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May 2013

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This month ASA focuses on investment. When planning this editorial, Warren Buffett came first to mind– which is why I’m sharing this story about him written by Evan Carmichael.

Buffett started his investment business in 1956 when “seven people wanted me to invest their money for them.” Although he admits not having a strategy at the time, he knew enough to evaluate his own strengths and weaknesses before creating a coherent business model.

“Risk comes from not knowing what you’re doing,” says Buffett. What he did know is that he dislikes technology and is most likely the only billionaire who doesn’t own a computer or even have an email address. Buffett despises bureaucracy and has fewer than 20 direct employees.

Buffett has never been so arrogant so as to believe that he could invest in any company that he wanted. “There are all kinds of businesses that Charlie [Vice Chairman] and I don’t understand, but that doesn’t cause us to stay up at night,” says Buffett. “It just means we go on to the next one…Never invest in a business you cannot understand.”

Buffett believes that if you are honest with yourself about your strengths and weaknesses, your likes and dislikes, and your depth of knowledge, the rewards will come: “I will not abandon a previous approach whose logic I understand … even though it may mean foregoing large, and apparently easy, profits to embrace an approach which I don’t fully understand, have not practiced successfully, and which possibly could lead to substantial permanent loss of capital,” he says.

This self-evaluating honesty has led Buffett to becoming one of history’s most successful investors. Buffet often cites one of Abraham Lincoln’s favourite riddles to emphasises this point: “How many legs does a dog have if you call his tail a leg?
The answer: Four, because calling a tail a leg does not make it a leg.”

Buffett avoids unnecessary risk and analysis every decision in detail before making a move: “You ought to be able to explain why you’re taking the job you’re taking, why you’re making the investment you’re making… he says.

“And if it can’t stand applying pencil to paper, you’d better think it through some more. And if you can’t write an intelligent answer to those questions, don’t do it.” I hope you get real value from our investment articles this month.

Author: Gerinda Jooste
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