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Originally posted here. I have summarised 15 of the most interesting and insightful points made by Buffett in his speech about successful long term investing, as follows: 1. Return on equity is key Return on equity is fundamental. In general, there is no point to investing, just because of the availability of cheap financing, if a business has a low return on equity. It’s hard to earn much as an investor when the business you’re in doesn’t earn very much money. Buffett elaborates that when he started out as an investor he would sometimes purchase very ordinary stocks at prices way below the value of working capital. This is what Buffett calls the ‘Cigar Butt’ approach to investing. You look around for a cigar butt (i.e. really cheap company), you find one that is old and soggy. You get one free puff out of it, and then you throw it away and try to find another one. If you’re looking for a free puff then this approach to investing works, but these are very low return businesses. By investing in a wonderful business with a high return on equity then, even if you initially pay a little too much, you’ll do well if you stay in for a long time. 2. Ownership of a stock is part ownership of a business Ownership of a stock is part ownership of a business. With that in mind, the investors should not pay attention to the day to day stock fluctuations. 3. Invest in businesses that you understand As Buffer jokes, this significantly narrows down the number of companies that he has to look at. You need to look for a simple business which is easy to understand, and which has honest and able management. Buffett says that this lets him understand where a company is going to be in ten years time. If he can’t see where the company will be in ten years, he won’t buy it. Buffett says that “investing is putting out money now, to be sure of getting more money back later at an appropriate rate. To do that you need to understand the business.” Buffett says that he wouldn’t invest money in a new internet business because he doesn’t understand that business and couldn’t say where it would be in ten years time. In his early years he would conduct extensive industry research. For example, by asking every CEO in an industry “if you could buy the stock of one other company in the industry, which one would it be and why?” 4. Invest within your circle of competence The nice thing about investing is you don’t need to learn anything very new. Buffett says that he learnt about Wrigley’s chewing gum 40 years ago, and still understands that industry today. As a result, you will develop a pool of knowledge about different industries that builds up over time. Interestingly, Buffett says that most of his deals get completed in a matter of hours. If you don’t know enough about a business instantly, you won’t know enough in a month or two. 5. Invest based on solid reasoning If someone told you about a company at a cocktail party or the charts look good, that’s not good enough. Paying a little too much for a wonderful business, you’ll do well if you stay in for a long time. You buy a lousy business for a good price; you stay in for a long time you’ll get a lousy result. If you’re right about the business, you’ll make a lot of money. 6. Invest for the long term Buffett recommends buying businesses that you would be happy to own forever. It may happen that you have to sell for one reason or another, but you should, at the time you buy, want to be buying a company that you’ll own forever. 7. Strong businesses need a durable competitive advantage A strong business needs a durable competitive advantage. Buffett says that although he wants to understand the businesses he goes into, he doesn’t want a business that is easy. You want a business with a moat around it with a duke defending the castle. That moat might be low cost operations, quality of products, service, patents, real estate location, or share of mind (Buffett explains that thirty years ago, Kodak’s moat was as wide as Coke’s moat. Kodak had share of mind, forget about share of market. They had something in everybody’s mind that said, “Kodak is the best”). 8. Feel strongly about the products You want a business that has products that are not price dependant. Disney and Coca-Cola have developed a favourable impression in the mind of consumers that allows these companies to charge more for their products and sell more of them than other companies in the same industry. 9. Don’t borrow money that you don’t need Buffett says that he never borrows money. He loves his job and was doing the same thing when he had $10,000 and when making $1,000 was a big deal. He recommends taking a job that if you were independently wealthy you would take. “If you think you’re going to be a lot happier if you have 2X instead of X, then you’re probably making a mistake.” 10. You only have to get rich once Risking what you have and need to get what you don’t have and don’t need is foolish. Buffett gives the example of Long Term Capital Management. This hedge fund was run by smart people, with extensive experience and with their own money invested. To make money they didn’t have and didn’t need, they risked money they did have and did need. Buffett says, “if you risk something that is important to you for something that is unimportant to you, that decision just doesn’t make sense.” 11. Be patient, think carefully and avoid over stimulation Buffett says that, in his opinion, the best way to think about investments is to sit in a room and just think. The problem with being in a market environment is that you get the feeling that you have to do something everyday, you get over stimulated. You want to be away from any environment that stimulates activity. Get one good idea a year, and ride it to its full potential. 12. Professional investors should not diversify Buffett believes that if you are not a professional investor, which is ninety nine percent of people, then you should extensively diversify your investments and not trade. However, once you decide that you are going to bring an intensity to the game and start evaluating businesses and bring the effort, intensity and time involved to get that job done, then Buffett believes that diversification is a terrible mistake. In his opinion, if you really know businesses then you shouldn’t own more than 6 of them. “Very few people have got rich on their seventh best idea.” 13. Business size is not the important consideration When investing, business size is not the important consideration. Small, medium and large cap stocks can all represent good investment opportunities. It doesn’t matter about the size of the business; it’s the certainty of the returns that counts. The relevant questions are: Can we understand the business? Do we like the people running it? Does it sell for a price that is attractive? 14. Only worry about what is important and knowable Anything that is unimportant or unknowable, you should forget about it. Buffett outlines that market predictions do not affect his investment decisions. “I have no idea where the market is going to go.” 15. Make investment mistakes Buffett says that the mistakes that he has actively made have been far less costly than his mistakes of omission. He reflected that the times where he understood a business, saw an opportunity and sat on his hands and did nothing have cost him tens of billions of dollars.

