Berkshire's 40 Years Wisdom of Life 3

"If a management makes bad decisions in order to hit short-term earnings targets, and consequently gets behind the eight-ball in terms of costs, customer satisfaction or brand strength, no amount of subsequent brilliance will overcome the damage that has been inflicted. Take a look at the dilemmas of managers in the auto and airline industries today as they struggle with the huge problems handed them by their predecessors. Charlie is fond of quoting Ben Franklin’s “An ounce of prevention is worth a pound of cure.” But sometimes no amount of cure will overcome the mistakes of the past." -- Warren Buffett, Letter to Shareholders, Berkshire Hathaway Inc., 2005.

Warren Buffett – A Wisdom Philanthropic Billionaire

If you own a fortune worth $ 44 billion ($ 4,400,000,000), what will you do? Spend like no tomorrow? Leave the fortune to your family? Just throw the monies on the street to watch someone pick it up? Actually, the possibilities are infinite. Though, to use this huge sum of monies in the needy, useful ways, it requires the owner’s wisdom. Warren Buffett mentioned before that while his circle of competence is within investment world, to use the monies his accumulated wisely is not within his circle of competence. Thus, it makes sense to hand it over to the one whose is in his circle of competence in distributing his wealth. He admires the way Bill and Melinda Gates in running their foundation. Although the foundation does not carry his name, he does not mind. This is in contrast to many “generous donator” that when they donate, their name must appear prominently.

“I still believe in the philosophy - FORTUNE quoted me saying this 20 years ago - that a very rich person should leave his kids enough to do anything but not enough to do nothing.” How brilliant this billionaire. While, many rich people after many years of hard work and accumulated a tremendous sum of monies, they normally give the wealth to their children after they pass away. Very often, the wealth accumulated might not even pass down to 3rd generation. It’s pity to see that.



We need to learn from this Greatest Investor cum Philanthropist of the century. Warren’s wisdom not only lies in investment but in many scopes. We are delighted to share these through our on-going “Berkshire’s 40 Years Wisdom of Life” series postings.

TV interview with Warren Buffett, Bill and Melinda Gates could be view here.

There is also a short video clips during the announcement of Buffett’s gift to Bill and Melinda Gates Foundation. Check it out here.

Thank You Mr. Buffett

Warren Buffett, one of the most successful investors in the world, over the years had been criticized as a stingy person. They reckon him as not been generous in donation as compared to his net worth. When talking about the donation, Buffett has his own thoughts, which include:
1) If someone could generate investment return faster than others, he should retain all of the incomes and reinvest to maximized the return. Put it an example, if you have $ 1 million net worth, you can either donate it all or retain it and invest it for the future benefit. If you choose the former, the donation is limited to the amount that you donate today. If you retain it and do the investment that could give you at a return rate of 24% per annum, after 40 years, your original $ 1 million will become $ 5.5 billion! Yes, it’s $ 5,500,000,000!! The difference is enormous. How many people could benefit from the $ 1 million donation as compared to $ 5.5 billion? This is similar to corporation. If the monies retained could gives higher return rate to its shareholders, the corporation should retain all the profits and reinvest it. Over the years, the value of the corporation will grew in tandem with the investment result it achieved.


2) The donation made should come out from your own pocket, not from others. This is in contrast to most of the so called “generous donator”. These “generous donator” often make a donation that shines his name but the money is from his company shareholders’ money. When making a sincere donation, these people should not donate at the expense of his shareholders’ monies but his own.




Buffett, whose net worth at $ 44 billion will give out his 85% of the net worth to 5 foundations that is fought for global health problems, education, poverty, nuclear weapons threat and so forth. The foundations are:
1) Bill and Melinda Gates Foundation
2) Susan Thompson Buffett Foundation
3) Howard Graham Buffett Foundation
4) Susan A. Buffett Foundation
5) NoVo Foundation (Peter A. Buffett)

The letter to the foundations from Warren Buffett could be viewed from this link.

By donating such huge amount to the philanthropic foundations, it could shut the mouth of the criticizers who attack Warren Buffett over the years. Mr. Buffett is in line what he believes in: live in the modest life, generate huge fortune not for his own pleasure but for the whole human kind. Once again, we put salute to this greatest investor who also pay attention to philanthropic works. Thank You Mr. Buffett.

News of the Buffett’s donation could be viewed from here.

Good Investment IV?

