Buffett notredame, pricing power

Buffett Notredame

-I would say that the most important thing in business, and investments, which I regard as the same thing, from our standpoint, is being able to accurately define your circle of competence.

-You need very few good ideas in your lifetime. You have to be willing to have the discipline to say, “I’m not going to do something I don’t understand.”

-Why should I do something I don’t understand? That’s why I find it an advantage to be in Omaha instead of New York. I worked in New York for a few years, and people were coming up to me on the corner and whispering in my ear all the time. I was getting excited all the time. I was a wonderful customer for the brokers.

-But now you say “I don’t know how to evaluate the Washington Post.” It isn’t that hard to evaluate the Washington Post. You can look and see what newspapers and television stations sell for. If your fix is $400 and it’s selling for $390, so what? You can’t [invest safely with such a small margin of safety]. If your range is $300 to $500 and it’s selling for $80 you don’t need to be more accurate than that.

-[Question from audience about how many of his investment ideas are pitched to him by others.]

Practically none. The Wall Street Journal is my deal source. There are 1,700 or 1,800 of America’s companies that I’m generally familiar with

-We read hundreds and hundreds of annual reports every year. I own 100 shares of everything. I find this much more reliable than asking to be put on a mailing list

-Well, I would say this. If we were working with $25 million – so we could sort of look at the whole universe of stocks – I would guess that you could find 15 or 20 out of three or four thousand that you would find that were A) selling for substantially less than they’re worth, and B) that the intrinsic value of the business was going to grow at a compound rate which was very satisfactory.

-You don’t want to buy a dollar bill that’s sitting for 50 cents, and it demands positive capital, and it’s going to be a dollar bill ten years from now. You want a dollar bill that’s going to compound at 12% for [a long time].

-Incidentally, I would say that almost everybody I know in Wall Street has had as many good ideas as I have, they just had a lot of [bad] ideas too. And I’m serious about that. I mean when I bought Western Insurance Security selling at $16 and earning $20 per share, I put half my net worth into it. I checked it out first – I went down to the insurance commission and got out the convention statements, I read Best’s, and I did a lot of things first.

-A couple of fast tests about how good a business is. First question is “how long does the management have to think before they decide to raise prices?” You’re looking at marvelous business when you look in the mirror and say “mirror, mirror on the wall, how much should I charge for Coke this fall?” [And the mirror replies, “More.”] That’s a great business. When you say, like we used to in the textile business, when you get down on your knees, call in all the priests, rabbis, and everyone else, [and say] “just another half cent a yard.” Then you get up and they say “We won’t pay it.” It’s just night and day. I mean, if you walk into a drugstore, and you say “I’d like a Hershey bar” and the man says “I don’t have any Hershey bars, but I’ve got this unmarked chocolate bar, and it’s a nickel cheaper than a Hershey bar” you just go across the street and buy a Hershey bar. That is a good business.

-I’ll try this on the students later: What’s the highest price of a daily newspaper in the United States? [Pause] The highest priced daily newspaper in the United States is the Daily Racing Form. 150,000 copies a day, $2.25 a copy, they go up in 25 cent intervals, and it doesn’t affect circulation at all. Why? There is no substitute. If you go to the track, assuming you’re a forms player, you don’t want “Joe’s Little Green Sheet”, you want The Form. And it doesn’t make any difference what it costs! There is no substitute. And that’s why they’ve got a 65% pretax margin. It doesn’t take a genius to figure it out.
There are products like that, and there are products like sheet steel. And they’re night and day.

-Then [I said] “I’ve got only one other question: How do you figure out how much to charge people? You look like a man of awesome commercial instincts – you started with a $1,500 radio station, now you’re worth $4 or $5 billion dollars.”
He said “Well, that’s another good question. I just tell my US managers to try and make 45% pretax and figure that’s not gouging.”

-Lord Thompson, once he bought the paper in Council Bluffs, never put another dime in. They just mailed money every year.

- The idea was that, essentially, he raised prices and raised earnings there every year without having to put more capital into the business.

-The product was undifferentiated (berkshire lining). The candy product is differentiated (sees). (Garbled story of Hershey Bar and Coke versus unbranded but modestly cheaper products).

-You really want something where, if they don’t have it in stock, you want to go across the street to get it. Nobody cares what kind of steel goes into a car.

-someday, there’s going to be some business I understand selling for way less than the value I arrived at. It doesn’t have anything to do with book value, although it does have to do with earnings power over a period of time. It usually relates, fairly closely, to cash [flow]

-Essentially, they ignored it because it was so familiar. But that happens periodically on Wall Street.

-Western Insurance companies: I didn’t have any background in insurance. But I knew I could understand it if I worked at it for a while. And all I was really trying to do was disprove this thing. I was really trying to figure out something that was wrong with this. Only there wasn’t anything wrong. It was a perfectly good insurance company, a better than average underwriter, and you could buy it at one times earnings.

-think the Wall Street Journal is essential. I spend 45 minutes a day with the Wall Street Journal. Actually, I got up the night before, about 11:00... I frequently read it at night. But I’ll read anything. Actually, I probably spend five or six hours a day on reading

-Buried in rented suit

Mecham

Mecham:

-It’s really quite simple. I need to understand the business like anowner. The firm needs to have staying power; I want to be confident about thegeneral nature of the business and industry landscape on a longer term basis 

-In fact, I think very little about quarterly earnings and more aboutthe barriers to entry, competitive landscape/threats, the ongoing capital needsand overall economics, and most importantly, the durability of the business 

-Wealso stress test the business under various economic scenarios and look to anormalized earnings power. We passed up many seemingly attractive ideas overthe years as we would ask, “What happens under 7-10% unemployment (whenunemployment was in the 4-5% range) and 6-8% interest rates?

 
-“Is the business overly reliant on loose credit extension and frivolousspending?” Many names didn’t hold up under these stress test scenarios, so wepassed.

 
-We prefer cockroach-like businesses — very hardyand almost impossible to kill!

 
-Oftentimes a key cog of valueis in a form that’s difficult to measure — brands, mindshare/loyal customers,exclusive distribution rights, locations, management, etc. Sometimes it’s thelocation of assets that can be hugely valuable. Waste Management [WM] andUSG [USG] both have assets that are uniquely located and almost impossible toduplicate, which provides a low-cost advantage in certain geographies.

 
-Any time you arepaying a price today that’s dependent on heroics tomorrow — fantastic growthfar into the future, favorable macro environment, R&D breakthroughs, patentapproval, synergies/restructurings, dramatic margin improvements, large payofffrom capex, etc. — you run the risk of inviting pesky over-optimism(psychologists have shown overconfidence tends to infect most of us), whichcan result in skewed probabilities and payoffs. We want to see a return todayand not base our thesis on optimistic projections about the future. Investments based on projections that are disconnected from any historicalrecord make us leery. Investments dependent upon a continued frothy macroenvironment (housing, loose credit) are prone to over-optimism as well — howmany housing-related/consumer credit companies were trading at 6x multiplesgrowing 15%+ inviting IV estimates 5x the current quote?

-How do you generate investment ideas?

