How to Shatter the Glass Ceiling With Stocks

How to Shatter the Glass Ceiling With Stocks

The Me Too movement has swept across many countries and industries.

It has helped put an end to serial offenders, which is good, but there’s still a long road ahead to fight gender inequality in general.

We need a second movement to overcome gender inequality and break the glass ceiling.

The good news is that you can do this with stocks.

How, you might ask?

No worries. As usual, I’ve got you covered with specific steps you can follow.

1. Invest in Stocks 

Many studies show that women shy away from the stock market and invest far less frequently than men.

The sad consequence of this is that many women miss out on growth and profit, and this deepens the financial divide between men and women.

If your finances are not strong (if you’re dependent on a monthly salary), you’re less likely to stand up to unreasonable treatment at work.

If, on the other hand, you are financially independent and don’t really need the salary, you’ve got the opportunity to make some bold career moves. 

2. Only Invest in Companies with Women at the Top

If they don’t have any women on the board and in top management, don’t invest in the company. 

The same goes for companies with only a few women in upper management. Where’s the limit?

You have to use some common sense. If there are only two women at the top and if those two are in charge of “soft” areas like HR or communications, it’s a sign that the company doesn’t take gender equality seriously. Someone in charge of HR or communications doesn’t have a say in big decisions.

Vote with your money and tell the public companies that you, as a female investor, no longer accept a world where women are excluded from power.

3. Only Invest in Companies with a Fair Gender Policy 

If they don’t mention diversity in their annual report, then you can rest assured that they don’t have any strategy or policy or goals to fight inequality. 

Let’s take an example from politics. How can you expect a political party to prioritize the environment if they don’t have any environmental policy written down? It’s a sure sign that it’s not a priority. They’ll the environment deteriorate if they reach power.

The same goes for companies. If there is no written plan, they don’t have one.

4. Engage and Use Your Voting Rights 

When you own stocks, you own the company, and you have power.

You have voting rights at the annual meeting. You can suggest things to be changed. You can ask critical questions.

In today’s world, many stockholders have the feeling that the CEO is in charge. When you listen to reporting calls, you often get the feeling that the CEO is the strict teacher and the shareholders the unruly students with silly questions.

The truth is that the CEO and the rest of the management work for the shareholders. They are hired to do the work that the shareholders – the owners – ask them to do. So the real boss is actually the owners of the business. It’s you, the shareholder. 

Use your power actively to make sure that women are treated well. Make suggestions, ask critical questions, and vote. 

The link between management and the shareholders is the board. The board is there to ensure that the company is run in the interest of the shareholders.

You, dear reader and shareholder, can run for a place on the board.

Many boards lack women – about half of the boards in my country (Denmark) have no women on them.

All-men boards are true catastrophes.

The tone is set in the board and trickles down through the company. If it’s okay to exclude women on the board, it sends a signal that it’s okay to exclude women further down the chain of command.

It sends the signal that women are not equals. 

5. Put Your Foot Down at Work 

I’ve ignored a lot of injustices because I was afraid of looking like a troublemaker and afraid of losing my job and my income.

I’ve discovered that my male counterpart was paid much more than me (the two of us were doing the exact same job, and I had more experience).

I’ve accepted that there was a whole layer of managers above me that consisted entirely of men.

I’ve accepted being demoted as some sort of absurd carrot and stick punishment for applying for another job internally in another department – and I kept quiet. 

Did not speaking up protect me?

No – in the end, I was fired while on maternity leave. 

I wish I could do it all over again and act differently. I wish I had spoken up. I wish I had resigned and had resumed my career somewhere else where women were valued. Not speaking up gave my boss the impression that this behavior was okay and that he could get away with it.

We all – men and women – have a moral imperative to speak up and be willing to risk our job.

Not just for ourselves, but for all the other men and women next to us and for all the men and women after us. We do it for ourselves, but also for our sisters, brothers, daughters, and sons.

We have to create pressure from both within the company as employees and from outside as shareholders and owners of the companies if we want things to change. 

Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.

 

10 Types of Companies to Avoid Investing in

10 Types of Companies to Avoid Investing in

“What stocks should I invest in?”

You’ve probably asked this question many times.

Maybe you’ve even googled it in frustration. But there’s another question you should ask (or google) first, and that’s:

“What should I avoid investing in?”

There are two reasons why this should be your first question:

1. It’s going to take you a long time to play catch-up if you lose money.

2. It’ll be easier for you to find good investments if you have a system for discarding the bad ones first. You can waste a lot of time researching a company just to discover at a later stage that it’s a no-go because of one of the 10 reasons I’m going to list.

Are you ready to discover what you should avoid?

1. Companies You Don’t Understand

Don’t invest in something you don’t understand.

It’s really important that you have a good grasp of the product or the service that the company delivers. If you don’t, you can’t know whether it’s really a wonderful company with solid products that will sell more in 10 years.

