How to Read an Annual Report Like Mohnish Pabrai

How to Read an Annual Report Like Mohnish Pabrai

How do you read a company’s annual report?

It’s a question I often get.

The renowned value investor Mohnish Pabrai was recently asked that exact question in a YouTube video. Luckily for us, he answered.

This is obviously very valuable information, as he is a gifted value investor and any insight into how he invests is a gem of wisdom.

Most people think that “reading an annual report” boils down to calculating the intrinsic value of the company.

 Mohnish Pabrai’s approach shows that this is far from the most important thing.

Here are five things he looks at before even diving into the financial numbers.

1. He Checks If Any of the Gurus Have Invested in It

Mohnish Pabrai admits to copying other value investors shamelessly.

He considers himself to be a good “cloner”.

The first thing he does when he gets a curious about a company is to check who has already invested in it.

“Hopefully someone smarter than me already who owns shares in the company,” he says.

This is a funny statement, as I think it’s hard to find anyone more intelligent than Mohnish Pabrai.

You can check whether some of the big value investors have invested in a company at, or

2. He Reads the Writeups about the Company

If the large value investors have shown interest in the company, there are probably also writeups online.

You can look up other value investors thoughts on a company at or at

What do they say about the company? Do you agree with the analyses? These are good places to start forming an opinion

3. He Reads All the Shareholder Letters

At the beginning of an annual report (or sometimes as a separate document) you will find a letter from the management to the shareholders, also referred to as the shareholder letter.

In this letter, the director and/or chairman of the board gives a broad overview of the year that passed and talks about what they are working towards in the future.

It gives a great bird’s eye view of the company’s development and future.

Mohnish Pabrai’s assistant collects all the previous shareholder letters in a PDF file, and then he starts reading them chronologically. I imagine that he reads them from a print-out.

I know he has his assistant print out all emails in the morning. He doesn’t seem keen on reading off a screen.

What should you look out for?

First of all, it’s important that the letters are honest and understandable.

It’s important that these letters are not written by a PR agency, but written in the management’s own language.

How can you tell the difference? You can tell from the style.

Does it sound like something someone would actually say, or does it sound like clichés?

If the letters are not intelligible, it’s a blinking warning light.

Maybe they’re hiding something from the shareholders?

Management must communicate honestly and in simple and straightforward language.

Secondly, you should look at whether the management can keep its promises to the shareholders.

Mohnish Pabrai investigates how the management and the company have performed in relation to what they promise in the letters.

Here you have to remember that they don’t know the future. For instance, the companies knew nothing about coronavirus and shutdowns when they filed accounts before COVID-19.

4. He Reads a Transcript of Their Earnings Calls

Shortly after a report, management answers questions from investors and analysts. You can find this on the company’s website under investor relations, with the header webcast or earnings call.

Mohnish Pabrai reads the transcript of all the earnings calls. He doesn’t say, but again I imagine that he has his assistant collect all of them in a PDF and print them, so he can go through them chronologically.

He browses through the initial presentation – which is mostly management’s repetition of the financials – and pays more attention to the Q&A part.

What does management say about the future and how honest are they when answering questions?

Does management tend to overpromise and underdeliver? Or underpromise and overdeliver?

It says a lot about what you can expect in the future.

5. He Looks at the Company’s Proxies


Mohnish Pabrai recommends that you read the company’s proxy statements.

In the proxies you can find the shareholders’ proposals for changes. 

These documents give you an idea of whether the company operates in a shareholder-friendly way.

You can usually find the company’s proxy statements on the company’s own website on the investor relations page.

Sometimes you find them under “other announcements” and other times they call them “proxies”.

For the US companies, you can also look them up on as DEF14A and DEFa14A notices.

And Then?

Only then does Mohnish Pabrai dive into the annual report itself to look at risk and competition and run through the numbers.

You can read much more about what to look for in an annual report in my e-book Free Yourself.

There I show you, among other things, how you can work out whether the company is worth more or less than what it is traded for on the stock exchange.

Don’t forget to download my e-book Free Yourself where you’ll learn to invest as one of the best – super charge yourself through the plateaus. You can download it here.

Four Reasons Stocks Dive

Four Reasons Stocks Dive

The stock market has been very choppy lately.

Stocks fall, stocks rise. Some companies have lost a lot of market value and others have regained it.

Sometimes there is a logical reason for the plunge, and other times it’s not entirely clear why a business plummets.

