Here are Warren Buffett’s Six Acquisition Rules. Here Are 6 Rules For Investing Like Warren Buffett

Warren Buffett is unquestionably the greatest investor who has ever lived. He possesses an uncanny ability to choose incredible investments that explode in value over time.  This ability has earned him a place as the second wealthiest man alive today.

Despite his vast wealth, Warren continues display a public persona of humility and common folk wisdom.  This attitude has provided him the respect of working people as well as the ultra rich; a very rare combination in this day and age. He does not believe in personal or family dynasties and has pledged to give away 99% of his wealth in his will.

How Did Buffett Get So Wealthy?

Buffett learned his investing skills from Benjamin Graham, David Dodd and Phil Fisher.  He claims to be 85% Graham and 15% Fisher is his stock picking philosophy.

His basic investing concepts are the following:

1.  Look at stocks as individual businesses

2.  Use the market’s fluctuations to your advantage

3.  Be certain that there is a margin of safety built into all your investments. 

This stock picking method is widely known as value investing.

Value investing adheres to the idea of buying stocks that are under priced per fundamental analysis.  In other words, stocks are bought at a discount to their intrinsic proper market price.  This discount is what Buffett considered the margin of safety.

The best part about Buffett is his willingness to share his tactics and stock picking methods with everyone.  He really lays everything on the line so savvy investors are able to follow in his footsteps.  Not only does Buffett hold no secrets, he publishes a yearly investor letter that explains the minutia of his thought process.

His most recent letter carefully laid out the six things he insists upon prior to acquiring another company.  This criterion is easily applicable to every stock investor when choosing companies for investment.

Here are Warren Buffett’s Six Acquisition Rules

 1. Size

Buffett does not mess with small companies. The company need to produce a minimum of $75 million in pre-tax earnings.

2. Consistency

He has no interest in speculation when it comes to earnings.  In other words, future earnings, management forecasts, and any other future projections are not considered when making decisions.  Earning ability MUST be proven and consistent to spark any interest.

 3. Little to No Debt

The bottom line is that Buffett hates debt. The company must be earning solid returns without taking on debt.  Debt, while needed in some circumstances, is a profit killer.  Let the company pay off its initial debt first and prove itself before placing your first dollar at risk.  When in debt, companies can take unwise risks during slow times.  This potential simply creates too much risk to make a safe investment.

4. Management

There needs to be an experienced management team already in place before an investment is made.  Buffett has no interest in supplying management to run the company.  Management should be pedigreed with experience in prior positions or trained from the company itself.  Buffett looks for smart, talented people who can solve or better yet avoid problems.

5. Simplicity

You must be able to fully understand the businesses you are investing in.  If the company or its business is too complicated, avoid it.   Obviously, this rule can be bent as a stock market investor. While it is best to understand a company and its business completely, it’s not a hard and fast rule.   This rule goes hand in hand with Peter Lynch’s mantra of buying what you know.

 6. The company must be listed with a price

While this Buffet rule is not applicable to average stock investors it is important to understand.  Buffett does not buy companies without an asking price.  This goes back to belief in only buying sure things.  Firms without an asking price require too much negotiation effort to be worthwhile to Buffett.  Individual investors can apply this rule by only investing in listed companies.  Avoid investing directly in firms that are private or not listed on a stock exchange.  While these firms can be wildly lucrative, the unknown risk factors are sky high.

The Take Away

Warren Buffett is the greatest investor of all time.  Everyone can learn by studying his investing rules.  Make a point of reviewing his past writings and reading his yearly investor letters. The key to his most current wisdom is to avoid companies with debt and to embrace companies with consistent earnings.

By Manny Backus of TradingTips

Monday, March 16, 2015 4:12 PM EDT

http://www.talkmarkets.com/content/us-markets/here-are-6-rules-for-investing-like-warren-buffett?post=60935

China cuts interest rates for third time in six months as economy sputters

May 11, 2015

"China's economy is still facing relatively big downward pressure," the PBOC said.

