Keep INVESTING Simple and Safe (KISS)
****Investment Philosophy, Strategy and various Valuation Methods****
The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.
Benjamin Graham had adopted early bond analysis techniques to common stocks analysis.
He focused primarily on determining a company's solvency and earning power for the purposes of bond analysis.
Graham never made the distinction between a company that held a long-term competitive advantage over its competitors and one that didn't.
He was only interested in whether or not the company had sufficient earning power to get it out of the economic trouble that sent its stock price spiraling downward.
He wasn't interested in owning a position in a company for ten or twenty years. If it didn't move after two years, he was out of it.
Warren Buffett
Warren Buffett discovered, after starting his career with Graham, the tremendous wealth-creating economics of a company that possessed a long-term competitive advantage over its competitors.
He realized that the longer you held one of these fantastic businesses, the richer it made you.
While Graham would have argued that these super businesses were overpriced, Warren realized that he didn't have to wait for the stock market to serve up a bargain price, that even if he paid a fair price, he could still get superrich off of those businesses.
Warren developed a unique set of analytical tools to help identify these special kinds of businesses.
His new ways of looking at things enabled him to determine whether the company could survive its current problems (recall Washington Post at the time when he first bought into this company).
Warren's way also told him whether or not the company in question possessed a long-term competitive advantage that would make him superrich over the long run.
Warren's two simple and stunning revelations:
(1) How to identify an exceptional company with a durable competitive advantage?
(2) How to value a company with a durable competitive advantage?
The billionaire investor said Berkshire Hathaway Inc completely exited its stakes in the four major US airlines. The sales of shares of Delta Air Lines Inc, Southwest Airlines Co, American Airlines Group Inc and United Airlines Holdings Inc made up most of the company’s US$6.5bil in equity sales in April.
During his live-streamed annual meeting, Buffett said the business has fundamentally changed following the economic fallout from the coronavirus pandemic. He declined to blame the performance of the airline executives, saying they’ve done a good job of raising money to get through the crisis.
“The world changed for airlines and I wish them well, ” Buffett said Saturday. He clarified that he made the decision and that he lost money on his investments. “That was my mistake.”
Buffett’s had a complicated relationship with the airline industry over the years. After a troublesome investment in USAir, Buffett joked that he would call an 800 number to declare he was an “air-o-holic” if he ever got the urge to invest in airlines again.
Then in 2016, Berkshire dove into the industry again, amassing stakes in the four largest US airlines. At the end of 2019, those stakes amounted to almost US$10bil. Buffett’s renewed faith in the industry prompted speculation that he might one day own one of the carriers.
But now, he’s cut those investments again. Berkshire disclosed in April that it had at least trimmed its Delta and Southwest stakes, both of which had previously been above a 10% ownership level.
“The airline business - and I may be wrong and I hope I’m wrong - but I think it’s changed in a very major way, ” Buffett said. “The future is much less clear to me.”
The disclosure was among the most significant at the annual meeting, which was notable for its different feel this year as the event that usually draws tens of thousands was done was hosted virtually.
Buffett, 89, shared the stage with a top deputy, Greg Abel, who runs Berkshire’s non-insurance operating units. Vice-chairman Charlie Munger, 96, didn’t join, though Buffett said his long-time business partner was in good health.
Buffett said he didn’t know how consumer travel habits will change after the pandemic subsides, but any reduction in travel could leave airlines with higher-than-necessary fixed costs. Any impact could filter down to suppliers like Boeing Co.
"I always had Paul Volcker on a pedestal in terms of Fed chairmen," Buffett said. "[Current Fed Chairman] Jay Powell, in my view, belongs with him on that pedestal," he added. "They [the Fed] acted with unprecedented speed and determination" to prop up the economy in the wake of COVID-19 crisis. Regarding the massive expansion of the Fed's balance sheet, he said, "We don't know the consequences of doing that, but we do know the consequences of doing nothing, and we owe the Fed a great thank you."
