4 Lessons From Buffett That Every Investor Needs To Know

By: Eric Winter of Street Authority

Behind each trade or investment, they are there... lurking, waiting to reveal themselves during a moment of weakness.

They are the four fears of investing.

I learned about these early into my trading career, and I've been a victim of each one over time. All drama aside, they affect every investor or trader who actively manages his or her own money.

In no particular order, the four fears are as follows:

1. Fear Of Loss
2. Fear Of Missing Out
3. Fear Of Letting A Profit Turn Into A Loss
4. Fear Of Being Wrong

Despite their prevalence, there are fortunately many methods to help conquer each of these fears. One of these tools comes from the long career and immortalized wisdom of the Oracle of Omaha himself.

While I can't be 100% sure what Warren Buffett would say in regard to each of these problems, we can use his bank of interview quotes and newsletter excerpts to infer what the billionaire would say about understanding and conquering each problem. Continue reading "4 Lessons From Buffett That Every Investor Needs To Know"

Article source: http://www.streetauthority.com/node/30486500

Successful Investors Read, And Read A Lot

By: Tim Melvin

Warren Buffett and Charlie Munger have commented many times in the past about the need to read widely and often to achieve investment success. "I have said that in my whole life, I have known no wise person over a broad subject matter area who didn't read all the time -- none, zero," Munger commented at the 2003 Berkshire Hathaway (NYSE: BRK-B) annual meeting.

"Now I know all kinds of shrewd people who by staying within a narrow area can do very well without reading," he added, "but investment is a broad area. So if you think you're going to be good at it and not read all the time, you have a different idea than I do. . . . You'd be amazed at how much Warren reads. You'd be amazed at how much I read."

When Warren was asked by an interviewer how he achieved success he held up a sheaf of papers and commented, "Read 500 pages like this every day. That's how knowledge builds up, like compound interest." This is an underappreciated talent in today's investing world. We flock to seminars and meetings to learn how to pick stocks and analyze markets using charts and pictures, without developing the knowledge of what is driving the price moves.

Get Your Nose In A Book

Continue reading "Successful Investors Read, And Read A Lot"

This may make you feel better.

From our media partner: The Associated Press.

CEOs, famous investors hit hard by market plunge

AP Business Writer

(AP:NEW YORK) Here's something that might provide a bit of solace amid the plunging values in your retirement accounts: Warren Buffett is losing lots of money, too. So are Kirk Kerkorian, Carl Icahn and Sumner Redstone.

They are still plenty rich, but their losses _ some on paper and others actually realized _ illustrate how few have been spared in today's punishing market when even big-name investors, corporate executives and hedge-fund titans are all watching their wealth evaporate.

The portfolio damage for some of these high-flyers has soared to billions of dollars in recent months. And they can't just blame the market's downdraft _ some did themselves in with badly timed stock purchases or margin calls on shares bought with loans.

"It's always hard to beat the market no matter who you are," said Robert Hansen, senior associate dean at Dartmouth's Tuck School of Business. "But when the ocean waters get that rough, it is hard for any boat to avoid getting swamped."

It has been a painful year for anyone exposed to the stock market. The Standard & Poor's 500 stock index, considered a barometer for the broad market, has lost about 36 percent since January, with every single sector _ including once thriving energy and utilities _ seeing declines of about 20 percent or more.

Such losses in the last year have wiped out an estimated $2 trillion in equity value from 401(k) and individual retirement accounts, nearly half the holdings in those plans, according to new findings by the Center for Retirement Research at Boston College. Similar losses are seen in the portfolios of private and public pension plans, which have lost $1.9 trillion, the researchers found.

As stocks have plunged, so have the value of chief executives' equity stakes in their own companies. The average year-to-date decline is 49 percent for the corporate stock holdings of CEOs at 175 large U.S. companies, according to new research by compensation consulting firm Steven Hall & Partners.

Topping that list is Buffett, who has seen the value of equity in his company, Berkshire Hathaway, fall by about $13.6 billion, or 22 percent, so far this year, to leave his holdings valued at $48.1 billion. Oracle founder and CEO Larry Ellison has seen his equity stake fall by $6.2 billion, or about 24 percent, to $20.1 billion, according to the research that ran from the start of the year through the close of trading Oct. 29.

