Income for Life

Advice from Warren Buffett...

Market Update:  MUST Watch 3-Minute Video...
Feature Article: Lessons from Warren Buffett
Critical Reads: A 60 Million Dream Home - Best or Worst Investment?
The Funnies: Amazingly Simple Home Remedies! 

A MUST Watch 3-Minute Video

Instead of an update on the market, I suggest watching this powerful 3-minute video from the National Geographic. Think about the future implications of what will happen when these trends turn into reality. What will be in greater demand? Will you be prepared? How can you position yourself to benefit?

To be honest, I've included this video for you because it fits very well with this week's feature article, especially "GEM #1."

A Few Lessons from Warren Buffett

In this article, I'm going to share a few lessons learned from Warren Buffett's biography titled "The Snowball: Warren Buffett and the Business of Life."

I'm calling these lessons "GEMS." These GEMS are not in any specific order. I'll put quotes around sentences directly from the book. I'll also put direct quotes from Warren Buffet in Italics. In some cases, I'll add my two cents, too.  

GEM #1
Buffettt is known to say: "In the short run, the market (stock market) is a voting machine. In the long run, it's a weighing machine. Weight counts eventually. But votes count in the short term. And it's a very undemocratic of voting. Unfortunately, they have no literacy tests in terms of voting qualifications, as you've learned."

Right now, the voting machine is down on real estate as an investment. Is this the time to buy? Possibly.

Buffett's company Berkshire Hathaway acquired shares in the second largest real estate brokerage. He must believe that the weighing machine will win as the real estate market rebounds over time and has positioned his company to profit from this rebound. Or maybe he has studied the expected population growth and realizes the demand for housing will only increase over the long-term.

Watch the National Geographic video about our population and the estimated growth for the next 10, 20 and 30 years. Sooner or later, the weighing machine will reward those who bet against the voting machine.

GEM #2
Buffett liked to ponder the reasons for (business) failure as a way of deducing the rules of success. You can learn a great deal from failure. Study business failures and learn from each one. Adapt your investing based upon the lessons you learn.

Also, you should definitely study your own investing failures. What did you invest in that didn't turn out as expected? What can you learn from this investment? How can you adjust to going forward?

GEM #3
Buffett's grandfather was known to say: "Try to be punctual in all your dealings. You will find it difficult to get along with some men, deal as little as possible with such...Save your credit, for that is better than money...If you go in business, be content with moderate gains. Don't be too hasty to get too rich...I want you to live so as to be fit to live and fit to die."

This advice from his grandfather was priceless. It looks like Buffett has followed it throughout his life.

GEM #4
Warren realized he wanted money early on in life. His reasoning was as follows: "It could make me independent. Then I could do what I wanted to do with my life. And the biggest thing I wanted to do was work for myself. I didn't want other people directing me. The idea of doing what I wanted to do every day was important to me."

Gem #5
As a young boy, Warren stumbled across a book at his library that changed his life. The book's title was "One Thousand Ways to Make $1,000. A million dollars in other words!

In the original book, one of the ideas had something to do with pennyweight scales. Warren thought that if he had a weighing machine, he would weigh himself fifty times a day. He was sure other people would pay money to way themselves too. Here is the opportunity Warren saw:

"The weighing machine was easy to understand. I'd buy a weighing machine and use the profits to buy more weighing machines. Pretty soon I'd have twenty weighing machines, and everybody would weight themselves fifty times a day. I thought - that's where the money is. The compounding of it - what could be better than that?"

Are your investments compounding like Warren's weighing machines?

GEM #6
"Since a young age Warren had studied the lives of men like Jay Cooke, Daniel Drew, Jim Fisk, Cornelius Vanderbilt, Jay Gould, John D. Rockefeller, and Andrew Carnegie. Some of the books he read and reread. One of them was special - not a biography but a paperback written by former salesman Dale Carnegie, enticingly titled How to Win Friends and Influence People." He had discovered this book at age eight or nine."

Warren read, studied and applied the concepts in this book before becoming a teenager. Warren went on later in life to take the Dale Carnegie training course. He learned how to give a speech in this course. He has said that his Dale Carnegie degree is the most important degree he has ever received. He felt that public speaking was required to gather investors for his partnerships. The Dale Carnegie training allowed him to overcome his fear and move on to grow his business.

The book How to Win Friends and Influence People should be required reading and if you haven't read it yet, get to your library this week and check it out! It will change your life.

