Why People Keep Investing in Losing Positions and How To Avoid It

Why People Keep Investing in Losing Positions and How To Avoid It

When Warren Buffett was a young man, he went to the horseracing track and bet the earnings from his newspaper routes on a horse.

He lost.

Instead of going home, he put more money on a new race, which he also lost.

The same thing happened again and again.

He kept going until he had lost all his money.

Afterwards, he regretted it. He bought himself an ice cream treat with his last coin and thought about what had just happened.

Why did he bet all his money and lose it?

He had had an encounter with the sunk cost fallacy phenomenon.

He didn’t want to accept that he had lost money on a particular bet, and he tried to win it back.

Betting on the same horse is an illogical move. Each new bet must be seen as an independent decision.

Sometimes we have a hard time letting go of something because we have invested time and money in it.

We have a hard time accepting that the money is gone.

Friendships and Pants

You find sunk cost fallacies in every aspect of life.

The sunk cost fallacy is at play in our relationships.

It’s at play when you stay in a dysfunctional friendship you’ve had since childhood.

It’s when your friend seems jealous of your success and doesn’t cheer for your decisions, and you don’t even laugh together anymore. It’s when a little voice tells you: “Well, we’ve known each other for 15 years – 20 years – 30 years.”

You’ve invested time in that relationship, and you don’t want to accept that it’s a loss that should be cut. You keep showing up for birthdays and couples’ dinners and keep spending your valuable time with a person who brings you down.

Sunk cost fallacy is also at play in your wardrobe.

It’s when you stick with things because of the value they once had. Maybe it’s a pair of pants that no longer fits.

It’s when you clearly remember how much they cost and where you bought them, and you keep the pants (or the bag or the appliance) because you don’t want to acknowledge that the money is gone.

The Loss Accumulates

It could also be that you’ve started a business and have invested time, money, and resources in it.

Maybe you bought an expensive international domain several years back. Every week you pay the cost of keeping the business afloat. Add to that all the time you’ve spent on it.

The weeks, months, and years go by, the loss accumulates, and you’re still not making money on it.

Every week you keep throwing more time and more money at it. It’s becoming harder and harder to let it go.

Why not just bring the project to a close and go for something that you can monetize?

Because you’ve invested in it, and you refuse to give up.

Giving up is waving goodbye to all the expenses, hours, and resources.

As long as it’s still alive, you think there is still some hope of getting the money back.

Sunk cost fallacy is also at play when you’ve invested in a stock that has tumbled.

Maybe you think, “NOW it must have reached the bottom,” and then you might invest even more (just like Warren Buffett at the racetracks).

Did you know that people are more likely to sell a winning position in a sound company than a losing position in a lousy company?

They do so even though the losing position is a bad investment in a company that has a negative net income, and the other position is in a profitable company.

It’s illogical, but that’s how people do it.

How to Avoid It

Warren Buffett learned an important lesson from losing money at the racetracks.

As Warren Buffett puts it: “You don’t have to make it back the way you lost it.”

Remember that statement. It’s so true.

He promised himself that he would never react the same way again, and that is one of the lessons that has made him such a phenomenal investor.

Warren Buffett is good at pulling out of the positions he no longer believes in.

One example is when, at the beginning of the pandemic, he sold all Berkshire Hathaway’s stocks in four different airlines.

So now you know what it is.

How do you avoid falling into the sunk cost fallacy trap? Here are three steps to avoid it:

  1. Let the present facts be your baseline. Look at it as if you’ve never encountered the investment, the pants, or the friend before.
  2. Accept that the past is past. If the money is lost or spent, it’s gone. Whatever the friend did 10 years ago is gone. It’s who he is today that counts.
  3. Assess the future. Are you likely to wear that pair of pants in the future?  Is the business likely to make a profit? Is your friend likely to support you? If you think so, keep the friend, the pants, the stock. Hell, get one more. But if the answer is a no, get out of there.

When you stick to things solely because they’ve cost you time or money, you are undermining your own potential and devastating your future.

Because one thing is for sure.

You won’t get financially free and wealthy by sticking to bad decisions from the past.

Approach all decisions as if the past doesn’t exist, and have the courage to make real changes.

Learn how to assess a company’s potential in my free e-book Free Yourself here.

 

 

The Biggest Mistake Many New Value Investors Make

The Biggest Mistake Many New Value Investors Make

You have become a dedicated value investor, and now you want to get started at the actual investing.

You have seen the light.

