Graham Brown: Learning the Business Lifecycle and Fitting it into Your Traveling Lifestyle

A telecom business made him traditionally successful.

Then Graham started to examine what success really meant.

So the transition from being a CEO to just a guy with a backpack began.

His family slowly scaled down their lives and started traveling the globe.

Now he enjoys Zen-like moments around the world.

Our next guest, Graham Brown.

“Everybody has a different way of traveling. People need to know there are options, there are different ways of doing it.” – Graham Brown (Tweet It)

Travel Topics:

  • Lived in Japan in the 1990s where he saw the beginnings of the mobile revolution
  • Why Graham scaled down his telecom business to make it more profitable
  • How he learned to be wary of taking on any overhead
  • The importance of the business life cycle
  • Benefits of being detached enough to step back and see what the business needs
  • How he saved money from real estate investments
  • The important part of your finances when traveling: what direction your bank account is going
  • How he wanted to live some place exotic and warm (who doesn’t, really?)
  • His son goes to local school wherever they go, allowing the family to integrate into the local community
  • Books are about starting your own business, making it autonomous, getting rid of material stuff, and being able enjoying the adventure
  • Tips for getting started: Educate yourself, write down your travel goals, be aware that it’s a process
  • How people think traveling is going to get rid of all their problems… It won’t!
  • If you’re a guy with big feet, buy your shoes before you go to Japan
  • How children are far more adapted to this lifestyle than adults

“Children don’t care about making mistakes and they are natural travellers.” – Graham Brown (Tweet It)

Lovely Links:

  • Connect with Graham:

Barefoot Journal | Facebook | Google+

Music Credits:

Bianca Forzano: From Corporate Office in Rome to a Kite Board in the Dominican Republic

Imagine moving to a foreign country.

You’ve got no money.

All you know is that you want to kitesurf.

Sounds crazy right?

Well it worked out pretty well for our next guest.

Ladies and gentlemen, allow me to introduce, Bianca Forzano.

“For me, it’s more important to have freedom than safety.” – Bianca Forzano (Tweet It)

Travel Topics:

  • A special message from guest Jim Carrey
  • Safety as a traveler on the North Shore of the Dominican Republic
  • The power of travel and the impact of expats in developing countries
  • The mechanics of kite camps in Dominican Republic and Italy
  • Transitioning from a corporate office in Rome to a Caribbean kitesurfing instructor
  • The founding story of Bianca’s Bikinis and the first sale
  • Inspiration, adventure, travel, waves and the ocean
  • Breaking away from the systems which limit freedom yet provide a sense of security
  • Lifestyle perceptions and they shift with travel
  • Awe moments

“I want to be the first bikini line for girls to feel cool and sexy in the water.” – Bianca Forzano (Tweet It)

Lovely Links:

  • Want to be the face of Bianca’s bikini’s in your country? Tweet Her
  • Connect with Bianca:

Music Credits:

Make the World Less Boring with The Adventurists and Dan Wedgewood

He woke up after drinking all night and learned that he bought a car.

So they drove it to Iran… that didn’t work.

But it kick started a mission to make the world less boring.

They’ve put on hundreds of adventures.

Raised millions of dollars for charity.

But the next adventure is just around the corner…

Ladies and gentlemen, Dan Wedgewood of The Adventurists.

“Our mission is to make the world less boring.” – Dan Wedgewood (Tweet It)

Travel Topics:

  • About the founding of the Adventurists
  • What inspired the Mongol Rally
  • Goals for future growth of the Adventurists
  • The charity fundraising that comes from the adventures

“Getting lost is an art form.” – Dan Wedgewood (Tweet It)

Learn about Feeling Your Nuts:

That’s right. Guys out there, feel your nuts… Ladies, support the men in this mission.

Early detection is the best form of treatment.

