Portfolio Management for the Lay Investor by Warren Buffett

As a small investor, you got a chance to be in thousands and thousands of great businesses and their prices change all the time; so their relative valuations change and you can make the exchange at very low cost, close to nothing. You can always shift from one business to another.

You have a huge advantage over the big boys, as they cannot shift their business to retail or something else so easily.  You can rearrange your business empire in your portfolio that you have at a moment's notice at practically no cost.  You have a huge advantage which, sadly, many turn into a disadvantage.

There is nothing in the price action of the stock that tells you whether you should keep owning the stock.  What tells you to keep owning it is - what do you expect the company to do in the future versus the price you are selling now.and compare to the other opportunity which you think you know equally well and make the same comparison.

You can check your portfolio regularly to see how to optimise the stocks in your portfolio.  There is nothing to stop you from checking this daily.  However, don't do it too frequently.




@ 33 minutes
Warren Buffett's advice on portfolio management for the lay investors.




Read also:  http://executiveeducation.wharton.upenn.edu/~/media/wee/course%20packs/wharton-investment-strategies-and-portfolio-management.pdf

Investment strategies and Portfolio Management

PROGRAM OVERVIEW
For finance or investment professional, change and challenge are constant, particularly in this volatile, complex marketplace. You are presented with diverse opportunities in emerging markets, real estate, hedge funds, derivatives, and other alternative investments. As the choices increase, shaping and monitoring investment portfolios becomes more complicated. Which investments will generate the highest returns without exposing you to excessive risk? In Investment Strategies and Portfolio Management, you will learn how to evaluate this fundamental issue and manage related risk to increase your effectiveness as an investment professional for your clients and your organization. This program examines specific investment areas such as stocks, bonds, derivatives, real estate, and global investments, giving you a solid foundation from which to build optimal investment portfolios and make better investments.

EXPERIENCE
Through the Investment Strategies and Portfolio Management program, you will increase your effectiveness as an investment professional and gain financial tools you can immediately put to use for your clients and your organization. Wharton’s Finance faculty facilitates highly interactive dialogues that demonstrate hands-on applications of portfolio and investment strategies. They, along with noted industry experts, examine current issues such as the market outlook, investing in emerging markets, alternative investments, and hedge funds. All content is designed for you to use practically and effectively once you leave the classroom.

The question to ask yourself: Can I get more for my money somewhere else?

Recognise your mistakes

If you have a good person running the business and the business is not making money, you need to recognise the business is not a good one.  Take action to get out of this business, you are in the wrong business..


When prices fall

I love it when the prices of the things I buy go down.  This applies to stocks too.

Many people think the stock knows more than they do.  So when the stock goes down in price, they think the stock is telling them something.  They take the price as if it is a referendum on themselves versus the stock.

The truth is the stock doesn't know what you pay to own it.  The stock doesn't even know if you own it. You are nothing to the stock.  Yet, the stock is everything to you.  You remembered paying $10.13 for the stock.

The only question to ask yourself:  Can I get more for my money somewhere else?

Investment management process: 5 step procedure

Investment management process is the process of managing money or funds.

The investment management process describes how an investor should go about making decisions.

Investment management process can be disclosed by five-step procedure, which includes following stages:

1. Setting of investment policy. 

2. Analysis and evaluation of investment vehicles. 

3. Formation of diversified investment portfolio. 

4. Portfolio revision 

5. Measurement and evaluation of portfolio performance.


Ref:  http://www.bcci.bg/projects/latvia/pdf/8_IAPM_final.pdf

The remarkable journey of Warren Buffett

Much has been written on Warren Buffett.

Sometimes it is not easy to piece everything together.

He started at a very young age in his wealth accumulation.

As a teenager, he read a lot of books on business in the libraries.

He started to earn income through business during his school days.

Earning money at this young age must surely triggered his entrepreneur spirit.

His paying of income tax at a young age was certainly significant.

A young person of his age with that income was definitely going to view the world a lot different from one who was still receiving meagre pocket money from mum and dad.

He knew what he wished to learn, a very important passion few have at this age.

He went to university and discovered that he knew a lot more of business than the course that was taught.

He completed his degree and then went to Columbia to study under Benjamin Graham.

It must be the most exciting time for him. 

Learning magic formulas to make money safely, logically and using his brain power.

He blossomed having met the right teacher, eagerly acquiring the right knowledge that he was able to use repeatedly to compound his wealth.