Among the various initiatives launched by the Fed to prop up the U.S. economy in the midst of the crisis are:
Later, in response to a shareholder question about whether Berkshire is considering lending out its large and growing cash hoard, Buffett said: "This is a great time to borrow money. It may not be a good time to lend money." Noting that corporate debt issuance has proceeded at a record pace as the Fed has provided liquidity, he asserted, "We are not in the business of subsidizing companies with [our] shareholder money."
There's been a lot of speculation about the moves that Berkshire Hathaway has recently made with its airline stock holdings. In early April, Berkshire sold substantial amounts of its holdings in Delta Air Lines (NYSE:DAL) and Southwest Airlines (NYSE:LUV), with disclosures necessary because of Berkshire's having held more than 10% of the two airlines' outstanding shares. At the time, it seemed as though Buffett might simply be reducing its positions below 10% to avoid future complications.
However, Buffett reported selling a total of $6.5 billion in stock during April, far more than the Delta and Southwest sales that had been reported and also including shares of United Airlines Holdings (NASDAQ:UAL) and American Airlines Group (NASDAQ:AAL) as well. Questioned later, the Berkshire CEO said that the company sold off its entire positions in the four airlines. As he explained it, he "just decided I made a mistake." He had initially figured that investing $7 billion to $8 billion to buy 10% stakes in the four biggest U.S. airlines would give him about $1 billion in underlying earnings, which seemed like a reasonable value. However, Buffett said, "It turned out I was wrong about the business."
Buffett didn't blame airline CEOs, who managed their companies well and did a lot of things right. However, the Berkshire leader no longer feels comfortable that airlines will ever recover to their pre-coronavirus levels, and even two to three years from now, it's possible that not nearly as many people will be flying. Unfortunately, even if airlines recover 70% to 80% of their pre-crisis passenger loads, they'll still have far too many planes. With airlines selling stock to raise capital, upside is limited. Buffett concluded, "The world changed for airlines, and we wish them well."
https://www.fool.com/investing/2020/05/02/what-warren-buffett-said-at-berkshires-2020-shareh.aspx Related article:
Warren Buffett Adds to Delta Investment as Airlines Plunge to Value Territory
Berkshire still holds3 over $180 billion in the common stock of many publicly-traded companies. Approximately 69% of the aggregate fair value was concentrated in these five companies:
Coronavirus fears have taken their toll, providing an opportunity for investors
March 03, 2020
As fears of the new coronavirus mount, the share prices of airlines have taken a hit. Taking advantage of this dip into value territory, famous value investor Warren Buffett (Trades, Portfolio) recently disclosed that Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) has invested an additional $45.3 million in Delta Air Lines Inc. (NYSE:DAL).
According to GuruFocus Real-Time Picks, a Premium feature, Buffett bought 976,507 more shares of the airline on Feb. 27, increasing his stake by 1.38% to a total of 71,886,963 shares. The stock was trading around $46.40 at the time.
DAL 30-Year Financial Data
The intrinsic value of DAL
Peter Lynch Chart of DAL
Buffett added to the Delta position toward the end of a week-long U.S. market selloff, which was brought on by fears that the new coronavirus would slow economic growth worldwide. In a whiplash correction, the S&P 500 dropped 13.9% in one week, and the biggest stock fund in the world, the SPDR S&P 500 ETF Trust (SPY), saw over $13 billion in outflows.
The last time Delta traded at such a low price was in early January of 2019. While the stock price is around the same as what it was a year ago, the company’s earnings have increased since then,making it undervalued according to the Peter Lynch chart.
Beginning in January, the U.S. posed travel restrictions on entry from China, which mainly consisted of rerouting airline passengers to certain airports to be screened for the virus. In February, additional travel restrictions were implemented on passengers travelling to the U.S. from Italy, South Korea and Iran, which have also seen significant coronavirus outbreaks.
Aside from government-imposed travel restrictions, there has also been a general drop in demand for international flights as people seek to reduce their exposure to foreign countries and crowded spaces. On Saturday, American Airlines (NASDAQ:AAL) announced it would be suspending flights to and from Milan, Italy from some of its airports, a decision that is due purely to lack of consumer demand.
