Commentary on 'Warren Buffett' Post

My friend, Diana Goh Chern, has posted an e-mail writeup she received on Warren Buffett and I would like to add a few points so as to bring the message across in a clearer manner. Consumerism seems to be the order of day, especially among the increasingly affluent younger generation. Some people appear to have a special affinity for luxury goods, and while a healthy dose of consumption benefits the general economy through stimulating demand, excessive spending has its own pitfalls. Like what we all have studied in Economics, a government which runs budget deficits consistently may find itself faced with staggering amounts of long term debt that can threaten the workings of the economy (take Greece for example). Likewise for individuals, practicing fiscal prudence is the key to financial sustainability. Without any further delay, let us move on to her post.

1. He bought his first share at the age of 11 and he now regrets that he started too late!Things were very cheap that time, encourage your children to invest

The stock he bought was Cities Service Preferred, which plummeted shortly after he bought it. Nevertheless, he did not let the temporary plunge affect him and held on the stock before liquidating it for a small profit after the price rebounded. After which the stock rose to multiples of its original purchase price. Warren Buffett first learnt about patience from this experience. In addition, he bought the stock with his own money and his sister's, hence he had instilled a strong aversion to loss and sense of responsibility in taking care of other people's money.

2. He bought a small farm at age 14 with savings from delivering newspapers. One could have bought many things with little savings.
Encourage your children to start some kind of business

Warren Buffett was involved in other small businesses as well, which included pinball machines in barber shops (Wilson Coin Operated Company), collecting unwanted golf balls from golf courses and selling them for a small profit. His favourite book was '1,000 ways to make 1,000', which refers to making a million dollars. He pledged to become a millionaire by the age of 34 as well or he would jump down the tallest building in Omaha, where he lives in (he was one way before he reached 34).

3. He still lives in the same small 3-bedroom house in mid-town Omaha that he bought after he got married 50 years ago. He says that he has everything he needs in that house. His house does not have a wall or a fence. Don't buy more than what you really need and encourage your children to do and think the same.

His house looks like what a typical middle class family would stay in. The only addition was a racquet court, a spending which was insignificant compared to his wealth. He loves making money, and not hoarding wealth and hence he did not see any need to erect a wall or fence around his house. Interestingly, his lifestyle remains very much the same over the years, preferring to drink Cherry Coke and eat at McDonalds - not what you will expect from someone of extraordinary wealth. (Though not a very healthy diet haha)

4. He drives his own car everywhere and does not have a driver or security people around him. You are what you are.

He's brutally honest with his identity, even saying 'I buy expensive suits, they just look cheap on me.'

5. He never travels by private jet, although he owns the world's largest private jet company. Always think how you can accomplish things economically.

Buffett also abhors corporate CEOs who enjoy special privileges at the expense of the shareholders by flying first-class and indulging in other excesses. Thus he named his private jet 'The Indefensible' after he bought it, expecting criticisms from naysayers.

6. His company, Berkshire Hathaway, owns 63 companies. He writes only one letter to the CEOs of these companies, giving them goals for the year. He never holds meetings or calls them on a regular basis.Assign the right people to the right jobs.

Berkshire Hathaway is the only US public listed company which trades for over $100,000 a share, and the annual Berkshire shareholders meeting is dubbed as the 'Woodstock of Capitalism' where numerous investors flock to Omaha every year to listen to Buffett's (together with his Vice-Chairman Charlie Munger) teeming wisdom and quirky humour.
He actively seeks for managers who are honest, competent and shareholder-oriented.

7. He has given his CEOs only two rules. Rule 1, do not lose any of your shareholders' money. Rule 2 remember rule number 1.Set goals and make sure people focus on them.

Buffett has a deep sense of trust in his managers to do what's best for the company and gives them free rein in daily operations so that they can concentrate on running the company successfully, free from distractions. The managers align their interests with the shareholders' by having a substantial amount of their net worth in the company. Buffett himself has 99% of his net worth in Berkshire.
‘We eat our own cooking’

8. He does not socialize with the high society crowd. His past time after he gets home is to make himself some popcorn and watch television. Warren Buffet does not carry a cell phone, nor has a computer on his desk.Don't try to show off, just be yourself and do what you enjoy doing.

A famous technophobe, Buffett avoids investing in high tech companies simply because he feels that they are not within his circle of competence. What matters in investing is realistically defining what you don't know, rather than what you know. By following this principle he managed to avoid the Dot Com Bubble of the late 1990s and the resulting crash. Observing that he does not use computer or fanciful economic equations to analyze stocks, one should wonder the utility of the complex financial theories taught at Business schools today, especially Efficient Market Hypothesis.
'If markets are always efficient, I would be a bum on the street holding a tin cup.'

9. Bill Gates, the world's richest man met him for the first time only 5 years ago. Bill gates did not think he had anything in common with Warren Buffet. So he had scheduled his meeting for only half an hour. But when Gates met him, the meeting lasted for ten hours and Bill Gates became a devotee of Warren Buffet.

Gates is also well-known for his frugality and generosity, hence Buffett donated a staggering amount of his wealth to the Gates Foundation to serve worthy causes. The two men have many in common than most people thought. Despite Bill Gates the man himself explaining about computers and the Internet to Warren Buffett, the latter still stuck to his investment knitting. Warren later remarked that he would only be successful in the investment arena, whereas Gates can achieve similar success in virtually any field he chooses to embark on.
That's the former No.1 and No.2 world’s richest men for you.

In conclusion, Buffett loves his life simply because he is doing what he loves, which is allocating capital and establishing meaningful working relationships with his corporate managers.
‘I feel like tap dancing to work everyday.’

How many of us can face work with such a cheerful attitude everyday? We must discover what we truly love to do, work hard towards the goal and like Goh Chern said, appreciate the opportunity given and meanwhile enjoy the process. Buffett is a great role model, and I have learned much from him. I sincerely hope others can do so as well.

Monthly Update 5

Greetings to all, update for May:






STI, 31 December 2009: 2897.62
STI, 31 May 2010: 2752.60

Profit/Loss
Virtual Portfolio: -2.62%
Market Average: -5.00%

This too, shall pass.