Of course, Buffett has all the attributes that will make him highly successful on his own too.



How did he acquire so much wealth?


1.  He started to invest in the stock market.  He started to manage funds for investors.  Over the years, he grew the wealth for his investors and for himself.

2.  He did not just stop there.  Soon, he acquired businesses.  He acquired Denver and sold it for a profit.  He acquired Berkshire Hathaway, got stuck with it but then was able to do something quite remarkable.

3.  Though Berkshire Hathaway was not doing so well as a business, Buffett was able to redeploy capitals to other businesses and stocks very productively.  Eventually, the original business of Berkshire was closed down and it became the holding company for all the other profitable companies and stocks that Buffett has acquired.

4.  Another fact that was interesting.  At the time of acquisition of Coca Cola, it was the biggest asset in Berkshire.  It dwarfed all the worth of the other businesses in Berkshire.   Remarkable, pause to think over this for a while.  This was one of Buffett's major success that propelled him to huge wealth.

5.  Just as remarkable, Coca Cola today is a smaller component of the Berkshire empire.  The 70 or so other businesses owned outright by Berkshire now dwarf all the quoted shares of companies that Berkshire owns.  Pause and think again on this transformation of Berkshire.   Over these years, Buffett has diligently used the income and cash generated in the company to acquire businesses increasing its streams of income.  At present, the company is generating high return on its capital and a lot of  free cash flows which Buffett has to seek homes for regularly.


Implications for the  young investors.  

1.  The average young investor is a wage earner.  He would need to manage his money well.  He will need to save early and grow his savings quickly.  If he is smart, he grows his earnings with his career.  If he is hardworking, he can also find additional stream of income with his time.

2.  As early as possible, the young investors to be, should acquire the knowledge to invest safely for the long term.  While staying in their jobs or careers, the stock market is a vehicle which I will recommend,  PROVIDED THEY HAVE THE SOUND KNOWLEDGE. This is the most important prerequisite.  Without a sound investing philosophy and knowledge, the stock market is actually an extremely dangerous place to be in.  Your capital can be easily decimated and you might as well just put your money in risk free fixed deposits.  Therefore, before investing in the market, spend a few years investing in yourself; get yourself educated and acquire a sound financial investing knowledge.

3.  Invest regularly for the long term.  Keep investing.  Stay with good quality growth stocks buying them when their prices are reasonable.  Do not over diversify.  Keep the winners, sell the losers.  Do not overtrade.  Be patient, don't overpay to own any shares.  Hopefully, and with a reasonably high degree of probability, this will build up your portfolio wealth over time.

4.  Be a net investor in the early years of your life.  Soon, your income and cash flows grow.  You would have grown a portfolio of stocks that will appreciate over time and also generate income for you.  Most of you should be contented to achieve up to this stage.

5.  If your income is huge by then, you can then also acquire assets or businesses.  (See what Peter Lim, the Singaporean billionaire, is doing with his money today.)



Contrasting Buffett and Trump

1.  Donald Trump declared as required as a contestant for the Presidential post in US that he has a networth of US 10 billion and annual income of US 350 million or thereabout.

2.  Buffett is worth US 70 billion and growing this by 10% per year presently.

3.  Who wins?  The better question is:  Who would you like to emulate?  Both are fabulously rich.  But if I have to choose, I will prefer to be in Buffett's situation.  It is better to own an asset that is generating high ROA and ROE.  Over the long term, such an asset eventually will continue to reward you hugely. 

Carl Icahn and Larry Fink at Delivering Alpha 2015 in New York.

Icahn says he has "no idea" where equities will end up this year. "We have the same problems we saw in 2007." He also said that, when high yield goes down, there will be nobody to buy.


Carl Icahn and Larry Fink at Delivering Alpha 2015 in New York.

The fifth annual Delivering Alpha conference concluded on Wednesday in New York City with BlackRock CEO Larry Fink and Activist Investor Carl Icahn debating activist investing.

Fink said that, while activism did have an important role in the financial world, many have also pushed companies toward buying back increasing amounts of stock. He added that this could be holding back the U.S. economy.


On the other hand, Icahn said that BlackRock's role in ETFs, along with the Federal Reserve, were pushing the equities market towards a cliff.


http://www.cnbc.com/2015/07/15/ring-alpha-conference-to-begin-soon.html?trknav=homestack:topnews:2


Fink: 

Activist plays an important role.

Investors should be interested in the proper return they expect from the companies they invested in.