Decline in demand for luxury services such as airline flights are nothing new during a market downturn. While it’s true that in this particular case, the problem is greatly exacerbated by the fact the recession is the result of an epidemic, demand will pick back up again at some point. Once panic over the new coronavirus recedes, the profits and stock prices of airline companies will rise again.
At a price-earnings ratio of 6.48 as of March 3, Delta is trading at a three-year low point in its valuation. Even if its revenue falls over the next few quarters, the current price is still more attractive than it was a few months ago in regard to the company’s future prospects.
Year to date, Delta shares are down 18.67%, while American Airlines shares are down 33.86%, Southwest Airlines (NYSE:LUV) shares are down 13.02% and United Airlines (NASDAQ:UAL) shares are down 30.46%. However, Buffett also owns shares of all four airlines, indicating a confident long-term bet in the profitability of the industry.
Warren Buffett, ever the beacon of market optimism, appears to be positively bullish about where stocks are headed from here.
The Berkshire Hathaway BRK.A, -3.26% boss made that clear in his annual letter to shareholders in which he wrote of the “American Tailwind” and made the case for staying invested in stocks.
“If something close to current rates should prevail over the coming decades and if corporate tax rates also remain near the low level businesses now enjoy, it is almost certain that equities will over time perform far better than long-term, fixed-rate debt instruments,” Buffett said in the letter.
But this chart of Buffett’s record cash pile, courtesy of RIA Advisors strategist Lance Roberts, seems to tell a different story — one in which what Buffett is saying looks a whole lot different from what Buffett is actually doing:
“As the old saying goes: ‘Follow the money,’” Roberts wrote in a post on his Real Investment Advice blog. “If he thinks stocks will outperform bonds why is holding $128 billion in short-term bonds?”
While the obvious take is that Buffett is just waiting for a good deal to come along so he can snap it up, another is that he’s not as optimistic as he lets on. Maybe, as Roberts suggests, the answer actually lies in a pair of charts.
This one takes a look at the Shiller price-to-earnings ratio, which is currently around 30x, to project 10-year total returns using history as a guide:
As you can see, a lot of red ink has spilled in the years following valuations like the one we’re currently seeing in the stock market.
Here’s another way to look at it, using the “Buffett Indicator”:
Just look at what happened the last few times Buffett’s favorite valuation measure was elevated. Again, forward return expectations, as several indicators clearly show, are markedly lower over the following 10 years.
Roberts says investors might want to exercise some caution before they follow Buffett’s “do as I say, not as I do” advice and buy and hold index funds.
“Buffett did not amass his fortune by following the herd but by leading it,” Roberts wrote. “He is sitting on a $128 billion in cash for a reason. Buffett is fully aware of the gains he has forgone, yet still continues his ways. Buffet is not dumb!”
Sitting on cash, for the first time in awhile, was not the place to be in Monday’s session as the Dow DJIA, -2.94% , S&P SPX, -2.81% and Nasdaq COMP, -2.99% were all staging strong rebounds.
For Buffett, determining a company's value is easy as long as you plug in the right variables:
the stream of cash and
the proper discount rate.
If he is unable to project with confidence what the future cash flows of a business will be, he will not attempt to value the company This is the distinction of his approach.
Critics of Buffett's DCF valuation method.
Despite Buffett's claims, critics argue that estimating future cash flow is tricky, and selecting the proper discount rate can leave room for substantial errors in valuation.
Instead these critics have employed various shorthand methods to identify value:
low price-to-earnings ratios,
price-to-book values and
high dividend yields.
Practitioners have vigorously back tested these ratios and concluded that success can be had by isolating and purchasing companies that possess exactly these financial ratios.
Value investors versus Growth investors
People who consistently purchase companies that exhibit low price-to-earnings, low price-to-book, and high dividend yields are customarily called "value investors."
People who claim to have identified value by selecting companies with above-average growth in earnings are called "growth investors." Typically, growth companies possess high price-to-earnings ratios and low dividend yields. These financial traits are the exact opposite of what value investors look for in a company.
Growth and Value investing are joined at the hip.
Investors who seek to purchase value often must choose between the value and growth approach to selecting stocks.