You’ll make yourself vulnerable to fraudulent companies because, without you following along, the management can create fiction about how it’s going. 

2. Companies with Bad Management 

Invest in companies that are run by trustworthy and competent people.

But what is good and what is bad management?

You have to use your ability to read people and ask yourself whether you trust the management. Look at the results they’ve created. Watch videos and interviews with the CEO.

Look at body language and facial expressions and notice how he or she responds to criticism.

One important sign of honest management is that you actually understand what they’re saying. Some technocrats hide behind industry jargon, and that’s usually a red flag.   

3. New Companies and IPOs  

You need at least 10 years of annual reports to be able to paint a fair picture of the company.

You’re trying to predict how the company will do in around 10 years. You can’t do that based on a startup’s initial years. 

Companies that are going public, called IPOs (Initial Public Offering), are risky for two reasons:

  • They go public with a big sales team behind them that can hype the stock price.
  • IPOs often happen in times of an overvalued stock market where the price is more beneficial to the original owners than the new shareholders. 

4. Companies That Lose Money 

Stay away if the company doesn’t make money.

It’s not a good investment to become an owner of a business that spends more money than it makes.

Just like – from a financial standpoint – it’s not a good idea to marry someone who buys a jet on a teacher’s salary.

If they operate with a deficit, they have a hole in the bucket where the water is running out.

5. Companies That Are Shrinking 

If the sales are declining, stay away (even if they’re making money). It’s not a good sign.

They could be losing customers for three reasons:

A. They are losing market shares to competitors.

B. The whole market is disappearing, maybe because something better was invented.

C. They are going through some kind of event that could be overcome.

The first two reasons are a no-go.

If C’s the case, you should not have more than a few months of declining sales and you should be able to identify the exact reason why it’s happening and how they are addressing it.

6. Small Companies 

Don’t invest in something that has a market capitalization (market cap) of less than 1 billion USD. 

What’s market cap? It’s what the company is worth at this very moment (number of shares X stock price). You can easily find it by googling “market cap”.

If you invest in small companies, you run the risk of the stocks freezing up and you not being able to unload the shares when you want to get out.

7. Companies in Developing Countries 

There’s a lot of trust involved in investing. You have to trust the government, the laws, the institutions enforcing the laws and the whole support structure surrounding the company, like the accountants doing the books.

In other words, if it’s a US company you invest in, you trust the US Government, the relevant US laws, the Security and Exchange Commission (SEC), and the accounting firm they use.

I don’t invest in Chinese companies for this very reason. I don’t feel sure about the government’s predictability, the regulation (China has, among others, inadequate regulation on insider trading), the enforcement or the accounting practice.   

8. Companies with Variable Results

If the numbers go up and down a lot, stay away from investing in the company.

Why?

It’s hard to calculate what the company is worth because there will be no “normal” year you can base it on.

Some industries have inherently fluctuating results, because one single order is the size of a whale. That’s the case with companies that produce wind turbines. An order is usually not a single wind turbine but rather whole parks.

It’s hard to predict anything in this kind of company.

9. Pharmaceuticals and Biotech Companies      

Pharmaceuticals and biotech companies run a lot of complicated research projects to develop new medicine.

What happens in the laboratory can have an enormous influence on both the future sales prospects and the stock price today. 

It’s hard to predict, and it’s hard to understand. There can be “bombs” in both the pipelines of the company you are looking to invest in – and also its competitors.

If a development project in your company of choice tanks, the future tanks. If a competitor’s development project has a breakthrough, the future of your company of choice tanks too.

10. Financial Companies 

Yes, Warren Buffett invests in banks and insurance companies, but that doesn’t mean you should.

Financial companies are complex. Banks can have a lot of nasty stuff hidden deep inside their books.

Maybe they are vulnerable due to certain loans they’ve made or maybe they are invested in some complicated products that they don’t really understand themselves (think Financial Crisis).

Both banks’ and insurance companies’ annual reports deviate from a normal company’s annual report. You’ll find that it’s difficult to do some of the most popular calculations on them, like Warren Buffett’s owner earnings.  

What Else to Avoid?

Obviously, having this list doesn’t mean you can invest in anything that’s not on here.

This list is just the first strainer you’ll use.

Next, you’ll use a check list to find a great company. You are welcome to borrow mine here.  

Don’t forget to read my free e-book that explains my whole investing process – including my favorite way to calculate what a company is worth. You can get it here.

 

The World’s Top 10 Value Investors – And How to Copy Them

The World’s Top 10 Value Investors – And How to Copy Them

When you learn to invest in the stock market, you can take a major shortcut.

You can copy other people’s investments.

That’s exactly what Warren Buffett did when he first started out. He copied his professor Benjamin Graham’s investments, and later on, his investing technique.

Who should you copy, and how do you follow them?

No worries – I’ll give you my top 10 list of my favorite value investors and tell you how you can see what they’re investing in.

But first a bit of background that’s necessary if you want to imitate them. 