Mecham: Mainly by reading a lot. I don’t have a scientific model to generateideas. I’m weary of most screens. The one screen I’ve done in the past was bymarket cap, then I started alphabetically. Companies and industries that are outof favor tend to attract my interest. Over the past 13+ years, I’ve built up a baseof companies that I understand well and would like to own at the right price. Wetend to stay within this small circle of companies, owning the same namesmultiple times

-That’s the beauty of the public markets: If you can be patient, there’s a goodchance the volatility of the marketplace will give you the chance to owncompanies on your watch list. The average stock price fluctuates by roughly80% annually (when comparing 52-week high to 52-week low). Certainly, theunderlying value of a business doesn’t fluctuate that much on an annual basis, sothe public markets are a fantastic arena to buy businesses if you can sit stillwithout growing tired of sitting still

-We try andstick with companies we understand, where we have a high degree of confidencein the staying power of the firm. We spend considerable effort thinking criticallyabout competitive threats (Porter’s five forces, etc). We really stress long-termstaying power and management teams with proven track records that are focusedon building long-term value. Then we always “stress test” the thesis againstdifficult economic environments.

 

-If the financialcrisis taught nothing else, it showed how elegant financial models that calculaterisk to decimal point precision act like a sedative towards critical thinking andeven common sense

 
-Most investors are their own worst enemies — buying and sellingtoo often, ignoring the boundaries of their mental horsepower. I think ifinvestors adopted an ethos of not fooling themselves, and focused on reducingunforced errors as opposed to hitting the next home run, returns would improvedramatically

 

  

 

When to walk away

Scott doesn’t need predictions of US$60 iron ore to tell him to steer clear of the notoriously cyclical sector. If he can’t reasonably predict the future demand or supply for something — especially a commodity like iron ore — he simply walks away.

There are no penalties in the investing game for missing out on the next big winner.

From http://www.forbes.com/sites/johnnosta/2013/02/25/the-genius-of-raising-brilliant-kids/

Limit rules, encourage independence.  We have ‘minimal rules’, but nothing that stifles creativity. Basically, you can sum it up simply: treat people with respect, do your homework be honest and try to be safe.  Having too many rules burdens down the entire family and limits thinking.

Buffett on pricing and a good business

In an interview with the Financial Crisis Inquiry Commission (FCIC), Buffett said, "The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business." Lubrizol appears to fit the bill.


Read more: http://www.marketfolly.com/2011/03/why-did-warren-buffett-purchase.html#ixzz2LY1buBpj

Principles from "Influence" by Robert Cialdini

1. Reciprocity - People tend to return a favor, thus all those annoying address labels charities send out as a fundraising ploy.

2. Scarcity - Perceived scarcity fuels demand. “Only four memberships are left” prompts action!

3. Authority - People will tend to obey authority figures. What expert can attest to the value of your organization?

4. Consistency - If people commit to an idea or goal, they are more likely to follow through. It’s why pledging is a great option for people who aren’t ready to take action.

5. Liking - People are easily persuaded by other people whom they like. That’s why you want your champions spreading the word about your cause among their friends and family.

6. Consensus - People will do what other people are doing. That’s why it’s great to show who is taking action for your cause - others are likely to conform.

In this clip, Buffett's asked how the rest of us can find a job that has us tap dancing to work. Here's his advice:

"Find your passion. I was very, very lucky to find it when I was seven or eight years old... You're lucky in life when you find it. And you can't guarantee you'll find it in your first job out. But I always tell college students that come out (to Omaha), 'Take the job you would take if you were independently wealthy. You're going to do well at it.'"

And if Buffett hadn't found his passion for investing?  He says he might have been a journalist.

buffettt on buying a house 10/22/2012

Warren, do you —do you still think a single family home is one of 

the best investments around? And have you actually tried to figure out 

a way to invest in that? You'd like to buy 100,000 —you've said that 

you'd like to buy as many as you could, but they're impossible to 

manage and you can't really do it. Have you figured...

BUFFETT: Yeah.

JOE: Have you tried to figure out a way to do it?

BUFFETT: Yeah. And I've had a lot of suggestions from people after I

made that statement. But it's not really feasible, certainly, compared 

to other things we can do with money. They're —it's just too big a 

problem to deal with small units like that and management problems 

and human problems. So I think that anybody that knows where 

they're going to want to live, has a reasonably assured income. I think 

they're making a terrible mistake if they don't buy a single family 

home now and get a mortgage at these rates. And they should get a 

30-year mortgage. It's a —it's a —really a golden opportunity. It was a 

little bit better six months ago, but it's still wonderful now. You're not 

going to see a chance like this five years from now. I'll guarantee you 

that.

BECKY: Five years from now it's going to be a different picture, and 

that's interesting.

BUFFETT: Yeah. Rates will be higher and all kinds of things. I mean,

this is —this is the time to buy.

BECKY: And you think prices will rebound, too.

BUFFETT: If you know where you want —you've got to want to live 

there, I mean, and a home's a wonderful thing.

BECKY: Hm.

BUFFETT: But I wouldn't buy one if I was going to move in six months 

or something of the sort. And I wouldn't buy one if I was terribly nervous about my 

job.

BECKY: Ted Weschler and Todd Combs talked about what they've 

been doing as an investment cycle. 

How much of that is yours? How much of that is theirs?

BUFFETT: Very little of it's mine. I mean, if it's Wells Fargo or IBM or 

Coca-Cola, I mean, I've got four stocks that aggregate over 50 billion 

that I manage. And then I've got a bunch of other things, too. But the 

action is with Ted and Todd. And they're building up portfolios, and 

they will buy $500 million at a time of something. And they're probably 

more prone —one of the two is more prone to move around in 

securities than I would be. But there's a lot of styles that work. So I 

am enormously pleased.

Greenblatt on investing

"When we buy things, we like companies that generate large amounts of cash flow relative to the price we're paying.  On the short side, we would like to be short, high-priced, cash-eating companies."

"If you don't lose money, most of the alternatives are good.  Even if you don't know what the upside is - if you just know there's upside - you can create scenarios where you have an excellent risk/reward.  Positions with limited downside are the types of positions that I have loaded up on in the past.  Not the positions with the biggest payoff.  I could buy a lot knowing that I wouldn't lose much and that there were good possibilities that it was worth a lot more over time."

my fave quotes from quora

Nobody tells this to people who are beginners, I wish someone told me. All of us who do creative work, we get into it because we have good taste. But there is this gap. For the first couple years you make stuff, it’s just not that good. It’s trying to be good, it has potential, but it’s not. But your taste, the thing that got you into the game, is still killer. And your taste is why your work disappoints you. A lot of people never get past this phase, they quit. Most people I know who do interesting, creative work went through years of this. We know our work doesn’t have this special thing that we want it to have. We all go through this. And if you are just starting out or you are still in this phase, you gotta know its normal and the most important thing you can do is do a lot of work. Put yourself on a deadline so that every week you will finish one story. It is only by going through a volume of work that you will close that gap, and your work will be as good as your ambitions. And I took longer to figure out how to do this than anyone I’ve ever met. It’s gonna take awhile. It’s normal to take awhile. You’ve just gotta fight your way through.” ― Ira Glass


 "Be who you are, and say what you feel, because those who mind don't matter, and those who matter don't mind." - Dr Seuss.


