Value Investing Principle #4: Value Investors are Futurists

My interest is in the Future because I am going to spend the rest of my life there. - Charles Kettering

In a recent post on Value Traps, I promised that I would offer what is the #1 way to hone one's ability to recognize a 'value trap'. The answer's simple: Become a 'Futurist'.

Before I tell you what a Futurist is, allow me to briefly explain how I stumbled across Futurism.

In 2001, and from the furthest city in the world from Jerusalem – Sydney – I watched intently (and with great disapproval) at how the political and social situation in Israel was unfolding. I couldn't bear being a distant sideline observer, and wanted to become more involved in Israeli 'policy-shaping'. And so, in the first half of that year, I left Australia and abandoned the world of entrepreneurialism, venture capital and financial markets to begin a new career path.

Soon after arriving in Israel, I found myself working under Professor Yehezkel Dror, Israel Prize Recipient, and one of the country's foremost thinkers and policy-planners. With his guidance I co-wrote the "The External Mirrors of Israel: A Comparative study of Israel and it's Neighbors" which was presented at the 2001 Herzliya Conference.

Dror introduced me to a field which immediately appealed to my love of history and sense of curiosity: Futurist Studies or Futurism. As I immersed myself in the reading material, I quickly recognized the similarities and importance of this field to my former profession – and to Value Investing.

So what's a Futurist?

Imagine that we're all passengers on one of the ships on Columbus' fleet. The Futurist's role is to sit in the little 'lookout perch' (called a 'crow's nest) at the top of the ship's mast and to scan the horizon in search of possible danger such as hidden reefs, enemy ships, or changing weather patterns. In fact, anything that might affect the ship's course, mission or safety. He relays all relevant information to the ship's captain and crew, who take such information with the required seriousness, and they respond as needed.

OK – enough with the metaphor. Adopting a multidisciplinary perspective, Futurists examine various long term trends with the hope of identifying the threats and opportunities that face all of mankind in the future. Futurists study and seek patterns of 'change'. To see what I mean, take a look at what I believe is one of the most eye-opening videos on YouTube today:

Futurists pose the question: "how will our lives be different 25 (or more) years from now?" Areas of interest include:

- Demographics: How do the trends of living longer, getting married later and having fewer children affect society, the labor force, social welfare, taxes, etc.

- Religion: What's happening in the world's major religions?

- Education: How are learning habits changing?

- Health: What are the trends and developments regarding health, diseases, nutrition, obesity, medication and health care?

- Work Lives: How is our work lives changing? Are we working more or less than previous generations? How does this affect our family units, education and social values?

- Wealth: Which professions and industries are valued the most by modern society – and why?

- Recreation: What are the trends with regards to how much free time we enjoy and how we choose to spend it?

- Environment and Ecology: What are the environmental and ecological challenges that we have created for ourselves – and how can they be addressed?

- Science & Technology: What are the new frontiers? Space? DNA engineering? New forms of planetary and inter-planetary travel. New forms of communication and knowledge-sharing.

- World Conflicts: How have global conflicts changed in the past century?

Examining such issues, futurists most of all seek to identify 'disruptive trends' or 'ruptures' in history. These are changes so significant that Futurists predict they will have a major impact on our future lives.

Back to the metaphor: unlike a ship's captain or crew whom listens and acts according to what the ship's lookout sees, mankind and its leaders do not have the same inclination to heed futurist thought. Futurists are sometimes ignored and often ridiculed, as states, world leaders, industries, and multinational corporations continue to focus on individual short-term interests over collective long-term security.

Ironically, if a Futurist succeeds in his role as a 'policy shaper', then the leaders he works for will have found ways to navigate around the threats that he identified, and his predictions will never eventuate.

The interesting thing about 'futurist thinking' is that when a person is revealed to it, they are usually not surprised at its findings. This is because the trends discussed are happening before our very eyes, and happening ever so slowly that we fail to ask the important question: 'So What?' We usually know what's going on – but fail to recognize the long-term implications that they have on our lives. Perhaps this is because we are so focused with the short term day-to-day distractions that lie immediately before us that we rarely manage to lift our heads and set our eyes on the horizon? I don't know. What I do know however is that if we are unable to look to the distance, we should at least pay some attention to those that can.

So how does this bear any relevance to Value Investors?

Futurist thinking and Value Investing go hand in hand. Value Investors are by nature, long-term oriented, and seek to gain understanding on 'what's going on?' from the long perspective. Such an understanding allows Value Investors to identify what will be important markets and industries in the future and what industries are waning and should be avoided. (Take a look at my recent post on Gannett to see how recognizing the changing trends on how we consume news would have prevented you from erringly invested in a 'value trap'.)