GEM #7
Buffett was delivering papers when Franklin Roosevelt died; he saw this as an opportunity to sell more papers. "Newspapers put out special editions, and he hustled himself out to the street corner, hawking papers while everybody mourned."

Warren learned how to turn adversity into opportunity. Right now, there is a lot of adversity in the economy and real estate market. How can you turn this adversity into opportunity?

GEM #8
Warren developed a sideline to his newspaper route. "He asked all of his customers for their old magazines as scrap paper for the war effort. Then he would check the labels on the magazines to figure out when the subscriptions were expiring, using a code book he had gotten from Moore-Cottrell, the publishing powerhouse that hired him as an agent to sell magazines. He made a card file of subscribers, and before their subscriptions expired, Warren would be knocking at their door, selling them a new magazine."

Warren had created a "side" business to his paper route. He sold different products to the same customers. Do you have a side business? In not, how come?

GEM #9
One of Warren's biggest problems with his paper route was a customer who skipped out on their bill. To combat this problem, he began tipping elevator girls to let him know when people were about to move. He would then knock on their door at 6am before they moved to collect the outstanding balance.

What problems or challenges are you struggling with right now? Is it possible that a simple change might have a big impact?

Critical Reads

12 Tips to Make Your Move Simple & Stress Free
Let's face it, moving is NOT fun and can be very stressful for your family. Check out these 12 moving tips that will help you get to your new home with less stress. You can read the article and tips at this link.

The 7 Most Bucket-List Worthy Destinations for 2011
Have you seen the movie, "Bucket List?" If not, add it to your Neflix que. It's a great movie because it helps put things into perspective. Your "Bucket List" is a list of things you want to do before you kick the bucket. Seeing interesting places is typically on everyone's "Bucket List." Well, Paul Eisenberg recently shared what he believes are the 7 most bucket-list worthy destinations for 2011 at this link.

A $60 Million Dollar Dream House - Best or Worst Investment?
Check out this Wall Street Journal article profiling $60 million dollar home built on speculation by a group of real estate investors. Candance Jackson reports:

"Three years into the housing bust, at a time when home values are hitting new lows in many markets, a small group of developers has plunged into the risky business of betting millions on high-end speculative homes. They are erecting amenity-rich mansions for wealthy buyers that they hope will materialize. While the vast majority of the "spec" market remains moribund, some developers, pointing to a handful of big sales and the recent recovery of the stock market, believe the world's wealthiest buyers are out again shopping for trophy mansions, often as second, third or fourth homes."

You can read this article and see the home at "this link.

Amazing Simple Home Remedies!

1. Avoid cutting yourself when slicing vegetables by getting someone else to hold the vegetables while you chop.

2. Avoid arguments with the females about lifting the toilet seat by using the sink.

3. For high blood pressure sufferers ~ simply cut yourself and bleed for a few minutes, thus reducing the pressure on your veins. Remember to use a timer.

4. A mouse trap placed on top of your alarm clock will prevent you from rolling over and going back to sleep after you hit the snooze button.

5. If you have a bad cough, take a large dose of laxatives. Then you'll be afraid to cough.

6. You only need two tools in life - WD-40 and duct tape. If it doesn't move and should, use the WD-40. If it shouldn't move and does, use the duct tape.

7. If you can't fix it with a hammer, you've got an electrical problem.

A Little-Known Way to Cut Your Mortgage Payment

Tuesday, January 4, 2010

Market Update:  Congrats - You Got a 2% Raise for 2011!
Feature Article: How to Be a Miserable Investor
Critical Reads:  A little-known strategy to cut your Mortgage Payment
The Funnies: Are Helmets Really Necessary? 

 

Congrats - You Got a 2% Raise in 2011!

Did you know the recently passed tax law may have given you a raise for 2011? Believe it or not, your payroll tax withholdings will decrease in 2011 to 4.2% from 6.2%. This is a 2% savings and will translate into more take home pay for your family throughout the year.

Most experts suggest using this tax cut to increase your 401k contributions. Why not turn this tax savings into additional retirement income? Talk to your employee benefits administrator and simply raise your 401k contribution amount for 2011 by 2%. You can read more about this idea on Fidelity's website at this link. Scroll down to the section titled "How It Affects Your Take-Home Pay" for steps you might take with this 2% raise!
 