He will ask or write to the management on:

What is your strategy in growing your company's business over the long term?

What is your long term strategy regarding growing organically or through acquisition?

What is your strategy regarding share buyback and dividends?

OCK - What do you think of this company's business?

OCK is involved in the construction of the infrastructure back bone for the huge and fast growing data hungry market. The market is so huge that it had propelled smart phone manufacturer - Apple and Samsung, to be one of the top 10 companies in the world, just by selling smart phone devices. The smart phone is so hotly sought after because of it's capabilities to act like a computer in a mobile manner. Huge amount of money are spent to develop applications to enhance the smart phone usage. However, all these will be rendered useless if there is not internet data to connect the user to the world of apps.

With such a big future ahead in this industry, how would OCK capitalize on this opportunity?

Here is a very good write up on this company.  Read more here:
OCK - Data Revolutionized

What is the strategic and tactical orientation of your fund?

HDFC Equity: Top gun

 

This perennial winner has a massive fan following. And rightly so! Like a magician repeating a trick, HDFC Equity has beaten the category average every single calendar year since 1997. Its ability to identify opportunities at the right time is the key factor contributing to its success. For example, when the Supreme Court halted PSU disinvestment in September 2003, the fund sold its entire energy holding and built a fresh position in March 2004, when PSU stocks started rallying.

Though the fund maintains a large-cap bias, it does not hesitate to invest substantially in stocks of smaller companies, as and when there are opportunities to exploit. Currently, large-caps account for 51 per cent of the assets while the mid- and small-cap allocations stand at 42 and 6 per cent respectively.

The fund manager has always boldly ridden his convictions. He refrains from taking cash calls and prefers to remain fully invested at all times. Historically, his portfolio has been a focussed 25-30 stocks. But the complexion of the fund seems to be changing on this front. The number of stocks has increased to over 45. And, the concentration in the top five holdings has been moderated from 35-40 per cent about a year ago, to just around 25 per cent now.

This is probably not reflective of his stance but rather an adjustment to the size. Investors have flocked to this fund in droves making it the largest diversified equity offering of Rs 5,000 crore. And this very factor may be detrimental to the strategy of the fund. The fund’s ability to identify opportunities and take meaningful exposure in them will be neutralised by its increasing size. The fund has displayed ample spunk till date, but it remains to be seen how it fares from here on.

Information
www.hdfcfund.com
NAV: Rs 182.838 (28/09)
Entry Load: 2.25% for investment less than Rs. 5 Cr.
Exit Load: Nil
Expense Ratio: 1.83%
Launch: Dec ‘94
Plans: Growth, Dividend
Min Investment: Rs 5,000
Benchmark: S&P CNX 500
Portfolio Manager: Prashant Jain

Top sector weights	% of Assets
Capital Goods	17.68
Energy	13.90
Financial Services	12.13
Consumer Non-Durable	8.85
Technology	8.43

Fund Manager: Prashant Jain

Hard to forecast

Jain is one of the most revered fund managers, known for his astute stock picking abilities. All his funds are five-star rated, be it equity or balanced. The impressive list includes HDFC Equity, HDFC Prudence and HDFC MIP Long Term.
Jain worked for two years with SBI Mutual Fund before joining Zurich India AMC. In 2003, HDFC Mutual Fund took over and he has been with the fund house ever since. An engineer from IIT, he holds an MBA from IIM.

Do you see a market crash in the near future? 
In my opinion, a “crash” is probably too strong a word for the Indian market. But a correction can never be ruled out.

It is true that the Indian market is somewhat expensive, but it offers a unique combination of size and growth. Global investors are increasingly looking at India as a mainline asset class and are therefore, investing with a long term view. If you look at Indian P/E's of nearly 20, 15-20 per cent earnings growth, interest rates of 4-6 per cent prevailing outside India and an appreciating currency, then Indian P/E's still look reasonable. India is somewhat expensive compared to the past and to the prevailing interest rates locally. But when viewed in the global context and in view of improved size, fundamentals and visibility of the Indian economy, the market does not appear to be unreasonably valued.

What is the strategic and tactical orientation of your fund? 
We refrain from taking significant cash calls, as we believe investors are doing the asset allocation at their end. Further, it is extremely difficult to time the markets. For instance, early 2000, when the market was at a peak, the cash levels in funds were extremely low. But in September 2001, when the market was at the bottom, cash levels were higher.

In view of the above and the attractive medium to long-term outlook of equities, HDFC Equity Fund continues to remain nearly fully invested.

