Article: Ray Dalio Explains the Economy

http://blogs.wsj.com/moneybeat/2013/09/23/ray-dalio-explains-the-economy-for-free/

Ray Dalio would like to explain the economy to you.

Mr. Dalio, the founder of Bridgewater Associates and whose $13 billion net wealth placed him 31st on the Forbes 400 list, produced the following half-hour video. He explains debt cycles, booms, busts, bubbles, recessions, deleveraging, and how the economy gets itself into trouble. This take on the economy, Mr. Dalio tells us, is what he uses to help guide his investment decisions.

Seeing as Bridgewater is the biggest hedge fund out there, with roughly $150 billion in assets under management, this is quite the insight into what makes it tick. He put it up on YouTube for all the world to see:

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Financial education is so under-rated in our education system. Lotsa things I learnt in school & university (science & engineering background) are pretty much useless. I got to learn about financial and investment 1 year after my graduation and I am hooked to it. I regretted that I started late, but at least, I found what I enjoy. 

This video is concise and simple to understand. It is a very good use of your 30 mins. 

Book: The Tao of Warren Buffett

 Below are some quotes from the Sage of Omaha - Warren Buffett.

"You can't make a good deal with a bad person"

"It is easier to stay out of trouble than it is to get out of trouble."

"Someone is sitting in the shade today because someone planted a tree a long time ago."

"There seems to be some perverse human characteristic that likes to make easy things difficult."

"You only have to do a very few things right in your life so long as you don't do too many things wrong."

"That which is not worth doing at all is not worth doing well." 

"We never look back. We just figure there is so much to look forward to that there is no sense thinking of what we might have done. It just doesn't make any difference. You can only live life forward." 

"I'm very suspect of the person who is very good at one business - it also could be a good athlete or a good entertainer - who starts thinking they should tell the world how to behave on everything. For us to think that jus because we made a lot of money, we're going to be better at giving advice on every subject - well, that's just crazy." 

"We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now."

"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"

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I enjoyed reading these investment books, as it is not just about investment principles and philosophies, but also life lessons and philosophies. 

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Book: The Warren Buffett Next Door

Amazon: The Warren Buffetts Next Door profiles previously unknown investors, with legendary performance records, who are proving every day that you don't need to work for a hedge fund or have an Ivy League diploma to consistently beat the best performing Wall Street professionals.

These amazing individuals come from all walks of life, from a globe drifting college dropout and a retired disc jockey to a computer room geek and a truck driver. Their methods vary from technical trading and global macro-economic analysis to deep value investing. The glue that holds them together is their passion for investing and their ability to efficiently harness the Internet for critical investment ideas, research, and trading skills.

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If you put money with one of them, you could get back $18m for every $1m invested after 10 years. That's really amazing! And I discovered 2 BIG Secrets from these amazing individuals:

Secret Number 1: They are really passionate about investing/trading.

Secret Number 2: They are really hardworking. It is Hard Work. There is no coincidence.

The bad news is that even after working hard, you might not even be a successful investor. 

But the good news is that by working hard, there is still a possibility of being a successful investor.

Based on my risk/reward analysis, it still makes a lot of sense to be hardworking.

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Financial Education – Rich Dad’s Conspiracy of the rich

While I do not totally agree with Robert on everything, there are some key things that I concurred and learnt from him. Below are some the things I want to share from the book:

Three Kinds of Education:

1. Academic Education: This includes the ability to read, write and solve basic math problems
2. Professional Education: This is knowledge of a trade in which to earn money. (ie. Going to medical school to become doctor)
3. Financial Education: It is not so much about how much money you make, but how much money you keep, how hard your money works for you. (This is the one lacking in most people)

Why Money Is Not Taught in School?

The purpose of the foundation (the General Education Board) was to use the power of money, not to raise the level of education in America, as was widely believed at the time, but to influence the direction of that education... The object was to use the classroom to teach attitudes that encourage people to be passive and submissive to their rulers. The goal was – and is – to create citizens who were educated enough for productive work under supervision but not enough to question authority or seek to rise above their class. True education was to be restricted to the sons and daughters of the elite. For the rest, it would be better to produce skilled workers with no particular aspirations other than to enjoy life – Edward Griffin (1903) on Rockefeller’s General Education Board

Key Takeaways:

Learn how to use debt: Debt is not bad. Misuse of debt is bad. Debt cam make you rich, and debt can make you poor. If you want to get ahead financially, you need to learn to use debt, not abuse it.

Learn to control cash flow: If you are in debt, your cash flows from you to others. If you are going to be financially secure, you need to learn to have more cash flowing into your pockets.

Prepare for bad times and you will only know good times: One saw the depression as an opportunity, and the other saw it as a crisis.

Real Estate Tips:

1. Invest in B-Class apartment buildings: Rent to working class people (not to the rich or the poor).
2. Buy in areas where there are jobs: The real value of real estate is related to jobs
3. Own property where there are natural or government constraints: own apartments where there is no-growth boundary around the city, or properties bordered by river or sea (nature constraint) that prohibit further growth. In another words, limited supply land for real estate (Think: Manhattan and Singapore)
4.  Stay with what we know. 

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Hope we will reach financial freedom in our own ways.

Warren Buffett's Worst Mistakes

Taken from: http://finance.yahoo.com/banking-budgeting/article/108869/warren-buffetts-worst-mistakes

Warren Buffett is widely regarded as one of the most successful investors of all time. Yet, as Buffett is willing to admit, even the best investors make mistakes. Buffett's legendary annual letters to his Berkshire Hathaway (BRK-A) shareholders tell the tales of his biggest investing mistakes. There is much to be learned from Buffett's decades of investing experience, so I have selected three of Buffett's biggest mistakes to analyze.

