‘Bomb Cyclone’ to Hit the U.S.

Posted on by

A massive winter storm, ‘bomb cyclone’, will bring blizzard conditions, ‘life-threatening’ cold, extreme wind chills and travel headaches for large parts of the Lower 48 states

A powerful winter storm is moving across the country this week, bringing a mix of strong wind, rain and snow, including blizzard conditions, that could make travel dangerous ahead of the holiday weekend.

The developing cyclone will deliver heavy snow and blizzard conditions and downpours between Wednesday and Friday night, all coming at a time of year when more than 110 million Americans are expected to take to the roads and air. The combination of snow and wind will bring visibility down to near zero at times.

Travel could “become extremely dangerous and life-threatening, particularly in light of the bitterly cold temperatures during the height of the storm,” wrote the National Weather Service office serving Chicago.

Nearly 50 million Americans are under winter storm warnings, watches and advisories. The anticipated storm system will explosively strengthen, at a rate sufficient to qualify it as a “bomb cyclone” — which is the most intense breed of mid-latitude storms.

“In summary, this is still looking to develop as a high end, life-threatening event,” wrote the Weather Service office serving Minneapolis.

The Weather Service office serving Buffalo is calling it a “once in a generation” storm system.

The storm will drag a historically cold December air mass — sourced from Siberia — over much of the Lower 48 between late Wednesday and late Friday, sending temperatures plunging some 30 to 50 degrees below average. Readings in the teens could slosh all the way to the Gulf of Mexico, with a dangerous flash freeze turning wet roadways into sheets of ice in some areas.

More than 50 million people are also under wind chill alerts, from the Rockies to the nation’s midsection. Projected wind chills on Friday morning include: 2 degrees in Houston; minus-7 in Dallas; minus-14 in Memphis; minus-32 in Kansas City, Mo.; and minus-45 in Sioux Falls, S.D.

“Dangerously cold wind chills, as low as 50 below zero” are expected in the Dakotas, wrote the National Weather Service. “Stranded motorists will face the threat of frostbite, hypothermia and even life-threatening exposure.”

References:

  1. https://www.washingtonpost.com/weather/2022/12/21/bomb-cyclone-blizzard-arctic-blast/

Interest Rates, Cost of Capital and Recession

Posted on by

Interest rates are often called the price of money. They determine how expensive capital is to access for companies, but also for individuals and even governments. ~ Jonathan Schramm

The Federal Reserve controls what is called the federal funds rate, which is the rate banks pay to borrow from other banks. Other interest rates throughout the system are based on that rate.

When an economy is in recession or unemployment is high, the Fed lowers rates. This is meant to encourage investment and spending, pushing more money into the economy.

Inflation is a sign there is too much money in the financial system and economy. One way to reduce the monetary supply is to give people and businesses an incentive to take on less debt. A good way to do that is to raise rates. And this is just what the Federal Reserve is doing.

Interest rates affect stocks in two main ways: the impact companies’ bottom line and impact investor’s behavior.

Many companies “roll over” their debt. This means they never really pay their debt, just pay the interest and renew their old bonds with new ones. In this case, rising rates mean the new bonds will cost the company a lot more in interest expenses going forward.

Some companies are also highly reliant on cheap debt to keep afloat or grow. Others rely on customers spending on credit cards. These companies’ profits might suffer in an environment of rising rates.

This is why a rising rate environment favors skilled stock pickers. A solid balance sheet, low debt, cheap valuation, or high profitability will be very valuable in an environment of rising rates.

Higher interest rates are a disincentive for investors to plow borrowed money into asset markets. That’s one of the main reasons why stocks, cryptocurrencies, and other assets crashed in 2022.

Rising rates for borrowed money tends to cause capital flow out of markets, depressing the values of even quality companies. That hurts investors who bought at the top, especially if they bought at the top with borrowed money. For others it creates a valuable entry point.

Overall, rising interests rates and tightening the money supply are a useful tool to help bring inflation under control. But the recent interest rate increase might not have been enough and there’s probably more to come. If inflation stays high, we would need rates continue to rise to curb inflation.