There are two kinds of value investors: Quantitative and qualitative investors.

Quantitative investors invest in a lot of companies at the same time. They have hundreds or even thousands of companies in their portfolio. 

They follow some kind of automatic system, and a computer decides what to invest in according to some specific numbers.

Benjamin Graham used to invest like this. Joel Greenblatt invests like this today. He is a renowned value investor – but he currently has shares in 1,044 companies. 

We can’t expect someone with hundreds or thousands of investments to have looked at every company in detail – so we cannot use their investments as a proof of quality.

We have to look at the qualitative investors – those who look carefully at each investment and who go in big when they believe in the potential of a company. This is in line with the way I recommend you invest: follow a checklist and analyze the companies in detail. 

How do you know if an investor is qualitative or quantitative?

First of all, look at the amount of companies they invest in. Some of the best investors only have a handful of active investments. However, some of them have many “practice shares”. This is when they only invest a little in companies that they are considering – so the total number of companies isn’t always fair. 

It’s a better indication to look at their top five investments. If their top five stocks make up at least 50 percent of their portfolio, you are looking at one of our guys (sorry, there are no women on the list). 

Where do you look at their investments?

The fund managers have to report their trades to the SEC at the end of each quarter. You can use the SEC’s website, but it’s a little messy. It’s better to use databases like:

Let’s dive right into the top 10…

1. Warren Buffett 

Berkshire Hathaway (around 200 billion USD)

Say no more, right?

If you haven’t heard about him before, you are definitely new to the blog.

I write and talk about Warren Buffett until I’m blue in the face, because he’s the best investor out there.

This 90-year-old investor reinvented value investing. He took it from pure bargain shopping to bargain shopping with a brain.

He learned value investing from his professor Benjamin Graham, who was a quantitative investor. Buffett took it a step further and created the qualitative style where you look carefully at what you invest in to make sure that you get the real bargains – and not the so called cigar butts or falling knives (investments that are cheap because they face a bleak future).

Buffett invests through the public company Berkshire Hathaway, and if you’re really lazy, you can copy him by investing directly in Berkshire (BRK/B). But remember, in all stock investments, you have to make sure that you buy the stock when it’s cheap. It can be hard to figure out when BRK/B is cheap, as it’s a complicated construction with lots of companies inside.

A good yardstick is to look at when Warren Buffett decides that it’s time for share buybacks. You can rest assured that he did some intelligent calculations.

Berkshire’s top five investments make up 75 percent of his portfolio of publicly traded companies. His top investment is Apple, which alone makes up 44 percent of his portfolio at the time of writing. 

2. Charlie Munger   

Berkshire Hathaway (around 200 billion USD) and Daily Journal (around 1oo million USD)

Charlie Munger is Warren Buffett’s partner. Without Munger, Buffett would never have reached the level he’s at today. 

When you hear Warren Buffett say that he would rather invest in a wonderful company with a fair price than a fair company with a wonderful price, you can hear the echo of Charlie Munger’s influence.

Munger has lifted Buffett from being a doomsday-thinking, cigar butt investor to investing in so called Wonderful Companies (companies with a moat and a good management).

Apart from his influence on Berkshire Hathaway, where he’s vice chairman, Munger also makes some decisions about the portfolio of Daily Journal where he’s chair. 

Daily Journal only has four investments: Bank of America, Wells Fargo, US Bancorp and Posco. 

3. Bill Ackman  

Pershing Square Capital Management (7 billion USD)

Bill Ackman is a different kind of value investor. He calls himself an activist investor. He takes a stand and gets actively involved in giving the management a direction.

He often invests in troubled companies and forces them to make some kind of big shift like like changing the management. 

This is a very different way of investing than Buffett and Munger, who have a hands-off approach to the companies they invest in. Buffett and Munger choose well-run companies with a management they believe in, and they let the management run the show without interfering.

Bill Ackman is also famous for his spectacular bets on companies that he believes will fail. This is called short selling or shorting.

He became headline news when he warned against Herbalife, who he called a pyramid scheme and shorted. Rival investor Carl Icahn took the opposite position and began buying stocks in Herbalife to support the company and the stock price. The two investors had a very public fight about the company that aired on major financial TV-channels. Bill Ackman might have been right about his accusations, but Carl Icahn held a hand under the stock, and after five long years, Bill Ackman had to pull out of the bet in 2019 with a major loss. 

He had a comeback early 2020 when he shorted the whole market, predicting the COVID dip of March 202o.

Shorting is not for the faint-hearted, and I warn private investors against shorting.

Bill Ackman makes it to the list anyway, as he has made some very sound long positions over time. 

His portfolio only consists of seven companies, and top five make up 83 percent.

4. David Einhorn 

Greenlight Capital (922 million USD) 

David Einhorn is a bit like Bill Ackman. He likes shorting, and from time to time, he makes some entertaining public accusations.