 Steve Jobs's 2005 Commencement Address"Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary."


 People are often unreasonable, illogical and self centered;Forgive them anyway.
If you are kind, people may accuse you of selfish, ulterior motives;Be kind anyway.
If you are successful, you will win some false friends and some true enemies;Succeed anyway.
If you are honest and frank, people may cheat you;Be honest and frank anyway.
What you spend years building, someone could destroy overnight;Build anyway.
If you find serenity and happiness, they may be jealous;Be happy anyway.
The good you do today, people will often forget tomorrow;Do good anyway.
Give the world the best you have, and it may never be enough;
Give the world the best you've got anyway.
You see, in the final analysis, it is between you and your God;It was never between you and them anyway. -Dr. Kent M.

Wsj 2012

12/4/12
ISM index of non manufacturing activity - above 50 signifies expansion. They expect it to be 54 in November. This is the 35th consecutive month above 50, that dignifies expansion. A number closer to that line or below it would be due to a weak economy or fiscal cliff worries. Services.
In jan 2008, a streak of 57 consecutive months of expansion was broken when the index plunged to 45. The great recession started that month.


11/21
-open source animation software
Dreamworks open vdb
Disney render man 2000
Sony alembic

-vivendi owns canal plus



largest ng Producer in us is xom, next is Chesapeake.
Suncor those producers who mine bitumen and produce synthetic crude from it , the break even threshold is $100 a barrel. Most efficient oil sands producers need $50
Us n Dakota oil output is threatening Canada's boom. Lower prices.
10/30/2012
Housing starts have risen to 872k.
During the peak of new home construction in 2006, the us built 1.6M homes. Today's 872k annual rate of homes is short of average for past half century. On average, buildrrs hVe started construction on about 1.5M new homes a year since 1959

Samsung mobile business accounts for more than half of revenue

Telefonica has highest debt 57b. Difficult to refi



Buffett thinks sfh is a great buy right now compared to 5 yrs from now.
Us is doing better than Europe. Asia slowing some as is global economy.
Loves wfc and IBM
Doesn't think ng will be exported from us. Should not be anyway for benefit of future generations.
Acquisitions happening at high multiples dues to cheap money.
He thinks European banks still have too much leverage



3M only 30% revenue from north America. A good bellwether for global economy. Same as Dow chemical?

Natural gas is 70% of fertilizer cost


Hotel companies
Accor and ihg largest in china
Hilton Waldorf Astoria doubletree
Marriott ritz renaissance courtyard
Accor Sofitel Pullman mgallery mercure
Novotel ibis etap
Ihg intercontinental holiday inn crowne indigo

College housing firms- American campus communities, education realty trust, landmark properties
Warehouse firm- prologis
Mall company Simon property group

Bp estimate of reparation to us is 5-21B

Caterpillar promotes from within
Total eni at discount due to Europe
Avoid realogy iPo
Worlds no 2 retailer by sales Carrefour.

Projected Costs per megawatt hour 2017
Ng 66
Hydro 88
Wind 96
Coal 97
Geothermal 98
Nuclear 111
Biomass 115
Solar photovoltaic 152
Solar thermal 242

10/7
Fox news corp
Abc Disney
CBS CBS corp
NBC Comcast
Focus features a unit of comcasts NBC universal
Image nation - financing of movies. Partially owned by Abu dhabi
Xom, cop and chevron defend tracking as safe
-Monsanto requires growers to use seeds only for a single crop and they can't save the 2nd generation seeds from the harvest. Seeds are called roundup ready and produce crops resistant to weed killer.
-
10/1
Drought has sent crops skyrocketing but south America and us should increase plantings next year. Should benefit fertilizer companies like mosaic, potash corp, cf industries. Rock wood holdings, .

- metals could drop almost 40%. Current bhp and rio shares trade at 15 times earnings at current metal prices.
-seadrill, noble and transocean deep water drillers may benefit as oil reserves become more difficult to reach
-nat gas is 2.8 per mbtu, up from 1.91 but well below average of 10 yrs $6.
Companies that benefit from cheap gas: mosaic, lyondellbasell. Both use nat gas as inputs.


9/29

-Anglo American lot of project delays, lagging gold and problems in Africa.
-Ford gm Peugeot etc struggling in Europe
-modest debt and improving profits in financial statements.
-make money in diverse ways
-consolidated Edison
-at the moment priciest shares based on forward p/e are steady consumer staples, telecom and utilities
-one time share buy backs are I'll timed. Consistently buying back shares companies outperform a bit. Eg autozone, resmed. Also those who pay a dividend and repurchase shares.
-a basket of stocks with the highest investor yield: high dividends + large buy back yielded 6.6% more
-highest investor yield: duke energy, triumph group and Polaris industries.
-biggest buys : susp 20.50 7.2m$, agco 5m 45.56 Natr 3m 15.90,
-bac Merrill acquisition have good profits but country wide was disaster. Overpaid for Merrill.
-avoid Sony Olympus sharp renesas.
Sony 4 yrs of losses,
-

-Leslie Michelson CEO of private health management co.ultra high end health care. Manages patients care by coordinating multiple best doctors, research etc.

9/27
-proctor gamble concentrated on upscale products. Pampers, charmin, Gillette, Tide, Pantene, Olay, Old spice,
-tempur pedic has 13% of us market, sealy has 22%.
-fiat got 92% of first half profit from Chrysler.
-premium metallurgical coal was trading 330 per metricyon, now 170 per ton. Chinese sales down.
-honhai net margin from 12% in 2000 to 2.4% in 2012
-


Rim us market share has dropped from over 50% 2008 to under 5% in 2012.
-airlines hand out iPads instead of tv screens.
- dishtv to roll out broadband service for rural areas. Directv also next quarter. These 2 are competitors. Echo star is sibling of dishtv that launched a high speed satellite. Cable and phone companies offer 305 mbps max vs max 5-10mpbs for 39$ to existing customers or 49$ per month. for new. 19 million market?

9/23

-the launch pad- book on ycombinator. Where apps are hatched.
-where have all the cowboys gone? Old fashioned individualism.

-exelon nuclear plant operator. Dominion resources. AES corp gas fired units.

- Delhi dazzler- the story of my assassins. Tarun tejpal

-unh being added to Dow. Intuitive surgical makes robots for surgery. Richly valued. Varian medical a better bet, radiation machines to precisely target rumors. Cerner's systems digigitize patient records. Perrigo is maker of store brands of OTC medicines. Gilead sciences has an HIV treatment that can replace multiple pills with single. Also has a hepatitis c drug with promising results. Insurers have uncertainty with future overhaul but unh has a good history of helping customers cut costs. Merck Pfizer also decent.
-denbury sold bakken assets to Exxon. More interested in old oil fields instead of shale. Gas accounts for less than 10% of output compared with 2/3rds for the sector. If you're betting on a gas rebound in 2013, denbury is not for you. Denbury made the highest margin per barrel. Unlike a shale field much of the investment is made upfront in securing co2 supplies and pipelines. They pump co2 into mature oil fields to force more oil out. Once this initial spending is done, less spending required to maintain output. Also lives within its means, capex at denbury is equal to cash flow compared to 160% at peers.