When reading Berkshire Hathaway Annual reports and Letters to Shareholders one gets the distinct impression that Buffett is a Futurist at heart. His writings also bear the tone of a ship's lookout that is desperately trying to get the attention and warn the captain and crew below. Just take a look at these two recent examples:

America's Growing Trade Deficit is Selling the Nation Out from Under Us. Here's a Way to Fix the Problem - and We Need to Do It Now! - by Warren Buffett, Fortune Magazine, October 6, 2004

What Worries Warren - by Warren Buffett, Fortune Magazine, March 3, 2003

In the coming posts I intend to introduce some Futurist thought, although I doubt that any of it will be new to you. In these, I hope to answer the 'So What?' question by pointing to what I believe are the main long term drivers of the future and the Value Investing opportunities that we can patiently lie in ambush for.

Some Additional Futurist Resources

- The Futurists Top 10 Forecasts for 2008

- The World Futurist Society

- The Futurist Magazine

Recommended Futurist Reading:

(Tip: Hover your mouse over the title of the book for additional information on it).

Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics

Revolutionary Wealth: How it will be created and how it will change our lives

The Third Wave

Future Shock

Powershift: Knowledge, Wealth, and Power at the Edge of the 21st Century

Seeing What's Next: Using Theories of Innovation to Predict Industry Change

Medici Effect: What Elephants and Epidemics Can Teach Us About Innovation

The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010

The Roaring 2000s: Building The Wealth And Lifestyle You Desire In The Greatest Boom In History
Guns, Germs, and Steel: The Fates of Human Societies

Collapse: How Societies Choose to Fail or Succeed

The Third Chimpanzee: The Evolution and Future of the Human Animal (P.S.)

The Art of the Long View: Planning for the Future in an Uncertain World

Inevitable Surprises: Thinking Ahead in a Time of Turbulence

Warren Buffett Bursting with Pride at Israeli Acquisition

Warren Buffett is currently on a whirlwind tour of Asia. The impetus of the trip was an invitation by Iscar CEO, Eitan Wertheimer to Buffett, to officially open Iscar's first metalworking production plant in Dalian China.

In yesterday's exclusive interview with Ha'aretz's Guy Rolnick, Warren Buffett could not say enough great things about his purchase last year of Israeli metalworking company, Iscar.

Below are some of Buffett's thoughts:

"Iscar is a dream deal. It has surpassed all the expectations I had when buying the company, and my expectations had been very high."

"Since I met Eitan Wertheimer [Iscar's CEO], and acquired Iscar, the people at Berkshire Hathaway think I'm a lot smarter".

When Rolnick asked Buffett how Iscar has performed since he acquired it, Buffett responded:

"Next week I have a board meeting in Columbus, Ohio....Only three Berkshire Hathaway companies will be making presentations there: two insurance companies and Iscar.... And when the people from Iscar make their presentation.... the buttons are going to burst right off his shirt because [I'll] be so puffed with pride about that deal."

For those readers who are not up to speed with the Berkshire acquisition of Iscar, here's a quick summary.

• In early 2006, Buffett received aone and a half page letter from Eitan Wertheimer, Iscar's CEO, describing the Iscar business. Buffett stated that when he read the letter something jumped out at him, and he invited Eitan to Omaha.
• Soon after meeting Wertheimer, the details of Berkshire's acquisition of Iscar were agreed upon.. Buffett did not use an investment bank or corporate advisors on the acquisition. He didn't even visit the Iscar plants.
• Berkshire paid $4 billion for an 80% interest of the business. This was Buffett's first acquisition outside of the US.

Soon after the Iscar acquisition, Buffett paid his first visit to Israel. Below is a 7 minute interview from that trip. Apart from the first 25 seconds, the interview is in English.

In the interview, he explains why he does not perceive Israel as a greater security threat than either the US or the UK.

Some Excerpts:

" I can give you an absolute, unequivicol answer....it's very impressive when a country of 7 million or so people turns out a business like this.... I haven't seen anything like this in the US."

"We weren't measuring Iscar against any other Israeli company. We were measuring it against everything we see in the world".

"If you compared Israel in 2006 with Israel in 1948, it's very very impressive".

"Israel should not be a secret....it's remarkable place... particularly the talent.... talent's worth far more than money."

VIDEO: Warren Buffett Interview on Fox Business (Oct. 18,2007)

The Fox Business Network which commenced operations last week, hit it off to a great start with this great one-hour interview with Warren Buffett. The interview was conducted by Liz Clayman, formerly of CNBC, who recently joined the network. This was not her first interview with Buffett, and as always, Buffett's humility, candor and wisdom does not disappoint.

