Weekend Roundup: Cabin Fever Edition

Millions of people want prosperity, many even take steps to achieve it, but few actually attain the goal.  Why? Missteps-flawed strategies -something we call  misconceptions about money and wealth myths. So what gives?

Many dream of becoming instantly rich by winning the lottery, or somehow stumbling on some abondon fortune. In this setting, one hit it big through luck, perhaps a combination of small degree of luck and skill.  The sad reality is that most people will never be luck enough to win big at any game of chance, because winning such games almost always requires a series of highly random events to fall into a proper, unlikely order.

Nowadays, millionaires are perceived by many as being lucky. But what  most people refer to luck occurs when opportunities are accountered by people prepared and actively pursuing goals. Here, let’s try to empowers ourselves with the knowledge to attain greater degree of financial independence.

Lessons from Warren Buffett

From the letter to the shareholders of Berkshire Hathaway and see the investment wisdom conveyed.

The Three Gs
Let us suppose that you are planning to lock away the surplus money with you in a bank savings account and three different banks approach you with three different offers:

1. The first bank takes a one time deposit and pays you a very attractive interest rate, which will continue to increase as years pass by;
2. The second bank pays a decent interest rate but also asks you to increase your yearly deposits at a fixed rate, which will also bear a decent interest rate; and
3. The third banks pays you a very poor interest rate and also asks you to increase your deposits at a high rate, which in turn yield the same poor interest rate.

It is difficult to imagine a depositor choosing any other sequence than the one mentioned above if asked to rank his preferences. However, while investing in companies, the very same depositor fumbles quite often. He ends up investing in firms that exhibit the characteristics of deposit schemes similar to options b) and c) listed above.

Buffett has mentioned that virtually all the businesses could be classified on the basis of three characteristics mentioned above and he has gone on to name these businesses as Good, Great and Gruesome. Needless to say businesses of the ‘Great’ kind are what excite him the most and he tends to avoid the businesses labeled ‘Gruesome’.

Let us see what he has to say on the characteristics of each of these businesses:

The golden words
On ‘Great’ businesses, Buffett says, “Long-term competitive advantage in a stable industry is what we seek in a business. If that comes with rapid organic growth, great. But even without organic growth, such a business is rewarding. We will simply take the lush earnings of the business and use them to buy similar businesses elsewhere. There’s no rule that you have to invest money where you’ve earned it. Indeed, it’s often a mistake to do so: Truly great businesses, earning huge returns on tangible assets, can’t for any extended period reinvest a large portion of their earnings internally at high rates of return.”

Furthermore, Buffett likens ‘Good’ businesses to industries like the utilities where the companies will earn a lot more 10 years from now but will also have to invest a substantial amount to achieve the same. The returns though are likely to be satisfactory.

Let us now move on to businesses that Buffett has labeled as ‘Gruesome’ and he proffers the following view on them. He says, “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers.”

Indeed, if investors stick to ‘Great’ and ‘Good’ businesses in their investment lifetimes and buy them at attractive prices, they are unlikely to end up poor.

Technical Analysis & Trading Ideas:Watchlist Video

Here’s a video with some good technical analysis and pricing patterns in the current market from the Option Addict. If you’re looking for some trading ideas, this is a great resource. Here’s his weekly watchlist for 5/18/09:

Creating incentives for saving…Critical!

Individual retirement accounts-IRAs-are an important asset-building tool. IRAs currently allow several preretirement uses that promote asset building and retirement security, including first-time home purchase and postsecondary education. That being said, in these dark days of the economy, penalty-free withdrawals from IRAs for small business start-up costs as I just find out, are not permitted, nor can individual borrow against these assets to capitalize their businesses.

With all the banks hard on cash, expending the uses of these uses to small business capitalization makes sense, as doing so could provide another incentive for people to save and accrue assets.

$100,000 In Cash Returned to Rightful Owner

I think it’s safe to go ahead and stick this story in the “That’ll never happen again!” file.

According to WKRN, a Cracker Barrel patron in Murfreesboro, Tennessee stumbled upon a purse that had been left in the ladies restroom. Upon looking inside the purse to locate identification of the owner, Billy Watts was shocked to discover the purse was filled to the brim with cash - $97,000 to be exact.

Instead of running off with the loot, she did something extraordinary: she actually returned the money in full to its rightful owner and refused to accept a reward for doing so.

Now, what in the world someone was doing in Cracker Barrel with $100,000 in cash is beside the point. In my opinion, this woman is nothing short of a hero and should be commended for her unparalleled honesty and integrity.

What Would YOU Do?

Sure, it’s easy to sit behind the monitor and smugly say that you’d give the money back too, but would you really? If you stumbled upon $100,000 cash and had it sitting there, staring you in the face, would you really go through the trouble of locating the rightful owner and return it? I have to be honest and admit that it wouldn’t exactly be an easy decision for me.

Image courtesy of: AMagill

[Via WKRN]