Investing / Warren Buffett

Only invest what you can afford to lose and for most people (9/10, I think) a low cost tracker fund is probably the best vehicle for them. For others who want to invest for the long term themselves, Warren Buffett is a very good guide. He writes in his 2007 shareholder letter:

“Charlie [Munger] and I [Warrren Buffett] look for companies that have a) a business we understand; b) favorable long-term economics; c) able and trustworthy management; and d) a sensible price tag. We like to buy the whole business or, if management is our partner, at least 80%. When control-type purchases of quality aren’t available, though, we are also happy to simply buy small portions of great businesses by way of stock-market purchases. It’s better to have a part interest in the Hope Diamond than to own all of a rhinestone.

A truly great business must have an enduring “moat” that protects excellent returns on invested capital. The dynamics of capitalism guarantee that competitors will repeatedly assault any business “castle” that is earning high returns. Therefore a formidable barrier such as a company’s being the low-cost producer (GEICO, Costco) or possessing a powerful world-wide brand (Coca-Cola, Gillette, American Express) is essential for sustained success. Business history is filled with “Roman Candles,” companies whose moats proved illusory and were soon crossed.

Our criterion of “enduring” causes us to rule out companies in industries prone to rapid and continuous change. Though capitalism’s “creative destruction” is highly beneficial for society, it precludes investment certainty. A moat that must be continuously rebuilt will eventually be no moat at all.

Additionally, this criterion eliminates the business whose success depends on having a great manager. Of course, a terrific CEO is a huge asset for any enterprise, and at Berkshire we have an abundance of these managers. Their abilities have created billions of dollars of value that would never have materialized if typical CEOs had been running their businesses.

But if a business requires a superstar to produce great results, the business itself cannot be deemed great. A medical partnership led by your area’s premier brain surgeon may enjoy outsized and growing earnings, but that tells little about its future. The partnership’s moat will go when the surgeon goes. You can count, though, on the moat of the Mayo Clinic to endure, even though you can’t name its CEO.

Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return. …”

Strangely (although perhaps not so strangely if you look at incentive structures in the industry) few money managers who purport to invest for the long term, actually manage to or manage money anything close to what Buffett advises…

Why some people have all the luck

RICHARD WISEMAN

Why do some people have all the luck while others never get the breaks they deserve?

I set out to examine luck, 10 years ago. Why are some people always in the right place at the right time, while others consistently experience ill fortune? I placed advertisements in national newspapers asking for people who felt consistently lucky or unlucky to contact me.

Hundreds of extraordinary men and women volunteered for my research and over the years, have been interviewed by me. I have monitored their lives and had them take part in experiments. The results reveal that although these people have almost no insight into the causes of their luck, their thoughts and behaviour are responsible for much of their good and bad fortune. Take the case of seemingly chance opportunities. Lucky people consistently encounter such opportunities, whereas unlucky people do not.

I carried out a simple experiment to discover whether this was due to differences in their ability to spot such opportunities. I gave both lucky and unlucky people a newspaper, and asked them to look through it and tell me how many photographs were inside. I had secretly placed a large message halfway through the newspaper saying: 'Tell the experimenter you have seen this and win $50'.

This message took up half of the page and was written in type that was more than two inches high. It was staring everyone straight in the face, but the unlucky people tended to miss it and the lucky people tended to spot it.

Unlucky people are generally more tense than lucky people, and this anxiety disrupts their ability to notice the unexpected.

As a result, they miss opportunities because they are too focused on looking for something else. They go to parties intent on finding their perfect partner and so miss opportunities to make good friends. They look through newspapers determined to find certain types of job advertisements and miss other types of jobs.

Lucky people are more relaxed and open, and therefore see what is there rather than just what they are looking for. My research eventually revealed that lucky people generate good fortune via four principles. They are skilled at creating and noticing chance opportunities, make lucky decisions by listening to their intuition, create self-fulfilling prophesies via positive expectations, and adopt a resilient attitude that transforms bad luck into good.

