Friday, October 9, 2009

my favorite warren buffett quotes

As an investor, I look up to Warren Buffett and value his insights. For those who don't know him, he is an american investor and businessman, the CEO of Berkshire Hathaway. He is also the 2nd richest person in the world, with a net worth of $37 billion. Here are my favorite quotes from the Oracle of Omaha:

1. I always knew I was going to be rich. I don’t think I ever doubted it for a minute.
2. I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.
3. If you’re in the luckiest 1 per cent of humanity, you owe it to the rest of humanity to think about the other 99 per cent.
4. It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.
5. Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.
6. Of the billionaires I have known, money just brings out the basic traits in them. If they were jerks before they had money, they are simply jerks with a billion dollars.
7. Time is the friend of the wonderful company, the enemy of the mediocre.
8. A public-opinion poll is no substitute for thought.
9. Why not invest your assets in the companies you really like? As Mae West said, “Too much of a good thing can be wonderful”.
10. Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
11. Never invest in a business you cannot understand.
12. All there is to investing is picking good stocks at good times and staying with them as long as they remain good companies.
13. You should invest in a business that even a fool can run, because someday a fool will.
14. The best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago.
15. Diversification may preserve wealth, but concentration builds wealth.

Tuesday, October 6, 2009

The 5 investment pillars

A good investor limits his exposure to risk by diversifying in investments. It is like placing you money on a table with 5 legs. If in case a leg gets damaged, the table won't fall because it stands on the remaining four legs. You can even diversify further from each main investment pillar. Its like having pegs on each of the 5 legs making your investment portfolio truly dependable to whether any financial storm. You need not invest in all 5 immediately, work through each of them slowly using a determined savings plan (10% or more if you are comfortable)and before you know it, you have an enviable investment house resting on the 5 pillars.

1. Paper investments
This would include investments in mutual funds, unit investment trust funds, stocks, bonds, money market funds, treasury bills, certificates of deposit and more. These are called paper investments because well, you have a piece of paper or document as proof of your investment. These are offered by banks, asset management companies, and brokerage houses. These are liquid investments, meaning they can be converted to cash easily. Remember that these are as just as good as the institutions that offer them, so make sure you have done your research and it would be best to deal with well known, established companies.

2. Real estate
A must for any investor is to have his own house. Strive for this early since procrastination will not place a roof over your head. As soon as you have saved enough for downpayment, get a mortgage to secure your first home as real estate prices go up every year. In real estate, remember location, location, location. if you already own your home, then invest in rental properties. It could be a single family house, an apartment building, a warehouse, a strip mall or a piece of land. Location is still the foremost consideration. A neighbor of ours rents out a 2x1 meter space for P10000 a month to a barbecue vendor. Now that's a great rental property.

3. Business venture
Being an entrepreneur is also a must for any investor. Invest in a business that you are passionate about. Start small and do not quit from your day job. Do this later when you have an established business and earn profits regularly. You can sell cakes on a made to order basis; offer consultancy for a fee if you have specialized knowledge or skill; join a multi-level marketing company that sells everyday products; buy and sell farm products, cars or houses. There are so many that you can get into, some do not even require capital, just pure determination. I know a lady who buys clothes in bulk and sells them on installment to her friends and neighbors. She earns a 30% return on her capital in 4 months, not bad right?

4. Valuables
This would include jewelry like gold, silver, diamond and others; antique, paintings, coins, luxury bags and watches and many more that increases in value over time. Not all expensive stuff are considered valuables. If they depreciate over time, then they are not considered investments. Take cars, designer clothes and your flat screen TV.

5. Insurance and Pre-need plans
Educational plans, pension plans and the like offers a guaranteed return on your money at some time in the future. These are important parts of your investment strategy. Remember to deal only with established institutions. A good strategy would be to buy the least expensive policy from 3 different institutions for your pension plan. If you will be retiring 30 years from now, there is a strong chance that at least one of the three institutions would still exist.

