The Dividend Pirate

Recessions and economic downturns are tough. They also provide us a lot of examples to learn from. I came across one such story today. ABC news reported the rise and fall of Florida celebrity broker Carlos Justo. Click this link to learn more about how Carlos went from 20 million dollars net worth in 2005 to being bankrupt and 12 million dollars in debt in just a few years. For me the story was of a guy who became a millionaire from a janitor and is back to ground zero. But more than anything it is about him not giving up and having the will to come back. I wish him all the luck.

There are many lessons to learn from his story,

• Be humble: When everything is going right for you, you tend to lose touch of reality. You might feel that you are the smartest, richest and the most intelligent guy around. If you ever feel this way, do a reality check. Fortunes can change on the fall of a hat. It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: “And this, too, shall pass away.” How much it expresses! How chastening in the hour of pride! How consoling in the depths of affliction
• Avoid greed: During the DotCom boom, a lot of people became paper millionaires from companies that didnt make a single dime in profit.But they were greedy and didnt sell shares. They wanted more. In the end they were left with worthless stocks. Similarly a lot of investors get greedy during boom times and expect unrealistic returns on their investments.

I came across a great article today on http://valueinvestingresource.blogspot.com/2008/05/2008-berkshire-hathaway-shareholder.html. In the above link the author shares his experience on the Berkshire Hathaway annual meeting. I highly recommend you to read the entire article. It is a bit lengthy but very informative.

For the less informed, Berkshire Hathaway is a company owned by Warren Buffet. It is very unlikely that you haven’t heard about Mr. Buffet. Apart from being the world’s richest man, Mr. Buffet is known for his generosity. He has pledged to donate 95% of his wealth to charity. He is regarded as one of the world’s greatest stock market investors. He is popularly known as the Oracle from Omaha.

About the Berkshire Hathaway Annual meeting: The mass migration of investors to Omaha for Warren Buffet’s annual shareholder meeting is the biggest pilgrimage from this side of Mecca. More than 30,000 people from every state in the Union and dozens of foreign countries go to soak up the wisdom of Buffet and his business partner, Charlie Munger, who sit for hours and answer questions from all comers.

The article mostly is a question/ answer session with Mr. Buffet and Mr. Munger. I found this particular piece of advice on investing from the annual meeting very enlightening:

Phil Town is the author of one of my favorite books on Investing. I had the privilege of meeting him on one occasion and found him very knowledgeable. Having read his book I highly recommend it to anyone who is planning to start investing in stocks. He explains in very simple words some difficult concepts.

His approach to investing is simple and effective at the same time. In a nutshell his approach is as follows,

1. Find a company that you really like and have a good knowledge about. If you love eating at Chipotle, research its stock. If you are an ardent Apple fan, research Apple’s stock. Dont try to invest in a company that you dont have much idea about.

2. Ok so you really like this company. The next thing to find out is if the company is fundamentally strong. For this he recommends looking at key financial ratios which are mainly,

• Minimum average annual growth for EPS
• Free cash flow
• Sales
• Book value

For each of these ratios he explains in detail what kind of growth should you look for. I really enjoyed reading this part of the book since I always used to get confused on what financial ratios should I focus on from the hundreds that are available.

3. If the stock matches the above criteria, the next thing to find out is if the management of the company is good or not. Obviously you want to buy companies that are well managed. One of the easy ways is to look at the insider ownership. You want the company management to own a large stake.

Two days back I attended a fantastic seminar on “Influence” by Linda Rising. So what does the word Influence mean? I dug up the following definition from the web,

in·flu·ence [ ín floo ənss ]: a power to affect persons or events

So why this blog on “Influence”? How does it help you in learning about finance, investing and saving money? My friends, it certainly does.

• When did you buy something that you really didn’t want to buy?
• When did you land up helping someone when you really didn’t want to?
• When did you land up overpaying?

If your answer to any of the questions was yes, read further. Understanding how people/ advertisements influence us will help you in making better choices in life with respect to everything and yes that includes money. A lot of people also believe that if you have a good idea and facts that support that, you don’t need to influence people to adopt that. Completely incorrect, as we all know a lot of good ideas are never implemented and not all implemented ideas are good. How do you think that people with evil ideas have been able to influence an entire nation? History is filled with such examples.

Let me introduce Linda Rising briefly before I proceed further.

Linda Rising, Ph.D.
With a Ph.D. from Arizona State University in the field of object-based design metrics, Linda Rising’s background includes university teaching and industry work in telecommunications, avionics, and strategic weapons systems. An internationally known presenter on topics related to patterns, retrospectives, customer interaction, influence strategies, and the change process, Linda is the author of numerous articles and four books.