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Source: CNN Money, 10th November 2003.

Highlights

1.  This article was written by Warren Buffett, together with Carol J Loomis. Carol is one of the most senior journalists at Fortune, touted by New York Post as a “legend in financial journalism”.

2.  Warren Buffett has not purchased any foreign currency for 72 years. He is doing it now.

3.  Purchasing other currencies means that he believes the US dollar will depreciate.

4.  The reason he is doing it is that the US trade deficit has greatly worsened. This means that the US’ “net worth” is being transferred abroad at an alarming rate.

5.  This is happening because the Americans are over-spending beyond their means. In the short term, nothing much will happen as Americans are very happy with the high standard of living they are enjoying, all the while with the productivity being very low, comparatively.

6.  There will come a point in time, in the near future, where they will have to pay for their lifestyle. That is when the US currency will start to depreciate.

7.  Besides offering his analysis of the inevitable decline of the US economy due to overspending, he offers a unique solution – the introduction of ICs (import certificates) that may solve the US’ trade deficit problem. His solution makes a lot of sense. The adoption by the US government would be a positive step in rectifying serious problems in the US economy. The more they delay in adopting this solution – without taking any steps to resolve the problems – the bigger the disaster  would be, for the US economy.

Comments

1.  The financial crisis in the US in 2008 is a testimony to Warren Buffett’s correct analysis of the problems in the US economy, five years earlier!

2.  An intelligent investor is one who is able to put together an economic scenario based on facts and figures, such as the ones mentioned above. Although the timing of the markets is unpredictable, the final outcome is predictable.

3.  Warren Buffett’s prediction in 2003 only came true in 2008.  As can be seen from his article, he started preparing in 2003; perhaps even earlier.  That investment trait made him the most successful investor in the world today.

Learning Message:  The ability to prepare is far more important than the ability to predict.

The Final Winner – Makes Your Vision Come True

The posts in this blog are a follow up of my two e-books, The Final Winner and Bursa Winners, particularly The Final Winner where I outlined the subject of financial intelligence.  Highlights are as follows:-

1.  I defined financial intelligence as the study of how to create and accumulate residual income.

2.  Residual income means doing work once and obtaining income many times over.  (This is Robert Allen’s definition found in his book Multiple Streams of Income.  Robert is the author of four international best-selling books on creating wealth.)  It is not limited to individuals only but also to corporations, yes, even countries as a whole.

A classic example is Elvis Presley who goes to the studio once to record his album, and receives income millions of times after that, yes, even after his death.  He is recently still top revenue earner for album royalties, in a report released by  the Forbes magazine.

3.  Other examples of residual income include the most common forms of investment such as property and shares.  Modern types of residual income highlight the emergence of intellectual property income such as licensing, which has made Bill Gates the richest man in the world for many years.

4.  The topics under the subject of financial intelligence include:-

a.  Right mental attitude, having the hunger and passion for financial success, financial discipline, controlling fear and greed, making and learning from mistakes.  Together, these arguably contribute roughly 80% to the eventual success in creating residual income.

b.  The balance of 20% comprise of the following skills, amongst others:-

i.  Understanding what an asset is
ii.  Studying the different types of residual income
iii.  The power of compounding
iv.  It does not take money to make money
v.  Risk decreases with returns
vi.  Making financial decisions based on facts instead of opinions
vii.  Business
viii.  Marketing
ix.  Selling skills
x.  Investing
xi.  The law

5.  With financial intelligence you have the ability and choice to retire, which I feel is more important than getting rich.  Of course, you would choose not to retire, given the passion that you have for creating wealth, and the passion for life itself.

The Final Winner – Makes Your Vision Come True

The Final Winner – Makes Your Vision Come True