10 Warren Buffett's financial lessons (Infographic)

The following graphics display 10 financial lessons we can learn from Warren Buffett . These tips cover various topics such as personal finance (spend wisely), psychology (than your fear of risk) or stock market investment (selling loser stocks when the market goes up, you buy stock winners in the cracks).

10 financial lessons to learn from Warren Buffett

10 Warren Buffett's financial lessons

Warren Buffet Lesson No. 1: Spend wisely

• Buffett still lives at home with 5 rooms he bought 55 years ago.
• The money invested can get an annual return exceeding 20%.
• The median household income was $ 45,800 in 2010 for. Average spending on frivolous purchases was $ 6,870 or 15%, enough to fill the tank of a Hummer 7 times a week for a year.

Warren Buffet Lesson # 2: No one cares about your money more than you

• Buffett takes all decisions in their own interest, not like some brokers who make decisions in their interest to earn commissions.
• More than 1 in 3 Americans has a financial advisor. The 45% have no financial plans. 5% has no objectives or strategies.

Warren Buffet Lesson # 3: Do your homework, analyzed thousands of shares

Buffett spends 18 hours a day analyzing how to invest their capital, and says investors should think like owners of part of the business.

"Never invest in a business you can not understand" (Warren Buffett)

• The 40% of Americans say they understand finances.
• 1 in 3 can not correctly answer the following question:

$ 100 in a savings account with an annual interest rate of 2%. After 5 years, how much money you have?

• a) Over $ 102 (correct answer)
• b) Exactly $ 102
• c) Less than $ 102

Warren Buffet Lesson 4: Overcome your fear of risk

Americans are afraid to invest cause them losses, but Buffett says stocks are more profitable than bonds, banks and even gold and are also more secure.

"Risk comes from not knowing what you're doing" (Warren Buffett)

• The 29% of Americans are too risk averse to invest in stocks.
• The 52% of those under 31 feel the same.
• However, the last 90 years stocks have had an average annual return of 10%.

Warren Buffet Lesson 5: Focus on the long term

Leave out the savings / investment means that you will have to save more in less time to get the same result.

Buffett equated life snowballs; thinking the same investment:

"The important thing is finding wet snow and a hill rather long" (Warren Buffett)

Saver 1:

• Start saving at age 21
• Save $ 500 per month to 30 years (9 years)
• Get an annual return of 7%.
• Reaches $ 1 million to 65 years.

Saver 2:

• Start saving with 31 years
• Save $ 500 per month to 65 years (34 years)
• Get an annual return of 7%.
• Reaches $ 1 million to 65 years, having to spend $ 150,000 more for more years.

Warren Buffet Lesson 6: Invest in quality business

The result of doing your homework is to find valuable companies. Buffett is famous for having invested in Coca-Cola, Wells Fargo and IBM.

"An investor needs to buy shares as if he were buying the whole company on the street" (Warren Buffett)

Average lifetime of a company in the Fortune 500:

• 60s: 75 years
• Now: 15 years

Warren Buffet Lesson 7: Looking for exceptional bargains solid companies

• Buffett recommends buying shares for a crack, when even great companies trading at extremely low prices.
• Analyzes performance, business mission, business processes, long-term goals and more.
• Invest in a few companies can be better. Therefore, more time during further analysis rather than more companies.

Warren Buffet Lesson 8: Take investment decisions Based on how the team manages money manager

Buffett believes that austerity is indicative of a mindset profitable. Once bought a company whose owner took the time to discover that the paper roll had 500 sheets announced.

You should assess the following:

• Return on equity ("return on equity" or "ROE"): The company's net profit divided by equity.
• Return on capital employed ("return on equity employed" or "ROCE"): The company's EBIT divided by total assets less its liabilities.

Ideal condition: ROE and ROCE are equal.

The 40% of Americans have made financial decisions based solely on emotion. Approximately 1 in 2 men and 1 in 3 women.

