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Warren Buffett and the Naked Emperor

John Price, PhD & Margaret Baldock

Warren Buffett is dangerous”.

Yes you heard right….Warren Buffett is dangerous. After a decade researching and working with investors who are successfully applying Buffett-like methods, we have concluded that Warren Buffett is dangerous.

Let us explain.

We believe that Buffett is indeed a danger… but only to the self-servicing section of investment industry. The endangered list specifically includes:

  • Fund managers who have consistently failed to deliver even average market returns;

  • Analysts who have mislead investors into seeing value where none exists;

  • Greedy corporate management who have hidden behind smoke and mirrors and the financial illiteracy of their investors;

  • Financial media and tipsters who continue to con investors into believing that sensible investing is a “high-risk”, “stress-filled” pursuit.

Of course, much of the investment industry consists of conscientious individuals with a deep desire to serve their clients. But so often their efforts have been overshadowed by those who have put their own interests first. And also by the industry itself that tries to promote an elitist mystique.

Warren Buffett was the first to unequivocally call out loud that “the Emperor has no clothes”. In doing so, he pierced the “fog of lies” that still surrounds investing.

Buffett, with his common-sense, no nonsense, DIY candour, has opened up investing to those “mere mortals” who are willing to think differently from the crowd. Buffett has repeatedly stated that his simple willingness to “think independently” is the key to investment success.

In a talk at Columbia University in 1984, Buffett discussed the influence of his mentor, Ben Graham on himself and other phenomenally successful investors such as Walter Schloss, Tom Knapp, Ed Anderson (founder of Tweedy Brown Partners), Bill Ruane (Sequoia Fund), Stan Perlmeter and Charlie Munger.

While each of these investors had been hugely successful, there was virtually no duplication in their portfolios holdings.

The single thing that each had in common was that they understood the difference between price and value. They all looked for discrepancies between the two, but found them in very different places.

Each investor thought independently and therefore they did not need to hold the same stocks in order to achieve great success. In fact, it is highly likely that if they had attempted to imitate each other they would have failed simply because they would have lacked the courage of their convictions.

Mindless imitation is often promoted as the easy way to wealth, but financial freedom is the price that investors pay for it!

The single biggest challenge facing the average investor then is turning off the “noise” of so-called “investment” experts and to start trusting their own judgement.

And this is what makes Buffett so dangerous...he is encouraging investors to do the unthinkable…to break free of their chains…to learn the rules of the game and play it to win….to think for themselves….to shout out “the Emperor has no clothes”.

Investors are not just realising that this investing stuff is easier than the pundits would have them believe…they’re discovering that all this talk about investing being “risky” is nothing more than a lot of hot air!

What’s more, they’re also realising that there is another wonderful side benefit that the average investor has probably never banked on.

Conscious Investors ( know that investing doesn’t just have to be profitable. Believe it or not, investing can be about profit, passion AND purpose. There is something inherently wonderful about associating with companies that you admire and whose products and services you enjoy.

This is why we have called our approach “Conscious Investing”. It is all about forming a positive association between the investor and the company being invested in.

What’s more, by investing in companies that you understand and have some familiarity with, then you become your own best judge of that company’s management. You’ll notice changes such as the merchandise losing its desirability or management feathering its own nest with fancy offices long before they have any impact on the financial statements. You’ll know when it is time to get out well before any self-serving announcements by Wall Street.

In this brave new world of conscious investors…not only will investors “try it at home”….many of their best investment ideas may actually start at home. An investors’ most profitable idea could in fact come from something as simple and relaxing as a night in front of the box! They may just see a product that they relate too, and decide to find out who makes it and whether the company stacks up as a potential investment. Does it have a high return on equity, not too much debt, products and services that stand out from their competitors, high returns and a competent management with a long track record in the industry?

Following this approach, people find investment ideas everywhere they look (we certainly do). They’ll stand out at when they furnish their homes…when they buy that leisure cruiser they’ve had their eye on…when they select a service provider for their business…and so on. Investment opportunities and ideas are literally all around. People just need to know what to look for. It really is that simple and anyone who tries to say differently – don’t listen (we don’t)!

Put frankly, when people realise just how simple investing really can be they will also realise that the entire investment industry is based upon one big con. But it’s a con that investors are finally waking up too (thanks in large measure to Warren Buffett). That con says “investing is too risky” and “too stressful” for the ordinary person to succeed.

The simple unavoidable truth is that people are NEVER going to ever become successful investors (let alone close to achieving sort of returns enjoyed by the world’s best investor) unless they get started investing using their own decision making!