Buffett admits that years ago, he participated in this intellectual tug-of-war. Today he thinks the debate between these two schools of thought is nonsense.
Growth and value investing are joined at the hip, says Buffett.
Value is the discounted present value of an investment's future cash flow;growth is simply a calculation used to determine value.
Growth can be add to and also can destroy value.
Growth in sales, earnings, and assets can either add or detract from an investment's value.
Growth can add to the value when the return on invested capital is above average, thereby assuring that when a dollar is being invested in the company, at least a dollar of market value is being created.
However, growth for a business earning low returns on capital can be detrimental to shareholders.
For example, the airline business has been a story of incredible growth, but its inability to earn decent returns on capital have left most owners off theses companies in a poor position.
Which valuation method(s) to use? Which stock to buy?
All the shorthand methods - high or low price-earnings ratios, price-to-book ratios, and dividend yields, in any number of combinations - fall short, Buffett says, in determining whether "an investor is indeed buying something for what it is worth and is therefore truly operating on the principle of obtaining value for his investments.............Irrespective of whether a business:
grows or doesn't,
displays volatility or smoothness in earnings ,
or carries a high price or low in relation to its current earnings and book value,
the investment shown by the discounted -flows-of-cash calculation to be the cheapestis the one that the investor should purchase.
Unless you are a liquidator, that kind of approach to buying businesses is foolish.
First, the original 'bargain' price probably will not turn out to be such a steal after all. In a difficult business, no sooner is one problem solved than another surfaces - never is there just one cockroach in the kitchen.
Second, any initial advantage you secure will be quickly eroded by the low return that the business earns ...
When the overall market valuation is high, and everything else is rising, those dropping and appearing in the deep-bargain screener probably deserved to be traded by low valuations.
Their stock prices were likely low for the right reasons, and buying these would likely have resulted in deep losses.
Therefore, when it comes to deep-value investing, investors need to be cautious and aware of this approach's inherent problems.
The inherent problems with deep value investing
"Cigar-butt investing"
This was coined by Buffett for the strategy of buying mediocre businesses at prices that are much lower than the companies' net asset values.
He said the approach is like "a cigar butt found on the street that has only one puff left in it and may not offer much of a smoke, but the "bargain purchase" will make that puff all profit."
There are several problems with this approach.
1. Erosion of value over time.
Mediocre businesses do not create value for their shareholders; instead, they destroy business value over time.
The value of the business can decline and the initial margin of safety may gradually shrink, even if the stock price doesn't go up.
Investors need to be lucky enough to have the stock prices rise in time and sell before prices drop again following the intrinsic value of the business.
"Time is the friend of the wonderful business, the enemy of the mediocre." Buffett wrote in his 1989 shareholder letter.
2. Timing and Pain
Buy these bargain portfolios when you can find plenty of them, but if the broad market is in quick decline, like in 2008, the bargain portfolio will be very likely to lose much more than the general market.
If the decline lasts longer, many of the companies in the portfolio may suffer steeper operating losses and may even go out of business.
It is much more painful to hold such a portfolio in bad times, as anyone who owns these stocks during bear markets or recessions will attest - and lose much sleep over.
Because of the quick erosion of business value, selling the deep-asset bargains quickly is key, even if stock prices do not appreciate. The biggest profits are usually achieved within the first 12 months.
"If you buy something because it is undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That's hard." (Charlie Munger.)
Buffett likens buying mediocre businesses at deep bargain prices for a quick profit to dating without the intent of getting married. In that situation, it is essential to end the courtship at the right time and before the relationship turns sour.
3. Not Enough Stocks Qualify
Toavoid errors and disasters caused by single stocks in the deep-bargain portfolio, it is important to have a diversified group of them.
But when the market valuation is high, it is just not possible to find enough stocks to satisfy the diversification requirement. They simply dried up as the market continued to tick higher.
This situation may last a long time, as the close-to-zero interest rate has lifted the valuations of all assets.
4. Tax Inefficiency
Because of the short holding time, any gain from the portfolio is subject to the same tax rate as the investor's income tax (for U.S. investors, unless it is in a retirement account.)