China cut interest rates for the third time in six months on Sunday in a bid to lower companies' borrowing costs and stoke a sputtering economy that is headed for its worst year in a quarter of a century.

Analysts welcomed the widely-expected move, but predicted policymakers would relax reserve requirements and cut rates again in the coming months to counter the headwinds facing the world's second-largest economy.

The People's Bank of China (PBOC) said on its website it was lowering its benchmark, one-year lending rate by 25 basis points to 5.1 per cent from May 11. It cut the benchmark deposit rate by the same amount to 2.25 per cent.

"China's economy is still facing relatively big downward pressure," the PBOC said.

"At the same time, the overall level of domestic prices remains low, and real interest rates are still higher than the historical average," it said.

Sunday's rate cut came just days after weaker-than-expected April trade and inflation data, highlighting that China's economy is under persistent pressure from soft demand at home and abroad.

While the PBOC acknowledged the difficulties facing China's economy, it said in its statement accompanying the announcement that it wants to strike a balance between supporting growth and deepening structural reforms.

As part of these reforms, it lifted the ceiling for deposit rates on Sunday to 1.5 times the benchmark level, the biggest increase in the ceiling since it began to liberalise the interest rate system in 2012.

More easing ahead

Economists had said it was a matter of when, not if, China eased policy again after economic growth in the first quarter cooled to 7 per cent, a level not seen since the depths of the 2008/09 global financial crisis.

Indeed, some analysts have even said recently that the PBOC had fallen behind the curve by not responding aggressively enough to deteriorating conditions.

With China set to publish more key economic data on Wednesday, including industrial output and investment, the timing of the rate cut could add to worries that figures may disappoint across the board again, as they did in March.

For now, however, some were confident that policymakers can arrest the slide.

"Intensified policy loosening will help effectively halt the economic slowdown," said Xu Hongcai, a senior economist at China Centre for International Economic Exchanges, a well-connected think-tank in Beijing.

A cooling property market and slackening growth in manufacturing and investment have weighed on the Chinese economy. Annual growth is widely forecast to sag to 7 per cent this year, down from 7.4 per cent in 2014.

In an attempt to energise activity, the PBOC has now lowered interest rates and relaxed the reserve requirement ratio (RRR) five times in six months, and many economists believe more policy loosening is in store.

This is partly because despite the steady drum roll of policy easing, there are indications it has not benefited the real economy. Some data suggests banks are not passing on lower interest rates to borrowers, and credit is still not flowing to the sectors in most need of the funds.

"The effectiveness of the rate cut won't be very big," said Li Qilin, an economist at Minsheng Securities. "The PBOC has already cut benchmark interest rate by a total of 65 basis points, but borrowing costs have only fallen marginally."

Struggling banks

Banks are also struggling as the economy founders. Lending has slowed, bad loans are piling up, and profits margins are getting squeezed as China liberalises its interest rate market. Banks' earnings reports last month showed profit growth hit a six-year low in the first quarter.

Given these challenges, the PBOC said it does not expect banks to pay savers the maximum deposit rate allowed by authorities.

And with the prospect that borrowing costs may stay stubbornly elevated, government economists told Reuters earlier this month authorities may ramp up state spending to shore up growth, in the hope that fiscal policy would work where monetary policy hasn't.

But Li Huiyong, an economist at Shenwan Hongyuan Securities, cautioned against thinking that lower borrowing costs would not trickle down to businesses and consumers at some point.

"Don't underestimate the cumulative effect of the cuts in interest rates and RRR," Li said. "This won't be the last cut.

"The rate could be lowered to 2 per cent at least, and we expect the economy to gradually stabilise in the coming two quarters."

Reuters

13 Investors Share Their Biggest Investing Mistake And What They Did To Fix It

To say I am a little excited about this article would be a dramatic understatement.