In the case of HDFC Prudence, the fund has been overweight on equities since 1999. The exposure to equities is between 70-75 per cent and the rest is in bonds. One change that has been done in the last six months is that the maturity of the fixed income portfolio has been increased. This is because the risk reward equation of long maturity bonds is favorable.

Which are your top sector preferences?
Both funds are overweight on capital goods, banking, media and FMCG stocks. The Equity Fund has a lesser exposure to mid caps than Prudence.

http://www.sify.com/movies/boxoffice.php?id=14558037&cid=14481499

Comment:  Learning the working of a fund manager.  

Share valuations of world's top medical glove makers surge - but not on MERS

Share valuations of the four biggest medical glove makers in Malaysia - in the world, in fact - have soared to historic highs, but not because of the MERS outbreak.

The median forward 12-month price-to-earnings ratio of Top Glove (TPGC.KL), Supermax (SUPM.KL), Kossan Rubber Industries (KRIB.KL) and Hartalega (HTHB.KL) has risen to 18, the highest ever, according to Thomson Reuters data. The figures also show their combined revenue is expected to grow 20 percent in 2015, the most in five years.

(For a graphic on sales growth, click: link.reuters.com/pym94w)

The chief driver of sales is the ringgit's slump to nine-year lows against the dollar, making exports more competitive. Low raw material prices will also help widen profit margins. Analysts advocate a selective stock-picking strategy. Among the four, they see Top Glove as their top pick. Shares of the world's biggest glove maker, which commands a 25 percent share of the market, have jumped some 11 percent in Kuala Lumpur since the company released earnings on June 17 that beat expectations.

"I think given the strong rally in Kossan prices, value has emerged more in players such as Top Glove and Supermax," said Chris Eng, head of research at Etiqa Insurance & Takaful, which manages more than 23 billion ringgit ($6.12 billion) of assets. "Probably Top Glove presents the most value as we expect oil prices to gradually rise in coming months putting upward pressure on nitrile as well, which will disadvantage Hartalega and Kossan."

The recent outbreak of Middle East Respiratory Syndrome (MERS) in South Korea has also helped spark investor interest in the stocks, though analysts do not expect MERS to translate into a jump in glove demand with a material impact on earnings. Malaysia-based RHB Research attributed this to the success of South Korea in containing MERS. South Korea has reported a total of 180 MERS infections as of Thursday morning, with 29 deaths. In contrast, Severe Acute Respiratory Syndrome (SARS) in 2003 infected 8,096 people and killed 774, and driving up demand for medical gloves. As for Ebola, which has killed more than 11,000 people in West Africa in the past year, cases have declined sharply in recent months.

http://www.reuters.com/article/2015/06/25/us-malaysia-stocks-pharmaceuticals-glove-idUSKBN0P501Q20150625

The Little Book that Beats the Market by Joel Greenblatt

The Little Book That Beats The Market opens with a simple story about a boy selling bubble gum on the playground. The author and his son attempt to place a value on the business. In the end, it’s made clear that putting a value on a business is the key to investing in individual companies. 

The Magic Formula In A Nutshell

The book concludes with a multi-page appendix that lays out how to apply the magic formula. Here’s that explanation in a nutshell:

Go to a website that lets you filter stocks by certain criteria (like this one at Yahoo!). Filter for stocks that have a ROA (return on assets) of at least 25%, then rank them according to their P/E ratios, with the lowest at the top. Toss out all stocks with a P/E lower than 5 (something’s fishy there), all utility and financial stocks, and all foreign stocks. Buy five or seven of these stocks a month for five months (or so). When you near a year of owning one of these stocks, if it’s at a loss, sell it when you’ve owned it one day less than a year and if it’s a gain sell it when you’ve owned it one day morethan a year (playing games with the capital gains tax, basically). Then reinvest what’s left. Keep doing this for at least five years. That’s it!

Read more here:

http://www.thesimpledollar.com/review-the-little-book-that-beats-the-market/

The Little Book of Common Sense Investing by John Bogle

This small book is divided into eighteen chapters, each ten to twenty pages long, that spells out piece by piece the ideas behind the philosophy that one should do their investing in low-cost index funds.

Read more here:
http://www.thesimpledollar.com/review-the-little-book-of-common-sense-investing/

Greece explainer: What the financial crisis means

Greece announces bank holiday

As Greece inches closer to a financial default, the government closes banks and initiates capital controls.

