GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

$7 a day will make you a million

August 12, 2007
William Spetrino Jr

William Spetrino Jr

0 followers
How would you like buy a stock at 30 years ago prices? How would you like to be partners with the one investor who has made over 100 billion dollars solely from investing? This article will get you started on the road to financial independence.

33 years ago you could have bought Berkshire Hathaway at 40 dollars per share .Today the same shares are about $110,000 . Question if you knew back then you wanted to own Berkshire 33 years ago what price would you have wanted to pay for the shares, $40 dollars or $110,000 per share? Obviously $40 would be a "bit cheaper". Back then someone who had the ingenuity to raise $1000 dollars and could "free up 20 cents per day" Someone who could borrow $1000 dollars at 7% from a relative would have paid $70 dollars debt service on their 25 shares of BRK-A. Today that $70 a year “investment” would be worth a grand total of 2.7 million dollars. And guess what how much tax you have paid? ZERO.

Berkshire B (BRK-B) now trades at $3590 per share. Someone who borrowed $36000 dollars could buy 10 BRK-B shares. The same 7% loan would cost you $2520 per year or a little over $200 a month which is about 7 dollars a day. Just assuming a 12% return rate (Pabrai thinks 15% at price of $5000 but let’s be conservative), your stock will be worth 1,152,000 million dollars in 30 years and guess how much tax you pay, ZERO! What about 15% compounded like Pabrai "projects" in 33.6years that stock will be worth over 4.6 million.

What are the odds that Berkshire B will be worth less in 30 years? Looking for the "extra 7 dollars" a day and raising the seed capital is ALL that stands in your way. You don't need to change your present investment but just add this to "your arsenal". Many financial advisors stress "diversification" and this simple idea could add millions to your net worth in the future

Ok what’s stopping you? Will most of you achieve wealth and financial independence anyhow if you have not already? Probably so. Anyone out here bought a nice vehicle to treat yourself for achieving "wealth". Think of this article and my book as a great way to "tune up" the engine and make your dream car run "even faster". The small investment in time and money could be worth millions. Would you drive your expensive dream car and have no insurance or spare tire? Think about it.

About the author:

William Spetrino Jr
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 2.5/5 (24 votes)

Comments

Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
When you borrow $36,000 you have to pay back principal and interest- not just interest. Even if rates stay as low as 7%, which is not guaranteed, that would be $210 a month at simple interest with NO repayment of principal at all.

The 'law of large numbers' also applies due to BRK's present size. Even Mr. Buffett does not think BRK can grow at anywhere near its historical rates going forward.

According to Value Line BRK 'A' shares had a total return [CAGR] of 7.98% per year for the 5 years ended in May 2007.

Peace.
buffetteer17
Buffetteer17 premium member - 6 years ago
When I refinanced my house a couple of months ago, I told the various banks I talked to that what I really wanted was a pure interest-only loan. That is, never repay any principal. That particular loan product doesn't seem to exist. But I did get a 7 year interest-only period and borrowed 80% of appraisal value. I suppose in 7 years I can try to do the same thing again, if interest rates are low. The money I extracted from the house is in stocks now, including some BRK/B.
spaul
Spaul - 6 years ago
billytickets, thanks for putting this out there for discussion and thought. It is a strategy worth considering, in my opinion, mostly for people with a long investing horizon and without a lot of other debt to pay back--at least for people disciplined enough to invest long term (and not invest in speculative stocks) and prepared to live below their means for a time if necessary.

A couple years ago, my wife and I took a similar strategy when we decided to consolidate several thousand dollars of student loans at an interest rate of less than 4%, even though we had savings enough to pay off in lump. This was against a lot of family "advice" to pay off and get out of debt as soon as possible. I figured we would never get access to such cheap money again, and we might as well take the "risk" that the $5K or so we will eventually have paid in interest on top of principal could easily be made back over the 10 year terms of the loan. The "cost" of the fixed loan in terms of interest is only about 20% of the principal--if I spread out those costs over 10 yrs, I guess I'm seeing a 2% yearly appreciation required to cover the loan costs. This still leaves me plenty of room to "profit". This is I think one of the lowest risk "investments" we have ever made. Personally, at 7% interest, the monthly payment would make me think twice based on our current income to expenses. I'd probably rather try to save the $200/month you talk about paying in interest and at the end of 1 year invest the $2400 (and do this repeatedly), but your plan certainly offers the possibility of growing wealth much more quickly, if you have the stomach for debt. I would be curious to know what your timeline for paying back the principal is with a plan like you suggest.

