Very good book. Bakke writes from a biblical view of work and glorifying God in it. His central idea is that work is most enjoyable and fun when emploVery good book. Bakke writes from a biblical view of work and glorifying God in it. His central idea is that work is most enjoyable and fun when employees can utilize their skills and abilities to fulfill their job role as they see best....more
This is the first book I have read on negotiation, and I thought it was helpful. It is a bit daunting to try to apply all that the author discusses, bThis is the first book I have read on negotiation, and I thought it was helpful. It is a bit daunting to try to apply all that the author discusses, but I feel if I just used some of what he said it would make me a more effective negotiator.
The Five Steps of Breakthrough Negotiation:
1. Go to the Balcony - control your own emotions 2. Step to Their Side - defuse the anger and create a favorable environment 3. Reframe - direct attention to meeting each side's interests and deal with the problem 4. Build them a Golden Bridge - draw them into the direction you would like them to go. Involve them in the process and incorporate their ideas 5. Use Power to Educate - educate them on the costs of not agreeing
Application: Rephrase and summarize back to the speaker what I feel they are saying. It will be a way to show speaker that I am listening and understood them correctly
Life Mission: Love others - show love by listening well and considering their interests....more
I found the book to be interesting at points. I had to skim throught the information about the companies Buffet owns becuase I was primarily interesteI found the book to be interesting at points. I had to skim throught the information about the companies Buffet owns becuase I was primarily interested in his investment philosophy. The biggest thing I took from the book is that to ignore the short term changes in the market and focus on the underlying value of the businesses you invest in....more
This was a very enjoyable and educational book on investing. I would recommend it to anyone who wants to have a better understanding of a good philosoThis was a very enjoyable and educational book on investing. I would recommend it to anyone who wants to have a better understanding of a good philosophy of investing.
The defensive (or passive) investor will place his chief emphasis on the avoidance of serious mistakes or losses. His second aim will be freedom from effot, annoyance, and the need for making frequent decisions. The determining trait of the enterprising (active/aggressive) investor is his willingness to devote time and care to the selection of securities that are both sound and more attracitve than the average. Over many decades an enterprising investor of this sort could expect a worthwhile rewar for his extra skill and effort, in the form of a better average return than that realized by the passive investor.
The investor’s chief problem – and even his worst enemy – is likely to be himself.
Being intelligent means being patient, disciplined, and eager to learn; you must be able to harness your emotions and think for yourself.
The intelligent investor realizes that stocks become more risky, not less, as their prices rise – and less risky, not more, as their prices fall. The intelligent investor dreads a bully market, since it makes stocks more costly to buy. And conversely (so long as you keep enough cash on hand to meet your spending needs), you should welcome a bear market, since it puts stocks back on sale.
The heart of Graham’s argument is that the intelligent investor must never forecast the future exclusively by extrapolating the past.
The only indisputable truth that the past teaches us is that the future will always surprise us – always!
…most new issues are sold under “favorable market conditions” – which means favorable for the seller and consequently less favorable for the buyer.
To obtain better than average investment results over a long pull requires a policy of selection or operation possessing a twofold merit: 1. It must meet objective or rational tests of underlying soundness and 2. it must be different from the policy followed by most investors or speculators.
A great company is not a great investment if you pay too much for the stock.
In any case the investor may as well reign himself in advance to the probability rather than the mere possibility that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent 33% or more from their high point at various periods in the next five years. A serious investor is not likely to believe that the day-to-day or even month-to-month fluctuations of the stock market make him richer or poorer.
It is for these reasons of human nature, even more than by calculation of financial gain or loss, that we favor some kind of mechanical method for varying the proportion of bonds to stocks in the investor’s portfolio.
A stock does not become a sound investment merely because it can be bought at close to its asset value. The investor should demand, in addition, a satisfactory ratio of earnings to price, a sufficiently strong financial position, and the prospect that its earnings will at least be maintained over the years.
Basically, price fluctuations have only one significant meaning for the true investor. They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal. At other times he will do better if he forgets about the stock market and pay attention to his divident returns and to the operatings results of his companies.
