Tag Archives: Warren Buffet

Value Investing — how much cash to keep around

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For the last few years I have been trying to master the art of value based stock investing. I tried Warren Buffet type stocks, but had limited success. I decided that what you buy is as important as when you sell. I purchased CBI too late. Warren had already sold his shares, but I didn’t even realize it because I have no way to get news of what Warren Buffet owns until after the fact. The stock crashed, and I had to hold on to it for along time with hopes that it would come back up — and it just did.

My main stock strategy consists of assessing values of solid companies and having a mix of banks, food, and tech companies. I do not buy much outside of these sectors. I’m paranoid of a horrible depression where the only companies to survive are the ones that deal in food and bottled water such as Coca-Cola and Pepsi. When one stock goes up and another goes down, I sell a little of the one that went up and buy a little of the one that went down. To implement this strategy successfully you need to like a stock enough to keep buying it when it goes down. That means you don’t lose faith in it. Only really solid companies qualify for this type of investing such as Coca-Cola, IBM, Wells Fargo, etc.

But, what I realized was that I didn’t keep any cash on hand. If some stock went down all of a sudden and I needed to buy it, I had to sell something else at a possibly inopportune moment to get the cash together. I’ve recently decided to try to keep a certain percentage of my assets in my investment account in cash, so that I’m ready to jump on an unexpected opportunity. I keep my eye on the stocks I’m ready to buy. But, instead of buying what I like. I decide upon a threshold price to buy a particular amount. If I have cash on hand, I can put in a buy order for an amount slightly lower than what its trading for and get a really good price.

There might be five stocks I’m interested in trading slightly above the assigned value that I gave them. I might put in a buy order to the particular stock that is closest to the desired price. And then a few days or weeks later, perhaps another stock might be closer. By using this strategy of using assigned values and buy orders I can get a buying price roughly two or three percent lower, as well as a slightly higher selling price using selling orders.

Some people trade stocks with the desire to make a killing. I just am happy to get a good dividend and make between 4-12% on a fast trade. I might buy and sell in a few days, weeks or months and make this percent only to turn around and get another undervalued stock and try to do the same thing. The strategy so far is effective. The only problem is me — I’m not an expert investor. But, I’m sharpening my instincts daily and watching the market every morning tracking forty of my favorite stocks.

Warren Buffet’s stock algorithm cracked?

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I am not a very seasoned investor and I don’t know Warren Buffet’s entire stock algorithm. But, I have a good idea about parts of it.

Yes, Warren Buffet likes a company that has been around for a very long time that will not go out of business. Yes, he looks for good margins of operation and return on equity. He looks for companies with a “moat” where competitors cannot just run them out of business. But, there are things about Warren Buffet’s stock buying practices that you might not be able to guess just by crunching numbers. He looks for P/E ratios, but also low P/B ratios as that is statistically the best indication for the greatest increase in stock price in the long run.

Warren Buffet likes conglomorates that buy up smaller companies as he finds them steady and a good business model for the future. In the tech world, IBM seems to be the best conglomorate as they are huge and buy up smaller companies. Google and Facebook are in the process of becoming conglomorates too, but they lack the same stability as IBM who made it through the great depression which is a huge achievement for a company. I’m not sure if companies who made it through the last depression will make it through the next one — but, in my opinion, they are a better bet than new companies.

Good Vibes
What? Is Warren Buffet a hippy now? If you read about Warren Buffet, you’ll know that his sidekick Charlie Munger used to go around to companies and walk around and talk to people. He could tell very quickly if people were happy at the company, and if they looked like they were working efficiently. My stock algorithm never predicted what Warren would buy until I started meditating on companies. What does this mean? I regularly meditate to get an idea of the mental state of the management and workers at a particular company. Some companies are more aggressive, while some have stress, happy people, anger, or other emotions. If I am going to invest lots of money in a company, I want to see happy and productive workers in my vision. Warren’s picks for companies don’t always measure up with numbers (although they don’t do poorly either,) but they do quite well when I meditate on them. WFC, KO, IBM, AXP, PSX and KHC all did splendidly in my meditation and I bought stock in each company as well as others.