We tapped the minds of some of our favorite investors and experts to tell us what their biggest investing mistake was and how they fixed it.

Here are the panel of experts…

– David Merkel, Principal of Aleph Investments.

– William Bernstein, Best Selling Author of The Four Pillars of Investing, EfficientFrontier.com.

– Charlie Tian, Founder of GuruFocus.com.

– Todd Sullivan, Co-Founder and General Partner in Rand Strategic Partners.

– Tobias Carlisle, Founder and managing director of Eyquem Investment Management, LLC, serves as portfolio manager of the Eyquem Fund LP.

– Evan Bleker, Author of NetNetHunter.com, Net Net Hunter Newsletter.

– Tim Melvin, Author of TimMelvin.com, Deep Value Letter, Banking on Profits.

– Ben Carlson, Author of AWealthOfCommonSense.com, helps manage an investment portfolio for an endowment fund.

– Nate Tobik, Author of OddBallStocks.com, Founder of CompleteBankData.com

– Dave Waters, Author of OddBallStocks.com, Investment Manager of Alluvial Capital Management.

– Kevin Graham, Author of CanadianValueInvesting.Blogspot.com.

– Lane Sigurd, Author of ReminiscencesOfaStockblogger.com

– Whopper Investments, Author of WhopperInvestments.wordpress.com

The Questions:

* What was your biggest investing mistake?

* What did you do to fix it?

Here’s what our expert investors had to say about their mistakes and what they could have done to fix it.

(NOTE: We’d love to hear your biggest mistakes and what you did to fix it. Give us your thoughts in the comments section below).

David Merkel, AlephBlog.com

Biggest Mistake: My biggest mistakes almost always stem from buying companies where the balance sheet is deficient.  Once such company was Caldor. Caldor was a discount retailer that was active in the Northeast, but nationally was a poor third to Wal-Mart Stores, Inc. (WMT) and KMart. It came up with the bright idea of expanding the number of stores it had in the mid-90s without raising capital. It even turned down an opportunity to float junk bonds. I remember noting that the leverage seemed high.  Still, it seemed very cheap, and one of my favorite value investors, Michael Price, owned a little less than 10% of the common stock. So I bought some, and averaged down three times before the bankruptcy, and one time afterwards, until I learned Michael Price was selling his stake, and when he did so, he did it without any thought of what it would do to the stock price.

How He Could Have Fixed It: There were a number of lessons: 1) Don’t average down more than once, and only do so limitedly, without a significant analysis. This is where my portfolio rule seven came from, 2) Don’t engage in hero worship, and have initial distrust for single large investors until they prove to be fair to all outside passive minority investors, 3) Avoid overly indebted companies. Avoid asset liability mismatches. Portfolio rule three would have helped me here; 4) Analyze whether management has a decent strategy, particularly when they are up against stronger competition. The broader understanding of portfolio rule six would have steered me clear; 5) Impose a diversification limit. Even though I concentrate positions and industries in my investing, I still have limits. That’s another part of rule seven, which limits me from getting too certain.

William Bernstein, EfficientFrontier.com

Biggest Mistake: I didn’t understand how the riskiness of stocks is relatively low in the accumulation phase and rises as the ratio as the ratio of investment capital to human capital increases.  Consequently, I was too conservative when I was young.  Below the age of 40, the saver actually seeks risk, as volatility early in the savings phase increases eventual wealth.

How He Could Have  Fixed It: Invest early in life.

 

 

Charlie Tian, GuruFocus.com

Biggest Mistake: I certainly made a lot of mistakes. But I couldn’t single out the biggest one. I would say that my biggest mistake is not one investment. It is the methodology that led to the mistakes. I should have developed a checklist much earlier for my investment decision making process.

How He Could Have Fixed It: With the checklist, a lot of mistakes could have been avoided. Now my investment checklist checks the quality of the business, the valuation, and the recent business development. It is also a new feature on GuruFocus, where users can create and customize their own investment checklist. [Author’s Note: I have used the checklist on GuruFocus, and they are great.]