In making the choice to leverage yourself for the purposes of investment as billytickets suggest, it seems to me that you have to undergo the same sort of analysis as when you're going to invest in a business--and decided to do this or not based on your calculation of Margin of Safety based on what you know of your personality and discipline and income prospects.

[I just edited this posting slightly, after I realized my numbers were messed up--sorry, I just posted it a couple minutes ago without checking it, and am preparing for travel by plane tomorrow--mind in many places. Forgive the edit, thanks.]
expectingrain
Expectingrain - 6 years ago
When you "lever up" like this you are creating a synthetic WEB "hedge fund" for yourself.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
'Interest only' loans and similar unorthodox lending vehicles are what created the current mortgage debacle. They are very bad ideas.
billytickets
Billytickets - 6 years ago
Stockdoc in all due respect 1) I know i am not "paying back principal but with a couple million dollars in 30 years the 36,000 I owe is trivial isn't it? 2)210 amonth and 30 days in amonth is 7$ aday which is the premise of this article.2) I borrowed 60,000 from Republic Bank at variable rate in 2000 my dividends have ALWAYS been more than interest and with "reinvested dividends" the total amount of the investment is well over $350,000 .Now the dividend yield is 14.75% and my interest only loan is 7%.if the rate gets "too high" i can pay the loan off if need be . I agree many who used the interest only idea got in trouble but Buying a stock with a 9.5% dividend yield with a 5.5% interest rate seemed like a "no brainer" to me and overall my net worth was helped.This "IDEA" was NOT bad it simply DEPENDS WHAT YOU DO WITH MONEY. the current lending debacle was caused by people lending money to peopel who can repay their loans. Not people like me who bought stock wisely


Buffetteer17 You are correct I had a interest "home equity loan" on my 100% paid off investment property. Refinancing they will let you pull out 80% and that money at "under 7%" can depolyed wwisely as you have stated you have done as well

Spaul: I used BRK as an example but if you picked a dividend stock like JNJ your 210 a month would be reduced by 80+ dollars or so. Each couple needs to find their comfort level and my Book ( consume Consume and Consume More shows you were to"find" the extra 200 a month WITHOUT changing your Lifestyle( read the book if you want to"knowlol)

Expecting grain:Very perceptive

Ravinsu: I AGREE TOTALLY that these "loans" should be INVESTED in LARGE CAPS with LOW PE'sROE"S and a diversified company ( JNJ BRK MO etc).Siegel article explains that of teh 20 best performing stocks from 1957-2003 18 of the 20 were phramacetuicals or consumer staples


The point of this "exercise' is that society has been "trained" to borrow money for a car or consumer products or even a single family home ALL of which do not appreciate like a "well priced' common stock.More than 20 years ago when i got married BRK A was 1800 per share .If i borrowed 18000 at 10% interst my "interst only" payment would be 150 per month( less when i refinanced) and my stock would be worth 1.12 million for my 18,000 investment. My book explains how a few simple actions can make you MUCH RICHER and cause you NO pain.

Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Not too many 9.5% yielders around today. It's a different climate. As noted, BRK has returned under 8% per year for the past 5 years so there would have been virtually no benefit from borrowing to own it.
billytickets
Billytickets - 6 years ago
Since BRK B had become abuy for me in Sept of 2005 in almost 2 years the stock has "returned"over 33% which compouded is over 15% annually.The stock was overpriced in 2002 and traded higher than its intrinsic value and was not"considered" abuy for me in that time span until 2005.My book Consume Consume and Consume has my"exclusive Berkshire " Formula which UNDERSTATES intrinsic value and tells you when the stock is buy ( order it at ticketbill@aol.com) Stockdoc if you do not believe Buffett will continue his success then that is your choice. I politely disagree with you.

You are correct about any large caps not paying 9% I do not think BRK will go up 4 times in 7 years like Altria but it should double every 5 years at todays price levels

