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Investment 101 According To Warren Buffett

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The Sage of Omaha

Over the years, Warren Buffett has become known for the strength of his investment portfolio, and his skill at growing it.

Under his stewardship, his holding company, Berkshire Hathaway, has grown to become the fifth largest public company in the world.

Buffett himself has become known as “The Sage of Omaha” due to the wisdom of his investments and the success of his holdings.

So how does he do it?

 

Playing the long game

Buffett is perhaps best known for the long-term vision of his investing style.

He invests in companies for the long-term, keeping hold of stocks rather than trading regularly.

The success of this is two-fold.

Firstly, it avoids the tax that those investors who trade in and out have to pay.

Secondly, his long-term faith in the company can help the company grow, increasing the size of his investment.

He’s on record as saying he doesn’t believe in buying and selling stocks on a daily basis.

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It’s a business.

Many investors regard stocks as something simply to be traded.

Buffett treats his stocks as what they are: parts of a business.

He considers himself, as a stockholder, to be a part owner of the business in which he’s invested.

The strength of this approach is that it makes it likelier that an investor will be more focused in analyzing how well that business will do in the long run.

He does his deals in person, with a handshake. He’s aware he’s dealing with people, not numbers.

 

Due diligence

Buffett doesn’t simply look at what stocks are doing.

He studies the company as a whole that he’s going to invest in, and then only invests if he’s confident that it’s well-run, fundamentally sound, and likely to grow over the years ahead.

This is a low-risk strategy.

But one that in the long term, yields highs rewards.

He knows the companies he’s dealing with inside-out.

 

Keep emotion out of it

Successful investors have a rational and analytical approach to their investing.

Buffett is the same.

He concentrates on the fundamentals of a business and keeps an eye on hard economic news, rather than mere speculation.

Stock markets rise and fall, but business continues.

An aspect of Buffett’s investment style is not panicking when the stock market is in turmoil. Trust in the business you’ve invested in.

 

The key points of his investment style

  • Think long term
  • Regard stocks as a business, not a commodity
  • Do your homework on your investments.
  • Think rationally, stay calm

 

Keeping true to your beliefs

When the market looks bad, many investors follow the herd and dump stocks.

All this does is make the situation worse.

What Buffett realizes is that this is the time to increase your equity, not when the market is overvalued.

Investments made when the economy is at a low ebb can pay big dividends when the economy recovers.

 

The market is not all companies

When the stock market is in crisis, many companies can be undervalued. 

Over a long period, the trend in markets is generally upwards.

So in the depths of a crisis, Buffett looks for those companies which are well placed to continue through a recession and come out stronger the other side.

They could be trading at well below their actual worth.

 

Don’t over-diversify

We have seen that one of the mainstays of Buffett’s investment strategy is sticking with companies long-term.

One aspect of this is the quality and size of his investments.

Keep it simple and concentrate your investment in those stocks you are confident in the long term, and put more investment into them, rather than gambling smaller amounts on many more companies.

 

Conduct yourself with integrity

Buffett made a famous remark about only finding out who’s been swimming naked when the tide goes out.

When crashes and recessions occur, as they always do, it is only the prudently invested who will come out the other side.

Those who invest riskily, act unethically, or are overexposed to one particular sector, will have been found to be swimming under-dressed.

As a result, you should always aim to conduct your business solidly and avoid risky investments.

Act with integrity and deal honestly.

Only deal with companies that act with good character.

When the tide goes out, as it always does, you’ll find that you’re well-covered.

 

Lessons to be drawn from Warren Buffett’s investment style

  • Don’t follow the herd
  • Don’t pay attention to market forecasts
  • Act with integrity
  • Keep it simple

 

Conclusion

There’s only one Warren Buffett; you can’t be him.

And simply copying his investments is no guarantee of success, certainly not on his scale.

But implementing some of his strategies and considering how he goes about his investments could well, in the long term, yield fruitful returns.

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Report: Biden’s Economic Plans Would Mean 5 Million US Jobs Lost, 10% GDP Drop

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Report: Biden’s Economic Plans Would Mean 5 Million US Jobs Lost, 10% GDP Drop

A Joe Biden presidency would destroy millions of jobs and derail the economic recovery from the coronavirus pandemic. This is according to a new report from the Hoover Institute at Stanford University.

The report says that based on the economic plans laid out by Biden, nearly 5 million Americans would lose their full-time job. Meanwhile, the country’s gross domestic product, the measure of its economic output, would drop by nearly 10% over the next decade.

These losses would trickle down to the average household. The median household income will fall by $6,500 per year by 2030, according to the report.

Derailing Economic Recovery?