You understand that it’s about buying shares when they are undervalued on the stock market and selling them when they are overvalued (or keeping them).

Congratulations. That’s actually an important milestone.

Maybe the concept seems obvious to you, but for many it’s not that obvious.

A lot of people never get it.

Most people think – and this is the dominant mindset in the market – that stocks always have the “right” price.

Most people believe the market is efficient. They believe that since all (or almost all) information is out there, all data is priced into the stock by the efficient machine called the market. Based on this, the logical conclusion is that whatever price the market decided to place on a stock is the right price.

There’s just one flaw in that line of thinking.

The market is not a perfect machine.

The market is made up of people making tons of decisions, and people are driven by emotions.

It’s about as efficient as a crowd at the town square. One moment throwing rotten eggs and the next moment throwing flowers.

People are driven by all sorts of emotions, including fear and greed, which are the dominant emotions in the stock market.

Prices sometimes fall below a logical level because people get scared out of their wits, and other times prices soar above any logical level because they get caught up in greed and don’t want to miss out.

Not all people get the idea behind value investing.

Warren Buffett said value investing is like buying a dollar for 50 cents. He also said that some people catch the idea right away, while others don’t.

If someone doesn’t get it, you can explain it for days on end, but they will never understand it (according to Warren Buffett).

In other words, you’re one of the chosen who get it – and that’s not something to take for granted.

Be grateful for that.

The Big Value Trap

So what’s the mistake that lots of newbie value investors make?

I believe they haven’t completely let go of the idea that the market is efficient. They basically believe that it’s effective… but that it occasionally slips.

When they see a stock dip, they immediately assume it’s on sale.

You often hear people say something like “stocks are on sale” when the major indices fall 2%. Then they buy left and right without looking into what they’re buying shares in.

But what if the dollar that Warren Buffett talks about has been pumped up by greed for 12 years and has become $10? Is it on sale for $9? Not at all.

Some people use the term “falling knife.”

A falling knife is when stocks in a company are in steep decline but have much longer to fall before they stabilize.

If you try to catch a falling knife, you’ll cut your hand open. It’s a bloody mess.  You have to wait for the knife to hit the floor.

You can also imagine that you’re jumping onto a roller coaster just as it’s twenty inches from the top and twenty feet from the bottom.

This picture is a little less bloody, but it describes the – uncomfortable – feeling in your gut when you buy something that keeps falling.

You can’t count on the rolling coaster going up again… and then it’s money you’ll never get back.

How to Avoid the Trap

So what can you do to avoid these value traps and falling knives?

It’s a bit like the annoying doctor who tells you there is no way around it: you need to exercise and eat vegetables.

No pill can fix it.

Maybe that’s not so bad.

For many of us, exercising and eating fresh vegetables is an enjoyable part of our lifestyle. The same with investing.

What does this mean in stock language?

It means that there is no quick fix where you can just look at a chart on your screen and expect to know that something is cheap because the stock price has fallen.

The first thing you have to figure out is whether it’s broken or not.

You don’t want to invest in something that’s going into chapter 11.

You have to look at the reality of the company. You have to go through a checklist and ask some critical questions so you are sure you’re buying stocks in a healthy company with a good team of managers and strong products that can compete in the market.

Once you’ve figured that out, you can look at the numbers to see what it’s really worth.

It may sound difficult, but it is not.

There are pretty simple calculations that anyone can learn and that are easy enough to do on the back of a napkin.

If you want to learn more about that, download my free e-book here.

Don’t forget to download my e-book Free Yourself where you’ll learn about check list and simple value calculations. You can download it here.

Three Ways to Find Your Next Investment Idea

Three Ways to Find Your Next Investment Idea

How do you pick the companies you want to buy stocks in? How do you even know which companies to look at? Where do you find your inspiration?

These are some of the questions I get asked most frequently.

Here are three ways to find your investments or to get your initial inspiration:

1. Read the Business News

As part of your daily routine, read the news.

You don’t have to read every newspaper from beginning to end, but it’s crucial that you stay up-to-date by skimming the major international and national news media.

You need to at least read the headlines.

When we invest as value investors, we buy stocks that are cheap. This means we often buy shares in companies that are experiencing some kind of headwind.

You can find signs of that headwind in the news.

Let’s say you read about a company that is filing for bankruptcy.

Don’t go directly for the troubled company, but what about researching other companies in the industry?

Stock price crashes have a tendency to spread like wildfire.

