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Showing posts from March, 2012

a framework for investing in the stock market

Warren Buffett famously said: "To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework."

A big reason why I blog is to preserve the framework I use. Reading past entries allow me to revisit the ideas from various sources that have influenced my investing style. When it comes to putting money in the stock market, here are some guidelines:

1. assess the management - If you manage your own business, you know for a fact that no one could possibly do it better than you. But when it comes to companies whose stock you would like to buy, how do you know that management is doing their best. Check if they have achieved previously stated objectives, check measurements like earnings per share growth and revenue growth, check surveys that publish the most admired and well managed Phili…

living rich vs being wealthy

They may sound similar at first, but there is a big difference between living rich and being wealthy. Living rich is what most people aspire to. Live in a big house, drive a fancy car, go on expensive holidays and have all the trappings of life money can buy. Unfortunately, however, someone has to pay for it. Most likely by slaving away in the corporate world and sacrificing a big portion of your time to earn cash which you spend freely. Therefore you need to exert more effort as years go by since money flows out as fast as it comes in. You live in fear of losing your source of income because you are so used to living the high life.

Being wealthy means living below your means. This means driving a used car, living in a mid size home, staying at a 3 star hotel, buying things when they are on sale. This allows you to save your excess earnings and invest them in assets that appreciate in value. Over time, these assets will grow and eventually provide you with income. You then don't ha…

defensive investing advice from Dr. Doom

I would like to share a reading from one financial newspaper who interviewed Dr. Marc Faber a.k.a Dr. Doom. He often appears in the media with a very bearish outlook, hence the nickname. But I for one liked what he had to say about investing during these volatile times. Basically, his advice is very similar to Browne's permanent portfolio, which I have shared previously. Dr. Faber is advising investors to spread their investments into:

25% stocks
25% cash and bonds
25% precious metals
25% real estate

Not a bad asset allocation strategy. Its simple to follow and you only need to rebalance your investments from time to time to compensate for those that have increased or decreased in value. Particularly this time when Philippine stocks are at a record high and gold is still above $1600 an ounce. Perhaps the next several investments you can make would go to cash or real estate. Happy investing!

angel in the marble

Many speakers often use this story and it can be applied to different situations. I for one find it very relevant to investing. The story is about how Michelangelo created the statue of an angel in the Basilica of San Domenico in Bologna. He said, "I saw the angel in the marble and carved until I set him free." While everyone else sees a block of marble, Michelangelo has the vision of a beautiful artwork and he made it a reality. This mindset is what separates great artists such as him from mediocre ones. I believe this is what separates successful investors from those who lose as well.

Good investors "see the angel in the marble". They see the future potential of their investments, even if most people don't and they have the patience to wait for that potential to be realized. It could be a stock whose price is driven down by temporary setbacks, or a block of land in the middle of nowhere with tourism prospects, or a business idea that others dismiss as ridiculo…