The authors of the report lay out a laundry list of changes. These changes include reversing some of President Trump’s 2017 Tax Cuts And Jobs Act, a tax increase on corporations and high-income households and pass through entities, reversing much of the regulatory reform of the past three years as well as setting new environmental standards, and create or expand subsidies for health insurance and renewable energy.

When it comes to renewable energy, the report says that the proposal to cut our nation’s reliance on fossil fuels is “ambitious” and would require cutting electrical use back to levels not seen since 1979.

“These plans are ambitious. Unless people drive a lot less, the electrification of all, or even most, passenger vehicles would increase the per capita demand for electric power by about 25 percent at the same time that more than 70 percent of the baseline supply (i.e., electricity generated from fossil fuels) would be taken off line and another 11 percent (nuclear) would not expand. To put just the 25 percent in perspective: that is the amount of the cumulative increase in electricity generation per person since 1979, which is a period when nuclear and natural gas generation tripled.”

Taxing Wealthy Americans

To pay for most of these “ambitious” plans, Biden has already said he would significantly raise taxes on wealthy Americans. They, he says, include anyone who earns more than $400,000 per year, through higher taxes, an increase in the payroll tax that funds Social Security, and fewer tax deductions. He also plans on raising the corporate tax rate.

The Penn Wharton Budget Model, a nonpartisan group at the University of Pennsylvania’s Wharton School, says nearly 80% of Biden’s proposed tax increases would affect the top 1% of earners in the United States. It will primarily do so through raising the top individual income tax bracket to 39.6% from 37% for those earning more than $400,000 annually.

That means an annual tax increase of nearly $300,000 for households in the top 1%, according to the Tax Policy Center, who say even middle-class families will see a tax increase under Biden’s plan.

Corporations would feel the pinch as Biden said he would raise the corporate tax rate from 21% to 28% on “day one.”

During an interview in September, Biden said, “I’d make the changes on the corporate taxes on day one. And the reason I’d make the changes to corporate taxes, it can raise $1.3 trillion if they just started paying 28% instead of 21%. What are they doing? They’re not hiring more people.”

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Rickards: Stocks Headed Lower, Fed Still Can’t Create Inflation

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Rickards: Stocks Headed Lower, Fed Still Can’t Create Inflation

Jim Rickards, an economist and author of “Currency Wars” recently gave his outlook on the stock market. He also shared why he thinks the Fed can’t seem to create inflation despite printing trillions of dollars.

When asked about the stock market, Rickards said it is completely detached from the economy, believes it will fall even further, and revealed why he calls the S&P 500 the “S&P 6.”

“I recommend lightening up on equities, I think equities have a lot further to fall. There’s been a spectacular rally from March 23 to September 2, we had the shortest bear market and the fastest return to a bull market in history, but it doesn’t mean that this is over with. I call the S&P 500 the “S&P 6” because it really is only 6 companies that are dragging along the other 494 because it’s a cap-weighted index. When you look at Amazon, Apple, Microsoft, Netflix, Facebook and Google – or Alphabet – those six stocks are almost 40% of the weight of the index. So when they go up the index goes up,” said Rickards.

He added, “By the way, the six stocks I mentioned, they are the least affected by the pandemic. So my point is the stock market is completely detached from the economy. It used to be that the stock market was kind of a proxy for the economy, not exactly but to some extent. That’s not true anymore. Those six stocks and others like it, some of the tech names, they’re in a world of their own. The economy is in very bad shape and will remain so.”

No Inflation Soon?

Rickards said anyone who thinks we will have inflation due to the trillions of dollars being printed by the Federal Reserve hasn’t been paying attention to the last 11 years. He said if we didn’t see inflation from all the money printing after the Great Recession, we won’t see it now.

“The idea that money printing causes inflation is just not true. Everyone believes it’s true; the monetarists, the Milton Friedman followers, the Austrian economists, even the neo-Keynesians say “yeah, you print a lot of money you get inflation.” It’s not true. And just for empirical evidence, I don’t say things like this without backing them up, between 2008 and 2014 when they ended QE3 at the time, the Fed expanded its balance sheet by almost $3 trillion, and we never had inflation, serious inflation. You know, 1-1.5%, but we never had serious inflation.”

Wanting V.S. Getting

He said the Fed has tried to reach their target of 2% inflation for eleven years. They were only with only a smattering of success. So Rickards said that saying you want inflation and actually getting it are two different things.

“The whole time, the Fed had a target, eleven years if you want to go all the to the end of expansion in 2019, technically February 2020, eleven years and the Fed never hit their target of 2%, for a couple of months, yes, but not on a sustained basis and certainly nothing above that. So I say it’s a sad day when the Fed wants inflation and can’t get it. And they do want it.”

