million for five years.

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24 tips on How Warren Buffett earns money?

“An investor needs to do very few things right as long as he or she avoids big mistakes. ” Warren Buffett

One of the world’s most successful investors, Warren Buffett is the richest man on earth. Chairman of the Berkshire Hathaway, Buffett’s wealth jumped by $10 billion to hit $62 billion during 2007. Buffett’s life is an inspiration for investors across the globe.One of the world’s most successful investors, Warren Buffett is the richest man on earth. Chairman of the Berkshire Hathaway, Buffett’s wealth jumped by $10 billion to hit $62 billion during 2007. Buffett’s life is an inspiration for investors across the globe.

So what makes the world’s wealthiest man so rich? Buffett believes that successful investing is about having common sense, patience and independent research.

’How Buffett Does It’, by James Pardoe is a great guide for investing in any market. A look into Buffett’s simple, yet intelligent mantras for investing and minting millions.

1. A frugal billionaire Buffett believes in simplicity. He advises investors to take easy decisions. Never buy when you are doubtful. Invest only if you understand the businesses well.

2. Focus on not losing money rather than making it. Don’t own any stock for 10 minutes that you wouldn’t own for 10 years.

3. A proponent of value investing, he believes that one must take decisions on his own. He doesn’t believe in listening to analysts or brokers. The best investing decisions come from oneself.

“It is not necessary to do extraordinary things to get extraordinary results.”

4. Buffett advises to invest in ’old economy’ businesses, companies, which have been around for fifty years and will continue to have a long innings.

5. We have often heard of people suffering heart attacks when markets crash. Well, Buffett advocates a sound temperament for stock market success.

6. You don’t need to be a genius to succeed in the stock markets. People who can stay cool will succeed in the long run. Always keep in mind the hidden costs, from commissions on active stock trading to high mutual fund fees.

7. Buffett always looks at businesses he can understand, look at the profits in the past, long-term potential of the company, good top level management of the company and companies that have a good value proposition. The strategy is to think about the business in the long term.

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

8. Invest in businesses with great management. Always keep a track of the management of the company. The top decision makers have a lot to do with the company’s performance.

9. One of Buffet’s biggest strengths is independent thinking. Many people go by what the experts says or what others do but belief in one’s own judgement is the key to stock market success.

10. Patience pays, says Buffet. He says one must not worry too much about the price of the stocks. What’s more important is the nature of business of the company, earnings capability and its future potential.

11. Don’t target just stocks, look at businesses. How a company performs is key to its stock market performance. You must know the track record of a company before you invest in it.“Price is what you pay. Value is what you get.”

12. Prices keep changing. Don’t get worried by the ups and downs. Investing is all about creating wealth. It’s important to understand the value of a stock than its price.

13. He believes that franchisee businesses are good opportunities to invest in. Avoid hi-tech, complex businesses. Look for businesses that are set to diversify and grow.

14. Never be disappointed when markets fall. Take it as a buying opportunity. Buffet says one must have lesser number of investments with more money in each lot.

15. He advises to avoid diversification. Invest in companies with sound business models. Choose a few good ones and stay invested, it will give you the benefits.

“I don’t look to jump over 7-foot bars; I look around for 1-foot bars that I can step over.”

16. Doing nothing pays at times! One must not jump at price fluctuations and take impulsive decisions.

17. Don’t get carried away by market forecasts. Ignore market swings and remain an investor with a good business sense.

18. Buffett advises to be fearful when others are greedy and greedy when others are fearful. Buy when people are selling and sell when people are buying.

19. Make a list of companies, sectors that you find safe to invest in and try to stick to the list.

20. A sound business, strong management, good fundamental and low stock price should be a must-buy.

“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”

21. Try to ignore stock charts, says Buffett. They may not give the right indicators. A stock which may have done well earlier may not do so in future.

22. Buffet spends a lot of time on reading and more importantly thinking. Reading helps investors, so spend a lot of time reading about the stocks, companies and markets. A good investor must have a good knowledge base.

23. A good investor also needs to be efficient. Investors may have great capabilities but many do not make use of it. One needs to hone skills to meet the targets.

24. Good investors never rush to make money. They give time, thought and work on investment decisions. The mistakes that others make should be a lesson for you.

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A Goldman Opportunity: How Average Investors Can "Out-Buffett" Warren Buffett

Warren Buffett drives a hard bargain. When he invests billions in a company, he can generally get a better deal than the rest of us.

First, he's spending billions. And second, his money carries a 'vote of confidence' from the world's most-respected investor.

That helps explains why Buffett was able to get a very healthy 10 percent annual return on the $5 billion he pumped into Goldman Sachs in late September at the height of the credit crisis.

He didn't stop there, also getting the right to buy another $5 billion in common stock at what was then the below-market price of $115 a share.

Since then, however, the price of Goldman stocks and bonds have dropped sharply, creating what SmartMoney columnist James B. Stewart calls "a rare opportunity to invest on terms that may be even better than Mr. Buffett got."

