Monday, August 16, 2010

Seven Surprising Facts about W.Buffet...............

Taken from somewhere else:

Here are seven interesting things I learned about Warren Buffett from The Snowball, and some ideas on how they can help your investing:

1. Buffett set goals young. (He really started, really young)
Buffet began obsessing over numbers as a child. He raced marbles with a stopwatch and calculated the lifespan of hymn composers when six-years old. He sold chewing gum at seven and Coca Cola when he was eight: the same year he began wearing a money-changer on his belt.
His dad was a stockbroker. This gave him an early view of the markets
At ten he was chalking stock prices at a local brokers office
The same year he visited the New York Stock Exchange, and was asked for a tip by senior Goldman Sachs partner Sidney Weinberg an experience he never forgot
His favourite childhood book was One Thousand Ways to Make $1,000
At 11 he announced he was going to be a millionaire at 35, a seemingly crazy goal in 1941 (when a million really was a million)
He filed his first tax return aged 14, having already made $1,000 (equivalent to around $12,500 in todays money)
The takeaway: The power of compound interest takes years to work its magic. None of us has a time machine, so the main lesson is not to delay a day when investing for the future.
2. Buffett bought his first stock when he was 12-years old
Warren put everything his schemes had earned him into a stock, Cities Service Preferred, when he was 12. He also enrolled his sister, Doris.
Buffet was already learning how to hold shares through a slump
He paid $114.75 dollars for three shares, and watched the stock price fall from $38.25 to $27 a share. His sister Doris was not happy. When Cities Service went back up to $40, he sold. He made $5 a share profit, and got Doris off his back. After he sold, the stock rose to $202 a share.
Takeaway: We all learn the same lessons. Buffetts business partner Charlie Munger says that because Warren started thinking about odds, stocks, and goals before he was a teenager, hes years ahead of the rest of us.
I used to watch share prices rise and fall on the Teletext TV service when I was 11 or 12. At the same age Buffett was learning real-world lessons on holding shares through a slump and selling too soon.
Youll only discover whether you have the stomach to invest through a bear market or whether youll be sucked up by the next property bubble by being an active investor. Start with small sums, sure, but dont delay that start.
3. Buffet lied, shoplifted, and played truant as a kid
This one was a real surprise. As a teenager Buffett revealed a wild streak. He says:
Wed steal stuff for which we had no use. Wed steal golf bags and golf clubs. I walked out of the lower level where the sporting goods were, up the stairway to the street, carrying a golf bag and golf clubs, and the club was stolen and so were the bags. I stole hundreds of golf balls.
I made up this crazy story for my parents I told them I had this friend, and his father had died. He kept finding more of these golf balls that his father had bought. Who knows what my parents talked about at night.
Takeaway: Even Buffett had to learn to be Buffett. I dont know about you, but I found this heartening to read. Together with discovering that Buffett was a shy child who enrolled himself in Dale Carnegies public speaking course, it made him seem more human.
Its easy to feel you havent got what it takes to make money. Some are born special, you might conclude. But Buffetts history shows that even the worlds richest and most admired investor had to iron out his kinks.
Buffetts history also makes me proud to be an outsider. Many of my college classmates entered the city or became management consultants, and have earned six-figure salaries for a decade. When property prices were booming, Id sometimes wonder if Id made the wrong decision by deciding to go it alone even though I know that working a nine-to-five in an office and answering to some buffoon of a manager would kill me.
Discovering Buffett made being his own boss a top priority puts me in good company. I also suspect the unusual structure of Berkshire Hathaway grew out of Buffetts non-confirming mentality.
4. Buffett is a businessman first, investor second
Youll often read that Buffett evaluates stocks as if hes buying the whole business. What I realised after reading The Snowball was Buffett doesnt do this because hes an investor who thinks like a businessman. Buffett is a businessman who is also an investor.
Buffett ran multiple businesses while still a student: He sold refurbished golf balls, peddled stamps to collectors, ran a network of pinball machines when he was 17, owned a tenanted farm, and managed a 50-strong paperboy route
He dealt hands-on with strikes and turf wars at newspapers from The Washington Post to the Omaha Sun
Buffett didnt just buy, hold and drink Coca-Cola he engineered the replacement of its CEO
With all the new businesses, from Sees Candies to GEICO, he added everything from their stock level reports to weekly sales projections to his endless daily reading
Berkshire Hathaway is far from a simple holding pen for Buffetts investments. Hes used his business acumen to produce an intricate money-making machine which takes cash from its subsidiaries and the float from its insurance businesses and reinvests it at higher rates of return, multiplying his returns
