Pearl Invest

Warren Buffet has become a legend in the investment community. His strategy, knowledge and intuition have made Berkshire Hathaway one of the most successful corportations worldwide. So what is the secret of his success? Five simple rules that every investor should take to heart…

Buffet’s first rule: Trust what you know – not your gut instinct. Decisions should always be based on cold hard facts. The bank that is issuing the fond or certficate will have comprehensive information. Investors will be able to find out what strategic plan a fond has, how a certificate is defined or whether the securities are compatible with their investment goals. If you’re investing in stocks, the “Investor Relations” section on the company website will usually have details about their opportunities and plans – giving you inisight into the stock’s potential.

Don’t buy popular stocks

Another mantra that Buffet likes to repeat endlessly: “Buy stocks that do not have the attention of the masses. His reasoning: “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well” He argues that the popular opinion always loses on the market. If you look at the popularlity of the dot-com stocks amongst small investors this certainly seems to be the case. By the time the boom had reached its pinnicle and caught the attention of the masses, there was very little money left to be made.

Another aspect of this strategy that every investor should take note of, is the longevity of an investment. According to Buffet, you shouldn’t make investments that you aren’t willing to hold on to for at least ten years, you shouldn’t hold on to it for even ten minutes. His reasoning is that you shouldn’t even consider investments in companies in which you do not have confidence in their long-term prospects. Buffet explains: “Focus your investments – If you have a harem of 40 women, you never get to know any of them very well.”

Spread your investments

It’s a fact that only only investing in one or two titles is dangerous. No-one is infallible and if you make a mistake with these two investments, you’ll be risking a lot. Warren Buffet’s “Noah’s Ark” approach: Your depot should never be broadly mixed like a zoo, but should contain investments that supplement each other and are coordinated to minimize your overall risk.

The deciding principle that Buffet lays out is his insistence of “understanding”: It dictates that you should only invest in companies, fonds, and certificates if you actually understand the investment and its risk. If you’re buying shares, this means understanding what the company actually does, how do they make money? What are their future prospects? If you’re investing in fonds and certificates, find out whether you’re investing in a grab bag and have to hope that it ends up making money in the long run, or whether the investment makes sense and you know in detail what you’re getting yourself into. Only if you have know the answers to these questions will you be able weigh the the potential against the risks. And before you’ve done that, the investment wouldn’t make any sense.

The United States alone looks set to increase their debt by nine trillion dollars over the next decade, warns Baumann – which doesn’t exactly help to instill confidence in the dollar, given their current record deficit. Gold will always benefit from any percieved weaknesses in the dollar, as it is considered to be the alternative global currency, so it will continue to rise in price compared to all currencies, as long as central banks continue their policies of low interest rates and increasing currency devaluation. International crises are another source of price increases.
The price of gold is in an upwards trend, however a price around 1.400 US dollars currently seems excessive, warns Baumann. The primary price driver is the current development of the US dollar, which in turn is largely influenced by the current plans the Federal Bank has commited to (Quantative Easing Part 2). If we heed to the old exchange mantra “Buy the rumour – sell the fact”, we should expect some dissappointment in the market if the Fed doesn’t buy assets from the market as expected. “We are witnessing the highest level of USD shorts we’ve ever seen, i.e. the majority of investors are positioned for a dollar decline that has already taken place internationally. Any strength that the dollar shows would lead to investors adjusting their positions, which would in turn further strengthen the dollar and negatively impact the price of gold”, says Baumann.

To put it bluntly: The price of gold could of course fall by the end of the year – but that isn’t necessarily going to happen. Another indicator that is causing some investors to hold back from additional gold purchases is the large amount of coverage gold investments are getting in the media. Everywhere you turn, you see gold traders sprouting up, offering to buy up consumer’s gold and offering “Gold ATMs”. Largely due to these trends, Volksbank Investments currently is only partially recommending additional new investments in gold fonds, gold ETFs and goldmine shares. If anything, it’s advisable to secure any existing investments, depending on the type of investment and your current investment potential.

High inflation and rising interest rate led to run on gold during the 1980s and sent the price of gold through the roof. The weakness of the dollar, creeping devaluation and the international banking crisis are behind the latest price increases.

A 300 percent price increase – that reminds us of the golden days of the dot-com era, or of certain leverage certificates. But who would have guessed that sort of price increase could be for the 79th element in the periodic table? The last 10 years have proved the gold investors to be right.