Warren Buffet Lesson 9: Be patient, wait until everything is in your favor

When conditions are aligned, purchase an appropriate amount of shares. Buffett recommended actions between 10 and 15 companies.

In bad times, wait. A quality company should recover and do not want to regret selling prematurely.

"I think the worst decision you can make in stocks is to buy or sell Based on the headlines of the moment" (Warren Buffett)

• The biggest financial regret of millionaires: Bad decisions over shares (10% regret it)
• The 57% of Americans in a state of retirement has financial regrets.

Warren Buffet Lesson # 10: Sell losing stocks when the market goes up, you buy stock winners in the cracks

Sell ​​a failed action at its worst is added to your losses and buy a great company at high prices cut your benefits.

"The beauty of the shares is sometimes sold at ludicrous prices. This is how Charlie Munger and I became rich "(Warren Buffett)

The 25% of Americans follow the ups and downs of the stock at least once a week, but 17% believe that the market is too complicated and 11% do not even know where to start.

Source

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Difference between investment and speculation according to Benjamin Graham

Investment and speculation are two concepts widely used in the world of the stock. Often used interchangeably, although they have very different connotations from the perspective of value investing .

In this article we look at the difference between investment and speculation according to Benjamin Graham , analyze the characteristics required for a financial transaction not qualifying considered speculative and end the separation between the two.

Definition of investment and speculation by Benjamin Graham

Benjamin Graham defines investment in his book "The Intelligent Investor" as follows:

"An investment operation is one which, upon thorough analysis, promises security to principal and an adequate return"

Speculation is defined by Graham opposed to investment:

"Operations not meeting these requirements are speculative"

The 3 requirements of a non-speculative investment by Graham

• Comprehensive analysis of the company

For Graham, a comprehensive analysis is:

"The study of the facts in light of the established safety criteria"

Therefore, an inversion to be made ​​without prior analysis is speculative. The greater the depth of analysis, less investment is speculative.

• Security of our investment

According Benjamin Graham, this implies:

"Protection against losses under conditions or normal variations or reasonable"

As we see, this is a rather vague concept or subjective, so this will depend on what we consider normal. Warren Buffett is much more forceful with the requirement of investment security with its historic phrase:

"Rule No.1 is never lose money. Rule # 2 is never forget rule # 1 "

• Adequate performance

Graham considered adequate or satisfactory performance:

"Any type or quantity of performance, small it may be, that the investor is willing to accept as long as it acts with reasonable intelligence"

Again this is a subjective concept, because it depends on the investor's return objectives.

Is it possible to invest without speculating?

For Graham, any financial transaction that does not meet the requirements enumerated above are considered speculative. However, I consider it necessary to clarify the difference between investment and speculation of Benjamin Graham.

First, we must start from the fact that all investments are subject to some uncertainty, however small. As there is always the possibility of losing our investment, we can say that any investment involves speculation in varying degrees. There may be speculation without investment, but not without some speculation investment.

Although there is the economic concept of "risk-free rate" (rate of return without risk), this no longer an abstract concept nonexistent in practice. For many American bonds or German bonds are practical representations of this concept. However, it is possible (although unlikely) that these countries can not pay if it happens some totally unforeseen event, such as a war or a natural disaster.

What we try to do is minimize speculation to maximize the safety of our investments and, therefore, minimize the risk. We have three methods reduce speculation and, therefore, increase the security of our investments:

• We invest in companies easily assessed, typically those with more predictable revenues.
• Deeper analysis of companies.
• Better analyze our investments, increasing our knowledge and experience.

The combination of these three methods, along with a large dose of common sense and experience, is what has made Warren Buffett the third richest man in the world and the best investor in history. Ye may not be investing in the list of world's richest by Forbes magazine, but with a little effort will succeed a good return for your savings sleeping well at night.

Strategy for change Euros into another currency. The right way.

There are quite a stir with the Spanish financial system and not for less. There are many people who come to the blog through an article I wrote about how to protect ourselves in case of financial playpen . Well, there are many readers who ask about the foreign exchange, exchange euros for dollars or Swiss francs.