-Liberty global 2nd largest csble subscribers after Comcast. Operates 13 cable companies in Europe. In Europe cable business more regulations and different appetites for expensive cable. Libertys monthly arpu is$24 in Germany vs nearly $150 in the us for Comcast. But libertys per subscriber content costs are $5 per month whereas they are about $40 for us companies.
Liberty has raised profits even during economic turmoil and aggressively bought back shares. If Europe consolidation can occur, it may benefit.



9/22
Last 5 yrs, gold has risen 142%, miners of gold gone up only 20%. Gold deposits harder to develop. While gold prices doubled so did costs. Also miners profligate spenders. Over last decade, they made operating cash flow combined of 68b but spent 89b on acquisitions and capex. Dividends meanwhile wee less than 10b even as shareholders were diluted to help fund expansion with the share count jumping 151%. Acquisitions have irked investors at barrick gold, kinross. Canadian b2gold dropped 12% after saying it would pay 26% premium for Cga mining. One route miners could try is what oil majors did in late 1990s: mergers with no premium paid.


-Pernod 2nd largest company- makes chivas absolut among others. Diageo is number 1
-brown Forman jack Daniels no.3 spirits group by sales.
-beam
-ikea catalog graphics 3 interns
-virgin owns 51% of Singapore
-royalty trusts depletion means income may go to zero. Also no principal returned
-syartups bar code for tracking where food is from. Chegg is textbook rental
-best buy 91% profit down
-sales force yet to turn a profit
-lowes overcapacity too many stores

-in us car sales 1.2M per month. 240 gm, 196 ford, 188 tm, 148 Chrysler, 131 Honda, 98 Nissan. Shortage of Hyundai due to strike.

-85M pc shipments in 2nd quarter worldwide. 4m in brazil 5th largest market.

-national oil well varco and Cameron make oil rigs and parts for them. Transocean runs the drilling rigs. Bp etc own the oil coming out.

-globally, 69% of planets fresh water used in agriculture, 23% in industry and 8% in municipal uses.

-Monsanto making drought resistant crops. Droughtgard

From eat pray love

I have been thinking that I need to consciously divert my mind from negative thoughts and focus on things that move my life forward. Iam ruining my own potential by corrosive thoughts.

- as smoking is to the lungs, so is resentment to the soul
- god dwells within you as you yourself, exactly the way you are.
-to know god, you need only to renounce one thing -your sense of division from god. Otherwise, just stay as you were made, within your natural character.

Oil companies

Oilfield services companies: 3 flavors
Some make Snd sell expensive kit for use on drilling rigs or seabeds. Fmc, Cameron and national oil well varco.

Some own and lease out drill rigs. Transocean, seadrill, noble and rown

3rd group carries out most tasks in finding and extracting oil; schlumberger, Halliburton, baker Hughes and weatherford.

Ofs companies do not own reserves.
Oil companies outsource the drilling. This looks like a bad deal for them. Hostage to ofs. Global production from mature oilfields falling 2-6% a year. More innovative drilling needed.

Lot of state owned oil companies are coming up now. Worse for oil companies like Exxon. This leads to competition for ofs and allows state owned oil companies to claim and pursue best oil acreage.

Ofs balance sheets are smaller, do not own reserves and do not want to compete with customers. Choosing where to explore is tricky.

I also believe in the below :

From :
http://www.jamesaltucher.com/

WHEN IS AN IDEA NO GOOD

Jon Velez ‏ @jmvelez08 what makes u lose interest in an idea? Are u looking for something that is built and running, or do u consider working w. ideas

ANSWER:

Believe it or not, most things in life should be very very easy. The reason why it seems we must encounter such great difficulties until we find success is because most people carry with them the mistaken belief that we need to “pay our dues” – that things should be hard and it’s through this persistent fighting in the trenches that you come out the other side the victor.(probably not a good idea)

But the reality is, the reason persistence works is because it takes time to realize that things that work out well are actually the things/ideas/companies/endeavors that are easy.

For instance, if a company is great then it’s easy to raise money, make money, and then sell your company. But if an idea or company is not so great, then it’s a lot of work to set up, its very hard to raise money, and its very hard or impossible to get customers and sell the company. And might take years. Then you shut it down and start the next company and it feels like persistence.


I lose interest in an idea then when what I call the “conspiracy number” goes too high. If too many things have to conspire together for the idea to work for me then it’s no good. For instance, if a product has to be built, customers have to be found, money has to be raised, and (as is the case with most companies) the product has to be re-worked, then it has a conspiracy number of 4. For me, 2 is high enough. 3 or higher becomes stress. Stress increases the risk of heart disease, strokes, Alzheimers, and cancer.


HOW DO YOU ACHIEVE CLARITY OF THOUGHT

Richard Ball ‏ @rballe33 How does one achieve pure clarity of thought?

ANSWER: You can’t achieve pure clarity of thought. Achieving something makes me think of a race.
We already have clarity of thought at the beginning of the race. But by the end, we’re so tired that we lose all the things that prevented us from realizing it in the beginning.



So intstead of thinking about achieving, think about erasing. How do we erase the clutter, the sticky brown residue that’s built up over the years in the crevices and myriad little etchings in our mind that prevented us from just reveling in our original clarity of thought.

Every day pick one thing to erase. I have a grudge against my mother. I will erase that today. How can I erase it if it’s built up over memories and years. Just everytime I think of the grudge I will think to myself “this is not useful. It will prevent me from being happy.” I want to be happy. There’s no deep analysis needed. I’m not burying the grudge. I’m just simply not wasting time thinking about it.

I regret losing a lot of money 10 years ago. This is also not a useful thought. It’s the past. It’s done. Not useful. Today I will do what I can to move forward, during the spare moments when I’m not driving my kids around on their various activities. They have a much tighter daily schedule than I do.

I want to write five novels and be a best selling author. I want all my investments to work out. I want ,maybe to do another startup or two and make a lot more money. Ok, that’s fine. But anxiety about it won’t get me there. I can maybe take one step forward on one goal today. That’s what I will do. I don’t need to do the rest. I won’t die today if I don’t do the rest. So I’ll erase goals that are unobtainable today.

Just keep erasing everything that is not useful. What happens when you are done erasing.

You have a blank piece of paper. Enjoy doodling on it.

It's easier to identify buying opportunities at times of extreme pessimism than it is to spot market peaks, which are more likely to be accompanied by complacency than by obvious euphoria. The Common Sense system sidesteps these issues by imposing purely mathematical criteria: When the market falls 10 percent from a previous high, it's an occasion to buy, as is every subsequent 10 percent decline. When the market rises 25 percent, it's an occasion to raise cash by selling.

What percentage of a portfolio to buy or sell at a trading opportunity is a decisions best left to individual investors. But one simple approach is to rebalance a portfolio divided between stocks and fixed income and cash on the other. At buying opportunities, when stocks are cheaper, you buy stocks to restore to a target ratio, such as 70 30 or 60 40, of stocks to fixed income. When there's a selling opportunity, you do the opposite.

The Common Sense system yielded a return of 20.8 percent over the decade we studied. That was five percentage points better than strict buy-and-hold

I think there are really 4 questions you answer before buying any stock:

1. Is it safe?
2. Is it a great business?
3. Am I getting a great price?
4. Can I hold this stock for as long as it takes?