 

 

Todd Sullivan, ValuePlays.com

Biggest Mistake: In 2002 I invested in McDonald’s due to the mad cow scare and its impact on the company. I held it and was feeling pretty smart as share rose >$40. In 2006 they spun off this little ‘burrito company’ as I called it named Chipotle. I knew nothing about the company as there weren’t any in my area yet. Upon receiving the shares in the spin I sold them shortly after for ~$50 thinking I got a good price for this small chain. They sit today at $647

How He Could Have  Fixed It: The lesson here is before you develop an opinion about a company, you owe it to yourself to at least do work on it.

 

 

Tobias Carlisle, GreenBackd.com

Biggest Mistake: The mistake that most make is failing to faithfully follow the output of the model,  preferring instead to substitute their own judgement. When they do so,  they invariably underperform. It’s incredibly difficult to do it without substituting one’s own biases. It’s a mistake I’ve made a lot.

How He Could Have  Fixed It: Research shows that most equity investors are best served by following simple statistical models like the Magic Formula.

 

 

 

Evan Bleker, The Net-Net Hunter

Biggest Mistake: The biggest mistake I ever made as an investor didn’t have to due with any individual stock pick — it was failing to accurately assess my own time and investment skill set which lead me to try to replicate the investment style of gifted people like Warren Buffett and Peter Lynch. These big named, fantastically successful, investors often make investing sound easy but laying behind their tremendous success are decades of dedicated study, a high degree of investment/business aptitude, and the time to apply a detailed investment strategy that’s often summed up in just a few sentences.

How He Could Have Fixed It: What I should have done was adopted a mechanical investment strategy since these strategies are easy to apply for average investors and very profitable. That shift would have turned years of early losses and frustration into an even longer record of great investment results.

Tim Melvin, TimMelvin.com

Biggest Mistake: I would say I’ve made a number of mistakes. It’s a very long list. But, I will say they usually have a common thread: I stretched the definition of margin of safety, where I was willing to pay up a little bit for a really good story. For example, Hercules Offshore (HERO), we have taken a beating in that stock. We tested the financials for $70 a barrel of oil. I thought we were rock solid. I could not imagine a scenario in which oil was going under $70. Insiders in the company were buying, they owned a good deal of the company. They were a dominant driller in the Gulf, and the Gulf was coming back a little. Then oil prices went to $70, and then $60, and then $50, and now there’s no drilling in the Gulf. They’re cold stacking rigs, which cost a lot of money. So your margin of safety is completely shot. It’s gone. This is the first time I can remember, where we had high commodity prices, and you still had stocks trading below book value. In hindsight, that should have been a clue.

How He Could Have  Fixed It: You do have to look at the extreme or unthinkable scenario on the downside, and not just the reasonable one.

Ben Carlson, AWealthOfCommonSense.com

Biggest Mistake: The biggest mistake I made as an investor was believing early on in my career that the best way to achieve success in the markets was to outsmart the market or other investors. I was just out of business school and got the CFA designation. I was under the impression I could do no wrong. The market is a very humbling place, so eventually I learned that it’s really not about outsmarting other investors or the market as a whole, it’s about not outsmarting yourself.

How He Could Have  Fixed It: Once I learned how to control

myself, my reactions and my behavioral biases and started to focus only on those areas that are within my control it really made things much simpler for me as an investor.

Nate Tobik, OddBallStocks.com

Biggest Mistake: My biggest mistakes have all occurred when I’ve neglected to invest with a sufficient margin of safety. Smaller mistakes have occurred when I’ve rushed into investments instead of thinking over an idea for a few days.

How He Could Have  Fixed It: The best way to counter-act these problems is to think through negative potential outcomes for an investment. Then ensure that the purchase price is low enough that if even the worst case scenario were to happen the investment wouldn’t lose money. Think it over for a few days and then invest.