A priori there is no secret but deep down is a dangerous operation to our heritage and here we will explain some concepts.

We will explain a strategy to follow if you want to change our euros for another currency, so whether there playpen, etc. back to the peseta.

Let's start from the premise that there is a strategy for all profiles and you have to be very clear concepts, which has a high risk and often not worth the want to protect with the end result.

To protect small amounts best and most practical refrain would buy U.S. stocks, get the money from the bank and save it at home or invest in a product that is not in euros and that is outside of our national borders.

Come to the point. It turns out that if we change our euros for Swiss francs Swiss francs have more euros as it changes at a rate of 1.20 francs per euro. If you always had this change of currency would not have any problem but not, it fluctuates daily and can vary significantly over time. For example, the October 12, 2007 was changed at a rate of 1.67 euro and Swiss franc on August 10 de 2011 to 1.04 francs a euro, almost parity.

What does that mean? Somebody would have changed 1000 euros into Swiss francs maximum day would have had 1670 Swiss francs and minimum day with the same 1000 euros only 1040 Swiss francs.

Example. If we change 10,000 euros to obtain CHF 12,000 CHF (Swiss Francs). (We do not have commissions to make it easier).

The change of today is 1 Euro 1.20 CHF but if in one year we have to recover the money and change is in 1.40 not recover the 10,000 euros but we have to do the following calculation: 12,000 / 1.40 = 8571 euros. With only twenty cents change coin we lost 1429 euros.

On the contrary if we do change to 1.10 Swiss francs will earn 10 cents euro the currency exchange and we bagged 900 euros obtaining a total of 10,900 euros.

So far there is no secret, pure mathematics. Doing this is very simple but do it well and minimizing risk is more complicated.

What would we do? Would open an account with a Forex broker (broker who works with currencies) and we we would have to create a hedge on our exchange.

If bought at 1.20 and increases (1.25, 1.30 ...) lose money so we will long (buy) in the EUR / CHF, ie bet that the change will continue to grow, that way currency exchange our money but lose our operation in derivatives will win, and more or less have to compensate.

We detect that the price turns and the Swiss franc starts to revalue against the euro, as long as we closed our investment in itself is no longer in losses.

If detected again as trends change can re-open a long or short hedging.

Summarizing. If the investment goes well we do nothing, if it goes wrong we opened a financial derivative currency pair opposite to our investment and investment lose but win with derivatives, to compensate. By detecting turnaround derivative will be closed and that our investment will not pro our derivative loss itself.

Surely there are people who do not understand these concepts, as I said at the start that it is a strategy for people who have some mastery of finance. But basically it's not complicated. You just have to learn to manage financial derivatives in Forex is tricky as there are lots of leverage and we can be more expensive the coverage of investment loss itself.

He opened the floor to questions

Waiting for the big-market bond rotation

The OECD issued its latest revision on global economic growth prospects, in the first of his two appointments or annual reviews. The overall impression is of slow growth and downward adjustments in earlier projections.

In USA GDP will expand even more slowly, at rates of 1.9% this year and 2.8% in 2014.

In Europe much more pessimistic, expecting a contraction of 0.36% of GDP this year and moderate growth of 1.1% in 2014. The main problem remains the debt.

For Asia disparate and curious vision, the two largest economies China and Japan grow although downgrades the first, to 7.8% and the second upward to 1.6%. Curious because if China grows below 7.8% will be a warning sign of weakness and would alert the government while if Japan grows by 1.6% all happy ... not the Nikkei has left a 5.15% on the session.

U.S. bond markets nervous, considering that the expected growth without being robust, it could be enough to affect the asset purchase program by the Fed.

Furthermore bonds approaching resistance area (in profitability or price support, as you look) interesting from a technical perspective, the 10 years in 2.4%, which if exceeded invite managers to modify some strategies.