The ideal stock would get 4 “yes” answers.

http://finance.fortune.cnn.com/2012/02/09/warren-buffett-berkshire-shareholder-letter/?section=money_topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+rss%2Fmoney_topstories+%28Top+Stories%29&utm_content=Google+Feedfetcher

Hilarious comparison of gold and alternate productive assets!

Today the world's gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold's price as I write this -- its value would be about $9.6 trillion. Call this cube pile A.

Let's now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world's most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Beyond the staggering valuation given the existing stock of gold, current prices make today's annual production of gold command about $160 billion. Buyers -- whether jewelry and industrial users, frightened individuals, or speculators -- must continually absorb this additional supply to merely maintain an equilibrium at present prices.

A century from now the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops -- and will continue to produce that valuable bounty, whatever the currency may be. Exxon Mobil (XOM) will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons). The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.

Admittedly, when people a century from now are fearful, it's likely many will still rush to gold. I'm confident, however, that the $9.6 trillion current valuation of pile A will compound over the century at a rate far inferior to that achieved by pile B.

http://money.cnn.com/2012/01/13/technology/sal_khan_best_advice.fortune/index.htm

FORTUNE -- "One of the powerful things Bill Gates told me is 'Learn to say no.' You don't have to make everyone happy. I've also learned by observing how deeply he goes into anything he cares about. How well he knew the nuances of my product was a huge signal that no manager should feel they're above the pay grade.

"But one piece of advice that's driven me the most came from a commencement speech by then-MIT president Charles Vest. He said to keep on moving. Cheesy, but it's amazing how true it is. Don't talk about stuff. Do it. When your organization is paused, and when the spirit of just seeing what happens dies, that's when you should be worried. Before I make a video for Khan Academy, I don't think, Let me go talk to some people and do focus groups. Obviously you have to have some learning, but if it's ruining the tempo of activity, you have to rethink things. At the end of the day, what matters is whether your product works and whether people like it."

Buffett Time article :

-He believes CEOs of publicly bailed-out companies should be on the hook for everything if their companies go bust.

-He'd like to see private schools banned so that rich families would be forced to invest in public schools

-His views are the opposite of the trickle down theory, echoing those of William Jennings Bryan "if you legislate to make the masses prosperous, their prosperity will find its way up and through every class that rests upon it".

- Howard Buffett was and is a hero to his son, because he operated by his inner scorecard. He was the least back-slapping Congressman to ever represent his state. He once turned down a raise because his constituents had voted him in at a lower salary. His picture hangs on Buffett's office, along with the Dale Carnegie course certificate , a 1973 Pulitzer and the Presidential Medal of honour.

- His other hero is his first wife. I've never felt my wife was remotely done justice to, she was just an incredibly wise and good person. She didn't do things with a metric attached to them. Warren's mother Leila was a difficult woman prone to hysteria and vicious verbal attacks on her children. Susie headed her off and managed her needs so that Warren could be left to do what he was good at - making money.

-"It may be true that the law can't change the heart" said King, "but it can restrain the heartless".

Charlie Munger: Art Of Stock Picking: BRK.A, BRK.B

At Harvard Business School, the great quantitative thing that bonds the first year class together is what they call decision tree theory. All they do is take high school algebra and apply it to real life problems.
If you don't get this elementary, but mildly unnatural, mathematics of elementary probability into your repertoire, then you go through a long life like a one‑legged man in an ass‑kicking contest.

So there's an iron rule that just as you want to start getting worldly wisdom by asking why, why, why, in communicating with other people about everything, you want to include why, why, why. Even if it's obvious, it's wise to stick in the why.

And once we get into microeconomics, we get into the concept of advantages of scale. Now we're getting closer to investment analysis because in terms of which businesses succeed and which businesses fail, advantages of scale are ungodly important.

The very nature of things is that if you get a whole lot of volume through your joint, you get better at processing that volume. That's an enormous advantage. And it has a lot to do with which businesses succeed and fail....

For example, you can get advantages of scale from TV advertising. Well, if you were Proctor & Gamble, you could afford to use this new method of advertising. You could afford the very expensive cost of network television because you were selling so many cans and bottles. Some little guy couldn't. And there was no way of buying it in part. Therefore, he couldn't use it. In effect, if you didn't have a big volume, you couldn't use network TV advertising which was the most effective technique.

So when TV came in, the branded companies that were already big got a huge tail wind. Indeed, they prospered and prospered and prospered until some of them got fat and foolish, which happens with prosperity -at least to some people....

And your advantage of scale can be an informational advantage. If I go to some remote place, I may see Wrigley chewing gum alongside Glotz's chewing gum. Well, I know that Wrigley is a satisfactory product, whereas I don't know anything about Glotz's. So if one is 40 cents and the other is 30 cents, am I going to take something I don't know and put it in my mouth which is a pretty personal place, after all for a lousy dime? So, in effect, Wrigley , simply by being so well known, has advantages of scale what you might call an informational advantage.

Another advantage of scale comes from psychology. The psychologists use the term "social proof". We are all influenced subconsciously and to some extent consciously by what we see others do and approve. Therefore, if everybody's buying something, we think it's better. We don't like to be the one guy who's out of step.

The social proof phenomenon which comes right out of psychology gives huge advantages to scale -for example, with very wide distribution, which of course is hard to get. One advantage of Coca-Cola is that it's available almost everywhere in the world.

Well, suppose you have a little soft drink. Exactly how do you make it available all over the Earth? The worldwide distribution setup which is slowly won by a big enterprise gets to be a huge advantage.... And if you think about it, once you get enough advantages of that type, it can become very hard for anybody to dislodge you.

There's another kind of advantage to scale. In some businesses, the very nature of things is to sort of cascade toward the overwhelming dominance of one firm.

The most obvious one is daily newspapers. There's practically no city left in the U.S., aside from a few very big ones, where there's more than one daily newspaper.

And again, that's a scale thing. Once I get most of the circulation, I get most of the advertising. And once I get most of the advertising and circulation, why would anyone want the thinner paper with less information in it? So it tends to cascade to a winner take all situation. And that's a separate form of the advantages of scale phenomenon.

Similarly, all these huge advantages of scale allow greater specialization within the firm. Therefore, each person can be better at what he does.

And these advantages of scale are so great, for example, that when Jack Welch came into General Electric, he just said, "To hell with it. We're either going to be # 1 or #2 in every field we're in or we're going to be out. I don't care how many people I have to fire and what I have to sell. We're going to be #I or #2 or out." That was a very tough‑minded thing to do, but I think it was a very correct decision if you're thinking about maximizing shareholder wealth. And I don't think it's a bad thing to do for a civilization either, because I think that General Electric is stronger for having Jack Welch there.

And there are also disadvantages of scale. For example, we by which I mean Berkshire Hathaway -are the largest shareholder in Capital Cities /ABC. And we had trade publications there that got murdered where our competitors beat us. And the way they beat us was by going to a narrower specialization.

We'd have a travel magazine for business travel. So somebody would create one which was addressed solely at corporate travel departments. Like an ecosystem, you're getting a narrower and narrower specialization.