Takeway: Buffetts success will never boil down to filters or ratios. Investors who try to ape him simply by reducing his methods to dubious cashflow projections or buying any old listed household name when its stock price falls 20 per cent will never replicate Buffetts success. (Okay, rounding down roughly nobody is ever going to replicate Buffetts success, but you know what I mean).
Buffetts record suggests investors should spend as much time reading about business and management as they do calculating P/E ratios. The trouble is, all manner of financial ratios are available at a touch of a button. Buffetts sense of business value is far harder to emulate.
5. Buffet makes mistakes
He really does! I was even more heartened by Buffetts stinkers than by his golf ball robbery.
Some classic Buffett cock-ups include:
Him and his friends spending $25,000 in 1957 on four-cent Blue Eagle stamps that the US government was about to take out of circulation. By securing and controlling the supply, they destroyed any chance of the stamps becoming valuable. His partners in the caper were still mailing him with postage paid for by sheets of the stamps decades later.
He bought The Buffalo Evening News in 1977 and had lost $10 million within three years by becoming embroiled in a price war and a fight with the unions (though it later became very profitable)
Buffetts firm Berkshire Hathaway is living testament to his biggest mistake spending millions to gain control of a doomed textile manufacturer
Buying into Salomon Brothers in 1987 for $700 million eventually plunged him neck-deep into the Wall Street culture he so despised, when its rogue traders and poor management threatened his reputation and fortune
Takeaway: Mistakes happen even to the best of us. Sadly, having read The Snowball cover-to-cover I havent found a Buffett blunder to rank with my own worst investment (an iffy company called Homebuy that went bust overnight). But I saw plenty of examples where Buffett dusted himself down after an investment misfired and tried to learn from what went wrong.
Virtually all Buffetts purchases of major insurance companies seem to have gone awry in the early years, for instance, and yet its by reinvesting all the cash thrown off by these companies that Buffett has maintained Berkshire Hathaways incredible growth rate.
The moral is to not despair when an investment turns out badly, but try to figure out what you can takeaway from it, as well as what you can salvage the situation.
6. Buffett considered quitting investing in his early 30s
In 1969 Buffett wrote to his investors that he was going to close their partnerships:
I know I dont want to be totally occupied with outpacing an investment rabbit all my life. The only way to slow down is to stop. I am not attuned to this market environment, and I dont want to spoil a decent record by trying to play a game I dont understand just so I can go out a hero.
I do know that when I am sixty, I should be attempting to achieve different personals goals than those which had priority at twenty.
Takeaway: What can anyone learn from this but humility? I already knew before reading The Snowball that Buffett wound down his partnerships in 1970 because he thought the market too over-valued to deliver an adequate return for his investors. That move alone would seal Buffetts place in history among value investors, even if he had retired.
Of course, Buffett didnt retire. He is still compounding his investments at an average rate of over 20% a year, nearly four decades later.
7. Buffett treats becoming the worlds richest man as a game
I couldnt even begin to quote examples from The Snowball showing how Warren Buffett is in it for the scorecard, not for the payday: the entire biography is a testament to it.
No sports cars or private islands for Warren Buffett even when he eventually bought a corporate jet he called it The Indefensible . For decades he bought suits from the everyman outfitter nearest his office, and his biography frequently mentions (and has photographic evidence of) his favourite threadbare jumper. And famously, his main residence is the first house he bought in 1961.
From setting that goal aged 11 of becoming a millionaire by 35, Buffett seems to treat investing as an intellectual challenge. He probably learned this from his great mentor Benjaman Graham, who seemed more bothered by being right than being rich, and for whom investing was just one of several high-end hobbies.
Buffetts inner scorecard helped him save and reinvest his money early on
Unlike Graham, however, Buffett really cares about every penny. From Buffetting a few cents off the price he paid for stocks to demanding his friends sell him shares theyd bought in companies he was interested in, right up to his close personal friendship with his rival for the title of worlds richest man, Bill Gates, Buffett really wants to have the biggest snowball.
If you were to say theres something rather peculiar about chasing money as a means to an end, I could certainly see your point. But when the recipient chooses to leave virtually all $62 billion of his winnings to charity, its hard to complain. Id rather have Buffett as the worlds richest man than the Salomon traders who almost destroyed his reputation.
Takeaway: Spend less than you earn and reinvest the difference in the stock market. Buffett may have lived a remarkable life, but that central practice is something we can all aspire to.


