Archives of “money” tag

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50 Shades of Warren Buffett

  
Analysis, Education
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I am about to embark on my 11th annual trip to Warren Buffett’s Omaha. This year I have something unique to share with you: an excerpt from a chapter I contributed to a brand new book, The Warren Buffett Shareholder. Let me tell you a little bit how this chapter came about.

In the early 2000s I taught graduate investment classes at the University of Colorado. As a class assignment I had students do presentations on Warren Buffett’s annual letters to his shareholders. We broke up 30-some years of Buffett letters into six time periods and divided the class into six groups. Each group had to present the most important lessons they learned from Buffett’s letters.

The day of presentations was not my finest moment as a teacher. It started out great, but soon all the presentations started to sound the same. Here is why: Buffett’s letters are full of wisdom, and each letter has a new insight or two. But value investing philosophy rules (just like the Ten Commandments in the Bible) are the same now as they were 50 years ago. Buffett simply adds a new shade of grey onto the same wisdom in each letter. Here is the thing with shades: You see them only as shades next to other shades, not as colors in their own right.

Then I discovered that Lawrence Cunningham had edited Buffett’s letters into a book, 50 Shades of Warren Buffett. Okay, the actual name of the book was The Essays of Warren Buffett. When people ask me for the one book they should read about Warren Buffett, my answer is always The Essays of Warren Buffett – it’s as close to an autobiography of Buffett as you’ll get.

(By the way, if you haven’t read “The Six Commandments of Value Investing” – an excerpt from my next book – you can sign up here to read it. I’ve been asked, why six, not ten? My deeply Talmudic answer is, “Value investing is about quality not quantity.”) (more…)

Wisdom From Bruce Kovner

  
  Education
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On protecting emotional equilibrium:

To this day, when something happens to disturb my emotional equilibrium and my sense of what the world is like, I close out all positions related to that event.

On the first rule of trading:

The first rule of trading — there are probably many first rules — is don’t get caught in a situation in which you can lose a great deal of money for reasons you don’t understand.

On making a million:

Michael [Marcus] taught me one thing that was incredibly important… He taught me that you couldmake a million dollars. He showed me that if you applied yourself, great things could happen. It is very easy to miss the point that you really can do it. He showed me that if you take a position and use discipline, you can actually make it.” (more…)

The greater the story, the greater the bubble

  
Analysis, Education
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The greater fool theory explains almost every bubble

Some things have an intrinsic value. The most-obvious example is a stock with a dividend. The absolute floor for an equity is its dividend and so long as their is a profitable business behind it, the value is a multiple of that dividend.

Other things don’t have an intrinsic value. This includes virtually everything that doesn’t produce a yield. Oftentimes, prices of those things rise and fall based on future expectations of what profits or yield might be. In other cases, there is an estimation of utility. Oil, for instance, can be refined into gasoline which can be used to move things or for dozens of other uses.

Oftentimes there is a dispute about utility or a dispute about future profitability, which can lead to a dispute about prices. One way to resolve this is a model but oftentimes that’s so fraught with assumptions that it’s useless.

So how do you establish prices? Obviously, via the market.

This is when storytelling, which is another way of saying a sales job, takes over.

Cryptocurrencies are an obvious example. A Bitcoin has no yield but it has some utility. To some, that utility is replacing the US dollar as a global transparent currency. To others, it’s a way to facilitate transactions. And for others still, it’s a handy tool for criminal transactions. How you price it then, depends on how you view the future utility.

Or does it? (more…)

The business end of the bible

  
Education, Humour, Life
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biblealoneA Jewish businessman was in a great deal of trouble.
His business was failing and he had put everything he had into the business.
He owed everybody and it was so bad he even contemplated suicide.
As a last resort he went to a Rabbi and poured out his story of tears and woe.
When he finished, the Rabbi said, “Here’s what I want you to do”.
Put a beach chair and your bible in your car and drive down to the beach.
Take the beach chair and the bible to the water’s edge.  Sit down in the chair and put the bible in your lap.
Open the bible: The wind will riffle the pages, but finally the open Bible will come to rest on a page.
Look down at the page and read the first thing you see.
That will be your answer, that will tell you what to do.
A year later the businessman went back to the Rabbi and brought his wife and children with him.
The man was in a new custom-tailored suit, his wife in a mink coat, the children shining.
The businessman pulled out an envelope stuffed with money out of his pocket, gave it to the Rabbi as a donation in thanks for his advice.
The Rabbi recognized the benefactor, and was curious.  “You did as I suggested?” he asked.
“Absolutely”, replied the businessman.”
“You went to the beach?”
“Absolutely”.
“You sat in a beach chair with the Bible in your lap?”
“Absolutely?”
“You let the pages riffle until they stopped?”
“Absolutely?”
“And what were the first words you saw?”
“CHAPTER 11”.