I wondered towards the end of the work, whether these principles could be used to create good luck. I asked a group of volunteers to spend a month carrying out exercises designed to help them think and behave like a lucky person. Dramatic results! These exercises helped them spot chance opportunities, listen to their intuition, expect to be lucky, and be more resilient to bad luck. One month later, the volunteers returned and described what had happened. The results were dramatic: 80 per cent of people were now happier, more satisfied with their lives and, perhaps most important of all, luckier.

The lucky people had become even luckier and the unlucky had become lucky. Finally, i had found the elusive 'luck factor'. Here are four top tips for becoming lucky:

1) Listen to your gut instincts ^ they are normally right.

2) Be open to new experiences and breaking your normal routine.

3) Spend a few moments each day remembering things that went well.

4) Visualise yourself being lucky before an important meeting or telephone call.

Have a Lucky day and work for it.

The happiest people in the world are not those who have no problems, but those who learn to live with things that are less than perfect.

The author of `The Luck Factor' teaches at the University of Hertfordshire.

Obstacles helped these men earn MEGA success .. From Yahoo Campus

AT age 10, Julio was a little Spanish boy with a dream. He wanted to play football for his favourite club – Real Madrid! He played all day, practised hard and became a very good goalkeeper.
By the time he was 20, the childhood dream was beginning to come true. He was signed up to play for Real Madrid. And most football pundits were predicting that young Julio would soon become Spain’s No.1 goalkeeper.
One evening in 1963, Julio and his friends set out in a car for a night of fun. It turned out to be a night of horror, as the car they were travelling in met with a terrible accident. And young Julio – soon-to-be star goalkeeper of Real Madrid and Spain – found himself in hospital, paralysed from the waist downwards. Doctors were unsure if he’d ever be able to walk again. They were pretty sure he would never play football again.
The road to recovery was long and painful. Julio spent the night thinking about what might have been. His mind was filled with sorrow, anger, regret. To lessen the pain, he took to writing songs and poems at night, with a tear in his eye and a pen in his hand. And to increase the dexterity in his hand, a nurse gave him a guitar. He had never touched a guitar in his life! But soon Julio began strumming the guitar and also singing the songs that he had been writing.
After being bed-ridden for 18 months, Julio gradually picked up the pieces of his life. Five years after the accident, Julio entered a singing competition – and won the first prize - singing a song called “Life goes on the same!”
He never played football again. But with a guitar in hand and a song on his lips, Julio Iglesias went on to become one of the top ten singers in the history of music, selling over 300 million albums. Just imagine. If not for that accident, Julio Iglesias would have probably been just another goalkeeper in Europe!
What happened to Julio that evening in 1963 could happen to any of us. A setback or an accident – or failure - can often appear to be the end of the road. But it seldom is. When one door shuts, usually another one opens. It’s just that we get so busy staring at the closed door and banging our head against it that we fail to spot the other door opening. Learning to cope with failure is often the first – and most critical step – towards success.
Never let failure impact your sense of self-belief. You are a star, with unique talents. Didn’t clear the entrance exam to engineering college? Maybe you weren’t meant to be an engineer. That’s all.
Even Albert Einstein didn’t clear the entrance exam to join a polytechnic. But he didn’t do too badly, did he? Maybe there is a better, brighter career waiting for you. The trick is to move on and like Julio, tell yourself that “Life goes on the same”.
Several years ago, a bright little boy in a government school in Kerala had a dream. He wanted to be a doctor. He did well in school, and everybody was convinced that this little boy would someday become a fine doctor. He wrote the entrance exam – but failed to make the cut! He was devastated.
His parents were shocked. He went on to do a BSc then a Masters degree, worked with an IT firm – and later went on to found Infosys. His name? Kris Gopalakrishnan, CEO, Infosys. Just imagine. Had Kris not failed the medical entrance, he may have been in some little town in Kerala today, prescribing antibiotics for a runny nose or a nagging flu. Imagine!
Good lesson to learn from Julio. And from Kris. When one door shuts, another one opens. Just believe in yourself. Next time you are faced with a failure or a setback, look out for the other door. Push it open. And go find your place in the sun!