In this blog post, I will look at the four typical reasons why shares take a nosedive:

1. Company-specific News

Sometimes shares in a company fall because something specific happens to that particular company.

Here are some examples:

  • Maybe a bad management decision was revealed.
  • Or the need for a new CEO. The stock market gets nervous about any uncertainty.
  • Maybe there is food poisoning at a restaurant (e.g. Chipotle around 2017).
  • Or doubt about whether the next launch will flop or fly (hello Apple)
  • It could be sharp and specific criticism, like when Starbucks was accused of racially profiling costumers after calling the police on two Black men who hadn’t purchased anything as they were waiting for a friend (in 2018).
  • Or it could be criticism of a chain when it boycotts and withdraws from the Russian market after the invasion of Ukraine (several companies recently).

The company-specific declines occur in both the bear market and the bull market.

If you want to look for value investments in times when the market is generally highly priced, you can look for companies that are hit by specific bad news that applies only to them. They are often quite obvious in the “pink” pages of the news.

However, it’s important that you evaluate how real the “threat” is.

From time to time, the market overreacts to something that isn’t really that serious. This gives us opportunities as investors.

Here’s the magic question: is it something that will permanently damage their business? Or can they fix it again?

Of course, you should stay away if the business is permanently affected.

2. Sector-specific News

This is when investors get nervous about an entire industry or group of stocks because something specific has happened to a company in the industry or a threat has arisen for the entire industry.

Examples of this can be:

  • There’s a major oil spill, and all oil stocks fall.
  • The whole airline industry plunging after COVID-19 because flying was halted.
  • Maybe there is uncertainty about what type of energy a new US government will support in an election, and shares in a particular energy sector will fall.

Just like when the shares of a specific company fall because of an event, you must look at what is going on and evaluate it.

Is it permanent damage that will cut the revenue of the business?

Is the fear real or exaggerated?

3. Rotation

There are trends in investing.

Sometimes institutional investors “rotate” out of a certain group of stocks, just because the market sentiment tells them too. Here are some examples:

  • This could be a rotation out of growth stocks where investors collectively start selling. It has a contagious effect. They sell because they fear others are selling.
  • Do you remember FANG shares in 2018? Suddenly everyone wanted to get rid of Facebook, Apple, Netflix, and Google. Apple came all the way down to the owner earnings price (read about that in my e-book here).
  • Or do you remember how cannabis stocks came into fashion and then were out of fashion?

The difference between sector-specific and rotation is that rotation is not necessarily a sector (you can’t call FANG a sector), and there is not necessarily any specific news.

It happens a bit like weather changes. The wind shifts direction.

It is totally impossible to predict how and when the wind will change.

4. General Market Fear and Sell-Off

Occasionally, almost the entire market falls because it becomes gripped by fear.

We saw this during the financial crisis, at the beginning of the pandemic, and at the beginning of Russia’s invasion of Ukraine.

These kinds of situations are the value investor’s favorite… although the circumstances may be terribly unfortunate (no one wants a pandemic or a war, but opportunities arise in the wake of them).

The important thing here is to ensure that you buy really “wonderful” companies that have growth in both revenues and profits, good management, and competitive advantages that protect them from rivals.

It is also – as always – important to make sure that you find a good balance between the price of the share and value ​​in the company.

Sometimes private investors think something is “cheap” just because the stock fell, but this is not always the case. It may fall from a very high starting point.

In these times, we need to keep in mind that we are still in a market with bubble prices.

When Russia invaded Ukraine, Shiller’s P/E ratio fell from about 40 to about 36. The normal level should be around 16.

In 1929, Shiller’s PE was at 30. In other words, stocks are still much more expensive relative to their earnings than before stocks fell in 1929.

After 1929, it took 29 years for the Dow Jones index to rise to the same level.

If you want to avoid having to wait 29 years for you money to be worth the same as today, value investing is the way forward.

You have to invest in business that you believe will be bigger in 10 years, and you have to do it when there is a reasonable relationship between what the company is worth and what the shares cost on the stock market. 

If you want to learn about finding wonderful companies and figure out the value inside a company, you can download my investment book Free Yourself here.

10 Things I Learned from The Big Short About Investing in Stocks

10 Things I Learned from The Big Short About Investing in Stocks

What can you learn today from the geniuses who foresaw the financial crisis?

I recently reread Michael Lewis’s book The Big Short.

I was amazed at how much I learned from rereading it with my investor’s eyes over ten years after it was released (I previously read it as a business journalist)

Here are the 10 most important and relevant takeaways from the book.

