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11-07-2011, 10:07 PM
Hi Kazukirai,
Glad you like the thread so far! I am so happy that everyone is coming out to share their nuggets of wisdom, and I definitely want to join in the "party" hahaha. Must also give a special thanks to Moolah for starting this thread.
Onwards to the 2nd and 3rd posts by d.o.g., also in 2003 if I am not wrong...
Q: The Millionaire dream for most of them (i.e. young people) could only be attained by investments. And the stock market is one of them that gives a better chance.
I agree. I just wanted to point out that people should not ignore their primary source of income (their job) even as they concentrate on building their secondary/passive income (their investments).
Even for successful investors, the income from their jobs will dwarf the passive income from their portfolio for most of the early years. Most of us can probably earn $30,000 or more annually. But how long will it take us to build up a portfolio that can generate $30,000 in income? Assuming a generous 8% yield, we'd need a $360,000 portfolio. That would probably take 10-15 years to build, maybe longer. Until then, we shouldn't ignore our jobs.
Yes, there are definitely thousands of such salaried-worker millionaires. Their discipline (and good luck) are an inspiration to us all. But there are even more millionaires who were not minted in the stock market. If the goal is simply to acquire wealth, and not just acquire wealth via the stock market, then we should take all relevant actions to maximize our chances of reaching this goal.
Working hard and saving hard improve our chances of getting rich, even if our stock market investments aren't great - as I mentioned previously, with a sufficiently high income, one may not have to invest at all. And certainly, saving only a little bit but picking the right stock (like Berkshire Hathaway) can still make one a millionaire. However, most of us are somewhere in between these two extremes, with neither a sky-high income, nor Buffett-like stock-picking talent.
For myself, combining aggressive savings with wise investment seems to be the best way to maximize the chances of acquiring wealth - or at least escaping poverty. As to what constitutes aggressive, everyone must decide for himself. No one is compelled to survive on bread and water, but dining out every night at a gourmet restaurant would probably qualify as lavish.
I won't deny the pleasures of material goods. I have enjoyed owning a luxury car, and the newest technology gadgets are a rush to play with. But I now prefer to limit my indulgences in this regard. Analyzing stocks is a great intellectual thrill for me, so it's no big punishment to play this game. Of course, I play to win!
Q: Buffet realized that buying businesses is much better than buying stocks? As in, are businesses like more profitable or weather-proof than stocks which can fluctuate up and down because of some news.
Buying a business and buying a stock happen to be exactly the same thing. A stock is a part ownership in a business, nothing more, nothing less. It just happens that if it's listed on a stock exchange, it's easier to buy and sell than an unlisted company. The price of a listed company can fluctuate wildly. Its value does not.
Traders treat stocks like inventory - they buy in order to resell. Investors treat stocks like assets - they buy in order to use. For inventory, the selling price is of prime importance. For assets, the utility (cash generation) is of prime importance. Are you a trader, or are you an investor?
Buffett buys a lot of unlisted companies for several reasons:
1. If word gets around that he's buying into a listed company, the price of the stock shoots up, raising his cost. No such problem with unlisted companies - he's often the only bidder.
2. Not all good companies are listed. Some of the best companies are privately held.
3. He can name his price without worrying about the benchmark (public price).
Listed shares are advantageous to an owner only in terms of liquidity - he can easily dispose of his shares as he sees fit. If, like Buffett, he has no intention of selling, there is no advantage to having the company being listed. The company's operations are not affected by its status as a private or public entity.
Being listed does not improve the profitability of a company - in fact it is actually negative because of the additional cost of compliance with disclosure requirements. That's why many tightly held companies end up going private again - it's not worth paying thousands of dollars annually to maintain the listed status just because of a few minority shareholders. Better to just buy them out and delist - the savings are often substantial.
(End of Posts)
Glad you like the thread so far! I am so happy that everyone is coming out to share their nuggets of wisdom, and I definitely want to join in the "party" hahaha. Must also give a special thanks to Moolah for starting this thread.
Onwards to the 2nd and 3rd posts by d.o.g., also in 2003 if I am not wrong...
Q: The Millionaire dream for most of them (i.e. young people) could only be attained by investments. And the stock market is one of them that gives a better chance.
I agree. I just wanted to point out that people should not ignore their primary source of income (their job) even as they concentrate on building their secondary/passive income (their investments).
Even for successful investors, the income from their jobs will dwarf the passive income from their portfolio for most of the early years. Most of us can probably earn $30,000 or more annually. But how long will it take us to build up a portfolio that can generate $30,000 in income? Assuming a generous 8% yield, we'd need a $360,000 portfolio. That would probably take 10-15 years to build, maybe longer. Until then, we shouldn't ignore our jobs.
Yes, there are definitely thousands of such salaried-worker millionaires. Their discipline (and good luck) are an inspiration to us all. But there are even more millionaires who were not minted in the stock market. If the goal is simply to acquire wealth, and not just acquire wealth via the stock market, then we should take all relevant actions to maximize our chances of reaching this goal.
Working hard and saving hard improve our chances of getting rich, even if our stock market investments aren't great - as I mentioned previously, with a sufficiently high income, one may not have to invest at all. And certainly, saving only a little bit but picking the right stock (like Berkshire Hathaway) can still make one a millionaire. However, most of us are somewhere in between these two extremes, with neither a sky-high income, nor Buffett-like stock-picking talent.
For myself, combining aggressive savings with wise investment seems to be the best way to maximize the chances of acquiring wealth - or at least escaping poverty. As to what constitutes aggressive, everyone must decide for himself. No one is compelled to survive on bread and water, but dining out every night at a gourmet restaurant would probably qualify as lavish.
I won't deny the pleasures of material goods. I have enjoyed owning a luxury car, and the newest technology gadgets are a rush to play with. But I now prefer to limit my indulgences in this regard. Analyzing stocks is a great intellectual thrill for me, so it's no big punishment to play this game. Of course, I play to win!
Q: Buffet realized that buying businesses is much better than buying stocks? As in, are businesses like more profitable or weather-proof than stocks which can fluctuate up and down because of some news.
Buying a business and buying a stock happen to be exactly the same thing. A stock is a part ownership in a business, nothing more, nothing less. It just happens that if it's listed on a stock exchange, it's easier to buy and sell than an unlisted company. The price of a listed company can fluctuate wildly. Its value does not.
Traders treat stocks like inventory - they buy in order to resell. Investors treat stocks like assets - they buy in order to use. For inventory, the selling price is of prime importance. For assets, the utility (cash generation) is of prime importance. Are you a trader, or are you an investor?
Buffett buys a lot of unlisted companies for several reasons:
1. If word gets around that he's buying into a listed company, the price of the stock shoots up, raising his cost. No such problem with unlisted companies - he's often the only bidder.
2. Not all good companies are listed. Some of the best companies are privately held.
3. He can name his price without worrying about the benchmark (public price).
Listed shares are advantageous to an owner only in terms of liquidity - he can easily dispose of his shares as he sees fit. If, like Buffett, he has no intention of selling, there is no advantage to having the company being listed. The company's operations are not affected by its status as a private or public entity.
Being listed does not improve the profitability of a company - in fact it is actually negative because of the additional cost of compliance with disclosure requirements. That's why many tightly held companies end up going private again - it's not worth paying thousands of dollars annually to maintain the listed status just because of a few minority shareholders. Better to just buy them out and delist - the savings are often substantial.
(End of Posts)
My Value Investing Blog: http://sgmusicwhiz.blogspot.com/