Stockpiling eliminates the friction of trading and accelerates the compounded

Stockpiling eliminates the friction of trading and

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Stockpiling eliminates the friction of trading and accelerates the compounded rate of return by lowering your overall cost of acquiring the business. The highest returns you can get as a novice come from stockpiling. And now, for the first time since I started investing twenty- nine years ago, we’re experiencing the best time to be a stockpiler. Right now we’re faced with a once-in-a-lifetime opportunity to get rich with very little effort and very little risk if we do our homework and stockpile. During the next few years some of the best companies in the world, companies with monopolies, companies that’ll be around for the next fifty years or longer, are going to see their profits dry up and their
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businesses shrink, and they will be offered to us at increasingly better prices. Nothing is changing long-term, but the short term looks bad and creates fear. Stockpiling a wonderful business as it drops in price sets you up for a huge return when the price returns to the company’s proper value. So if you want easy money and guaranteed wealth, stockpile in this market. Certainly you can trade, and you’ll do well on the run-ups. But if you trade you’ll also have long periods of time when you are buying into undervalued companies only to see them go down in price even further. This stock market is tough on traders but nirvana for stockpilers. And all it requires is nailing down the growth rate. Nailing the Future Growth Rate of Cash Warren Buffett bought about $6 billion (representing over 64 million of the 342 million available shares, or about 20 percent) of Burlington Northern railroad in 2007–2008 in a price range of $79 to $84 a share. I decided to use this company, BNI, as an example because it’s not perfect. It doesn’t have the greatest numbers. It’s not massively on sale. But isn’t that the way the real world of investing works? You’ll find there are very few perfect companies, and if you ever find one, chances are good it won’t be on sale. Because it’s perfect. So you do your homework and understand the business, and you start to see the beauty of the business. It’s like finding a wife or husband: if you wait for Mr. or Ms. Perfect, you might be waiting a long time if not forever. But get to know someone who has some flaws, and you just might find out they’re perfect for you. In that sense, Burlington Northern was perfect for Mr. Buffett. Let’s see if we think he got a good deal or not. Warning: As noted in the beginning of this book, the numbers and data retrieved during the writing phase have changed by the time you read this. Companies update and republish their information routinely. As you follow this example in the upcoming pages, please
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be aware that you won’t find the exact same figures online— including historical data. This evaluation is for educational purposes only.
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  • Spring '20
  • Warren Buffett

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