Always do your research BEFORE placing your money in any of these 5 investment pillars. Trust your instincts, if you are not comfortable with a particular company or a particular investment type, then don't invest in it. There is no price for sleepless nights. If you are not yet ready to invest, then keep your money in a regular deposit account until you find a good area to invest in. Do not rush. After all, cash is king.

Friday, October 2, 2009

a financial mistake most business owners make

What could offer the biggest potential returns of your investment? A profitable business. It can turn P1000 into millions but it can also turn into 000. Putting some money into a business is a must for any investor. Aside from the possibility of raking in profits, having a business actually helps you understand investments better. To quote Warren Buffett, "I am a better investor because I am a businessman and a better businessman because I am an investor". When it comes to learning about finance, running a business is the best teacher. We also need to apply investing principles in our business and what I would like to emphasize is the concept of diversification. A financial mistake most business owners make is the lack of diversification. This is especially true to small business owners. Let us illustrate with the typical lechon manok business. A young entrepreneur decides to start a lechon manok stall. He has great tasting chicken, has good location and people buy it. Needless to say, the business became profitable. He then invested in another lechon manok stall and it also became profitable. After a few years, he had many stalls, some are profitable, some are not. He kept on investing his profits into more stalls selling his delicious chicken. Then came the news of a new disease that comes from poultry. Suddenly, people stopped buying his product and slowly, his business dried up. Since all of his cash comes from that particular business, he lost almost all income. Here are some points to consider. First, understand that all businesses undergo cycles. No matter how successful your business is now, there will come a time that it will undergo setbacks and experience the bottom part of a cycle. Next, never assume that your business will last forever. It is better to assume that at some point in the future, your business will go bankrupt, therefore you need to prepare when that time comes. Lastly, never put all of your eggs in one basket. This is true in business as well as in investing. A good strategy when you run a profitable business is to regularly set aside a percentage of your profits into investments like mutual funds, special deposit accounts and real estate. Do this regularly and stick to the percentage you have set. For example, if you get a net profit of P20000 for a particular month from your business. You set aside P4000 and place it in a mutual fund, set aside another P4000 and use it to expand your existing business and set P2000 to venture into another business. You then pocket the remaining P10000. Proper allocation will ensure that you have something to rely on should your business face problems later. To summarize, never pour all of your profits back into your business.

Thursday, October 1, 2009

Investing in your own home

Having a place you can call your own is one of life's great accomplishments. It is also one of the best investments you could have and for most people, their largest investment. Whether its a condo, townhouse or a single family house, possessing our own shelter should be an investor's primary investment goal. There are so many reasons why we need to aim for this. First, rent money is dead money. You pay the landlord and poof, money is gone. Whereas mortgage payments increase the equity in your property, thereby increasing the value of your investment. Next, there is a powerful psychological boost that comes with being a homeowner and this will radiate in your workplace, in your business and your life in general. Real estate prices go up in value over time. My parents invested P200,000 for a 3 bedroom house 20 years ago. A family friend recently offered 3 million pesos for it. Doubling your money every 5 years is not a bad investment, isn't it? What is very good about investing in your own home is that financial institutions are happy to lend you money to do it. Try asking for a bank loan to purchase stocks and bonds and you could get a "Is this guy crazy?" look from the loan officer. But they are all smiles when you ask for a housing loan.

I also know someone who has moved more than 20 times in a span of 8 years. He is not a wanted criminal, he just happens to be very good in selling his own home. He has pockets at least P300,000 each time he sells his place of residence. You may not want the hassle of moving that frequently but still, there's money in it. There are so many more reasons why it is a must to invest in our own home. Invest in a dwelling you can afford, it could be a good sized house and lot far from the city or a small townhouse closer to the city or a studio pad right smack in the CBD. What is important is setting your goal of having your very own place. Once you have enough savings for a downpayment; there are many options for financing your home purchase, there are banks, Pag-ibig fund and in-house financing from developers. Now let's go house shopping.