The technical aspect of fixed income USA invites caution for months, as I come through the graphic exposing long stretch following:

Bonds "high Yied" are also suffering falling sales and prices in line with the sovereign. You can read at this link an interesting article about the risks of rising rates, derived from the tendency to convexity hedging.

A reference to the debt market USA is the ETF (AGG) designed to track the performance of all U.S. debt, Total U.S. Bond Market ETF (37% Treasuries, 28% MBS and the rest in corporate and agencies) capitalization of $ 15,600 million is also falling in price and this will be five weeks straight and falling sales.

Generally, when the bonds fall weak moves financial markets assembly and intermediate trends ruptures tend to bring major changes in the outlook and portfolio adjustment, feeding additional losses in assets.

This time, before such change in the mindset presumed investor and as turbulent markets, handled all markets fall? Unison or there will be a mass migration of Fixed Income Funds Equity?.

Uncertainty about the Great Rotation is debated and concern among fund managers and selectors will depend largely on market confidence about staying "apuntaladora" Bernanke and real economic opportunities.

In view of the behavior of the Fed, it could be argued that the Great Rotation want to further enhance asset reflation and get the expected wealth effect that can finally bring down the pernicious tendency of the money multiplier.

Specific corrections in stock prices are necessary and "healthy" for the strength of trends, there should be an adjustment at any time, perhaps coinciding with breaks bearish on bonds.

After an eventual correction will attract capital bags different sources, one of them raised liquidity proceed with the settings fixed income portfolio and if the helicopter flies over satin, as the FED-BAG correlation is 85%.

True, stock valuations discounted cash flow worsen with rising interest rates and subtract bag. However, the bag can also grow through multiples expansion as we tested several times.

The music continues to play and as said the CEO of City before the debacle, must keep on dancing ... but unlike Mr. Charles Prince also closely monitoring the situation to avoid being caught in an artificial rise will end in tears, as the rest.

Difference between active and passive

Of all the definitions of assets and liabilities are only have to stay with the most important, and you have to remember forever.

An asset is something, an investment that puts money in your pocket. However slightly.

A liability is something that takes away the money from his pocket. An expense.

Do not confuse these two concepts as there are many people who think that the house where he lives is an asset and a good investment and nothing is further from reality. A commonly used house is a liability because it does not receive any income from it, and will only be active if one day we decided to sell it to cash, and keep the money.

 

While the home where you live "cost you" money as much as your expectations make you think that in ten years you will get high returns are sitting on a pile of bricks and not on an investment.

Could encompass how active an investment in stock , bonds , a house to rent a bank deposit ...

And conversely a liability would be for example the commonly used home, second homes, a car and all that to make ends meet instead of giving money taketh away.

Spain is deeply rooted in the idea of ​​buying a flat / house and think it's an investment, "a piggy bank" for the future in case of contingencies or just spend the feel you're going to have a possession to be worth tens of thousands euros and you feel you've "invested" or you're going to invest the money.

And you have to be very careful as always not buy is more profitable than renting . The other day I read that 80% of people who have a mortgage for 5-10 years ago is paying more than it is actually worth your floor. And that's not an investment. It is a liability how a house never better.

From the moment you decide to live financially in an efficient manner have an obligation to be creating assets and go slowly getting rid of liabilities that have made ​​previously, and we saw what is the best way to start eliminating debt .

A monthly savings combined with any investment, simple or complicated, and applied over time with compound interest is the best way to create quality assets that slowly but gradually will be putting money in your pocket.

And you've started to build assets? We invite you to tell us what is your strategy to get more and more in his pocket.

Bank deposit. You know how it works?

When hiring a bank deposit must look at several things and although it seems to be the easiest investment there, it is not the end of the post and I will tell you that if it is, we have to fix on the characteristics of product we hired, mostly to give us for a ride and at the end we get on a good scare and anger.

Before everything. A bank deposit, fixed term or fixed-term deposit is the same. You will leave some money to the bank to do its thing and he in return gives you a interest as compensation. It has a fixed duration and fixed remuneration contract is fixed, ie before entering already know what you're going to win. They are also guaranteed by the state (FGD) 100,000 per entity and person in case of bank failure.

