- the very wealthy are different from you and me...the oddest being the code of silence that they demand of family and friends page 15
- like any sophisticated collector, was very careful about the price he was willing to pay for one of those trophy businesses. In fact, the price for the business absolutely determined whether he would buy it. page 18
- In the process I will become, like Warren, an intelligent investor. page 19
- Folly and discipline are the key elements of Warren Buffett's philosophy of investing - other people's follies and Warren's discipline. pge 21
- Warren is the only billionaire who made it to the Forbes list of four hundred richest Americans solely by investing in the stock market. pg 21
- Determining a business's intrinsic value is a key to deciphering Warren's investment philosophy. To Warren the intrinsic value of an investment is the projected annual compounding rate of return the investment will produce. page 22
- It is this projected annual compounding rate of return that Warren uses to determine if the investment makes business sense. What Warren is doing is projecting a future value for the business, say, ten years out; then he compares the price he going to pay for the business against the business's future, projected value, and the length of time required for the business's future, projected value, and the length of time required for the business reach that projected value. pg 23
- Warren focuses on the predictability of future earnings; and he believes that without some predictability of future earnings, any calculations of a future value is mere speculation, and speculation in an invitation to folly. page 23
- Warren's great secretes for successful investing from a business perspective are
1) predictable earnings
2) favorable economies
3) consistent factors
4) purchase price
5) price patience
6) expect 15%+ annual pounding ROI
7) OPM - others people's money
https://www.nerdwallet.com/banking/calculator/compound-interest-calculator
- investment is most intelligent when it is most businesslike page 27
- He will discus the details of his philosophy only with members of his family and inner circle. To the rest of the world he feeds tidbits, and then only enough to pique interest. page 29
- Warren is also willing to hold a stock forever as long as the economies of the business remain at least the same as when he bought it. This ensures that he will benefit from the compounding effect of the retained earnings. It ensures also that he will avoid the profit-eroding taxes that would be imposed if he sold his investment. page 30
- a business perspective on investing is more about discipline than philosophy, and once the concept is understood, it demands absolute devotion... It is a discipline that tends to tell the investor as much if not more what not to buy as to what to buy. page 31
- a business venture that you anticipate will in five to ten years produce for you an annual compounding rate of return of 15% or better page 32
- You will learn that diversification is something people do to protect themselves from their own stupidity, not because of investment savy page 32
- You will learn that a $1,500 per share stock may be cheap and a $2 stock may be grossly expensive page 32
- It means that one stops thinking of the stock market as as end unto itself and begins thinking about the economies of ownership of those businesses that the common stock represent page 33
- But common stocks are in fact tangible representations of the equity owner's interest in a particular business page 33
- Warren's chief idea is to buy excellent businesses at a price that makes business sense...making business sense means that the venture invested in will offer you, the investor, the highest predictable annual compounding rate of return possible with the least amount risk. page 33
- So if a company earns $5 a share and Warren owns one hundred share of the company, he is of the opinion that he just earned $500 ($5 x 100 = $500)...he also believes that the company has the choice of either paying that $500 out to him via a dividend or retaining those earnings and reinvesting them for him, thus increasing the underlying value of the company. page 35
- In the early eighties the stock of Warren's holding company, Berkshire Hathway, traded at $500 a share. Today it trades at around $45,000 a share, and it still has never paid a dividend. page 35
- Warren believes also that since dividends are taxed as personal income, there is a tax incentive to letting the corporation retain all its earnings page 36
- Warren places a great amount of weight on the quality of a company's management when he makes his investment decisions. page 37
- A $10 per share asking price for the company's stock against annual net per share earnings of $2 a share equates to a rate of return of 20%. Understand, though, that the integrity of the calculation is wholly dependent upon the predictability of the company's earnings.
- In real life, if you were to buy a local business you would want to know how much it earned each year and how much it was selling for. With those two numbers you could calculate the annual rate of return on your prospective investment by simply dividing the business's yearly earnings by its asking price page 38
- The price you pay determines your rate of return page...the higher the price, the lower the rate of return. The lower the price, the higher the rate of return. Pay more, get less. Pay less, get more page 40
- We can even figure out the annual compounding rate of return on an investment if we know (1) the present value, (2) the future value, and (3) the holding period of the investment.
- Three variables when using Warren's system
1) the yearly per share earnings figure
2) its predictability
3) the market price of the security page 42
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