In a Wall Street Journal personal finance piece headlined How Investors Can Get In On Buffett's Goldman Play, Stewart points out that some Goldman bonds are now yielding more than 8 percent and have gone as high at 10 percent recently. The interest and principal on those "senior" bonds would get paid out before the Goldman investments made by both Buffett and the U.S. government.

Instead of warrants, Stewart says that for about $10 each you can (at last check) buy options giving you the right to purchase Goldman stock for $105 anytime before January, 2010. "That's the equivalent of the right to buy Goldman shares at $115, which is what Goldman got."

Like Buffett, you'd want to "believe in the future if Goldman" before trying to get Buffett-style terms for your own investment.

While Goldman's stock may never get back to the $250 range of a year ago, Stewart argues "it still has the talent and resources to the the world's pre-eminent investment bank," making it "worth far more than $60 a share, not to mention bonds trading at 80 cents on the dollar."

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Buffett's Berkshire Gets A Billion In Beer Bucks

Warren Buffett's Berkshire Hathaway will get almost a billion dollars in cash for its Anheuser-Busch shares, now that the St. Louis brewer's acquisition by Belgium's InBev has been formally completed.

In a news release this morning, the newly renamed Anheuser-Bush InBev notes that under the terms of the $52 billion merger deal, each BUD share has been exchanged for $70 in cash.

Berkshire's third quarter portfolio filing last Friday listed 13,845,000 Anheuser shares as of September 30. That works out to $969,150,000 in new cash for Buffett's company.

It would have been a larger number, if Buffett hadn't sold millions of BUD shares in June. At that point, InBev was offering $65 a share and Anheuser-Busch was aggressively moving to fend off a takeover, making a deal far from a sure thing.

Berkshire reported holding 35.6 million BUD shares at the end of March, worth $2.5 billion at today's deal price. (Of course, Berkshire did get roughly $1.3 billion from the sale of those 22 million shares around $61.)

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Warren Buffett's 7 Secrets for Living a Happy and Simple Life

Secret #1:
Happiness comes from within. “In my adult business life I have never had to make a choice of trading between professional and personal. I tap-dance to work, and when I get there it’s tremendous fun.” -- Warren Buffett If you do what you love and love what you do, you’ll naturally be productive.

Secret #2:
Find happiness in simple pleasures. “I have simple pleasures. I play bridge online for 12 hours a week.” -- Warren Buffett You can also learn to be happy with the simple pleasures of playing cards with friends, playing with your children or taking a walk in the wilderness.

Secret #3:
Live a simple life. “I just naturally want to do things that make sense. In my personal life too, I don’t care what other rich people are doing. I don’t want a 405 foot boat just because someone else has a 400 foot boat.” -- Warren Buffett Keeping up with the Joneses is the worst epidemic among those who should never contemplate that notion in the first place. Less is more.

Secret #4:
Think Simply. “I want to be able to explain my mistakes. This means I do only the things I completely understand.” -- Warren BuffettIf you apply this rule in your life, you can develop clarity and sanity in your thoughts. Life is about simple yet profound choices.

Secret #5:
Invest Simply. “The best way to own common stocks is through an index fund.” -- Warren Buffett Often, the simplest route will bring you the most riches, and the most happiness.

Secret #6:
Have a mentor in life. “I was lucky to have the right heroes. Tell me who your heroes are and I’ll tell you how you’ll turn out to be. The qualities of the one you admire are the traits that you, with a little practice, can make your own, and that, if practiced, will become habit-forming.” -- Warren Buffett Having a mentor is as important as having a purpose in your life, but having a wrong mentor is as devastating as having a wrong purpose in your life. The mentor has to be someone you can trust. You’ll find that person in your inner circle if you think hard enough.

Secret #7:
Making money isn’t the backbone of your guiding purpose; making money is the by-product of your guiding purpose. “If you’re doing something you love, you’re more likely to put your all into it, and that generally equates to making money.” -- Warren BuffettMoney should never become the object and end all of your motivation.

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How Investors Can Get In On Buffett's Goldman Play

It's not often that the average investor can out-Buffett Warren Buffett. But at the moment, there's a rare opportunity to invest on terms that may be even better than Mr. Buffett got.

Rarely is the playing field level, let alone tilted in the average investor's favor. And there are good reasons why a Warren Buffett gets vastly better terms than either you or me. His investments are seen as instant votes of , which are more valuable than ever in the conconfidencetext of the current financial crisis.

It was front-page news less than two months ago, when Mr. Buffett's Berkshire Hathaway made a big injection of capital -- and confidence -- into Goldman Sachs. The investment bank was in what seemed to be a shocking downward spiral after the failure of Lehman Brothers and the rescue of AIG caused investors to question the solvency of every counterparty, even one as well-capitalized as Goldman.

Mr. Buffett agreed to inject $5 billion into Goldman in return for $5 billion in preferred shares paying a 10% dividend and warrants to buy $5 billion of Goldman common shares at $115 apiece. As a longtime Goldman shareholder, I was slightly resentful at the generous terms, especially given that shares were then trading at $125.