Pabrai figures that Buffett could do 15% annually if teh stock price is 5000.At 3625 the stock is a"bargain" and should achieve at "least" a 12-15% annual return( especially if the next 3 weeks do not produce amajor hurricane) over the next 10-15 years. Does anyone out ther DOUBT that the greatest investor of all time sitting on 46 billion and still making his 15% annually it GOING to "quit making it? If times get good his 61 billion dollar portfolio will increase and if times get BAD he puts all this money which has been drawing anemic returns to work at "much higher returns. WEB will continue to make his investors "richer" despite the anchor of size,which he uses to his advantage expecially in the "super cat business".Munger says his "float and the deferred tax loan is worth about 7 % or more ayear I think WEB will do his 15% as promised
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
You seem to believe that BRK should be bought and held forever. Since you say you've held it for many years, you certainly held it for those past five years with only mediocre returns.
billytickets
Billytickets - 6 years ago
Stockdoc I do believe that BRK B should be a permanent holding in everyone's portfolio PROVIDED ITS PURCHASED AT an appropriate price.( my book has such a formula) After selling a business I invested the proceeds in the "brand new" B shares at a cost of 1042 in Sept of1996. Up until 2005, Altria which was purchased from 1993-2003 and those BRK shares were my only holdings .Brk B that has been held almost 11 years has yielded me about 13% annually compounded in that time span and of course has incurred ZERO in tax.Iam sorry i did not "borrow" money and buy it at the time but unlike most people who are able to BUY my book Consume Consume and Consume More :Spend More Work Less( email me at ticketbill@aol.com if interested) I was "ignorant" and did not borrow money to increase my position. Iam aware that many in the forum "scoff" at 13% annual returns and are quick to move in and out of stocks achieving higher returns than that. As a young investor I felt that partnering up with WEB was my highest probablity of achieving financial security. Later when ALtria was "giving away" BOTH international tobacco and Domestic tobacco I was fortunate enough to 1) have more money than I had in 1996 and 2) have the brains and ballz to borrow money on my properties and from others who hated the anemic returns of money markets in 2000-2002.I only wish I would have borrowed more. In retrospect I would have sold BRK when KOs drastic appreciation cause BRK to be overpriced but was not "savvy" enough to understand at the time. Still the 13% is acceptable to me and if I could sign a contract now GUARANTEEING me 13% annually for the rest of my life and have no taxes or FRICTIONAL COSTS or FEES until liquidation I would sign up.Hope this helps explain some things.Love the discussion guys .i sincerely appreciate that you read my article and all its feedback.peace
DaveinHackensack
DaveinHackensack - 6 years ago
BillyT, I like MO and BRK -- I'm up about 50% on MO in two years and I'm up about 20% on BRK in the last year -- but I don't like your idea of borrowing money to buy them. What happens if you have a personal financial crisis at the same time these stocks are down? You'll be forced to sell shares low to make your loan payments and margin payments.
billytickets
Billytickets - 6 years ago
Dave as usual very insightful post. Great callson both MO and BRK.My point in this is that 99% of the people can "find" the extra 7$ dollars a day to do this. And if you"can not" your chance of being amillionaire is almost non existent

By no means do I advocate "excessive " borrowing or leverage and DO NOT advocate MARGIN but instead use a home equity loan or borrow from a relative. Trust me a parent who is willing to spend 35000 to educate you with private high schools or college would be "best advised" to buy BRK and charge you the interest. Anyone over 16 can handle that debt service and feel that EVERYONE who wants to be finiancially COULD find 7$ a day to do this. the question is simply HOW MUCH DESIRE do they have to be FINANCIALLY INDEPENDENT. My book has more than 2 dozen ideas but it comes down to making more or spending less. How you "accomplish" paying teh debt service is up to each individual.Like i said if this can not be done your chance of achieving financial security is minimal. Perhaps there are some who can not"borrow" or raise the money somehow. My personal observation is many can borrow that much but will choose to do it for something else( car boat consumer high school or college tution) Realize this is only 1 option.

The purpose of this article is to "stretch" your imagination and realize this IMPORTANT FACT ODDS ARE 99.9% that BErkshire or Mo or JNJ will have a higher EPS and Net worth 30 years from NOW than they do today.Therefore if you are PLANNING ON BUYING better to buy at todays prices( provided they are less than intrinsic value) The same people who tell me this is"risky" Borrow more than this amount for a "bigger"home or car or worse yet for CONSUMER DEBT or Private HIgh School or College Tutition. No offense but NONE of those expenditures awill make you amillionaire FASTER than buying BRK. Dave don't you wish that your MO was bought 7 years at 25% of todays price? Your"motivation" is to "find" that extra money somehow. Obviously you run the risk that you can not make the payments. Just stop and think of this.If the only thing which is stopping you from being finiancially independent is doing 3 tasks:

1) borrow the money

2) cover the 210$ debt service

3) buy Berkshire at aprice under intrinsic value and make sure you can handle teh monthly debt service

