| Warren Buffett is the magician of wealth and in the | | | | business. |
| end magic is nothing other than the total focus of a | | | | 11. Intrinsic value: how much the business will earn |
| vivid imagination with powerful intent. | | | | over its life time. Know how to calculate the present |
| PART 2 - THE 26 PRINCIPLES OF BUFFETT | | | | value of a future stream of income (its intrinsic |
| WEALTH | | | | value). Know so much about an investment that you |
| Following on from the Ten Steps to financial freedom | | | | can figure out its intrinsic value: how it makes money; |
| set out in part one I introduce the next stage of | | | | the durability of its earnings; what its weaknesses |
| your independent wealth creation plan based on the | | | | are; opportunities for future growth; the strength of |
| success principles of Warren Buffett who is not only | | | | its competitors and competence of its management. |
| one of the wealthiest people on the planet but a self | | | | 12. Life-time ownership: Don't sell too soon. In fact |
| made billionaire. What he did you can also do if you | | | | become a Life-time owner; if possible never sell. Buy |
| choose to do so. | | | | cheap and keep. Concentrate your ownership with |
| THE BUFFETT WEALTH CREATION SYSTEM | | | | twenty investment moves as the maximum. Ideally 5 |
| Magic operates in the realm of what you "don't know | | | | to 10 is best. |
| that you don't know"; but a realm that is familiar to | | | | 13. Be a Business Owner: Buy a large percentage of a |
| the magician. To the magician it is normal. To the | | | | few excellent investments. |
| observer it is outside their realm of experience so | | | | 14. Focus on "Main Street": as more wealth is created |
| that he or she doesn't see it. For most people the | | | | on Main Street than on Wall Street. According to The |
| principles of "Buffett Business" are outside their | | | | Millionaire Next Door most millionaires are owners of |
| everyday practice and everyday knowledge, but | | | | old economy businesses such as gas stations and dry |
| they can be learned. | | | | cleaning establishments, and Buffett's investments |
| Warren Buffett's Wealth Principles and Methods, as | | | | prove the point. |
| set out below, are available to anyone who chooses | | | | 15. Develop your Investment Philosophy. A house is |
| to learn them, believe them, and apply them. | | | | built with a plan; so is wealth. Develop a written |
| 1. Passion: Identify what passions you have that could | | | | investment plan in order to embody your principles |
| create wealth. True happiness is doing what you | | | | and strategies. |
| were born to do; this is also known as | | | | 16. Own a Business not a stock; be a business owner |
| self-actualisation or following your bliss. You cannot | | | | as opposed to a stock trader. Be a business analyst |
| motivate the best people in any field with money. | | | | not a market analyst: Buy a share of a business not |
| They are motivated by passion. They lose | | | | a stock; chase real business value - not stocks. |
| themselves in their craft. It's not money and fame, | | | | Wealth is created through owning the right |
| but rather talent and passion that lead to success. | | | | businesses with the right management. Buffett |
| Their work is their life; and its fun. | | | | doesn't interact with people he doesn't like or admire. |
| 2. Mentors: Study the best to become the best. | | | | 17. The Value of Expertise: Buffett's wealth must also |
| Associate and take guidance with people who are | | | | be attributed to carefully selecting the right partners. |
| bigger than you, especially in your chosen field but | | | | He looks for people that are "bigger" than him: "I look |
| never follow a guru. Select your mentors very | | | | for seven-footers" he advises. Warren expects |
| carefully. | | | | experts to be fanatics. He places a premium on |
| 3. Independent Thinker: always remain an | | | | expertise while Wall Street has an all consuming focus |
| independent thinker and never follow the crowd. The | | | | on the stock price. |
| winner thinks outside the box and escapes the | | | | 18. Do your homework (reading, research and value |
| comfort blanket of conformity. Many great fortunes | | | | appraisals) until the right opportunity presents itself, |
| have been made with very little money by simply | | | | however many years that may take - but when it |
| following the value investment system. | | | | does, have the courage to move decisively. This is |
| 4. Do not imitate: the problem with imitation is that | | | | your key daily activity and will take up most of the |