We should bear in mind that the example given is a real case and it is based on most optimistic assumption, meaning that the market price as well as the rental given is in the highest range. Besides, we also omit several transaction costs such as legal fee, valuation fee, management fee, broker fee, maintenance fee, insurance charge, local council assessment fee….etc. We also give the best situation where in the example given, the rental collected is uninterrupted for the whole 360 months. In the real life, we know that it’s impossible to maintain such record. If we consider all those factors, the real net gain will be lesser as shown in the example. Again, the example given is not located in the unfavorable outskirt region. It’s within 10km distance from the city centre, a well developed residential and it’s the landed property where it’s the most sought investment for the real estate investors. With such optimistic assumption and good example given, still it’s only gives mediocre investment result. So, I wonder why so many people still having faith to this type of investment.

An investment should remain to its objective, that’s to create values to the investors, that’s not only safeguard against inflation, but also giving a reasonable good return to the investors. Most often, the investment made is based on sacrifice of the investors’ immediate enjoyment to gain the future pleasure. . If, the investment does not give a reasonable good return, there is no point for the investors’ sacrifice.

Note: We are not against of buying real estate. We are just showing the fact to the people who might still in the “Fortune Dream” because of real estate investment. There are plenty of investments that could bring better return as compared to real estate investment. When talking about investment, think business. Most often, these two can’t be separated.

Real estate posses an emotional value to everyone. After all, everyone needs a home, a lovely home for their families, a place for their families to share the greatest moments. Those moments are the most precious and invaluable, that’s the monies couldn’t buy.
“A House --- $ 270,000.
A Happy Family --- Priceless.”

Good Investment III?

Before we put into conclusion, let see if we place $ 270,000 in bank’s Certificate of Deposit (CD, in US) or Fixed Deposit (FD, in UK) account which earn 4% per annum, how much will we get after 30 years? $ 875,717.33. At a glance, AP investment seems a good investment, isn’t it? Before we jump into a conclusion, let see what will we get if we invest in say BI investment that earn 15% per annum over 30 years period? The result? $ 1,787,717.84. What if we invest in KB investment that earns 20% per annum over the same period? $ 6,409,160.47!


We often hear the interested parties and the promoters of AP investment urging us to invest in AP. The reasoning given are we can use the power of leverage to maximize our investment, the value of AP is always going up, we only need to lay out the initial payment and the less is borned by our tenants….etc. We also been “brainwashed” decades by decades and we really believe that AP is really a good investment subconsciously. No matter how nice words put on the investment, business is business. At the end, businessman would look at his income statement, balance sheet…etc to determine whether it’s a good investment or not. By showing the example above, it’s obvious that the perception we have is totally out in term of the businessman point of view, that’s creating values to his initial capital investment. Ironically, most people still put their faith into AP investment. Are they ignorant? If one day, the investors realized the truth, will the market crash? The history will tell us the story. “The man who ignores history does not have his story.”

Finally, what’s AP investment? REAL ESTATE.

Good Investment II?

Result after 30 years in AP investment:

Loan: $ 243,000
Repayment period: 360 months
Interest: 7.5% per annum
Repayment per month: $ 1,699.09
Total payments: $ 611,674.32
Finance charge $ 368,674.32
Principal payment: $ 243,000.00

Finance charge per year: $ 12,289.14
Principal payment per year: $ 8,100.00
Total payment per year: $ 20,389.14

Income per year: $ 9,600 ($800 per month)
1st 7 years total income: $ 67,200
Income per year: $ 10,800 ($900 per month)
Subsequent 7 years: $ 75,600
Income per year: $ 12,000 ($ 1,000 per month)
Another 7 years: $ 84,000
Income per year: $ 13,200 ($ 1,100 per month)
Another 7 years: $ 92,400
Income per year: $ 14,400 ($ 1,200 per month)
Last 2 years: $ 28,800
Total income: $ 348,000
Total Finance charge: ($ 368,674.32)
Loss: ($ 20,674.32)

Equity payment: ($ 270,000)

Sources of income over 30 years in AP investment:
1) Rental: ($ 20,674.32)
2) Capital appreciation: $1,550,742.62 - $ 270,000.00 = $ 1,280,742.62

Net profit: $ 1,260,068.30 – ($ 20,674.32) = $ 1,239,394

How do you derive $1,550,742.62? With principal of $ 270,000 at the beginning of the investment period of 30 years, with 6% per annum return rate, you would get the amount. Why use 6% per annum return rate? The rate is used after considering the real example of the investment over 16 years period which experienced booming and busting period.