I think is easily duplicable and not "beyond" most people's maens.many gurufocus readers can more than handle this debt and by adding this to their"personal arsenal" will raise their net worth with a minimal amount of effort.Thanks for the feedback dave.and everyone else.peace


Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Billy,

What are your 1- 2 year price targets for MO & BRK? On what basis are you figuring them out?

billytickets
Billytickets - 6 years ago
Paul Mo is a"hold for me" right now.I would not sell the position or liquidate it at this point. Brk and JNJ are "buys" right now. I estimate stock prices based on 5 yr"windows" which i explain in my book"Consume Consume and Consume More :( order at ticketbill@aol.com if intersted) I see Jnj at about 108 when adding in dividends i see about 13-14% annual return and Brk/B i see at about 6850-7300 which should be between 12-14% annuall return compounded .The exact formulas I use are detailed in my book but both have amargin of safety "built In". musto seems to think I "understate BRK and Pabrai thinks so as well given his comments on Bloomsberg but Im sticking with my formulas margin of safety. I suppose one can project my 1 or 2 year targets by multiplying the expected percentage rate by the Current stock price. The odds that these companies earnings will be somehow lower is miniscule at best. Not"lights out" returns but given the"risk" the rewards are suitable.
mvalue
Mvalue - 6 years ago
I generally refrain from posting on any internet forums, but felt I should add my opinion here for whatever it's worth. This should be considered another view for those who come across this post, rather than a desire for heated debate.

In regards to Berkshire as an investment in general, the premise outlined here is based on assumptions that are absolutely impossible. Pabrai's $5000/15% analysis might be spot on, but it is also based on an analysis of earnings power and investment returns in the much-less-long long term. Over the course of the next 5 or even 10+ years Berkshire's earnings will be relatively wide-ranging based on economic and insurance impacts, but there's no reason the increase in share value can't equate to an average annual 15% during that kind of period despite Berkshire's size (we don't know if it will, just that it's not impossible). On the other hand, this is not a 15% perpetuity (or 12%). The math on that growth simply doesn't work for 30 years; neither the owned businesses nor the portfolio can produce those returns on the inevitable growth in size along the way, even with some excellent and large acquisitions. Maybe large buybacks and dividends could combat this issue. Returned cash solves the leverage problem over time, but you're not going to sit back on autopilot and get rich, avoid taxes, or be able to use the money to buy more shares in a company that has the same makeup as Berkshire today or has Buffett at the helm.

Leverage makes this infinitely more inappropriate. For starters, I'll just look at it from the perspective of mimicking the gurus. Buffett, Pabrai, Munger, and essentially any other well-known prudent investor would advise against this combination of leverage and projections for 30 years of abnormal returns. There are great companies that will be around and be more valuable in 30 years. Indentifying them is hard enough; attaching leverage to that bet is crazy. Even someone with an affinity for leverage and long term investing would only engage in such borrowing if they planned to de-leverage pretty quickly and simply wanted to buy at a price today with money they'd have available in the near future. Let's also keep in mind how the most concentrated of the rockstar value guys with long track records have operated - many used options on holdings from time to time, but they generally weren't borrowing money - choosing 10 or fewer holdings makes this inappropriate and, if one is more often right than wrong, unnecessary. Looking at leverage in general as a means to get rich with less capital can work, but will result in ruin more times than not. It certainly is not a way to make getting rich easy. Although the term wasn't used explicitly, I can see how someone could see this as "dhando" at first glance. "Dhando" in this context doesn't mean betting more than you've got to magnify returns - it means risking what you can and should based on your particular situation when there's a great opportunity you're confident in. I don't spend a lot of time thinking about personal finance beyond my own decisions (i.e. theories that would benefit most people), so there are experts out there with more knowledge - some have good ideas, some have lousy ones. I do know that the way so many mainstream authors on the subject are expressing debt in terms of per day cost is a little incongruent with the way most people (lower to upper middle class at the very least) spend or experience difficulties. Obviously most people will feel they can find an extra few dollars a day to save or service debt. Most people lose their cushion to cover interest payments in isolated and quickly forgotten events- a large purchase or an unexpected hardship. It's probably easier to figure out if you can take on debt by looking at the monthly and annual figures and asking if you could cover them in absolutely any circumstance. Finding more to save and invest is always wise, but the slack people incur in not saving enough is rarely about the pennies as much as the big mistakes and setbacks; isolating costs on a per day basis doesn't combat that issue and can in fact make things worse when one of these big shifts in assets/debt/earnings occurs.