1. A Blog Is a Good Starting Point

Well-known investor Michael Burry, who was the first to predict the financial crisis, actually started his investing career by blogging.

He began with a thread called “Value Investing” on, before opening his own website in 1998.

In 2000, he launched his fund with just over a million dollars (interesting fact: the one million came from the value investor Joel Greenblatt, the author of You Can Be a Stock Market Genius, who had been following his blog for a while).

After he set up the fund and people saw how skilled he was, investors were willing to battle with crocodiles to get in on his fund.

This is how he managed:

  • In 2021, S&P fell by almost 12%, while Michael Burry received a positive return of 55%.
  • The following year, S&P fell 22.1%, but he was up 16%.
  • In 2003, S&P rose almost 29%, and Michael Burry had a return of 50%.
  • And so it continued.

By 2006, he had invested 600 million USD – and he rejected people at the door.

It’s amazing how quickly he developed as a blogger and as an investor.

2. You Don’t Need to Be an Economist to Get It

Do you need to have an Ivy League business degree to become a good investor?

Several of the main characters in The Big Short – those who foresaw the financial crisis – had no financial education at all.

Some people think you need to have studied finance to be able to invest for other people.

But keep in mind, the talented investors who predicted the meltdown (as described in The Big Short) were:

Michael Burry, a trained physician

Steve Eisman, a trained lawyer

One of these two young guys from Cornwall Capital left college without graduating.

Good investors come from all sorts of backgrounds. It’s academic snobbery to think that one must have a certain education to be able to figure it out.

3. Beware of Bubbles.

Be careful when people say stuff like “it always goes up over time.”

There was a lot of bias and euphoria before 2008.

At the time, it was focused on real estate.

Now people say the same crazy stuff about all kinds of things.

What do you hear people say about stocks? Crypto? NFTs?

Look at the price of real estate. Isn’t it at the same level now in many urban areas?

What makes it different this time?

Think twice before you throw your money at something that popular sentiment says “always rises over time.”

It’s usually a sign of a bubble.

4. Most of The People Who Predicted the Financial Crisis Were Value Investors

I’m a bit like a soccer fan watching her favorite team score when I say this:

The geniuses in The Big Short were mostly value investors.

Michael Burry and Steve Eisman were among the very first to see the financial tsunami before the financial crisis. They were both analytical and clear-sighted… and they were both value investors.

Michael Burry became a value investor in the midst of the IT bubble.

“The late nineties almost forced me to identify myself as a value investor, because I thought what everybody else was doing was insane,” says Michael Burry (on page 35).

I’m not really surprised. Of course the first skeptics were value investors.

Value investors tend to look at the facts and see things for what they really are.

Value investors open documents and read them.

Value investors look beneath the hood and kick the tires before buying the used car.

5. A Single Talented Analyst Can Beat the Market

The Big Short contains good stories about the underdog against the big system.

It’s a story about a few independent individuals who realized what was happening with subprime, while the big financial houses did not.

Michael Burry was completely convinced that the whole financial system was wrong – and that he himself was right.

The good story is that he was actually right.

“I have always believed that a single talented analyst, working very hard, can cover an amazing amount of investment landscape, and this remains unchallenged in my mind,” says Michael Burry (p. 192).

6. Don’t Discuss Your Investment Ideas

Michael Burry had a hard time while shorting the subprime market because his investors didn’t agree with his strategy.

They argued that the real estate market would always rise over time, and they believed subprime bonds were very safe investments, and that it was insane to short them.

Many demanded their money back, which would have ruined the bet as it required a bit of patience.

He repeatedly defended himself and explained subprimes over and over again.

In general, he disliked discussing his investment ideas.

“I hated discussing ideas with investors because I then become a Defender of the Idea, and that influences your thought process.” (p. 56)

Once you become a defender of a case, it is difficult for you to change your mind about it.

What does this mean for you as a private investor?

You should only talk about your investment ideas with a select bunch of like-minded people, like a study group of value investors.

Be careful about being very open about your investment ideas. Don’t tell Uncle Bill.

7. Sell When Your Home Is at More Than Twenty X the Gross Rental

There is a funny scene in the book (it’s not in the movie), where Ben Hockett – played by Brad Pitt – disappears for two months.

When he realizes that there is a bubble in the real estate market, he disconnects.

“I got off the phone and I realized, I have to sell my house. Right now,” says Ben Hockett (p. 120).

