Investor Quote of the Week

Quote Meaning

Buffett highlights that investing in a few high-quality companies can lead to substantial wealth.

By choosing businesses with strong competitive advantages, high profitability, and excellent management, you can achieve long-term growth and significant value creation.

Warren Buffett's view on diversification is that it can be a protection against ignorance but is not necessarily required for knowledgeable investors.

He believes that if you know what you are doing and understand the businesses you invest in, concentrated investments in a few high-quality companies can yield better returns.

According to him, diversification is often overemphasized, and focusing on a handful of well-researched investments is a more effective strategy for those who have the expertise to value businesses.

By taking a more focused investment approach, you can build a highly concentrated portfolio of businesses you know very well.

Nugget of Wisdom

Bank savings are pretty much useless if you don’t need emergency cash.

Let me start with a story to serve as a “wake-up call.”

Meet Mr. Smith.

Mr. Smith saved a lot of money and kept it safe in a bank account, earning a little interest.

He felt secure, thinking his money was safe from any risks.

Now enters inflation, the silent thief.

One day, Mr. Smith noticed that everything was getting more expensive.

This is inflation, which means prices go up over time, making your money worth less.

His savings, though still the same amount, couldn't buy as much as before.

Why does inflation exist?

• More Money in the Economy: To help the economy, central banks print more money, but this can cause prices to rise.

• High Demand: When lots of people want to buy things but there aren't enough to buy, prices go up.

• Increased Costs: When it costs more to make products, prices rise.

• Supply Chain Issues: Problems in getting goods to stores can make prices higher.

These factors above make inflation a bigger problem for all of us.

Going back to Mr. Smith:

He realized that keeping his money in the bank was not enough.

His savings were losing value due to inflation. To protect his money, he needed to invest.

That’s why it's vital to learn how to allocate capital and invest wisely.

You need to beat inflation rather than let it beat you.

To illustrate why dollars are worthless, consider the following:

Mistakes to Avoid

Don’t blindly trust banks to keep your money.

2008 can and will repeat itself in different forms.

Banks can and do go under, and if you’re not careful about spreading risk, you too could get caught up in a financial mess.

Remember these guys from 2008?

• Lehman Brothers: Lehman Brothers' bankruptcy in September 2008. Its collapse led to a severe credit crunch and a loss of confidence in financial institutions.

• Bear Stearns: The Federal Reserve helped sell Bear Stearns to JPMorgan Chase after it nearly collapsed in March 2008.

• Washington Mutual (WaMu): Once the largest savings and loan association in the U.S., was seized by regulators in September 2008 and its assets were sold to JPMorgan Chase. This event marked the largest bank failure in U.S. history.

If it can happen in the United States, it can happen anywhere.

In these scenarios, I would take the following precautions to protect myself:

• Diversify Investments: This could include stocks, bonds, real estate, precious metals, and other assets.

• Self-Directed Investment Accounts: Consider using self-directed investment accounts to have more control over your investments.

• Precious Metals: Investing in precious metals like gold and silver can be a hedge against inflation and financial instability. These assets tend to hold value over time and are not directly tied to the banking system.

If it were me, I’d also look to open 2-3 more bank accounts to spread my financial risk.

Stock of the Week

Apple Inc (Ticker: AAPL)

Company Description

Apple, Inc. engages in the design, manufacture, and sale of smartphones, personal computers, tablets, wearables and accessories, and other varieties of related services. It operates through the following geographical segments: Americas, Europe, Greater China, Japan, and Rest of Asia Pacific. The company was founded by Steven Paul Jobs, Ronald Gerald Wayne, and Stephen G. Wozniak in April 1976 and is headquartered in Cupertino, CA.

Profitability Metrics

5-year average EBIT margin: 28%

5-year average net-income margin: 24%

5-year average return on equity: 120%

Growth Metrics

Revenue growth 5-year average (year-on-year): 9%

EBIT growth 5-year average (year-on-year): 13%

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Talk soon,

Sam