Buffettology, the Geeta for investors
What is Buffettology ?
Warren Edward Buffett is an American business tycoon, hailed as the most successful investor of the Twentieth century. Forbes ranked him as the wealthiest man of the world in the year 2008. And the Time magazine named him as the world’s most influential man in the year 2012.
Warren Buffett was born in the year 1930 in Omaha, Nebraska. Right from his childhood he has shown the signs of a promising sense of earning money, saving and investing . He has filed his first income tax returns in the year 1944. That is at the age of 14.
During his high school days, Buffett and his friend invested $25 and purchased a Pinball, an arcade game. This game was kept in a local barber’s shop. Very soon Buffett bought more Pinball machines and kept in different barber shops. Warren Buffett has done door to delivery of news papers. Worked in the grocery shop owned by his grand father. His interest in stock marketing and shares started in his early days. Warren Buffett’s own Berkshire Hathaway ‘s yearly reports are treasure chests of knowledge in stock marketing.
All his experiences and beliefs that led him to the top of the business world are known as “Buffettology.”
A few facts about Warren Buffett.
Warren Buffett is well known as a Financial Icon. He is referred in the top business parlances of the world as “ The “ Oracle of Omaha.”
Buffettology is a primer for investing using Warren Buffett's ideas. Though the experts believe that it is not very sophisticated, but it does communicate its points rather strongly.
Known as the "Oracle of Omaha," Warren Buffett is an investment guru and one of the richest and most respected businessmen in the world.
Patience. Not Panic.
Warren Buffett is of the firm opinion that Patience plays a pivotal role in Stock marketing. He confirms his point of view with the following example.
At the age of 11 Buffett bought 3 shares of Cities Service at $38 dollars per share. Thereafter the stock slumped to $27. Buffett held them until the stock reached $40. Immediately he sold his shares with very less profit. But when he found the Cities shares scaled to $200, he regretted.
But learned a lesson of his life time, “It’s the patience that creates money, not panic.” For the remaining part of his life even after he became a Millionaire, Buffett stuck to this principle.
An optimist to the core.
When he was diagnosed with prostate cancer, Buffett joked with his friends who gathered around him, “Here is a bad news. I have been diagnosed with prostate cancer. And here is the good news, the ailment is in the initial stages. I’ll be cured soon.”
Simplicity is the other name of Warren Buffett.
Warren Buffett Generally avoids cell phone and laptop. Lives in his old 5 bed roomed home in Omaha. No driver for his car and no watchman for his home. The biggest ever expensive thing was his own air craft. Even that he sold off later.
His inspiration.
The world famous ‘Financial Guru’, Benjamin Graham ‘s book, “The intelligence Investor” was assimilated by Warren Buffett during his student days itself.
The Crème – de –la Crème of Buffettology.
Warren Buffett’s aphorisms are simple sans economic jargon. The language is very simple and down to earth. Above all, his aphorisms are connected with day to day activities of a common man.
Buffettology consists of several Aphorisms.The dictionary meaning of Aphorism is " A brief statement of a principle."
Aphorism 1
If you go on spending on those things which are not necessary, you will end up with selling those things which are necessary for you. He advises not to fall prey on the deceitful marketing strategies.
“Drink Coke to look like Brad Pitt.”
“ To Feel younger buy the cell phone of brand XXX.”
Warren Buffett warns the investors, “Remember, this is your life and the likes and dislikes are yours. Why on earth you should extract your Wallet and rush towards the mall to follow the diktats of some body’s mad prattling?
My friend Subba Rao throws money on electronic gadgets simply because they are easily available on installments. The presence of Credit card makes Subba Rao feel as strong as a Jumbo. With that strength he buys anything that comes on his way. Banks’ irresistible installment offers made him buy a car. When monthly financial statements of the different cards started pouring in one after another at the end of the month, Subba Rao felt as if the air around him has become stand still.
To know where such situation lead to is anybody’s guess. There are scores of Subba Raos around us.
Moral : Don’t go anywhere near the word “Loan.”
Aphorism 2.
Savings are not those which are left after your expenses. It should be the other way. Expenses are those which are left after your savings.
Buffett advises to set apart a sum, the moment one gets his salary within one’s means and necessities. After taking care of the monthly bills, the amount left should be earmarked for family entertainment, shopping or any such necessities.
Replying to a question , “What would you do if you are given the same life again?”, Warren Buffett replied affirmatively, I will live the same life as I’m living now. May be that I may start a little earlier. The qualities of Thrift and investments should be injected at an early age. By this, one can learn a lot from the mistakes made earlier. There will be ample time to correct the mistakes.
It doesn’t mean one should make decisions in haste. Proceed forward with caution. Slow and steady is the Mantra one should remember. It’s mere foolishness to think that one can hasten up the decisions violating natural order. The rules of nature apply to Money also. The sequence of natural order, “Seed, Sapling,plant and tree “ are applicable in the process of Growth of Money. Starting with a Hundred natural order should be adhered to. See that the Hundreds take shape in to Thousands, Ten thousands, Lakhs and then Crores. It’s mandatory to ascend all the intermediary steps. If in a haste if you strive to ascend four steps at a time, you are bound to fall flat.
Aphorism 3.
Warren Buffett says in unequivocal terms that one should dare when all are in a state of fear due to bad market conditions. And one should fear when all others are jubilant because of good marketing conditions. Because the stocks must have reached the peaks. There is nothing left except a great fall.