I have been testing my psychic skills in the market. My accuracy rate was about 65% which is not bad. Anything above 50% is super. But, sometimes the cmpanies with the good vibes are not the ones that you will make money on. Sometimes it is companies that took a temporary dip in value that are going to bounce back and make you a quick 10% that are the ones to invest in. I meditated to see which companies I thought would do the best in the next four years. Warren Buffet’s picks yet again did quite well in my meditations, particularly IBM, KO and a few others. I also thought that Starbucks and Facebook (companies Warren doesn’t touch) will also do well in the next few years. Not to sound funny, but I take pleasure in owning SBUX and FB — it makes me happy! I’m convinced that Warren is very psychic and has an excellent sense of human nature. It seems clear that Warren knows long ahead of time which stock will not only go up, but go up a lot. I truly believe he is a 21st century oracle, and understanding what makes him tick could unleash the secret to your success!

Compilation of best management & success blog entries

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Here are some management and success articles to read. Some of them are very unusual and interesting.

What does Warren Buffet look for when he hires people?

The mindset of a millionaire

Business quotes that will inspire you

Being liked is a huge factor in an outsourcing manager

The rupee mentality

In China, hot girls were hired to motivate programmers

Small talk, Indians and attracting US clients

Steve Jobs watched his programmers carefully, so should you!

Mistakes and learning from them

I’m going to succeed because I’m crazy enough to think I can

Google has its employees devote time to innovation, what about you?

Warren Buffet works two hours a day; Are you a workaholic?

Think big, but start small in business

How do big companies get big? It’s not an accident!

How to create a corporate culture like Google’s and have fun doing it

Effects of hanging around the wealthy

How good are you at estimating jobs?

A good organization has people who take charge without being overbearing

What does Warren Buffet look for when he hires people?

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Warren Buffet is a long term thinker and a very practical man. Business advice from the master himself might seem deceptively simple. In a sense it is, but in a sense it is not. Warren likes to hire people who can handle entire projects on their own with minimal intervention. Otherwise, his business cannot grow as he would be busy micromanaging people. I understand his philosophy well as I spend all my time micromanaging people or doing tasks myself. From time to time I find people who will do some of my tasks, but never all of them, so I am always busy catching up on work.

The problem is that most people have limited work skills and are not that loyal. I find that not one person I’ve ever met will just bow down to me and do whatever task I give them no matter what I pay them. I’m not sure it is possible to find someone who will be reliable to me in the long run, but I’ll keep hoping.

Warren has been in business so long, he can probably tell early in the interview if the person seems like they will be reliable in the long run. Over the years he developed an intuition or gut feeling about people. For the rest of us, finding the right people is a lot harder.

Most people cannot function on their own initiative. In most organizations there is a mean guy who is the manager who makes sure the others keep working. If you hire people directly without an intermediary, you need to make sure they keep working. You might have to go through hundreds of people to find one who you can truly rely on.

Since I have very poor intuition, I prefer to see how people do on test jobs. If someone does well and asks for more, that indicates that they want to work. However, it doesn’t indicate how helpful they’ll be when they get busy. You really need to see how people behave during their first four months, and first year. If they do well for twelve consecutive months, it might be time for a promotion.

Finding people who are motivated might cost a lot more than what you are paying now. If you hire people who need to be micromanaged, then micromanage them or they might not function at all. Sometimes the only way to motivate people is to pay them a lot more than they would get paid elsewhere. It is a shame that people can’t just love their work and own their work naturally. But, that is the way the world works. Also, certain industries tend to attract reliable people. Doctors, Attorneys, Accountants and Insurance people tend to be reliable while the people I work with are not. All I can say is good luck!