Well, they got much more efficient. They could tell more to the guys who ran corporate travel departments. Plus, they didn't have to waste the ink and paper mailing out stuff that corporate travel departments weren't interested in reading. It was a more efficient system. And they beat our brains out as we relied on our broader magazine.

That's what happened to The Saturday Evening Post and all those things. They're gone. What we have now is Motorcross which is read by a bunch of nuts who like to participate in tournaments where they turn somersaults on their motorcycles. But they care about it. For them, it's the principle purpose of life. A magazine called Motorcross is a total necessity to those people. Arid its profit margins would make you salivate.

Just think of how narrowcast that kind of publishing is. So occasionally, scaling down and intensifying gives you the big advantage. Bigger is not always better.

The great defect of scale, of course, which makes the game interesting -so that the big people don't always win -is that as you get big, you get the bureaucracy. And with the bureaucracy comes the territoriality -which is again grounded in human nature.

They also tend to become somewhat corrupt. In other words, if I've got a department and you've got a department and we kind of share power running this thing, there's sort of an unwritten rule: "If you won't bother me, I won't bother you and we're both happy. "So you get layers of management and associated costs that nobody needs. Then, while people are justifying all these layers, it takes forever to get anything done. They're too slow to make decisions and nimbler people run circles around them.

On the subject of advantages of economies of scale, I find chain stores quite interesting. You get this huge purchasing power which means that you have lower merchandise costs. You get a whole bunch of little laboratories out there in which you can conduct experiments. And you get specialization.

If one little guy is trying to buy across 27 different merchandise categories influenced by traveling salesmen, he's going to make a lot of poor decisions. But if your buying is done in headquarters for a huge bunch of stores, you can get very bright people that know a lot about refrigerators and so forth to do the buying.


Here's a model that we've had trouble with. Many markets get down to two or three big competitors or five or six. And in some of those markets, nobody makes any money to speak of. But in others, everybody does very well.

Over the years, we've tried to figure out why the competition in some markets gets sort of rational from the investor's point of view so that the shareholders do well, and in other markets, there's destructive competition that destroys shareholder wealth.

If it's a pure commodity like airline seats, you can understand why no one makes any money. Competition was so intense that, once it was unleashed by deregulation, it ravaged shareholder wealth in the airline business.

Yet, in other fields like cereals, for example almost all the big boys make out. If you're some kind of a medium grade cereal maker, you might make 15% on your capital. And if you're really good, you might make 40%.But why are cereals so profitable despite the fact that it looks to me like they're competing like crazy with promotions, coupons and everything else? I don't fully understand it.

Obviously, there's a brand identity factor in cereals that doesn't exist in airlines. That must be the main factor that accounts for it.

For example, if you look around at bottler markets, you'll find many markets where bottlers of Pepsi and Coke both make a lot of money and many others where they destroy most of the profitability of the two franchises. That must get down to the peculiarities of individual adjustment to market capitalism. I think you'd have to know the people involved to fully understand what was happening.

The great lesson in microeconomics is to discriminate between when technology is going to help you and when it's going to kill you. But a fellow like Buffett does.

For example, when we were in the textile business, which is a terrible commodity business, we were making low-end textiles which are a real commodity product. And one day, the people came to Warren and said, "They've invented a new loom that we think will do twice as much work as our old ones."

And Warren said, "Gee, I hope this doesn't work because if it does, I'm going to close the mill." And he meant it.

What was he thinking? He was thinking, "It's a lousy business. We're earning substandard returns and keeping it open just to be nice to the elderly workers.B ut we're not going to put huge amounts of new capital into a lousy business." And he knew that the huge productivity increases that would come from a better machine introduced into the production of a commodity product would all go to the benefit of the buyers of the textiles. Nothing was going to stick to our ribs as owners.

That's such an obvious concept -that there are all kinds of wonderful new inventions that give you nothing as owners except the opportunity to spend a lot more money in a business that's still going to be lousy. The money still won't come to you. All of the advantages from great improvements are going to flow through to the customers.

Conversely, if you own the only newspaper in Oshkosh and they were to invent more efficient ways of composing the whole newspaper, then when you got rid of the old technology and got new fancy computers and so forth, all of the savings would come right through to the bottom line.

In all cases, the people who sell the machinery -and, by and large, even the internal bureaucrats urging you to buy the equipment show you projections with the amount you'll save at current prices with the new technology. However, they don't do the second step of the analysis which is to determine how much is going stay home and how much is just going to flow through to the customer. I've never seen a single projection incorporating that second step in my life. And I see them all the time. Rather, they always read: "This capital outlay will save you so much money that it will pay for itself in three years." So you keep buying things that will pay for themselves in three years. And after 20 years of doing it, somehow you've earned a return of only about 4% per annum. That's the textile business.

And it isn't that the machines weren't better. It's just that the savings didn't go to you. The cost reductions came through all right. But the benefit of the cost reductions didn't go to the guy who bought the equipment. It's such a simple idea. It's so basic. And yet it's so often forgotten.

Again, that is a very, very powerful idea.

Any damn fool can see that a horse carrying a light weight with a wonderful win rate and a good post position, etc., is way more likely to win than a horse with a terrible record and extra weight and so on. But if you look at the odds, the bad horse pays 100 to 1, whereas the good horse pays 3 to 2.Then it's not clear which is statistically the best bet using the mathematics of Fermat and Pascal. The prices have changed in such a way that it's very hard to beat the system.


It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it, who look and sift the world for the mispriced, that they can occasionally find one.

And the wise ones bet heavily when the world offers them that opportunity. They bet big when they have the odds. And the rest of the time, they don't. It's just that simple.

The way to win is to work, work, work, work and hope to have a few insights.

To me, it's obvious that the winner has to bet very selectively.

In the stock market, some railroad that's beset by better competitors and tough unions may be available at one-third of its book value. In contrast, IBM in its heyday might be selling at 6 times book value. So it's just like the pari-mutuel system. Any damn fool could plainly see that IBM had better business prospects than the railroad. But once you put the price into the formula, it wasn't so clear anymore what was going to work best for a buyer choosing between the stocks.

Graham was, by and large, operating when the world was in shell shock from the 1930s -which was the worst contraction in the English-speaking world in about 600 years. People were so shell-shocked for a long time thereafter that Ben Graham could run his Geiger counter over this detritus from the collapse of the 1930s and find things selling below their working capital per share and so on.

And in those days, working capital actually belonged to the shareholders. If the employees were no longer useful, you just sacked them all, took the working capital and stuck it in the owners' pockets. That was the way capitalism then worked.

Nowadays, of course, the accounting is not realistic because the minute the business starts contracting, significant assets are not there. Under social norms and the new legal rules of the civilization, so much is owed to the employees that, the minute the enterprise goes into reverse, some of the assets on the balance sheet aren't there anymore.

Now, that might not be true if you run a little auto dealership yourself. You may be able to run it in such a way that there's no health plan and this and that so that if the business gets lousy, you can take your working capital and go home. But IBM can't, or at least didn't. Just look at what disappeared from its balance sheet when it decided that it had to change size both because the world had changed technologically and because its market position had deteriorated.