The positive aspects for US investors:

  • Rising rates support a stronger dollar.
  • A strong dollar makes US imports cheaper.
  • A strong dollar support consumers’ spending by decreasing import costs.
  • Rising rates might help to keep inflation under control.

The negative aspects for US investors:

  • Currency devaluation can hurt overseas investments measured in USD.
    Overindebted companies and consumers might not be able to manage higher rates.
  • Rising rates decrease demand for big-ticket items like homes and vehicles.
  • Rising rates increase the risk of a recession.
  • Rising rates make US exporters less competitive.
  • Rising rates restrict the use of borrowed money by investors, decreasing demand for assets across the board.vehicles.
  • Rising rates increase the risk of a recession.
  • Rising rates make US exporters less competitive.
  • Rising rates restrict the use of borrowed money by investors, decreasing demand for assets across the board.

References:

  1. https://finmasters.com/rising-interest-rates-effects/

Margin of Safety

Posted on by

“A margin of safety is achieved when securities are purchased at prices sufficiently below underlying value to allow for human error, bad luck, or extreme volatility in a complex, unpredictable and rapidly changing world.” ~ Seth Klarman

Berkshire Hathaway CEO and Chairman, Warren Buffett, is known for his value investing approach, which involves finding companies that are undervalued by the market and investing in them for the long term. To invest like Warren Buffett, there are a few things you need to know.

  • First, you need to have a clear understanding of what value investing is and how it works.
  • Second, you need to be patient and be willing to hold onto your investments for the long term.
  • Third, you need to have the discipline to stick to your investing strategy even when the market is going against you.

When deciding on how to invest in a company, the first step is to determine its worth or intrinsic value. According to Warren Buffett, the best companies to buy are those that are inexpensive to buy. His investment strategy is based on a few simple principles:

  • Buy quality companies that have a competitive advantage (moat),
  • Buy them at a reasonable price with a margin of safety, and
  • Hold them for the long term.

These principles of margin of safety have helped Buffett generate incredible returns over his career. Margin of safety is a strategy that involves investing only in securities at a significantly lower intrinsic value than their market price.

The margin of safety (MOS) allows investors to avoid overpaying for an investment or asset, and it protects investors from the potential of loss if the market price of the asset falls. Buffett has said that the margin of safety is the key to his investing success.

The margin of safety is a measure of how much room there is between the price of the stock and its inherent value. The wider your margin of safety, the less likely it is that overly optimistic valuation inputs will harm your investment.

Value investing is the process of making investment decisions using margin of safety. It is critical for value investors to find a high-quality, easy-to-understand company with good management priced below its intrinsic value.

The purpose of using a margin of safety in buying is twofold.

  • If your investment does not grow as quickly as you originally anticipated, you may be forced to make more conservative investments in your portfolio. If your estimates are correct, you will be able to achieve a better rate of return over time due.
  • If you purchased the investment at an extremely low price.

Discounted cash flow (DCF) is a method of valuing a company or asset using the principles of time value of money.

The objective of DCF is to find the value of an investment today, given its expected cash flows in the future. One popular way to value a company is using the discounted cash flow (DCF) method. This approach discounts a company’s future expected cash flows back to the present day, using a required rate of return or “hurdle rate” as the discount rate. The idea is that a company is worth the sum of all its future cash flows, discounted back to the present.

The DCF formula is: Value of Investment = Sum of (Cash Flow in Year / (1 + Discount Rate)^Year)

The “discount rate” is the required rate of return that an investor demands for investing in a company. This rate is also known as the “hurdle rate.” There are two ways to calculate the discount rate.

There are two ways to calculate the discount rate.

The first is the weighted average cost of capital (WACC). This approach considers the cost of all the different types of capital that a company has, including debt and equity.

The second way to calculate the discount rate is the discount rate for equity. This approach only considers the cost of equity, which is the return that investors demand for investing in a company.

Once the discount rate is determined, the next step is to estimate the cash flows that a company is expected to generate in the future. These cash flows can come from a variety of sources, including operating income, investments, and financing activities. After the cash flows have been estimated, they need to be discounted back to the present using the discount rate.

