Learning from the man with the golden touch

Learning from the man with the golden touch
The Straits Times Recruit

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

  •  “Rule No. 1: Never lose money.
<br>Rule No.2: Never forget Rule No.1”. <br>
<br>Spend wisely. Buy only what you need. Ask yourself if
you can save money without compromising on value.
  • Don’t save what is left after spending; spend what is left after saving”.
<br><br>
Save for a rainy day. Put money aside for your future
goals and risks after you receive your pay,
and see how you can best invest it.
  • “Life is like a snowball. The important thing is finding wet snow (opportunities) and a really long hill (long term)”.
<br><br>
Like what Mr Buffett learned in his youth, success and
wealth take time. Make money by keeping a diversified
investment portfolio, and waiting for it to bear fruit.
  •  “You really don’t need leverage
(borrowed money) in this world much.
If you’re smart, you’re going to make
a lot of money without borrowing”. <br><br>
You will never become rich if you have to keep
paying back what you earn.
  • “Risk comes from not knowing what you’re doing”.
<br><br>
The biggest risks have the biggest payoffs. Just make
sure you know the rules before you play the game.
  • "Never depend on a single income. Make investment to create a second source."
  • "If you buy things you do not need, soon you will have to sell things you need."
  • "Do not save what is left after spending, but spend what is left after saving."
  • "Never test the depth of a river with both feet."
  • "Do not put all eggs in one basket"
  • "Honesty is a very expensive gift. Do not expect it from cheap people."
  • "You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick 'no.'"
  • "Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake."
  • "Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it."
  • "Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. "
  • "Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important."
  • "Owners of stocks, however, too often let the capricious and irrational behavior of their fellow owners cause them to behave irrationally as well. "
  • "We first have to decide whether we can sensibly estimate an earnings range for five years out or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings — which is usually the case — we simply move on to other prospects."
  • "Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long-term results than the knowledgeable professional who is blind to even a single weakness."
  • " So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm."

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."

Become a fan on Facebook