This drastically reduces the overall return over the long term.
If buying mediocre businesses at deep bargain prices for a quick profit is like a date without the intent of getting married, buying them and getting involved long term is like a marriage without love. A lot of other things need to be right to work things out, and it will never be a happy marriage.
Important Notes on Deep-Asset Bargains strategy
Though buying deep-asset bargains can be very profitable, this strategy comes with its inherent problems.
- This strategy comes with a much higher mental cost to investors.
- More importantly, business deterioration and the erosion of value put investors in a riskier position.
- As a result, they need to strictly follow the rules of maintaining a diversified portfolio and selling within 12 months whether investments worked out or not.
Ask yourself:
Why would you, as an investor, want to get involved in this mess (a deep-asset-bargain) and witness things deteriorating, hoping the situation will improve?
Even if it works out eventually, which is very unlikely (in the majority), the mental and psychological drain is simply not worth it.
There are better ways to make money.
Buy Only Good Companies!
"Bargain-purchase folly."
Instead of buying companies with deteriorating values on the cheap and hoping things will improve, why not buy companies that grow value over time?
Warren Buffett summarized in a single sentence the priceless lessons he learned from his personal "bargain-purchase folly".
"It is far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
Warren Buffett and Charlie Munger discuss intrinsic value at the 1997 Berkshire Hathaway annual meeting. @7.00 Charlie Munger advocates the concept of opportunity cost. @8.30 Compare with Coca Cola. Compare to Gillette. Is it better than buying Coca Cola or Gillette stock? Always compare to your own preexisting stock. Maybe better off buying more of the preexisting stocks. @9.40 Concept of intrinsic value was easier in the past. Based on liquidation value. Based on asset value. You can see the discount from intrinsic value. Now, you need to get into Warren's type of thinking on valuation. @12.00 Part of the process of calculating intrinsic value is the ability to: Walk away from anything that doesn't work? Walk away from anything you cannot understand?
“In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none. Zero.” — Charlie Munger, Self-made billionaire & Warren Buffett’s longtime business partner
Why did the busiest person in the world, former president Barack Obama, read an hour a day while in office?
Why has the best investor in history, Warren Buffett, invested 80% of his time in reading and thinking throughout his career?
Why has the world’s richest person, Bill Gates, read a book a week during his career? And why has he taken a yearly two-week reading vacation throughout his entire career?
Why do the world’s smartest and busiest people find one hour a day for deliberate learning (the 5-hour rule), while others make excuses about how busy they are?
What do they see that others don’t?
The answer is simple: Learning is the single best investment of our time that we can make. Or as Benjamin Franklin said, “An investment in knowledge pays the best interest.”
This insight is fundamental to succeeding in our knowledge economy, yet few people realize it. Luckily, once you do understand the value of knowledge, it’s simple to get more of it. Just dedicate yourself to constant learning.
Knowledge is the new money
“Intellectual capital will always trump financial capital.” — Paul Tudor Jones, self-made billionaire entrepreneur, investor, and philanthropist
We spend our lives collecting, spending, lusting after, and worrying about money — in fact, when we say we “don’t have time” to learn something new, it’s usually because we are feverishly devoting our time to earning money, but something is happening right now that’s changing the relationship between money and knowledge.
We are at the beginning of a period of what renowned futurist Peter Diamandis calls rapid demonetization, in which technology is rendering previously expensive products or services much cheaper — or even free.
This chart from Diamandis’ book Abundance shows how we’ve demonetized $900,000 worth of products and services you might have purchased between 1969 and 1989.
This demonetization will accelerate in the future. Automated vehicle fleets will eliminate one of our biggest purchases: A car. Virtual reality will make expensive experiences, such as going to a concert or playing golf, instantly available at much lower cost. While the difference between reality and virtual reality is almost incomparable at the moment, the rate of improvement of VR is exponential.
While education and health care costs have risen, innovation in these fields will likely lead to eventual demonetization as well. Many higher educational institutions, for example, have legacy costs to support multiple layers of hierarchy and to upkeep their campuses. Newer institutions are finding ways to dramatically lower costs by offering their services exclusively online, focusing only on training for in-demand, high-paying skills, or having employers who recruit studentssubsidize the cost of tuition.