This strong interest is mainly governed by the Euribor (interest rate to lend money to, including, entities) but with the whole issue of the crisis the illiquidity of banks have had to forget the taxes low interest rates by the European Central Bank (ECB) and make aggressive campaigns to individual customers a higher interest rate.

While official interest rates are at 1% banks are paying them to liabilities with 4.6% APR and without any connection from the client.

We will explain in more understandable words what the previous sentence. THE European Central Bank fixed in 1% the interest rate at which it lends money to banks, that is, that when you decide to open a window of liquidity to banks in need come to him to refinance because only charged 1% APR, which is very little.

But as always there are windows of liquidity banks must ingéniaselas to get more money and this is where the competition starts to get money from ordinary citizens.

Clearly, there are many people who prefer not to earn a little extra to have to change banks but there are many people and with real money if you are willing to move to earn more.

Therefore, the most interest is willing to offer, in theory, is the one with more numbers to get more funding. (Although other factors influence how the country of origin of the entity, rating rating and even if you drop close to home or if you are good at managing the Internet).

Once we are clear because there are going to explain bank deposits which typically offer entities and that we'll be looking.

There are several types of deposits but of course we say that we are interested only pure and hard deposits without additional links, no credit, no insurance, or payroll or anything.

Being a low-risk investment, and suitable for every investor profiles, we can see that the investment triangle occupy a very relaxed site to be a liquid investment, low risk and therefore unprofitable.

Investing in this way we will not get rich but how low we will not lose money, and I say now lose because if you go to a lot of companies and they offer a lower interest rate to 3% and enter missing. So clear.

If you want a band inflation eats it otherwise you better grab your money and spend it how you will at least give pleasure.

We also have to look at whether the associated account where interest is exempt receive commissions or we will charge between 6 and 20 euros per year. Thing that still remains for the low profitability that we provide.

Now we are chastened and they do but you have to be careful that we do not give any kind of product then selling costs or recover the money, you can leereste article preferred to go deeper on the subject.

Remember that the bank is to serve. 's not your friend , and if not keep his promises or not treating you how you deserve there are dozens of them scattered throughout the geography.

As a final conclusion and summary say that everyone who has "some" money should try to get some performance to keep purchasing power and try to at least get something "extra". Do not be charging for anything and remember that it is you who is indebted to the bank money and not leaving you giving interests.

Finally, always read the fine print to take no surprises.

Indeed, investment is simpler than having no money at home. In contrast is the least profitable of all but ultimately is an investment at 0% APR.

I hope this clarification have no hesitation in going to the bank to make "some investment" and if you do not hesitate to contact me.

The role of hedge funds: inequality and financial instability

Hedge funds known as hedge funds or hedge funds, are a type of mutual funds that are not only subject to regulation, and that because of it have played a crucial role in virtually every financial crisis since the nineties . Due to its relative complexity are completely unknown to most people. A population that is, paradoxically, the main affected by the performance of these financial institutions. To prevent that remains so in this article I will try to shed enough light, of course following the usual teaching style, in the murky world of hedge funds.

The performance of mutual funds is collecting money from many sources (individuals, corporate savings or other funds) and investment thereof in any financial product (shares, for example). After a time, when there has been a benefit and money has appreciated, the fund returns to owners past the nominal (money) plus interest, keeping the bank with an important commission.
Origin
The first recognized hedge fund was established in 1949 in the U.S., but its most important expansion took place from the second half of the nineties. Hedge funds differ from other mutual funds precisely in their aggressiveness and risk exposure. On the one hand have no regulatory limitations of any kind, and on the other hand tend to maintain very high leverage positions (operations with borrowed funds, such loans). This means that any fund can perform operations with no money but with so much borrowed money as you want. In case of profit profitability is much higher, but in case of loss the problem is also serious and very contagious (defaults follow each other).
Hedge funds are also managed by professionals who largely turn their profits as investment in the same hedge funds, more intense commitment to the future of the fund. As a result of all these features hedge funds usually yield high levels of profitability.
How and where is made ​​a hedge fund
Hedge funds are managed by professionals and have very high entry barriers for investors, in many cases reaching the million dollars, but in any case depends on the specific regulation of the territory in which it is constituted. These barriers to entry are very high also precisely because of the high risk associated with financial transactions undertaken by hedge funds. Regulators seek to protect small investors and believe the best way is by raising the barriers, while more liberal from orbit is considered to be lower these barriers to involve the largest population possible benefit of hedge funds.
Hedge funds therefore have a minimum of stakeholders: investors, managers and companies that offer services. As investors are currently most other mutual funds (including other hedge funds), transnational corporations and millionaires course.
 