Rounding out the top five in that study were Microsoft's Steve Ballmer, whose company equity fell by $5.1 billion to $9.4 billion; Amazon.com's Jeff Bezos, whose equity fell by $3.6 billion to $5.7 billion; and News Corp.'s Rupert Murdoch, with a $4 billion contraction to $3 billion.

News Corp. and Microsoft declined comment, while representatives from Berkshire Hathaway, Oracle and Amazon.com didn't respond to requests for comment.

Those results included the value of the CEOs' stock, exercisable and non-exercisable stock options and shares that haven't yet vested. They are drawn from each company's most recent proxy statement, which means they might not include subsequent stock purchases or sales.

"Everyone wants to see executives have skin in the game, and this shows they certainly do," said Steven Hall, a founder and managing director of the compensation consulting firm. "But in the end, we have to remember they still have billions to fall back on."

But there have been recent instances where executives' large equity positions have blown up _ not only damaging a particular CEO's portfolio but the company's shareholders, too.

A growing number of executives at companies including Boston Scientific, XTO Energy Corp. and Williams Sonoma Inc. have been forced to sell stakes in their companies to cover stock loans to banks and brokers. The company stock was used as collateral for those loans. The falling prices triggered what is known as a "margin call."

"A decrease in insider ownership is bad for corporate governance," said Ben Silverman, director of research at the research firm InsiderScore.com. "Then executives' interests are less aligned with their shareholders."

Investors in Chesapeake Energy Corp. were recently faced with the surprising news that company CEO Aubrey McClendon was forced to sell almost 95 percent of his holdings _ representing more than a 5 percent stake in the natural gas giant _ to meet a margin call. His firesale of more than 31 million shares, valued at nearly $570 million, put downward pressure on Chesapeake's stock in the days surrounding the mid-October transaction.

McClendon has called this a personal matter and said he would rebuild the ownership position, according to Chesapeake spokesman Tom Price.

Redstone, the famed 85-year-old chairman and controlling shareholder of CBS Corp. and Viacom Inc., was forced to sell $233 million worth of nonvoting shares in those companies. That was done to satisfy National Amusements' loan covenants, which had been violated when the value of its CBS and Viacom shares fell below required levels in the loan agreements.

National Amusements is Redstone's family holding company, and the stock sales represented 20 percent of the holding company's CBS shares and 10 percent of its Viacom shares. A spokesman for National Amusements declined to comment.

Certainly some of the biggest investors aren't happy with recent market events.

Earlier this year, billionaire Kerkorian's investment firm Tracinda Corp. paid about $1 billion, at an average share price of near $7.10, for about 141 million shares in Ford Motor Corp. That represented a 6.49 percent stake in Ford.

Those shares have tumbled as the automaker's financial condition weakened considerably amid slumping sales and tighter credit conditions. That drove Tracinda to disclose twice in recent weeks that it was selling some of its Ford stock _ one batch of 7.3 million shares sold at an average price of $2.43 each, and the other for 26.4 million shares at an average sale price of $2.01 each. That means for about a quarter of his total Ford holdings, he got $71 million.

Tracinda spokeswoman Winnie Lerner declined to comment.

Activist investor Icahn faces an equally ugly situation with his investment in Yahoo Inc. earlier this year, when he bought about 69 million shares for a nearly 5 percent ownership stake. As of June 30, those shares were valued at about $20.60 each, according to a regulatory filing.

Over the summer, he fought hard to get Yahoo's board to agree to a takeover by Microsoft Corp., a deal that never went through. As a concession, Icahn got a seat on the Yahoo board for himself and two allies.

But his Yahoo holdings are off sharply, with the company's shares trading around $13 each. That means he's down more than $500 million since late June. Icahn didn't respond to a request for comment.

As Tuck's Hansen notes, the current market conditions are serving up a reality check _ not just for individual investors but for the biggest names around.

"Fishing isn't called catching, and investing isn't just called making money," Hansen said. "We have to remember that things can go down by a lot."

Copyright 2008 The Associated Press.