Gold – one all-time-high is followed by the next

The largest demand for gold is coming from exchange traded funds (ETF), fonds that can buy the actual metal, and from asian central banks. Even Italy alone for example has twice as many gold reserves as China. The chinese government is trying to make up this shortfall, as they have approximately 1.6 trillion US dollars in currency reserves and are suffering due to the devaluation of the dollar. Just this October, the indian central bank made the largest gold deal seen in 30 years. They bought 200 tonnes for 6.8 billon dollars and increased their gold reserves to six percent. But even amongst European households, gold makes up just over one percent of their savings, according to Ulrich Baumann, a gold expert with Volksbank Investmens.

Germany alone needs 10 years of the global gold production

In order to achieve the ten percent gold mix in its portfolio that some investments advisers recommend, Germany would need to buy up the entire global gold output for the next ten years. This gives you an idea of the constraints in this market. We’re unlikely going to see any large increases in gold production, the current yearly ouput of around 2.500 tonnes p.a. is likely to remain stable for the forseeable future.

So should you buy now, when gold is at 1.345 US dollars / 960 euros? After all, some analysts are saying that after adjusting for inflation, gold should be somewhere between 1.500 - 2.500 US dollars?

Before one starts to analyse possible target prices, it’s worth considering whether gold is going to be a venture, long-term investment or to protect your portfolio against the next possible crisis or hyperinflation, recommends Baumann. The investment vehicle you choose will depend largely on your investment goal. Speculative investments are best suited to short-term certificates or options, while long-term investors should look into gold fonds (ETF). If you’re feeling slightly more adventurous, you could invest in a goldmine-fond, or if you would prefer something less tied to a system, you could go for actual gold bars or coins to lock up in your safe.
Gold is currently tied to the US dollar, but is that correlation always correct? For investors from europe, that tie should mean that investing in gold is a zero-sum game, according to Baumann, as any profits they make would be lost due to the euro/dollar exchange rate. However, we are seeing record highs for gold in all currencies. This is largely because many investors expect governments in america, europe and japan to service their massive debts by printing large amouts of additional paper money.

The history of Berkshire Hathaway

Berkshire Hathaway is a conglomerate holding company which was founded in 1839. At the beginning Berkshire Hathaway was focussed on textile operations, but later in In 1962 the legendary investor Warren Buffett bought the whole company and turned it into an investment holding. Since then the companies produced an averaged annual growth in book value of 20.3%.

Highest priced stock ever traded at NYSE

Due to the fact that Warren Buffett never executed a share split the class A shares were traded at an all-time high of $150,000 on December 13, 2007. In Dezember 2009 the a class shares were traded at 99.200 $ which made them highest priced stocks at NYSE. In 2009 the net income amounted to 8.015 Billion US Dollars with total revenues of 112.493 Billion US Dollars. The assests of the Berkshire Hathaway amounted to 297.119 Billion US Dollars.  In 2005 the CEO of Berkshire Hathaway Warren Buffett owned 35 % of Berkshire Hathaway which made hin the second richest man in the world. Charlie Mugner the vice chairman of Berkshire Hathaway also owns enough hathaway stocks to make him a billionaire.

Berkshire Hathaway stock price Source: Google Finance

The first edition of Security Analysis, published in 1934, forever changed the theory and practice of successful investing. Yet the remainder of that tumultuous decade brought unprecedented upheaval to the financial world, compelling Benjamin Graham and David Dodd to produce a comprehensively revised second edition.

It is that edition, out of print for decades, that you now hold in your hands. Security Analysis, Second Edition, published in 1940, is considered by many (including legendary Graham student Warren Buffett) to be vastly superior to the first. Yet after three subsequent editions and over six decades, the insightful and instructive second edition could be found only in rare bookshops and closely-guarded private collections.

McGraw-Hill, the book’s original publisher, is honored to publish Security Analysis: The Classic 1940 Edition. Identical in every meaningful aspect to the classic original, this is the long-awaited book that set the tone for decades of value investors. Let it provide you with a greater understanding of this country’s financial heritage, along with timeless value investing insights that have proven relevant and profitable in all types of markets and financial environments–and will never go out of style.

“The lapse of six years since first publication of this work supplies the excuse, if not the necessity, for the present comprehensive revision … We have revised our text with a number of objectives in view. There are weaknesses to be corrected and some new judgments to be substituted.”–From the Preface

The names Graham and Dodd have come to be inextricably linked in the minds of thoughtful, disciplined investors. Their 1934 book Security Analysis made the two synonymous with intelligent, long-term investing, and forever changed the face of Wall Street. While post-Crash traders and investors treasured the book for its rigorous honesty, determined logic, and unequalled track record of success, the authors saw only the “weaknesses to be corrected.”