Below are some of the video excerpts from the interview, along with the gems that I extracted and some personal thoughts (in blue and tagged with 'IV').

On the Economy (6 Minutes)

"We don't really worry that much about Fed policy, and actually we don't really worry that much about a recession - I hope I live to see a couple recessions."

IV: Value Investors do not pay too much attention to macroeconomic figures such as interest rates, inflation, unemployment figures or the trade balance. They only focus on the fundamentals of the business they are analyzing. As they are long term investors, they know that the businesses they invest in will one day go through a recessionary period. It is inevitable. It is for this reason that when analyzing a company, Value Investors look at the 10-year financial history, and assess how well the business fared during the tougher years.

IV: "I hope I live to see a couple recessions." - This is typical of the Value Investing philosophy - Value Investors love market weakness - as these are the times when the best buying opportunities are available. Incidentally, I recently met with the Managing Director of one of Israel's largest mutual funds businesses, and he was telling me how tough this environment was for him, and how these were dark times for the business. His fund managers are not seeking bargains now, but rather taking the market's lead, and exiting their positions.

"When the tide goes out, you see who's been swimming naked".

IV: This is one of my favorite Buffett quotes - one he has used many times. What he means by this is that it is easy to do well as an investor when the market has been rising and you are buoyed by it. The real test however is when the market suffers significant weakness, and investors flee to 'quality' and defensive companies. One such company is Buffett's Berkshire Hathaway (Ticker:BRK)- which has increased 20% since last July.

On Selling Petrochina (5 Minutes)

"Unfortunately I sold it a little too soon..... we made about $3.5 billion on a $500m investment... I still sold it way too soon.... Charlie would say 'you've done it again!".

IV: This type of comment is vintage Buffett, and which has endeared him to fans and investors around the world. He doesn't speak with bravado declaring 'look I turned $500m into $3.5b but rather - 'I screwed up' - I sold it too soon. It's this type of candid talk which Value Investors look for in the management of businesses they are analyzing.

"It was a 100% decision based on valuation."

"We think about 'how much is it selling for?... 'how much do we think it's worth?"

IV: Value Investors do not try to time the market. They do not seek 'bottoms' or 'tops'. Their investments are based on their estimate of what the entire business is worth.

When asked 'How did [Petrochina] come to your attention? How do you find a stock like that'?

"I sat there in my office, and read an annual report, which fortunately was in English - and it described a very good company..... I sat there and said to myself this company's worth about $100 billion (and at the time it was trading for $35 billion). Now I didn't look at the price first. I looked at the business first, and tried to figure out what its worth - because if I look at the price first I'll get influenced by that. I look at the business first, I try to value it and then I look at the price. If the price is way less than what I just valued it at, I'm going to buy it."

"Other guys read Playboy. I read annual reports....I just read every report I can and figure out whether something is cheap."

IV: Buffett's message is clear. You've got to do the work yourself. No shortcuts. Don't listen to analyst reports or rumors. Do your own independent research. Read the annual reports. Look for what the rest of the market is not seeing.

On Buffett's Best Investment Ever (30 seconds)

IV: Those who know Buffett's history will know already that this investment is GEICO. The story goes that whilst studying at Columbia under his mentor Benjamin Graham, the 21-year old Buffett discovered that Graham was on the Board of GEICO. One Saturday morning, he boarded a train and headed to GEICO's headquarters, which were closed. He found a janitor and pleaded with him to take him to someone who worked for the company. The janitor took him up to the only person in the building at the time - Lorimar Davidson, GEICO's Chief Investment Officer. The young Buffett made enough of an impression on the senior executive that Davidson ended up chatting with him for 5 hours. By the end of that Saturday Buffett recognized GEICO business potential, and why Graham had invested in the business. Soon after Buffett invested 75% of his net worth - $9,000 and sold a couple of years later for a 50% profit. In the late '70's Buffett returned to GEICO, and invested more than $47 million into the company. Today that investment is worth more than $9 billion.

You can read a 1951 analysis of GEICO written by a young Buffett here - "The Security I Like Best" - (thanks to Oded for the link).

Buffett on Bear Stearns (50 seconds)

Buffett on the Yankees (2 mins)

Buffett on Succession (1 min. 41 secs)

"All Three [CEO's] of them are far better than I am".

