The Oracle of Omaha

"Rule No. 1:  Never lose money.

Rule No. 2:  Never forget rule No. 1"

Warren Buffet

"It's not necessary to do extraordinary things to get extraordinary results"

Warren Buffet

Warren Buffet is an amazing man often put on a pedestal to be admired by all.  He accumulated great wealth (and kept it) for over a half a century - see rule no. 1.  Off and on he has been he wealthiest man in the world.  In 1953 he convinced a couple friends and family members to invest in his ideas.  I'm sure those original investors never imagined he would be able to grow their small investments into huge fortunes.  He was a young man without much of a track record but people believed in him.  He used basic logic to find valuable companies that were being under valued by the market as a whole.  Why is this important today?  Well, i think the answer to that is pretty obvious.  We are in the midst of a recession where credit is tight.  Almost every company is being negatively affected whether their balance sheet looks good or not.  Personally, I believe the way business was conducted over the last decade and a half with huge leveraged buyouts and cheap borrowing has temporarily come to an end.  Peoples memories are short and it will inevitably return.  But this doesn't change the basic concept that once Americans and the world recovers from this worldwide recession (and it truly is a worldwide recession) certain companies will flourish.  Most major indexes have increased in value over the last half century and i believe that they will continue to increase in value for at least the next century (at least i hope!!!)  

This is where the challenge lies.  How do you find undervalued companies that have been "undeservingly affected" by the recession?  If it were an easy answer everyone would be rich.  But keep in mind that it's not impossible and refer to quote number 2... "It's not necessary to do extraordinary things to get extraordinary results."  

Now is the time to take risks.  Most of my friends don't have a family to take care of or large amounts of debt.  The way i see it, the upside outweighs the risks (classic cost benefit analysis).  Stock prices are currently lower than we have seen them in our lifetime (at least in our semi-adult lifetime).  The goal shouldn't be making a quick buck but finding companies with real value (stay away from financials!) that will still be around and flourishing in the next 5-10 years (or longer if you have the stomach for it).  Don't try to do it alone.  Get some friends involved and put together your own plan.  Multiple minds are often better than one.  

My personal opinions...

1.  Companies that require large expensive capitol equipment are risky.

2.  The Internet is here to stay.  I'm 25; I should be able to see the impact of the Internet better than the 55 year old sitting at a desk trying to analyze where it's going to go and how it's going to be used.  Based on this i like UPS and FedEx, especially since DHL gave up on domestic shipping.  Internet purchases will grow and will pick up once we are out of this recession.  Plus their stocks have been hammered recently.

3.  Oil is a limited resource and will not stay below 40 dollars forever.  I'm not arguing that the 150 price point was justified either, but $30 a barrel will not last much longer.  

4.  Inflation is a big concern.  Printing money has repercussions.  Try to hedge against it.