Also, the location is usually territory other than the territory of management. Indeed, 60% of hedge funds in 2010 were located in tax havens (in fact 37% of all hedge funds are in the Cayman Islands and 27% in Delaware, ie United States). The constitution in a tax return also increases because it reduces transaction costs (interest, records, etc..). In terms of managing 80% is on American soil (ie 41% is in New York), and most of the rest is in London. Hedge funds have Anglo flavor.
But banks also have flavor. Because the managers of these funds are logically banks, plus they are also those who offer specialized services to hedge funds. And as all this is a business statistics increasingly concentrated, precisely because of the crisis.
 

In short, like any mutual fund, the purpose of a hedge fund is to highlight the money deposited by investors, and for that we go to all financial markets (stocks, corporate bonds, government bonds, futures, etc..) Seeking returns. The aim is to speculate, and that almost anything goes.
Hedge Fund Strategies
The strategies used by hedge funds can vary between each other, but all seek to "exploit" the opportunities of making profits in the financial markets. And all are, in a sense, gambling. They are usually complex strategies, but sometimes can be as simple as a bet that interest rates of private bonds and government bonds are converging [1]. The usual way of hedge funds bet is to alternate short positions with long positions.
Taking a short position (short) means that the bet is "to think that the price will go down." For example, a hedge fund may sell their shares today and buy tomorrow when they have fallen. As today sells more expensive than you buy tomorrow's benefit. A naked short position (naked short) is the same but in case you are selling something that does not have [2]. For example, we sell at today's prices to deliver after tomorrow and hope that tomorrow is worth much less. Bought and delivered tomorrow after tomorrow, making the profit.
A long position is betting that "the price will go up", which is what we are accustomed. If you combine both positions in different markets can increase profits. For example, the sale we did in the short position will receive money that we invest as a long position. Money Never Sleeps.
History: hedge funds, crises and speculation
The most famous case of a hedge fund is that of Long-Term Capital Management (LTCM), managed by a team of professionals that included two Nobel laureates in economics, and its investors had even central banks. The net returns were from 42.8% in 1995, from 40.8% in 1996 and 17'1% in 1997, and the leverage was 30-1 (Vilariño, 2000). In 1998 the risky and complex hedge fund operations clashed with the Russian debt default and the losses were very severe. Finally the action of the Federal Reserve Bank of New York, who pressed a set of large investors to save the bank, prevented greater evils.
But other cases are also spectacular and also reflect the sign of the times. The first thing worth pointing is that of George Soros, who used his hedge fund to speculate against sterling. First George Soros borrowed 15,000 million pounds, and stealthily changed dollars. The purpose of short-Soros was betting with pounds, ie bet that lose value. When he was all prepared and wanted to attack it managed to make it very sounded: summoned the media and announced that he was convinced that the pound would fall. Then sold off their pounds borrowed and sent the signal to the market and the pound fell really (indeed, the sell-off, coupled with the fear of the other holders of pounds, has laid). The British government responded with all its weapons of monetary policy, but after spending more than 50,000 million dollars had to surrender: speculators had expired. With the pound on the floor Soros bought 15,000 million pounds (now worth fewer dollars) and the back (it was a loan). The gains were huge, and teaching more: a speculator, one, could sink an entire country [3].
The Asian crisis of the nineties gives many more examples of this, and the recent debt crisis even more. It teaches us that a few speculators, counted on the fingers but managing huge amounts of money, can bring down countries and set economic policies themselves.
Profitability and current developments
For all, hedge funds receive higher returns in scrambled scenes, as there is nothing worse for a mutual fund that the non-existence of space to speculate. However, widespread uncertainty scenarios or collective crisis can also be its own grave. Also, as I said before, the spread can be huge losses due to the leverage situation. Therefore, depending on which sectors and financial markets suffer losses suffer much hedge funds.
And the crisis was primed with hedge funds in 2008, as many of them had participated in toxic financial assets or had investments in mutual funds that had done so. The case of the investment bank Bear Stearns is representative, since in 2008 he had to respond to losses in two hedge funds managed (offshore) and that made him finally sinking. It was sold at a bargain price to JP Morgan [4].
But bailouts hedge funds could breathe easy again. And again they make profits and continue their speculative activity. Just look at the chart I made with TheCityUK data.
 

