I finally met the God of Investing himself, Mr. Warren Buffett on his recent and first visit to India. I was luckier still to be able to ask him question (shall attach a youtube link soon) to which he was kind enough to give a detailed reply.
Here, therefore, are PEARLs of WISDOM from the GOD himself & my interpretation of the same….
Mr. Buffett on gold, silver & other commodities: it is very difficult to value something that does not generate cash flows; if you are betting only on the price of an asset rather than the productivity of the asset, then I am not for it;
All the Gold in the world today is selling for 7 trillion USD; Approx. market cap of all listed US stocks 20 trillion dollars; “All the farm land in the US (a billion acres)+7 Exxon Mobiles + 1 trillion dollars = value of all gold in the world”
I would rather own 1/3rd of all listed stocks in the world rather than all the Gold in the world;
I would bet my money on buying stakes in good business rather than gold, silver or any other commodities…
What it means: Mr. Buffett has for all his LIFE only invested in STOCKS of companies. He is a firm believer in equity and equates owning a stock in a company to being a partner in that business. He says that any given day, he would prefer to invest in a good business as they have CASH FLOWs with the help of which one can compute the VALUE of that business. Commodities, do not give any cash flows and hence it is difficult to put a VALUE to them…….
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On Inflation: Inflation is an invisible tax that only 1 in a million people understand; it is tax on people who have faith in their country’s currency;
The best protection against inflation is grow your own earning powers to maximize your talents and hence your earning power; the best passive investment against inflation is a good business;
What it means: Mr. Buffett warns all Investors to guard their WEALTH against INFLATION, the silent thief that steals our money everyday. According to him, keeping our wealth idle, either in a bank account or even in Fixed Deposits is not enough. Investing in Equity is the best hedge against inflation, which by the way, in India is nearing double digits and is bound to be high in developing economies like India for years to come. Our only saving grace is to put a good part of our investment in equity or equity related instruments…
On the fate of US Dollar (in response to my question on Gold Standard): I will not bet my money on the US dollar or dollar related investments for the long term; The Dollar note, on its face, says, “IN GOD WE TRUST” ; need we say more; we (US) have a govt. that relies too much in God;
The natural tendencies of all Govts in the world is to debase its currency to an extent that it becomes worthless over time; and this is true for all govts. Across the world; the value of a currency reflects the word of the govt issuing that currency; the integrity that people have on that govt;
What it means: Mr. Buffett, just like most international experts, does not have much faith in the future of US Dollar. For the past few decades, the USD has been the reserve currency of the world. But, this is bound to change in the future. It will take time as, as of now, there is hardly any currency that can challenge the USD. In fact, this is one of the more important reason why we have seen a sudden rise in the value of GOLD. International investors are buying GOLD as a hedge against the expected fall in the value of the USD.
On Financial Crises & asset bubbles: Human behaviour is such that they will keep committing mistakes & blunders & history keeps repeating itself;
What it means: Mr. Buffett says that as humans, we keep repeating mistakes and fail to learn from our past mistakes. Human memory is short. Very short. Every decade sees a different asset bubble building in front of our very eyes and investors (or should I use the word SPECULATORS) tend to enter the asset class at its peak, when the bubble is about to break, and as a result tend to loose their life’s savings. The recent SILVER bubble is a case in point. The 2008 US real estate bubble and 2000 dot com bubble were the 2 big asset price bubbles of the previous decade… The current decade, in fact, has already started with a commodities bubble…..
On succession planning
My goal is to leave for my children enough so that they can pursue whatever interest they have but not so much that they do nothing; I make my WILL every 6/7 years & when I make that will & before I finalise that will, I ensure that all my children have read it thoroughly, understood all the clauses, debated the ones where there are issues, sorted them out and prepare a revised draft. That way, I ensure that there is no bad blood between my siblings and me and amongst themselves.
What it means: Mr. Warren Buffett, as we all know, has donated 99% of his WEALTH to a charity (yes its right, he has donated 99% of his wealth; there is no typing error) run by his friend, Microsoft Chairman & Founder and fellow billionaire, Bill Gates. He was therefore asked that his donating 99% of his wealth; did it not create a problem in his family, to which his answer was as follows. He said that even 1% of his wealth is enough for his children and he was fortunate that when he announced his decision to donate his wealth, all 3 of his children were well above 40 and mature enough (Warren Buffett’s age is 80+).
I am sure, the above article must have amused you and you would be curious to know more about this great investor….
Here is a small bio of Mr. Warren BUFFETT
Warren Edward Buffett is an American investor, industrialist and philanthropist. He is widely regarded as one of the most successful investors in the world. Often called the “legendary investor, Warren Buffett”, is the primary shareholder, chairman and CEO of Berkshire Hathaway. He is consistently ranked among the world’s wealthiest people. He was ranked as the world’s wealthiest person in 2008 and is the third wealthiest person in the world as of 2011.
Warren Buffett is the only person in Fortune 100 who has made his wealth by investing in the Stock Market.
Buffett is called the “Oracle of Omaha (Omaha, Nebraska is a small town in US where he lives to this day) or the “Sage of Omaha” and is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. (He still lives in the same House where he lived when he was a struggler and a teenager). Buffett is also a notable philanthropist, having pledged to give away 99 % of his fortune to philanthropic causes, primarily via the Gates Foundation.
Buffett was born in 1930 in Omaha, Nebraska, the second of three children and only son of businessman & politician, Howard Buffett. Even as a child, Buffett displayed an interest in making and saving money. He went door to door selling chewing gum, Coca-Cola (he now owns a big chunk of this company), or weekly magazines. For a while, he worked in his grandfather’s grocery store. While still in high school, he carried out several successful money-making ideas: delivering newspapers (He delivered The Washington Post Newspaper as a child and today owns a good chunk in it)., selling golf balls and stamps, and detailing cars, among them. In 1945, in his early years of high school, Buffett and a friend spent $25 to purchase a used pinball machine, which they placed in the local barber shop. Within months, they owned several machines in different barber shops.
Buffett’s interest in the stock market and investing also dated to his childhood, to the days he spent in the customers’ lounge of a regional stock brokerage near the office of his father’s own brokerage company. On a trip to New York City at the age of ten, he made a point to visit the New York Stock Exchange. At the age of 11, he bought three shares of Cities Service Preferred for himself, and three for his sister. While in high school he invested in a business owned by his father and bought a farm worked by a tenant farmer. By the time he finished college, Buffett had accumulated more than $90,000 in savings measured in 2009 dollars.
In 2008 he was ranked by Forbes as the richest person in the world with an estimated net worth of approximately US$62 billion. In 2009, after donating billions of dollars to charity, Buffett was ranked as the second richest man in the United States with a net worth of US$37 billion with only Bill Gates ranked higher than Buffett. His net worth is up to $47 billion in the past 12 months.
On my BLOG, you would keep reading about Mr. Buffett …..more about him sometime later….