The present value of the cash flows is then the sum of all the future cash flows, discounted back to the present.

“If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you’d need. If you’re driving a truck across a bridge that says it holds 10,000 pounds and you’ve got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it’s over the Grand Canyon, you may want a little larger margin of safety.” ~ Warren Buffett

References:

  1. https://www.merchantshares.com/margin-of-safety-the-key-to-warren-buffetts-investing-success/
  2. https://www.merchantshares.com/the-dcf-method-of-valuing-a-company/
  3. https://www.merchantshares.com/how-to-win-warren-buffett-39/

Blockchain and Cryptocurrency Scam / Ponzi Scheme

Posted on by

“Cryptocurrencies are like ‘pet rocks’.” ~ Jamie Dimon, CEO and Chairman, J P Morgan Chase

A blockchain is a digital ledger associated with an asset, recording the history of that transaction in that asset…who bought it and from whom. In other words, blockchains are simply append-only spreadsheets maintained across decentralized “peer-to-peer” networks, writes Sohale Andrus Mortazavi, in an article entitled “Cryptocurrency Is a Giant Ponzi Scheme”.

What distinctive about blockchain is that the ledgers are supposed to be decentralized: they aren’t sitting on the computer ‘or ledger’ of a single bank or company. They are in the public domain, sustained by protocols that induce many people to maintain records on many servers.

Cryptocurrency blockchains allow users to maintain a shared ledger of financial transactions without the need of a central server or managing authority. Users are thus able to make direct online transactions with one another as if they were trading cash.

Cryptocurrency blockchains generally don’t allow previously verified transactions to be deleted or altered. The data is immutable. Updates are added by chaining a new “block” of transaction data to the chain of existing blocks.

In theory, blockchain and cryptocurrencies were supposed to offer a lower cost and more secure method to keep track of transactions. But, cryptocurrencies don’t produce anything of material value. Investors can only cash out by selling their digital coins to other investors.

Which makes them an experiment in the “greater fool” theory of investing, in which investors attempt to profit on overvalued or even worthless assets by selling them on to the next “greater fool”. Price manipulation plays as much or more of a role than demand in driving prices higher.

Furthermore, the parent company of Tether and Bitfinex, is printing tethers from thin air and using them to buy up Bitcoin and other cryptocurrencies in order to create artificial scarcity and drive prices higher. Sam Bankman-Fried’s company FTX imploded due to similar fake proprietary tokens artificially inflating and propping up risky trades by FTX’s affiliate Alameda.

Tether has effectively become the central bank of crypto. Like central banks, they ensure liquidity in the market and even engage in quantitative easing — the practice of central banks buying up financial assets in order to stimulate the economy and stabilize financial markets. The difference is that central banks, at least in theory, operate in the public good and try to maintain healthy levels of inflation that encourage capital investment. By comparison, private companies issuing stablecoins are indiscriminately inflating cryptocurrency prices so that they can be dumped on unsuspecting investors (greater fools).

Cryptocurrency has been one of the greatest destroyers of wealth in the financial history of mankind. ~ Jay Adkisson

This renders cryptocurrency not merely a bad investment or speculative bubble but something more akin to a decentralized Ponzi scheme. Unbacked stablecoins are being used to inflate the “spot price” — the latest trading price — of cryptocurrencies, like Bitcoin, to levels totally disconnected from reality. If cryptocurrency and NFT markets cannot keep luring in enough new money or capital becomes to expensive due to rising interest rates to cover the growing costs of mining (think Ponzi scheme), the scheme will become unworkable and financially insolvent.

Cryptocurrency has been one of the greatest destroyers of wealth in the financial history of mankind, writes Jay Adkisson, in Forbes.