His house was worth at least a million USD, and it would rent for no more than 2,500 USD.

“It was trading more than thirty times gross rental. The rule of thumb is that you buy at ten and sell at twenty” (still p. 120).

What kind of math is he talking about here?

He just takes the monthly rent and multiplies it by 12 to get a year and then multiply by 10 to find the purchase price and 20 to see the level at which he will consider selling.

What does that calculation look like for your own house?

I moved to Portugal last summer. The house I live in was for sale for 800,000 euros and was for rent for 3,000 euros.

I had the option to buy or rent, and I chose to rent which, I can see now is a decision Ben Hockett would applaud.

8. It’s Okay to Ignore the Chatter From the Media

The media tends to run with the general market sentiment.

When things are going well, the news rolls with that. When there is a crisis, the headlines are scary.

Listening to business news all day makes it difficult for you to distance yourself from the public mood and to remain a rational investor.

“We turned off CNBC. It became frustrating that they weren’t in touch with reality anymore. If something negative happened, they’d spin it positive. If something positive happened, they’d blow it out of proportion. It alters your mind. You can’t be clouded with shit like that,” says Danny Moses, who was one of Steve Eisman’s employees (p.168).

So it’s entirely okay to tune out of business news.

However, you need to keep up with overall news and especially keep an eye on the facts and reports of the companies you have shares in or are considering investing in.

9. Stay Away From the Financial Sector

The financial crisis showed us how difficult it is to see what’s really on banks’ balance sheets.

In fact, it’s so hard that even the financial institutions can’t see it themselves.

“We had always assumed that they sold the triple-A CDOs to, like, Korean Farmers Corporation. The way they were all blowing up implied they hadn’t. They’d kept it themselves,” says Charley Ledley (p. 244).

Wall Street had become the “dumb money,” the author of the book writes.

The people who ran the big financial institutions on Wall Street didn’t even understand their own business. The regulators understood even less.

What does this mean for you?

That as a private investor you should refrain from investing in financial institutions because it’s simply too complex, and as Warren Buffett says: invest within your field of competence.

In other words, only invest in what you understand.

10. People Are Driven by Incentives

Warren Buffett’s partner Charlie Munger once gave an excellent speech called “The Psychology of Human Misjudgment” (which we will have to address in detail in another future blog post).

That speech inspired Michael Burry to look very closely at how incentive systems work.

Most funds get 2 percent of the entire amount invested… no matter how they perform. The funds make money even though they lose money for the customers. That’s a bad incentive system.

Michael Burry’s fund is constructed in such a way that he only makes money when investors make money (like Warren Buffett’s original partnership).

How can you use this knowledge about the importance of incentives?

You can apply the idea in all areas of your life.

Do you reward yourself when you have done a good job? Or are you going to reward yourself for postponing the work? Do you get the cake when you can’t pull yourself together? Or do you put it off until you’re done?

What about your children? Do they get the iPad when they make noise? Or do they get the iPad when a particular task is done? 

What kind of behavior are you going to consciously or unconsciously reward yourself and others for?

How do you reward yourself when you invest? Do you remember to pamper yourself a bit when you have made a good return?

The idea of ​​thinking strategically about reward systems and incentives can change your life.

What Is the Next Crisis?

After reading the book, it’s very clear that Michael Burry is an analytical and an exceptional talent.

The criticism from his investors caused him to close his fund and withdraw almost entirely from the public eye.

Occasionally, however, he talks.

In recent years, he has given interviews saying that there is a bubble driven by the passive investments in index funds.

This view is unpopular.

Everybody invests in index ETFs, and there is a strong belief that the stock market indices always go up over time (sounds like something we’ve heard before, doesn’t it?).

People who say stuff like that don’t look very far back in history. If they did, they would notice that it took 29 years before the Dow Jones reached the same level as before the crash of 1929 (it didn’t happen until 1959).

Sure, stocks always go up over time, but can you wait 30 years?

The bubble we’re in right now is bigger than the bubble that burst in 1929.

What do you do then?

Do like Michael Burry. Choose to invest with a brain.

Michael Burry didn’t stop investing either (you can follow him on

He’s still at it, but he invests intelligently. He looks analytically at what he is investing in.

You should do the same.

If you want to learn about value investing, you can download my investment book Free Yourself here.



Five Takeaways From Warren Buffett’s Annual Letter

Five Takeaways From Warren Buffett’s Annual Letter

Every year, Warren Buffett publishes an annual letter to investors, and many people look forward to what he has to say about the market.