Still, the Buffett play seemed to work its usual magic. Goldman shares stabilized and within days rose to $137. Goldman transformed itself into a bank holding company, the Treasury Department force-fed billions in capital to it and the eight other seemingly healthy giant banks in return for more preferred shares, albeit at much lower interest rates than Mr. Buffett's. (It's yet another measure of Mr. Buffett's stature that he could command much better terms than the U.S. Treasury.)

And then, Goldman shares resumed their descent. They not only reached the Buffett strike price of $115, they sank below it. When Treasury Secretary Henry Paulson said last week that the government would no longer buy the banks' troubled assets, Goldman shares fell to near $61.

Goldman bonds were also caught in the downdraft. The result, according to recent trading data compiled by the Financial Industry Regulatory Authority, is that various issues of senior Goldman bonds, highly rated by both Standard & Poor's and Moody's, are now yielding more than 8%. (Bond yields rise as prices -- and thus, demand -- fall.)

Note that these Goldman bonds are senior to both Mr. Buffett's preferred stock and the government's, which means bond interest and principal gets paid before either Mr. Buffett or the Treasury. Even in the unlikely circumstance that Goldman would be facing default, the U.S. would have a strong incentive to inject more capital into Goldman.

So here's the Buffett alternative available to any investor: You can't get the warrants he got, but you can get something quite similar for far less than $5 billion. When I last checked, Goldman call options with a strike price of $105 expiring in January 2010 were trading for about $10 each. (A call is an option to buy a security at a specific price.) That's the equivalent of the right to buy Goldman shares at $115, which is what Mr. Buffett got.

Instead of preferred stock, you can buy Goldman bonds. A week ago, I bought some at a yield close to 10%. When I last checked the Finra Web site, the best I saw was a little over 8%.

True, this strategy only makes sense if you believe in the future of Goldman. The firm may never return to the glory days when shares were $250 (circa Halloween 2007). But it still has the talent and the resources to be the world's pre-eminent investment bank. That should be worth far more than $60 a share, not to mention bonds trading at 80 cents on the dollar.


Source

Under Buffett?s leadership, Berkshire shares averaged a 21.4% compounded annual gain in per-share book value from 1965-2006.

Profile:
Warren Buffett is the most respected and successful investor in history. Buffett has been called ?The Oracle of Omaha? for his impressive investing prowess. As of September 2007, he was the third richest person in the world. Buffett studied under the legendary Benjamin Graham at Columbia University. Graham had a major impact on Buffett?s life and investment strategies. Buffett is Chairman of the miraculous Berkshire Hathaway, which he built from a textile company into a major corporation with a market cap in excess of $200 billion. Under Buffett?s leadership, Berkshire shares averaged a 21.4% compounded annual gain in per-share book value from 1965-2006.

Investing Philosophy:
Warren Buffett follows a value investing strategy that is an adaptation of Benjamin Graham?s approach. His investment strategy of discipline, patience and value consistently outperforms the market and his moves are followed by thousands of investors worldwide. Buffett seeks to acquire great companies trading at a discount to their intrinsic value, and to hold them for a long time. He will only invest in businesses that he understands, and always insists on a margin of safety. Regarding the types of businesses Berkshire likes to purchase, Buffett stated, ?We want businesses to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price.?


Source

Equity portfolio of Warren Buffett: As on 30 sep 08

As per my research, Warren is holding following shares as on 30 sep 08 (He may be holding more than companies):