The minds of these two work a bit like investigative reporters who uncover scandals. 

David Einhorn shorted Lehman Brothers in 2007, and he pointed his finger at the exact problems that caused them their downfall a year later. 

He now shorts Tesla and uses Twitter to point out some dubious management practices. You can see his Twitter profile here.

He wrote the book Fooling Some of the People All of the Time about Allied Capital, one of the other cases he shorted.

He’s currently invested in 23 different companies. His top five make up 69 percent. 

5. Monish Pabrai   

Pabrai Investment Funds (148 million USD)

When Indian-American Monish Pabrai sold his it-business and announced that he wanted to be a fund manager, his friends frowned. They thought he should have a “real” job and stop counting the fluff in his pocket.

Shame on them. Today he is considered one of the best investors in the world, and some people call him the new Warren Buffett.

He focuses on classic value plays where he identifies companies that are like free lottery tickets where the potential upside is big and where there is little risk of losing any money. He wrote about his investment strategy in the book The Dhandho Investor. I described it in a blog post here

His fund currently has three investments that we know of: Micron, Seritage Growth Properties, and Fiat Chrysler. There is a little catch, though. We can only see the American companies that he owns more than 10 percent of, and he has a tendency to fly below the 10 percent threshold to avoid having to report it to the SEC.

6. Li Lu 

Himalaya Capital Management (1 billion USD)

Li Lu was one of the Chinese students who organized the protest in 1989 in Tiananmen Square. He had to flee China and received a scholarship to study at Columbia University – which happens to be the place where Warren Buffett learned value investing from Benjamin Graham.

Li Lu invested or traded his scholarship money and grew it to a million dollars, according to Charlie Munger.

Munger acts as his mentor and investor, and he’s not shy of boasting of Li Lu’s talent at Berkshire Hathaway’s annual meetings.

Some people speculate whether Li Lu will be one of the heirs to take over management of Berkshire Hathaway’s investment after Buffett and Munger.

Li Lu’s fund only has four investments: Micron Technology, Bank of America, Facebook, and Google (Alphabet).  

7. Bill Gates 

Bill and Melinda Gates Foundation Trust (17 billion USD)

Microsoft’s founder Bill Gates isn’t really a value investor, but I keep an eye out for his moves, as he’s a close friend of Warren Buffett.

Buffett has donated a large part of his stocks to the Bill and Melinda Gates Foundation Trust, and I imagine that Gates discusses any major investments with Warren Buffett – or at least runs them by him.  

The Trust has a more dotcom-focused approach, which is hardly surprising, as we are dealing with Bill Gates. He has, among others, invested in Google and Amazon.

There are 23 companies total. The five major ones make up 72 percent of the portfolio. The biggest alone – Berkshire Hathaway – makes up 49 percent of the Trust – but that’s because Warren Buffett donates shares to the Trust.  

8. Allan Mecham  

Arlington Value Capital (688 million USD)

Allan Mecham was sued by a local broker for having falsified his statements after the financial crisis. The broker didn’t believe that Mecham could have made a positive return when the rest of the market fell around 50 percent.

But the fact of the matter was that Mecham indeed did defy financial gravity.

You’ve probably never heard about him before, and that’s because he’s a shy investor.

He never gives interviews, he hasn’t written any books (seems like any investor with respect for himself will at least write one book), and he’s all in all very quiet. He prefers flying under the radar; he doesn’t believe publicity will help him. He has previously said that he fears attracting the wrong kind of investor if he is too much in the public eye. 

There are online rumors circulating that he’s closing his fund due to health problems. The rumors first appeared in April 2020 when COVID-19 first began raging through the world. There’s been no public statement on the matter.

A look at his investments paints a picture of someone who might be closing down – or it could just be someone judging that the market is due for another drop. He has recently decreased most of his top positions from 1.5 billion USD to 688 million at the time of writing.

He’s the youngest of the top 10 investors – the only one under 50 – so, surely, he can’t be retiring.

There are 16 different companies in his portfolio, and the top five make up 38 percent. 

9. Prem Watsa     

Fairfax Financial Holdings (1.6 billion USD) 

Indian-Canadian Prem Watsa focuses on cheap, in the traditional value investor way (think Warren Buffett before he met Charlie Munger). 

One of his large positions is Blackberry, remember them? They used to be a popular calendar phone whose sales plummeted when the iPhone conquered the world.

It’s hard to see any traits of a wonderful company in Blackberry (what’s it’s competitive advantage?). This kind of investment can only be explained with a traditional value investor mindset. Prem Watsa must have identified some assets, maybe technology, that’s worth more than the company’s valuation on the stock market at the time of purchasing the stock.

He has 59 companies in his portfolio, and many of them are very small positions (they look like practice shares). The five biggest make up 81 percent of his portfolio. 

10. Seth Klarman   

Baupost Group (8 billion USD)

Seth Klarman is a truly legendary investor. A used version of his book, Margin of Safety, sells for more than 1,000 USD on Amazon.