“Entertaining people and looking stupid is a great way to make friends.”- Dan Wedgewood (Tweet It)

Lovely Links:

The Adventurists | Twitter | Phone +44 117 364 3402

Music Credits:

Chris Kirkland: Building a Freedom Driven Internet Business and the Hobo CEO

During a vacation in Goa, India, Chris felt like a naughty school boy.

Answering client issues whilst adventuring, he realised he could have it all.

Since then he’s moved to Tokyo, Japan and runs his own business.

In this episode we discuss his business and the things that inspire him.

Welcome Chris Kirkland the Hobo CEO.

“The threshold of what you’re capable of doing tends to grow a little bit.” – Chris Kirkland (Tweet It)

Travel Topics:

  • A great way to start out your Hobo lifestyle and internet business
  • The cheating feeling one gets from working where ever they desire
  • How it took about 18 months to establish himself as an expat in Tokyo
  • Fond memories of the freelance days vs. the job of the entrepreneur
  • About the headstands, the story of the original inspiration and the philosophical implications
  • On overcoming anxiety in business and day to day life
  • Viewing subtle and subconscious entrepreneurial opportunities after living abroad
  • How to cultivate a network of location independent friends and the social permission to live like this
  • All the other Lovely Stuff

Lovely Links:

ArtWeb | Mr. Kirkland | HoboCEO | Twitter | Facebook

Music Credit:

Take Action:

What’s your internet based business looking like? Have you started it? If not what’s holding you back? If you have, please link it up. It will get you back link and perhaps there will be another member of the community who could use your stuff.

Niall Doherty: How to Write a World Class Book and Cross the Pacific Ocean on a Cargo Ship

Niall is back on the show.

He’s the first guest to be featured for the second time on the Love Affair Travel podcast (he was Episode 1).

Since our first interview Niall has gone a long way on his journey.

We caught up with him just after his pacific crossing.

He wrote an amazing book and is here to tell us all about it.

Give it up for the avid traveller, Niall Doherty.

“I’m not sure if I burn more cash or more fuel.” – Niall Doherty  (Tweet It)

Travel Topics:

  • How to decide if a cargo ship pacific crossing is the right decision
  • Strange stories of South Korea
  • About Disrupting the Rabblement
  • How Niall lives a nomadic life
  • The value of tracking expenses and how to do it
  • The emotional challenges of living and moving in India
  • New ways to understand gratitude
  • The challenges of environmental decision making
  • Book recommendations for rational thinkers
  • How to get comfortable with flirting
  • Business strategies for those who don’t live in one place
  • The role of work and success
  • Daily routines and how Niall’s evolve from country to country
  • How to start a blog
  • The future of Disrupting the Rabblement

Lovely Links:

Business | Manliness | Travel

Suggested Books:

Music Credits:

Take Action:

If given the opportunity to travel abroad and earn online, could you have a healthy work ethic and not be distracted by your awesome new lifestyle?

Amber Worrick: How to Travel the World on a Budget and Hitchhike Your Way to Global Adventures

Do you want to travel the world, but don’t have a lot of cash?

Amber Worrick has been doing it since she left high school.

She doesn’t run an Internet business or have a trust fund.

She has hitchhiked through Europe and South America.

She just might be the push you need to get out the door and live your dreams.

Say hello to the courageous, Amber Worrick.

“You can travel with very little money. You just have to make different decisions and redefine success.” – Amber Worrick (Tweet It)

Travel Topics:

  • Find out what Amber is currently doing in Santiago, Chile
  • How Amber went from a small town in the midwest of the United States to a global traveler
  • The importance of learning a language and cultural exchange
  • How Ian and Amber ran into each other in Chile
  • The power of Facebook and networking online
  • The story of Amber’s first experience picking up a hitchhiker with her dad in Illinois
  • How Amber ended up on a remote Chilean island after hitchhiking in 30 cars and multiple boats
  • How to travel the world on a budget…. Hint: Hitchhike!
  • A Dutch man living alone on an island named “Cagalandia” (there’s a great story behind the name)
  • Fishing for huge crabs and living off the land
  • Redefining success and traveling on $10-15 dollars a day
  • And much more…

Lovely Links:

Travel Tools:

Music Credits:

Take Action:

Have you had experiences hitchhiking or picking up hitchhikers? Or are you hesitant to try it? Tell us your stories and opinions in the comments section below.