IV: In my opinion, this is one of the secrets to Buffett's success. Buffett's investment company owns 49 private businesses, that employ more than 217,000 employees. The CEO's that run these businesses are all independently wealthy and do not really need to work. Yet they continue to work under and remain extremely devoted and loyal to Buffett. The reason for this is simple: Buffett refuses to take credit for Berkshire's success. Rather he gives all the credit to his managers, often making statements like "All three are far better than me". This is how you earn long-term loyalty. In contrast, a CEO who takes all the credit for himself will inevitably chase away great executives and managers.

Who is this Warren Buffett Dude Anyway?

Most people have heard of Warren Buffett, but very few have taken the time to discover how he has generated such immense wealth, why he has had such a profound influence on so many, and why his company Berkshire Hathaway attracts more than 20,000 people for the Annual Shareholders Meeting.

Warren E. Buffett is many things to many people. To me, he is first and foremost a teacher – probably one of the greatest teachers I have ever had. Many may ask 'how can you call him a teacher if you have never met him or spoken to him'. My answer is simple: a teacher is someone that you learn from. Someone that successfully passes on to you a message. The greater that message, and the greater the impact that it has had on your life, then the greater the teacher. I suspect that in this, I am not alone.

With good reason Buffett is viewed by many as one of, if not the greatest investor of all time. Not only has he created immense wealth for himself, but also a greater collective wealth for the thousands of loyal shareholders of his investment holding company, Berkshire Hathaway Inc. Like Donald and Mildred Othmer.

The Othmers, he a chemical engineer and she a school teacher, made two astute investment decisions in their lives. Their first astute investment decision came in 1956, when the then 25 year old Buffett established his first investment partnership. The Othmers, a modest couple in their mid-50's and friends with the Buffett family, each gave the young Buffett $25,000 to invest. In 1970, they each received 7,500 shares of Buffett's new company Berkshire Hathaway Inc, which were then priced at $42 a share. Buffett had multiplied the Othmer's initial investment by almost 13 times, in less than 15 years. Recognizing Buffett's investment prowess, the Othmers decided not to sell their shares and continued to hold Berkshire stock for the long term. This was their second astute investment decision.

Donald Othmer died in 1995, and his wife three years later. Their shares, which they had refused to sell, had grown from $42 a share to over $60,000 a share, creating an estate that was worth over $800 million.

And then there's the story of Buffett’s neighbor, Don Keough. Keough served as chairman of the board of Coca-Cola (1986-1993) and Columbia Pictures (1985-1989), and has served as a member of the boards of McDonalds, Heinz, The Washington Post, and Home Depot. He currently serves on the boards of Coca-Cola and Berkshire Hathaway. Keough once mentioned in an interview that when he was a young executive he would leave for work every day while Buffett ran his investment operation from his home. He recounts:

"Warren Buffett had a marvelous hobby, model trains, and my kids used to troop over there and play with them. One day, Warren popped over and asked us if I’d thought about how I was going to afford to send my kids to college. In truth, I hadn’t given it much thought. But I told him I planned to work hard and see what happened. Warren said that if I gave him $5,000 to invest, he’d probably be able to do it better. My wife and I talked it over, but we figured we didn’t know what this guy even did for a living – how could we give him $5,000? We’ve been kicking ourselves ever since. I mean, if we had given him the dough, we could have owned a college by now".

– from The Midas Touch, John Train

If you had invested $10,000 in the S&P 500 in 1966, your investment would have grown to almost $528,000 by the end of 2006, or what equates to an annualized return of 10.6% annualized return. If on the other hand you chose to allow Buffett to manage those funds, your initial investment would have ballooned to an incredible $59.2 million by the end of 2006 – more than 100 times the S&P 500's return. Buffett's annualized return over that period equates to an annualized return of almost 24%, more than double the S&P 500. This more than anything else demonstrates the difference between the results of average and exceptional performance that is compounded over the long term.

A little over a decade ago, when I first heard of Buffett's phenomenal investment track record one thing became absolutely clear to me: there is something different that this man is doing that allows him to outperform the market by a wide margin – and I needed to know what it is. I became a man on a mission and was determined to discover Buffett's investment secrets.

Within six months I had collected and read all the Annual Berkshire Shareholder Letters and voraciously soaked up every fact and detail from the few books that had been written about him at the time. After I devoured those, I went on to read the writings of those that had the most influence on his investment philosophy - Buffett's mentor Benjamin Graham and other investment giants such as Philip Fisher and Peter Lynch. I soon realized how little I knew, and how much learning lay before me.

If you are at all interested in generating the wealth (who isn’t?), then I highly recommend that you embark on the same journey that began for me over a decade ago – and learn about Buffett’s methods, and the views of those that influenced him.