He said their new monetary policy of targeting 2% will likely be just as unsuccessful as the previous eleven years.

“So now they’ve come up with a new monetary policy, they’ve sort of given up on the money printing thing. They say they’re going to just let the economy run hot, we’re not going to worry about money supply as much, we’re basically going to let unemployment drop, and let inflation go, if it goes above 2% we’re going to let it stay there for a while. So the below 2% and the above 2% kind of average 2%, and that’s new. Here’s the problem. You can say it, you can take a vote and make it your policy, it doesn’t mean you can make it happen. They failed for eleven years, why do they think they can succeed now?”

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Rick Rule: The Easy Money Has Been Made In Gold Stocks, Here’s What To Do Now

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Rick Rule: The Easy Money Has Been Made In Gold Stocks, Here’s What To Do Now

Is it time to get out of gold stocks? That was a question posed to Rick Rule, the President of Sprott US, during a recent interview. Rule also gave his criteria for finding the best gold companies and why the money flowing into the gold sector isn’t following the traditional rules.

He was asked about gold stocks. To this, Rule said that out of all the publicly listed junior mining companies, only a few are viable. He says now is the time to exhibit “extreme caution.”

“Out of 1500 junior listings worldwide, only probably only 200 or 300 are viable. Many of those viables ones have become a little less viable simply as a consequence of their market capitalization. And amazingly, many of the non-viable ones have gotten financed. So this is the time to exhibit caution,” said Rule.

While he doesn’t say to exit the sector, he does believe it is overbought in the near term.

“I’m not saying to exit the sector, what I’m saying is in terms of the whole sector, the easy money has been made. That doesn’t mean that the big money isn’t in front of us in individual issues, it just means it’s time to exhibit substantially more caution than we’ve had to exhibit over the last 12 months. I think that the sector is near-term overbought.”

Gold Stocks a Good Investment?

Even with gold prices moving back below $2,000 an ounce, he says there are three reasons why gold is still a good investment. He also believes none of them will change anytime soon.

“As we’ve discussed before, the wind is in precious metal’s sails. Quantitative easing, debt and deficits, artificially low interest rates, all of these are good for gold and none of them are likely to change. So the gold price in my view goes higher, perhaps sharply higher.”

What has Rule worried is the “flow of funds” into the sector isn’t following the traditional rules.

“In prior gold bull markets in my career, the equities gold bull markets followed predictable patterns. The biggest and best companies, the highest margin companies, the most liquid companies moved first. So the Barrick (Gold), the Franco (Nevada), the Wheaton (Precious Metals), the Agnico (Eagle Mines) move first. Then the second tier, what I call “the best of the rest” move. Then after that the single-asset companies, that were perceived as riskier because they only had one source of income, moved. Then the advanced development companies would move, then the advanced exploration companies would move, then the juniors would move. What happened this time was the leadership went right straight from the best-of-the-best to the juniors. I’ve never seen this happen before. So the flow-of-funds didn’t cascade down the quality trail that way it traditionally has.”

What Can Profit

Rule says he’s been taking profits on some of his junior mining investments, and moving up the “quality trail” to larger gold producers. This, he believes, could generate “eye-popping” profits in the next few years.

“I’ve been rotating capital out of some of the juniors, taking profits where I’ve thought profits had been given to me too easily, and moving up the quality trail. In addition, with new money, and there’s lots of new money in the sector, when someone comes to me to establish a gold portfolio, somebody that is new to the sector from a different industry, I’m putting that money in the best of the best. I’m hoping they participate in the beta without trying to generate alpha by owning smaller names. If we take the gold price, or the silver price as high as I think it might go in the two or three-year timeframe, the amount of money you’ll make in the best of the best stocks, I think, could be eye-popping.”

Considerations in Choosing a Gold Company

Finally, when pressed to reveal a few of his criteria for selecting a gold company, Rule provided some invaluable insights.

“I like operating margin, I like very, very, very high margin companies. I like Tier One deposits, more than 5 million ounces, producing more than 400,000 ounces a year. I’m less fussy about jurisdiction than many of my peers. I’m reasonably comfortable in Russia, I’ve made a lot of money in Congo, I’ll never say I’m comfortable, but I really care about people. So if you give me a Pierre Lasonde, if you give me a Randy Smallwood (President of Wheaton Precious Metals), if you give me a Mark Bristow (CEO of Barrick Gold), Sean Boyd (CEO at Agnico-Eagle), I become a lot more comfortable. What you find with these Tier One deposits, by the way, in the best-of-the-best, these Tier One deposits, well all deposits, give you surprises. But Tier One deposits always give you good surprises. Tier Three deposits usually give you bad surprises. At 67, in my declining years, I would prefer good surprises.”

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