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Could a Warren Buffett Emerge Today?

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Could someone today do what Warren Buffett did and parlay a $105,000 investment into more than $50 billion?

In considering the things Buffett did to become the world’s wealthiest man, the answer is yes. But comprehending the things he did takes a measure of study. Not to mention the commitment needed to execute it.

Much has changed since Buffett began his career in the 1950s. But the American economic system is largely run by the same rules and principles.

Early Money Making Secrets

Buffett discovered two of his lifelong money making secrets early in life: reinvesting profits and being willing to be different, according to warrenbuffett.com. These are principles that would certainly be useful today.

In high school, Buffett and a friend purchased a pinball machine and put it in a barbershop. They used the proceeds to buy more machines until they had eight in different shops. When they sold the venture, they used the proceeds to buy stocks and start another business.

In 1956, Buffett began managing money with $100,000 he received from a handful of investors while working in Omaha, Nebraska. When he ended the partnership 14 years later, it was worth more than $100 million from investing in undervalued companies.

He is often characterized as advocating a “buy and hold” strategy, but further examination indicates this is an oversimplification of his strategy.

Buffett’s Investment Strategy

There are several aspects to Buffett’s approach to investing. The most basic aspects have to do with his assessment of stock value, known as value investing. Early in his career, he said he is 85% Benjamin Graham, known as the godfather of value investing.

Value investing determines the underlying fair value of a stock based on it is future earnings ability, according to Investopedia.

To guide his decisions, Buffett considers the business, the management, financial measures and value. While these considerations seem easy to understand, they can be hard to execute.

A key Buffett tenet is to ask if management is candid with shareholders. This is not an easy question for many companies to answer.

There are also concepts Buffett follows that seem complex but are actually easy to execute, like economic value added (EVA). The concept is not easy to grasp, but in fact it is a laundry list of adjustments. It is an easy way to calculate EVA for a company.

Buffett’s ideas are also open to adaptation. Traders often require adherence to a formula to control emotions, but investors can adapt their models to current environments.

Business Focus

Another Buffett tenet is to restrict his activity to his area of competence – businesses he understands. Robert Hagstrom, the author of “The Essential Buffett: Timeless Principles for the New Economy,” wrote investment success is not a matter of how much one knows, but how realistically one defines what they don’t know.

Buffett regards a deep understanding of the operating business as a prerequisite for forecasting future business performance. He first analyzes the business, not the market, the economy or the investor sentiment. Then he looks for a consistent operating history. Lastly, he uses the data to determine whether the business has good long-term prospects.

Focus On Management

Another Buffett tenet is to evaluate management quality. This is one of the most difficult tasks for an investor. Buffett focuses on the degree to which the management is rational. He considers management’s approach to reinvesting, retaining earnings or returning profits to shareholders as dividends.

Research indicates that historically, management tends to be greedy and retains too much profit. It is naturally inclined to seek scale rather than utilize cash flow to maximize shareholder value.

Another tenet considers management’s honesty with shareholders. Does it admit mistakes? Does management resist the “institutional imperative”?

Buffett seeks out management that resists a “lust for activity” and the duplication of competitor strategies.

Financial Measures

Buffett focuses on return on equity (ROE) as opposed to earnings per share. ROE can be distorted by leverage (a debt-to-equity ratio) and therefore be less reliable than the return-on-capital metric. Buffett recognizes this, but he examines leverage separately, preferring low-leverage companies. He also looks for high profit margins.

Buffett also looks at what he calls “owner’s earnings” – the cash flow available to shareholders. He defines it as net income plus depreciation and amortization minus capital expenditures (CAPX) minus additional working capital needs.

With owner’s earnings, Buffett pays attention to a company’s ability to create cash for shareholders.

He also has a “one-dollar premise;” the market value of a dollar assigned to each dollar of retained earnings. This metric resembles market value added, the ratio of market value to invested capital.