In next posting, we will discuss is AP investment match the criteria of “Investment is most successful when it’s most business-like and vice versa.”

Good Investment I?

Quote Warren Buffeff: “Investment is most successful when it’s most business-like and vice versa.”

In dealing with business, we need to review the business performance through various financial statements, among others are income statements, balance sheets and cash flow statement. AP is an example of the investment you intend to make. In order to evaluate the feasibility of the investment, let’s examine AP’s financial statements.

First, we go through AP’s income statements after a year of operation. Below are the details:

- Revenue: $ 9,600
- Cost of sales: NA
- Gross profit: $ 9,600
- Interest Expense: ($ 9,720)
- Net profit: ($ 120)



Then, look at the balance sheets:

- Property: $ 270,000
- Current assets: nil
- Current liabilities: nil
- Financed by:-
- Shareholders’ equity: $ 27,000
- Borrowings: $ 243,000


Lastly, we look at the cash flow statements:

- Cash (used in) operation: ($ 480)
- Cash generated from investment: $ 9,600
- Cash (used in) financing: ($ 9,720)
- Net decrease in cash: ($ 600)
- Cash at beginning of year: NA
- Cash at end of year: ($ 600)

We will discuss the feasibility of this investment for the next posting….

Berkshire's 40 Years Wisdom of Life 2

"Too often, however, insurers react to looming loss problems with optimism. They behave like the fellow in a switchblade fight who, after his opponent has taken a mighty swipe at his throat, exclaimed, “You never touched me.” His adversary’s reply: “Just wait until you try to shake your head.” -- Warren Buffett, Letter To Shareholders, Berkshire Hathaway Inc., 2005

FIFA World Cup 2006

Pay attention to the advertisement boards around the field:

A) United States of America:
1) Coca-Cola (Beverage)
2) Yahoo (Online Search Portal)
3) Mc Donald’s (Quick Service Restaurant)
4) Gillette (unit of Procter & Gamble, Personal and Household care)
5) Master Card (Payment Service Povider)
6) Bud (Budweiser – Anheuser-Busch, Beer)
7) Avaya (Network Communication)

B) Germany:
1) Adidas (Textile, Foot ware & Accessories)
2) Post Bank (Financial)
3) T-Mobile (Subsidiary of Deutsche Telekom, Mobile phone operator)
4) Continental (Automobile parts)
5) OBI (Home Improvement Store)
6) DB (Deutsche-Bahn) (Railway operator)

C) The Netherlands:
1) Philips (Electronics)

D) Japan:
1) Fujifilm (Photographic equipments and supplies)
2) Toshiba (Electronics)

E) Korea:
1) Hyundai (Conglomerate but widely known for its automobile)

F) United Arab Emirates (UAE):
1) Fly Emirates (Airlines)

UAE is the only country that not qualified in the FIFA World Cup 2006. A next darling star or just an oil price boom illusion? Like in equity market, is a company stock’s price increase because of its fundamental values or just a play of the syndicate? Time will tell you the story…..

Berkshire's 40 Years Wisdom of Life 1

"When a problem exists, whether in personnel or in business operations, the time to act is now."
-- Warren Buffett, Letter To Shareholders, Berkshire Hathaway Inc., 2005.

The Netherlands

Netherlands where its area size of approximately 42,000 km2 and with population of about 16 millions is a nation that should not be underestimate its influence of the world economy. It GDP per capital is about USD 30,500. Its policy is relatively liberal as drugs, prostitution, same-sex marriage and euthanasia is allowed in this country. Do not confuse coffee shop with café here where the former is a shop selling marijuana and the later is a “real” coffee shop where drinks and foods are served.

Some of the well known Dutch companies:
1) ABN Amro (Financial)
2) Akzo Nobel (Healthcare, Coatings, Chemicals)
3) Fortis (Financial)
4) Heineken (Brewery)
5) ING Group (Financial)
6) Philips (Electronics and Electrical)
7) Rabobank (Financial)
8) Reed-Elsevier (Publisher) – Anglo-Dutch JV
9) Royal Dutch Shell (Oil & Gas) – Anglo-Dutch JV
10) TNT (Logistic)
11) Unilever (Food, Home and Personal Care) – Anglo-Dutch JV
12) KLM (Airlines) – Part of Air France-KLM
13) P & O Nedlloyd – Part of Maersk, Danish Shipping Lines (Shipping)

VOC (Verenigde Oostindische Compagnie) or The Dutch East India Company was the first multi-national company and the first company to issue stocks in the world. Its function is to carry out colonial activities in Asia in 17th century. Among the colonies were Indonesia, Malacca, Formosa (Taiwan) and Sri Lanka.