• IMF blamed for Greek shambles

While the world recoiled in horror at the terrorist attacks in Tunisia and elsewhere, another crisis was unfolding in Europe.

This week begins with Greece about to default on its debts, its banks closed indefinitely as citizens panic and rush to withdraw their euros.

Greece is facing soaring unemployment while wages have sunk and pensions have been slashed. Photo: Bloomberg

Next Sunday the people vote on whether to accept the terms of a rescue package offered by Europe, which outlines more cuts to pay and pensions and imposes some steep tax rises.

The result could determine Greece's future in the euro zone and even in the European Union. It will send financial and political shockwaves around the world.

Between now and then will be a week of economic and political turmoil.

Greek Prime Minister Alexis Tsipras addressed the nation from Athens, Photo: Reuters

I thought they were about to agree a solution to all this?

So did (almost) everyone else. For the last fortnight Greece has been negotiating with the IMF and other Eurozone countries for 7.2 billion euros in new loans, to help pay old loans. The creditors were demanding that Greece make some reforms and cuts before they handed over the money.

While some warned that Greece was sleepwalking into a crisis by playing hardball in Brussels, others praised their bold approach to negotiations, their 'red lines' that they would not cross.

According to calculations by Reuters, Greece owes its official lenders 242.8 billion euros, with Germany its biggest creditor. Photo: Reuters

They figured Greece was bluffing. That they had to act crazy, give every impression they would push the button on default, otherwise they would again be steamrolled by the lenders and Euro zone countries. But few thought they would actually go through with it.

The collapse of the talks was met with shock and disbelief in northern Europe. They clearly thought that they were just a few hours of haggling, a few billion euros here and there, from agreement.

But it showed a wilful ignorance of the reality on the ground in Greece. Syriza was elected this year to change the script on negotiations with Europe. The Greeks sent their new government to Brussels with an ultimatum to get the country a better deal, not just a general mandate to 'give it another go' then settle for more austerity policies such as cuts to pensions, wages and public sector jobs.

People line up to withdraw cash from an automated teller machine on the island of Crete. Photo: Stefanos Rapanis

So what exactly is the problem?

Basically, Greece was hit hard by the financial crisis, and since then it has borrowed a lot of money that it says it can't pay back – at least not yet.

According to calculations by Reuters, it owes its official lenders 242.8 billion euros, with Germany its biggest creditor.

The lenders include the IMF (International Monetary Fund), the ECB (European Central Bank) and the Euro zone governments.

Many of the loans don't mature for years, even decades.

However some do. In particular, Greece was due to pay 1.6 billion euros to the IMF by the end of June in overdue interest. After that, 3.5 billion is due to the ECB on July 20, and another 3.2 billion in August.

On top of that, more than 8 billion euros in short-term bills are due over the next two months.

Greece says it has scraped together all the money it can to pay its debts – it even called in cash reserves from councils, hospitals and other public bodies. It says that, to pay the money owed, it would have had to stop paying money into pensions and public wages – which it refuses to do.

What happens if Greece doesn't get the rescue money?

Barring further surprises, it will default on at least some of its debts.

Sovereign default does have precedents, but it always comes with major economic upheaval.

Though the consequences of that are long-term (difficulty finding lenders willing to invest in the country), there will be immediate side-effects.

After months of massive withdrawals, fearing this very crisis, Greece's banks are surviving on emergency credit from the European Central Bank. Without that, they have had to impose capital controls to stop any more money going out.

Greek people will have less money they are able to spend. Business will be unable to invest. The economy will head into recession.

So far the Greek government has refused to countenance 'Grexit'. However if no new rescue deal is negotiated, Greece would have to supply the banks with money itself, or they will collapse.

But the government has no money. The only obvious solution is to start printing new money to get cash back into the economy.

This 'new drachma' would effectively mean Greece has left the euro – at least temporarily.

The 'new drachma', even if it began on parity with the euro, would quickly lose up to half its value. Essentially, the value of everything in the country would be halved.

There will be high inflation, and the new exchange rate would make imports much more expensive. Life will get even harder for ordinary Greeks and Greek businesses.

On the other hand, some economists say it would stimulate the local economy and, in the long run, leave the country stronger. There is fierce disagreement over this view.

Why would the Greek people possibly want this?

They are sick of austerity. Unemployment has sky-rocketed, wages halved, pensions were slashed, public bodies like hospitals, schools and universities starved of funds.