The Israel Value Investing Blog is a great place to start.

Some Interesting Buffettology:

• With a net worth of more than $52 billion, Bufffett is the 3rd richest man on the planet behind Bill Gates and Mexican businessman Carlos Slim Helu.


• Most of Warren Buffett wealth is in Berkshire Hathaway stocks. He owns approximately 38% of the company.


• Berkshire Hathaway is currently worth $184.87 billion, and holds $47 billion in cash (about 40%).


• In 1979, the share price of Berkshire Hathaway (Buffett’s company) traded at $279. Today (August 2007) it trades at around $120,000. That’s $120,000 for one share!


• From 1965 to 2006 Berkshire Hathaway achieved an annual compound return of 21.4% compared to S&P 500 of 10.4%. The overall return for Berkshire Hathaway shares from 1965 to 2006 was 361,156 % compared to 6,479% for the S&P 500.


• The Berkshire Hathaway companies have more than 217,00o employees and generate more than $100 billion in revenue per year.
  
• Berkshire owns 49 private businesses which can be viewed here. These businesses generate a minimum of $150 million per week in free cash flow for Berkshire Hathaway. Simply put - every week these businesses 'send checks' back to 'Head Office' worth at least $150 million for Buffett to invest (it is no wonder he is sitting on $47 billion of cash!)


• There are about 20 employees at Berkshire's head office - mostly accountants. There are no analysts. Buffett is the only one.


• Buffett’s current annual salary is $100,000 (compare this to the average CEO salary of the S&P 500 companies which is $9 million).


• Every year in May approximately 25,000 Berkshire shareholders gather Omaha’s Qwest Center for the Annual Shareholders meeting. It is a 2-day affair and involves many activities. The main event is a 6-hour Q&A session with Buffett and his partner Charlie Munger.


• Buffett loves playing bridge, and plays about 12 hours a week. Sometimes over the internet with Bill Gates.

• Buffett’s favorite place to eat is Gorat’s in Omaha. He always purchases a T-bone steak (cooked rare), a double order of hash browns, and Cherry Coke.

• According to U.S. News and World Report, he drinks about five Cherry Cokes a day.

• Buffett does not have a pc on his desk, does not use e-mail and drives his own car.

• In 1956 he purchased a 5-bedroom home for $31,500. He still lives there today.

• Buffett reads 5 different newspapers a day. On several occasions he has said that he spends 80% of his day reading - mostly company annual reports.

• Buffett does not read analyst reports or economic forecasts.

• Every year an auction takes place with the highest bidder winning a lunch with Buffett. In 2007, the highest bid was $650,100 to up and coming value investor, Mohnish Pabrai.


• Berkshire’s largest holdings are: Coca-Cola (8.6% of the company), American Express (12.6%), Moody’s (17.2%), Proctor & Gamble (3.2%) & Wells Fargo & Co. (6.5%).


• In June 2006, Buffett publicly committed to giving away his entire personal fortune to charity, with 83% going to the Bill and Melinda Gates Foundation (that’s $15 million a day!). This is the largest philanthropic gift in history.


• In 2006, 35 separate university classes from around the U.S visited Warren Buffett. Over 2,000 students received 6 hours face-time with Buffett. During this time, Buffett lectures them on character, business ethics, and takes questions. He then takes them out to eat at Gorat’s – his favorite steak house. You can view some of the notes from these meetings here, here, here, here, here and here.
  

The Making of Buffett – Ages 13 - 38

• At age 11, Buffett bought his first stock – Cities Service – for $38 per share. The stock dropped to $27 before shooting up to $40. Buffett sold his stock at this price. Soon after, the stock rocketed to $200 a share and Buffett learned the value of patience.


• At age 13, Buffett filed his first tax return and claimed a $35 tax deduction for his bicycle. The same year he declared to a friend that he will be a millionaire before he turns 30, or "[I'll] jump off the tallest building in Omaha."


• At age 15, Buffett began delivering newspapers for the Washington Post company, earning $175 a month. This was his first exposure to the print media industry. Later on in life, he bought 18% of the company.


• Also at age 15, he invested $1,200 of his savings and bought 40 acres of farmland.


• At age 17, Buffett and a friend bought a used pinball machine, and placed it in a nearby barber shop. Within a number of months, he owned 7 machines in different locations and was earning $50 a week. He later sold this business for $1,200.


• Whilst in highschool, he bought a 1934 Rolls Royce with a friend for $350, and rented it out for $35 a day. By the time he graduated high school he had saved $6,000.


• At Age 19, Buffett applied to Harvard Business School and was not accepted.


