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.

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What I learned from Warren Buffett’s 2019 Annual Letter

If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1.

I first learned about Warren Buffett in 2006 when I picked up the Intelligent Investor. My immature mind discarded him completely as I loved getting rich quick schemes of speculators more. In 2013, after being hit for many years with heavy punches to the gut and receiving the final blow to my head, I decided to study the Oracle of Omaha to understand why he’s been so successful for such a long time while my idol speculators either killed themselves or died poor. The study took months as I poured into his writings and his talks.

The results:

  1. I stopped losing money feeling like a fool and a gambler.
  2. I founded a value investing fund to invest in Vietnamese companies. After 5 years of investing, what I learned from Warren Buffettt and practiced is working wonderfully.
  3. I became more at ease with being myself. The most notable is that I happily live a frugal lifestyle and pay almost no attention to what others say.

Every year at this time, I am eagerly waiting to receive the annual letter from Warren Buffett. Today is no difference. It’s the first thing I looked for when I woke up.

After many tries, I finally could download the letter. There must have been too many people trying to get his letter at the same time since Berkshire Hathaway’s website was extremely slow.

In this letter, Warren Buffett again showed his love for America and his belief in the long-term prospect of America.

Buffett’s buying criteria: “to buy ably-managed businesses, in whole or part, that possess favorable and durable economic characteristics. We also need to make these purchases at sensible prices.

Buffett has written many times that he paid little attention to daily fluctuation of stock prices, quarterly earning, and even one year earning. What he focuses on is the business and its prospect: “Focus on operating earnings, paying little attention to gains or losses of any variety.

Next, Buffett gave an outstanding lesson on “Focus on the Forest, Forget the Tree“. Berkshire Hathaway has many different businesses. If taken out to analyze each business, one might be very concerned as there are undoubtedly bad businesses or diseased trees in the forest. And there also are many healthy businesses/trees which will continue to grow in size. Taken as a whole, the forest is booming. “At Berkshire, the whole is greater – considerably greater – than the sum of the parts.

Will Buffett make more purchases in 2019?
My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.

Where have fundings come from?

  1. Debt. Berkshire uses little or no debt though some of its subsidiaries might leverage debt when it makes sense.
  2. Equity. Buffett retained all the earning to invest and compounded it.
  3. Insurance float. Using float to invest has been a cornerstone in Buffett’s compounding machine.
  4. Deferred tax income.

Finally, as usual, Buffett dedicated the last portion of writings to teach. This year, he taught about American Tailwind or his belief in the long-term economic growth of America. This is worth reading several times.

Buffett made his first investment in the stock market with his $114.75 saving at the age of 11. “If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. 

Is Gold safer than stock? If I ask people, the answer is mostly YES. However, history proved that most people are often more wrong than right.
If the same amount of $114.75 was to put in gold, by now it would be worth $4,200. “The magical metal was no match for the American mettle.

And it’s a dream to say the same: “For 54 years, Charlie and I have loved our jobs. Daily, we do what we find interesting, working with people we like and trust.

The full letter: http://www.berkshirehathaway.com/letters/2018ltr.pdf

Warren Buffett – Educational videos

The following is a collection of videos of Warren Buffett. There are few videos of him that I watched and listened to for the entire year repeatedly everyday when I was learning value investing. I hope it will helps you as well.

P/S: if you find a new video of his, I’d appreciate you to leave the link in the comment

HBO documentary of Warren Buffett in 2017 (#mustwatch):

Warren Buffett shared great lessons for small businesses and entrepreneurs :

Warren Buffett at University of Nebraska 2003:

Warren Buffett speaks to University of Georgia students in 2001:

Warren Buffett on how to stay out of debt (#mustwatch)

Warren Buffett & Bill Gates talk to students

Warren Buffett in India (#mustwatch)

Berkshire Hathaway Annual Meeting playlist

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About the author: Hoan Do is a certified leadership coach. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups to share with other leaders about transformational leadership and coaching. He has trained many leaders via mastermind groups, workshops, and one-on-one coaching.