| the imitator does not truly understand what he or | | | | day. Read, Read, Read; Research, Research, |
| she is copying. Original thought is an absolute | | | | Research; Appraise, Appraise, Appraise. Never buy a |
| essential. | | | | stock because it is going up! Only buy value! |
| 5. Active Investor: The wealth creator takes full | | | | 19. Focus and Intent: Wealth is created through total |
| responsibility for their wealth and is a wise, intelligent | | | | focus and unwavering intent. Wealth is only acquired |
| active investor - never a Passive Investor in the | | | | through the daily practice of industry, frugality, and |
| hands of a broker: an Investor not a Speculator; an | | | | economy. Do a few things well - preferably do one |
| Owner and not a Trader. | | | | thing very well! |
| 6. Live Economically: Live below your income and | | | | 20. Know what you Own, and Know who You Are; |
| never lose capital: put property before profits (buy | | | | without both these factors there is no wealth. Risk |
| your house for cash); and family before fortune. | | | | comes from not knowing what you are doing and |
| Know your costs and keep them low. Spenders and | | | | how you are doing it. One of the greatest pieces of |
| consumers rarely become savers and investors. If | | | | economic wisdom is: "To know what you do not |
| you build wealth at the price of your relationships, | | | | know". |
| family and health you have paid too high a price. | | | | 21. Define your circle of competence. Know and |
| Buffett regards himself as "thrifty". | | | | define your circle of competence and don't step |
| 7. Risk: Don't expose yourself to risk - always | | | | outside it. Buy companies whose products and |
| operate with a margin of safety (see below). | | | | services you understand. Buy what you know. Read |
| 8. Habits: Your habits define you. Write down the | | | | to know and then to own. You should see yourself |
| habits you want to develop and those you wish to | | | | as an investigative journalist. |
| relinquish. Develop the habits and characteristics of a | | | | 22. Keep it simple: Look for and invest in businesses |
| Warren Buffett: passion, patience, perseverance, | | | | that are simple and uncomplicated with a history of |
| integrity, courage, independent thinking, value | | | | consistent earnings, little debt, and management that |
| investing, active investing, discipline, lifetime | | | | manages the business for the benefit of the owners. |
| ownership, mentor selection, frugality, focus and | | | | Invest rationally not emotionally. Take your time, be |
| intent, work ethic, family values, research, health, | | | | patient and wait until the times and the numbers are |
| moderation, trust, love and respect. | | | | right. Then Act. |
| 9. Value Investing: Fully understand and practice the | | | | 23. Invest for the long-term. Do not diversify |
| art of low risk value investing; how to acquire the | | | | excessively. Stick to your circle of competence. |
| right resources at a substantial discount (ideally 25%) | | | | Purchase superior management; not "stocks". Seek |
| to their real worth (the margin of safety). Value | | | | out partners for life: Look for "seven-footers". |
| investing is a purely businesslike transaction where | | | | 24. Constantly reinvest your excess cash until your |
| one invests without emotion, fear, greed, or by | | | | future is well provided for and always live |
| following fads or trends. Value Investing is simple but | | | | economically. |
| it is not easy. It takes patience, a lot of reading, an | | | | 25. Never ever compromise your integrity. Buffett |
| understanding of accounting and the language of | | | | advises never to do anything in business that you |
| business, the ability to value a business, thrift, | | | | wouldn't want printed on the front page of your local |
| discipline and integrity, energy, independent thinking | | | | newspaper. Integrity, he says, is like oxygen. If you |
| and a strong sense of self. | | | | don't have it nothing else matters. |
| 10. The Margin of Safety: the key to wealth. Always | | | | 26.Stick to the plan and study this checklist daily. |
| buy at a significant discount to market value by | | | | If you do this your return on investment like |
| calculating the intrinsic value of the business and | | | | Buffett's will always be significantly ahead of the |
| discounting it. Always differentiate between value | | | | market and you will amass a substantial fortune while |
| and price. The stock market price is not the price. | | | | living a joy filled and self fulfilling lifestyle. |
| Only pay a reasonable price, even for an excellent | | | | |