“Many Bitcoin promoters are simply shilling and attempting to pump the price of Bitcoin up because they themselves are invested in cryptocurrency companies.” ~ Jay Adkisson

“It is hard to imagine cryptocurrency being a suitable investment for all but those who are sufficiently wealthy that they can burn wads of cash off a bridge and not be distressed by it,” writes cryptocurrency watcher Charles Padua. Many Bitcoin promoters are simply shilling and attempting to pump the price of Bitcoin up because they themselves are invested in cryptocurrency companies.

Bottomline, Bitcoin itself may not be a total fraudulent scam, but how Bitcoin and all cryptocurrencies are being promoted and sold by its legions of ‘conflict of interest’ advocates to the average retail investor is the definition of a scam and Ponzi scheme.

References:

  1. https://jacobin.com/2022/01/cryptocurrency-scam-blockchain-bitcoin-economy-decentralization
  2. https://www.forbes.com/sites/jayadkisson/2018/11/20/the-great-cryptocurrency-scam/?sh=fc556be359fe

Inflation is Bad

Posted on by

Inflation is an economic term used to describe rising prices and a loss of purchasing power over time.

Written by Geoff Williams for Forbes Advisor

Inflation is an economic term used to describe rising prices of goods and services, and a loss of purchasing power over time. It occurs when consumers spend more on the same amount of goods and services today than they did a year ago, writes Geoff Williams, a contributor for Forbes Advisor. It is typically expressed as the annual change in prices for everyday goods and services such as food, apparel, transportation and toys.

When everybody pays more and gets less for it, it can have some profoundly devastating effects on the economy—and some consumers get hurt more than others.

“In every economic environment, there are winners and losers and inflation is no exception.  However, the longer high inflation persists, the harder it is to find winners,” says Jeanette Garretty, chief economist at Robertson Stephens, a wealth management firm. “Ultimately, high inflation seeps into the nooks and crannies of every balance sheet and income statement.”

There are three primary types of inflation:

  • Demand-pull inflation
  • Cost-push inflation
  • Built-in inflation

Right now, the country is dealing with all three major types of inflation, which is rare, according to Christopher Blake, assistant professor of economics at Oxford College of Emory University.

Demand-Pull Inflation – Demand-pull inflation describes how demand for goods and services can drive up their prices. If something is in short or disrupted supply, you can generally get people to pay more for it.

The U.S. is experiencing demand-pull inflation due to wages rising and Americans having a decent amount of money in their savings accounts, Blake explains, although some consumers are starting to empty those accounts.

“Consumer spending has remained high, despite the rising prices we currently see,” Blake says. “This is commonly referred to as demand-pull inflation, as consumer demand pulls prices higher because firms cannot keep up.”

Cost-Push Inflation – Cost-push inflation often kicks in when demand-pull inflation is going strong. When raw materials costs increase for businesses, the businesses in turn must raise their prices, regardless of demand.

“Increases to the prices that producers face put businesses in a tough spot,” Blake says. “They can either accept higher costs and keep their prices the same, or they can respond by trying to keep their profit margins the same.”

When the price of chicken keeps going up, for example, eventually your favorite restaurant will need to charge more for a chicken sandwich.

Built-in Inflation – As demand-pull inflation and cost-push inflation occur, employees may start asking employers for a raise. If employers don’t keep their wages competitive, they could end up with a labor shortage.

If a business raises workers’ wages or salaries and tries to maintain profit margins by raising prices, that’s built-in inflation.

Now, if you learn about your favorite coffeehouse raising prices due to the climbing cost of coffee beans, you’re a victim of cost-push inflation.

And if you’re going to buy that coffee even though the price is uncomfortably high, you’re engaging in demand-pull inflation.

3 Ways Inflation Hurts Consumers and the Economy

1. Less Purchasing Power

The most obvious impact of inflation is that it hurts your purchasing power. If you can’t buy as many goods and services as you did before inflation, your quality of living will eventually diminish.

Less purchasing power really hurts families that were already experiencing financial hardship. “Think more money spent on groceries and gasoline, and less spent on travel and entertainment,” says Angelo DeCandia, a professor of business at Touro University.