You don’t get to the next level in business by being in a hurry

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Some people think you get ahead by being in a hurry. Others think they can slack off and still do okay. The truth is that you need to work very hard, but not be in a hurry. I remember reading how Warren Buffet observed that it takes nine months for a baby to be born. You can’t use nine women working as a team to get a baby in one month. Certain things in business just take time. This doesn’t mean you should slack off during this time. You should work hard and let nature take its course.

I remember when I was twenty I was in a huge rush to get ahead in my life. But, at that time in my life I was a complete failure. I was mediocre in everything that I did. Now, in my forties, I am still far from perfect, but I work hard and am always driving to get ahead. However, I realize that success and getting to that next level is not something I can control the timing of. There are some years that are good years and other years that are slow. I try to learn from what I did during those good years and learn from mistakes as well.

On a converse note, many successful managers do less. They find ways to supervise the right people for each task that they need to have done. If they are overworked, they won’t have time for critical things or for putting out fires. Whether you work hard or work smart, the point is to be on top of everything and make sure quality work gets done. After that — just let nature take its course.

Warren Buffet works two hours a day; Are you a workaholic?

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To be successful in business, do you need to be a workaholic?

Buffet works two hours a day and is more successful than any workaholic
Warren Buffet is more successful than anyone else I can think of. He works roughly two hours a day. His philosophy is that he needs to keep his schedule open just in case there is a last minute reason why he needs to be available such as an important meeting or opportunity. He is an expert at delegating work to the best people with the best terms. But, he is on a very high level, and we are not. So, perhaps we can’t apply his wisdom to our own situation.

HBR says work less!
Harvard Business Review has many blog entries that keep telling us that managers need to do less, not more. Managers tend to spend too much time at meetings and doing emails and other tasks which are less than optimal use of their time. They need to delegate more and do less.

Koreans say work all the time……
Korean culture has an interesting perspective. I live in a very Korean area and find them fascinatingly imbalanced as a culture. It is cultural to force your kids to study until 2 am for school and exams. Koreans are expected to be busy all the time and be successful. There is no room for failure, and no sympathy for losers. You fight, or you die! Very warlike just like their 5000 year history of being attacked by countries that were larger than them all the time. I believe that their history contributes to the toughness and endurance of their culture.

Korean breakdown syndrome (KBS)
In any case, something very bizarre happens to Koreans in their 30’s. Although Korean culture demands hard work all the time, they allow you to slow down a bit when you get older and still be tolerated. Maybe that is a Confucian idea since respect of the elderly is required. I have seen this happen to one girl and one guy. They started being very smart and hard working. But, something happened in their mid or late thirties. Their desire to work all the time was lost. The meaning of life and meaning of work just faded away. I personally feel that the Korean style of overdoing it to the point of insanity causes very long-term problems later in life. You lose track of the meaning of life, of relationships, family, and balance. Life becomes an insane competition to the death. It is interesting that I am sort of the opposite of Koreans. I was a slacker in my 20’s and a workaholic in my 30’s and 40’s.

To get ahead in business, it is imperative that you slow down
You can’t do everything yourself and get ahead in business. As a business person, you need to become an expert at analyzing which tasks are the most important, and why. You also need to know which tasks you can delegate and how to delegate those tasks. If you just read some blog article about how you need to delegate, and delegate critical tasks to someone who is not committed, you could lose more than you can imagine. You need to become an expert at who to trust, and how to find backups for this person just in case. The minute you slow down a bit, you will have more time in your schedule to do some real thinking, and to interview more people to delegate tasks to. It is a hard transition to go from doing everything yourself to forcing yourself to let others do much of your critical tasks for you. This transition will not happen though, unless you force yourself to let it happen, even if it is little by little.

Where is Warren Buffet investing his money?

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Where is Warren Buffet investing his money?