Its essential to think and see the situation in a new perspective. Before thinking of investing in any business, it’s essential to know the very roots of that business. As long as the roots and foundations of a business or an organization are strong the web and tide, ups and downs should not worry an investor.
For example, if you are thinking of investing in a business which is bright and promising right now, think if the same promising conditions continue to prevail even after 20 years. Warren Buffett says, how a similar thinking has helped him reap rich dividends. Its with this farsightedness he invested in Gillette and Coca-Cola.
Today Buffett owns 8% shares in coke. That means for every 12 tins of coke you consume, Warren Buffett gets the money for a tin of coke. What all he has done for his home work before investing in Coke and Gillette is, he asked himself if the habit of shaving or drinking the coke will last for about 20 years from now? Perhaps he was convinced with the answer that came from within.
Right now Buffett has shares in American express, Bank of New York , Johnson and Johnson, Proctor and Gamble, Washington Post to name a few.
Aphorism 4.
Don’t ask a barber if cropping the hair or shaving is necessary. He will definitely say, “Yes its necessary.” Because it’s his profession.
Stop listening to the suggestions of a columnist, market analysts or even your friends. Listen to those experts who are not benefitted by your investment directly or indirectly. It is far better if you can study and arrive at a decision. Once you get even a little profit out of your investment, don’t spend it away. Invest it again in another company. The idea is to ensure that profits should be utilized to create more profits.
Aphorism 5.
If you want to know the depth of a river, you need not use both your feet. And don’t forget about some calculated risks.
Remember, whatever you do should be known to you with the reasons. When you fail to know what you are doing and what for you are doing, then the real “Risk” factor crops up. The company you think of investing in is really a worthy company but you do not know anything about the company. Such cases should be avoided by all means. You should remember that a known devil is far better than an unknown angel. If you have a greater understanding about a Slipper manufacturing company, invest in it. But not in a company that manufactures gold ornaments about which you have a least idea.
The best thumb rule is to invest in companies which are associated with your day to day activities.
At this juncture it’s worthwhile to hear what Buffett says. “I don’t have any idea about technology. Owing to this reason, I did not look towards IT companies for a long time. I always preferred to invest in Coke, Newspapers, Banking etc about which I have an idea.
The importance of choosing a work one loves and to work with those people who you like will always pay. Any amount of hard work will be an exercise in futility if you work with a team with opposing thoughts and ideas.
Aphorism 6.
A business agreement with a crook is impossible. Don’t associate yourself with those who ask, “What is there for me?” Association with good people works in all spheres of life. And business sphere is not an exception. As far as possible choose to work with those who are committed to honesty and who practice moral and ethical values.
Be away from those who lure you with false promises like, “ We make your one lakh in to one crore.” Sincerity and honesty are an expensive gifts. Don’t expect them from every Tom, Dick and Harry.
Aphorism 7.
Don’t overlook small things. One day these neglected small things will become big things. Remember the mighty ocean is made of tiny droplets. Don’t dismiss a small expenditure as mere trivia. If you neglect such small expenditures one day it will appear before you as big a monster. It’s wise on your part to keep a close watch on tiny expenditures which are not necessary.
Remember to make it your policy, “ To spend less amount judiciously to get a higher value for your money. “ It’s of utmost importance to know that you are spending your money with an expectation to get full value for your money. And never hesitate to bargain. Your expenditure should be well within the peripheries of your income.
Aphorism 8.
Investment is like your sexual ability. Every time you postpone your desire for romance to a later date you are bound to lose some of your potency.
Akin to this, there is no use of keeping your money in cold storage. Riches are like cow dung. The more it is preserved the more it stinks. If you use it in an appropriate place like a farm, it enhances the fertility of the land.
To err is human. Every one of us will commit a mistake. Wisdom lies in admitting the mistake. This quality adds magnanimity to your character.
Aphorism 9.
Your investments and the businesses should be so simple that a fool also can be able to repeat what you have done.
Yes variety is necessary when it comes to investments. But that variety should not be chaotic that leads to utter confusion. As the variety increases there is a danger of losing the concentration. You should be able to make a 6 year old kid understand your investments and businesses. Failure to do so you can take it for granted that you yourself did not understand about your investments and businesses you are doing.
Aphorism 10.
The real measuring rod for your success is, “How many people love you.”
Its not how many Millions you own or how many companies you own that counts. Its how many lives were influenced by you alone stands. And that is the only measuring rod for your success not only in business sphere but in every sphere of your life.
Warren Buffett’s fame as a philanthropist is well known. He allocated a mind boggling 85 % of his property to the society. Warren Buffett says, it’s much easy to earn than giving. One should be intelligent to earn money. But one should have heart to give money to the society.
As a major donor to the Melinda Gates foundation, Warren Buffett stood as a philanthropist of highest stature.
The last Aphorism but not the least.
Confidence plays a key role in every sphere of life including business sphere. Warren Buffett, many years before he became a Millionaire said with his better half, “ Think what we are going to do when I become a Millionaire.”
His wife did not laugh at him. But she believed in his confidence on his abilities. He further said, ‘Build castles in the air first. After that let’s add steps to the castles.’
Warren Buffett is of the firm opinion that confidence is the mother of all virtues. Without which nothing is possible. If one wants to be an achiever in the financial world, he should have immense confidence in his abilities.
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