“Inflation hits the lowest-income families harder because items such as gasoline and food make up a much larger portion of their budgets, leaving less for discretionary spending,” says Dan North, senior economist at trade credit insurer Allianz Trade. “So, for example, where they used to have money to go out to dinner, even fast food, or [go to the] the movies once a month, now they won’t at all.”

A 2021 study from the University of Pennsylvania found that lower-income households had to spend about 7% more on goods and services last year compared to 2019 or 2020, while higher-income households had to spend 6% more. Remember, the annual rate of inflation for 2021 was 4.7%.

2. Less Savings

If rising prices for essentials is eating into your budget more than normal, you probably aren’t putting as much money into a savings account. A June 2022 Forbes Advisor-Ipsos survey found that 42% of respondents were saving less money than usual.

“Inflation makes all of our income and savings less valuable,” says Todd Steen, professor of economics at Hope College in Holland, Michigan.

If you’re not able to save as much as you used to, you may be less prepared for financial emergencies, forcing you to rely on costly credit cards or loans to pay unexpected bills.

And even if you have money in savings already, that decreased purchasing power means your emergency fund might not stretch enough to cover a financial crisis during an inflationary period.

If you have $1,000 socked away for a rainy day, you’re certainly better off than not having it. But here’s an example of how inflation can eat at the value of your savings.

Car repair prices went up 9% from June 2021 to June 2022 according to the CPI. If you had a $900 car repair in June 2021, in June 2022, that same car repair would have been $981. Suddenly your $1,000 saved up is a little less valuable.

“Inflation is a difficult problem to get rid of in an economy, because when prices increase, workers want to have higher wages and salaries to keep up,” he says. “This can lead to future price increases, and the cycle continues.”

3. Loss of Goods and Services

Some industries do pretty well during inflationary times, particularly ones in which you can’t hold off your spending indefinitely, like supermarkets, gas stations and funerals—but some businesses are completely devastated.

That’s because when inflation runs rampant, consumers spend their money on products and services that they absolutely need, and hold back on what they don’t.

You’re going to get your car repaired if you need it. You’ll keep spending money on food.

But you might not take your kids to a trampoline park. You might instead opt for a free city playground with the youngsters, instead. Decisions like that are understandable when prices are high but collectively, they can damage segments of the economy.

“That could mean your favorite pizza place closes, or your nail salon drops a service because it’s become too costly,” says Callie Cox, an investment analyst at eToro.

The renown economist Milton Friedman quipped that inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced
only by a more rapid increase in the quantity of money supply than in output of goods and services. Consequently, empirical evidence suggest that, if growth in the money supply is greater than the actual growth in GDP, inflation results.

References:

  1. https://www.forbes.com/advisor/personal-finance/why-is-inflation-bad/
  2. https://www.nytimes.com/article/inflation-definition.html
  3. https://www.forbes.com/advisor/personal-finance/types-of-inflation/
  4. https://www.caixabankresearch.com/en/economics-markets/inflation/inflation-merely-monetary-phenomenon

Focus, Discipline and Patience are Wealth Building Super Powers!

Consumer Price Index Jumped 7.1% in November

Posted on by

The consumer price index (CPI), a key inflation barometer, jumped by 7.1% in November from a year earlier, the U.S. Bureau of Labor Statistics (BLS) reported. The CPI measures the year-to-year change in prices paid by consumers for housing, food and fuel. The BLS uses the CPI to track price changes for 80,000 goods and services.

In November, inflation moderated from its recent 9.1% peak in June 2022 but still remain higher than any point since the early 1980s. Consumer prices for goods and services have been rising at their fastest rate in four decades.

Although economists expected in November a 7.3% annual increase in inflation, a decline in the annual inflation rate doesn’t mean prices fell for goods and services; it just means prices aren’t rising as quickly.

How to Protect Your Money from Inflation

When inflation is rising at a rate higher than normal, here are steps you can take to protect the purchasing power of your dollars.