Some people have speculated whether it’s on purpose that he doesn’t let won’t let his book be reprinted. Maybe it’s some kind of prestige having a book that has become a collectors item.

Seth Klarman understands a bit about selling and buying used stuff. His biggest holding is eBay, which makes up 21 percent of his portfolio. 

He’s currently invested in 30 companies. His top five make up 58 percent. 

Remember to run the investment ideas that you pick up from the top 10 through your own checklist, and remember to make sure you don’t buy the stocks too expensive. Even the most wonderful company can be a terrible investment if you buy the stock too expensive. You can learn how to invest like Warren Buffett and other top value investors right here

Seven Things Warren Buffett Can Teach You About Living a Good Life

Seven Things Warren Buffett Can Teach You About Living a Good Life

When Warren Buffett speaks, people listen.

He is, after all, one of the best investors the world has ever seen.

His quotes on investing are famous. 

But what does he say about living a good life?

I believe you become a better investor by copying more than just his investing techniques. You’ll benefit from following his wisdom and life skills as well.

Why is that? You won’t have much success as an investor if the rest of your life is a mess, because you won’t be able to focus. 

Apart from being an excellent investor, Warren Buffett is a wise man with nine decades of experience, and yes, he does have an opinion about how to live a good life.

I’ve collected seven of his most important snippets of wisdom that relate broadly to living life and not just to investing and making money. These seven pearls of wisdom have made an impact on my life.

Who knows…maybe they’ll change yours too. 

1. Choose Friends You Like and Admire

Make some good friends, keep them for the rest of your life, but have them be people that you admire as well as like.”

This is the most important piece of advice Warren Buffett has given the Microsoft founder Bill Gates. They have been friends for around 25 years, and you might be surprised that it’s this piece of advice that Bill Gates highlighted when Warren Buffett turned 90, because at first glance it seems a bit trivial for such brilliant minds.

But before your eyes glaze over this, do yourself a favor: think a moment about who your friends are and where you know them from.

Some you might know from school.

Some lived in your neighbourhood.

Some you know from university.

Some of them were friends of friends or colleagues.

You’ve probably chosen most of your friends because they happened to be there.

Do you admire them? Do you really like them?

Think about them one after the other.

This little piece of advice to choose friends you like and admire is important, and if you think about it, it’s also quite different from how most people go about friendship.

When I did this little exercise, I discovered to my own horror that I have some friends who I would consider unkind, and even some friends who display behaviour I can’t approve of.

I just didn’t really think that someone else’s behaviour was my problem. But it is. 

“You will move in the direction of the people that you associate with. So it’s important to associate with people that are better than yourself. The friends you have will form you as you go through life,” Warren Buffett told Bill Gates. 

If this is true about friendship, imagine what he says about marriage… 

2. Marry the Right Person 

Marrying the right person will be the single most important decision you make in your life, Warren Buffett says.

It’ll determine your destiny.

Warren Buffett’s first wife was Susan Buffett, with whom he had three children and a marriage lasting three decades.

Today he is married to Astrid Menk, to whom Susan introduced him before she decided to move to California to pursue a singing career.

Warren and his first wife remained married and friendly until she died in 2004 …despite the fact that they both had separate partners.

Before his first wife, Warren Buffett dated a woman who was an emotional whirlwind. She later married one of Buffett’s friends – a marriage that ended bitterly.

If Warren Buffett had married a person less kind and stable than Susan Buffet, if he had entered into decades of marital struggles, would he have been able to make the impact that he has? Would he have been able to focus?

Marry the right person. I’m serious about that. It will make more difference in your life. It will change your aspirations, all kinds of things,” he said at Berkshire’s annual meeting in 2009.

3. Protect Your Reputation 

Warren Buffett is all about avoiding losses and investing conscientiously.

Apparently, that’s also what he values in other spheres of his life. 

“It takes twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently,” he says. 

His investing style is about considering data and avoiding rash decisions and emotional investing.

When it comes to living a good life, his style is similar.

He’ll extend himself far to avoid letting anger destroy his reputation or important relationships. 

4. “You Can Always Tell Someone to Go to Hell Tomorrow”

This is something ABC Inc.’s CEO Tom Murphy told him more than 40 years ago, and according to Warren Buffett himself, it’s been one of the best pieces of advice he has received during his career.

“It’s such an easy way of putting it. You haven’t missed the opportunity. Just forget about it for a day. If you feel the same way tomorrow, tell them then — but don’t spout off in a moment of anger!” he has said in the book Getting There: A Book of Mentors

Don’t risk all your wins on an emotional spur-of-the-moment. Just wait. Postpone your anger.

Whenever I find myself getting caught up in an emotion, I’ll take a deep breath and say “Mañana”. 

5. Follow Your Inner Scorecard 

“The big question about how people behave is whether they follow an inner scorecard or an outer scorecard,” Buffett has famously said. 