When, for example, an airline company files for bankruptcy, there is a high likelihood that many other airline stocks will become depressed. The investor will be worried for a while that there is a general problem.

Ask yourself: which company in this industry is the best? Look at the numbers. Success leaves clues.

Go for that one.

2. Look Around in Your Own Life

Make it a habit to be alert in your life and jot down brands and logos you come across.

Ask your friends why they prefer one brand of dog food over another.

Ask them why they’re flying with just that company or why they’re buying that headset.

Be curious.

Some of the best investments you’ll ever make are companies that you’ll come across as a consumer.

When you start thinking this way – as if the world is full of investments – you will spot wonderful companies everywhere.

When you notice something you want to research later, do something to remember it. You can take pictures with your phone or jot down a note or even set up a reminder.

Do it right away so you don’t forget.

Then you can google the company later on to find out if it’s investable.

How do you actually do that? How do you find out if a company is private or publicly traded?

You google the company name and “stock” or “shares”.

If no share price appears, it’s probably not a company that is listed on the stock exchange.

3. Look at the Fact List

This isn’t a third grade math book, so obviously there is not fact list at the back.

But there’s something even better.

There are websites collecting information about what the top value investors invest in.

One of them is called gurufocus.com. There, you can look up what Warren Buffett, Charlie Munger, Monish Pabrai, and many of the other value investors are investing in.

Warren Buffett began his career by imitating his teacher Benjamin Graham, so there’s no shame in copying the masters.

Stir the Pot

The best thing you can do is to combine the three methods.

You keep an eye on the media and see that a company goes bankrupt.

Then you research the industry and find other companies. You look them up and find out if some of the best gurus are investing in some of them. If you see that a guru has bought shares in one of them, you zoom in on that company.

Of course, you also use experiences in your own life.

Ask your friends whether they use products from the company you’re looking at.

Why do they? Why don’t they?

Next step is to try out their service or product yourself to see what you think.

To learn more about this method of investing in stocks, read my free e-book right here.

How Do You Make a Living From Stocks?

How Do You Make a Living From Stocks?

How do you actually make a living from stocks?

What are the specific steps? Do you sell the shares?

This is a question many people ask me.

The underlying question here is also: what comprises a return on a stock? Is it just the rise in the stock price?

In this blog post, I will explain the three things that can make up your return.

I’ll also explain how I generate an income so I can pay the bills.

What Makes up a Financial Return from the Stock Market? 

Let’s begin with a definition.

According to Investopedia, a financial return is “the money made or lost on an investment over some period of time.”

Let’s break that down. How can you make money on a stock?

Here are the three factors:

1. Increase in The Stock Price

A financial return on a stock can be an increase in the stock’s market price.

This is probably what most people associate with the word “return” when it comes to stocks.

To make a living this way, you will have to sell, and this will of course reduce your remaining number of shares.

Hopefully, the remaining shares are worth so much more than when you first invested that your total wealth grows even if you sell a small portion of that portfolio.

2. Dividends

When a company makes a profit, they can choose to pay part of the profit to the owners.

As a shareholder, you are one of the owners.

When companies pay out a portion of the profits, that is called a dividend.

The dividend goes into your investment account without you having to sell the paper.

Sounds cool, doesn’t it? You don’t have to sell. You can just lean back and enjoy the ride. 

Then why not just focus on companies that pay a lot in dividends?

There are, in fact, major disadvantages to actively pursuing the so-called dividend kings.

Companies that are growing and have a large market potential ahead of them are too busy reinvesting the profits in new markets, new employees, innovation, and acquisitions. They don’t pay dividends, because that would mean missing out on great growth opportunities in the market.

The major dividend stocks typically consist of very mature companies like the Coca-Colas and Johnson & Johnsons of the world.

If you only invest in the dividend kings, you’ll miss out on great growth opportunities, and your overall return will falter.

The other disadvantage of dividends is that you have to pay tax on them. This handicaps the effect of compounding.

You can read more about the advantages and disadvantages to dividend stocks in this blog post.

3. Share Buybacks

Share buybacks are an alternative to paying dividends.

Instead of giving the money directly to the shareholders, the company may choose to use some of the profit on buying back some of their own shares.

This will cause the price of the stock to rise in the long run, because the cake (the company) will be divided into fewer slices (shares). When the cake is cut into fewer slices, each slice is worth more.

Your piece of the cake, your shares, will therefore be worth more over time if the company makes regular share buybacks.