Accepting Losses?

  
  Education
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acceptinglossThe markets do not know you!

 You do not exist to them in any other form than as the other side of a transaction.

 They do not care if it is your last cent, and your kids will not have milk, and on, and on.

 Markets need losers so they can make money in this zero-minus-sum game.

 But please … do remember that taking an acceptable risk reward ratio position and being wrong is not  losing!

 Whether you win or lose, you should always strive to remain at a comfortable emotional state. Building a
 proper plan is enormously helpful in getting you to do just that.

 Many people know what to do; yet very few are able to do what they know! It is the rules that force one
 to take the proper actions.

 Losers often think that the rules are made for others. Think that they are not for you?

 Think again!

 Fight the rules and you will have a very short career! 

 The stock markets can be a great place to turn your savings into wealth. 

 On the other hand, if you do not keep the fundamental investment rules and do not follow certain
 simple stock investing basics, you can lose your shirt. 

 Anirudh sethi says that IF:  (more…)

Kill The TV

  
  Education
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kill your TVIf you are waiting for the TV clowns to tell you where to invest and How to trade , you are missing the point. Successful investing and trading  is a skill, which can be learned and developed. The last thing you want to do is to let others tell you how to invest your own money. Instead, invest your time and energy in developing your own investing strategy. Kill the TV for good and become an independent thinker. Profits will follow.

Re-Evaluate

  
  Education
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Stop_SignBe willing to stop trading and re-evaluate the markets and your methodology when you encounter a string of losses. The markets will always be there. Gann said it best in his book, How to Make Profits in Commodities, published over 50 years ago: “When you make one to three trades that show losses, whether they be large or small, something is wrong with you and not the market. Your trend may have changed. My rule is to get out and wait. Study the reason for your losses. Remember, you will never lose any money by being out of the market.”

A Good Reminder

  
  Education
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Trend follower Ken Tropin: In this business you need to have ample payoffs from your winning trades but make sure your losing trades do not generate big losses—so the returns have a fat right tail but not much left tail! Suppose over time you make money on half your trades and lose money on the other half. If the winning trades are double the size of the losing trades, then you have a pretty profitable investment.

Trading Wisdom

  
  Education
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  • Buy from the scared, sell to the greedy.
  • Buy their pain, not their gain.
  • Successful traders are quick to change their minds and have little pride of opinion.
  • I made my money because I always got out too soon. (Bernard Baruch)
  • Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch)
  • Throughout all my years of investing I’ve found that the big money was never made in the buying or the selling. The big money was made in the waiting. (Jesse Livermore)
  • The faster a stock has climbed, the quicker it will fall.
  • The more certain the crowd is, the surer it is to be wrong. (Menschel)
  • Bear markets begin in good times. Bull markets begin in bad times
  • Never confuse genius with a bull market.
  • Always sell what shows you a loss and keep what shows you a profit

Gann’s 11 Rules of Success

  
  Education
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games1

Our Favourite is number 6

Rule #1 : Strive for Success

To be successful the most important rule is to strive for success. This means you must exert effort and put a lot of hard work into your effort. You must have both the short term and long term charts necessary for trading the markets you trade. They must be always up-to-date and you need to watch them on a daily basis so your mind gets use to their price and time movement. You will then learn the secret of trading and see how the entire price movement continually evolves.

Rule #2: No One Owes You Anything

You must succeed on your own. It is all up to you. The markets, stockbrokers, brokerage firms, news letters don’t owe you anything. Gann never took anyone’s newsletter. He did it all himself. The markets are there to provide you a service for buying and selling the markets you are trading. They really don’t care that you make money. The markets are there for the brokerage fees. The more you trade, the more money the brokerage firms and exchanges make. You must be knowledgeable of a reliable trading method that you can use to extract money from these markets. This method must be able to help you understand the price structure of the markets in regards to time and price movement.

Rule #3: Plan You’re Way to Profit

when you enter a trade you should have a figured a game plan for both the entry and exit of the trade. The plan should be definite and not subject to changes to your psychology during market hours. Gann knew exactly what he was doing all the time. You should have a stop in the market at all times, because you never know when a time cycle might turn against you. You should also have a profit objective in the market. So many traders today lose because they are using computer oscillators to trade with and they never know where they are going. They usually end up on trading with rumors and tips and use hope and fear to try to make a success of the markets. (more…)

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