Focus On Value

Buffett tries to estimate a company’s intrinsic value. He projects the future owner’s earnings, then discounts them back to the present. The projection of future earnings is easier to do if Buffett’s other tenets have been followed since consistent historical earnings are easier to forecast.

Buffett also coined the term “moat,” the “something that gives a company a clear advantage over others and protects it against incursions from the competition.”

The Bottom Line

Buffett’s tenets create a foundation in value investing that is open to adaptation. It is an open question which tenets require modification in consideration of a future where consistent operating histories are more difficult to determine, where intangibles play a bigger role in franchise value, and the blurring of industries’ boundaries makes business analysis harder.

Focus On Staples

Many Buffett observers have noticed he has made a lot of money over decades buying stocks in goods used every day, according to CNBC. He is known for being reluctant to invest in technology — an area that may not fall within his comfort zone.

Many consumer goods companies have beat broader market averages in recent years, such as Coca Cola and Wal-Mart.

Buffett’s Ownership Role

Kiara Ashanti, a financial adviser and securities trader writing in Money Crashers, noted that Buffett has taken an ownership role in many of his investments. He buys enough stock to gain seats on companies’ boards. As a board member, it is possible to influence a company’s direction and its management decisions.

The key point is that to gain wealth, ownership is imperative.

Ashanti observed that Buffett is often mischaracterized as following the “buy and hold” model, holding a stock through good times and bad. Buffett buys for specific reasons. When such reasons end, he sells.

Ashanti agreed Buffett looks for good prices, good management and a competitive advantage. In 1996, he cited General Motors, IBM and Sears as great companies that could not stay competitive in their markets.

Buffett does not pay attention to daily stock prices or what the press has to say about companies. He sticks to his tenets, asking if the company is properly valued and if it is making money.

While there is more to Buffet’s strategy than “buy and hold,” it bears noting that he has gone on record as saying successful investing takes time, discipline and patience.

According to the website, warrenbuffett.com, Buffett offered the following 10 money making secrets.

1) Reinvest your profits.

2) Be willing to be different. Don’t base decisions on what others say or do. The average is what everyone else does. To be above average, judge yourself by your own standards.

3) Never suck your thumb. Make decisions fast. Gather any information in advance to make a decision, but make sure you stick to a deadline.

4) Spell out the deal before you begin. Bargain leverage is greatest before the job begins.

5) Watch small expenses. Buffett looks for businesses with managers who obsess over the smallest costs.

6) Limit your borrowing.

7) Be persistent. Tenacity and ingenuity will enable you to win against a better established competitor.

8) Know when to quit. Know when to walk away from a loss and don’t let anxiety cause you to keep trying.

9) Assess the risk. Asking “and then what?” will help you see the possible outcomes when struggling with a decision.

10) Know what success really means. Buffett does not measure success in dollars. At his present age, he said a person measures success by how many people you want to have love you actually do.

Images from Flickr.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 8 rated postsLester Coleman is a veteran business journalist based in the United States. He has covered the payments industry for several years and is available for writing assignments.




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  1. thoth

    May 5, 2017 at 2:16 am

    Your forgot to add the bit about crony capitalism, It is unlikely another could mimic what he has done now because (aside from fed buying everything) people like him have the monopoly and enough political influence to keep it.

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GDPR and Blockchain: Three Projects Seeking to Decentralize Data Protection

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Whether you’ve been keeping track of the news or are a citizen within the European Union yourself, there is a great chance that you have noticed the recent discussion regarding the newly implemented GDPR (or ‘General Data Protection Regulation’) in the bloc.

The rules came into effect this year alongside the recent vote in favor of implementing stricter copyright laws pertaining to intellectual property and ‘memes’ and has caused a fair bit of controversy, alongside the recent worldwide events including the USA, and their repeal of ‘Net Neutrality’ laws across the entire USA.