Warren Buffett loves stock buybacks, and his company Berkshire Hathaway regularly buys back shares.

So what are the benefits of buying shares back in terms of dividends? Why is Warren Buffett so happy about it?

It’s simple.

When you receive dividends, you must pay tax on that amount. You don’t have to pay taxes when the company repurchases stocks (provided, of course, that you don’t sell the share).

This means that share buybacks don’t cripple the effect of compounding. The money can continue to grow exponentially.

But to take advantage of this, you will of course have to sell the stock at some point, and then we’re back to square 1.

You can read more about share buybacks in my blog post here.

How Do I Make a Living From Stocks?

A lot of people ask me how I do it.

Do I sell shares in order to pay the rent? Or do I pick dividend stocks?

The answer is that I do something completely different.

I do a particular kind of options trade that creates an income flow.

I follow the principles of value investing when doing these trades. I look for undervalued companies and analyze them.

The great advantage of my method is that I can live off my shares without having to sell them.

It doesn’t hurt my portfolio and doesn’t set up barriers for compound interest rates.

This is the secret method that I don’t usually talk about in my blog posts because people can get it horribly wrong if they do it uninformed.

Where did I get the inspiration for this method? From Warren Buffett himself.

It’s a public secret that Warren Buffett is one of the biggest stock options traders in the world.

Why is it a secret?

Because he doesn’t talk about options.

One thing is what Warren Buffett does and another is what he recommends his followers do.

He tells his followers to invest in an index fund. But that is pretty far from his own value investing and stock picking style.

Why does Warren Buffett never talk about his options trades?

I believe it’s for the same reason I avoid it.

I’m afraid people will google “options” and do it wrong and lose a lot of money on it. You have to know what you’re doing if you move into options – or you might put a lot of money at risk.

There is only one place where I talk about options, and that is in my courses.

I’ve been teaching this stuff for years in Danish, and more than 150 people have attended my 8-12 week long courses.

This fall I will launch my first course in English.

Make sure you’re on my email list if you want to be invited to my next webinar where I tell you about my upcoming online value investing courses. If you download my e-book, you can say yes to receiving emails.  

Ten Surprising Things About Warren Buffett

Ten Surprising Things About Warren Buffett

Warren Buffett is known as a legend among stock investors.

For decades, he has beaten the market by selecting undervalued stocks.

He has invested with courage when others have feared the future, and he has exercised caution when others have been greedy.

But Warren Buffett has learned the hard way. He has learned by making mistakes in life. He has stumbled, gambled, lost money, failed, felt shy, been rejected, and even been lied to.

He has tried things and figured it out. Most importantly, he has learned from his mistakes and made them into investing rules.

You don’t often hear about his early battles and the mistakes he has learned from.

Here are ten of them.

1. He Began His Career with Chewing Gum and Newspapers

He has worked on building a fortune since he was a child.

He started selling chewing gum for a nickel in his neighborhood, and later he also delivered newspapers.

He also ran a slot machine business.

He bought old slot machines, repaired them, and made an agreement with the barber shops that they would get half of the money that came through the machines.

He told the barbers that he was just the errand boy even though he himself owned the machines, so he didn’t have to negotiate with them. He could just tell them that the owner said no to installing more machines. He felt it was hard to stand up to the barbers.

By the time he turned 16, he had earned $ 53,000.

2. He Bought His First Shares at 11 Years Old – But Failed

When he was 11 years old, he bought his first share. He bought three shares in Cities Services for $38 a share in 1942.

That company had terrific success. A few years later, the amount had quadrupled. By 1945, the company’s shares had risen to about $160.

But Warren Buffett didn’t get to enjoy that ride. He sold the shares a few months after purchasing them at $40.

He made $5.25 on them – and was annoyed.

It was an experience – and an early mistake – that has shaped him as an investor. He used it once as an anecdote at Berkshire Hathaway’s annual meeting as an example of how important it is to hold on.

3. He Experienced the Pain of Being a Gambler

At 16 he began betting on horses.

One day, he went alone to the racetrack and started losing. He became so keen on getting the money back that he had a hard time stopping himself.

In one day, he lost $ 175 dollars, which was a lot of money back then.

Afterwards, he had a huge ice cream and pondered the day’s events. He decided never to behave like that again.

He mentioned the incident in the biography The Snowball:

“I’d committed the worst sin, which is that you get behind and you think you’ve got to break even that day. The first rule is that nobody goes home after the first race, and the second rule is that you don’t have to make it back the way you lost it. That is so fundamental, you know.”