Conscious Investing is a company that provides tools and training to investors who want to become more self-reliant in the marketplace. We put quality, unbiased information in the reach of every investor, affordably.

As part of this we follow a Buffett-like strategy (or as closely as is humanly possible).

What does this specifically mean? It means that we teach the following general investment strategies:

  1. First and foremost it is vital to view shares as businesses.

  2. Investors need to look at the products and services of the company. Do they stand out from those of their competitors? How confident are you that they will continue to stand out?

  3. Look for companies with management that treats shareholders as partners. Management must also have the ability to use equity and assets of the company wisely with a high return on equity and not too much debt.

  4. Each business must offer clear growth potential - not necessarily in the next six or twelve months, but certainly over five and ten years.

  5. Focus on a small number of businesses.

  6. Only invest in businesses that you understand—and that you either use or can recommend their products and services.

  7. Don’t waste effort on trying to guess which way the market may move - or whether it is at a high or a low.

  8. Do not invest in a company unless we are prepared to hold it for at least 5 years.

  9. In making investment decisions, it is important to use a “margin of safety’ in all estimates.

  10. Do not speculate on companies that may become good businesses. Look for companies that are already profitable. And while Conscious Investing draws inspiration from Warren Buffett (to whom we owe a huge debt of gratitude) we also offer investors a range of proprietary tools that we believe will allow them to outperform the market over time.

As you know, Buffett is not in the business of teaching investors how to do what he does. While Buffett is very generous with sharing his general principles it is in the specifics (and in crunching the numbers in particular) that he remains silent. And you can’t blame him; after all, capital allocation is a competitive business and ideas are valuable and subject to appropriation.

Our proprietary calculations which are not only proven to work, they are simple to understand. Here is a summary of some of the more significant calculations and the benefits that they offer our clients through Conscious Investor:

  1. STAEGR® – we use earnings and sales stability calculations to allow us to forecast earnings on quality companies with five times the accuracy of Analysts.

  2. When valuing companies we do not rely upon discounted cash flow (CDF) methodologies in our investment approach as these are unstable and use impossible inputs such as estimating cashflows and discount rates out to infinity.

  3. Instead of misleading DCF methods we use proprietary calculations that allow us to answer the question that is fundamental to all investments—what return can I expect and with what degree of confidence?

  4. We also use proprietary calculations that allow us to calculate the target price for purchasing quality companies at prices necessary to achieve superior returns, not just in terms of vague statement as being undervalued. Volatility turns from being something to fear to something that enables quality companies to be bought for profitable prices with confidence.

The Conscious Investor approach to investing ensures successful investing as measured by financial returns. But it also makes investing an enjoyable everyday activity.

Of course in the end the proof of the pudding is in the eating. The proof of the Conscious Investor methods is demonstrated by back testing using the roll back feature of the software. It is also in the steady stream of testimonials from investors of all levels of experience from professionals to complete novices.

Typical is the recent comment by a subscriber from Colorado.

He wrote: "I have read through the material three times and am so excited. I finally feel like I have some confidence. I'm not nearly intimidated by financial gobbledygook as I once was. My financial advisor suggested some stocks for me and I did my research and replied back that I didn't agree because the historical growth was too unstable and their stability was below what I would consider reasonable. It made me feel more in control.”

Other testimonials can be seen by clicking here.

In total, just as you do, we believe that Warren Buffett is dangerous – but only to the self-serving sector of the professional investment community.

Based on years of experience, thorough analytical and common-sense testing and the testimonials of our subscribers we believe that Conscious Investor builds on the ideas of Warren Buffett and other investment greats to provide investors of today with a sound, comprehensive approach to investing. An approach that will give them the opportunity to create financial security for themselves, their families and, for the professionals, their clients. And, moreover, doing this in a way that brings more peace of mind and enjoyment, rather than the usual stress and compulsion.

Yours sincerely,

John Price & Margaret Baldock
Conscious Investing P/L

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Conscious Investing provides general advice and information, not individually targeted personalised advice. Advice from Conscious Investing does not take into account any investor’s particular investment objectives, financial situation and personal needs. Investors should assess for themselves whether the advice is appropriate to their individual investment objectives, financial situation and particular needs before making any investment decision on the basis of such general advice. Investors can make their own assessment of the advice or seek the assistance of a professional adviser.

Investing entails some degree of risk. Investors should inform themselves of the risks involved before engaging in any investment.

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