There seems to be an abstract kind of bubble in the popularity of value investing right now, although not one that may have any observable impact on the performance of what can broadly be considered value stocks. We've experienced a long period where increasing bets on $2, $1, even 50 cent drops in $50 stocks has been fine as forgiving equity markets provide profit sooner rather than later and confidence rises. The practices some seem to engage in get more and more untenable the longer they continue without adverse consequences that someday will appear. Buying cheaper is obviously a profoundly wonderful thing when one is right, but the time and pain between early declines and reward can feel quite unbearable if you're in a position where you can't afford to be wrong. Following the gurus and their holdings also means understanding their operations and abilities beyond a list of stocks. Bill Miller can average down frequently on positions that as a matter of fund size generally start small and take effort to build-one more buy on a blip down generally represents a tiny, tiny piece of his portfolio, so most can't buy when he buys without taking on much more proportionate exposure. A Gotham holding comprising 50% of the reported portfolio is a much smaller piece of Greenblatt's net worth, with much of the ultra-concentrated fund in cash and uncounted in filings, and another chunk of his assets placed with managers he discovers, and more pieces in more places we don't know about. Thus, even following blindly can be made a lot safer by thinking about these things and adjusting your own actions to truly mimic the exposure and downside the gurus have-otherwise, you're not following anyone and better not be counting on anyone else's analysis, either.

A few of these latest and fantastic value books are leading to pseudo-celebrity status for authors, whereas 5 and 10 years ago the same works would have reached a much smaller and calmer audience. I worry that some wonderful ideas are being taken as gospel when they shouldn't be. Again thinking of Dhando (both the concept and the book communicating it), it can make everyone wiser in life and business, but having been exposed to the idea alone doesn't guarantee wealth and happiness. The kind of attention developing today might be an indication of why a Klarman could put out a fantastic book to great acclaim from the value investing world and then retreat from the spotlight and choose not to reprint it. If the posts here indicate some perhaps problematic expectations, the Yahoo! message-boards for some Pabrai holdings are absolutely terrifying. You have people getting into situations with big investments and no analysis because "Pabrai says...." Now you have people with some losses calling him names. And, you have this behavior with a manager who has stuck pretty closely to a discipline of not discussing current holdings, ex Berkshire. I would have thought the brief public analysis of Berkshire would be harmless for Pabrai and those who listened for a number of reasons... but I think seeing this kind of strategy cite it would make any value manager cringe. The way some are treating morsels of information is akin, on a much less significant scale, to those who plowed money into a dot-com trading at $400 based on an analyst who said it would go to $500 (and who knew just as surely their stocks couldn't go down over the long run). I hope that this situation calms down over time and doesn't discourage the best investors from continuing to share their thoughts and methods.

Observing the best and brightest, and sometimes buying alongside them when you agree with the thesis, is a great idea. Using GuruFocus and other tools is a great way to start your research. No one has promised any particular return on Berkshire shares (or any other name) - not Pabrai, not Buffett. To buy with the hope of 12% or 15% appreciation for even a few years, one should know why and how that performance is possible, and more importantly think about the various things that could prevent it.

Sorry if this got preachy and departed to tangential issues. We all know sound investment strategy involves the evaluation of risk and reward, regardless of your criteria and methods of analysis. Dhando is a brilliant way to think about risk, but the existence of low/no downside is a nuanced and relative determination. My main point is this: If you don't see any risk whatsoever in any terms and under any circumstances, look again. If you're still certain... I suppose you should bet the farm as long as that strategy is a one-off opportunity, not something you can rationalize for numerous opportunities.

For the record, I own Berkshire and find observing the actions and writings of all managers mentioned, and many not mentioned, very beneficial.
Dr. Paul Price
Dr. Paul Price premium member - 6 years ago
Very well put. Borrowing 100% [no money down] and/or with an interest only loan, is a high-risk endeavor that is not suitable to most people . Also, as you noted, past performance is no guarantee of future results- espeically with super-sized companies. It's better to 'get rich slow' than to put yourself in danger from excessive leverage.
buffetteer17
Buffetteer17 premium member - 6 years ago
Use of leverage, a case study of The Portfolio.

The situation. I use some leverage in The Portfolio, which has been operating since 9/2004. The average amount of leverage is 10%. Specifically, I borrow and invest $1 per each $10 of capital. Most of this borrowing is in the form of a margin loan with interest 9.5%, but a small part of it is a HELOC loan with interest 7%. Being in a high tax bracket, I can deduct that interest, making the effective interest rate around 6%. Indirectly 80% of my home equity is invested in The Portfolio, since I could have paid the mortgage off, but instead kept it and invested the money. I don't count this money as leverage in The Portfolio, since likely I would not have paid off the mortgage early in any event. If I did include the mortgate, my leverage would be about 20%.