 

 

Dave Waters, OTCadventures.com

Biggest Mistake: My biggest mistake came from assuming a trend would last far longer than it actually did. When I bought Awilco Drilling, it was trading at 3.5x free cash flow and seemed poised to maintain that level of cash flow for years and years to come. Just six months later, the collapsing oil market made that cash flow outlook a distant memory and the stock fell 60%.

How He Could Have  Fixed It: When dealing with cyclical industries, never assume the good times will last forever. Don’t assume lean times will, either. Always insist on a margin of safety to a conservative estimate of mid-cycle valuations.

 

Kevin Graham, CanadianValueInvesting.blogspot.com

Biggest Mistake: The biggest mistake I have ever made was investing in technology back in 1999. Today I don’t consider it a mistake because I have learned so much and learning that lesson early in life has and will save me much more in the future. That said, here’s something with a little more meat on the bone: I invested in natural gas back before the shale gas revolution. It is playing out nearly exactly the same as oil today. Anyway, shale gas changed the nature of the industry on a permanent basis and I refused to believe the evidence. Some call this confirmation bias, but I prefer egocentric blindness. High decline rates, high capital costs, it’s only a short term fad…etc. If you check the EIA data, US NG production just reached 90 Bcf/day. It has gone up every year for 10 years. It continues to go up even though NG prices are at record lows and many companies are struggling. They were propped up by stripping liquids but that game is now over too. NG has been roughly sub 4/mcf for a decade.

How He Could Have  Fixed It:  “History never repeats itself, but it does rhythm.”  The same thing is happening today in oil. I called this on my blog and it is still playing out. Oil will likely move lower sometime this year.

Lane Sigurd,ReminiscencesOfaStockblogger.com

Biggest Mistake:  Unquestionably holding Potash Corp through the second half of 2008.  I decided that the ag sector was safe enough to withstand the downturn.  I underestimated the downturn, I overestimated the resilience of the potash market and I misjudged the investor base of the stock.  It was around a 30% position for me at the time so it was very a painful experience.  While the monetary loss was bad, the psychological loss was probably worse.  I learned that regardless of how strongly you think you are right, there is still a decent chance you are not, or perhaps more subtlety, that the conditions that made you right will change and you will become wrong before you realize it.

How He Could Have  Fixed It: In order not to repeat this sort of event I honestly believe that when the stocks you own start to turn against you, you just have to sell.  It will incredibly painful and betray every instinct you have but it is necessary.  To do this I think you have to prepare for it ahead of time by practicing non-attachment to what you own and by not fixating on the current value of what you own (since you will undoubtedly be selling at a lower price).

Whopper Investments, WhopperInvestments.wordpress.com

Biggest Mistake: My biggest investing mistakes have come from companies with assets that are obviously worth more than the entire company but where there are issues that prevent a sale of the asset along with another piece of the business that consumes cash / value. The best example of this is probably Premier Exhibits (PRXI), which has some uniquely valuable Titanic assets which have extreme restrictions placed on them in a sale and are attached to a business that is very competitive. I think the most dangerous part of these investments is it makes it very easy to average down, as you can constantly focus on that large asset value and say “hey, those assets are worth $10 and the stock has traded down from $5 to $3; it’s time to back up the truck!” despite continued cash consumption or value deterioration from the other side of the business.

How He Could Have  Fixed It: Focus on such things as; cash burn rate or the business’s probability of turnaround in deep value situations.

By Lukas Neely of Endless Rise Investor

Tuesday, March 3, 2015 4:26 AM EDT

http://www.talkmarkets.com/content/investing-ideas--strategies/13-investors-share-their-biggest-investing-mistake-and-what-they-did-to-fix-it?post=59927

The Singapore Deflation No One Is Talking About

Singapore experienced deflation for two straight months in November and December 2014, but worryingly, many Singaporeans seem unconcerned with this development. Here’s why you should keep a careful eye on Singapore deflation.