The hedge fund business is back up, and that's precisely what the data show not only profitability but also the data of assets managed by it. Without reach even 2007 levels, pre-crisis levels, the hedge fund space have recovered rapidly.
 

And ultimately it seems that the entire financial system returns to normal gradually. Even the leverage is regaining 2007 levels. But that's the "normalcy" that led to the crisis, because although we can guess that the hedge funds are responsible for the crisis itself that it had an important role in the expansion of the bubbles and contagion from further damage. And is that as a society we do not learn.
 

 

Conclusions
But you back to this "normality" was expected. In economics there is a concept of "moral hazard" that has to do with the incentives that exist in the market and the beliefs of the agents. Today all financial actors (investors and managers especially) know the United saved from burning to entities that are in trouble and that endanger the system (and given the amount of money that move the hedge funds and banks could say that are nearly all), so this risk no actual loss. To put it another way: they know that the bill is paid by workers with adjustment plans and other measures, so they do not care not to repeat the same activities that have made them richer and richer before and after the crisis.
We can not forget that the phenomenon of hedge funds and promote financial instability and distort the market (because liberals tell me what benefits to society of naked short operations), increase inequality in several ways. On the one hand because as industry financial elites that manage these funds promote an institutional configuration such that brings in the States tax competition and prevents them from effectively control tax evasion. Following public finances are distorted and end the welfare state ends up being paid by the middle and lower classes, being the high payments outside the system. On the other hand because logically are the upper classes who benefit most from the business of collective investment funds (pension funds, mutual funds, hedge funds, etc..) And therefore grows exponentially the difference between those less by entering your salary and who increasingly enter their financial activities.
The fact is that we are headed to another huge financial crisis. And if not, at the same time

The 12 principles of value investing (Part 2)

