Warren Buffett Series #2 – How to be a better investor and a better manager

The checklist that goes through our mind is simple, not complicated. Knowing what you don’t know is important and sometimes that’s not easy. Knowing the future is impossible in many cases, difficult in others, and sometimes relatively easy. We are looking for the ones that are easy.

What to look for before you commit to an investment? What kind of checklist should you go through?
The following is what Warren Buffett answered to similar questions.

The investment checklist is the checklist to look at a business:

  1. We look at whether we can understand the business. That means they sell a product that we think we understand or we understand the nature of the competition, what could go wrong with it overtime.
  2. Once we find that business that we understand, we try to figure out whether the economics of it means the earning power over the next five or 10 or 15 years is likely to be good and getting better or poor and getting worse. 
  3. Then we try to decide whether we are getting in with some people that we feel comfortable being in with.
  4. Then we try to decide what an appropriate price for what we’ve seen up to that point is.

The checklist that goes through our mind is simple, not complicated. Knowing what you don’t know is important and sometimes that’s not easy. Knowing the future is impossible in many cases, difficult in others, and sometimes relatively easy. We are looking for the ones that are easy. If you think of buying a service station or a dry cleaning service to invest your life savings in, you’d think about the same sort of things. 

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

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Warren Buffett series #1 – When you know you are ready to manage other people’s money?

You start very small and get an audited record.
Once you get the confidence that if your parents come to you and give you all their money, you will invest for them. Then you are ready.

When you know you are ready to manage other people’s money?

Warren would not have formed his first partnership if he thought there was any chance that he would lose the money.

What he was worried about was not how he would behave, but how his partners would behave. So he invited them all to a dinner and showed the partnership agreement form.
He told them: “Here is the ground rules as to what I think I can and how I want to be judged, and if you are in sync with me, I want to manage your money, because I won’t worry about the fact that you will panic if the market goes down or somebody tells you to do something different. So we have to be one the same page. And if we’re on the same page, then I’m not worried about managing your money. And if we aren’t on the same page, I don’t want to manage your money, because you may be disappointed when I think that things are even better to be investing and so on.”

You don’t want to manage people’s money until you have a vehicle and can reach people who are in sync with you. You ought to have your own ground rules.
It’s enormously important that you don’t take people that have expectations of you that you can’t meet.
It might mean that you turn down a lot of people.
You start very small and get an audited record. 
Once you get the confidence that if your parents come to you and give you all their money, you will invest for them. Then you are ready.

About me and why this series:
I got a life-changing experience studying Warren Buffett’s annual letters in 2013 after 10 years of speculating, market timing, charting, and forecasting. I started investing in the Vietnamese stock market in 2015 with what I saved from my engineering job. In 2018, I decided to study Warren Buffett’s investing again by going through all of available Berkshire Hathaway’s annual meeting videos. It has been another life-changing experience. Warren Buffett’s teaching is a real germ and yet not many people replicate. Hence, I am committed to share what I learned.

You can subscribe to my blog to follow the series of what Warren Buffett has been teaching in his annual meetings. I attempted to modify but keep as much as possible what he spoke.

Enter your email to subscribe to notifications from this site

Join 4,662 other followers



Superinvestors or super value investors

1. Think of yourself as owning a business and not buying something that wiggles around in price.
2. Your attitude toward the market.
3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”

Graham and Dodd’s approach: look for values with a significant margin of safety


The common intellectual theme of the investors who use Graham and Dodd’s approach is: they search for discrepancies between the value of a business and the price of small pieces of that business in the market.Those investors don’t use beta, capm, covariances in returns, volume, price movement, charts… They even have difficulty in defining them. They simply focus on two variables: price and value.


Walter Schloss with no college education working for Graham’s firm knows how to identify securities that sell at a conceivably less than their value to a private owner. He compounded money from 1956 to 1984 at 21.3%.


Tom Knapp working for Graham compounded at 20% from 1968 to 1983. 
Warren Buffett compounded at 29.5% from 1957 to 1969.


Bill Ruane who took Graham’s course at Columbia compounded with at 18.2% from 1970 to 1984.


Charlie Munger, who was a lawyer and changed to investing career after talking to Warren, compounded at 19.8% from 1962 to 1975.


Rich Guerin, who was an IBM salesman and turned into investing after talking to Munger, compounded at 32.9% from 1965 to 1983.The idea of value investing, buying a dollar for 40 cents, either grabs you instantly or never. Rich Guerin immediately understood the value approach.


Stan Perlmeter, who was in advertising and in the same building as Warren Buffett in Omaha, understood the value approach instantly, left his advertising career, compounded money at 23% from 1965 to 1983.


The above investors worked independently and didn’t own the same thing as others. They bought a stock because they would get more for their money that what they paid for. They didn’t look at quarterly earnings, projections, next year’s earnings, investment researches, price momentum, volume, or which day of the week was. They simply asked: “What is the business worth?”


They follow Graham’s principles:

  1. Think of yourself as owning a business and not buying something that wiggles around in price.
  2. Your attitude toward the market.
  3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”

Habit of success: figure out what works and do it

Figure out what works and do it.

Figure out what doesn’t work and stops doing it.

This is incredibly simple. And yet, like anything simple, it’s incredibly hard to do consistently.

When I first learned martial art, I did a lot of things that don’t work. For the last 13 years since I joined Musokai Karate, I learned to do more what works and less what doesn’t. And it’s more like climbing a mountain with no top. The climber learns to enjoy the climbing and the views on the way. If the climber ever loses the focus of doing what works, the climbing itself becomes incredibly tough and it’s only getting tougher and tougher.

When I got into the corporate environment, I learned a few things that don’t work such as gossiping, bullying people, following what everyone else is doing, being a lone wolf… And few things that work: personal development, teamwork, leadership, customer-focus,… Yet, it’s just too easy to be busy with doing what don’t work. Figuring what works and doing it becomes a mantra that separates being successful and being miserable.

When I figured out that being in a declining and bureaucratic environment doesn’t work, I moved on.

When I figured out that being a victim doesn’t work, I chose to be an owner.

When I figured out that being an effect doesn’t work, I chose to be a cause in the matter and takes a firm stand.

What have you figured out in your own experience that don’t work? What are you doing about it?

It’s really a choice to choose doing what works. And overtime, it becomes a habit: figure what works and do it.

PS: Check out http://www.achiezy.com if you need help from great coaches. You don’t have to figure out everything like I did till I discovered that a coach can really help.

Zhang Xin – the fearless woman who built Beijing

Zhang Xin is the co-founder of SOHO China, the largest real estate developer in China. She’s worth over $3 billion in net worth.

Zhang Xin was born in China in 1965. At 14, she left for Hong Kong with her parents. At 19, she decided to leave Hong Kong for England to pursue her education by herself with the savings she saved from working at a factory. She spoke very little English at first. She took English classes, worked part-time to support herself, and got herself into Cambridge university. After graduation, she worked for a company in England, which was later bought by Goldman Sachs. Zhang Xin was transferred to New York.

Zhang Xin’s mind and heart was with China. She left Goldman Sachs in 1994 to go back to Beijing (her parents still lived in Hong Kong). She got married to her husband and together they founded SOHO China. The rest is the history.

What made Zhang Xin successful is her daring to take on projects no one wanted to take on. When people saw risks, she saw opportunities and excitement.

More on Zhang Xin:

https://qz.com/work/1177224/soho-chinas-zhang-xin-became-a-billionaire-by-falling-in-love-with-risk/