Many people look to the stock market for a source of quick gains. You can lose as much as you can gain. Fancy brokers have analytics that can tell you which stocks are trending up, and which are trending down. But, in the long run that is not definite and tells you nothing about what will happen several years from now. Investing in stocks is like a marriage. If you pick someone with the right intrinsic attributes you might be better off — at least that is how elderly people in India think.

The rest of the world is excited about Facebook, Starbucks, Apple Computers, and Twitter Stock.
But, Warren has his money in proven winners. He likes investing in companies that have a dominance or almost a corner in the market that they are in. He likes companies with a long and proven stable and consistent track record, intrinsic value, etc. He likes companies that have a sustainable competitive advantage! He also likes companies that are undervalued, and whose long term price per earnings ratio are favorably low! future earnings potential is another huge factor! He likes Coca Kola, IBM, Wells Fargo, Exxon Mobile, and many other very old and stable companies to name a few!

Fun stocks that are popular with the public like Facebook might make you feel good when you are purchasing them. But, they often are overvalued. Smart investors look at the price per earnings ratio of stocks before a purchase. But, what a company made in the last twelve months means very little. What matters to me is how their earnings have been over the last ten years, and whether their earnings show steady growth, stagnation, instability, or decline! If your stock’s price is 100 times as high as its yearly earnings, not only is it unlikely your shares will have future earnings, but if the stock stops being popular, you could lose your equity fast.

On the other hand, stable companies like Coca Cola, Walmart, Proctor and Gamble, and other pillars of society are likely to be around in forty years. Their profits are steady. Those might not be exciting or glamorous stocks, but you will be more likely to retire with them than some of the newer and less stable companies.

(1)Many look to the stock market as a place for fast gains, but you can lose more than you gain!
(2)If you pick stocks with intrinsic value, you will be better off in the long run

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Getting better ROI setting up operations overseas

Is outsourcing moving from India to China?

What does Warren Buffet look for when he hires people?

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What does Warren Buffet look for when he hires people?
He looks for people who can manage entire projects with minimal or no intervention. Otherwise he could be micromanaging and wouldn’t be able to grow his businesses!

I tried to apply Warren’s philosophy of hiring to my own business. I read a handful of books by Warren Buffet more than a decade ago. Much of the wisdom that he shared in his books stuck in my head. But, knowledge from reading books is different from street knowledge or the ability to apply your book knowledge in real life.

In real life, you might go through hundreds or thousands of people just to find a single person who can handle part of an operation with little or no intervention. With the other 99.9% of people, no matter how hungry they are, the minute you stop cracking the whip, they stop functioning!

It is so hard to apply Buffet’s wisdom, I often ask myself if it is even worth trying! Maybe it would be worth it to find someone who can handle 70% of my operation with some intervention. That solves most of the problem. Even that task is going to be very difficult to find someone to manage.

To use Buffet’s philosophy, you need to be an expert at testing people out. My favorite technique is to hand them something and see if you hear from them again. If I give someone an assignment with no due date, will they get back to me in 24 hours, in a week, three weeks, or never? This is a very useful analytic. If your new hired hand has a finished result in 12 hours and is asking for more work, that is someone who is likely to work out in the long run. Whether they can manage others is unclear, but at least they get their work done.

If you spend all of your time cracking the whip and micromanaging what everyone else does, you will never have time to grow your business. On the other hand, if you hire people who NEED to be micromanaged, and you don’t, then your will be out of business in a week which is much worse than never being able to grow your business. At least you will have a business!

The bottom line is:
If you can afford to hire people who function on their own then great. Otherwise, be prepared to micromanage your workers regardless of what Buffet says. Remember — Buffet has better access to human resources than you do, so do the best with whatever you have!

(1) According to Buffet, you need to hire people who function with little or no intervention
(2) I enjoyed reading Warren Buffet’s books, but applying his wisdom in real life is hard!

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Steve Jobs watched his programmers carefully — so should you!

The mindset of a millionaire!