The second edition of Security Analysis, published in 1940, allowed Ben Graham and David Dodd to set the record straight. It was considered by many then, and is considered by many now–including Graham student and disciple Warren Buffett, to be superior in many ways to the first. Still, as subsequent revised editions appeared, the once-indispensable second edition fell out of print and became virtually impossible to locate.

With Security Analysis: The Classic 1940 Edition, McGraw-Hill returns this long-sought investment classic to the marketplace. While its timeless advice–that investors should ignore social trends, company prospects, and management styles to focus on the balance sheet–is as vital today as it was in 1940, it is the book’s updated insights and observations that justify its importance in the annals of both investing and publishing.

Even as the financial world sang the praises of 1934’s groundbreaking Security Analysis, Benjamin Graham and David Dodd knew they could improve it. And that they did, with the 1940 publication of a brilliant second edition. Now, after having been unavailable for decades, this influential book returns in Security Analysis: The Classic 1940 Edition. As powerful today as it was for investors six decades back, it will reacquaint you with the foundations of value investing–more relevant than ever in tumultuous 21st century markets–and allow you to own the only book that could rightfully claim to have improved upon the eloquent first edition of Security Analysis.

Warren Buffett is one of the greatest investors of all time. Speaking at the University of Florida in front of a class of MBA students he gives a short speech about morals and ethics before giving the floor to the students with a Question and Answer session.

15 month after Lehman Brothers collapsed many things have changed, more than 130 banks and aslo General Motors once the world´s biggest car builderfiled for bankrupsy filed for bankrupsy. AIG was rescued with 180 billion dollar of the american taxpayer just like Freddie Mac and Fannie Mae. But for all that the Dow Jones rose by more than 20 percent in 2009, so I ask myself what the year 2010 will bring.

The Dow Jones

The most exciting question is where the Dow will move in 2010. I share the opinion the the Dow Jones will decline in 2010, because there are too many factors which could influence it negatively. First of all the high unemployment rate coupled with rising energy prices will be poison for the tiny recovery. Also the fact that the FED has to get rid of it´s zero interest rate policy one day will influence the markets heavily. So in my opinion there could be two possible scenarios I marked in the chart whereas I favorite the green one. I do that because there is still very much capital which wants to be invested, many people saw the good performance of the Dow in 2009 and believe that this could continue in 2010, so they invest now. But the market is definitely overbought at this moment, not directly overvalued but overbought, so I think we´ll have a pullback at late february or march here.

Euro - USD

The dollar will in my opinion come back to a level  of 1,3 - 1,4 vs. the Euro because of several reasons. The dept level of for example Greece has achieved 295 billion Euro that´s 121 % of the economic performance of this county. Also other counties of the European union are struggling with high dept levels for example Spain, France or Great Britain. Also the economy usually restarts working faster in the USA, which means that the FED will rise the federal funds rate of the quicker than the EZB in Europe.

Gold and Oil

First of all I don´t think the the oil price will go back in an enormous way in 2010. I rather believe that the year 2007 as well as the year 2009 showed us, that we now achieved a point where the global demand of oil rises while supply declines constantly. We call this point peak oil, so in my opinion we will definitely see oil prices of 110 - 130 dollars a barrel in 2010. The only reason why the oil price could decline a bit or in other words could stagnate is because of the come back of the dollar.

On the contrary the gold price has a potential to loose in price, however this depends on when the economy will start working again. If the dollar won´t come back to a level of 1.3 vs the euro and the global economy won´t stabilize we could definitely see prices above 1500 or 2000 dollar per ounce, otherwise we will get back to 600-800 $ per ounce which is my favorite scenario.

The mentioned points above are just a personal of, I hope you understand that I don´t assume responsibility for the correctness of this data.

Get Alice Schröder´s “The Snowball” now !

“The Snowball” begins with a Buffett presentation to an elite 1999 group at Sun Valley, suggesting in a humorous manner that the “.com” frenzy was no more than a bubble. Then, its on to learning why his associate Charles Munger (an inseparable partner since 1959) is both the opposite and highly similar to Buffett. Warren Buffett, we learn comes from a heritage of very thrifty small business owners.

Unfortunately, his mother was somewhat unbalanced, directing frequent tirades at Warren and his sister, creating a lifelong need for the approval of women. Calculating the comparative life spans of religious song writers while in church led Warren towards religious skepticism at an early age.