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Old September 22, 2003, 08:46 PM
Thomas Rice
Posts: n/a
Default Re: My annual richest 400 rant

> I, for one am studying Buffett's investment
> strategies to figure out why his strategies
> work
> and my broker sucks.

This is a very brief summary of how I view investing and Buffett's style:

1. Investing is about predicting how much money a company will earn, discounting it to present value, and coming up with a value for the company.

2. You can do this with any asset, whether it's a property loan, a bond, a share, or property.

3. You therefore need to make predictions about the future. Different assets will be more predictable than others. Predicting the sales of Coca Cola in 5 years is probably easier than predicting the sales of a new tech startup with no current sales.

4. Buffett focuses on (1) businesses he understands, and (2) businesses with strong competitive advantages. I view this as essentially maximising his predictive ability, and thus his accuracy in making good investments.

5. A strong competitive advantage means that your future earnings are more competitive, because they are less dictated by the actions of competitors or market conditions generally.

I think that basically sums it up. Of course there are many more specifics, like what are the sources of competitive advantage, and so forth.

If you apply those principles to your own investing and research competitive advantages more, I imagine your returns will be higher than normal. Will you make it into the billionaire list? Probably not, unless you have a lot to start with.

To do that, you need leverage. And I use the term quite broadly. There are a few ways to do this. Sticking strictly to investments, you can manage money for others and earn a cut, if you're suitably qualified, and thus your personal return is leveraged up from the fees earned from your investment skill.

Most people on this board are entrepreneurs though, rather than investors. So how does leverage relate to them? Well, in its simplest form, it is about finding an opportunity to sell something at a profit and then finding a way to provide it at a lower cost, typically through hiring of people and good purchasing. Doing this, in my opinion, is a form of leverage and one of the keys to getting into bigger business and one day seeing your name in the pages of Forbes.

- Thomas.

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