Image source: Forbes.com

Advertising, Big Data and You

For a wide range of reasons, digital advertising is a huge industry – being near-perfect solutions for digital, web-based organisations which are seeking to maximise their revenue / profits, whilst minimising expenses.

A common phenomenon affecting advertising is ‘Big Data’, where user information is collected and processed through complex artificial intelligence (AI) algorithms.

Your usage of internet technology more likely than not creates an endless trail of digital footprints, which are gathered and interpreted by companies and their systems to provide and interpret detailed insights on user habits.

Data Protection Rights

GDPR is meant to result in transparent and honest interactions between consumers, big data companies, and even social media companies such as Facebook now face the challenge of how to market or rebuild trust with consumers. Though there is still a myriad of concerns amongst consumers regarding how companies will approach this.

Implementation of GDPR has caused quite a shakeup for the AdTech industry, with users are being given total control over how much data websites and applications can collect about them.

Now users can consent to which cookies web operators have access to, but there are still several ways for big data to continue to profit from your data without cookies. Methods such as incoming IP tracking scripts, Browser Fingerprinting and malware-infected websites are commonplace and could prove more malicious than previous methods.

Can Blockchain Further Increase Data Privacy?

Technology has already empowered websites visitors with the ability to overcome issues such regarding data privacy and invasive advertising tactics.

‘Adblocker’ for example is a web-browser extension which automatically removes almost all adverts from a website, and just like ‘NoScript’ (removing potentially malicious scripts from pages) has been utilised by software such as Tor Browser to achieve thorough user safety and anonymity.

Through these kinds of solutions, blockchain or not, website operators are going to be encouraged to increase the quality and value of content on their pages.

Considering such software and the exponential growth of blockchain as an industry, it is of little surprise that we have seen an influx of services, products and ICOs which seek to combine the benefits of these technologies with those of blockchain / cryptocurrency.

Here are a few of what we consider to be the most interesting in the present crypto space…

1. Online.io

Image source: Online.io

The Online.io project financially rewards website operators in a ‘proof of online’ system which essentially quantifies the time spent on each website and rewards website operators appropriately. It is also the only project in this article which we haven’t reviewed on this site so far (although I wouldn’t count it out for the near future, so watch this space!)

Their proprietary crypto-coin (OIO) will be used to distribute rewards to all parties based on visitor time-spent, bounce-rate and other established metrics. This presents a fascinating opportunity for website owners to still effectively monetize their website in compliance with GDPR and without the need to utilize other means of data collection.

Online.io could somewhat be considered a democratized system, as users rank each website based on their experience. The highest rated websites will be rated higher in ‘Trust’ through an algorithmic formula, which acts as an indicator of website quality for future visitors.

It’s likely to continue delivering a highly positive boost to the whole ecosystem as consumers now (especially millennials) would rather get rid of traditional advertising methods: hence ad-skipping buttons on YouTube as well as Ad-blockers and anti-tracker software.

2. Peer Mountain

A blockchain based project which seeks to connect so called “self-sovereign ID holders with businesses, enabling commerce at scale” by utilising technological solutions like smart contracts.

Peer Mountain is unique for providing customers (a private individual / citizen) with a greater level of confidence when looking to access a product or service – no matter where they are, or what their country of origin may be.

To the organisations taking part, budding entrepreneurs worldwide, a whole new market audience is available. A mutual benefit which is equally enjoyed by the ‘self-sovereign ID holder’ too – incentivised by not having to register their private information on a host of centralized servers.

The security is achieved through use of innovative code: which makes use of a combination of user-experience solutions, with the innate security benefits of distributed ledger technology and cryptocurrency.

3. DOVU

This team has put all its efforts into creating a ‘mobility’-focused solution which incorporates “a unified token, wallet and marketplace for earning and spending mobility related rewards”. By mobility, what they are referring to is of course transportation related activities: such as ride-sharing and courier services.