Vincent van Gogh is its most prominent painter in the Netherlands. Anne Frank’s diary is also famous which it translated into many languages. Her story is about her life during World War II after The Netherlands invaded by German. Anne’s family together with her friends hide themselves in the hidden room of her father office (the Secret Annex) for about 2 ½ years before they been betrayed and captured by German. She died of typhus when she sent to concentration camp.

Generally speaking, the Netherlands is a foreigner friendly country. Since the country does not posses valuable natural resources, a relatively small size country and small population, it needs to explore outside world to generate its economics. Thus, long ago, trading is its main source of economics. It could be seen from VOC and many joint ventures (JV) with other countries such as United Kingdom. In this few decades, tourism is one of its economic boosting machine. Nevertheless, there are few groups of people where their mind is still in colonial times. Their thinking is still maintained in “White Man Burden” era and resist to the change of the outside world. Their rejection of the rising of then their colonies such as China made them unfriendly to the yellow colored people in their country. In some cases, they even shout at them: “Go back, Yellow Pig!” This is a hidden risk to the nation. If their thinking is still stand still and not pace with the outside world, sooner or later, they will be left behind. And who knows, maybe one day, their survival depends to the then they discriminate nation like China. The pace of change is never wait for the one who still dreaming and resist for the change. The nation could grow stronger because of its open-minded and keep change with the era. The example of this is the United States in 20th century.

Dali as Mona Lisa

"Every morning when I wake up, I experience an exquisite joy - the joy of being Salvador Dalí - and I ask myself in rapture: What wonderful things is this Salvador Dalí going to accomplish today?"

- Salvador Dali

Note: Salvador Dali is one of the greatest artists in Barcelona. Dali Museum is the masterpiece of his work which located in Figueres, 1 hour 15 minutes journey from Barcelona. The town is a hometown to Dali.

Preview: Berkshire's 40 Years Wisdom of Life

Berkshire Hathaway Inc., one of the greatest investment holding company in the world starts its operation since 1965 (by current management, who is Warren Buffett). Berkshire Hathaway previously was a moribund textile company which was struggled to compete with the cheaper factories outside United States. Today, the company’s subsidiaries have various businesses ranging from auto insurance, reinsurance, building materials, consumer, financial, utility and so forth. Its success lies in its asset allocator, Warren Buffett together with his partner and long time friend, Charles Munger. Every May, Berkshire would hold its annual general meeting in Omaha where its head quarter located. Omaha is a relatively small town and is located just in the center of United States. Every year, more than 20,000 shareholders of Berkshire come from all over the world gather to listen to Buffett and Munger’s life wisdom. The meeting often quoted as “Woodstock of Capitalists” It’s my pleasure to have an opportunity to share with you their wisdom. Stay tune……

Note: “Woodstock” is a term used for the music lovers. It originated from “Woodstock Music and Art Festival” which was held in New York in 1969. It is widely viewed as the most famous rock festival ever held and it represents “hippie era” for that period.

Craft and Art II

“With craft, whenever you ask, you get answers. The art is to get more questions—the right questions—flowing from the answers you received to prior questions.” – Kenneth L. Fisher

Most often the praises are go towards the artist or architect who build the wonderful building although the building not necessary done himself by these people. In fact it involves many people such as sculptors, painters and craftsmen to make the building great. For example, when you visit Sagrada Familia in Barcelona, what lies in your mind is its architect name: Antonio Gaudi. You would not bother the many great sculptors, painters and craftsmen who make the building great. That’s the reality of life. That’s the reason that I often call for developing more multi-disciplinary generalists rather than professionals. The society needs professionals such as sculptors and painters and there are bunch of them in fact. The lack of the generalist like Antonio Gaudi who could integrate all known worldly wisdom and apply it to his work and making its work become an art, an invaluable art.