Jock Purtle: How to Build, Buy and Sell an Online Business and Live a Life of Travel

Selling businesses isn’t just for multinational corporations.

Indeed, all you need to do is create a recurring cash flow.

Anything that generates cash flow, can be sold.

Our next guest is the master of this process.

He travels the world, brokering big deals and you can too.

Here he is, Jock Purtle of Digital Exits.

“There’s risk in everything, but I’ve positioned myself so that I know I’m making the right move.” – Jock Purtle (Tweet It)

Travel Topics:

  • Where he is and where he is going
  • How to mix business and travel for pleasure
  • The story of Mardi Gras and business conferences in New Orleans
  • What it took from Jock to sell his first business
  • An unstoppable strategy for getting a big list of clients fast
  • Why and how Jock sold his cash flowing websites and went full time with business brokering
  • Jock’s vision for Digital Exits
  • Jock’s moments of awe: thousands of elephant seals during mating season
  • The guy who sells “dead things” and why it matters
  • How to start making money with an online business
  • How to sell an online business
  • Logical thinking strategies for business deals
  • How to see the numbers when selling businesses
  • The best way to measure success
  • Plus, much more…

“I’m inherently lazy & what that means is, I’m always going to look for the most efficient path to the result.” – Jock Purtle (Tweet It)

Lovely Links:

Digital Exits | Twitter | LinkedIn

Music Credits:

Take Action:

Ready to start a business? Did you learn from something in this episode? Please let us know in the comment section down below.

Thanks so much for listening. 🙂

Jeffrey Chernick: Tours as a Rock Star Drummer, Grows an International Business and has lots and lots of Fun

Jeffrey Chernick is a Rock Star.

He started in big finance.

Got out before it all burned down.

Off to Barcelona. Off to Malaysia.

Playing sold out shows with his band Story of the Running Wolf.

Still going strong.

Say hello to the ever so charming, Jeffery Chernick.

“Malaysia was awesome. I’d go partying and to really cool places backpack style, then put on a button down and go to meetings with 13 Malaysian businessmen.” – Jeffrey Chernick (Tweet It)

Travel Topics:

  • 00.26 – Who is Jeffrey Chernick? What is his vision?
  • 03.15 – Transitioning for Lehman Bros to entrepreneur
  • 05.27 – How to learn the entrepreneurial skill set?
  • 08.35 – The ‘Big Phone’ call and what it sparked
  • 10.51 –  Backpacking in South East Asia and securing million dollar deals in Malaysia
  • 14.09 – Conference Events in Vegas and Barcelona
  • 17.08 – Cold Calling and it’s atlas like power
  • 19.30 – How to understand people and cultivate a persuasive message
  • 21.05 – Moments of awe for Jeffrey Chernick
  • 24.15 – Using an artistic mind to leverage powerful business moves
  • 29.40 – The power of thinking Big
  • 35.55 – How traveling has impacted the growth of Ride Amigos
  • 38.40 – Tips for quitting the job, building a business and traveling

Lovely Links:

RideAmigos | Facebook | StoryoftheRunningWolf

Take Action:

Do you think the artist in Jeffrey has helped him thru business?

Would you like to grow an International Business?

BHLC: 2011 Notes and Reviews of Berkshire Hathaway Shareholder Letter

Notes on Berkshire Hathaway Shareholder Letter from 2011

Brief Summary of the Year:

Page 18 and 19 are probably some of the best investing advice I’ve ever heard. He covers inflation, value and the shenanigans in a quick fast 2 pages. Check them out.