—

When the Department of Statistics released Singapore’s November consumer price index two months ago, there was a mixture of concerned murmurs and expectant nods from many local economists. For the uninitiated, the consumer price index (CPI) measures the collective price of a variety of consumer goods and services in a country and is used by governments as a tool to measure price and inflation pressures.

For the first time in five years, the Singapore CPI for November dipped into the red (-0.3 percent), dragged down by private transport costs, petrol pump prices, and a softer housing rental market. However, if you removed the costs of private transport and accommodation, core inflation was at 1.5 percent, a 0.2 percent decline from the previous month.

The bleeding in November was stemmed slightly in December with the CPI rising slightly to -0.2 percent, but the negative numbers signalled yet another deflationary month for Singapore. Analysts were expecting these numbers mainly because of the global drop in oil prices and the Monetary Authority of Singapore has acted quickly, reducing the slope of its policy band to slow down the appreciation of the currency i.e. weakening the Singapore dollar against other currencies. This makes Singapore exports more attractive although it means that your overseas holidays will become more expensive. Still, the spectre of sustained Singapore deflation hangs ever-present, especially with the negative 2015 global economic outlook.

READ: A Year Ago, Pope Francis Condemned Capitalism

Why is Deflation Bad

Theoretically, falling prices sound wonderful for consumers since everything is cheaper and your dollar stretches further. While that’s true, deflation is bad for a country if it continues for a prolonged period of time.

When people expect falling prices, they become less willing to spend, which in turn means that they’re less willing to borrow. Taking up a loan means that you’ll be effectively paying more than the amount you borrowed, even though it is the same amount on paper. When no one is borrowing any money, the economy stagnates since there is no financial activity. Most people would rather put their paper cash in a tin as it provides guaranteed returns!

Japan is the most oft-quoted example of a country that has been grappling with chronic deflation for the past decade. At the beginning of the 1990s, the Japanese experienced inflated real estate and stock prices due to easy credit – banks in Japan lent money to anyone who came knocking. Due to this, inflation rose rapidly. In an attempt to keep speculation in check, the Japanese central bank raised interest rates. Prices crashed and have never recovered since then. Corporations, unable to sell their products and services, made cutbacks to their workforce while wages fell. As falling wages chased falling prices, Japan became stuck in a deflationary spiral. Even though the Japanese government has been running a fiscal deficit since 1991 to stimulate borrowing, the country’s economy is still stumbling over the financial obstacles and remnants kicked up by its financially wayward past. Today, Japan has one of the highest debt to GDP ratio in the world – 240 percent.

Why Singapore Is Safe (For Now)

At the moment, in Singapore, the deflationary pressure is mainly affecting goods and services that we don’t regularly consume. Everyday items such as food and groceries are still experiencing manageable inflation. Couple this with the tight labour market (Singapore’s unemployment came in at an admirable 1.9 percent in the third quarter of 2014) and the quick steps taken by MAS to combat global economic pressure mean that Singapore is still relatively safe from the gaping jaws of deflation that’s already biting on the heels of the Eurozone.

For 2015, MAS has forecasted core inflation, a usually better gauge for household expenses, to come in at between 0.5 and 1.5 percent and, for the first time since 2009, expects headline inflation to be between -0.5 and 0.5 percent.

The last time Singapore experienced deflation for six consecutive months, which occurred at the height of the global financial crisis, the country went into a recession. The similarities to the events happening around the world today are eerily similar to that tumultuous period.

The Eurozone is experiencing deflation on a widespread scale, one that economists had been expecting for a long time and that the European Central Bank had been prepared for – the bankers recently launched a quantitative easing programme, essentially injecting close to a trillion Euros into the monetary system in an attempt to stimulate demand. Only time will tell whether this controversial, last-ditch move will work. However, if this move fails to resuscitate a tottering patient on his last legs, then his collapse will trigger a tsunami across the world.

