Nation on the March

Nation on the March
Nation on the March

Sep 23, 2010

Sensex is soaring again. What about your investments?

Two days ago, on Tuesday, 21st Sept the Sensex closed over the physiologically important 20,000 mark, i.e. just about 1,200 points away from its all-time high of January, 2008.

On this occasion, here is some distilled wisdom from the investment wizard and USA’s second wealthiest person Warren Buffet & his compatriots.

It is in 3 parts:
PART-I : Winning Investment Habits
Warren Buffett and George Sores have been among the renowned investors of the past few decades (Buffett for a longer period than Soros). In "The Winning Investment Habits of Warren Buffett and George Sores," its author- Mark Tier - outlines their 23 "winning" investment habits gleaned from the duo's approach to investing.

A master investor:
 1. Believes the first priority is preservation of capital.
 2. As a result, is risk-averse.
 3. Has developed his own investment philosophy, which is an expression of his personality. As a result, no two highly successful investors have the same approach.
 4. Has developed his own personal system for selecting, buying and selling investments.
 5. Believes diversification is for the birds.
 6. Hates to pay taxes, and arranges his affairs to legally minimize his tax bill.
 7. Only invests in what he understands.
 8. Refuses to make investments that do not meet his criteria . Can effortlessly say 'no',
 9. Is continually searching for new investment opportunities that meet his criteria and actively engages in his own research.
 10. Has the patience to wait until he finds the right investment.
 11.  Acts instantly when he has made a decision.
 12.  Holds a winning investment until a pre-determined reason to exit arrives.
 13. Follows his own system religiously.
 14. Is  aware of his own fallibility. Corrects mistakes the moment they arise.
 15. Always treats mistakes as learning experiences.
 16. As his experience increases, so do his returns.
 17. Almost never talks to anyone about what he's doing. Not interested in what others think of his investment decisions.
 18. Has successfully delegated most, if not all, of his responsibilities to others.  
19. Lives far below his means.
 20. Does what he does for stimulation and self-fulfillment - not for money.
 21. Is emotionally involved with the process of investing; but can walk away from any individual investment.
 22. Lives and breathes investing, 24 hours a day.  
23. Puts his money where his mouth is.

PART-II : Munger's 10 Rules for Investment Success

Charlie Munger, Vice Chairman of Berkshire Hathaway is a legend in the world of investment in his own right. In his book, Poor Charlie's Almanac, he outlines 10 Rules of Investment Success. He is the lesser known (in relative terms) of the two men who have been behind the investment juggernaut with a stellar track record for more than four decades - Berkshire Hathaway. This is perfectly logical if the 'other person is Warren Buffett. ..

1.Measure risk: All investment evaluations should begin by measuring risk, especially reputational,
 2. Be independent: Only in fairy tales are emperors told they're naked.
 3. Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
 4. Have intellectual humility: Acknowledging what you don't know is the dawning of wisdom.
 5. Analyze rigorously: Use effective checklists to minimize errors and omissions.
 6. Allocate assets wisely: Proper allocation of capital is an investor's No. I job.
 7. Have patience: Resist the natural human bias to act.
 8. Be decisive. When proper circumstances present themselves, act with decisiveness and conviction.
 9. Be ready for change: Accept unremovable complexity.  
10. Stay focused: Keep it simple and remember what you set, out to do.

A few more Mungerisms:

·   Understanding how to be a good investor makes you a better business manager and vice versa.
·   Forgetting your mistakes is a terrible error if you are trying to improve your cognition.
·   We both (He and Warren Buffett) insist on a lot of time being available almost every day to just sit and think. That is very uncommon in American business. We read and think. So Warren and I do more reading and thinking and less doing than most people in business. We do that because we like that kind of a life.

PART-III : Buffett's Owners’ Business Principles for his company , viz . Berkshire Hathaway

1. Although our form is corporate, our attitude is partnership. Charlie Munger and I think of our shareholders as owner partners, and of ourselves as managing partners
 2. In line with Berkshire's owner-orientation, most of our directors have a major portion of their net worth invested in the company. We eat our own cooking.
 3. Our long-term economic goal is to maximize Berkshire's average annual rate of gain in intrinsic business value on a per share basis
 4. Our preference would be to reach our goal by directly owning a diversified group of businesses that generate cash and consistently earn above-average returns on capital.
5. To state things simply, we try to give you in the annual report the numbers and other information that really matter,
 6. Accounting consequences do not influence our operating or capital-allocation decisions.
7. We use debt sparingly and, when we do borrow, we attempt to structure our loans on a long-term fixed-rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet.
 8. A managerial "wish list" will not be filled at shareholder expense. We will only do with your money what we  would do with our own.
 9. We feel noble ‘Intentions’ should be checked periodically against results.
 10. We will issue common stock only when we receive as much in business value as we give.
 11. You should be fully aware of one attitude Charlie and I share that hurts our financial performance: Regardless of price, we have no interest at all in selling any good businesses that Berkshire owns.
 12. Our guideline is to tell you the business facts that we would want to know if our positions were reversed. We owe you no less. 
 13. Despite our policy of candour, we will discuss our activities in marketable securities only to the extent legally required. Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are. Therefore we normally will not talk about our investment ideas. 

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