The results. Yield on The Portfolio has been 33.1%/year compounded. This is the net return on assets invested after deducting all expenses, including interest and taxes incurred. The return on invested capital (i.e., assets less margin loan) is 36.4%/year. If I had not used leverage, the return on the Portfolio would have been 34.3%/year. So, the use of leverage has increased my return by 2.1%/year.

Analysis. Now the period from 9/04 to present has been an extended bull market, so the gains on the borrowed money have easily paid the interest charges many times over every year. When bad years come, as they must, I'll still be paying that interest but losing more money than I would have without the loan. In general, I need to have a yield of about twice the margin interest rate, including the occasional bad year, to justify it. Realistically, I can't count on a sustained 30+%/year yield. One bad year in seven would lower the return to about 20% and I have probably been somewhat lucky to achieve 30+% even in a bull market.

The future. I'm planning to retire from my regular job in a year or so. At that time, my tax rate should be a lot lower, so my effective interest rate will increase from around 6% to around 9%. In addition, I'll be dependent on The Portfolio to pay my living expenses, instead of being a net saver. When that time comes, the risk/reward proposition for using leverage is much worse. When I retire, I will stop using margin, and in fact go the other way, and keep about 10% of The Portfolio in cash and bonds.
billytickets
Billytickets - 6 years ago
Mvalue it is clear after reading your post that you are quite knowledgable.Since you have felt free to explain where my "analysis is inappropriate or inaccurate I will feel free to"answer" your well thought out post. Let me start by saying that I personally"LOVE" being questioned because being that I manage over 3 million dollars ,potential new investors always "question me" and i tend to have the answers .Lets get started:

1) you say that it is impossible for Buffett to continue to earn 15% compounded on his money for the next 30 years. You DON"T KNOW THAT . True he may need to do "buybacks" or dividends but WEB will NOT keep the money if he feels he can not Reach his goal of 15% The point is that the odds of him doing more than 7% ANNUALLY is higher than 99% don't you think? I never said that you would receive NO dividends or Incur any taxes on them but said that I feel the stock will yield 12-15% annually if bought at APPROPRIATE levels. EVEN if it ONLY yields 8-10% it will make the person MUCH RICHER over the 30 year period( kinda like a forced savings plan) Obviously you think so being that you personally are long the stock

2)Your comments on leverage are quite general.Leverage is like beer.1 beer is not going to hurt you, 25 beers will. 210 dollars amonth ( 7 dollars a day) is much smaller than most people's car note. The average American borrows more than 100,000 Dollars in their lifetime buying or leasing a car but they can not incur a 210 dollar amonth payment to achieve finiancial security? So what if they never pay off the principle? If BRK in the next 30 years has a 0% return then the investors stock will pay off their debt completely with no profit. However if Buffett only makes 10% annuallythe investor will have aportfolio of 629784 minus any taxes on dividends and owe the original 36,000 which is not bad. My book Consume Consume and Consume More:Spend More Work Less ( order it at ticketbill@aol.com) shows you 2 dozen ways to "find" the 7 dollars or day( or more). One of my readers "astutely" said I am advocating a "forced savings plan". I never thought of it that way but its true. I can assure you if you can not do something this'simple" you will not achieve finiancial security.

3) I want to make something clear I did not"pick" BRK BECAUSE of PABrai.My book which was mentioned above has a SPECIFIC Formula for BRK which I have used to buy BRK twice in the last 13 years with quite favorable results ( 13% and 17% annual compounded gains respectively) The formula which many like my good friend musto says "understates" BRK's intrinsic value because of my "built in" margin of safety. truth be told i did not EVEN KNOW OF PABRAI until 6 months ago and im not personally a"dhando" man.I do not follow ANYONE Blindly" including Buffett.My formula DOES tell me when his stock is selling for an "appropriate" price MY philosophy is that being partners with the GREATEST INVESTOR of all time who has created a "money machine' that suceeds in good or bad times is a good idea

4) as buffetteer17 has aptly desribed.leverage like ice cream and cake are Great things"in moderation"

5) to stockdoc who seems to think interest only is a bad idea where your debt is 7$ a dollar day is "high risk" and investing that money in BRK when the price is BElow intrinsic value I strongly disagree.