 It’s that time of the year, and in this blog post, I’ll review the key points from this year’s letter.

 The letter comes as part of Berkshire Hathaway’s annual report, which has recently been released. Berkshire Hathaway is – but you probably know this already – Warren Buffett’s publicly listed company through which he makes all his acquisitions and stock investments.

 Warren Buffett prepares this letter carefully, weighing every word. Everything in this letter is intentional.

 Here are the five most important points:

 1. Value Investing Works

The very first thing in the letter is a comparison of the development in Berkshire Hathaway’s market value compared to the stock index S&P 500.

 The numbers speak for themselves.

Berkshire Hathaway has had a compounded annual return of over 20% since 1965. S&P 500 has had an annual return of 10.5%.

This means that Warren Buffett’s company has had an overall return of over… well, that’s such a large number… 3,641,613% in the period against S&P 500’s 30,209%.

 It’s no coincidence that he decided to make that comparison and that he sets it up so clearly and looks at such a long-term period.

 It’s his way of showing that value investing (by his method) definitely works – especially if you’re thinking long term.

 2. Pick Companies, Not Stocks

Warren Buffett writes that Berkshire Hathaway invests in whole companies – and occasionally in pieces of a company – but never in stocks.

 “Whatever our form of ownership, our goal is to have meaningful investments in businesses with both durable economic advantages and a first-class CEO. Please note particularly that we own stocks based upon our expectations about their long-term business performance and not because we view them as vehicles for timely market moves. That point is crucial: Charlie and I are not stock-pickers; we are business-pickers,” Warren Buffett writes. Charlie is, of course, Charlie Munger, his longtime partner.

Warren Buffett’s point here is that you should not invest on the basis of short-term considerations of whether a stock goes up or down.

You need to assess a company and its long-term potential.

Among other things, you must decide whether you trust the management and whether the company has competitive advantages that protect their service and products and make it possible for them to retain their customers.

You can learn more about how to assess a company’s long-term potential in my e-book here.

  1. He Has a Lot of Cash Because We are In a Bubble

Berkshire Hathaway aims to hold around 30 billion USD in cash and cash-like instruments (such as short-term bonds) to make sure Berkshire Hathaway can withstand any crisis.

“We want your company to be financially impregnable and never dependent on the kindness of strangers (or even that of friends). Both of us like to sleep soundly, and we want our creditors, insurance claimants and you to do so as well,” he writes.

However, by the end of 2021, Berkshire Hathaway had 144 billion USD in cash and equivalent.

Why almost five times more cash than they aim to hold? The explanation is that they can’t find anything to invest in.

He says he and Charlie are having a hard time finding anything which meets their criteria for long-term holding. They say they would like to make acquisitions or even just buy publicly traded stocks.

“From time to time, such possibilities are both numerous and blatantly attractive. Today, though, we find little that excites us,” he writes.

What does that really mean?

Surely there are plenty of wonderful businesses out there?

Yes, but not at the price they want to pay. Which is another way of saying that everything is priced at a very high level compared with the value of the company.

“Long-term interest rates that are low push the prices of all productive investments upward, whether these are stocks, apartments, farms, oil wells, whatever. Other factors influence valuations as well, but interest rates will always be important,” he writes.

So what can we learn from this?

Warren Buffett and Charlie Munger are very careful these days about what they pick. They are not afraid of staying in cash.

As a private investor, I would also be careful about what I invest in, and like them, I wouldn’t be afraid of staying in cash for a while as I wait patiently for the right investment.

Because one thing is for sure. At some point, it will change.

“Charlie and I have endured similar cash-heavy positions from time to time. These periods are never pleasant. They are not permanent either.”

4. He is Buying Back Berkshire Shares

In the absence of better investment opportunities, Berkshire Hathaway has made share buybacks in 2021 of 27 billion USD.

He also writes that they have bought back shares in early 2022 for 1.2 billion USD. He doesn’t write at what price level they had bought them back, but he does stress that they are not willing to make share buybacks at any share price.

“I want to underscore that for Berkshire repurchases to make sense, our shares must offer appropriate value. We don’t want to overpay for the shares of other companies, and it would be value-destroying if we were to overpay when we are buying Berkshire,” he writes.

The smart thing to do would be to match buying Berkshire Hathaway’s stocks to the level that Warren Buffett decides is a good price.