Warren Buffett – Timeless and Fool-Proof Advice for Entrepreneurs

Warren Buffett – Advice for Entrepreneurs: simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

Warren Buffett – Advice for Entrepreneurs: simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

 

[Edited transcript by Hoan Do]

I would like to just tell you a couple of short stories and we’ll draw maybe a couple of lessons from them.  I would like to tell you of two women that each sold the business to Berkshire Hathaway for many many many millions of dollars. Both of them started with twenty-five hundred dollars by a coincidence was the exact same amount. It was everything they had in the world.

One of them was a woman who landed in Seattle in 1917. She couldn’t speak a word of English. The Red Cross got her to Ford dodge where she was reunited with her husband who had come to the country a couple of years earlier. She lived in Fort Dodge for two years. As she put it, she felt like a dummy. She couldn’t pick up the language. She couldn’t learn a word.

So she and her husband decided to move to Omaha in 1919. There she found a small colony of Russian Jews. She started feeling more at home. As her oldest daughter went to school, she would come home and teach her mother the words she learned in school that day.

This woman, Rose Blumpkin, spent 20 years saving money bringing first her siblings over, her mother and father fifty dollars at a time. She sold used clothing to do it.

She had four children during this period. By 1937, after 20 years, she saved $2,500. She went to Chicago and she bought what she could have furnished her dream, which had always been to open a furniture store. This woman would never gone to school one day in her life. With $2,500 but with the same spirit that the people in this room had about having a dream and working to accomplish that dream,  she built a business which she sold to me in 1983 for 60 million dollars approximately. The fourth generation is working in that business. This woman Rose Blumpkin lived well. She worked for me until she was 103. Then she retired and she died the next year. Mrs. B with her $2,500, could not read or write, and she went into a furniture business, and she didn’t bring anything in unique in furniture but she brought a determination to succeed. She knew she could outwork anyone else. She knew she cared about her customers. She worked at very low gross margins. She built this incredible business.

I saw one other woman who did a similar thing with $2,500. I paid her hundreds of millions for her business.

Today I’d like to tell you about one other small business person. I went to buy his business from him and he turned me down, which was very wise. This was a fellow who was born about eight years before I was he was born in 1922. He was a pretty good athlete, didn’t like school much. His company hires more college graduates each year than any other company in the United States. He went to college for a year and then dropped out. He really wasn’t that interested in the school and the year he dropped out was 1941. When the United States was under attack, he went down to the Army Air Force recruiting station to volunteer. They turned him down because he had hay fever. He went over to the Navy and again volunteered and they took him. They put him on an aircraft carrier. He flew small fighter planes during World War II. Then he came back to the Midwest.

By this time, he would be 23 or 24 years old. He actually kind of went from one job to another for a short period of time. He finally became a used car salesman at a Cadillac dealership in st. Louis Missouri. At age 35 having moved up in the sales organization, he said to his boss: “could I go into car leasing business with you,” The boss said: “well if you’ll cut your salary in half and you’ll come up with $25,000 ( which he borrowed), we can become partners in a car leasing company.” 

My friend Jack started at age 35 at the car leasing business. He had seven cars. It was pretty slow.  In fact one of the things he did was whenever the phone rang, he let it ring three or four times so people would think that he was very busy answering other phones. And of course it was the only call he was gonna get all day. So his first venture was okay but it wasn’t really going to go anyplace. And there’s a lesson in this for all of us. At age 40 he decided with 17 vehicles, he was going to go into competition in the rent-a-car business. So now he’s taking on Hertz and Avis and national and people like that who have hundreds and hundreds of thousands of cars and he’s got 17 cars. And his cars aren’t any different from theirs. He’s buying them from General Motors or Ford or Chrysler and he can’t get the airport locations which those companies have. But he was determined that he would basically offer the customer the friendlier service than they’ve ever seen. And so he started the company and named it after the battleship that he’d flown from in the Pacific, which was the USS Enterprise. When he died about the year and a half ago, his rent-a-car company starting with those seventeen cars was worth more than Hertz and Avis and all the rest of the rental cars put together. The man’s name was Jack Taylor. His son Andy Taylor, the friend of mine, runs the business now.

