“You are worth at least $500,000 today.“
As we walk out today, Warren will buy 10% of your future and from this day forward, you will give me 10% of what you earn.
If you thought carefully about this, it’s foolish of you to ask for less than 50K. That means what right now you are worth more than 500K.
Your potential is worth more than 500K. This is a big financial asset.
If you have 200 horsepower motor and you get 200 horsepower out of it, you get your full potential. If you only get 100 horsepower out of it, you only get your 50% potential. There are two things that might hold you back from reaching your full potential, education and habit.
Qualities to look for:
3 qualities that Warren looks for when hiring: intelligence, energy, and integrity.
Think about the person that you most like to be in life. Pick out the person you admire the most. Put down on a piece of paper why you admire them.
Figure out the person that you least like, who would turn you off. List the reasons why that person turns you off so much.
Put the two lists side-by-side.
You will find that all qualities on the left handside, you can have the same. And all the qualities on the right handside, which make people repulsive, you can get rid of them.
Develop the qualities on the left hand-side early. It will carry you forward a long way. Be somebody you like, not somebody you dislike.
Another variation: if you can pick your classmate and have 10% of his income, you will not likely pick the one who has highest grade. It’s interesting that the qualities come out: integrity, generosity, extra effort.
and you will also have to sell short on one of your classmate and pay 10% of his income, think of what qualities you will pick.
—> Habit is important. Try to form the right habits early. Change of a habit is too light to be felt till it’s too late to be broken.
Look at the list of qualities of the person you want to buy 10% of, there’s nothing on that list that you will not be able to develop.
Ben Graham did this in his low teen. He would look around and see who he admired. He realized that there’s nothing wrong with being the person you admire.
Advice: avoid credit cards at all cost. If you have to borrow money at 18%, you will never get out of it.
Figure out where you dont want to be and get out of it.
If you cant pay for something, don’t buy it.
Comparing with Warren Buffett:
If you have a job, both you and Warren Buffett can afford McDonald. You wear the same cloth that Buffett wears. You live in a comfortable house as Buffett does. You might drive a better car than Buffett, as he drives a 8-year old car. You watch the same television as Buffett. You work on the same computer as Buffett does.
Buffett does what he likes everyday. He works with nice people. —> There’s not much difference between great wealth and decent income.
—> to trade a decent income and something you love doing and feel worthwhile doing it for great wealth where you trade off a lot of your principles is a terrible mistake.
If you tell me who your heroes are, I will make a pretty good prediction of what you will do. Buffett is lucky to have the right heroes who never let him down. His heroes: his dad and Ben Graham.
Get full use of your talent first. The difference between earning x, 2x, 10x a year 20 years from now will be a function of how well you use the talent you have, not how much talent you have.
Your best financial future is your own ability and your capacity to use this ability to your full potential. And be ahead of the game, by saving up a little. Being ahead of the game will give you a huge advantage.
It’s not necessary to pay a huge tuition to get an education. There’s not much difference to get a business education. You can learn accounting as good at Harvard as at a community college. —> avoid debt.
What to invest?
Buffett likes to find businesses that would have good economics around it. What this means is that they have a moat. A moat around its product, its location, its services, or something …
Buffett likes businesses that he can reasonably know where they will be in the next 10 to 15 years. He doesnt know where a tech company will be, but he knows where Wigley chewing gum will be, where Coke will be.
Buffett finds people that are honest and able.
Buffett: discipline is the most importance. IQ is not important. Discipline to wait to see the fat pitch to swing at. In business, you don’t need to buy anything. You can simply wait for that one time, where you like the business and the people running the business, to buy.
Buffett: just need to know his circle of competence and its limit.
Anytime you buy something, take out a piece of paper and write down why you buy it. You got to have a reason.
When you buy stock, you buy a little piece of business. This is the most important to remember.
Buffett believes that he can make money in things that he understands. By understanding, he doesnt mean that he would understand the products; but the economic value, how the business will look like in 10-15 years from now. —> circle of competence: he understands the economic aspect, the competitive aspect of the business.
It’s hard to see who win. But it’s easier to figure out the losers.
It’s not how large your circle of competence is. It’s important to figure out the limitation and stay inside its boundary.
Total cash that the business will produce in its lifetime, discounted at proper discount rate. —> presence value of future cashes
A bird in hand is worth two birds in the bush. However, it also depends on how certain you are with how many birds there are in the bush.
Time is the friend of a great business but an enemy of a lousy business. The cigar-butt approach worked for Buffett but he figured out that he cant make a lot of money with it.
Let’s assume that it’s 24 hours before you were born. A fairy came to you and told you that you can design the world and you will be born into that world. That will be the world your children will also be in.
The catch is that you wont know whether you are black or white, Asian or american, … You will participate in the ovarian lottery. So what’s the rule you will design?
If anyone offers Buffett 3x or 4x to buy one of his businesses, he wont sell. If he’s short of fund, he might have a different approach. He sold a less promising stock to buy a more promising one when he had more ideas than capital (when he was young).
What quality you look for in a spouse? You look for low expectation. If both have low expectation, the marriage will last. It’s the same approach that Buffett prefers to have shareholders in his company.
Invest in yourself:
Imagine a genie comes to a 17 year old and offers to get him any car he wants.
However, there is one catch—whatever car he chooses he must make it last a lifetime. Well, you can imagine that the young man would read the owner’s manual 10 times, would change the oil twice as often as suggested, etc. to help that car last 50 years.
In the same way, Warren Buffett continued, we each receive one body and one mind for a lifetime.
You cannot repair them at age 60. You must maintain them.
One’s greatest asset is one’s self.
Develop your mind and good health habits when you are young, and it will enhance your life. If not, you may have a wreck at age 70.
Make your own decision:
When Warren Buffett completed his MBA at Columbia University, he was looking for what to do.
Both of his heroes gave him the same advice. They both knew him extremely well.
Ben Graham, the father of value investing, told him to not get into securities business.
His father, a successful businessman and a senator, told him to not get into securities business.
He listened to both and went into securities business.
He had $10,000.
Today, he has $86.9 billion and is the most successful investor of all the time.
Listen well but make your own decision.