At minimum invest in ETFs or a market index to avoid paying for active

At minimum invest in etfs or a market index to avoid

This preview shows page 51 - 54 out of 263 pages.

At minimum, invest in ETFs or a market index to avoid paying for active management. Review my website PaybackTimeBook.com to see how to calculate the amount you’ll need to retire. * This figure is a general estimate that reflects most people’s experience. The range depends on time—how long you stay invested in mutual funds. Less time, less rip. More time, more rip. It can be as much as 70 percent over a long life invested in mutual funds. For the purposes of this book, we’ll stick with 60 percent as a conservative figure.
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T THREE Ms EQUAL NO-RISK INVESTMENTS Successful and unsuccessful people do not vary greatly in their abilities. They vary in their desires to reach their potential . —J OHN M AXWELL his book is all about buying shares in wonderful businesses whose stock is wildly undervalued. Stockpiling businesses you understand is the key to taking control of your money and compounding it the way the rich guys do. So now I’m going to tell you how to find these wonderful businesses step by step. Let’s start by taking Plato’s advice. Plato said that if you want to find the best example of something, you should start off by thinking about the perfect “form” of that thing—some ideal version that exemplifies perfection—and then look for things in the world that conform to that perfection as closely as possible. Let’s see if we can use that notion of a perfect business “form” to help us find a wonderful business. Here are the top ten qualities that make a business perfect from a stockpiler’s point of view. 1. It’s a simple, easy-to-understand business. 2. It has some form of durable monopoly. 3. It sells a universal product. 4. It sells a habit-forming product. 5. Its products are cheap to make.
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6. Its products are cheap to sell. 7. It has huge profit margins. 8. It can raise its prices with inflation. 9. Its products and processes make the world a better place. 10. Management is owner-oriented, passionate, dedicated, and honest. Let’s look at each of these qualities in a bit more detail: 1. It’s a simple, easy-to-understand business: A simple, easy-to- understand business is easier to manage than a complex business. Fewer things can go wrong, and if they do, they’re easier to fix. It’s also easier to forecast future cash flow, and that makes it easier for an investor to put a value on it. And remember, knowing the value is everything. 2. It has some form of durable monopoly: A perfect business would last forever. To do that it needs protection against competition. In the real world, competitors see a business making a ton of money and they move right in. A perfect business needs to have products that potential competitors, for some reason, can’t copy well. It could be a secret formula, a brand, the prohibitive cost to switch off the product, a government-awarded monopoly, or just low cost.
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  • Spring '20
  • Warren Buffett

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