The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices.
He should always remember that market quotations are there for his convenience, either to be taken adavantage of or to be ignored. He should never buy a stock because it has gone up or sell one because it has gone down.
Nothing important on Wall Street can be counted on to occur exactly in the same way as it happened before.
The primary cause of failure for the individual investor is that hey pay too much attention to what the stock market is doing currently.
…for anyone who will be investing for years to come, falling stock prices are good news, not bad, since they enable you to buy more for less money. The longer and further stocks fall, and the more steadily you keep buying as they drop, the more money you will make in the end – if you remain steadfast until the end. Instead of fearing a bear market, you should embrace it.
Make an Investment Owner’s Contract pg. 225
…buying funds based purely on their past performance is one the stupidest things and investor can do.
…recognize that an index fund – which owns all the stocks of the market, all the time, without any pretense of being able to selece the “best” and avoid the “worst” – will beat most funds over the long run.
Most fund buyers look at the past performance first, then at the manager’s reputation, then at the riskiness of the fund, and finally (if ever) at the fund’s expenses. The intelligent investor looks at those same things – but in the opposite order.
Patience is the fund investor’s most powerful ally.
However, we must point out a troublesome paradox here, which is that mathematical valuations have become most prevalent precisely in those areas where one might consider them least reliable. For the more dependent the valuation becomes on anticipations of the future – and the less it is tied to a figure demonstrated by past performance – the more vulnerable it becomes to possible miscalculation and serious error. A large part of the value found for a high-multiplier growth stock is derived from future projections which differ markedly from past performance…
The management factor is most useful, we think, in those cases in which a recent change has taken place that has not yet had the time to show its significance in the actual figures.
The intelligent investor excels by making decisions that are not dependent on the accuracy of anybody’s forecasts, including his or her own.
Dividend Record – one of the most persuasive tests of high quality is an uninterrupted record of dividend payments going back over many years. We think that a record of continuous dividend payments for the last 20 years or more is an important plus factor in the company’s quality rating.
The burden of proof is on the company to show that you are better off if it does not pay a dividend. If the firm has consistently outperformed the competition in good markets and bad, the managers are clearly putting the cash to optimal use. If, however, business is faltering or the stock is underperforming its rivals, then the managers and directors are misusing the cash by refusing to pay a dividend.
The more seriously investors take the per-share earnings figures as published, the more necessary it is for them to be on their guard against accounting factors of one kind and another that may impair the true comparability of the numbers: the reduction in the normal income-tax deduction by reason of past losses, and the dilution factor implicit in the existence of substantial amounts of convertible securities and warrants, depreciation methods.
Important things to look for in a company: 1. Adequate size 2. A sufficiently strong financial condition 3. Continued dividends for at least the past 20 years 4. No earnings deficit in the past ten years 5. Ten-year growth of at least one-third in per-share earnings 6. Price of stock no more than 1 ½ times net asset value 7. Price no more than 15 times average earnings of the past three years. If all analysts were agreed that one particular stock was better than all the rest, that issue would quickly advance to a price which would offset all of its previous advantages (EMH).
We were not willing to accept the prospects and promises of the future as compensation for a lack of sufficient value in hand.
Our preference for the analyst’s work would be rather that he should seek the exceptional or minority cases in which he can form a reasonably confident judgment that the price is well below value. He should be able to do this work with sufficient expertness to produce satisfactory average results over the years.
Although there are good and bad companies, there is no such thing as a good stock; there are only good stock prices, which come and go.
When you buy a stock, you become an owner of the company. Its managers, all the way up to the CEO, work for you. Its board of directors must answer to you. Its cash belongs to you. Its businesses are your property. If you don’t like how your company is being managed, you have the right to demand that the managers be fired, the directors be changed, or the property be sold.
Assume in a typical case that the earning power is 9% on the price and that the bond rate is 4%; then the stockbuyer will have an average annual margin of 5% accruing in his favor.