He says he made an emotional decision.

“Oh, I was sick. It was the last time I ever did anything like that.”

4. He Was Rejected by Harvard

It was his dream to go to Harvard Business School, but his application was rejected – and that was one of the most important events of his life.

It was a blessing in disguise, though it certainly felt like a defeat at the moment.

If he hadn’t been rejected, he wouldn’t have become an investment legend.

He ended up going to Columbia where Benjamin Graham – the author of the investing bible The Intelligent Investor – taught.

If he had not gone to Columbia, he probably wouldn’t have become a value investor.

5. Berkshire Hathaway Was a Ruin

Today, everyone thinks of his company, Berkshire Hathaway, as a success.

But originally Berkshire Hathaway was an old American textile company that he acquired. When textile production was outsourced to Asia, Berkshire Hathaway had no future.

Instead of shutting down the company as the gigantic investing mistake it really was, Warren Buffett used the shell of it to continue his investing business.

6. He Had Two Wives

His first wife, Susan Buffett, left him but stayed married to him.

Susan Buffett had grown tired of life in Omaha when she moved to California to try out a life as a professional singer.

They had been married for many years, and their three children were adults and had moved away from home.

She introduced him to her friend Astrid Menks, who worked at a local cafe, and asked Astrid to look after him and make sure he got something to eat.

The girlfriend, who is Buffett’s second wife, moved in, and they lived for many years as husband and wife while he was still married to Susan.

He was unaware that Susan had also settled with her tennis instructor in California. He only discovered it when she died in 2004. He has expressed regret about not marrying Astrid earlier.

Astrid had lived with him since 1977, when Susan flew to California. They were married in 2006, a few years after Susan’s death.

7. He Earned 99 percent of His Money After Turning 50

There is no doubt that Warren Buffett was successful as a young man, but he really became ridiculously wealthy in his older years.

This is due to the effect of compounding. The exponential growth took off during the second half of his life.

His net worth was $357 million when he was 52 years old. It is more than $110 billion today (2021).

8. His Father-in-Law Told Him He Would Fail

When he proposed to his first wife Susan, his father-in-law wanted a man-to-man conversation with him.

Warren Buffett had at this point already made a small fortune, but his father-in-law didn’t care much about that.

He told Buffett he would fail.

According to an interview with CNBC, Warren Buffett has quoted him as saying:

“You’re going to fail. And the reason you’re going to fail — my daughter may starve to death and you’re going to fail, but I’m not going to blame you because it’s because the Democrats are in and they’re all Communists.”

9. He Still Lives In His First $31,500 House

He still lives in the house he moved into as a newlywed with Susan Buffett.

First they lived there as tenants, and later they bought it for $31,500 in 1958.

It’s a house with five bedrooms, two and half bathrooms.

This isn’t really a mistake, but more a testimony to how peculiar he is and how little he cares about material things.

Money for him is like an intellectual game.

10. He Was a Young Man Who Couldn’t Say His Name

Every year, Warren Buffett speaks to millions of people at Berkshire Hathaway Annual Meeting.

About 40,000 are present in the hall, and many more are watching live, as it’s being broadcast and streamed on Yahoo Finance.

Initially, however, he was so shy that he had a hard time saying his own name in public.

He couldn’t bring himself to speak in front of assemblies at all.

As a young student, he took a Dale Carnegie course in public speaking, and he has referred to that course as the best investment he has made in his life.

But he almost didn’t take it.

First he signed up, and then he cancelled because he got nervous.

Then he decided to sign up again, this time paying cash upfront so there was no going back.

That did the trick.

“The best investment you can make is an investment in yourself,” Warren Buffett has later said, and he often refers to that course.

Your first step towards learning more about investing could be downloading my free e-book Free Yourself. You can get it right here.

Ten Key Takeaways From Berkshire 2021

Ten Key Takeaways From Berkshire 2021

Warren Buffett and Charlie Munger answered question for around three hours at the annual Berkshire Hathaway meeting this weekend.

What can you learn from them this year?

I’ve written down 10 key takeaways from the annual meeting 2021, which for the second time took place without the usual crowd due to COVID-19.

Here are the 10 main points:

1. Stay Alert: Don’t Be Too Sure of Yourself and Your Investments

Warren Buffett showed a list of the 20 greatest public companies today and compared it with a list of the biggest public companies from 1989.

Before revealing the list, he asked the audience to guess how many companies from 1989 stayed on the list.

