Learnings from the Berkshire Hathaway Shareholder Letter 1979

1. Earnings per share:
This important metric must not be used blindly, as it can be manipulated or improved through higher risks such as leverage, and accounting gimmicks.

2. Power of compounding.

3. "Neither a short-term borrower or a long-term lender be." (In most cases you are better compensated for risk by equities than bonds, in the long run. However, this must be implemented with a grain of salt.)

4. "Companies obtain the shareholder constituency they seek and deserve"
A focus on long-term profitability instead of short-term high flying attracts long-term investors. Pick your game, tinker with it a little from time to time, but be largely consistent.

5. " 'Turnarounds' seldom turn. "

6. A "good business at a fair price is better than a poor business purchased at a bargain" (Sometimes, however, if you are being able to buy a bad business at a value blow that of the fixed assets, you could close shop and sell the fixed assets at a profit)

7. "Despite a fancy price tag, the 'easy' business may be the better route to go" (Yet, you most certainly don't want to engage in fad-investing)

8. Some failures are not "reflections on managers, but rather on the industry in which they operate"

9. "Better to stick with business you understand" even if the frequency of business decreases.
(Of course, a balance is essential.)

10. "Mistakes will not be cured immediately or without cost"

11. It is often "futile, trying to be very clever in an area where the tide is running heavily against you"

Learnings from the Berkshire Hathaway Shareholder Letter 1978

My key learnings from Warren Buffet's 1978 letter to the shareholders of Berkshire Hathaway:

1. UFHC:
a. Understand
b. Favourable long-term prospects
c. Honest and competent management
d. Cheap

Essentially, you want to look for 'Good quality businesses with a Margin of Safety'.


2. People who think and feel like owners work harder, more happily, and more effectively.

3. Praise good quality people.

4. Willingly accept and learn from your errors.

5. Return on Capital Employed (ROCE) is a measure of profit relative to investment:

ROI = PROFIT / Investment

Shoe Dog by Phil Knight: A life lesson

Hey, it has been a long time since I 'blogged'! I have just finished reading the autobiography of Phil Knight, the Co-founder and Chairman of Nike, Inc. He begins his journey around the world in the early 1960's, before coming up with a 'crazy idea'. Thus, he starts blue ribbon in his own bedroom. Eventually, Blue Ribbon became Nike, and Mr. Knight's efforts paid off. Here are some key learnings for life from this highly recommended page-turner:

• The harder you work, the better your tao. [tao- luck]
• Find a balance.
• Changes never come as fast as we want it.
• Hard work is critical, a good team is essential, brains and determination are invaluable, but luck may decide the outcome.

To paraphrase, work hard, maintain a balance, be patient, and take things head on, but be prepared for a storm. 

Applying second level thinking to purchasing consumer electronics.

Okay, now that I've begun to understand what second level thinking means, I want to apply it to real life. Since I'm interested in technology and gadgets, it struck me that second level thinking is a philosophy consumers should use when they buy a product. I have always been a 'first-level thinking consumer'. When Apple launches a new phone, I always say, 'I want that phone-it's the best phone on the market'. However, I realised that a second level thinker might say that although Apple makes the best phone, you can buy a One plus  or Xiaomi phone which is almost as good at half the price, hence rendering the iPhone a bad purchase. However, it could also be argued, that phone companies such as One plus and Xiaomi do not provide reliable customer services, that their phones malfunction frequently, and are less user-friendly or have poorer software than an iPhone. Hence, the value a consumer puts to user-interface and reliability must be greater than the extra cost of the iPhone. In conclusion, the price paid for a stock must be less than the calculated (present day or future) value.

The most important thing.....second-level thinking

Okay, so I just started reading The most important thing, and I've finished the first chapter. Here's what I learned in chapter 1:

In the first chapter, Howard Marks stresses the importance of second level thinking. What is second level thinking? Second level thinking-from what I have understood-is the process of analysing all the opinions, the possible outcomes, and the probability of these outcomes. This is because, in order to be a successful investor, you have to regularly outsmart a generally efficient market. To achieve that, you have to hold an opinion different to that of the consensus, and be certain of its probability. He gives the example that a first level thinker might say, "its a good company-buy", whereas a second level thinker might say "its a good company, but everybody thinks its a great company-sell".