This is, to me, a very regular year for Berkshire Hathaway. Insurance did phenomenally, everything else did well and they’ve got some new family members like Lubizol.

Notes For the Year:

“…we’ve now had nine consecutive years of underwriting profits, totaling about $17 billion.” – Warren Buffett

Wowza. How about getting paid $17 billion for hold someone else’s money.

“…our primary focus is on building operating earnings.” – Warren Buffett

That’s my primary focus too. Buffett is playing at a bit higher scale though. 😉

First rule of capital allocation – What is smart at one price, is dumb at another.

“Picking up that book was one of the luckiest moments in my life.” – Warren Buffett

Ben Graham’s The Intelligent Investor is the book Buffett credits for teaching him to have a love for low stock prices.

“That old line, “The other guy is doing it so we must as well,” spells trouble in any business” – Warren Buffett

As always, Buffett loves float and Ajit Jain -> Charlie would be happy to trade me for another Ajit. 🙂

“…our primary objectives of redundant liquidity and unquestioned financial strength.” – Warren Buffett

Objective of unquestioned financial strength. That’s what Berkshire does for the businesses it holds. The unquestioned financial strength helped them to turn around BNSF and NetJets. I think that’s their real value add for the companies they acquire. They never sell and they can take any financial requirements your business could possibly need. Especially if you’ve proven yourself as a powerful manager who can turn investment into returns.

“‘In God We Trust’ may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human.” – Warren Buffett

 

“You can fondle the cube, but it won’t respond.” – Warren Buffett

This one requires context. In the letter Buffett is describing 3 types of investment. 1. Financial products like mutual funds and cash 2. Buy to sell at higher price things like gold or fine art 3. productive assett. The cube is alluding the all the worlds gold melted into a 68 foot block of pure gold worth $9 trillion +. You could have the Cube or the equivalent value in productive assets (all US agricultural land and 16 Exxon’s.) Which would you choose?

Productive assets are made up of Real Estate, Businesses and Agricultural properties. Buffett and Berkshire Hathaway choose Businesses. Makes me wonder where I should invest….

“What motivates most gold buyers is the belief that the ranks of the fearful will grow.” – Warren Buffett

Buffett really tears into the gold hoarders in this letter. It’s great to hear because I’ve been influenced in the past to think having gold on hand is a valuable way to retain wealth. Now it’s not. There is no way I’ll buy gold… I’d rather have a farm that makes apples or a company that makes money.

Continue reading “BHLC: 2011 Notes and Reviews of Berkshire Hathaway Shareholder Letter”

BHLC: 2010 Notes and Reviews of Berkshire Hathaway Shareholder Letter

Notes on 2010 Berkshire Hathaway letters to Share holders

Notes on Berkshire Hathaway Shareholder Letter from 2010

Brief Summary of the Year:

Buying derivatives contracts in early 2000s was a gamble.

It turned out to be a nuclear bomb for many of the US financial companies that either tanked or were saved by the government.

Of course, when I say, “saved by the government” I mean that they weaseled themselves into such a disaster that if the US government didn’t bail them out hellfire and brimstone could be reasonably anticipated.

I mean, that’s the great travesty of the system for my generation. I’ve got no faith in these institutions because they set up a system where they can’t fail but they’ll still gyp your for that $10 if your checking account falls 2 cents below. Even if it’s their god damned fees that sent it there.

Blasted Bank of America.

I digress.

Warren Buffett was taking these derivatives contracts early in the 2000s. He used them to buy BSF which is a railroad of sorts.

It’s always baffled me in the USA how there are homeless folks who can’t find a job for $10 dollars an hour while wealthy insurance salesmen drive hummers and can’t understand why the railroads are so expensive.

It’s because of a failure of capital allocation in the united states.

It’s not the role of government, they have no role in this.

The solution will come when people who can make things happen, make things happen.