What’s the difference?

If you follow an outer scorecard, you measure your success in things outside of your control, such as other people’s actions and opinions.

This could be striving for winning a prize, getting on the cover of a magazine, getting a raise or promotion – or even getting enough likes on social media.

Inner scorecard is about measuring your success by how you think you’ve done. Do you think you did a good job?

Can you be happy about it even if the boss doesn’t notice it?

I already navigated by an inner scorecard in my previous career as a journalist when I decided to stop worrying about front pages and nominations for awards and focus on the content of my news articles and the problems I helped disclose or solve. That was a reward in itself. 

6. Go to Bed Smarter Than When You Woke Up 

Learn something every single day. 

Warren Buffett reads about 500 pages a day. He says he spends 80 percent of his workday reading.

Why?

He says knowledge is compounding.

“That’s how knowledge works. It builds up, like compound interest.”

I couldn’t agree more.

Maybe 500 pages doesn’t fit your lifestyle with a full-time job and kids.

Then make it 10 pages or 20 pages. But learn and study something every day. Consistency is key. 

    7. Invest in Yourself

    Warren Buffett has framed a 100-dollar Dale Carnegie certificate in public speaking which hangs in his office.

    He calls the course one of the best investments he’s made in his life.

    He was afraid of speaking in front of people before taking the course. This is something you don’t notice today at all when he goes in front of big crowds or on TV. 

    If you lack knowledge in a certain area, go get the knowledge. Improve, train, get better. Get a good teacher. 

    There are only so many things you can learn from books. Courses – online or offline – will get you to the next level.

    “By far the best investment you can make is in yourself,” Warren Buffett has said.

    You are your most important asset. You earn the money and you make the investment decisions.

    Honor that by upgrading your skills. 

    You can upgrade your investing skill set this very minute by downloading  my free e-book Free Yourself here.  

    How to Stomach the Volatility in the Stock Market

    How to Stomach the Volatility in the Stock Market

    To be a successful investor you have to avoid the natural human instinct to follow the herd.

    When the stock market goes down, your natural tendency is going to be to want to sell, and when the stock market is going up, your natural tendency is going to be to want to buy.

    In bubbles, you should be a seller, not a buyer. In busts, you should be a buyer.

    You have to have the discipline to stomach the volatility of the stock market.

    Here are five key ways to develop the strength to go against the herd. 

    1. Be Financially Secure 

    First of all, you have to have some savings.

    You’ve got to feel comfortable that you have enough money in the bank that you don’t need what you have invested for many years to come.

    Some people think it’s a shame not to invest every penny that they have. In their world, cash not invested is a waste. 

    If that’s your thinking, I suggest you think about it this way instead: your cash savings are buying you something very valuable and specific, and that’s peace of mind and the ability to stomach market volatility. You should have at least two types of savings:

    A. An emergency account for a car repair or a new fridge. This should be at least $5,000 that are always available.

    B. A security savings of either three months’ salary or six months’ expenses. This should also be ready in cash. Apart from giving you peace of mind on the stock market, it will also make it easier for you to take some bold career moves and set boundaries at work. 

    2. Don’t Leverage  

    Don’t invest with borrowed money.

    Most people know not to take an expensive bank loan and invest the money or speculate with the money. 

    But there is a different way of borrowing money that is not so obvious to the eye. Many platforms let you invest with leverage – almost without you noticing it: it’s called a margin account. You should avoid this. You should never invest more than you have. 

    Investing with leverage has destroyed many good investors, even good value investors who were peers of Warren Buffett.

    Call your brokerage platform to make sure that you’re only investing your own money if you’re not sure.

    Some more complex financial products contain leverage, but if you are just selling and buying stocks, you are safe. 

    3. Don’t Get Spooked by the Market

    Just because something goes down in value after you buy it, it doesn’t mean you’ve made an investing mistake.

    Keep your focus on the long term prospect. 

    The stock market moves up and down all the time.

    In the short term it’s a voting machine, whereas in the long term it’s a weighing machine.

    It’s affected by all kinds of events in the world, and few of these events have anything to do with the business of the company that you are invested in. This is just the nature of volatility. But don’t worry, if your company is sound and has some competitive advantages, the stock price will straighten itself out in the long run.

    If it’s any consolation Warren Buffett has also invested in companies just to see the stock price drop further. One example is The Washington Post which he invested in during the 1970s. More than a year after he initially invested in the newspaper, the stock price was down 25 percent.

    This investment later turned into a profitable one. Four decades later, Buffett exited the position (the original investment of $10 million) in a tax free swap worth more than $1 billion.

    4. Research Your Companies  

    Don’t buy a stock because someone in a podcast predicted high returns and a glorious future for the company.

    Research the companies you invest in. Analyse it the way you would, if you were buying the entire company.

    • Make sure it’s a business you understand. 
    • Make sure you like the management.
    • Make sure that the company has some kind of competitive advantage.
    • Make sure the company doesn’t have too much debt. 

