Sunday, August 19, 2007

Pssst...Buffett tells his secret to his incredible fortune

At the moment, i was rereading Buffett's lecture to Notre Dame students (in spring 1991) and wanted to share some insights in Buffett's thought process....Ultimately,the key to successful investing is really quite simple but tends to get lost in the frantic noises of the Market.In the following para, Buffett explains what's really successful investing all about...

"Now if I had some rare insight about software, or something like that – I would say that, maybe, other people couldn’t do that – or biotechnology, or something. And I’m not saying that every insight that I have is an insight that somebody else could have, but there were all kinds of people that could have understood American Express Company as well as I understood it in ‘62. They may have been...they may have had a different temperament than I did, so that they were paralyzed by fear, or that they wanted the crowd to be with them, or something like that, but I didn’t know anything about credit cards that they didn’t know, or about travelers checks. Those are not hard products to understand. But what I did have was an intense interest and I was willing, when I saw something I wanted to do, to do it. And if I couldn’t see something to do, to not do anything.

By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.

That’s why Graham is so important. Graham’s book [The Intelligent Investor] talks about the qualities of temperament you have to bring to the game, and that is the game."

The link to the entire article


Thursday, August 16, 2007

Market Crash? Wait that sounds a little familiar....

The recent tumble in the stock markets brings me to reflect on one of Buffett's key tenets:Stay rational in an irrational world.Buffett has always viewed buying stocks as owning a stake in a business.So what does Buffett mean by that? Well, taking a quote from the '97 Berkshire Annual Shareholder letter, Buffett describes this aptly

"Selling fine businesses on "scary" news is usually a bad decision. (Robert Woodruff, the business genius who built Coca-Cola over many decades and who owned a huge position in the company, was once asked when it might be a good time to sell Coke stock. Woodruff had a simple answer: "I don't know. I've never sold any.)"

Now when the market is bearish,Buffett always never fails to remind us that opportunities lie ahead.In a recent interview on CNBC (Aug 15 2007), Buffett says this

"Generally speaking, when there's a certain amount of chaos in certain sections, it is unpredictable where the fallout will be, but the fallout offers some real opportunity"

In reality, to be a successful investor, one just needs to be a little patient and wait for the right time to buy pieces of fine businesses ; especially when everyone is panic selling and selling off their portfolios.For example, despite strong earnings growth in the credit card business,American Express stock is down from a 3 month high of $66 USD to about 57$ USD.Obviously, the concerns over the subprime mortgage market has hit financial stocks hard but this is irrational considering that American Express has little exposure to the subprime mortgage lending market.Now, buying a stake in a company with strong management and wide moat at a discounted price.... that sounds like a home run to me.