The margin of safety is the difference between the percentage rate of the earnings on the stock at the price you pay for it and the rate of interest on bonds, and that margin of safety is the difference which would absorb unsatisfactory developments.
The philosophy of investment in growth stocks parallels in part and in part contravenes the margin-of-safety principle.
If, as we suggest, the average market level of most growth stocks is too high to provide an adequate margin of safety for the buyer, then a simple technique of diversified buying in this field may not work out satisfactorily
Even the best company becomes a “sell” when its stock price goes too high, while the worst company is worth buying if its stock goes low enough.
It was a good book on the history of risk and how it applies to finance. Poignant Quotes: The capacity to manage risk, and with it the appetite to takeIt was a good book on the history of risk and how it applies to finance. Poignant Quotes: The capacity to manage risk, and with it the appetite to take risk and make forward-looking choices, are key elements of the energy that drives the economic system forward.
The Law of Large Numbers says in essence that the difference between the observed value of a sample and its true value will diminish as the number of observations in the sample increases.
The more uncertain the outcome, the greater may be the value of procrastination.
Fear of harm ought to be proportional not merely to the gravity of the harm, but also to the probability of the event.
The value of an item must not be based on its price, but rather on the utility that it yields.
…the objective facts and a subjective view about the desirability of what is to be gained, or lost, by the decision. Both objective measurement and subjective degrees and belief are essential; neither is sufficient by itself.
Expected values are computed by multiplying each possible gain by the number of ways in which it can occur, and then dividing the sum of these products b the total number of cases. – David Bernoulli
Even when probabilities are known, rational decision-makers will try to maximize expected utility – usefulness or satisfaction – rather than expected value.
The utility resulting from an small increase in wealth will be inversely proportionate to the quantity of goods previously possessed.
If the satisfaction to be derived from each successive increase in wealth is smaller than the satisfaction derived from the previous increase in wealth, then the disutility caused by a loss will always exceed the positive utility provided by a gain of equal size.
All the law tells us is that the average of a large number of throws will be more likely than the average of a small number of throws to differ from the true average by less than some stated amount.
…the main purpose of the bell curve is to indicate not accuracy but error.
At the extremes, the market is not random walk. At the extremes, the market is more likely to destroy fortunes than to create them. The stock market is a risky place.
The greater the number of individuals observed, the more do peculiarities, whether physical or moral, become effaced, and allow the general facts to predominate, by which society exists and is preserved.
Regression to the mean is dynamite. …the Law of Large Numbers into a dynamic process in which the successors to the outliers are predestined to join the crowd at the center.
Dependence on reversion to the mean for forecasting the future tends to be perilous when the mean itself is in flux.
Game theory says that the true source of uncertainty lies in the intentions of others.
Winner’s Curse – overpaying out of determination to win.
While the return on a diversified portfolio will be equal to the average of the rates on return on its individual holdings, its volatility will be less than the average volatility of its individual holdings. This means that diversification is a kind of free lunch at which you can combine a group of risky securities with high expected returns into a relatively low-risk portfolio, so long as you minimize the covariances, or correlations, among the returns of the individual securities.
The central idea is that variability should be studied in reference to some benchmark or some minimum rate of return that the investor has to exceed.
We have trouble recognizing how much information is enough and how much is too much. We pay excessive attention to low-probability events accompanied by high drama and overlook events that happen in routine fashion.
The failure of invariance frequently takes the form of what is known as “mental accounting,” a process in which we separate the components of the total picture. In so doing we fail to recognize that a decision affecting each component will have an effect on the shape of the whole.
…”decision regret” is the result of focusing on the assets you might have had if you had made the right decision.
...”endowment effect” describes our tendency to set a higher selling price on what we own (are endowed with) than what we would pay for the identical item if we did not own it.
Derivatives cannot reduce the risks that go with owning volatile assets, but they can determine who takes on the speculation and who avoids it.
Derivatives have value only in an environment of volatility.
The value of an option depends on four elements: time, prices, interest rates, and volatility.
Volatility is always the key determinant
Keep learning about finance, and realize I don’t know what I don’t know. ...more