1.NRG Energy Inc>>>>>>Electricity>>>>>>>>>>>>>>> 5,000,000 shares
2.Eaton Corp. >>>>>>>>Industrial Goods & serv>>>>> 2,908,700 shares
3. Conoco Phillips >>>>>Oil & Gas Producers >>>>>>>> 83,955,800 shares
4.U.S.Bancorp>>>>>>>>Banks>>>>>>>>>>>>>>>>>>> 72,937,126 shares
5.Comdisco Holding Co. >Industrial Goods & serv>>> >>1,538,377 shares
6.The CocaCola Co>>>>>Food & Beverage>>>>>>>>>>>200,000,000 shares
7.Procter & Gamble >>>>Personal &Household Goods>105,847,000 shares
8.Burlington Northern>>Industrial Goods & Serv>>>>> 63,785,418 shares
9.American Express>>>>Financial services>>>>>>>>>151,610,700 shares
10.Krafts Foods Inc.>>>>Food & Beverage>>>>>>>>>> 138,272,500 shares
11.Johnson & Johnson>>>Pharma & Biotech>>>>>>>>>61,754,448 shares
12.Wesco financial Corp>>Insurance>>>>>>>>>>>>>>>5,703,087 shares
13.Moody's Corp.>>>>>>Industrial Goods & Serv>>>>>48,000,000 shares
14.WalMart stores Inc.>>>Retail>>>>>>>>>>>>>>>>>>19,944,300 shares
15.The Washington post >>Media>>>>>>>>>>>>>>>>>> 1,727,765 shares
16.Anheuser Busch .>>>>>Food & Beverage>>>>>>>>>>13,845,000 shares
17.Union Pacific Corp>>>>Industrial Goods & Serv>>>> 8,906,000 shares
18.M&T Bank Corp.>>>>>>Bank>>>>>>>>>>>>>>>>>>>6,715,060 shares
19.NIKE Inc.>>>>>>>>>>Personal &Household Goods>7,641,000 shares
20.USG Corp.>>>>>>>>>Construction & Materials>>>>17,072,192 shares
21.Costco Wholesale >>>>Retail>>>>>>>>>>>>>>>>>>> 5,254,000 shares
22. Comcast Corp. l>>>>> Media>>>>>>>>>>>>>>>>>>>12,000,000 shares
23.General Electric Co>>>Industrial Goods & Serv>>>>>7,777,900 shares
24.Ingersoll Land Co >>>Industrial Goods & Serv>>>>>>5,636,600 shares
25.Torchmark Corp.>>>>Insurance>>>>>>>>>>>>>>>>2,823,879 shares
26.SunTrust banks inc.>>>Bank>>>>>>>>>>>>>>>>>>>>3,204,600 shares
27.Sanofi Aventis>>>>>> Pharma & Biotech>>>>>>>>>> 3,903,933 shares
28.Norfork Southern >>> Industrial Goods & Serv>>>>>>1,933,000 shares
29. WABCO Holdings >>> Automobiles & Parts>>>>>>>>>2,700,000 shares
30.United parcel serv>>>Industrial Goods & serv>>>>>>>1,429,200 shares
31.Iron Mountain Inc.>>>Industrial Goods & serv>>>>>> 3,372,200 shares
32.GlaxoSmith Kline >>>>Pharma & Biotech>>>>>>>>>> 1,510,500 shares
33.Gannett Co Inc>>>>>>Media>>>>>>>>>>>>>>>>>>> 3,447,600 shares
34.Wells Fargo & Co>>>>>Bank>>>>>>>>>>>>>>>>>>>>290,407,668 shares
35.UnitedHealth Group >>Health care Eqpt & servi>>>>>6,379,900 shares
36.WellPoint Inc>>>>>>>Health care Eqpt & serv>>>>>>4,777,300 shares
37.Lowe's companies >>>Retail>>>>>>>>>>>>>>>>>>>>6,500,000shares
38.The Home Depot >>>>Retail>>>>>>>>>>>>>>>>>>>>3,700,000 shares
39.CarMax Inc>>>>>>>>Retail>>>>>>>>>>>>>>>>>>>>18,444,100 shares
40.Bank Of America >>>>Bank>>>>>>>>>>>>>>>>>>>>>5,000,000 shares


Disclaimer: To the best of my knowledge, the information given above is correct. Investors may be required to do their own research or seek professional advice from their brokers before investing into these stocks.

Warren Buffet's NYT Article on 16 Oct 08

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Source

Berkshire Hathaway Shares Close Below $100,000 For First Time In Two Years

Shares of Warren Buffett's Berkshire Hathaway closed below $100,000 today (Monday) for the first time in just over two years. The most recent sub-$100K close before today was on October 20, 2006.

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Today's finish at $95,615 is a fresh two-year closing low. The stock fell $5,385 today, a drop of 5.3 percent. That's the biggest one-day point and percentage decline in three weeks, and the fourth biggest percentage drop of the year.
While Berkshire's Class A stock had traded in five-digit territory on Thursday and Friday, it recovered both days to close above $100K.

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Berkshire shares are down almost 36 percent from their December 10, 2007 all-time closing high of $149,200. They were in the high $130s as recently as early October.Berkshire has dropped 32.5 percent year-to-date, outperforming the benchmark S&P 500's 42.1 percent decline.

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Three of the four "bombs in Buffett's books", as designated earlier this year by short-seller Doug Kass, are outperforming both Berkshire and the S&P this year.

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Coca-Cola is down 28.4 percent, Wells Fargo has dropped 7.8 percent, and Kraft Foods is off 19.4 percent.
American Express, however, is down 62.8 percent year-to-date. A piece in Barron's over the weekend argued that the company is in better shape than its stock price, and speculated that Buffett could come to its rescue if things get really bad.

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10 Great Rules to become Rich

An old saying goes, “You can’t build wealth by buying things you don’t need, with money you don’t have, to impress people you don’t like.” So how do you build wealth? Read on…

There are basically only four roads to wealth:

You can marry it (don’t laugh, some do);
You can inherit it (others do that);
You can get a windfall (from a lawsuit settlement, lottery, or some other unexpected good fortune); or
You can accumulate it.

Most of us are stuck with option #4 - accumulate it. To do so, you need to understand how to manage cash flow. First, look at your annual earnings and multiply that figure by your working years. Not counting inflation (that is, pay raises along the way), the result may total several million dollars.

Whether you will have that several million dollars by retirement, though, depends on how you manage your cash flow - and how you answer the following questions: What do you need now, what do you want now, and what can you save and invest for the future?

Here are ten time-tested rules that can weather the stormiest market cycles.