The lowest price level for Berkshire B-shares last year was 230 USD. I would personally be pretty comfortable buying Berkshire at that level again.

The lowest level in the first two months of 2022 was 292 USD per share, which, however, is above the 2021 share price.

5. You Learn From Writing and Teaching

Warren Buffett expresses his gratitude that he has been able to write and teach for many years.

He says it has helped him develop and clarify his own thoughts.

“Charlie calls this phenomenon the orangutan effect: If you sit down with an orangutan and carefully explain to it one of your cherished ideas, you may leave behind a puzzled primate, but will yourself exit thinking more clearly,” he writes.

I can only agree. I appreciate blogging and teaching value investing. I would have just skimmed the annual letter if it hadn’t been for this blog. Now, I’m really absorbing the lessons in it.

But how can you use that knowledge if you are sitting at home by yourself?

It’s easy: take notes.

When reviewing a business, remember to write down why you want to invest in it. Save your notes so you can review them if you have any doubts about whether or not to sell later on. Make it a priority to write to and explain to the future you.

In the value investing courses that I run, I also make sure that the students have to review companies for each other. That’s the best way to learn it: by actually doing the work and explaining your analysis to others. It will stick forever.

Is This a Goodbye?

Warren Buffett is 91 years old, and Charlie Munger is 98 years old.

After all, no one lives forever.

I got the feeling that the letter was a goodbye.

Especially when Warren Buffett expressed his gratitude for all the years he has been able to write and teach. It gave me the feeling that this is the last annual letter we see from him (or with Charlie).

But it may well be that I read too much into it.

In any case, the annual meeting will be held in Oklahoma from Friday, April 29th through Sunday, May 1st.

This is the first time in two years.

It’s hard not to think about if it’s going to be our last chance to see Warren Buffett and Charlie Munger onstage together.

I was supposed to go for the first time in 2020. Now it may be the first and only time I go. 

Don’t forget to download my e-book Free Yourself where you’ll learn to invest like Warren Buffett. You can download it here.

How to Gift Shares for Christmas

How to Gift Shares for Christmas

Why not give shares for Christmas or birthday presents?

They don’t clutter or take up space, and it’s the type of gift that keeps on giving.

If you select shares in some good companies, they’ll hopefully increase in value over time.

But more importantly than that, you are gifting interest, knowledge, and experience with the stock market.

Hooked? So how do you actually give shares to someone? 

Here are some ways you can do it.  

1. Create the Trading Account and Buy the Stocks for the Person

If it’s your own child or grandchild under 18, it should be pretty easy to set up the trading account and just buy the shares for them. 

Grandparents might need a photocopy of the children’s ID from the parents, but once they have that, they can open a savings and investment account in their own bank and buy shares for the children. 

This is the easiest way to gift shares.

2. Buy the Shares and Transfer Them Electronically

This method is a little more complicated.

You’ll encounter a bit of bureaucracy at the banking level and some high fees, but it’s doable. 

There are options other than old-school transfer today though. There are some apps that make it easier to buy shares as a gift.

You can look up SparkGift, Stockpile, and Public. They even make it possible to buy fractional shares and give them through the apps. 

3. Open an Account and Buy the Stock Together

An alternative is doing it together. You can coach the person through the process of opening a trading account and buying a share. 

If the person is a newbie on the stock market, this is like a double gift: You offer the stock and some basic knowledge about how the stock market works.

Many newbies freeze when they see an online platform because they don’t understand the language. What’s limit? What’s market? They become afraid of doing something wrong, and some people never get past that level. 

You can get them over that hurdle by investing an hour of your time.

4. Give an Investing Course Instead

What about gifting some investing knowledge either along with the stock or instead of giving shares? 

The best investment you can make is investing in your knowledge. The master investor Warren Buffett said something to that effect (the exact quote: “Ultimately, the best investment you can make is in yourself.”).

A stock can fall in price, but knowledge never depreciates in value. After all, it’s knowledge of the stock market that makes you able to make good investment decisions.

Have you considered giving an investing course as a present?

I’m hosting a webinar about stock market investing between Christmas and New Year’s.

What about inviting your loved ones to that? It’s free and you can sign them up right here.

5. Gift the Stock Together with the Physical Product

It might be a little boring to receive an envelope with information about a stock – especially for children.

In that case, what about giving the stock in combination with the product?

Gift Nike shares with a pair of Nike shoes, Apple shares with the new iPad, or Disney shares with an Elsa (Frozen) outfit?