Many no longer believe that austerity is just a necessary, temporary measure to put the country back on its feet. They believe it is wrecking their economy and their lives. They are willing to take a risk and try something else.

Does it affect Australia?

A loss of faith in the Eurozone could make Australia more attractive to overseas investors, driving up the Australian dollar – hurting our export industries. On the other hand it could scare away investors and push down the dollar.

Either way, though, there would be widespread market instability, a loss of investor confidence and morale. None of which is good for business and growth.

How will all this affect other countries?

The euro is already tumbling on international markets.

If Greece defaults it leaves many of its neighbours short. Germany is owed 57 billion euros, France 43 billion, Italy 38 billion and Spain 25 billion – on top of those countries' contributions to the IMF loans.

The loans don't mature for almost 30 years, there is almost no interest on them and some of the loans came with a 10-year moratorium on interest payments, so it's not like the countries need the money back immediately. However it's still a lot to have to take off the bottom line.

Confidence in Europe, and the euro, has been profoundly shaken. Eyes will turn to the continent's other weak economies such as Portugal, Spain and Italy. They may start to lose capital and investment.

Is it just an economic problem?

No.

This could also drastically change the political balance in Europe. If Syriza makes a success out of splitting Greece away from the rest of the continent, it will embolden other nationalistic parties such as the National Front in France or UKIP in the UK.

Future elections in Europe could see a surge in nationalism, a rejection of the European project, potentially enough to threaten Europe's stability as a political union.

Speaking of which, the UK is in the early stages of debate on a referendum on whether to stay in Europe, next year. If Europe is a basket case this time next year, public opinion (currently in favour of staying in) may drastically change.

Then there is the question of Russia. Syriza has already made overtures to the Kremlin, with Tsipras a star speaker at Putin's recent big international summit in St Petersburg.

If Russia comes to Greece's aid, with money, other support (or both), it will be a new factor in the current Cold War-like tensions between east and west.

Greece has already expressed its anger at Europe and NATO for not doing enough in its regular chest-bumping with Turkey. If Russian warships find a friendly berth in Greek ports, the strategic map of Europe is drastically redrawn.

What happens next?

The next set-piece is a referendum on Sunday, in which Greece votes to accept or reject the terms of the rescue deal most recently proffered in Brussels.

Between now and then, of course, anything could happen.

If the referendum takes place, and is a 'no', then Grexit appears all but inevitable.

On the other hand if it is a 'yes', then the Syriza government has effectively lost power. It will return to Brussels and hope that the deal is still on the table – which is not guaranteed. And after that, the country will probably pretty quickly go back to the polls to find a new government.

http://www.smh.com.au/business/world-business/greece-explainer-what-the-financial-crisis-means-20150628-gi05r2.html


Comment:

When you owe money, it is a big problem for you.  Your future is no longer totally in your control.  Your creditor can demand and you need to comply.

When you owe a lot of money and cannot pay back, it becomes a huge problem for your creditors.  

5 Retirement Lessons From Warren Buffett

When you think of great investors, the name at the top of the list is Warren Buffett. The Oracle of Omaha's insights and ideas can guide you in your own efforts to build wealth. As you consider your retirement future, here are five takeaways from the Oracle of Omaha:

1. Invest for the long term. Many of us are short-sighted. We panic at every market crash or try to chase a quick buck. However, Buffett teaches us to invest for the long term. When Buffett buys a company, he thinks of the long-term value. He doesn't look for something that offers splashy returns in the short term. He looks for something with staying power.

When investing for retirement, you need to think the same way. You won't be able to buy up whole companies, but you can invest for the long term by buying the market through index funds, and then staying in for the long haul. Your future self will thank you.

2. Have a purpose. Buffett has talked about the importance of having a purpose. You need to have an idea of what you want to do that gives meaning to your life. Studies show that retirees often lose their health shortly after quitting, when they don't have something to look forward to each day. Think about what you want to do with your life during retirement, and make it a new stage, rather than an end.

3. Learn from the mistakes of others. There is no reason to repeat the mistakes of others. Instead, learn from them. Many people sold at the bottom of the market in early 2009. Those folks locked in their losses. If they had been willing to wait a few years, they would have seen tremendous gains instead. Don't panic just because everyone else is panicking, and pay attention to the mistakes that bring others down. When you learn from the mistakes of others, you are less likely to fall victim to them.