Ridley starts with the simple observation that exchanging one object for another is an activity unique to human beings. The implications of this are quite profound. People trade because it allows them to save time and labour, and the ability to trade means that people tend to specialise in providing certain types of goods or services. The ability to specialise and trade allows people to compete, and competition encourages people to develop new technology and ideas. Trading goods and services which embody new technology allows everyone to benefit it. As each new innovation becomes available in the market people have the ability to improve upon it or to create a completely new innovation which then competes in the market with the old one. Over time, human society evolves as the most useful ideas survive and the older less useful ones die out.

Life is a journey not a destination. Life is a musical thing, you are meant to sing or dance as the music is being played.

http://video.google.com/videoplay?docid=-6231308980849895261

http://video.google.com/videoplay?docid=-6231308980849895261#

Richard St. John looks at the big 8 things that lead to success: Passion: Do it for love not for the money. If you do it for love, the money comes anyway Work: Enjoy working hard. Successful people aren’t workaholics they’re workafrolics Good: Be good at what you do. Practice, practice, practice Focus: Focus on one thing; go for it! Push: Push yourself; push through shyness and self-doubt Serve: Serve others something of value Ideas: Have a bright idea. Coming up with ideas involves doing some very simple things: listen, observe, be curious, ask questions, problem solve, and make connections Persist: Persist though failure, criticism, rejection, assholes and pressure

Talgam takes a look at the leadership styles of some of the great conductors. There are at least 6 different styles of leadership that Talgam highlights: Enabling a shared story: You can lead by enabling individuals and groups of people to express and share their personal stories at the same time. Leadership through community building. Command and control: You can dictate exactly what should happen and when. Although this style of leadership may produce great results, it does not give people autonomy or allow them to grow and develop. Worker satisfaction is likely to be low. Hands-off leadership: You can let it happen by itself. By sending a clear signal that you are in control, people will know that they need to play by the book. Encourage cooperation: You can lead by indicating what needs to happen but not providing clear or detailed instruction. This will encourage people to work together in order to figure out what needs to be done. Create a process and the right working conditions: You can create a process for people to follow. Since people understand the process they can then personalise the process and add their own interpretation to the work. Doing without doing: If you love something you should set it free. Get out of the way and let great things happen.

Originally posted here. There is a mismatch between what science knows and what business does DANIEL Pink puts forward the idea that there is currently a mismatch between what science knows and what business does. Pink presents the Candle Problem, an experiment invented in 1945 by Karl Duncker. The experiment works as follows: I bring you into a room and give you a candle, a box of tacks, and some matches. Your job is to attach the candle to the wall so that the wax doesn’t drip onto the table. This is a seemingly simple problem, but the problem is difficult to solve because of the difficulty of overcoming something known as “functional fixedness”. The items are presented in such a way that there is a “mental block against using [them] in a new way that is required to solve a problem” (Duncker 1945). Now here is the interesting thing. At Princeton University, an experiment was conducted using the Candle Problem to look at the power of incentives. Two groups of people were taken and the first group were offered individual monetary rewards if they solved the Candle Problem quickly. The control group were not offered an incentive. The result was amazing, the incentivised group performed significantly worse than the control group … external incentives reduced performance. Pink makes a number of insightful points on motivation, in summary: As long as a task requires only mechanical skill, bonuses work as they would be expected – the higher the pay, the better the performance. Once a task calls for even a rudimentary amount of cognitive skill, a larger reward often leads to poorer performance. Extrinsic motivators, which Pink refers to as “if-then” rewards, often destroy creativity. In early 2009, economists at LSE looked at pay for performance schemes and concluded that “financial incentives … can result in a negative impact on overall performance.” The secret to high performance isn’t rewards and punishment but rather that unseen intrinsic drive, the drive to do things for their own sake, the drive to do things because they matter. Autonomy, mastery and purpose The solution to achieving high performance in business in the 21st century will be based on intrinsic motivation, on the desire to do things because they matter, because they are interesting, and because they are important. Pink argues that this new operating system for business is to be based around 3 elements: Autonomy – the urge to direct our own lives; Mastery – the desire to get better and better at something that matters; and Purpose – the yearning to do what we do in the service of something larger than ourselves. As Pink argues, if we can repair the mismatch between what science knows and what business does, and bring our notions of motivation into the 21st century, we can strengthen our businesses, solve a lot of those Candle Problems … and maybe even change the world.

Wil, Thanks for the encouragement! Feel free to share any good videos that you stumble across and which you think would suit the forum.

Hayek's Economics Free markets can coordinate prices and the distribution of resources; governments should have a limited role A business cycle boom starts with an expansion of credit and low interest rates which lead to an expansion in the supply of money Easy money leads investors to seek out an ever diminishing number of new investment opportunities; lack of desirable investment opportunities leads to widespread malinvestment Excess money supply leads to inflationary pressure which leads to higher interest rates, and the business cycle turns from boom to bust That's a wrap.

Thank you to pparaman for this video. It provides a nice summary of the economics of Keynes and Hayek. Keynes first. Keynesian Economics Nominal wages are downwardly sticky Markets are driven by animal spirits Government spending and lower interest rates can be used to boost output Sometimes monetary policy may fail to stimulate the economy (see liquidity trap) An increase in spending (by increasing investment, consumption, government spending or net exports) will increase aggregate demand by a multiple of the initial increase in spending

Hey ARW. Or should we refer to you as ARW MBA MPM? Thanks for the kind words! I'm glad you've found the site helpful so far, it is still a work in progress. ARW, am I correct in saying that MPM stands for Master of Project Management? How did you find the course at USQ? Tom