  1. Hi Rajeev

    Any views on EPC industries. It is stuck in a range for sometime now.Moreover tradng at nearly 6 times book.


  2. very useful lessons! Thanks for sharing

  3. Hi.Rajeev,

    Can you please advise if i can add IFB Industries at these levels.


  4. ‘I don’t think low-hanging fruits are plucked yet’

    WITH the Sensex at 18,000, Rakesh Jhunjhunwala is unhesitatingly bullish. Whether it’s macroeconomic indicators, the monsoon forecast, corporate earnings or even consumer behaviour, he’s calling them all as signs of a continued upward movement. “There is tremendous opportunity and I don’t think the low-hanging fruits have been picked yet. We see new good stories coming out every year,” he told ET NOW’s Nikunj Dalmia in a one-of-a-kind interview.
    He scoffs at any suggestion that Indian equities are overpriced: “Whenever outperformance starts, there is always doubt. Everyone will downgrade India, say India is expensive, but when people see the markets are not going down and earnings are going up, everybody joins the party.” With earnings set to grow — he predicts a rate of 15-20% a year — P/E ratios are only going to go up, Mr Jhunjhunwala feels.
    So is India’s biggest bull putting his money where his mouth is? Absolutely — he may be fully invested, but “If I like the ideas, I can always fund them. I can sell something, I can borrow, there are so many things I can do.”
    Where might those ideas be? Mr Jhunjhunwala is bullish on consumer goods, agri and retail sectors — he pointed out that rural and consumer sectors are booming, and singled out two stocks he owns as good bets: VIP Industries and Rallis.
    And, of course, he reiterated his super-bullish stance on Titan Industries. “I personally feel that Titan can be an international watch brand. They have free cash flows, they can replicate worldwide or in emerging markets what they have done here. I have a lot of respect for the management, for the ethics, for their skills.”
    What would he stay away from? “I don’t like PSU banks. I trade them, but don’t make long-term investments in them,” he cautioned.

  5. Yash,
    Yes, EPC Ind is trading 6 times then BV but that shouldn't be looked upon always.
    Try to find out why market is giving high value then the BV to EPC Ind.....u will find scores of other stocks where the price is much higher then BV...and EPC ind comes in that category..the last qr results have come good..EPC Ind can also be a good takeover target...I still like it ...

  6. amar,
    IFB Ind looks still good but has runup now....I am seeing recomendation now coming for IFB Ind....The only thing I will write here is , why readers don't buy when I recomend and try to catch when it is already up over 50% where it is hard for me to initiate a buy call?
    It seems that when I give a call, people are not convinced about it and when they see it running they start running after it....never run after a stock...that is the first RULE to be successfull in stock market....Second RULE is, BUY when no one is buying.....

  7. Hi Rajeev!!

    Hope u had good time in India...
    Your reco SNL is on fire 84 now from 11-12 and still playing in bulk deals. Apart from this other one is Dujodwala products from 14-15 to 55 now and with good results it has more potential to go up.

    Thanks to you and your analysis for finding such hidden gems.


  8. Rajeevji,how are you? any views on technofab engineering, shares in public hands are very less, also they have orders booked for 600-700crores, could you please let me your view on it...


  9. Pls. advise is it right time for buying city union bank stock?


  10. sukumar,
    I do not track City Union, so no view but banking sctor as a whole looks good for LT...

  11. Hi Rajeev,

    Hats off to you once again, there is a very strong movement in SRF despite of weak results this quarter. Its a great company to have in one's portfolio. Thanks to you for bringing it to lime light. I want to bring to your notice suryavanshi spinning mills one of your reco's there is something cooking. What I am feeling is that its been accumulated and poised for shooting up..Kindly suggest.

    Have a nice day today.

    Varun :)

  12. Varun,
    SRF Ltd was always an excellent play.I have mentioned
    1)Super Sales
    2)Super Spinning
    3)Suryavanshi Spinning
    4)Suryalata Spinning
    etc many times.....
    Super Spinning looks good too to me.....It is still a buy according to me...see the latest results of Super Spinning! they are excellent..

  13. Hi Rajeev

    your opinion on cals refineries?
    I have posted same querry, but no reply from you.
    I think you missed it.

    Vishnu R Nair

  14. Vishnu,
    Cals Ref only if as you have written off that money.....for 4-5 yrs...that's all I will say.....

  15. Hi.Rajeev,

    Pardon me for my ignorance.Will definately keep a note of your recomendations going forward.Request if you can advise me any new picks which i can add at these levels.

    Thanks once again, and looking forward for your reply.


  16. Dear Rajeev,

    What happened to KLG Systel. It's in the continuous downtrend even market ups by 200 points today. Is anything fishy about the company ?

    A line of comments from you will really help.

  17. Dear Rajeev

    Please find another textile company JBF industries(CMP=147), which is giving higher divident pay every year(this time Rs 6).
    Excellant results in last 5 years.

    Please check this stock and advice your opinion


    Vishnu R Nair

  18. Viashu,
    Seems you an ardent followers is also not following my blog properly....JBF Ind is was already recomended by me at 85....

  19. Sorry Rajeev

    Actually I have seen it in your post dated Oct 2009. But its a list. I was doing my own DD(Actually I missed that counter for a while).Now I was Looking for an investment in this company after checking. Your advices were always helps me a lot.


    Vishnu R Nair

  20. Dear Rajeev

    There is a report in ET labeling 'VW, Suzuki india customers wait on parts shortage'. All major Auto companies were not able to get parts to fullfill their demand.(Mahindra made 12% fewer vehicles in the last quarter -as per report).

    Let me guess, your calls going to me more effective from hereon.

    Vishnu R Nair