Tell the child, “You own the McGuffin/the gadget/the iPad/the game station, but even better than that, you now own the company that makes it.”

That’ll wake them up. Believe me. I’ve tried it. 

They’ll go, “What?”

Then you can say. “Well. Part of it.”

You’ve got their attention now. Then you give them the envelope. 

If I had bought a share or two for myself and my nieces and nephews for every item they put on their wish list, we would all be very rich by now.

Looking back, I can see now that my teenage nieces and nephew had very good antennas for wonderful investments.

If I had invested in Apple when my nephew was aching to get the first iPod on the market, I would have had a wonderful return (Apple was trading at less than 40 cents a share in 2001). Or if I had invested in Nike when the sneakers were on my niece’s wish list (around 5 USD per share then). Or if I had invested in Amazon when I gave my first Amazon gift card at Christmas in 2001 (around 10 USD per share).

No use crying over spilt milk, but we can do it differently going forward. 

Look at the items on the wish list. Do you spot any companies that are public? Could they be good investments?

How Much Can You Give? 

We usually don’t give taxes much thought when we’re wrapping Christmas and birthday presents, but when you give stocks, you have to be mindful of the tax laws in your local country.

Gifting stocks is like giving money, and the rules are different from country to country. You might incur some taxes, so look up the tax regulations. 

In the US, you can give 15,000 USD without triggering the gift tax (2021).

In the UK, everyone can get a cash or stock gift of 3,000 pounds without triggering taxes (2021). 

Before you get a headache about taxes, just remember, the stock is just part of the gift.

You’re also giving interest and experience in the stock market. 

Don’t forget to sign up for the free, life Webinar that I host on December 27 and 28th. You can sign up right here.

Five Reasons Why You Should Have a Prenup Contract

Five Reasons Why You Should Have a Prenup Contract

Only a minority of couples sign a prenuptial agreement – a prenup, for short.

Even though it could have a positive impact on the relationship.

It’s a shame, because there are many benefits to being clear about what should happen financially if you separate – even if you never do.

Obviously, most people get married with the intention of staying together. It can feel awkward to enter a conversation – even before you are committing – about what needs to happen in case it doesn’t work out.

But the truth is there’s no better time to talk about it than while in love and looking forward to a future together.

It can be trickier to enter that conversation later in the marriage as it might create confusion and doubt as to whether one is heading out.

What is a prenup and what does a prenup usually contain?

It’s written agreement spouses enter into about what should happen financially if they separate.

You can decide if everything should be split 50/50 or if there should be separate ownership over certain things. You might want to protect an inheritance, a business, maybe some properties that have been passed down through generations, or just some special jewelry.

Why make a marriage contract at all?

Let’s just look at five specific reasons.

1. You Must Be Able to Talk About Money From The Beginning

It may well be that it’s uncomfortable to talk about money and when love shows up and you’re eager to demonstrate how committed you are.

But even the biggest romance will have to deal with the practicalities of life, and your relationship improves when you practice dealing with it.

Now that you’re starting a conversation about the future, it’s also a good idea to talk about other expectations, such as how you expect to divide the tasks if you have children.

2. With Separate Property, You Are More Motivated To Create Your Own Future

The American comedian Ali Wong, who is known from the Netflix series Baby Cobra and Hard Knock Wife, has said that her prenup motivated her to succeed and make an effort with her career.

She is married to Justin Hakuta, the son of a businessman who became rich by creating an octopus toy called Wacky Wall Walker that can crawl down a wall.

When Ali Wong and Justin Hakuta were to marry, Justin’s parents demanded that Ali sign a marriage contract so their son’s future fortune would be protected.

It must have hurt a little, because before they got married, Ali Wong helped her future husband pay off a $ 70,000 student loan with her own money. His future fortune was secured, but she had paid off his debt “for free.”

Yet she is deeply grateful for the marriage covenant.

“I was very motivated to make my own money because I signed a document specifically outlining how much I couldn’t depend on my husband. My father always praised ‘the gift of fear,’ and that prenup scared the shit out of me. In the end, being forced to sign that prenup was one of the greatest things that ever happened to me and my career,” she writes in her memoir Intimate Tales, Untold Secrets and Advice for Living Your Best Life.

What if you’re the one with a fortune? You might be happy in the future that you protected it.

This is what happened to singer-turned-business woman Jessica Simpson. She has written about the subject in her memoirs, Open Book.