For our country to survive this possible impending financial storm, the key is in making sure that the Singaporean employee remains employable, competitive, affordable, and something that is rarely mentioned, happy. It’s a complicated and difficult equation that, honestly, is almost impossible to solve. And in our relentless push for employability, competitiveness and affordability, our happiness has been sacrificed by many cutthroat companies.

In the past, Singapore’s welcoming business environment was the cornerstone of our success. Companies and investors poured their money and time into our country, creating a lot of jobs for the labour market. For a long time, Singaporeans were happy, which contributed to our meteoric rise. However, our progress has slowed down due to a wide variety of factors and, in the process, our neighbouring countries are catching up quickly.

This is the new world we’re living in, and it’s time we face up to the harsh, uncomfortable reality –that we’re losing our edge.

READ: Singaporeans Are Unhappy and Poor. Why?

Deflation Affecting Investors and Non-investors

With all these information, it’s quite clear how Singapore deflation negatively affects not just the stock markets but everyday life in our country. Companies, both listed and non-listed, will start experiencing problems, which will cause panic in the markets. From then on, it’s only a matter of time before your charts resemble the outline of the Himalayan mountain range.

Is there anything that you can do if the deflationary trap gets its claws on the stock market?

If the case of Japan is anything to go by, the only thing you can do is to, well, pray.

When it comes to jobs, Singapore’s labour market, which is already experiencing heated competition from competitive neighbouring economics, cannot possibly withstand the body blows of deflation. Once again, when Japan was sucked into the deflation vortex, wages stagnated. To put things into perspective, real salaries in Japan fell 13 percent and economic output descended to levels that were last seen in the 80s.

The upcoming Singapore Budget 2015 will apparently address the concerns of mid-career, middle-aged Singaporeans “who want good, fulfilling careers”. Behind the scenes, we’re certain the collective heads of the different agencies have already anticipated and planned for the different possibilities and it seems that they’re trying to solve the happiness portion of the productivity equation as well.

In the meantime, keep an eye on the quiet Singapore deflation. It was the precursor to the previous recession and it might be signalling the next one to come.

4 February 2015

https://www.drwealth.com/2015/02/04/singapore-deflation-no-one-talking/?utm_medium=DISPLAY&utm_source=OUTBRAIN&utm_campaign=4C

Why the Rich Don’t Buy Insurance and Unit Trusts

Not all insurance products and unit trusts are created equal. The writer wonders why most people at the top don’t believe in them.

—

Why did Warren Buffet buy an insurance company?

Because _______________.

I just returned from a harrowing experience at this local insurance company and a morning of blank faces and passive responses to my torrent of questions.

Why have I been paying S$7,000 per year and getting all these optimistic updates on fund performance, and after 10 years I end up losing more than 40 percent of my premiums?

Investment-linked what?

You see, I had blindly signed the papers when my mom suggested I buy a bunch of investment-linked products over a decade ago, and had paid scant attention to it until urged by an insurance adviser recently.

The realisation that I have been paying very, very expensive premiums over 10 years does not sit well with me and some introspection was required.

That amount that I had paid could have well gone into a life policy such as a universal life option, buying me the same coverage for a fixed payment with loan of 70 percent.

If we assume that an annual universal life premium of S$120,000 buys S$1 million cover for someone aged 30, my paid premiums could have gone to buying whole life coverage until I was 110 instead! (Note: This is probably for international insurance firms and not the local companies that insist on ripping folks off with their simply exorbitant premiums that they force some local banks to fund)

The blank faced staff gave me a scornful look and said if I continued paying I would reap the rewards from it too! Yes, if I had an IQ of 50 maybe.

If I continue paying another 10 years, I would perhaps break even.

Why don’t the rich folks buy these products? Why don’t the private banks sell unit trusts?