• That same year he read Benjamin Graham’s “Intelligent Investor” and was so impressed with the book that he immediately applied to Columbia’s Business school, where Graham was teaching. He was accepted, and received the only +A grade that Graham ever gave.


• At age 21, Buffett purchased a Texaco Gas station as a side investment, but the investment was not successful.


• At age 25 (1956), Buffett established a Limited Investment Partnership “Buffett Associates with $105,000 of investor funds, and worked from a bedroom in his home. Within 3 years Buffett doubled his investors’ funds. Within 6 years the partnership’s assets were worth $7.2 million. Within 11 years they were worth $65 million. Within 12 years they were worth $104 million. You can view facsimile copies of his letters to his investors during these years here.

Buffett Writings & Interviews online:

Annual Letters to Berkshire Shareholders (A must read!)

The Super-Investors of Graham-and-Doddsville by Warren Buffett

Warren Buffett lecture to Notre Dame Students, 1991

Warren Buffett lecture to University of Florida Students, 1998

Mr. Buffett on the Stock Market, Fortune Magazine, Carol Loomis, November 1999

What Worries Warren, by Warren Buffett, Fortune Magazine, March 2003 - Warren's thoughts on the dangers of Derivatives.

America's Growing Trade Deficit is Selling the Nation Out from Under Us, by Warren Buffett, Fortune Magazine, October 2003

A comprehensive list of articles on and by Buffett can be found here.

Buffett Videos and Lectures online:

Warren Buffett lectures to University of Florida Students, 1998

Charlie Rose, 2007 1-hour interview with Warren Buffett Interview.

CNN interview at the Berkshire Hathaway 2007 Annual Shareholders Meeting

Next Post - "The Secret to Becoming A Great Investor" - according to Buffett & Maimonides

Signing off for now: "May you always possess the wisdom to see what the market does not, and the courage to act on it."

The Relationship between Gratitude & Value Investing

I am continuously amazed at the extent of humility that I see in the value investors that I so much admire and learn from. When one reads / hears their words, one gets the distinct impression that they are genuinely aware they couldn't have been so successful without the assistance of others. They are forever declaring how lucky they are, how fortunate and grateful they are etc. They do not attempt to convince their investors that they can out-guess or time the market, and they are able to say 'I have no idea'. Their humor is self-deprecating and they do no hesitate in admitting their investment errors, or their infallibility.

Here's some examples of Warren Buffett's humility and gratitude:

"Charlie and I are extraordinarily lucky. We were born in America; had terrific parents who saw that we got good educations; have enjoyed wonderful families and great health; and came equipped with a “business” gene that allows us to prosper in a manner hugely disproportionate to other people who contribute as much or more to our society’s well-being. Moreover, we have long had jobs that we love, in which we are helped every day in countless ways by talented and cheerful associates. No wonder we tapdance to work."

"The odds for me to have been born in the US were 1 in 50. I won the ovarian lottery. If I had been born in Bangladesh, the chances are that I would not have had such great opportunity. Bill Gates says that if I had been born 1,000 years ago, I would have been some animal's lunch."

"Charlie shoved me in the direction of not just buying bargains, as Ben Graham had taught me. This was the real impact Charlie had on me. It took a powerful force to move me on from Graham's limiting views. It was the power of Charlie's mind. He expanded my horizons."

It occurred to me that there is a direct relationship between one's level of gratitude and one's ability to succeed as a Value Investor. But before I share this observation, I think I should first give thanks myself:

First and Foremost, I am extremely thankful for:

My wife Einat, who allows me to be me. From the onset you have been supportive of and willing to join me in doing things differently, in not being pressured with what is conventionally expected of us, and of holding a long term view. Our children could not want for a more amazing mother. I could not want for a more amazing partner. And you're one hell of a cook!

My daughters – Alma and Shira – you are my greatest teachers. I am in constant awe of you both, and of the role of parent. I can only hope I won't let you down.

My parents – who placed education above all. By example, you taught us the value of a strong work ethic and the importance of integrity.

And especially to my father, who put that first book 'How to Buy Stocks' (by Louis Engel) into my hands at age 12. I still have that paperback copy (1977 edition), its pages tattered and the color of a macchiato. Since then, I have been captivated by financial markets, and constantly seek to outwit 'the crowd'.

I am also very thankful to (in no particular order):

Oded Kraizel – My very own 'abominable no-man', he is the real impetus behind this blog. In the short time that I have known him, he has had a major positive influence. He has an eagle-eye when it comes to financial statement analysis, despite having no formal accounting training and is a committed Value Investor. And he makes the world's best Tahini!

