Warren Buffett is the magician of wealth and in the end magic is nothing other than the total focus of a vivid imagination with powerful intent.
PART 2 - THE 26 PRINCIPLES OF BUFFETT WEALTH
Following on from the Ten Steps to financial freedom set out in part one I introduce the next stage of your independent wealth creation plan based on the success principles of Warren Buffett who is not only one of the wealthiest people on the planet but a self made billionaire. What he did you can also do if you choose to do so.
THE BUFFETT WEALTH CREATION SYSTEM
Magic operates in the realm of what you "don't know that you don't know"; but a realm that is familiar to the magician. To the magician it is normal. To the observer it is outside their realm of experience so that he or she doesn't see it. For most people the principles of "Buffett Business" are outside their everyday practice and everyday knowledge, but they can be learned.
Warren Buffett's Wealth Principles and Methods, as set out below, are available to anyone who chooses to learn them, believe them, and apply them.
1. Passion: Identify what passions you have that could create wealth. True happiness is doing what you were born to do; this is also known as self-actualisation or following your bliss. You cannot motivate the best people in any field with money. They are motivated by passion. They lose themselves in their craft. It's not money and fame, but rather talent and passion that lead to success. Their work is their life; and its fun.
2. Mentors: Study the best to become the best. Associate and take guidance with people who are bigger than you, especially in your chosen field but never follow a guru. Select your mentors very carefully.
3. Independent Thinker: always remain an independent thinker and never follow the crowd. The winner thinks outside the box and escapes the comfort blanket of conformity. Many great fortunes have been made with very little money by simply following the value investment system.
4. Do not imitate: the problem with imitation is that the imitator does not truly understand what he or she is copying. Original thought is an absolute essential.
5. Active Investor: The wealth creator takes full responsibility for their wealth and is a wise, intelligent active investor - never a Passive Investor in the hands of a broker: an Investor not a Speculator; an Owner and not a Trader.
6. Live Economically: Live below your income and never lose capital: put property before profits (buy your house for cash); and family before fortune. Know your costs and keep them low. Spenders and consumers rarely become savers and investors. If you build wealth at the price of your relationships, family and health you have paid too high a price. Buffett regards himself as "thrifty".
7. Risk: Don't expose yourself to risk - always operate with a margin of safety (see below).
8. Habits: Your habits define you. Write down the habits you want to develop and those you wish to relinquish. Develop the habits and characteristics of a Warren Buffett: passion, patience, perseverance, integrity, courage, independent thinking, value investing, active investing, discipline, lifetime ownership, mentor selection, frugality, focus and intent, work ethic, family values, research, health, moderation, trust, love and respect.
9. Value Investing: Fully understand and practice the art of low risk value investing; how to acquire the right resources at a substantial discount (ideally 25%) to their real worth (the margin of safety). Value investing is a purely businesslike transaction where one invests without emotion, fear, greed, or by following fads or trends. Value Investing is simple but it is not easy. It takes patience, a lot of reading, an understanding of accounting and the language of business, the ability to value a business, thrift, discipline and integrity, energy, independent thinking and a strong sense of self.
10. The Margin of Safety: the key to wealth. Always buy at a significant discount to market value by calculating the intrinsic value of the business and discounting it. Always differentiate between value and price. The stock market price is not the price. Only pay a reasonable price, even for an excellent business.
11. Intrinsic value: how much the business will earn over its life time. Know how to calculate the present value of a future stream of income (its intrinsic value). Know so much about an investment that you can figure out its intrinsic value: how it makes money; the durability of its earnings; what its weaknesses are; opportunities for future growth; the strength of its competitors and competence of its management.
12. Life-time ownership: Don't sell too soon. In fact become a Life-time owner; if possible never sell. Buy cheap and keep. Concentrate your ownership with twenty investment moves as the maximum. Ideally 5 to 10 is best.
13. Be a Business Owner: Buy a large percentage of a few excellent investments.
14. Focus on "Main Street": as more wealth is created on Main Street than on Wall Street. According to The Millionaire Next Door most millionaires are owners of old economy businesses such as gas stations and dry cleaning establishments, and Buffett's investments prove the point.
15. Develop your Investment Philosophy. A house is built with a plan; so is wealth. Develop a written investment plan in order to embody your principles and strategies.
16. Own a Business not a stock; be a business owner as opposed to a stock trader. Be a business analyst not a market analyst: Buy a share of a business not a stock; chase real business value - not stocks. Wealth is created through owning the right businesses with the right management. Buffett doesn't interact with people he doesn't like or admire.
17. The Value of Expertise: Buffett's wealth must also be attributed to carefully selecting the right partners. He looks for people that are "bigger" than him: "I look for seven-footers" he advises. Warren expects experts to be fanatics. He places a premium on expertise while Wall Street has an all consuming focus on the stock price.
18. Do your homework (reading, research and value appraisals) until the right opportunity presents itself, however many years that may take - but when it does, have the courage to move decisively. This is your key daily activity and will take up most of the day. Read, Read, Read; Research, Research, Research; Appraise, Appraise, Appraise. Never buy a stock because it is going up! Only buy value!
19. Focus and Intent: Wealth is created through total focus and unwavering intent. Wealth is only acquired through the daily practice of industry, frugality, and economy. Do a few things well - preferably do one thing very well!
20. Know what you Own, and Know who You Are; without both these factors there is no wealth. Risk comes from not knowing what you are doing and how you are doing it. One of the greatest pieces of economic wisdom is: "To know what you do not know".
21. Define your circle of competence. Know and define your circle of competence and don't step outside it. Buy companies whose products and services you understand. Buy what you know. Read to know and then to own. You should see yourself as an investigative journalist.
22. Keep it simple: Look for and invest in businesses that are simple and uncomplicated with a history of consistent earnings, little debt, and management that manages the business for the benefit of the owners. Invest rationally not emotionally. Take your time, be patient and wait until the times and the numbers are right. Then Act.
23. Invest for the long-term. Do not diversify excessively. Stick to your circle of competence. Purchase superior management; not "stocks". Seek out partners for life: Look for "seven-footers".
24. Constantly reinvest your excess cash until your future is well provided for and always live economically.
25. Never ever compromise your integrity. Buffett advises never to do anything in business that you wouldn't want printed on the front page of your local newspaper. Integrity, he says, is like oxygen. If you don't have it nothing else matters.
26.Stick to the plan and study this checklist daily.
If you do this your return on investment like Buffett's will always be significantly ahead of the market and you will amass a substantial fortune while living a joy filled and self fulfilling lifestyle.
Author - Rod Finnie - is a professional writer and personal, executive and transformational coach. He has 37 years experience in business in marketing and change management. He has operated in the corporate world of international business as well as in the world of the independent entrepreneur.
His focus is on personal wealth and wellness as well as on business break-throughs to optimising peak-performance.
Rod writes on the subjects of health, wealth and prosperity and has his own unique and invaluable approach to the subjects. He is a creative thinker and innovator and is developing a new approach to economics entitled Participative Capitalism.
His latest book is entitled: Awakening to Wealth - The 25 Laws of Wealth Generation and you can find out more about this at Science of Generating Wealth under "Key Downloads".
He specialises as a transformational coach for both personal and business transformation and is an exponent of Participative Management and Generative Leadership coaching; the required business management styles for the leading companies of the 21st Century.
Article Source: http://EzineArticles.com/?expert=Rod_Finnie
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