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the two most lucrative ways to build assets: owning businesses and providing loans.
two most lucrative ways to build assets: owning businesses and providing loans.
Businesses are nothing more than purchasing stocks, and providing loans is nothing mo...
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Businesses are nothing more than purchasing stocks, and providing loans is nothing mo...
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At the root of the wealth equation is the firm understanding that stocks and bonds go together like a husband and wife.
stocks and bonds go together like a husband and wife.
This is something many individuals fail to realize and take advantage of. This is something that investors like Warren Buffett and Benjamin Graham understood and capitalized on. This stock to bond relationship...
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The Intelligent Investor, Security Analysis, and The Wealth of Nations.
The Intelligent Investor, Security Analysis, and The Wealth of Nations.
Chapter 1 The Neighborhood Business (Stocks 101)
Chapter 1 The Neighborhood Business
One of his more impressive disciplines was his inability to stop working until he made a $10 profit each day. He truly was a determined little boy.
Three hundred dollars! That’s how much I’ve made since the start of summer break,
Three hundred dollars! That’s how much I’ve made since the start of summer break,
What is the intrinsic value of your business?”
What is the intrinsic value of your business?”
“No, $85 is your book value, or the value of your business if you ended it today. The intrinsic value is always worth more than your book value if you have a profitable business.”
85 is your book value, or the value of your business if you ended it today. The intrinsic value is always worth more than your book value if you have a profitable business.”
“I don’t know, probably until I’m 16. I really want to have a car,” he exclaimed. “OK, perfect,” his father replied as he started writing on a piece of paper. “Here, son, look at this,”
Math is the centerpiece to properly valuing a business or stock.
Stock = A Real Business
Stock = A Real Business
Mr. Buffett is famous for never looking at a stock’s trading price on the market. Instead, he always tries to determine what HE thinks the company is worth before looking at the price others are willing to sell the company for (the market price).
he always tries to determine what HE thinks the company is worth before looking at the price others are willing to sell the company for (the market price).
Intrinsic Value: This is the value smart investors calculate the business to be worth.
Intrinsic Value: This is the value smart investors calculate the business to be worth.
The point of this entire book is to learn how to calculate this number.
The point of this entire book is to learn how to calculate this number.
As you’ll find out later in the book, the intrinsic value isn’t definitive but does provide a calculative glimpse into potential returns. For example, there is no guarantee that Billy will work for the next three years and earn that amount of money. With that s...
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there is no guarantee that Billy will work for the next three years and earn that amount of money. With that said, there’s a strong possibili...
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Section 2
Section 2
Billy was having so many kids approach him about becoming partners that he wanted to scream.
“Dad, everyone on the block is driving me crazy. They all want to be partners in the business. What do I do?”
“OK, so how much do you think the market price of your business should be?”
“Billy the market price is what you’d be willing to sell the business for right now. For example, if all your friends walked through the door right now and said, ‘Billy, we’ll buy your lemonade stand for $1,000,’ would you do it?” After a long pause, Billy blurted out a quick and thunderous, “Yep!” With a grin on his face, George said, “OK, then that’s your market price.”
“Now this is where things become fun,” George said to Billy. “You know why?” “Why’s that, Dad?” Billy replied. “Because you’re now going to sell your lemonade stand for $1,000. You’re happy, your friends are happy, and everyone wins.”
“Dad, Joe refused to pay more than $300. No one else in the neighborhood would ever match that high of a price. How cou...
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“Dad, Joe refused to pay more than $300. No one else in the neighborhood would ever match that high of a price. How cou...
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“Patience and knowledg...
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“Patience and knowledg...
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“Each piece of paper in the box represents an equal portion of my business. As you can see, I currently own all the pieces of paper. I’m willing to sell each piece of paper for one dollar. At the end of the summer, all the people who own a piece of paper will meet at my house to collect their earnings.”
“Each piece of paper in the box represents an equal portion of my business.
“Here’s my promise. First, I will not make any more pieces of paper than what you see in the box. Second, I will proportionately pay all owners at the end of the summer based on the number of shares they own. Third, I will continue working the business until someone else owns more pieces of paper. At that point, that person will assume the duties of my job.”
“Here’s my promise. First, I will not make any more pieces of paper than what you see in the box. Second, I will proportionately pay all owners at the end of the summer based on the number of shares they own. Third, I will continue working the business until someone else owns more pieces of paper. At that point, that person will assume the duties of my job.”
Everyone can agree that every kid in the neighborhood thought Billy had a good business. Because a one-dollar share was more affordable than purchasing Billy’s entire business,
Once the business was sliced into a bunch of shares, the kids no longer cared about what it was worth. They just wanted to be partners in his profitable business.
purchase a stock simply because “it’s a great company?” When I hear people say that phrase in reference to their investment strategy, I almost start convulsing. That phrase is the hallmark of a person destined to lose money in the stock market.
When I hear people say that phrase in reference to their investment strategy, I almost start convulsing. That phrase is the hallmark of a person destined to lose money in the stock market.
Section 3