Tony Holley – who first struck up a conversation with me at a bus stop in Sydney's financial district, and then proceeded to explain how my methods for investment analysis were all wrong. In the space of a couple of weeks you placed The Intelligent Investor into my hands, introduced me to the world of Buffett, and convinced me to abandon technical analysis and adopt the precepts of Value Investing. Ever since then, you continuously ensure that I am reading great books – even when the distance between us is thousands of miles.

Larry Shein – who was the raw definition of courage. I am forever grateful for the laughter and hours of philosophy, and for the chance to say goodbye.

Lisa Wade – who despite living on a different continent to me for most of the last 15 years, remains one of my closest friends. She was the first person that suggested that I become an equity analyst.

Hamish Petrie – who I have had the wildest of times with, and who dragged me from Sydney to San Francisco to set up our first company. He is one of the greatest salesmen I know. Watch out for his close – it's lethal!

Danny Marcus – who is committed to remaining young at heart. I miss diving with him, his friendship and humor, his worldly wisdom, and his insistence that I learn from his experiences.

Dave Shein, Nathan Cher & ComTech Communications - my years at ComTech had a major influence in shaping the way I view business strategy, management structures and accounting principles. I was the company's 4th employee, working part-time whilst still in highschool, making and testing networking cables in the Erskine Street basement. I financed my university years by working in the company's dispatch center and later in the PROM testing lab, before becoming the company's assistant accountant. There is much to write about what I learned at ComTech, and I hope to devote an entire post to it.

Prof. Yehezkel Dror – Recipient of the Israel Prize. I was fortunate to work under his steadfast tutelage during my first years in Israel. I will be forever grateful to him for introducing me to the world of futurist studies, and long-term scenario and trend analysis.

Shlomo Nir – who is always there and generous with advice on all matters, from parenting and marriage, to car engines and problems with the plumbing.

Illana McKinstry and Dezy Devai – the twin sisters that have been like my own. They have been there, unconditionally, for as far back as I can remember.

Paul Israel & The Australia-Israel Chamber of Commerce - for his untiring dedication to promoting bilateral trade between the 2 countries. Onya Paul!

Jon Boock and the Israel Funds Observer team - In an industry that does not possess a modicum of a long-term perspective, they are the lone voice committed to bringing to the Israeli Market a level of rationality and depth of analysis that did not exist previously. Watch for their analysis and commentaries - they will no doubt separate the wheat from the chaff!

Oren Shemesh – because you can't be lucky enough to have great neighbors!

My students - past and present - you are a constant source of challenge, fulfillment, learning and inspiration.

And I could not see what I see, nor do what I do, were it not for my teachers:

I am grateful to my teachers: Warren Buffett, Charlie Munger, Benjamin Graham, Philip Fisher, Mohnish Pabrai, and Joel Greenblatt.

I have yet to come face to face with any of you, and we have never exchanged a word, but you continue to share your knowledge generously. You answer questions that are too intelligent for me to pose, and you have blazed a bright and burning trail that has been easy to follow.

You see, I am really nothing more than the sum total of the cumulative influences of the individuals that I have deeply associated with, and from the books that I have read. The only credit I grant myself is in surrounding myself with people far more intelligent and talented than I am, my willingness to be open to new ideas, and for earning their friendship and affection. When you surround yourself with people that you admire and that you can learn from, you are left with little choice but to improve yourself. They force you to be the best you can be.

The relationship between Gratitude and Successful Value Investing

It is easy to feel genuinely grateful for one's situation when one is critically honest with oneself, and is not tainted by ego. One views things more clearly and has a greater appreciation of all the factors that have lead to the present moment.

Successful Value Investing begins with the ability to appraise an asset accurately – to see it clearly for what it is – without all the market noise. To appreciate something is to know its worth or value – to appraise it accurately - and so dear reader, it should be no surprise that the world's most successful value investors are also the most grateful.

You see, the process of wealth generation seems to begin by realizing how wealthy we already are. I think this is what Rabbi Ben Zoma meant when he said: "Who is rich? He who is happy with that he has." Pirkei Avot (Ethics of the Fathers). It is also an interesting coincidence that this same quote appears in Benjamin Franklin's Poor Richard's Almanack. Benjamin Franklin is Charlie Munger's hero. Charlie is Warren Buffett's partner.

A Gratitude Meditation

If you woke up this morning with more health than illness, you are more blessed than the million who will not survive this week.

If you have never experienced the danger of battle, the loneliness of imprisonment, the agony of torture, or the pangs of starvation, you are ahead of 500 million people in the world.