Finally, new devices and technologies, such as CRISPR, the XPrize Tricorder, better diagnostics via artificial intelligence, and reduced cost of genomic sequencing will revolutionize the healthcare system. These technologies and other ones like them will dramatically lower the average cost of healthcare by focusing on prevention rather than cure and management.
While goods and services are becoming demonetized, knowledge is becoming increasingly valuable.
Perhaps the best example of the rising value of certain forms of knowledge is the self-driving car industry. Sebastian Thrun, founder of Google X and Google’s self-driving car team, gives the example of Uber paying $700 million for Otto, a six-month-old company with 70 employees, and of GM spending $1 billion on their acquisition of Cruise. He concludes that in this industry, “The going rate for talent these days is $10 million.”
That’s $10 million per skilled worker, and while that’s the most stunning example, it’s not just true for incredibly rare and lucrative technical skills. People who identify skills needed for future jobs — e.g., data analyst, product designer, physical therapist — and quickly learn them are poised to win.
Those who work really hard throughout their career but don’t take time out of their schedule to constantly learn will be the new “at-risk” group. They risk remaining stuck on the bottom rung of global competition, and they risk losing their jobs to automation, just as blue-collar workers did between 2000 and 2010 when robots replaced 85 percent of manufacturing jobs.
Why?
People at the bottom of the economic ladder are being squeezed more and compensated less, while those at the top have more opportunities and are paid more than ever before. The irony is that the problem isn’t a lack of jobs. Rather, it’s a lack of people with the right skills and knowledge to fill the jobs.
An Atlantic article captures the paradox: “Employers across industries and regions have complained for years about a lack of skilled workers, and their complaints are borne out in US employment data. In July [2015], the number of job postings reached its highest level ever, at 5.8 million, and the unemployment rate was comfortably below the post-World War II average. But, at the same time, over 17 million Americans are either unemployed, not working but interested in finding work, or doing part-time work but aspiring to full-time work.”
In short, we can see how at a fundamental level knowledge is gradually becoming its own important and unique form of currency. In other words, knowledge is the new money. Similar to money, knowledge often serves as a medium of exchange and store of value.
But, unlike money, when you use knowledge or give it away, you don’t lose it. Transferring knowledge anywhere in the world is free and instant. Its value compounds over time faster than money. It can be converted into many things, including things that money can’t buy, such as authentic relationships and high levels of subjective well-being. It helps you accomplish your goals faster and better. It’s fun to acquire. It makes your brain work better. It expands your vocabulary, making you a better communicator. It helps you think bigger and beyond your circumstances. It puts your life in perspective by essentially helping you live many lives in one life through other people’s experiences and wisdom.
Former president Obama perfectly explains why he was so committed to reading during his presidency in a recent New York Times interview(paywall): “At a time when events move so quickly and so much information is transmitted,” he said, reading gave him the ability to occasionally “slow down and get perspective” and “the ability to get in somebody else’s shoes.” These two things, he added, “have been invaluable to me. Whether they’ve made me a better president I can’t say. But what I can say is that they have allowed me to sort of maintain my balance during the course of eight years, because this is a place that comes at you hard and fast and doesn’t let up.”
6 essentials skills to master the new knowledge economy
“The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn, and relearn.” — Alvin Toffler
So, how do we learn the right knowledge and have it pay off for us? The six points below serve as a framework to help you begin to answer this question. I also created an in-depth webinar on Learning How To Learnthat you can watch for free.
Identify valuable knowledge at the right time. The value of knowledge isn’t static. It changes as a function of how valuable other people consider it and how rare it is. As new technologies mature and reshape industries, there is often a deficit of people with the needed skills, which creates the potential for high compensation. Because of the high compensation, more people are quickly trained, and the average compensation decreases.
