Learning from the man with the golden touch

Knowledge is priceless and that's why there is such a thing like a million-dollar lunch.

Recently, a man in Singapore won the chance to dine with American billionaire Warren Buffett in an online charity auction.

The fact that the man, called Andy Chua, would fork out US$2.17 million (S$2.71 million) just to have a private lunch with the world's third richest man is testament to Mr Buffett's reputation as a legendary investment guru.

A young genius

Warren Edward Buffett was born on 30 August, 1930, in Omaha, Nebraska, the second child out of three children, and the only boy. His father was a stockbroker and a US Congressman, while his mother was a homemaker.

Mr Buffett displayed extraordinary financial acumen at an early age, and was described by friends as something of a mathematical prodigy who was able to add large columns of numbers in his head - something which he still does today.

As a child, Mr Buffett often helped his stockbroker father chalk in stock prices on a blackboard at his office. At age 11, he bought three shares of Cities Service Preferred at $38 per share. "I made my first investment at age 11. I was wasting my life up until then."

The price then dropped, but Mr Buffett held on until the price rose to $40, and quickly sold the shares for a small profit.

However, the price later rose to $200 a share. Mr Buffett has often cited this incident when talking about the importance of patience while investing.

20 tips from Warren Buffett

Click on thumbnail to view. Story continues after photos. Photos: AFP, Reuters, Bloomberg

  • “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.”
  • “To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses – How to Value a Business, and How to Think About Market Prices.”
  • “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
  • "No advisor, economist, or TV commentator -- and definitely not Charlie nor I -- can tell you when chaos will occur. Market forecasters will fill your ear but will never fill your wallet."
  • “What’s required is thinking rather than polling. Unfortunately, Bertrand Russell’s observation about life in general applies with unusual force in the financial world: “Most men would rather die than think. Many do.”
  • “After all, you only find out who is swimming naked when the tide goes out.“
  • “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.”
  • Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
  • “Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock."
  • You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. "
  • “When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”
  • “I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.“
  • “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.”
  • “The stock market is a no-called-strike game. You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’”
  • “Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it’s the lack of change that appeals to me. I don’t think it is going to be hurt by the Internet. That’s the kind of business I like.”
  • “Long ago, Ben Graham taught me that ‘Price is what you pay; value is what you get.’ Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.“
  • “Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome)."
  • “Rule No. 1: never lose money; rule No. 2: don’t forget rule No. 1″
  • “I am a better investor because I am a businessman, and a better businessman because I am no investor.”
  • “Time is the friend of the wonderful business, the enemy of the mediocre.”

Two years later, at the age of 13, the enterprising Mr Buffett was already running his own businesses - as a paperboy and selling his own horseracing tip sheet.

During his tenure at Woodrow Wilson High School after his family had moved to Washington D.C., Mr Buffett and his friends even bought a used pinball machine for $25, installing it in a barbershop.

They soon made enough money to buy three machines, before Mr Buffett sold them away to a war veteran for $1,200.

Saved a fair bit

Mr Buffett enrolled at the University of Pennsylvania at the age of 16 to study business. Two years later, he moved to the University of Nebraska- Lincoln - graduating with a Bachelor of Science in business administration.

He was rejected by Harvard Business School, but decided to enrol at Columbia Business School after learning that well-known securities analysts, Benjamin Graham (the author of The Intelligent Investor, one of Mr Buffett's favourite investment books) and David Dodd taught there. Mr Buffett earned a Master of Science in economics in 1951.

He shared: "The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety.

That's what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing."

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