The SECRET of GREAT INVESTORS 📜
Bad day for $DGE.L with the $GBPUSD rising over fears of whether Brexit will actually happen in October. $PE and $CXO doing great with the rising $OIL prices.
The SECRET of GREAT INVESTORS 📜
I recently watched the interview that Ray Dalio gave on the Bridgewater Associates YouTube channel where he was talking about China and the trade war. He was giving much information about confrontations and conflicts between emerging and existing powers from the last 500 years. I began thinking about something. How does he know all of this? The obvious answer is that he has a team of 1700 employees at Bridgewater Associates to give him all this information.
But what about Warren Buffett? There are 25 people working in the offices of Berkshire Hathaway $BRK.B and they are not really people collecting data from thousands of places like at Bridgewater Associates. Where does Warren Buffett get his information from? When he first became interested in Geico, it was because his mentor, Benjamin Graham, was the Chairman of the company. He didn't know much about the company or the insurance business. He went to the headquarters of the company, met with a senior officer(who will later become CEO when Warren Buffett would buy the whole company) and asked him about the business. Then, he studied the insurance business and began investing. Now he owns Geico and much of the revenues of Berkshire Hathaway comes from insurance and reinsurance. Another example from Warren Buffett's career was his investments in General Dynamics $GD . After the fall of the Soviet Union, everybody was saying that war was over and there was a selloff of defense stocks. From his historical knowledge, he calculated the probability of a war in the coming years and bought shares of General Dynamics. A few months later, Iraq invaded Kuwait and Yugoslavia started killing their own people and defense stocks were popular again. He made a huge profits in only a couple of months. He still does the same thing today with insurance, calculating the probabilities of a big hurricane or earthquake. How does he know all of that? For the same reason, that Ray Dalio knows the last 500 year economic history of the world. They studied it. It is not just about history. To be a good investor, you should study mathematics, accounting, science,... That's their secret, they know a lot of things. Bill Gates said that if you want to be rich, study science.
If I'm looking at Dexcom $DXCM or Tandem Diabetes Care $TNDM , I should have some basic knowledge of diabetes. If I'm looking at a semiconductor company, like Micron Technology $MU , I should understand why the stock price is cyclical. This has a lot to do with Moore's Law. What about the end of Moore's Law because of quantum effects? I'm not telling you that you need to know about diabetes as much as a biologist or semiconductors as much as a physicist but you need to have a good basic understanding. People lose money when they don't know what they are doing. Warren Buffett didn't invest in tech companies because he didn't understand technology. He then invested in Apple $AAPL when the company ceased to be just a tech company. Apple is becoming a consumer staples company and he understand this very well considering his investments in Coca Cola $KO . Apple has more in common with Coca Cola than with Facebook $FB today.
You may argue that these people are rich and have resources but they all started like you and me. George Soros was actually a Jew living in Nazi-occupied Europe. Your life today is better than these great investors when they were your age. When Warren Buffett was young and needed information about a company, he had to buy a share then ask for a 10-K form, so that he could read it. Today, all 10-K forms are available for free on the internet. There is no excuse in our age to say that information is not available. Knowledge is power and just like interest, it compounds.
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