If you can attend a church / synagogue meeting without fear of harrassment, arrest, torture or death, you are more blessed than 3 billion people in the world.

If you have food in the refrigerator, clothes on your back, a roof over your head, and a place to sleep, you are richer than 75% of this world.

If you have money in the bank, in your wallet, and spare change in a dish someplace, you are among the top 8% of the world's wealthy.

If you have ever made a phone call, you are ahead of 50% of the world population that never has.

And if you are reading this blog - and have access to the internet then you are ahead of 90% of the world population that does not have access to the internet.

Next Post - "Who is this Warren Buffett Dude Anyway?"

Signing off for now: "May you always possess the wisdom to see what the market does not, and the courage to act on it."

Israel Value Investing Blog Launch:Happy 77th Birthday Warren Buffett!

Greetings dear visitor and welcome to Israel Value Investing!

The very first post of Israel Value Investing is brought to you by the letters, 'W', 'E' & 'B' and the number '7'.

I chose to launch this post today – of all days – because it was on this day 77 years ago that we were fortunate enough to have one of history's most successful long-term investors join us.

Happy 77th Birthday Warren Edward Buffett – it's good to have you with us!

We wish you long-life – or as they say in the Jewish tradition – 'Until 120'.

The Israel Value Investing blog is dedicated first and foremost to Warren Buffett.

I have little doubt that this blog would exist if it were not for the man. One cannot generate content relating to Value Investing without referring to Warren Buffett or quoting him constantly (and - as you will see - there’s a lot worth quoting!). The contribution that he has made to the Value Investing philosophy is without measure. Through his Annual Letters to Shareholders, 6-hour long Q & A sessions at the Berkshire Annual Shareholders meeting, and hundreds of interviews, Buffett has generously shared with the world his views, philosophies and investment strategies. Anyone who had the common sense to recognize the eternal truths behind his views will not hesitate to tell you that he is a better investor, CEO, parent, and human being because of them. Close to 20 books have been written about Buffett and hundreds of media articles and interviews. It is little wonder that a cult-following has emerged, hanging off every word and every investment move.

If you have not heard about Warren Buffett, or know little about him – not to worry – I plan to dedicate an entire post to him in the coming days, and will no doubt refer to him in future posts.

The Israel Value Investing blog is where I get to combine my passion for value investing, Warren Buffett (not that kind of passion!), Israel and writing. It is here where I hope to analyze and discuss Value Investing opportunities that present themselves in Israel. It also serves as a medium to address the endless questions from family, friends, and students. Questions like:

Isn’t the stock market risky?

Shouldn’t you invest in real estate? Real estate is a much safer investment than the stock market?

If you’re so good at picking stocks why don’t you use options?

If you’re so good at picking stocks why is such a large portion of your portfolio in cash or treasuries?

Shouldn’t you have a more diversified portfolio?

Shouldn’t you exit the market now, the experts are saying that it is overpriced and heading for a crash?

Who is this Warren Buffett dude that you are endlessly quoting?

Why are you always reading?

In the Israel Value Investing blog you can expect to find posts relating to:

(i) Value Investing: What it is, what are its tenets, why it is considered the most successful long term strategy for investing in the stock market, who are its champions, why so few people have adopted it and more.

(ii) Israel: Why Value Investors around the world should be paying attentionto the Israeli economy and Israeli corporations.

(iii) Value Investing Opportunities in Israel: I intend to scour the Israeli and foreign markets for Israeli corporations that represent excellent 'value' - great companies at great prices.

(iv) Value Investing Opportunities that have nothing to do with Israel: I also intend to take a look at other value investing ideas which may not necessarily have anything to do with Israel.

(v) The Key Drivers that will significantly affect our lives: I hope to refer to the global ‘mega-trends’ that will most likely affect global business in the coming decades.

In the coming posts I hope to share with you:

• Who is this Warren Buffett dude anyway?


• Why possessing the habit of gratefulness will make you a better investor.


• How Buffett and Maimonides think alike and what they both believe is the secret to becoming a great investor.


• The foundation principles of Value Investing.

• Why Value Investors should pay close attention to the Israeli economy and Israeli corporations.

And much much more.

Before I start posting on Value Investing opportunities in the Israeli market, I am going to dedicate a series of posts to the underlying principles of Value Investing - for the unitiated.

For those readers that are already familiar with Value Investing, I ask for your patience while I bring the uninitiated up to speed, and look forward to your own contributions.

Next Post - "The Relationship between Gratitude & Value Investing"

Signing off for now: "May you always possess the wisdom to see what the market does not, and the courage to act on it."