How to Be a Miserable Investor

The late Johnny Carson (Tonight Show) once gave a commencement speech to a group of students graduating from Harvard. His speech was titled, "Prescriptions for Guaranteed Misery in Life" and he said that he couldn't tell the graduating class how to be happy, but he could tell them from personal experience how to guarantee misery. Carson went on to list three ways to guarantee misery based on his own experiences in life. These three ways were: 1) ingesting chemicals in an effort to alter mood or perception, 2) Envy, and 3) Resentment.

Well, in this article, I'll try and share how you can be a miserable investor.

1. Go All In - When many investors see a good investment opportunity, they quickly decide to "go all in" and invest the majority of their capital. This is because they hope to make more on the investment. "Going all in" is a recipe for disaster for two reasons. The first is quite obvious - which is you stand to lose a great deal if the investment tanks. If you stand to make a lot more, you also set yourself up to lose a lot more, too! The other reason "going all in" is not the best strategy is because you won't have funds available to investing into other opportunities. Always try to keep a certain portion of your capital in cash so you can move quickly, if you see a great investment opportunity.

2. Believing Greed is Good - Gordon Gecko was wrong when he said, "Greed is Good" in the movie Wall Street. Greed is definitely not good and has caused many investors to get crushed. Greed pulls you into wanting more and this desire causes you to take additional risk. Risk is your enemy as an investor. In fact, your main objective as an investor is to preserve capital, not increase your investment returns.

3. Borrow Money to Increase Your Investment Returns -  Some investors borrow to invest hoping to increase their returns. (Good ole greed!) This would include buying stocks on margin or any other investment where money is borrowed to buy the investment. Borrowing works wonders in a rising market. However, in a falling market, debt or leverage will take you down quickly. Since we cannot forecast with accuracy rising and falling markets, debt should be avoided or minimized.

4. Thinking You Can Make Huge Returns as a Passive Investor - It's virtually impossible to have huge investment returns as a passive investor. Warren Buffett who is arguably one of the best investors in the world averages over 20% a year. On the surface, it seems as if he is a passive investor. Nothing could be further from the truth. Buffett is a very active investor and devotes a significant portion of his time into studying various investment opportunities. In addition, he typically participates in the management of the business for many of the stocks he owns. To increase your investment returns, you've got to become an active investor. This includes learning everything you can about the specific investment. It also means investing in a way where you can control the actual returns on the investment.

5. Not Protecting Your Assets - It's not fun to plan for rainy days when the sun is shinning, but it's critically important. As noted above, the main goal is to protect capital, not increase investment returns. Protecting capital includes all of your assets, not just your investments. In fact, the most risky asset you have is your car. You've probably read about car accidents and multi-million dollar law suits. Most people think that something like that could never happen to them. But it can. It's always better to be safe than sorry!

Tiny Apartment Transforms into 24 Rooms

Do you sometimes feel as if you're home is too small? Well, check out this 4-minute YouTube video highlighting how a tiny apartment transforms into 24 rooms. Is it possible to do more with less?
 
A Little-Known Strategy for Cutting Mortgage Payments

Lynnely Browning recently wrote an article for the New York Times highlighting the strategy of "recasting" or "re-amortizing" to cut your mortgage payments. According to her article...

"It involves paying off a lump sum of the principal amount and asking to have the monthly payments reset according to the original interest rate and loan terms. The lump sum reduces the principal, so your new monthly payments decrease slightly and you save on interest paid over the life of the loan.

Lenders typically charge an administrative fee of $150 or more for this service, though borrowers are not required to pay closing costs or submit to another credit check, because they are not asking for a new loan.

Recasting works well for those unable to qualify for refinancing amid the ever-toughening credit guidelines perhaps because they are self-employed or have less-than-stellar credit as well as for those with extra cash, like a year-end bonus."

Paying down debt is one of the best investments you can make and this strategy might help cut your mortgage payment. You can read the full New York Times article by clicking here.

Former US Treasury Chief Loses ONE Million on His Home

Former Treasury Chief Henry Paulson recently sold his three bedroom home for $3.25 million. Paulson purchased this 2,260 square foot home in 2006 for $4.3 million. The home sat on the market for 8 months before it's sale on December 21, 2010. You can read the full Bloomberg article at this link.

Are the Helmets Really Necessary?

 

I think I'd go for a parachute instead!

What Will I Be When I Grow Up?