She married pop star Nick Lachey when she was 22 and he was 31. He was older, further in his career and had more money than she did.

He actually proposed signing a marriage contract, but she got offended and rejected it, saying that they were going to be together for the rest of their lives.

However, the marriage only lasted three years, and in those three years, her career took off.

When they were about to divorce, she had a fortune of about $35 million, while his fortune was about $5 million.

She gave him whatever he wanted to get out of it. She says so in her memoir, but she doesn’t go into details as to how much she gave him. 

According to the press, he got about $10 million – almost a third of her fortune.

But what’s worse: He received the right to 1.5 % of the turnover from her beauty line.

Which brings us to the next point…

3. You Can Protect Your Assets

Jessica Simpson promised 1.5 % of the turnover from her business away to a man she was married to for three years.

I’ve heard about cases like this before.

It must be a bitter experience that a person you’ve been married to for a few years is entitled to your future income from a business that should be entirely yours because it’s your idea and your work.

It’s one thing when the parties have earned roughly the same and share everything 50/50 in the end.

It’s another matter entirely when one person is entitled to the other person’s future income.

It must be extra bitter if it’s the result of an unhappy marriage.

Jessica Simpson explains in her book that she and her ex-husband argued a lot and that she felt he was opposing her success.

Now he can reap the fruits of it forever.

A relative of mine experienced something similar.

She married a man who lived across a continent. To be with him, she resigned from her corporate job, moved to his city. To make money, she started a consulting business.

The marriage was short and not very happy.  When they divorced, he was entitled to a portion of her income from her consulting business. Ten years later, she was still paying him.

I’m not a lawyer and don’t understand the technicalities, but he must have argued that she couldn’t have built it without him and that it was an asset that should be shared.

Obviously, if you divorce, the assets will be divided. Your stock portfolio, the properties, the jewelry, risk being split between you – unless you make sure it’s protected in your prenup.

4. You Make the Decision

If you don’t sign a prenup, there will still be a prenup, but it won’t be you who decides what it looks like. It will be up to the local legislators and the interpretation of the divorce lawyers and judges.

Would you rather close your eyes and hope for the best?

Or do you want to make an informed decision?

The least you can do is familiarize yourself with the local legislation so you know which prenup you are entering if you don’t actively choose one.

5. You Protect Yourself From Someone Else’s Debt

Now we’ve talked about assets that will be divided.

But there’s also something else you need to think about: debt.

What if your partner builds up debt?

The most glaring example could be marrying a gambling addict who has built up a gambling debt. That might become your debt too.

There are other – and less dramatic – ways to build debt. It could be a company going bankrupt. It could be a bad investment.

When I was on my first maternity leave, I went for long walks with a friend who was also on maternity leave.

When you walk around with a sleeping baby in a stroller, you talk about whatever is on your mind.

It’s like getting access to another person’s inner speech… and worries.

She was worried about the debt she was burdened with from a previous relationship.

Years before, she had been in a short and unhappy marriage. She had moved on and had found herself a man who treated her well, and they had a baby.

The ex was still on her mind though. He had made a bad real estate investment during the financial crisis, and when they split up, they parted burdened with a mutual debt.

It was becoming clear to her while she was walking with the stroller that she would only have one child.

The new parents lived in a one-bedroom apartment, and they would probably continue to do so.

It hurt her that they probably wouldn’t be able to afford a second child because of the debt she had from a previous relationship.

There was barely enough room for one child in the one-bedroom apartment. Indirectly, her ex-husband helped decide how many children she could have later on.

Is It Too Late?

If you’re already married, is it too late to get a prenup?

No, of course not. You can sign one whenever you want, and you can change it later.

What’s the next step?

I’m a big proponent of getting help from the best. The next step, of course, is obvious: you need to talk to a lawyer who specializes in prenups.

How do you persuade your partner?

Explain to your partner that there is already a prenup, but it’s the local legislators who make the decisions for you, unless you create one yourself.

I would go with honesty and explain what is important to you and what benefits you see in it for your partner. After all, a prenup is not always something that puts the other at a disadvantage. It can also create security for both parties.

What points should you bring up when discussing it?

It really depends, because prenups are different.

Some people want separate property, and others want to clarify some rights to ensure that their partner is financially secure.

The most important thing is that you enter your marriage informed and well-prepared.

I’m not an expert on prenups. I am an expert on building wealth. Learn how to create a fortune by investing in stocks in my e-book Free Yourself. You can download it here.