As I mentioned last week the principles are based on ideas large investment managers such as Peter Lynch, Warren Buffett, Mario Gabelli, Charlie Munger, John Templeton, John Neff, Jim Rogers, Christopher H. Browne, Friedrich A. Von Hayek, Walter Schloss, Benjamin Graham and Francisco Garcia Paramés himself. These principles are contained in a book edited by Bestinver funds and summarized weekly by people.
Here we go with the following six principles:
7) Having a bad short-term behavior is inevitable: John Neff (1931) once said that "it is not always easy to invest in what is popular, but it is the way to get outstanding returns." Thus, less popular investments can generate short-term returns ill to stand in longer periods of tiempo.Por Therefore, choosing an investment manager for their results in the short term (less than 3 years) may lead to making the wrong decision, as the short-term outcome is not a good indicator of successful long. A study of Brandes on global equity funds reveals that, while the 7 best fund managers significantly beat the market over a period of 10 years, all had a worse performance than the benchmark for short periods of time.
8) It's not worth guided by economic forecasts: The co-founder of Quantum Fund Jim Rogers (1942) stated that "to be successful investing is necessary to go soon, when things are cheap, when there is panic, when everyone is demoralized ". Investors tend to follow the macroeconomic forecasts when investing, but the correlation between the stock market and the economy is much weaker than it may seem. So it's much more productive to devote every effort to the analysis of companies. It is also important to remember that economic forecasting is a very complicated task where mistakes outnumber the successes. The predictions of the analysts on the quarterly results of companies, according to a study by David Dreman, was erroneous in 75% of the time up to 10% on the quarterly results. Therefore not worth spending time and energy to the analysis of short-term variables totally uncontrollable as GDP, interest rates, the level of stock market indices or the company's quarterly results.
9) Do not invest in companies never overrated: One of the worst decisions of long-term investment is to buy shares overvalued because euphoria fashion sector or stock, as happened with Japan in the 90s, in which the country experienced the greatest speculative bubble twentieth century, when the real estate value was multiplied by 75 and the value of the stock by 100. The most dramatic case is that of the Nasdaq market that slumped 80% in less than three years, dragging millions of investors lose 99% of your investment. Many of these investors will take decades to recover your investment or just not ever recover. The most recent overvaluation has been in China's stock market, the index traded as at 40 times profit.
10) Do not let emotions guide your investment decisions: Benjamin Graham (1894-1976), economist and investor and pioneer of value investing, once said that "getting good returns is easier than people think. Get outstanding performance is much harder than people imagine. " And all because among the greatest challenges of a power inverter is staying true to its investment philosophy, never letting emotions dictate your decisions. And they usually do at the worst time, ignoring the famous board Buffet: "Be fearful when others are greedy and become greedy when everyone is afraid." In this sense, the statistics are revealing: in the last 20 years, the average profit of American funds in the stock market and 11.6%, however, the average profit Inverter U.S. equity funds is as only 4.5%. One of the most paradoxical is the famous Magellan Fund Peter Lynch, whose investors earned on average 5% annualized when performance that had the fund over 14 years was 29 % per year.
The causes of "self-destructive behavior" of the investor are many: to be guided by fear or ambition, invest in the fashion or not stay true to his philosophy. But above all highlights the general trend is the investor to try to predict the short term movement of the stock.
11) Do not try to predict the movement of the stock in the short term: According to the legendary American investor Walter Schloss (1916), "shyness generated by past failures causes most investors lost major bull markets." As described by Peter Lynch in his book "One Up on Wall Street", in late 1972, when the stock was about to suffer one of the worst crashes in history, optimism was at its highest point (85% of advisors were bullish as reported by Investor's Intelligence). At the beginning of the market rebound in 1974, 65% of advisors feared that the worst was yet to come. Again, before the fall of the stock market in 1977, 90% of advisors were bullish. At the start of big climb which took the market in 1982, more than half of the advisers predicted downs and just before the crash of 1987, 80% thought that the market would continue to rise. Lynch perfectly illustrates how difficult it is to predict the movement of stock markets.
Although long-term performance of any stock market approaches a constant 10%, yields on short-term stock market are asymmetric. A common tendency is to give investors their investment plan out of the market in the hope of re-entry when the environment is more favorable.
12) Patience is the main virtue of the successful investor: And, according to Francisco Garcia Paramés, investment director Bestinver AM, "the most fascinating of value investing is that time always works in your favor." Active Stocks are ideal for long-term get rich. Xigen But quality and less common among investors: patience. To achieve satisfactory performance in the stock market you need to have enough stamina to stay invested, sometimes even uncomfortable. Keep in mind that the U.S. stock market has provided positive returns to 5 years in 97% of cases. The market rewards the patient investor who stays true to their investment strategy, said in Bestinver. The Value Investing depends more on common sense, daily work and patience that individual sources of information or the prediction of future events. Its correct application minimizes the possibility of permanent losses in the portfolio and has produced positive results in the long run, beating the average market returns.
And this concludes the summary of the principles of value investing. This Saturday we are in 7th Rankia meeting where I am available to you all.
A greeting.