4. Don't invest in the exotic. Buffett has talked about how he keeps enough cash on hand to meet his upcoming needs, but other than that, he keeps his money working for him. But that doesn't mean that he's investing in exotic assets. Buffett stays away from gold and currencies, and he also avoided the complicated credit default swaps that he famously referred to as instruments of mass financial destruction.

You can be the same boring investor. Focus on stocks, using index funds, and you will be likely to build wealth over time, without the stomach-churning volatility and risk that comes with more exotic assets.

5. Don't worry too much about leaving wealth to your children. While Buffett has said publicly that he wants his children and grandchildren to live fulfilling lives, he isn't taking care of everything for them. Indeed, a large portion of his wealth is going to charity, not his posterity, when he dies.

You can learn a similar lesson. Don't be so worried about providing everything for your children that you neglect your own retirement. And don't be so concerned about leaving them a pile of money that you don't enjoy your retirement when it comes.

Jeff Rose is a certified financial planner, U.S. combat veteran and the founder of GoodFinancialCents.com . 


http://finance.yahoo.com/news/5-retirement-lessons-warren-buffett-141437202.html

Chinese Stocks Tumble, Heads for Biggest Loss Since 2007

By Amy Li

Chinese stocks sank the most in five months, leaving the benchmark index on the cusp of a bear market, after leveraged investors cut holdings and Morgan Stanley joined a chorus of analysts warning that valuations have climbed too far.

The Shanghai Composite Index fell 7.4 percent to 4,192.87 at the close, bringing its drop from this year’s high to 19 percent. Chinese stock-index futures tumbled by the 10 percent daily limit as investors rushed to hedge their positions, while the benchmark index in China’s smaller exchange in Shenzhen sank 20 percent from this year’s peak. A gauge of equity volatility jumped to the highest level since 2009.

More from Bloomberg.com: China Stock Rout Leaves Xinhua Speechless as State Support Fades

China’s $8.8 trillion stock market has plunged from first to worst on global performance rankings, threatening to bring an end to the longest bull market since the ruling Communist Party introduced equity trading to the world’s largest population in 1990. Morgan Stanley advised clients to refrain from purchasing mainland shares in a report on Friday, saying the Shanghai Composite’s June 12 high likely marked the top of the rally.

“This is probably not a dip to buy,” wrote Jonathan Garner, the head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong. “In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and the ChiNext has now taken place.”

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The Shanghai gauge has surged 106 percent over the past year as margin debt climbed to a record and investors speculated monetary stimulus will revive the weakest economic expansion in more than two decades. The bull market, which turned 935 days old Friday, is more than five times the average lifespan of previous rallies.

Black Friday

Friday’s rout was led by technology and smaller companies, the leaders of China’s world-beating rally through mid-June. The ChiNext index slid 8.9 percent, extending losses to 27 percent since hitting a high on June 3. The Shenzhen Composite Index also entered a bear market after falling a further 7.9 percent.

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The Shanghai Composite’s losses were broad-based with 44 stocks falling for every one that gained. The index slid 6.4 percent this week, adding to a 13 percent plunge last week that was the steepest since the global financial crisis.

The CSI 300 Index of China’s largest companies slumped 7.9 percent on Friday. The Hang Seng China Enterprises Index of mainland companies in Hong Kong fell 2.8 percent and the Hang Seng Index lost 1.8 percent.

With little in the way of economic data or corporate announcements to spark the plunge on Friday, some investors pointed to signs of a pullback by leveraged traders. Outstanding margin debt on the Shanghai Stock Exchange dropped for a fourth day on Thursday to 1.42 trillion yuan ($229 billion).

“The correction is basically margin selling,” said Francis Lun, the chief executive officer at Geo Securities Ltd. in Hong Kong.

Heading Lower

The stocks favored most by margin traders at the height of China’s boom in mid-June have since tumbled 26 percent. The benchmark index has had nine straight sessions of intraday swings exceeding 2 percent.

PetroChina Co., the biggest stock in the mainland, slumped 7 percent on Friday. East Money Information Co., the most heavily weighted stock in the ChiNext, dropped by the 10 percent daily limit. Poly Real Estate Group and Gemdale Corp. led declines for developers, tumbling 10 percent.

Bubble Warnings

The stock market is experiencing a “self-correction,” Zhang Xiaojun, a spokesman at the China Securities Regulatory Commission, said at a weekly briefing after the market close. The benefits of reforms haven’t changed and liquidity will remain ample, Zhang said.