So this man didn’t invent artificial intelligence. He didn’t do anything that just like Mrs. B selling furniture. Any one of us could have entered those businesses. He lived by the creed basically of delighting his customers and working with people and establishing the relationship with them so that they in turn would want to delight the customers. He learned how to project himself and his attitude toward his fellow man. He desired to make a friend out of every customer. He managed to take very ordinary cars and turn them into this extraordinary business from virtually nothing.

It illustrates several points. You don’t necessarily get it right the first time. In the car leasing business, basically we’re competing on the cost of money to finance cars and it’s very hard to delight a customer. At the age of 40 with all of that experience behind him, he found the golden key. He took a very ordinary business and turned it into an absolutely extraordinary operation just like Mrs. B did with furniture. He didn’t worry about whether the Federal Reserve was going to tighten or ease. He didn’t worry about whether the stock market was up or down yesterday. He didn’t worry about the things he couldn’t change. He did focus on the one thing he could change. That was the customers experience.

He was smart enough to see that he would find that business. Henry Ford as you may know failed twice before he started the Ford Motor Company in 1903. The the test isn’t whether you get the greatest business idea in the world the first time out. The test is whether you keep learning as you go along.What your strengths are and what you can do for your customers. What you can bring especially to the party. To do that you need a genuine desire day-in day-out to delight the customer. I’ve never seen a business that delight the customer and doesn’t succeed. What you want is that customer the next day when they want to rent a car or buy some furniture, what goes through their mind is that it’s the place where they’ve had a great experience. I don’t know the tie and the shirts I am wearing now but  I do know I will remember how I was treated what I bought it. 

You long forget about the price but you never forget whether you had a good experience or a poor experience with the purchase experience.If the memory is of rudeness, indifference, they’re never going to come back. 

As a small business owner and as you grow, you have to not only be able to project that interest in people’s well-being in delighting them yourself, but you have to do it through other people. And you won’t be able to do it through people who themselves do not feel they’re being fairly treated and that their views aren’t appropriately considered. So you really do have to learn to multiply yourself through other people. 

I advise the young people to come to Omaha that the most important decision you make is the spouse that most of you will likely have and it’s very important to surround your people yourself with people are the better than you are. You are going to move in the direction of the people you associate with. I advise you to seek out your partner in business, your partner life who actually are examples to you rather than somebody that you need to straighten out yourself. And simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

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About the author: Hoan Do is a certified leadership coach with John Maxwell Team. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups at work to share with other leaders about transformational leadership and coaching. He has trained many leaders both inside and outside Symantec via mastermind groups, workshops, and one-on-one coaching.
Coaching inquiry: coach@hoanmdo.com

 

Warren Buffett on timing the stock market

Warren Buffett talks about investment versus the tendency to focus on what’s happening today. 

March 8-12 1942, newspapers were filled with extremely bad news from the pacific. Warren was watching a stock called City Services Preferred. It was sold at $84 in 1941 and it was selling at $40 on March 10. 

Warren bought 3 shares of City Services Preferred on March 11, 1942 at $38.25. Dow Jones was down 2% because of all the bad news. Warren bought at the high of the day. City Services Preferred was down to $37 the same day. So the timing of buying was off. 

Eventually, City Services Preferred was called later for over $200 a share. However, Warren sold his share when the stock was up to $40 in July 1942, pocketing $5.25 gain per share. 

The conclusion: don’t time the market. 

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About the author: Hoan Do is a certified leadership coach with John Maxwell Team. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups at work to share with other leaders about transformational leadership and coaching. He has trained many leaders both inside and outside Symantec via mastermind groups, workshops, and one-on-one coaching.
Coaching inquiry can be sent to coach@hoanmdo.com