At any rate, the trouble with what I call the classic Ben Graham concept is that gradually the world wised up and those real obvious bargains disappeared. You could run your Geiger counter over the rubble and it wouldn't click.

But such is the nature of people who have a hammer -to whom, as I mentioned, every problem looks like a nail that the Ben Graham followers responded by changing the calibration on their Geiger counters. In effect, they started defining a bargain in a different way. And they kept changing the definition so that they could keep doing what they'd always done.

And it still worked pretty well. So the Ben Graham intellectual system was a very good one.

However, if we'd stayed with classic Graham the way Ben Graham did it, we would never have had the record we have.

For example, Graham didn't want to ever talk to management. And his reason was that, like the best sort of professor aiming his teaching at a mass audience, he was trying to invent a system that anybody could use. And he didn't feel that the man in the street could run around and talk to managements and learn things. He also had a concept that the management would often couch the information very shrewdly to mislead. Therefore, it was very difficult. And that is still true, of course human nature being what it is.

And so having started out as Grahamites which, by the way, worked fine we gradually got what I would call better insights. And we realized that some company that was selling at 2 or 3 times book value could still be a hell of a bargain because of momentums implicit in its position, sometimes combined with an unusual managerial skill plainly present in some individual or other, or some system or other.

And once we'd gotten over the hurdle of recognizing that a thing could be a bargain based on quantitative measures that would have horrified Graham, we started thinking about better businesses.

And, by the way, the bulk of the billions in Berkshire Hathaway have come from the better businesses. Much of the first $200 or $300 million came from scrambling around with our Geiger counter. But the great bulk of the money has come from the great businesses.

We've really made the money out of high quality businesses. In some cases, we bought the whole business. And in some cases, we just bought a big block of stock. But when you analyze what happened, the big money's been made in the high quality businesses. And most of the other people who've made a lot of money have done so in high quality businesses.

Over the long term, it's hard for a stock to earn a much better return than the business which underlies it earns. If the business earns 6% on capital over 40 years and you hold it for that 40 years, you're not going to make much different than a 6% return even if you originally buy it at a huge discount. Conversely, if a business earns 18% on capital over 20 or 30 years, even if you pay an expensive looking price, you'll end up with a fine result.

So the trick is getting into better businesses. And that involves all of these advantages of scale that you could consider momentum effects.

How do you get into these great companies? One method is what I'd call the method of finding them small get 'em when they're little. For example, buy Wal-Mart when Sam Walton first goes public and so forth. And a lot of people try to do just that. And it's a very beguiling idea. If I were a young man, I might actually go into it.

And some of it is predictable. I do not think it takes a genius to understand that Jack Welch was a more insightful person and a better manager than his peers in other companies. Nor do I think it took tremendous genius to understand that Disney had basic momentums in place which are very powerful and that Eisner and Wells were very unusual managers.

So you do get an occasional opportunity to get into a wonderful business that's being run by a wonderful manager. And, of course, that's hog heaven day. If you don't load up when you get those opportunities, it's a big mistake.

Occasionally, you'll find a human being who's so talented that he can do things that ordinary skilled mortals can't. I would argue that Simon Marks who was second generation in Marks & Spencer of England was such a man. Patterson was such a man at National Cash Register. And Sam Walton was such a man.

These people do come along and in many cases, they're not all that hard to identify. If they've got a reasonable hand with the fanaticism and intelligence and so on that these people generally bring to the party then management can matter much.

However, averaged out, betting on the quality of a business is better than betting on the quality of management. In other words, if you have to choose one, bet on the business momentum, not the brilliance of the manager.

But, very rarely. you find a manager who's so good that you're wise to follow him into what looks like a mediocre business.

But in terms of business mistakes that I've seen over a long lifetime, I would say that trying to minimize taxes too much is one of the great standard causes of really dumb mistakes. I see terrible mistakes from people being overly motivated by tax considerations.

So there are risks .Nothing is automatic and easy. But if you can find some fairly-priced great company and buy it and sit, that tends to work out very, very well indeed especially for an individual, Within the growth stock model, there's a sub-position: There are actually businesses, that you will find a few times in a lifetime, where any manager could raise the return enormously just by raising prices and yet they haven't done it. So they have huge untapped pricing power that they're not using. That is the ultimate no-brainer.

That existed in Disney. It's such a unique experience to take your grandchild to Disneyland. You're not doing it that often .And there are lots of people in the country. And Disney found that it could raise those prices a lot and the attendance stayed right up.

So a lot of the great record of Eisner and Wells was utter brilliance but the rest came from just raising prices at Disneyland and Disneyworld and through video cassette sales of classic animated movies.

At Berkshire Hathaway, Warren and I raised the prices of See's Candy a little faster than others might have. And, of course, we invested in Coca-Cola -which had some untapped pricing power. And it also had brilliant management. So a Goizueta and Keough could do much more than raise prices.It was perfect.

In one of those The Washington Post we bought it at about 20% of the value to a private owner. So we bought it on a Ben Graham style basis at one fifth of obvious value and, in addition, we faced a situation where you had both the top hand in a game that was clearly going to end up with one winner and a management with a lot of integrity and intelligence. That one was a real dream. They're very high class people -the Katharine Graham family. That's why it was a dream an absolute, damn dream.

from http://www.nytimes.com/2012/01/01/opinion/sunday/the-joy-of-quiet.html?_r=1&pagewanted=all

In my own case, I turn to eccentric and often extreme measures to try to keep my sanity and ensure that I have time to do nothing at all . I’ve yet to use a cellphone and I’ve never Tweeted or entered Facebook. I try not to go online till my day’s writing is finished

None of this is a matter of principle or asceticism; it’s just pure selfishness. Nothing makes me feel better — calmer, clearer and happier — than being in one place, absorbed in a book, a conversation, a piece of music. It’s actually something deeper than mere happiness: it’s joy, which the monk David Steindl-Rast describes as “that kind of happiness that doesn’t depend on what happens.”

Be Someone Warren Buffett Would Invest In



More countries, more soft drinks. That’s it. It has worked for over a century.


The #2 spot in Warren’s portfolio is  Wells Fargo, a financial services company that stayed on the straight and narrow while other banks gave out risky loans. They stayed accountable and stuck to the strategies that already worked despite tremendous industry pressure. They stayed accountable to their shareholders as well, bypassing the short term gains that appeal to some investors.


19.5% of Warren’s holdings are in Wells Fargo. For a reason.

Warren’s Leadership Lesson #2: Be Accountable to your strategy and stick to your standards, avoiding flashy and risky short term gains.

#3 is American Express. Warren bought it at a discount in 1964 when a fraud scandal brought the shares to an all-time low. Amex had made millions in loans based on the assessed, verified value of oil used in salad dressings . One tiny snag–the oil was actually huge tanks of water with oil on top, part of a sophisticated scam. Amex had a choice: pay out the loans they’d been scammed out of or punt and tank their reputation. American Express delivered on its promises by footing a bill for millions. A massive loss was the result, but the scandal demonstrated leadership through a crisis. The following year the shares doubled.

Warren’s Leadership Lesson #3: Be Direct. If a crisis occurs, handle it swiftly and completely.