Rules #1: Live within your means

This includes managing debt and learning to budget. Such boring topics may not be the most exciting things about becoming wealthy, but they may be the most critical.

Consumer-driven economies relentlessly hammer away at why we must buy this item or that gadget so we can have the appearance of being successful, happy, and altogether “with it.” So it takes financial discipline and sensible behavior to successfully accumulate money and grow wealthy.

Possibly the biggest trap out there is easy credit, which lets us buy numerous things we might not need. Comedians have pointed out the foolishness: “You buy something that’s 10 per cent off and charge it on a 20 per cent interest credit card!” And US newspaper columnist Earl Wilson opined, “Nowadays there are three classes of people - the Haves, the Have-Nots, and the Have-Not-Paid-For-What-They-Haves.”

Learning to live within your means leads to a freer life - debt can be a mean master instead of a worthy servant. Save first, spend second. If you do so, building wealth will be a lot easier for you.

Rule #2: Save aggressively

This does not mean “invest aggressively.” Rather, it means making it an absolute priority to set aside 10 per cent of your income right off the top, and even more if your goals tell you to do that. The longer you wait to start saving, the larger the percentage of your current pay you will have to save to reach your goal.

If you can save aggressively, you will be surprised how that “nest egg” will start to compound. Look at any chart of compounding. It has been said that it’s the last compounding that makes you wealthy.

In other words, $20,000 becoming $40,000 doesn’t seem like a lot of headway, but when the $40,000 compounds to $80,000, and the $80,000 to $160,000, and finally the $160,000 to $320,000, we’re now talking about some serious money. Two more “doublings” and this account will be worth over $1.2 million. Those who spend first and save later inevitably end up working for those who have learned to save first, spend second.

Rule #3: Dollar-cost average

When buying shares, remove emotions from your investing by automatically buying more shares or equity mutual fund units when they are cheap. Emotional investing gets too many people in trouble. Statistics continue to show that we tend to buy when things are going up and sell when they are going down - in other words, we tend to buy high and sell low. Dollar-cost averaging not only removes emotions from investing, but it helps you buy low. Here’s how:

By putting a constant amount into the market, as the price slips, you buy more and more number of cheaper shares or fund units and thereby reduce your average cost.

For example, let’s say you are investing $100 a month into a fund. In the first month, the price of the fund is $10 per share and you buy 10 shares. The next month, the price has dropped to $8 per share, so your $100 buys you 12.5 shares. The next month, the price has fallen again, to $5 a share, and you buy 20 shares. In the fourth month, the price ticks back up to $7 per share. Your total investment so far is $400.

If you’re like most people, though, when you look at your statement and see that by the end of the third month the price has fallen to half, you would probably think you were losing money hand over fist. Especially after a fund continues to decline month after month, investors lose patience and start to bail. They’re looking for “better returns,” but they don’t understand what’s going on with the math.

At $5 a share, it feels as though you’re down 50 per cent (because the price started at $10 per share). However, you own 42.5 shares, which, when multiplied by $5 a share, equals $212.50 - and you’ve invested $300. In the fourth month, the price gets back up to $7 per share. Although it might feel as though you’re still down because the price started at $10 per share, you’re actually within a couple of dollars of your break-even point. You own 56.79 shares, which when multiplied by $7 equals $397.53, on an investment of $400.

Of course, if the fund or market continues to go down and never comes back up, you can’t be guaranteed a profit. But this would happen rarely, if ever. Dollar-cost averaging - by investing a fixed amount in regular intervals - is the best way to make money in a variable market over time.

The most difficult part is having the discipline to keep doing it. Investors should be willing to consider their ability to invest over an extended period of time. Remember, you need a longer time horizon when investing in the stock market.

Rule #4: Diversify

No investment is risk free; only a diversified portfolio can mitigate the risks of market cycles. We’ve all been warned against putting all our eggs in one basket; even Warren Buffett said, “It’s better to be approximately right than definitely wrong.” By “approximately right,” he was referring to diversification.

If one piece of your portfolio is doing substantially better than other parts, the natural inclination is to load up on the part doing the best and forsake those not doing well. But the result will be an under-diversified portfolio that will probably be much more volatile - and the risks may be on the downward side.

Also, proper diversification does not mean any old bunch of mutual funds or stocks, but a proper allocation among stocks, bonds, real estate, fixed assets, and other investments. It also means diversifying within those investment categories.

For example, your stocks should include a mix of mid cap, large-, and small-cap stocks as well as growth, blend, and value stocks. You should have bonds that are long, medium, and short term, as well as high grade, mid grade, and low grade.

A mutual fund may offer more diversification than you could afford by owning the same stocks individually. But owning a handful of mutual funds may not offer the diversification you seek unless you research the funds’ holdings carefully. That’s because many funds have substantial “overlap.” In other words, fund A from mutual fund family X may have many of the same stocks as fund B from fund family Y.

Rule #5: Be patient

Warren Buffet says, “The market has a very efficient way of transferring wealth from the impatient to the patient.”