In this instance however, it also applies to mobility information – and how it is bought and sold in the data economy.

Unlike the other solutions listed, DOVU aims to resolve the contentious issue of data privacy by allowing service providing companies make direct offers to users of its ecosystem in return for a quantity of the platform’s proprietary token.

Key use cases and clients pegged to take advantage of this platform include automotive manufacturers and marketing organisations for use in big-data research and algorithmic insight / report generation.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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Crypto Capitulation Is Upon Us

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Capitulation: kuh-pich-uh-LEY-shuhn (noun) the action of surrendering or ceasing to resist.

From their December peak, cryptocurrency assets have given back over $400 billion. This amounts to more than the GDP of many countries.  If this were values lost in the stock market whose worth is in the trillions, it would be called a minor correction. In crypto terms there is only one word to describe the carnage: capitulation.

As painful as it is, the point to be made here is the capitulation is a good thing.  Read on and I will share some thoughts for you to consider.

Mass Media Mania

First let’s take a look at some of the news that is causing such despair. Most recently the selling mania has been in response first to Facebook and more recently to Google.  Both of these mass social media giants have ban cryptocurrency advertising. Read closely and you won’t be shocked to realize that the target of their ire are the many ICOs.

The problem is not that Facebook and Google are the only advertising platforms.  The problem is that they are considered mainstream media and without these two, the trend of cryptocurrencies gaining legitimacy is delayed.  That is right, I said delayed not blocked or prevented.

The World Has Changed

Five years ago, when bitcoin was unknown to most people, this might have been a fatal move. Today is a different story. I recently traveled to a remote mountain town in the interior of Mexico.  Everyone I met had heard about Bitcoin and eyes lit up with excitement when I ask if I could pay for lunch with bitcoin.  

Today are dozens of websites dedicated to cryptocurrencies, either holding them, exchanging them or just writing about them.  Probably the most effective advertising remains on Google, it is called Google Search and it is free.

If someone wants to learn about owning bitcoin or any other currency, there is a ton of educational information.

Of course it would be far better all around if Mark Zuckerberg and Eric Schmidt had taken a different approach such as banning only advertisements for ICOs, but that didn’t happen so supporters of crypto aren’t comforted in their beliefs that bitcoin is going mainstream in 2018.

The Flipside Is Being Ignored

Every argument has a flip side.  If the removal of ads contributes to cleaning up ICO scams, that is a good thing.  We can all agree on that point. And let’s be honest there is more than one problem the crypto community needs to clean up.

This adds to the ongoing regulatory news including March 7th ruling in US Federal District Court that cryptocurrencies are commodities.  As such they can be regulated by the Commodity Futures Trading Commission (CTFC).

On the same day the Securities & Exchange Commission issued the following order:

“If a platform offers trading of digital assets that are securities and operates as an ‘exchange,’ as defined by the federal securities laws, then the platform must register with the SEC as a national securities exchange or be exempt from registration,” the commission said in its “Statement on Potentially Unlawful Online Platforms for Trading Digital Assets.”

Not All Regulation Is Inherently Bad

The mere hint of added government regulation typically sends stock market investors heading for the exits and the same holds for investors in crypto.  But this raises the question, is some regulation of crypto a good thing?

If we examine the full spectrum of regulation to this point on a global scale there is one common target most everywhere.  That is the practice of exchanges. So far there has been little or not regulation, threatened or enacted, to protect investors from loss of funds due to security breaches.  

The question that needs to be ask is this.  Will SEC regulation result in better pricing and lower trading costs; if So, then this would provide a desirable outcome.  It is understandable if you laugh at the prospect of any government regulation having a beneficial outcome, but if you look at past SEC practices, you would come away with different conclusion.

So when the next regulation catches the headlines will it be to ban the existence of bitcoin, Ethereum, Ripple, Litecoin and others or to protect the investor from scams and excess costs?