Warren Buffett converted fear in the financial industry into investment in the railroad infrastructure of the USA. This is delineated in his 2010 letter to the share holders of Bershire Hathaway.

This is what we need. More big dogs hunting elephants and converting fear and greed into productivity and long term economic growth.

Notes For the Year: 

The per-share book value of A&B stock went up 13% in 2010 which isn’t so hot. Over the last 46 years, it’s gone up 20.2% which is pretty hot.

They purchased Burlington Northern Santa Fe (BNSF) which I’ve never heard of though it’s clear that it’s a railway company (note: check this in Wikipedia to learn more TK )

Both of us are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. – Warren Buffett

Interesting… Buffett sees the costs and environmental advantages of railways as a hedge against the trucking industry.

Both of us are enthusiastic about BNSF’s future because railroads have major cost and environmental advantages over trucking, their main competitor. Last year BNSF moved each ton of freight it carried a record 500 miles on a single gallon of diesel fuel. That’s three times more fuel-efficient than trucking is, which means our railroad owns an important advantage in operating costs. Concurrently, our country gains because of reduced
greenhouse emissions and a much smaller need for imported oil. When traffic travels by rail, society benefits. – Warren Buffett

Notice the theme again: whats good for the country and the people is a good long term investment.

No matter how serene today may be, tomorrow is always uncertain. – Warren Buffett

A great quote to remember

Don’t let that reality spook you. Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all-important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and even a Civil War – remains alive and effective. – Warren Buffett

Valiant predictions for an optimistic future.

The challenge, of course, is the calculation of intrinsic value. – Warren Buffett

As always, the great challenge. How do we calculate intrinsic value?

A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton. – Warren Buffett

 

Charlie and I hope that the per-share earnings of our non-insurance businesses continue to increase at a decent rate. But the job gets tougher as the numbers get larger. We will need both good performance from our current businesses and more major acquisitions. We’re prepared. Our elephant gun has been reloaded, and my trigger finger is itchy. – Warren Buffett

It’s good to be young with a smaller, more dynamic profile as that’s where the per-share earnings can grow based on small game hunting rather than the elephant gun.

“Hire well, manage little” – a code that suits Warren and the managers he hires.

Again the layout of Berkshire. They buy the best companies. Ones that win more money than they can possibly reinvest into themselves. The extra earnings can be used by Berkshire to allocate capital in ways that grow wealth even faster than if those business owners had kept the business. Essentially, BH is capital bucket that catches the runoff capital from a group of highly skilled managers.

Noting that flexibility plays an important role in their capacity for growth and good decisions.

They can take the overflow cash from See’s and Business Wire because those businesses can’t reinvest their earnings back into the company in a meaningful way. BH can and did so in their purchase of BNSF. BH is a big deal insurance company that is the backbone for much of US business. This backbone is also important as they provide relief to stressed (yet value rich) business to pull them through challenging market situations.

Our final advantage is the hard-to-duplicate culture that permeates Berkshire. And in businesses, culture counts. – Warren Buffett

Business culture counts.

Again with the theme of “we eat at our restaurants.” No highly paid CEOs with no consequences if the business collapses. If they let the companies sink, they too, lose money.

It’s like a culture war thing. Warren Buffet loves the frugal, highly productive culture that makes up the organization and expects it to continue long after he dies.

….Government Employees Insurance Co. (now called GEICO). – Warren Buffett

Interesting, Warren actually went to GEICO as a young man because Ben Graham was there. He knocked on the door of a closed office and came in to meet Lorimer “Davy” Davidson. GEICO has gone on to be an unstoppable company after years of ups and downs.