But waiting is very hard to do. How long are you willing to hold an asset that is not performing well? One year? Two, three, or four? If you look at the history of asset classes over time, you will see that an asset can be “out of favor” for several years in a row.

You have to be prepared to wait. Don’t think you can time when bonds will perform and stocks will get hot. If someone really could do that, he would own the world by now. So remember: Time in the market is more important than timing the market.

Rule #6: Understand volatility

Very few people truly understand the risk and volatility inevitably baked into every investment portfolio. Without getting into its complexity, every variable investment has produced a range of returns over its lifetime, and this range, or deviation, can be plotted on a chart.

So, it’s important to understand what the investment category’s “average” annual return means in order to prepare yourself for its volatility. For example, does a 10 per cent average mean the investment was up 73 per cent and down 30 per cent and happened to average 10 per cent? Or was it up 15 per cent, and then down 5 per cent to average 10 per cent?

Many investors are fooled by averages - they chase the 70 per cent return after it has happened, when the likelihood of a repeat performance is slim (which we’ll discuss more in Rule #7). Yogi Berra is rumored to have said, “Averages don’t mean nuthin”. If they did, you could have one foot in the oven and the other in a bucket of ice and feel perfectly comfortable.”

Over time, returns from investments regress to a mean. “Regression to the mean” simply means that highs and lows will average out so that your return regresses to a certain number or range. Understand an investment’s range of returns so you know what to expect annually, and over time.

Markets move from fear to greed, and back to fear. So there are times when the market is “overvalued” and other times when it is “undervalued.” Warren Buffett said of the stock buying and selling decisions made at his company, Berkshire Hathaway, “We strive to be fearful when others are greedy, and greedy only when others are fearful.”

Rule #7: Don’t chase returns

If we know from Rule #6 that a 10 per cent average annual return does not really mean a 10 per cent return each year, why do we still fall for an ad touting a fund that produces 20 per cent annually or some other phenomenal return?

Human nature. And maybe we even convince ourselves that for the chance to experience a year or two of 70 per cent gains, we’re willing to stomach the years of 30 per cent losses that also fall within the fund’s range of returns.

So, before chasing that incredible return, find out how the investment did during the last bad market for that asset class. Find out its risk, and ask yourself whether you can stomach a bumpy ride over the long term.

Another Buffettism: “The dumbest reason in the world to buy a stock is because it is going up.” So before chasing a return, always consider how likely it is that the investment will continue to produce that return - and whether it’s really worth the cost of cashing out of another, perhaps only temporarily depressed, investment to do so.

Rule #8: Periodically rebalance your portfolio

You may decide that your investment mix should be, for example, 50 per cent growth stocks, 20 per cent value stocks, and 30 per cent bonds. But asset classes vary in performance over time, so after a year or so, the portfolio balance will start to shift as one asset “overperforms” and another one “under performs.”

Emotions would tell you to sell the under performers and buy the overachievers. If you want to remain adequately diversified, however, you would re balance by selling some of the over performers and buying some of the underachievers - probably just the opposite of what your emotions will tell you.

So, if you strive to put your portfolio back to its original allocations from time to time (annually, semi-annually, or possibly even quarterly), you will be taking gains from the best-performing assets (selling high) and buying those temporarily out of favor (buying low). But it takes discipline to keep your emotions in check.

Rule #9: Manage your taxes

Have you ever considered how taxes are your biggest expense in life - more than mortgage expense, education expense, or any other expense? So, you must take advantage of all tax breaks available - each and every single one of them.

Rule #10: Get advice

Never underestimate the value of good advice. Someone who manages investments full time certainly will find things you have overlooked or done wrong. A good financial adviser is like a personal trainer for your finances and can get you on track and keep you there until your goals are met.

And even more critical than getting the advice is being sure you consistently follow your game plan. The greatest problem for most people is procrastination and erratic investment behavior. So get started, get advice, and get going down the road to wealth - and steadfastly follow through.

Source

Warren Buffett’s 10 ways to get Rich

1. Reinvest your profits - this is the only way to take advantage of compound growth, which is money growing on money.

2. Be willing to be different - you follow the herd, you’re gonna get hurt. Going against the herd may be scary, but can pay off if done properly.

3. Never suck your thumb - If you find something good, act. Don’t sit around doing nothing.

4. Spell out the deal before you start - Get all the details in writing before you follow through.

5. Watch small expenses - The article mentions a guy who counted 500-sheet rolls of toilet paper to make sure he wasn’t being ripped off. That seems a bit extreme to me but I see the point of not wasting money.

6. Limit what you borrow - I believe that the only acceptable forms of debt are student loans, car loans (reasonable car loans), mortgages, and possible 0% deals that may pop up every once in a while. Now, don’t mistake that sentence to mean that I think it’s okay to have debt—that’s not what I’m saying. The main thing is to use debt as a tool and use it wisely.

7. Be persistent - Always remember the saying: “If at first you don’t succeed, try, try again.”

8. Know when to quit - You have to know when to say, “when.”

9. Assess the risks - Do some worst-case-scenario analysis before you proceed. In other words, count the costs before you begin.