Capitulation Is A Good Sign

Over the course of a pretty long investment experience, I have witnessed true misery on more than one occasion.  The pain is unbelievable, there is no perspective on the future and all you want is to take action to end the misery.  That is when you know the worst is happening and nothing is ever going to make it better. That is when major stock market bottoms are formed. It surely is painful these days for crypto investors. This is a good sign.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.4 stars on average, based on 87 rated postsJames Waggoner is a veteran Wall Street analyst and hedge fund manager who has spent the past few years researching the fintech possibilities of cryptocurrencies. He has a special passion for writing about the future of crypto.




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Altcoins

What’s Behind Cardano’s Rising Popularity in South Korea?

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Cardano, better known as ADA in South Korea, pronounced as “aeda” in the local market, is growing at an exponential rate due to UpBit.

UpBit, South Korea’s second largest cryptocurrency exchange behind Bithumb, is operated by Dunamu, a subsidiary company of Kakao, the operating company of KakaoTalk and KakaoPay. The two mobile applications, KakaoTalk and KakaoPay, have a market penetration rate of over 90 percent in their respective markets–financial technology (fintech) and messaging.

Although UpBit remains as the only cryptocurrency exchange that has integrated Cardano within the local South Korean cryptocurrency exchange market as of date, the popularity of Cardano on UpBit is increasing rapidly. According to CoinMarketCap, 75 percent of Cardano’s daily trading volume is processed in South Korea, by UpBit.

Within its debut month, more than 3 million South Korean users signed up to use KakaoPay, the country’s most widely utilized fintech app. KakaoPay operates as a mobile bank, allowing users to send and receive money, obtain loans, and conduct financial activities. KakaoPay supports UpBit because a subsidiary company of Kakao in Dunamu operates UpBit.

Given that Cardano is one of the most popular cryptocurrencies on UpBit in terms of daily trading volume, naturally, as general consumers in the traditional finance market using KakaoTalk and KakaoPay move to the cryptocurrency market, the first few cryptocurrencies they are introduced to are bitcoin, Ethereum, and Cardano.

Cardano is also receiving significantly more mainstream and local media coverage than other alternative cryptocurrencies, specifically because the South Korean media has portrayed Cardano as a direct competition to Ethereum. Because Cardano is a smart contracts protocol, it is structurally similar to Ethereum.

The two key differences between Cardano and Ethereum are that Cardano uses a proof-of-stake (PoS) consensus algorithm and it also has two layers that are used for smart contracts processing and payment settlement.

In South Korea, cryptocurrency mania has swept across most major industries. 5 out of 10 people on the streets, in subways, buses, and cafes talk about bitcoin, cryptocurrency, and blockchain technology on a regular basis. As such, the majority of investors are more technical than other regions.

Most investors of Ethereum in South Korea understand that the Ethereum Foundation and its open-source development team has been planning a PoS update via Casper. When Cardano debuted with a PoS protocol, it led South Korean investors to believe Cardano is a more innovative platform and has a technical edge over Ethereum.

January 31

For cryptocurrencies with strong followers in the South Korean market, January 31 is an important date to keep track. On January 31, local cryptocurrency exchanges are expected to open account registrations to new users and six major local banks are set to provide banking services to cryptocurrency exchanges.

Consequently, on January 31, it is likely that a massive amount of Korean won will flow into the local cryptocurrency exchange market. The recent cryptocurrency exchange ban fiasco, which turned out to be false, further increased the presence and popularity of cryptocurrencies in South Korea.

Cryptocurrencies like Cardano, EOS, Qtum, and Ethereum that have strong bases in South Korea will likely increase in value throughout late January and early February.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.4 stars on average, based on 3 rated postsJoseph Young is a finance and tech journalist based in Hong Kong. He has worked with leading media and news agencies in the technology and finance industries, offering exclusive content, interviews, insights and analysis of cryptocurrencies, innovative and futuristic technologies.




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