  • Trim your expenses. To minimize the impact of inflation, review your spending and identify areas to reduce or eliminate completely. It will free up money to invest so you can be better prepared for the future.
  • Wait to pay off low-interest debt. Paying off debt is usually good, but you may want to hold off on making extra payments if you have low-interest debt. Your debt becomes less expensive due to inflation. The extra money may be better used for other purposes—like paying off higher-interest loans.
  • Invest your money. Inflation causes your savings to be worth less over time. To hedge against inflation, you need to invest your money in the stock market. If the prospect of investing is scary, consider a diversified portfolio of index funds to lower your risk levels.

Inflation has ruined everything from going out to buying holiday presents, but, as recent signs show, it may finally be starting to cool in at least some segments of the economy. For example, gas prices are dropping very quickly.

References:

  1. https://www.forbes.com/advisor/investing/is-inflation-good-or-bad/

Are American Consumers in a Recession?

Posted on by

Over the past few months, supply-chain headwinds, inflationary pressures, inverted U.S. Treasury bond yield curve, and rising interest rates has added friction to the U.S. economy and to business operations across industries.

Consequently, investors have become extremely pessimistic about the economic outlook and stock market sentiment, which both are expected to witness a downturn in 2023 amid the impending prospects of a recession.

Per JPMorgan Chase, rising interest rates, record decades high inflation, geopolitical pressure and other factors could lead to a recession that will likely wash away the benefits of savings and the massive government aid received during the pandemic. Moreover, the job market is expected to downshift significantly and unemployment is projected to increase next year as the economy weakens.

A growing number of companies are opting to leave jobs vacant when employees leave or announcing hiring freezes. Widespread layoffs so far have been limited to the handful of industries hammered by rising interest rates, such as technology, housing and finance, say Mark Zandi, chief economist of Moody’s Analytics, and Jim McCoy, senior vice president of talent solutions for ManpowerGroup, a staffing firm.

The Federal Reserve, by increasing its benchmark interest rate to counter inflation, has raised the possibility of a downturn next year. Some experts believe that the Federal Reserve’s bid to contain inflation by increasing interest rate and tightening the money supply will likely achieve its target but put pressure on the consumer’s wallet and potentially trigger a recession in 2023.

Fifty-seven percent of the National Association for Business Economics (NABE) economists see more than a 50% chance of recession next year, according to the results of a new survey published by NABE. The survey pointed to the Federal Reserve’s continued raising the federal funds rate and tightening of monetary policy in an effort to tame inflation as the biggest challenge facing the economy.

Additionally, Gregory Daco, chief economist of EY-Parthenon, expects a recession to hit by the first half of 2023 as hiring slows and layoffs spread across industries, leading to net job losses for the year. He expects the economy to grow just 0.3% for the full year and unemployment to peak at 5.5%.

Many Americans believe that the U.S. economy and the global economy are already in a recession. However, with consistently strong job growth, historically low unemployment and solid growth in consumer spending, that doesn’t sound like a recession most people would remember.

But, a recession is in the eyes of the beholders. Essentially, “It depends on who you ask,” says Capital Group economist Jared Franz. “With food, energy and shelter prices all rising faster than wages, the average American consumer would probably say yes. In my view, we are either on the edge of a recession or we are already tipping into it.”

To put things in perspective, over the past 70 years the average U.S. recession has lasted about 10 months and resulted in a GDP decline of 2.5%. In Franz’s estimation, the next one may be worse than average, if current trends persist, but still less severe than the Great Recession from December 2007 to June 2009.

Key economic indicators point to a potential recession

Sources: Capital Group, Bureau of Economic Analysis, National Bureau of Economic Research, U.S. Department of Commerce.

The official arbiter of U.S. recessions, the National Bureau of Economic Research (NBER) considers many factors beyond GDP, including employment levels, household income and industrial production. Since NBER usually doesn’t reveal its findings until six to nine months after a recession has started, we may not get an official announcement of an economic recession until next year.

“It’s fair to say that most consumers probably don’t care what NBER thinks,” says Capital Group economist Jared Franz. “They see inflation above 9%, sharply higher energy prices and declining home sales. They feel the impact of those data points. The labor market is one of the only data points that isn’t signaling a recession right now.”