10. Know what success really means - I love the fact that Buffett is not on an ego trip with his giving. According to the article, Buffett does not want any buildings named after him. That’s soooooo cool! I really respect that about him.

Warren Buffett Echoes His 1974 Advice: Buy Stocks

Ever since Warren Buffett penned his New York Times op-ed piece Buy American. I Am. last month, investors everywhere from blogs to Barron’s have been questioning the soundness of his advice to purchase stocks. Mr. Buffett stated, ”A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.” He also warned us that trying to time the markets was dangerous, since it means we might miss a market recovery:

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

Remarkably, Mr. Buffett’s exhortation to buy stocks today echoes the prescient advice he gave back in 1974 in a Forbes profile of him entitled “Look At All Those Beautiful, Scantily Clad Girls Out There!”

Economic uncertainty was arguably worse in 1973-’74 than today. Our rivers and lakes were polluted; people were worried about natural-resource scarcity; the U.S. was bogged down in Vietnam; Watergate broke and Nixon resigned; and the Organization of Arab Petroleum Exporting Countries (OPEC) organized an oil embargo against the U.S. for supporting Israel during the Yom Kippur war. From January 1973 to December 1974, the S&P 500 Index declined from peak to trough a whopping 48%. All of which led people to conclude that the so-called American Century had come to a premature and undignified end.

It was in this 1974 environment that Mr. Buffett told Forbes,”Now is the time to invest and get rich.” He stated:

You can’t invest in the anticipation of calamity; gold coins and art collections can’t protect you against Doomsday. If the world really is burning up, “you might as well be like Nero and say, ‘It’s only burning on the south side."

“Look, I can’t construct a disaster-proof portfolio. But if you’re only worried about corporate profits, panic or depression, these things don’t bother me at these prices.”

As it turned out, 1975 was one of the best years ever for the U.S. stock market, and seven years later began the longest bull market the world has ever seen.

Today, we don’t know whether the coming months will be 1974, 1975, or something altogether different. But with the S&P 500 Index down 44% from its all-time high of 1,565 on Oct. 9, 2007, and with Mr. Buffett telling us once again that we should consider purchasing stocks, it might behoove us to listen. After all, the Sage of Omaha also warned us back in 1999 about tech stocks and the so-called New Economy.

Here’s what Mr. Buffett is telling us right now:

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

Source

Warren Buffett

We all have someone whom we admire and respect. For me one person on my shortlist is Warren Buffett who is sometimes referred to as the “Sage of Omaha“. I first heard about Buffett back in 2001 when I first started getting serious about investing and so I started reading all the titles with his name on it. Off course Buffett hasn’t actually written any of them but they were priceless none the less.

If you have never heard of Buffett, Forbes currently ranks him as the third richest man in the world and he is arguably the world’s greatest investor. He has amassed his fortune by making astute investment decisions and investing in businesses. Here is what I have learnt from Buffett:

1. Rich Is A State Of Mind
“I always knew I was going to be rich. I don’t think I ever doubted it for a minute.” - Warren BuffettThe difference between being poor and being rich is really just a state of mind. Poor people think thoughts of poverty and lack, rich people think thoughts of abundance and prosperity. Your beliefs are going to determine the way you perceive wealth, the decisions you make and the way you act towards it.

2. Success Is More Than About Your Bank Balance
When asked by CNBC what is the secret to success, Buffett replied “If people get to my age and they have the people love them that they want to have love them, they’re successful. It doesn’t make any difference if they’ve got a thousand dollars in the bank or a billion dollars in the bank… Success is really doing what you love and doing it well. It’s as simple as that. I’ve never met anyone doing that who doesn’t feel like a success. And I’ve met plenty of people who have not achieved that and whose lives are miserable.”

3. Spend Less Than You Earn
“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.” -Warren Buffett

It seems like common sense advice and you’ve no doubt heard financial experts preaching about it for years. You can’t possibly get ahead financially if you’re spending more than your paycheck. Buffett is famous for living a simple and frugal lifestyle. He is the only billionaire I know that still lives in the same house he bought back in 1958 for $31,500. He drove a 2001 Lincoln Town Car for years which he bought second hand. Buffett has a net worth in excess of $52 billion and yet lives off an annual salary of $100,000. The relative percentage of his spending based on his overall net worth is minuscule.

4. Avoid Consumer Debt
The sooner we realize that consumerism is a social plague that has been propagated by billion dollar marketing machines to keep you shackled to your job, the sooner we can stop spending money on useless stuff. It is a fool’s game to spend today so that you can work tomorrow to pay it off. It is a losing proposition because one day your working days are going to be over but the debt is still going to be hanging over your head. Clever marketing has convinced our society that to be happy you have to have more, be more and do more. Buffett abhors consumer debt instead choosing to use debt wisely by leveraging it in investments. To help you deal with your debt consider reading “How To Get Yourself Out Of Debt“.

