Archive for February 2013

Why Warren Buffett Stopped Investing the 'Warren Buffett Way'

The Oracle of Omaha got out of personal investing as fast as he could. Follow this logic and you could become a supreme success too.

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Warren Buffett and Alice Schroeder, author of The Snowball.

It's hard to believe that so many personal investors swear by Warren Buffett's stock-picking methods. Why? Because when you look back at Buffett's early career, none of his best and biggest moves required placing stock market bets with his own money.

The secret to Warren Buffett's wealth is that he works like an entrepreneur. Sure, he uses the principles of value-investing to identify companies to invest in. But then he extracts wealth from those companies by pulling off entrepreneurial deals and executing on complex boardroom strategies.

If Buffett were a little more forthcoming, he just might cite the following reasons why you should stop trying to get rich by value investing your own money:

1. You don't have enough capital.

When Buffett was in his mid-20s, he tried investing his own money and found it incredibly frustrating. He'd invest all his holdings in stocks he'd identified through Benjamin Graham's buy-low-sell-high value-investing philosophies. But once those under-the-radar stocks started picking up steam, Buffett would discover some other undervalued stock that was much more promising. With his cash all tied up, he continually faced the miserable choice of either selling one stock before its value had peaked or letting a great opportunity pass by. Buffett came to realize he'd never get anywhere this way, and he reluctantly raised money from other people through investment partnerships so he could get his hands on more capital. In a sense, Buffett didn't start getting rich until he quit doing what most personal investors now regard as "investing the Warren Buffett way"!

2. You're risking what little capital you have.

Buffett was kind of a shy guy, and he didn't like the process of fundraising required to get his hands on other people's money. But he also recognized that other people's money would enable him to play a game called "heads I win, tails I don't lose." Under the rules of his early investment partnerships, Buffett enjoyed a big percentage of the gains if his stock-picking was good, and very limited losses if his stock-picking was bad. When people ask Buffett about his worst investment, he always points to his very first at age 21. It was a "heads-I-win-tails-I-lose" deal in which he lost everything on a failed gas station. Warren Buffett hasn't used his own money to go "all-in" on a deal since.

3. You don't need money to make money. You need people.

In some of his early investment partnerships, Buffett didn't just make clever bets on undervalued stocks and then wait for those stocks to appreciate. Instead, he pulled off boardroom maneuvers that often benefited his partnership at the expense of individual stockholders. Buffett organized alliances of other big investors who would follow his lead when he demanded that management take steps to raise the stock price. Sometimes management would buy out Buffett's alliances instead, helping make Buffett and his partners rich, but leaving all the little individual value-investors out in the cold. Buffett relied on his "know-how" to identify opportunities, but it was his "know-who" that made him rich.

All these details are plain to see in both of the definitive Buffett biographies: Alice Schroeder’s The Snowball, and Roger Lowenstein's Buffett. So why do so many personal investors remain under the spell of the mythical "Warren Buffett Way"?

The survey research I did for Business Brilliant, my new book, offers a clue. About 90 percent of people surveyed simply believe that it's necessary to put your own capital at risk in order to be successful, while fewer than 20 percent believe that it's necessary to get others to invest with you. Meanwhile, people who know better, those who've already become extremely successful, believe the opposite. Among this group, just 40 percent think you should only invest your own capital in order to succeed financially. And about 6 in 10 say it's important to get others to invest with you.

Successful entrepreneurs are more familiar with the real Warren Buffett because most of them have succeeded the real Warren Buffett Way, with more "know-who," than "know-how.

Work experience

I went to work experience, and for the first week i went to a relevantly small company that has just under 1000 employees all over the world, just over 200 in the middle east, and focuses on the creation of technology which helps enhance the oil and gas industries (the companies name is above).

What did I learn

At Proserv I went through a period of 5 days in which i was taught a general idea of what most of the employees at most/all of the departments jobs are. of which were the finance, HR, projects, QSHE (quality, health, safety and environment) etc. Technically i did not really do any work there, and one of the goals i would set the company would be: when taking students to work experience, they should also arrange something for the students to do besides just teach them of what is done. Personally i can not blame them, the main reason to that is i rather not work then work, and the other reason would be that it is not a company can afford mistakes, because every project they do probably costs around $100,000 minimum.

I also saw some of the technology they manufacture, though i will not portray any out of the fear i may be revealing something that is confidential, considering i signed the confidentiality agreement.

Do i recommend students to go to Proserv in future?

Yes, i would, because even though it was kind of boring it was fairly interesting as well and it does give a general view of what people do experience and do at work.

Ahlers Middle East was a shipping company based in Antwerp with their Middle East office in Dubai. I created a sales manual to explain the company's activities and services in the Middle East. Its purpose was to explain to new employees and potential clients how their company assured their cargo was safe and how they dealt with unique difficulties associated with going through different borders i.e Saudi Arabia and difficult routes i.e Afghanistan.

I was fairly motivated as I felt that I was actually contributing to the company as they were going to use the sales manual I had created and weren't just giving me activities to pass time like at WME in my second week where I just design air conditioning systems for past projects.

I also made a few recommendations; one of them being how they should change their slogan from "Creators of opportunity" to "Logistical and Maritime Services" as it is more suitable for a shipping company and cheesy slogans don’t work when your target audience is made up of grown adults representing large corporations such as BP and Total. He agreed and told me that he had suggested that to the company’s chairman in Belgium but he disagreed. Despite that he has made the decision to change it anyways in the Middle East region. This allowed me to learn about how people in the corporate world deal with differences of opinions.