EVERy able bodied logical American can "find" an extra 210 dollars amonth to achieve finiancial security. I do NOT THINK 210 dollars a month is EXCESSIVE LEVERAGE.So what if the rate of return is only 8%annually over 30 years( WEB can do this in his sleep and will pay you some of his 46 billion dollars in dividends if he can not)Your portfolio will be only 362,263 dollars minus the 36,000 you owe ON TOP OF YOUR OTHER INVESTMENTS. Most Americans have not done that well iam afraid because they use debt on assets that depreciate but not appreciate.Your bank will lend you money to buy a car taht will be worthless in 30 years but not to buy BRK which in 30 years will be CONSIDERABLY more( and they would be holding the stock).See why i do not invest in banks?

Each individual has to do what they think is right. I achieved finaincial security by 1)"reducing" personal spending and USING THE SAVINGS TO COVER MY DEBT SERVICE and then 2 )borrowing all I could on my 2 properties and memorbalia collection to buy ALTRIA but my Dividends started at 9% and my interst at the time on my Various loans was 6% .7 years later my dividend yield is almsot 15% and my interest is 7%. I spend 75% of my dividends to service the original debt and have incurred more debt when I have purchased BRK BUD and JNJ in the past 2 years. BRK will do well even during "bad times" as well as good times since during bad times WEB will be able to deploy his 46 billion at rates higher than what he is making on it presently. As stockdoc accurately pointed out a 9% dividend yield like i received on ALTRIA is NOT out there in a stock that I feel is appropriate to invest in .However that should not stop someone who wants to be finiancially independent from achieving their goal

In conclusion its really this simple. 1) FIND 7 dollars aday to put towards your debt service. 2) Borrow 36000 and partner up with the greatest investor of all time by buying BRK 3) the "worst thing that could happen is you will "fail" to handle the debt service. A side job or areduction in spending ( driving a corolla instead of camry) may be needed. If you have to sell the asset in 2 years and the stock by chance due to an unforseen illness and the stock is down 10%( odds of this are not high but real) then you are out 3600 dollars.Nothing is "risk free'. FACT is this BOILS DOWN TO 3 simple questions .1)What are the odds that the price of BRK is going to be higher in 3 5 8 10 20 or 30 years? 2) If you are going to buy BRK would you rather buy all your shares at today's prices or buy alittle every year and the market price 5 10 and 15 years later 3) Is financial security worth "finding" an extra 7 dollars a day

After answering these 3 questions as you have seen there are "many " intelligent well intentioned people who will tell why something can not work. The choice is up to each INDIVIDUAL. All i ask is to remember this Chinese proverb.Man who say that something can not be done should not interrupt man DOING IT. Again fellas really enjoyed this discussion ,by presenting"conflicting" viewpoints the reader gets to digest all the input and make an informed decision. If markets were efficient i would NOT have "retired" at 28 and become a full investor 17 years ago. peace
mvalue
Mvalue - 6 years ago
Sincere thanks for responding so well to the difference of opinion.

Quick amendments and then I'm out like a Christmas tree in January.

- Understood you didn't take Pabrai's numbers as the source of the idea. Might have touched on that too much based on so much of that kind of thing implied elsewhere by others. Believe it's something that warrants caution, but sorry to push it here.

- Something at this scale can be fine and lots of people would be wise to find the extra dollars, be it to service that debt or simply invest more. Part of my concern is that people who feel like they've found a guarantee can't help but be tempted to take the size of this kind of thing past what their situation warrants. One can't help but start looking at just how rich you can get if you made the debt a bit more, a bit more, a bit more.... I can appreciate that you haven't advocated pushing things to the limit, I just feel it can be a slippery slope.

- Many issues here we can't prove with rhetoric and we've gotten our views out there. One I'm pretty darn confident about, though: I do in fact know that it is impossible for Buffett to earn 15% over the next 30 years, even ignoring the issue of size. Buffett won't be there to do it, unfortunately. There is always a chance he could be alive in 30 years, but it's unlikely. It's pretty unlikely that he'll be running things in 15, regardless of his elevation relative to sea level. Owners will certainly still get a great mix of assets and a very remarkable person or people running the investments, but they don't get Buffett for all or even most of this period. As a diversified, safe, and great company, Berkshire isn't dangerous because of this issue, and you're right about the odds of not losing money being in your favor. It may or may not provide the level of out-of-this-world returns that turn a small sum into a life-changing one.