The answer was none.

He used that as a warning to investors:

“We were as sure of ourselves in 1989 as we are today.”

2. Bet on America

He also pointed out that, on the list of the biggest companies, 5 of the top 6 are American.

“It’s not an accident. It shows us that the [US] system has worked unbelievably well.”

He made the point that you can bet on America, and if you don’t know what to invest in, he recommends S&P 500 as an index fund (Charlie Munger recommends investing in Berkshire over S&P 500).

“The main thing is to get on a ship. Any ship,” Warren Buffett said.

3. Tread Carefully in This Market

Warren Buffett had brought with him a classic textbook about economics.

He looked up negative interest rates in the index and found nothing.

He then looked up interest rates, and found the following written:

“You can technically conceive of negative interest rates, but it can’t really happen.”

Warren Buffett explained that in the short run everyone feels good about the rates.

“So far we have no unpleasant consequences. It causes stocks to go up and business to flourish. But there are consequences to everything in economics.”

He says that people are becoming numb to numbers, and that the long term is still unknown to everyone.

“Charlie and I consider it the most interesting movie we have ever seen,” Warren Buffett said.

4. Careful With Betting on Tesla

He didn’t say this directly, as he always avoids singling out individual companies and CEOs.

Instead, he told the audience a story about a car company called Marmon who was considered the big upcoming car company at the turn of the century because they invented the rearview window.

“Everybody started a car company and very few picked the winner,” he explained.

He had looked them up and had expected to fill a slide with extinct car companies that began with the letter M. He could fill the whole slide with extinct car companies that began with the letters MA.

“At least 2000 companies entered the auto industry. In 2009 there were three left and two went bankrupt,” he said.

5. Stay Away From SPACs

SPACs (special purpose acquisition companies) have two years to find something to invest in or they have to give the money back.

They have to do that in a red-hot market were little is for sale, and everything is historically expensive.

“If you put a gun to my head and said you’ve got to buy a business in two years, I’d buy one,” Buffett said. “But it wouldn’t be much of one.”

A lot of people invest in SPACs hoping that they will go higher the next week.

“No one tells you when the clock strikes 12, and it turns into pumpkins and mice,” Buffett said.

Charlie Munger was a little more blunt when talking about SPACs.

“It’s not just stupid. It’s shameful.”

6. Charlie Really Believes in China

Charlie Munger has recently invested in Alibaba.

He didn’t comment on Jack Ma’s disappearance and reappearance and the presumed involvement of the Communist party in this.

Instead, Charlie Munger explained that a sea change happened when the Chinese decided to change communism into a version that accepts Adam Smith and capitalism.

“It was a remarkable change. It has worked like gangbusters. They lifted 800 million out of poverty. My hat’s off to the Chinese,” he said.

7. Warren Buffett Bets on Bank of America

He says he feels good about American banks in general, but that Berkshire decided to raise its stake in Bank of America, to above the 10 percent threshold, while lowering the overall position in other banks.

Before you run off to buy stocks in all kinds of banks, listen to this other quote from Buffett:

“We like the banking business much more today….in the United States. Banking around the world can worry me more.”

8. Stay Away From Bitcoin

Warren Buffett didn’t want to offend anyone who owned bitcoin, so he passed on making any general comment about it. Instead, he passed the mic to Charlie. 

Charlie Munger didn’t worry about offending anyone.

He flatly said,

“Of course I hate the bitcoin success.”

The problem?

He thinks it’s insane to invent a currency out of thin air. There is no inherent value in it other than what people think other people will buy it for in the future.

It’s called speculation, not investing.

9. Shame on Robinhood

Warren Buffett explained that a lot of the short-term speculative option trading takes place on Robinhood (in particular the selling of calls with a 2-week expiration).

“It’s become a significant part of the casino economy,” Warren Buffett said.

He said it’s not immoral but that they cater to the gambling instinct in people.

Charlie Munger wasn’t afraid of calling it immoral.

“It’s deeply wrong. We don’t want to make our money selling things that are bad for people,” Munger said.

10. Inflation Has Arrived

Warren Buffett receives regular information about pricing development from the business that Berkshire Hathaway runs.

When asked about inflation, he calls the market red-hot, in particular the real estate market.

“We are raising prices, and people are raising prices to us. It’s up-up-up.”

He added how odd it is that the current situation is terrible for 80 percent of the population and yet 20 percent of the population has money burning in their pockets.

“This is a crazy movie.”

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