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Conoco Phillips

Mistake: Buying at the wrong price

In 2008, Buffett bought a large stake in the stock of Conoco Phillips (COP) as a play on future energy prices. I think many might agree that an increase in oil prices is likely over the long term and that Conoco Phillips will likely benefit. However, this turned out to be a bad investment, because Buffett bought in at too high of a price, resulting in a multibillion-dollar loss to Berkshire. The difference between a great company and a great investment is the price at which you buy stock, and this time around Buffett was "dead wrong." Since crude oil prices were well over $100 a barrel at the time, oil company stocks were way up.

Lesson Learned

It's easy to get swept up in the excitement of big rallies and buy in at a prices that you should not have -- in retrospect. Investors who control their emotions can perform a more objective analysis. A more detached investor might have recognized that the price of crude oil has always exhibited tremendous volatility and that oil companies have long been subject to boom and bust cycles.

Buffett says: "When investing, pessimism is your friend, euphoria the enemy."

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U.S. Air

Mistake: Confusing revenue growth with a successful business

Buffett bought preferred stock in U.S. Air (LCC) in 1989 -- no doubt attracted by the high revenue growth it had achieved up until that point. The investment quickly turned sour on Buffett, as U.S. Air did not achieve enough revenues to pay the dividends due on his stock. With luck on his side, Buffett was later able to unload his shares at a profit. Despite this good fortune, Buffett realizes that this investment return was guided by lady luck and the burst of optimism for the industry.

Lesson Learned

As Buffett points out in his 2007 letter to Berkshire shareholders, sometimes businesses look good in terms of revenue growth but require large capital investments all along the way to enable this growth. This is the case with airlines, which generally require additional aircraft to significantly expand revenues. The trouble with these capital-intensive business models is that by the time they achieve a large base of earnings, they are heavily laden with debt. This can leave little left for shareholders and makes the company highly vulnerable to bankruptcy if business declines.

Buffett says: "Investors have poured money into a bottomless pit, attracted by growth when they should have been repelled by it."

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Dexter Shoes

Mistake: Investing in a company without a sustainable competitive advantage

In 1993, Buffett bought a shoe company called Dexter Shoes. Buffett's investment in Dexter Shoes turned into a disaster because he saw a durable competitive advantage in Dexter that quickly disappeared. According to Buffett, "What I had assessed as durable competitive advantage vanished within a few years." Buffett claims that this investment was the worst he has ever made, resulting in a loss to shareholders of $3.5 billion.

Lesson Learned

Companies can only earn high profits when they have some sort of a sustainable competitive advantage over other firms in their business area. Wal-Mart (WMT) has incredibly low prices. Honda (HMC) has high-quality vehicles. As long as these companies can deliver on these things better than anyone else, they can maintain high profit margins. If not, the high profits attract many competitors that will slowly eat away at the business and take all the profits for themselves.

Buffett says: "A truly great business must have an enduring "moat" that protects excellent returns on invested capital."

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The Bottom Line

While making mistakes with money is always painful, paying a few "school fees" now and then doesn't have to be a total loss. If you analyze your mistakes and learn from them, you might very well make the money back next time. All investors, even Warren Buffett, must acknowledge that mistakes will be made along the way.

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It is always good to learn from others mistakes, but making mistakes in Investment is inevitable. Money can be lost, but the lessons should never be lost.

Warren Buffett News

Warren Buffett makes $4bn profit on Goldman Sachs stake
Billionaire investor Warren Buffet has done it again – booking a $4.1bn (£2.5bn) paper profit on the $5bn he invested in Goldman Sachs at the height of the financial crisis.

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Alot of people mentioned that Warren Buffett was old school, and his investment philosophy will not work anymore. And I am glad that Warren Buffett (being on the greatest investor of all time), proved those skeptics wrong. More importantly, even the oracle of omaha faces alot of skeptics and nah-sayers.

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Some quotes from Buffett:

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"It's far better to buy a wonderful company at a fair price than

a fair company at a wonderful price."

- Warren Buffett

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"You only have to do a very few things right in your life

so long as you don't do too many things wrong."

- Warren Buffett

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Book - "Common Stocks and uncommon Profits" - Philip A Fisher

This is an investment classic.

For those who are interested to manage your own investment (Equity), this is one of the must-read books. It is less technical and less quantitative, and has a heavy emphasis on investment philosophy.

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Overall, it is quite an easy book to read.

Taken from: http://beginnersinvest.about.com/od/investorsmoneymanagers/a/philip_fisher.htm

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Philip Fisher (1907-2004) was one of the greatest investment minds in history. Working from a modest office on the West Coast in the aftermath of the Great Depression, he developed a buy-and-hold value and growth model for investments that has been considered on par with Benjamin Graham’s The Intelligent Investor by no less a giant as Warren Buffett.

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Quotes from the book:

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"While good fortune will always play some part in managing common stock portfolios, luck tends to even out. Sustained success requires skill and consistent application of sound principals. .... the future will largely belong to whose who, through self-discipline, make the effort to achieve it"

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"A basic ingredient of outstanding common stock management is the ability neither to accept blindly whatever may be the dominant opinion in the financial community at the moment nor to reject the prevailing view just to be contrary for the sake of being contrary."

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"In handling common stocks, as in most other fields of human activity, success greatly depends on a combination of hard work, intelligence and honesty."

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Shit!

There is no easy way out to make good money other than hard work.

haha...