…a sound insurance operation requires four disciplines:
 
(1) An understanding of all exposures that might cause a policy to incur losses;
(2) A conservative evaluation of the likelihood of any exposure actually causing a loss and the probable cost if it does;
(3) The setting of a premium that will deliver a profit, on average, after both prospective loss costs and operating expenses are covered; and (4) The willingness to walk away if the appropriate premium can’t be obtained. – Warren Buffett

The insurance business seems quite attractive if one could enter it with a creative profitable way that most don’t understand. Think travel insurance… contact Chris Nobel…

At Berkshire, our time horizon is forever. – Warren Buffett

They are reinvesting in the housing construction. Putting more in while the industry is down.

The 4 sectors of Bershire’s business;
1. Insurance
2. Manufacturing and Retail
3. Regulated & Capital-Intensive Businesses
4. Finance and Financial Products (smallest sector)

Buffett is confident in the long term value of rail-roads. Just thinking here: the cost of diesel in trucking is 3x that of railroad. So railroad (the “circulatory system” of the US) will be a long term valuable asset as they have low cost and the environmental impact is low. Of course, a disruptive new technology could blow that all out of the water.

A fusion energy company could make electricity nearly free and then electric vehicles could outpace trucking by far greater ratios than the diesel trucking cost expectation. So these are the issues. Imagine in 1990 if you were to tell people that they could stream videos straight into their Televisions without ever having to set hands on a VHS or a DVD. You’d seem crazy right. Well thats just it. RailRoads to me seem to be fragile against the volatility of upcoming technology. What if Elon Musk was able to create the Hypertron (or whatever it was.) and we could get people from LA to SF in 30 minutes? That would shift everything in regards to the investment… of course the abundance in society would change everything too…

The cost of getting from New York to LA by driving an electric car could go down to like $30. Imagine that. Anyways, who knows if this is going to work out. A TELSA S-model costs a fortune right now.

Time is the friend of the wonderful business. – Warren Buffett

This is inspired by the CoKe company. Essentially Buffett believes that within 10 years of 2010, Coke will pay out annual dividend returns greater to that which they paid for their share in the company.

…the ability to anticipate the effects of economic scenarios not previously observed. – Warren Buffett

The hard to evaluate skill Buffett is seeking (in addition to a record of excellent returns on investments) in a successor as CEO.

Todd Combs has an interesting wikipedia page that I expect will grown in length as time passes.

Warren Buffett is 80 years old as he writes this letter.

We want a compensation system that pays off big for individual success but that also fosters cooperation, not competition. – Warren Buffett

Incentivizing cooperation in Berkshire Hathaway.

You should also understand that we get paid up-front when we enter into the contracts and therefore run no counterparty risk. That’s important. – Warren Buffett

Shirking counter party risk exposure, or the exposure to people not living up to their contracts. With Berkshire Hathaway they agree to derivatives contracts in which they get paid up front to take the risk of other parties who seek to insure against said risk. Essentially, Warren is personally assuring that he will pay someone if what they risk comes to fruition. I should start a shark attack insurance company for surfers and those visiting the beach…

– Warren Buffett

I just recounted to the wifey how amazing Berkshire is with Warren’s derivatives contracts (essentially insurance against big business failure) deals and she asked me if they were the biggest company in the world. I went to this list which is utterly fascinating. Note: Organize the worlds largest companies by profits (low not high.) The bank of Scotland is on this list but reporting -13.4 billion in losses! WHAT ON EARTH?! Freedom Podcasting is infinitely more profitable than the Royal Bank of Scotland. Wow!
Hold on. According to this list, the most profitable company in the world is Fannie Mae. This is a highly dubious list. Check it out. Tell me what you think in the comments… Back to Buffett.

Side Note: Another fascinating list is the list of the top billionaires in the world. Warren sits at number 4 at the time of writing this article.