References:

  1. https://www.cnbc.com/2022/12/06/recession-walmart-jpmorgan-gm-ceos-talk-about-possible-slowdown.html
  2. https://www.msn.com/en-us/money/markets/is-a-2023-recession-coming-job-growth-likely-to-slow-sharply-companies-brace-for-impact/ar-AA159tMa
  3. https://www.foxbusiness.com/economy/labor-market-may-skirt-us-recession-nabe
  4. https://www.capitalgroup.com/advisor/insights/articles/is-us-already-in-recession.html

Warren Buffett’s Investing Top Four

Posted on by

“Don’t look at a stock like it is a ticker symbol with a price that goes up and down on a chart. It’s a slice of a company’s profits far into the future, and that’s how they need to be evaluated.” ~ Warren Buffett, Chairman and CEO, Berkshire Hathaway

Warren Buffett’s philosophy is simple. Buy with a “margin of safety” undervalued companies with strong fundamentals and balance sheet, and then wait. It’s possibly the most boring way to invest in the world. But it’s effective.

For Warren Buffett, deciding what stocks to buy is “simple but not necessarily easy,” according to CNBC Warren Buffett Guide to Investing.

In his Berkshire Hathaway 1977 annual letter to shareholders, he listed four attributes he wanted to see when investing, whether he’s buying the entire company for Berkshire, or just a slice of it as a stock.

1. “One that we can understand…”

When Buffett talks about “understanding” a company, he means he understands how that company will be able to make money far into the future.

He’s often said he didn’t buy shares of what turned out to be very successful tech companies like Google and Microsoft because he didn’t understand them. At the 2000 annual meeting, a skeptical shareholder told Buffett he couldn’t imagine him not understanding something. Buffett responded, “Oh, we understand the product. We understand what it does for people. We just don’t know the economics of it 10 years from now.”

2. “With favorable long-term prospects …”

Buffett often refers to a company’s sustainable competitive advantage, something he calls a “moat.”

“Every business that we look at we think of as an economic castle… And you want the capitalistic system to work in a way that millions of people are out there with capital thinking about ways to take your castle away from you, and appropriate it for their own use. And then the question is, what kind of a moat do you have around that castle that protects it?”

— 2000 BERKSHIRE ANNUAL MEETING

A “moat” consists of things a company does to keep and gain loyal customers, such as low prices, quality products, proprietary technology, and, often, a well- known brand built through years of advertising, such as Coca-Cola. An established company in an industry that has large start-up costs that deter would be competitors can also have a moat.

3. “Operated by honest and competent people …”

“Generally, we like people who are candid. We can usually tell when somebody’s dancing around something, or where their — when the reports are essentially a little dishonest, or biased, or something.

And it’s just a lot easier to operate with people that are candid.

“And we like people who are smart, you know.

I don’t mean geniuses… And we like people who are focused on the business.” — 1995 BERKSHIRE ANNUAL MEETING

The quality of the business itself, however, takes precedence.

“The really great business is one that doesn’t require good management. I mean, that is a terrific business. And the poor business is one that can only succeed, or even survive, with great management.” — 1996 BERKSHIRE ANNUAL MEETING

4. “Available at a very attractive price.”

“The key to [Benjamin] Graham’s approach to investing is not thinking of stocks as stocks or part of a stock market. Stocks are part of a business. People in this room (Berkshire shareholders) own a piece of a business. If the business does well, they’re going to do all right as long as they don’t pay way too much to join into that business. — 1997 BERKSHIRE ANNUAL MEETING

Buffett’s goal is to buy with a “margin of safety” or when the market price is below a company’s “intrinsic value.” Buffett has said that the margin of safety is the “most important concept in investing.”

“The three most important words in investing are margin of safety…” ~ Warren Buffett

“The intrinsic value of any business, if you could foresee the future perfectly, is the present value of all cash that will be ever distributed for that business between now and judgment day.

“And we’re not perfect at estimating that, obviously.

“But that’s what an investment or a business is all about. You put money in, and you take money out.