In investment world, same phenomenon happens. There are lots of so-called professionals. Often, they treat the investment “piece-by-piece” and make an analysis based on this analogy. This is similar to the physician who gives the treatment based on the patient complaint, that’s when patient complaints about headache, give them panadol. What’s the underlying reasons that causes headache is none of their business. When the society filled with these “professionals”, there is no wonder why so many fund managers performed poorly. At the same time, who does possess art but not craft, stands out as a winner like Warren Buffett and Charles Munger.

Note: "Lincoln in Dalivision" by Salvador Dali, one of the greatest modern artist where his arts could be found in Barcelona.

Barcelona

Sometimes I just wonder why there are so many differences between the cities. In New York, you could find a lot of sky scrapers; in Paris, you could find a lot of museums and in Venice, there are so many ancient buildings hidden along the canals. Barcelona is an unique city. Its uniqueness lies on its possession of masterpieces of its great architects. Among them are Juan Miro, Antonio Gaudi, Salvador Dali and Pablo Picasso. I am wondering why Barcelona possess these unique people where other cities do not posses. The reason is simple, could you imagine if Antonio Gaudi lives in Amazon rain forest? Will he ever have a chance to deliver his ideas and left the masterpieces of his artworks to the world? Very unlikely because he would be struggle to fight for his living against the harsh environment of the Amazon.


The nation could become a great nation because its appreciation to the talents. The talents not necessary a native locals, they could be foreigners. As long as these foreigners have skills and talents that could contribute to the nation, they are all welcomed and would be granted with citizenship or permanent resident status. The examples of these nations are United States and Singapore. In contrast, the nations where the talents are not welcomed because of the political issue would not be a great nation. It’s pity for the citizen of these nations though they can choose to leave his nation and heading to the places that welcome and appreciate them. A great nation is the nation where its citizen will feel proud of his nation when travel outside his nation. If this feeling could be felt only in his own nation but not during his trip outside his nation, this is just an illusion, an illusion that most of the time manipulated by the political animals in his nation.

Note: 3 mosaic designs were taken in Parc Guell, one of the masterpiece by Antonio Gaudi; The poster features 4 of the greatest artists in Barcelona were taken outside the souvenir shop nearby Sagrada Familia (The Holy Church), another masterpiece of Antonio Gaudi which is expected to be completed by 2020.

Catch My Disease

Catch My Disease

MTV could be viewed from this site.

My head is a box full of nothing
and that's the way I like it
My garden's a secret compartment
and that's the way I like it
and that's the way I like it
Your body's a dream that turns violent
and that's the way I like it
and that's the way I like it
The winter is long in the city
and that's the way I like it

So please
baby please
Open your heart
Catch my disease

I was backstage in Pomona
and that's the way I like it
She drank beer with coca-cola
and that's the way I like it
and that's the way I like it
She told me about the winds from Santa Anna
and that's the way I like it
and that's the way I like it
She told me she loved me like fireworks
and that's the way I like it

So please
baby please
Open your eyes
Catch my disease

So please (PLEASE!)
baby please
Come on
Catch my disease
Catch it

Na na na na na na na na na

They play Good Charlotte on the radio
and that's the way I like it
They play Sleepy Jackson on the radio
and that's the way I like it
and that's the way I like it
I hear Beyonce on the radio
and that's the way I like it
cos that's the way I like it
and they play me on the radio (whoo!)
and that's the way I like it

So please
baby please
Open your heart
and catch my disease
So please
baby please
Come on
Catch my disease
(catch my disease)
nanananananananana
(catch my disease)
nanananananananana
(catch my disease)
nanananananananana
(catch my disease)

Note: This is a theme song during our Europe Discovery Trip 2006. We enjoy the song very much. Its singer is Ben Lee, an Aussie singer. The song is from the album, Awake Is The New Sleep.

Craft and Art

"It's the difference between learning to play the piano (craft) and then composing (art). Art takes time to learn. You probably won't compose until you're pretty competent at playing." -- Kenneth L.Fisher

How many people are self-aware that he is playing piano and not composing when he is playing piano?In fact, they are endangered species. At the same time, there are too many people thinking they are composing when in fact they are just playing piano.

Note: Kenneth L.Fisher is a son of Philip Fisher, who is a well known author of "Common Stocks and Uncommon Profits". As described by Warren Buffett himself, his investment philosophy is 70% Benjamin Graham and 30% Philip Fisher.