What is sure is that we will have the use of our remaining “float” of $4.2 billion for an average of about 10 more years. (Neither this float nor that arising from the high-yield contracts is included in the insurance float figure of $66 billion.) Since money is fungible, think of a portion of these funds as contributing to the purchase of BNSF. – Warren Buffett

What massive, mind numbing leverage Warren uses here. He’s taking this float of billions of dollars and using it to reinvest in the American railroad reinvestment. It’s amazing.
Money aside, it’s a bet in the future of railroad as a way. He’s using the risk from these big derivatives deals to reinvest into the infrastructure of the US economy. It’s amazing. A real captain of industry.
On a more generalist view. He’s taking fear of big company failure, monetizing it and using it to reinvest in the infastructure of america. Heroic stuff… though he’s doing not to be perceived as a hero, but to add value to the economy (which is of course, heroic if your a capitalist.)

As I have told you before, almost all of our derivatives contracts are free of any obligation to post collateral – a fact that cut the premiums we could otherwise have charged. But that fact also left us feeling comfortable during the financial crisis, allowing us in those days to commit to some advantageous purchases. Foregoing some additional derivatives premiums proved to be well worth it. – Warren Buffett

… and in avoiding the high leverage derivatives contracts, he created space to invest in the real business assets. This is a really great story. He’s quite candid about the reality of the situation. He’s taken the fear of 2009 and reinvested it into railroad redevelopment. (The coolest thing I’ve ever understood about high level economics in my life. -> converting high level financial fear into physical value delivery in the for of RAILROADS. V please remind me about this.)

See Fear to Investment note. A rant, but one that probably is my best understanding of the invaluable role that Buffett has played in the economy by turning fear into investment via his derivatives contracts and investment in BNSF (Burlington Northern Santa Fe)

Charlie and I could – quite legally – cause net income in any given period to be almost any number we would like. – Warren Buffett

On the importance of Net Income at Berkshire Hathaway. Note: This doesn’t mean they are messing with the books. It’s just that they could chose to invest less and hold more earnings, thus showing net income, or invest more and hold less earning and show a lower net income (but a higher potential return on investment.)

If we really thought net income important, we could regularly feed realized gains into it simply because we have a huge amount of unrealized gains upon which to draw. Rest assured, though, that Charlie and I have never sold a security because of the effect a sale would have on the net income we were soon to report. We both have a deep disgust for “game playing” with numbers, a practice that was rampant throughout corporate America in the 1990s and still persists, though it occurs less frequently and less blatantly than it used to. – Warren Buffett

A disgust for the “game playing” of the grand financial beasts. They would rather show net income losses rather than pander to selling valuable assets to show cash in hand.

Operating earnings, despite having some shortcomings, are in general a reasonable guide as to how our businesses are doing. Ignore our net income figure, however. Regulations require that we report it to you. But if you find reporters focusing on it, that will speak more to their performance than ours. – Warren Buffett

A reiteration of course.

Again the Black-Scholes formula comes up which is, the theoretical estimate of price for options (according to wiki.) I think understanding what Buffett is saying here would essentially change the way one sees the world.

Both Charlie and I believe that Black-Scholes produces wildly inappropriate values when applied to long-dated options. – Warren Buffett

Pft. I take it back. While Buffett finds Black Sholes valuable at times, he also finds it “wildly inappropriate” for others.

We continue, nevertheless, to use that formula in presenting our financial statements. Black-Scholes is the accepted standard for option valuation – almost all leading business schools teach it – and we would be accused of shoddy accounting if we deviated from it. Moreover, we would present our auditors with an insurmountable problem were we to do that: They have clients who are our counterparties and who use Black-Scholes values for the same contracts we hold. It would be impossible for our auditors to attest to the accuracy of both their values and ours were the two far apart. – Warren Buffett

Wow again… A deep, intrisic understanding of Black Scholes may be a game changer in 2010.

Part of the appeal of Black-Scholes to auditors and regulators is that it produces a precise number. Charlie and I can’t supply one of those. We believe the true liability of our contracts to be far lower than that calculated by Black-Scholes, but we can’t come up with an exact figure – anymore than we can come up with a precise value for GEICO, BNSF, or for Berkshire Hathaway itself. Our inability to pinpoint a number doesn’t bother us: We would rather be approximately right than precisely wrong. – Warren Buffett

We would rather be approximately right than precisely wrong. – Warren Buffett

A memorable quote to place in the memory banks.