Learn and master that knowledge quickly. Opportunity windows are temporary in nature. Individuals must take advantage of them when they see them. This means being able to learn new skills quickly. After reading thousands of books, I’ve found that understanding and using mental models is one of the most universal skills that everyone should learn. It provides a strong foundation of knowledge that applies across every field. So when you jump into a new field, you have preexisting knowledge you can use to learn faster.
Communicate the value of your skills to others. People with the same skills can command wildly different salaries and fees based on how well they’re able to communicate and persuade others. This ability convinces others that the skills you have are valuable is a “multiplier skill.” Many people spend years mastering an underlying technical skill and virtually no time mastering this multiplier skill.
Convert knowledge into money and results. There are many ways to transform knowledge into value in your life. A few examples include finding and getting a job that pays well, getting a raise, building a successful business, selling your knowledge as a consultant, and building your reputation by becoming a thought leader.
Learn how to financially invest in learning to get the highest return.Each of us needs to find the right “portfolio” of books, online courses, and certificate/degree programs to help us achieve our goals within our budget. To get the right portfolio, we need to apply financial terms — such as return on investment, risk management, hurdle rate, hedging, and diversification — to our thinking on knowledge investment.
Master the skill of learning how to learn. Doing so exponentially increases the value of every hour we devote to learning (our learning rate). Our learning rate determines how quickly our knowledge compounds over time. Consider someone who reads and retains one book a week versus someone who takes 10 days to read a book. Over the course of a year, a 30% difference compounds to one person reading 85 more books.
To shift our focus from being overly obsessed with money to a more savvy and realistic quest for knowledge, we need to stop thinking that we only acquire knowledge from 5 to 22 years old, and that then we can get a job and mentally coast through the rest of our lives if we work hard. To survive and thrive in this new era, we must constantly learn.
Working hard is the industrial era approach to getting ahead. Learning hard is the knowledge economy equivalent.
Just as we have minimum recommended dosages of vitamins, steps per day, and minutes of aerobic exercise for maintaining physical health, we need to be rigorous about the minimum dose of deliberate learning that will maintain our economic health. The long-term effects of intellectual complacency are just as insidious as the long-term effects of not exercising, eating well, or sleeping enough. Not learning at least 5 hours per week (the 5-hour rule) is the smoking of the 21st century and this article is the warning label.
Don’t be lazy. Don’t make excuses. Just get it done.
“Live as if you were to die tomorrow. Learn as if you were to live forever.” — Mahatma Gandhi
Before his daughter was born, successful entrepreneur Ben Clarke focused on deliberate learning every day from 6:45 a.m. to 8:30 a.m. for five years (2,000+ hours), but when his daughter was born, he decided to replace his learning time with daddy-daughter time. This is the point at which most people would give up on their learning ritual.
Instead of doing that, Ben decided to change his daily work schedule. He shortened the number of hours he worked on his to do list in order to make room for his learning ritual. Keep in mind that Ben oversees over 200 employees at his company, The Shipyard, and is always busy. In his words, “by working less and learning more, I might seem to get less done in a day, but I get dramatically more done in my year and in my career.” This wasn’t an easy decision by any means, but it reflects the type of difficult decisions that we all need to start making. Even if you’re just an entry-level employee, there’s no excuse. You can find mini learning periods during your downtimes (commutes, lunch breaks, slow times). Even 15 minutes per day will add up to nearly 100 hours over a year. Time and energy should not be excuses. Rather, they are difficult, but doable challenges. By being one of the few people who rises to this challenge, you reap that much more in reward.
We often believe we can’t afford the time it takes, but the opposite is true: None of us can afford not to learn.
Learning is no longer a luxury; it’s a necessity.
Start your learning ritual today with these three steps
The busiest, most successful people in the world find at least an hour to learn everyday. So can you!
Just three steps are needed to create your own learning ritual:
Find the time for reading and learning even if you are really busy and overwhelmed.
Stay consistent on using that “found” time without procrastinating or falling prey to distraction.
Increase the results you receive from each hour of learning by using proven hacks that help you remember and apply what you learn.
Over the last three years, I’ve researched how top performers find the time, stay consistent, and get more results. There was too much information for one article, so I spent dozens of hours and created a free masterclass to help you master your learning ritual too!