    It’s a good idea to use some kind of checklist. You can borrow mine here.

    5. Pay a Reasonable Price 

    The price of the stock should be reasonable compared with the earnings of the company.

    I usually say ‘buy it when it’s cheap’, but I fear that many people will think a stock is cheap if it has fallen from a recent high, and that isn’t necessarily the case.

    You really have to look at the value in the company and compare the stock price to that.

    Let’s go back to Washington Post for a moment. Warren Buffett had calculated that it was priced at 25 percent of the intrinsic value before investing in it. That’s like buying one dollar for 25 cents. That it fell to 20 cents on the dollar does not make the original investment bad. It means you might want to consider buying some more since it’s an even better investment now. 

    What if they have no earnings? Don’t invest in it then.

    Companies with no earnings or negative earnings are too risky to invest in.

    How do you know if the price of the stock is reasonable? If you want to learn how Warren Buffett calculates the value of companies, you are welcome to download my free e-book here.

     

    What Guy Spier Can Teach You About Life And Investing

    What Guy Spier Can Teach You About Life And Investing

    He began his career as a Gordon Gekko wannabe, but changed his mind and his life and became a value investor who models Warren Buffett.

    Guy Spier wrote the book The Education of a Value Investor about the journey he went through as a human being and as an investor.

    The book contains many interesting points about investing, but it’s much more than that. It’s also a personal development book, and as such it’s one of a kind, as it integrates it with investing.

    As Guy Spier points out, everything is interconnected. His original motivation for changing his ways had been to boost his returns, but the decisions also led to a better life.

    Here are the ten key points I took away from the book:   

    1. Choose Your Environment Carefully 

    As Guy Spier writes:

    “We like to think that we change our environment, but the truth is that it changes us.”

    You have to carefully choose the right environment.

    You must choose carefully who you work with, who you socialize with, and ideally you should choose to hang out with people who are better than you so you can become more like them.

    You must also consider your physical surroundings. 

    Spier has built an environment around him that suits both his restless personality (he has ADD) and the flawed human brain (more on that later):

    He decided to move from New York to Zurich. He wanted to imitate the peaceful environment Warren Buffett has created in Omaha (he even considered moving to Omaha).

    Spier realized that he needed to live in a location where he could think calmly and invest for the long term without the pressure of other people’s expectation. New York had become too much of a pressure cooker, in particular during the financial crisis.

    “Boring is good. As an investor, that’s exactly what I want, because distraction is a real problem,” he explains in the book. 

    He chose a neighborhood that was not too posh. He didn’t want to be near any influence that would make him envious, greedy and make him take bad investing decisions.

    “Super rich settings are not ideal for me since they stimulate unhealthy appetites.”

    He decided for an office ten minutes away from home.

    “This is close enough to improve one’s quality of life, but far enough to establish a separation between work and home. For people like me who get obsessive about their jobs, it’s useful to have this separation.”

    He carefully designed his office so there were few distractions. He set up a quiet room for reading and a busy room with the Bloomberg monitor that he finds very distractive.

    He thought carefully about the pictures and the decoration. He placed a bronze bust of Warren Buffett’s partner Charlie Munger in his office to have him present in his mind during the investing process.

    2. Model Your Heroes   

    It’s a human instinct to copy the people around us.

    You can use this instinct actively by consciously choosing to copy the best in the world. Choose a hero and ask yourself what they would have done in your situation.

    The key is to be as precise as possible, picturing your hero in as much detail as you can.

    Guy Spier chose Warren Buffett, and the process of modelling changed his life.

    “It was as if I had tuned in to a different frequency. My behavior shifted, and I was no longer stuck.”

    3. Show Genuine Interest in Your People and Write Thank-you Letters   

    Guy Spier discovered that Warren Buffett was a Dale Carnegie fan, and he decided to read and follow the guidelines in Carnegie’s book How to Win Friends and Influence People.

    He discovered that Warren Buffett not only compounds money but also goodwill and relationships. The main idea of the book is to show genuine interest in people and appeal to their self-interest.

    Spier began approaching people with an attitude of curiosity, kindness and gratitude and discarded any agenda. As he writes: “When you have an agenda, people smell it, and this tends to put them on the defensive.”

    He also decided to write three thank-you letters every day. He viewed every letter as an invitation for serendipity to strike. It was through one of these letters that he built a friendship with the famous investor Monish Pabrai. 

    4. Tap Dance in Life 

    In order to be a good investor, you need to build a calm and enjoyable life.  

    “It’s hard to invest well if your non-investing life is out of whack, in chaos, or stunted.”

    Spier discovered that he had taken a serious approach to life and investing. Inspired by Warren Buffett who says he tap dances to work, Spier decided he rather wanted a happy life and not necessarily the biggest fund.

    “When you drop a stone in a calm pond, you see the ripples. Likewise in investing, if you want to see the big ideas, I need a peaceful and contented mind.”