Academics’ current practice of teaching Black-Scholes as revealed truth needs re-examination. For that matter, so does the academic’s inclination to dwell on the valuation of options. You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about. – Warren Buffett

Value Investing again. Of course, value investing is a challenge… but that’s what we need in the new economy.
Buffett doesn’t claim to be able to value invest in new tech. What do we need to do to get us there? I don’t know but I’m going to find out.

The fundamental principle of auto racing is that to finish first, you must first finish. That dictum is equally applicable to business and guides our every action at Berkshire. – Warren Buffett

Timeless lessons.

Borrowers then learn that credit is like oxygen. When either is abundant, its presence goes unnoticed. When either is missing, that’s all that is noticed. – Warren Buffett

It’s all about preparing for the times of need rather than expecting the times of abundance.

At Berkshire, we have taken his $1,000 solution a bit further and have pledged that we will hold at least $10 billion of cash, excluding that held at our regulated utility and railroad businesses. Because of that commitment, we customarily keep at least $20 billion on hand so that we can both withstand unprecedented insurance losses (our largest to date having been about $3 billion from Katrina, the insurance industry’s most expensive catastrophe) and quickly seize acquisition or investment opportunities, even during times of financial turmoil. – Warren Buffett

Berkshire played a pivotal role in the Katrina catastrophe by distributing $3 billion. I was on the ground floor there a year later seeing the shambles that were left. I don’t know where that money went. I’d love to explore that more. If there is ever an opportunity I hope those reading this will help me to invest more time in understanding what the hell was going on in the 9th ward. With 3 Billion floating around, it makes no sense that the place was in such rubble. Where was the discrepancy?

We keep our cash largely in U.S. Treasury bills – Warren Buffett

Again the long term trust in the nation. God Bless Berkshire Hathaway.

Furthermore, not a dime of cash has left Berkshire for dividends or share repurchases during the past 40 years. Instead, we have retained all of our earnings to strengthen our business, a reinforcement now running about $1 billion per month. Our net worth has thus increased from $48 million to $157 billion during those four decades and our intrinsic value has grown far more. No other American corporation has come close to building up its financial strength in this unrelenting way. – Warren Buffett

THIS IS HOW TO GROW WEALTH!

By being so cautious in respect to leverage, we penalize our returns by a minor amount. Having loads of liquidity, though, lets us sleep well. Moreover, during the episodes of financial chaos that occasionally erupt in our economy, we will be equipped both financially and emotionally to play offense while others scramble for survival. That’s what allowed us to invest $15.6 billion in 25 days of panic following the Lehman bankruptcy in 2008. – Warren Buffett

h. y. p. e. r. predators. Want to play big? Carry liquidity through really hard times and then buy big with companies that have long term economic potential (shoes, sugar water and railroads), great management and intrinsic value.

Come by bus; leave by private jet. – Warren Buffett

Spend. The capitalist woodstock urges you to spend.

This group efficiently deals with a multitude of SEC and other regulatory requirements, files a 14,097- page Federal income tax return along with state and foreign returns, responds to countless shareholder and media inquiries, gets out the annual report, prepares for the country’s largest annual meeting, coordinates the Board’s activities – and the list goes on and on. They handle all of these business tasks cheerfully and with unbelievable efficiency, making my life easy and joyful. Their efforts go beyond activities strictly related to Berkshire: They deal with 48 universities (selected from 200 applicants) who will send students to Omaha this school year for a day with me and also handle all kinds of requests that I receive, arrange my travel, and even get me hamburgers for lunch. No CEO has it better. – Warren Buffett

He’s got it made. There is a yearly party celebrating the accomplishments of his Berkshire Hathaway. Astounding results, even in a year where they didn’t accomplish their goals.
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