“Aesop said, ‘A bird in the hand is worth two in the bush.’ Now, he said that around 600 B.C. or something like that, but that hasn’t been improved on very much by the business professors now.” — 2014 BERKSHIRE ANNUAL MEETING

References:

  1. https://fm.cnbc.com/applications/cnbc.com/resources/editorialfiles/2022/03/22/bwp22links.pdf

Focus, Discipline and Patience are Wealth Building Super Powers!

Gratitude

Posted on by

“I have every possession I want. I have a lot of friends who have a lot more possessions. But in some cases, I feel the possession possesses them, rather than the other way around.” ~ Warren Buffett

Never allow all the things you selfishly covet or you want make you forget about all the things you have or currently possess. Put a little gratitude in your life today and be thankful for all you already possess.

Moreover, happiness doesn’t mean everything is pleasing or perfect. Instead, happiness means that you can choose to see beyond the problems and imperfections, and embrace an attitude of gratitude.

The endless pursuit of hollow amenities and fruitless assets that barely add any value to your life are often so intoxicating that people loose sight of things that truly make them happy and bring them joy such as personal relationships, joy and peace in abundance.

“Sometimes you have to stop staring at your problems and start seeing how beautiful life really is.” ~ Anonymous

Don’t wait for great. Be Great everyday! Don’t allow a little negativity keep you from feeling grateful for everything that is going right and for everything that is good and pleasing in your life.

Gratitude must become a 24 hour / 365 day mindset, so that you don’t take what you have for granted.

Research shows that gratitude can:

  • Help you make friends. One study found that thanking a new acquaintance makes them more likely to seek a more lasting relationship with you.
  • Improve your physical health. People who exhibit gratitude report fewer aches and pains, a general feeling of health, more regular exercise, and more frequent checkups with their doctor than those who don’t.
  • Improve your psychological health and emotional well-being. Grateful people enjoy higher wellbeing and happiness and suffer from reduced symptoms of depression.
  • Enhance empathy and reduces aggression. Those who show their gratitude are less likely to seek revenge against others and more likely to behave in a prosocial manner, with sensitivity and empathy.
  • Improve your sleep. Practicing gratitude regularly can help you sleep longer and better.
  • Enhance your self-esteem. People who are grateful have increased self-esteem, partly due to their ability to appreciate other peoples’ accomplishments.
  • Increase in mental strength. Grateful people have an advantage in overcoming trauma and enhanced resilience, helping them to bounce back from highly stressful situations.

References:

  1. https://positivepsychology.com/gratitude-exercises/

May you have Peace, Joy and Patience in Abundance!

988 Suicide and Crisis Lifeline

Posted on by

The National Suicide Prevention Lifeline is now: 988 Suicide and Crisis Lifeline.

988 has been designated as the new three-digit dialing code that will route callers to the National Suicide Prevention Lifeline (now known as the 988 Suicide & Crisis Lifeline), and is now active across the United States.

The Lifeline provides 24/7, free and confidential support for people in distress, prevention and crisis resources for you or your loved ones, and best practices for professionals in the United States.

When people call, text, or chat 988, they will be connected to trained counselors that are part of the existing Lifeline network. These trained counselors will listen, understand how their problems are affecting them, provide support, and connect them to resources if necessary.

The previous Lifeline phone number (1-800-273-8255) will always remain available to people in emotional distress or suicidal crisis.

How To Take Care Of Yourself

If you’re struggling, you can call or chat with the Lifeline, which is available 24/7 and confidential. There are crisis counselors available to listen and support you without judgment. Additionally, if you’re struggling, you can:

Make a safety plan: Have a step-by-step plan ready for if/when you feel depressed, suicidal, or in crisis, so you can start at step one and continue through the steps until you feel safe. Creating a safety plan can include listing your coping strategies, identifying the people in your life that may support you through a crisis, and more.

Limit your news consumption. The constant replay of news stories about traumatic events can increase stress and anxiety. Try to reduce the amount of news you watch, read or listen to, and engage in relaxing activities instead.

References:

  1. https://988lifeline.org
  2. https://988lifeline.org/help-yourself/black-mental-health/