Through talking to the person who set up the work experience placement in Ahlers I learnt about the company’s past and how he decreased the company’s overheads which allowed them to be more competitive and increase profitability. Such as reducing the number of people working there among other things. I also learnt how business development in a business which doesn’t deal with the everyday consumer works as it is much more complicated and time consuming and there is no rule of thumb when contacting someone to offer them your services.

Work Experience - Business aspects

I will be writing about my two work experience placements and their business aspects. I worked first at The Fridge Dubai, and then at K9 Friends.

The Fridge was a music venue and a very interesting business, situated in Al Quoz, one of Dubai's commercial/industrial areas. It was interesting to discover how the business itself worked and get behind the scenes. The Fridge operated by collecting funds from external events such as the Swingle Singers' performance in the Madinat (which I helped film) while at the same time hosting internal events which did not create income for the business, but merely bring in publicity to The Fridge and the bands performing. An example of their internal events would be their Monday Night Concert Series, of which the 12th season is just coming to a close with a few final performances upcoming. The finance part of the business was not part of the work I was tasked with, as I was involved more in the practical aspects of the business, such as socialising with customers or plain office work.

K9 Friends Was a very enjoyable experience. The business was a dogs home and relied solely on donations from the public through booksales, garage sales, etc. which were supplied as donations themselves. The centre had a total of 137 dogs in its kennels, and was almost permanently full due to the amount of strays being brought into the centre. One of the jobs I was assigned was to look after and socialise with a puppy for the week.I found it extremely satisfying, despite the many scratches and bitemarks on my arm from the puppies.

Gregor Work Experience

My work experience started working with P&T Architecture. I worked designing a house on the beach for most of the week but also designed a bathroom, looked at bathroom sinks and also went to a construction site. I learned what it was like to work in an office space and how important deadlines are. I saw what all of the professional architects do which seemed to be more centered on religion as the person next to me asked his co worker what religion he was and got angry when he said Buddhist and also got to observe a meeting. It did become very boring after the first or second day though as i looked at the clock as each slow second passed simply waiting for the glorious trip down the elevator to the subway that granted protection from the burden of work and jobs with their great deals and cookies. our boss was named Stephan frantzen and he smelled a bit like pickles but in a really creepy way that would scare children away from his house.
For the second week i worked with Jim at IQPC Conference Planning. It wasn't so much different from working at P&T Architecture as we had the same hours and the same lunch break. we were moved to different desks each day to work on different things. The job did seem more interesting at the start but by the second day moral was low an Jim had succumbed to utter boredom not so long ago. again we waited...waiting each day for the beautiful 1:00 that would show up on the clock to say "you've done it. you have survived the perils of the first half of the day. here is your reward" we jumped from our seats beaming with happiness only to realise the only restaurants were very shady Indian food shops and a KFC that looked like its chickens were beaten horribly with a club. We did learn what it was like to be under pressure as in this job our work was actually important and would affect the income of the company. The people there treated me and Jim like gods and gave us sweets all day long. On the last day we were to upload conferences on websites and i was to write down a million peoples names and occupations on a list. I was the only one who was asked to do that...strange. At the end of the last day we were presented with gift bags. eager to see what was inside we opened them as quick as ever only to see...an adapter and a book...yes...an adapter. the adapter was the least of my worries at this point as the boss of the office came up to me to congratulate me only to lean in which was rather creepy and whispered in my ear "imma need abut tree fiddy"

Work Experience

1. ISG (Construction and finance)

At ISG, I was given my own desk and computer and free coffee which made the environment more comfortable to work in. I learnt several things such as bank reconciliation and financial analysis.

2. Grande Belle Vue Hotel Apartments

Grande Belle Vue wasn't the best of places to work. It was overloaded with curry and strange people who touched you. They had managed to provide us with not so orange, orange juice and strange roasted eggplants that looked inappropriate. The greatest fun I had was giving people free Wi Fi passwords. The least fun was watching a woman eating curry and scooping it on the walls while working on a 1950s computer. The bathroom failed to provide us with handwash or even tissues but for some reason had a shoe cleaner which was the least of my necessities. The hotel had a strange man who popped out of pillars and said "Pettttrrrrooollinggg" when me and Moosa were walking around in the parking lot. It was quite a horrible experience and I have never had this much curry in my life.

Grand Belle Vue Hotel

Grand Belle Vue Hotel

Lets just say his place didn't provide the most ideal working environment...

I suggested a more efficient way to photocopy passports, to the hotel, which they considered and eventually adopted. Other experiences included signing guests into the pool and handing out complimentary mints.

I was also surprised by their ability to defy the rules of physics and screw a block of wood into a metal chair.

Sher-Ali Carmakers GDP

2008 Recession

Ford is one of the big three car makers in America.

Link to article here

GDP

GDP in America at the time had a growth of 1.3% in July 2nd 2008 at the time of the article. Ford's value cut more than half even though there was more growth in America, the car makers did badly and the prices for gallons increases above the $4 a gallon mark.

Exam revision

Tomorrow you will have a multiple choice exam on everything you have learnt about the economy.

Today you need to learn and revise about some key terms we have covered briefly but you need to be ready for:

Inflation
Interest Rates (Fixed & Variable)
The relationship between inflation & Interest rates
Income Taxes, Corporation Taxes & VAT
Definition for indirect and direct taxes.
Exchange Rates & the impact upon imports & exports

As this is a revision exercise you will be expected to make notes and work in silence. You need to be prepared for the exam and anything less than 70% will result in a retake.

Use appropriate websites like Tutor2U, GCSE Bitesize Business/Economics and even the business blog as people have posted work in previous lessons.

http://www.businessstudiesonline.co.uk/live/index.php?option=com_content&view=article&id=2&Itemid=8

http://www.businessstudiesonline.co.uk/live/index.php?option=com_content&view=article&id=55&Itemid=33

BUSINESS MOTIVATION