5. You Are Who You Associate With
“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” -Warren Buffett

If you want to succeed financially you need to associate with people who are most conducive to encouraging and cheering on your financial journey. If the people you associate with see money as evil, object to capitalism and find wealth a foreign concept then your financial health and well being is going to be influenced by their views. Whether we like it or not we are all influenced to some extent by the people we spend our primary time with. If you aspire to achieve financial security then you need to find a mastermind of people in your life whom you can all encourage and help each other.

6. Gambling Is A Fools Game
“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” - Warren Buffett

While we are young and naive we choose to take risks with our money that are dumb and stupid. Trying to hit a home run with your money every time is a losing proposition with long term consequences. To chase investments that offer a high rate of return you must also assume that it also comes with a higher rate of risk. Bill Gates once quipped “Warren’s and my betting has always been confined to $1 bets” when talking about them paying poker together. If two billionaires take risk management this seriously, it’s time we average punters did the same thing.

7. Give Back To The Community
“Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.” - Warren Buffett

They say that to have more you need to give more. A contradiction in terms, maybe, but it’s a simple truth that is as enduring as time. As the bible says “It is more blessed to give than to receive -Acts 20:35”. Buffett has announced in 2006 that he was giving away over $30 billion to the Bill and Melinda Gates Foundation making it at the time of writing the largest charitable donation in history. He also contributes large sums to his children’s charitable foundations.

8. Generosity and Abundance Goes Hand In Hand
“Even though Ben Graham [Buffett's mentor] had everything he needed in life, he still wanted to give something back by teaching, So just as we got it from somebody else, we don’t want it to stop with us. We want to pass it along too.” - Warren Buffett

A famous bible quote goes: “What benefit will it be to you if you gain the whole world but lose your own soul?” - Mark 8:36. The path to wealth isn’t a solo endeavor. How sad would life be if you come to the end of your life and there is no one to share it with. So as you journey on your path to financial abundance remember that there will be many people who generously helped you on your journey so it is only fitting to pay it forward when the opportunity arises. Generosity with your time, with your money, with your resources are great virtues to have. The greatest ally to building a strong friendship is to help others achieve what they want from life.

I leave you with this last quote “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” - Warren Buffett


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Warren Buffett’s Value Investing Style

Warren Buffett is the world famous stock marketguru. Recently, he bought stakes of General Electric Co (GE) and Goldman Sachs Group. General Electric Co (GE) is a technology and services giant company which is listed in Dow Jones board; whereas, Goldman Sachs Group (GS) is a financial heavyweight company, which is listed in New York Security Exchange (NYSE). Through his famous investment company; Bershire Hathaway, Buffett invested US$8bil in these two companies. His action startled many people in stock market. When everybody was taking their money out from the Wall Street, he invested such a huge amount of money. There is no surprise actually because he at one time said that the best time to enter the market was when everybody was not interested in stocks. He also stated that it was difficult to buy a popular stocks and made profit from it. Besides, he also said that when everybody was in fear was the best time to enter the market but not when everybody was greedy. According to financial specialists, Buffett investment is a long term investment.

Currently, stock prices are considered as irrational due to the heavy sell down. So, now it is the best time to invest. When investing in a company, we should invest to the company management and market strategy. In this type of investment, good stocks should be held as long as possible by the investors.

When investing in stock market, Warren Buffett is very careful. He sets very strict requirements to select stocks. So, stocks that fulfill his requirements are seldom being found. Earnings versus growth, high return on equity, minimal debts, strength of management and simple business model are five main criteria, which are used by Buffett to select stocks to invest. He usually concentrates in a few solid stocks, which able to give high return of investment. These few stocks usually are in the industries that he understands the most. He is also very careful to the local bourse, which is an emerging market that could be very volatile. Besides, he is also watchful to the market sentiment, which could be easily affected by many other external factors.

Good stocks are worth to hold for as long as possible. This is because good stocks such as blue chip stocks are able to ride through bad times and recover over time. Buffett is the most successful and trusted investors. His investments in GE and Goldman Sachs will restore the confidence of some of the investor on the Wall Street. When Buffett invests in stocks, underlying fundamentals of a company are the must will be investigated by him rather than market sentiment. Because of his astute investment skill, he is dubbed as “The Oracle of Omaha”. Intrinsic value of a business is always will be determined by him and he is willing to pay a good price for it as long as the business has the intrinsic value. Buffett is very prudent and holds a principle that if he can not understand the operation of the business; he will not invest in it. That’s why, he escaped the dotcom market crash. He will check the fundamentals of the companies that he intends to invest by analyzing the companies’ annual reports. This is his simple investment principle.

He is the chairman of Berkshire Hathaway and this company’s stock is the most expensive on Wall Street. In a letter last year to his shareholders, he stated that Bershire was looking to invest to the companies, which had competitive advantage in a stable industry for long-term prospects. His philosophy is that the stock price will increase as long as the business does well. Investment in PetroChina, which is an oil and gas firm in China, was one of his most successful investments. He bought the stake for this company for an initial sum of US$500 mil and then sold it for US$3.5 bil. Investments in companies such as Coca-Cola, American Express and Gillette are also among his successful investments.


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