Because these are the black box priced deals that the public has no chance of fighting against. No transparency and no restitution (don’t even think of going to court).

Private bankers themselves only ever buy term life and medical policies leaving the investment bit out. Investments are separate. And all these articles in the papers telling people that insurance is the way to go for retirement. I just recently discovered that “financial planner” is just another word for insurance agent.

It makes me worried.

Because Warren Buffet knows how profitable it is.

https://www.drwealth.com/2014/12/22/why-the-rich-dont-buy-insurance-and-unit-trusts/?utm_medium=DISPLAY&utm_source=OUTBRAIN&utm_campaign=INVMT

The real losers from lower rates Ironically, buying shares is one way of benefiting from lower interest rates.

For almost two years now investors have been taking out more mortgages than first home buyers.

When the Reserve Bank of Australia cut interest rates last week, we saw the traditional fanfare over winners and losers from the decision.

For the couple paying off a mortgage on a house they bought ten or twenty years ago, it was all upside. A lower rate reduces those interest payments and puts upward pressure on house prices, making them richer on paper and - due to lower interest payments - quite immediately boosts their spending money (or means they can pay off that loan more quickly).

On the other hand, retirees living in their own home off the income from term deposits, are seen as the victims. Lifelong savers, these people have too much cash to deserve the pension, but can't afford to live off the interest. Worryingly, they are eating into their principle. They are the first to receive our sympathy.

That's fair enough, but we hear a less about the impact on young adults. Still studying, or at the beginning of their careers, they are saving for a house deposit, often with a partner or spouse. The only problem is, their savings don't earn more than 3% in the bank, and - even putting aside a generous portion of their moderate pay package - house prices seem to outstrip even their best efforts at saving. 

House prices across the 5 largest capital cities are up 8% in the last year. Sydney has seen faster growth, with prices up 14.2% in the last 12 months, according to data from CoreLogic. There's little doubt this growth has been assisted by successive interest rate cuts. As a result, many young couples working in east coast cities, hoping to build their own nest, face little prospect of success in that regard. At least, not without some help from Mum and Dad.

Unfortunately, this leads to inequitable outcomes. Since support from Mum and Dad is now important in getting into to property, young couples who don't get that help are faced with significant hurdles to home ownership. This is particularly true in Sydney or Melbourne.

Adding insult to injury, some say that lower interest rates are to their advantage. After all, they are told, now they can afford to borrow more money. While true, this fact is hardly good news. It isn't just first home buyers who can afford to borrow more. It's everyone, including investors. And those same investors also benefit from the tax break afforded by negative gearing. 

Indeed, for almost two years now investors have been taking out more mortgages than first home buyers. For the entirety of 2015, first home buyers have accounted for less than a third of new Australian mortgages, according to data from the Australian Finance Group. That's a strong indication that investors are crowding first home buyers out of the market. 

Are there better options?

With record low interest rates offering a paltry return on savings, it is increasingly attractive for would-be first home buyers to postpone that ambition and invest in shares instead. With shares in high quality companies yielding considerably more than term deposits, the benefits of compounding are not out of their reach.

In fact, sharemarket investing is one area where a younger generation may have an advantage because statistics demonstrate that the length of time owning shares is one of the most reliable indicators of overall returns. With relative youth comes a relatively long time horizon during which a high quality business with honest and competent managers can generate value for its shareholders.

Foolish takeaway

Ironically, buying shares is one way of benefiting from lower interest rates. By investing in a sensibly diversified portfolio of shares, a young couple can position themselves to benefit from lower interest rates without taking out a 30 year loan. While it's no replacement for owning their own home (which is, after all, where the heart is) it may well be the most prudent decision. After all, a recent study from New York University found Sydney housing to be the third-least affordable in the world, with Melbourne not far behind at sixth.

http://www.smh.com.au/business/motley-fool/motley-fool-the-real-losers-from-lower-rates-20150511-ggyqca.html