So what does Warren really want? The following leadership qualities plus one more that makes ALL the difference…


Be Accountable. Make and keep commitments to yourself and others. Developing leaders give their accountability away to either other people or circumstances. The quality and speed of results are directly proportional to how much accountability one takes on about having those results.

Be Direct. Be clear and explicit in your words, actions, visions, intentions and strategies. Otherwise misunderstandings, miscommunications and wasted resources will result. Clarity strengthens a team’s commitment and trust with one other and their projects.

Influence occurs through our language, decision making, requests and promises, actions, intentions and ways of being. Influence is all about empowering others in tangible, measurable, specific ways.

Labor and childbirth

Some notes I have made from various books to help me during labor : (natural hospital birth)

1) Avoid interventions. This is important since these interventions themselves lead down the path toward a cesearan section

2) Pitocin can cause abnormally painful contractions. Because it is administered intravenously, it requires a woman to lie in bed. Fetal monitoring is also required.

3) If pitocin does not speed things up, caregivers often recommend breaking the bag of waters. This too causes labor to feel more painful. It also puts a woman on a clock.

4) The combination of extra-painful contractions and lost mobility can quickly lead a woman to request an epidural. An epidural plus loss of mobility can slow labor. Epidurals often cause fever, and the woman ends up unnecessarily with a c-section.

5) also all these has the psychological effect on the woman that other people are in charge of her labor. If you remain active and mobile, you may have a long, exhausting labor, but you will remain in charge and not end upo with a c-section from an epidural induced fever.

6) CPD : Get 2nd, 3rd, 4th opinion. This is very rare that a baby's head is too big for pelvis. Mostly wrong diagnosis. Baby being too large is a common fallacy in twenty first century obstetrics. Never too large

7) Squatting provides 10% more space for baby's head than semi-reclining.

8) Dont use pitocin!!!!!! Natural induction is better - walking, herbs, spicy food

9) Onset of early labor - mild menstrual cramps.
   Early labor : 0-3 cm. strong menstrual cramps. Pain may last as little as ten seconds or as long as a minute. The amount of time between cramps is 5-15 minutes. You are still able to walk, maywant to rock or sway. Still capable of rational thought. Stay in the moment. Ask your support team to help you stay in the present. Just deal with the contraction you are in, not the next one or the one after,
  Give your mind something to focus on besides the pain. Watch a movie or cook or something. A contraction will bring your your focus back to body, then resume your activity.
Active labor : At some point, you will no longer be able to focus on anything besides labor.

From http://www.oprah.com/spirit/Stop-Regretting-Decisions-Martha-Becks-Plan-to-Let-Go/print/1

Learn to Lean Loveward

When I saw  A Chorus Line, I wondered if it's literally true that "I can't regret what I did for love." So I did a little thought experiment. I recalled all my significant regrets, and sure enough, I found that none of them followed a choice based purely on love. All were the consequence of fear-based decisions. In the cases where my motivations were a mix of love and fear, it was always the fear-based component that left me fretful and regretful.

For example, I'll be up most of tonight, having spent the daylight hours eating pudding in reaction to writer's block, which is a species of fear. I predict that tomorrow I'll regret this—I've spent many, many sleepless nights fearing this or that, and no good ever came of it. But I've also lost a lot of sleep for love. I've stayed up communing with friends, rocking sick babies, avoiding celibacy. And I really can't regret any choice that brought me one moment of love.

So the ultimate lesson of regret, the one that will help guide you into a rich and satisfying future, is this: Every time life brings you to a crossroads, from the tiniest to the most immense, go toward love, not away from fear. Think of every choice in terms of "What would thrill and delight me?" rather than "What will keep my fear—or the events, people, and things I fear—at bay?"

Sometimes the choice will be utterly clear. Love steers you forward, and no fear arises. But on many occasions, things will seem trickier. The path toward what you love may be fraught with uneasiness, anxiety, outright terror. The pound dog will tug at your heart, but worry about upkeep will push away the first sparks of love and leave you without a four-footed friend.

If you've grieved your losses, reclaimed your dreams, and articulated your anger, regret will have made you the right kind of tough-and-tender: dauntless of spirit, soft of heart, convinced by experience that nothing based on fear—but everything based on love—is worth doing. Living this way doesn't guarantee an easy life; in fact, it will probably take you on a wondrously wild ride. But I promise, you won't regret it. 

buffettfaq

How would you define your character? And what portion of your character do you believe contributed the most to your success?

The important qualities you need are intelligence, patience, and interest, but the biggest thing is to be rational. In ‘97-8, people weren’t rational. People got caught up with what other people were doing. Don’t get caught up with what other people are doing. Being a contrarian isn’t the key, but being a crowd follower isn’t either. You need to detach yourself emotionally. You need to think about what is going on around you. Being in Omaha helps me in that regard. When I was in NYC, I had 50 people whispering in my ear before noon. It’s hard sometimes, like when the Internet craze hit. Nobody likes to see their neighbor doing stupid things and getting rich. It was like Cinderella’s ball, I think I’ll just have one more dance, it’s not midnight yet. Sounds simple – but it is hard to leave the party. The problem with stocks is they don’t have clocks. You don’t know when it will be midnight so you can leave the party. My partner Charlie Munger and Tony Nicely at Geico are always rational. 160 IQs can say stupid things that sound good. People do silly things, whether they have 120 IQ or 160. You can always improve your rational thought. Rationality is the only thing that helps you. One thing that could help would be to write down the reason you are buying a stock before your purchase. Write down “I am buying Microsoft @ $300B because…” Force yourself to write this down. It clarifies your mind and discipline. This exercise makes you more rational.

AMR bankrupt this week. Not thinking about it. Looking forward. Probably have to go back to some programming job after baby.

Seth Klarman with Charlie Rose on http://myinvestingnotebook.blogspot.com/2011/11/charlie-rose-interviews-seth-klarman.html

highlights:
*3-5 years investment horizon
*selling's harder than buying - hard to know when to get out
* You never know how big a bargain you will get offered tomorrow.  Maybe someone comes and sells you a dollar for 50 cents, you never know if they will sell you the dollar for 40 cents a day later, so you need to buy it and maybe leave room to buy more more later. and maybe you spend the last dollar on buying it later and it goes down further after you buy it. So you always are checking and rechecking your work. The thing that would make you lose your confidence when you;'re doing that, is if you realize the dollar isnt actually worth a dollar, maybe it was a dollar but Greece failed or the Euro fell or collapsed and all of a suden, your dollar is worth only 30 cents.
* Its not so much figuring out what its worth today, its making sure it'll still be worth around the same tomorrow
* Stocks are cheap for a reason. good management is important.

Mine:

Debt/Capital is the main thing to check first for any company. Debt should include all LT and ST debt.
A measurement of a company's financial leverage, calculated as the company's debt divided by its total capital. Debt includes all short-term and long-term obligations. Total capital includes the company's debt and shareholders' equity, which includes common stock, preferred stock, minority interest and net debt.

Read more: http://www.investopedia.com/terms/d/debt-to-capitalratio.asp#ixzz1fcmioMiF

A company should own twice as much as it owes.. Rule of thumb from "Little Book of Value investing : Browne, pg 79"
x/x+2x = 1/3 = 33%  (max debt to capital ratio)