Concern over a shortage of liquidity has helped fuel losses this week as investor funds got tied up in new share sales and the People’s Bank of China refrained from easing monetary policy, disappointing some analysts who had anticipated a cut in interest rates or banks’ reserve requirement ratios.

Guotai Junan Securities Co., China’s largest brokerage by revenue, surged 44 percent on its first day of trading in Shanghai on Friday after it completed the nation’s biggest domestic initial share sale since 2010.

“The Shanghai Composite may fall to the 4,000 level in the next five to eight weeks as the government tightens margin lending, new share sales sap liquidity and concern grows the central bank won’t cut lenders’ reserve-requirement ratios,” said Hou Yingmin, an analyst at AJ Securities in Shanghai.

Morgan Stanley cited increased equity supply, weak earnings growth, high valuations and the surge in margin debt for its pessimistic stance, saying the Shanghai Composite may fall as much as 30 percent through mid-2016.

Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America Corp. all said last week that Chinese equities are in a bubble, while the median stock on mainland exchanges is valued at 85 times earnings -- higher than when the market peaked in October 2007.

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"The 4 Diseases" of Investing - Evenitis (holding to losers), Taking profits (selling winners), Over-trading and FOMO

Teaminvest Co-founder Professor John Price, recently recorded an informative 4.5 minute video about the behavioural biases that often block rational decision-making about investments.

It’s titled “The 4 Diseases”. In the video he explains the four common behavioural biases and fuzzy thinking affecting the way we assess investments. He calls them:

• Get even-itus
• Consolidatus-profitus
• Trade-a-filia
• FOMO

Watch the video and see if you suffer from any of them? - Self awareness will improve your investment decision-making!

Click on John's pic

https://lr220.infusionsoft.com/app/hostedEmail/21336/90e5395442506435?inf_contact_key=bfe1f769afcc1ca46d38151bc79936d7f17975b54721e97cab312e8b684f90d3

Regards

Mark Moreland Co-Founder NOTES: Stock selection - Read the annual reports - Read all the analysts reports - Visit the stores or use their products and services If you find that at the end of the day, the performance of the portfolio is not that good, or mediocre at best, in many cases there are various reasons. They often have not taken into account behavioural biases, the sort of fuzzy thinking that is automatically in their mind that blocks out their rational decision. These are the 4 behavioural biases, which we refer to them as:

• Get even-itus
• Consolidatus-profitus
• Trade-a-filia
• FOMO

Get even-itus

The disease of hanging onto a stock when the price has gone down until you can get even.  "Don't worry dear, it is going to come up back again."   The problem is, if the stock has gone down, the chances are it is going to continue to go down and best it is going to be a mediocre investment.  It is much better to face the fact that you have a loser, you lost money and to move on.

Consolidatus-profitus

This is the opposite to get even-itus.  This is the disease of always taking a profit when the price goes up.  It looks great and you can tell your friend at the dinner party that your stock went up 20%, 40% or 50% and you sold it.   The problem is what you are going to do with that money.  Studies have shown, on average, people who sell just to take a profit end up putting their money back into the market in a stock that underperforms the one they got out of.  #

Get even-itus and Consolidatus-profitus are two sides of the one coin; generally hang on to losers and sell winners.  The opposite would be better, that is, sell your losers and hold on to your winners.  They water the weeds and cut the flowers.  It would be better they  water the flowers and cut the weeds.

Trade-a-filia

This is the disease of just loving to trade. Most people who would never dream of going to casino betting on roulette or any of the casino games or machines,yet when they are on their internet and looking at their stocks, they trade far too often.  It is so simple to trade on the internet and they get drawn into it.  But studies have shown that on average, the more a person trades they worse they do. I am not referring to their transaction costs but actually their performance diminishes.  Instead of looking for great companies that are going to make you money year after year, they think they can get a short term profit.   In the short term, the share prices are much more random than most people believe.  So this is a disease of trading too often.  In this regard, women are better investors than men, because overall, women trade less than men.  

FOMO

This is the 4th disease, the FEAR OF MISSING OUT.  You read about a particular stock and its price is going up and you think, if I don't get in now, I am going to miss out, instead of taking your time and evaluating the stock properly.   

These 4 diseases really work together and at best give you a mediocre performance that is far far below you optimal performance.  

You should work to eliminate these 4 investing biases or diseases, consciously.  Use tight filters to filter out the best companies to concentrate in.  

Be alert that you are not slipping into these investment biases.  Eliminate these investing biases and your performance will be much better. 

# Reinvestment risk.