    The lifestyle changes meant taking more naps, traveling more and taking up new hobbies.

    One of the new hobbies was bridge (Buffett plays bridge too). He discovered that bridge can help you hone your skill as an investor:

    “If I were putting together a curriculum on value investing, bridge would undoubtedly be part of it,” Spier says. 

    Playing bridge helped him become more adept at operating in uncertainty.

    “They key, perhaps, is that many investments are acutely uncertain, but not as risky as they might first seem.”

    Another game that hones your skill as an investor is chess. It improves your skills of analysis and pattern recognition. 

    5. Respect the Limitations of Your Brain  

    The mind is ill-suited for the task of investing. When we invest, we presume that the rational part of our brain will make the decision, but the problem is that a sub-rational and more instinctive part of the brain takes the driver’s seat.

    Your brain isn’t really built for the life that we live today. It’s built for the life we used to live thousands of years ago. When the brain sees a falling stock, it reacts as if it’s confronting a roaring lion.  

    You really have to protect yourself from this part of your brain. For Guy Spier it meant protecting himself from the Bloomberg terminal and the noise of the market.

    “The terminal delivers such a relentless flood of news and data into the investor’s brain that it’s hard to muster the self-discipline to turn off the spigot and concentrate on what matters most.”

    For other people it might mean staying away from certain podcasts or social media. 

    6. Stay Away From Debt 

    Debt can interfere with your ability to act rationally, and it can make it hard for you to remain calm and clearheaded when stocks fall. 

    Spier made a conscious decision never to live beyond his means. He avoids credit card debts, leasing cars and even a mortgage on his house.

    “For an individual investor, debt can be disastrous, making it even harder to stay in the game – both financially and emotionally – when the market turns against you”.

    7. Have Some Rules for Investing 

    Before pilots take off, they have procedures, rules and checklists that they follow in order to make sure that the flight is safe and smooth.

    Have you ever considered adopting rules and checklists for your investing practice? Guy Spier generously shares his:

    • Stop checking the stock price
    • If someone tries to sell you something, don’t buy it
    • Don’t talk to management
    • Gather investment research in the right order
    • Only discuss investment ideas with people who have no axe to grind
    • Never buy or sell stocks when the market is open
    • If a stock tumbles, don’t sell it for two years
    • Don’t talk about your current investments

    If you want to read more about Guy Spier’s investing rules, you can go to the blog post where I described them in detail here.

    8. Build Your Own Checklist  

    Recall the investing mistakes you have made, work out why they happened and if there was something you should have noticed beforehand.

    Create a checklist from that list, of things you must consider before you invest. This will help you avoid preventable mistakes.

    The idea comes from Atul Gawande who wrote the bestseller The Checklist Manifesto: How to Get Things Right.

    Where to begin? You are welcome to borrow my 12-point checklist and build from that. You can download it here

    9. Keep Learning  

    Spier never says this explicitly, but it’s written between the lines. He’s an avid reader and learner and the journey he underwent was mostly inspired by books, lectures and seminars.

    Some of the books he mentions are:

    The Intelligent Investor by Ben Graham

    Think and Grow Rich by Napoleon Hill

    How to Win Friends and Influence People by Dale Carnegie

    Buffett: The Making of an American Capitalist by Roger Lowenstein

    Journey to the Ants by Bert Hölldobler and Edward O. Wilson

    Thinking, Fast and Slow By Daniel Kahneman

    Power vs. Force: The Hidden Determinants of Human Behavior by David Hawkins

    The Black Swan: The Impact of the Highly Improbable by Nicholas Taleb

    Influence: The Psychology of Persuasion by Robert Cialdini

    – and many, many others.

    He also went to a Tony Robbin’s seminar (Unleash the Power Within) and listened to a CD with a lecture by Charlie Munger called The 24 Standard Causes of Human Misjudgment. Of course, he also mentions Tedtalks and news articles.  

    The point is that he spends plenty of time reading, studying and learning (in whatever shape it may be) and so should you, if you want to be a good investor. 

    1o. Create a Group of Masters Around you   

    You must create a mastermind group. 

    The idea comes from the book Think and Grow Rich by Napoleon Hill, and the concept is to find eight to ten professionals that you can share issues with confidentially, guided by a moderator.

    One person gives a presentation of an investment idea, and the others subject it to clarifying questions so the idea opens up to examination.

    Previously (in his former life), Spier was lucky to create a group of peers in New York that included the notorious investor Bill Ackman.

    In his new life, he joins a mastermind group for a three-day retreat twice a year to discuss whatever comes up. 

    “For me, meetings like these have been the single best accelerator of inner growth,” he says. 

    Want to keep learning? You can learn to invest like Warren Buffett here. By entering your email, you become part of my e-mail list.  A couple of times a year, I arrange new mastermind groups that you could choose to join. If you can’t wait for that, you are welcome to join my free Facebook Group here.