- Since I've expressed my concerns, I'll leave with some agreement: Something that acts like a forced savings plan can be a very good thing. For an idea like this one, Berkshire might be the best choice one could make.
billytickets
Billytickets - 6 years ago
Mvalue: Unlike MOST people in the world .I ENJOY when people"question me". It forces me to "check my facts" and through intelligent CIVIL debate both the posters and readers can ASSIMILATE all the information and make an informed decision. Please post more when the"need" hits you.

Your statements about pabrai were "well taken".It is reported he has now"sold" Rail. Someone who bought that based SOLELY( i know many of you bought it independently) because of Pabrai would not be pleased iam sure.That as you aptly explained is a "downfall" of investing blindly.

Agree with you TOTALLY about how some people MISUSE DEBT( and beer and food and gambling as well) Like i stated earlier 1) debt on private high school college or a depreciating asset like a car is MUCH riskier than borrowing the money at afair interst rate( 7 % or less) and invested in an appropraite company when it is under its intrinsic value( like the WMT i bought at 43.70 today)My "idea" is to do this ONE TIME and then you are"set for lifeprovided you you can handle the debt service. Obviously a company witha 3% dividend yield will help you reduce that 210 amonth to 125 a month .As the dividends increase your"cash dlow" at some point will become positive making this "much easier" to do.

I think with the float and the super cat business and the fact that BRK sells at a price"under intrinsic" value BRK can average 12-15% average returns. We BOTH disagree here and I respect your opinion ,my thoughts are the 46 billion in cash is earning"feeble" returns and BRK is "protected" if the market drops 20% WEB will deploy capital better than anyone.

I agree totally with that with him gone in 10-12 years or less Cpaital allocation will be much"worse'.However paying a "special dividend" would not be the end of the world. However I believe he has a "successor" picked out and will teach that person "as much as he can" But NO onE is WEB that i can assure you.

As a diversified, safe, and great company, Berkshire isn't dangerous because of this issue, and you're right about the odds of not losing money being in your favor. It may or may not provide the level of out-of-this-world returns that turn a small sum into a life-changing one.

- Since I've expressed my concerns, I'll leave with some agreement: Something that acts like a forced savings plan can be a very good thing. For an idea like this one, Berkshire might be the best choice one could make. Which i "borrowed" from you mvalue


The 2 paragraphs above i borrowed from you.My point of the article is that "investing" this small "doable" sum gives the investor if he only does thiese 3 things a chance at Financial security with ODDS that his 200 per month will be 350,000 Minumum ( 8% annually) and as much as 5 million or more ( 15%annually).for some folks ,Especially the less savvy who do not posses the discipline ,temperment or ability or time to invest overa lifetime.Appreciate your 2 educated intelligent posts.peace


armeetofo
Armeetofo - 6 years ago
that's why poor stay poor and rich become richer.
musto
Musto - 6 years ago
armee,

don't forget. billy was poor one time.

He got rich, because he was wise and took

calculated risks.

Likewise, a lot of rich people who are getting a beating in this

market will end up getting poorer.
armeetofo
Armeetofo - 6 years ago
musto:

i agree what you said.

billy and me were poor at the beginning, both of us use our brain efficently to be rich, billy is richer than me, ha ha ha, i'm not rich, i'm not poor any more, that's i meant rich become richer, not those suckers born to be rich,

poor meant they never want to learn how to change their life w' the brains

i mean spiritual and knowledgable rich
musto
Musto - 6 years ago
armee,

I like your state of wealth.

Not poor, not rich.

Just a happy state. I think I'm somewhat like you,

that's why I find your ideas to be very similar to mine.

armeetofo
Armeetofo - 6 years ago
musto;

thanks a lot, i'm glad that you said that,

thanks again and happy investing.

billytickets
Billytickets - 6 years ago
musto and armeetofo :You both are the 2 who "possess" the same temperment as me.My goal has been to be the happiest person in the world:not the richest.

Vooch who has had lunch with me knows That while some of my ideas are unorthodox ,that I really enjoy life.

In 3 months there are going to be 2 groups of people Those who followed the advice of this article and those who"wish they did".peace guys
billytickets
Billytickets - 6 years ago
Hey the price of this stock is rising . Did all you folks follow my" risky plan"? LOLOLOLOLOL


All this talk about WEB not "averaging 15% yearly" like he promises in the annual report maybe upset the"master" . LOLOLOLOL


billytickets
Billytickets - 6 years ago
maybe those who "scoff" at this should read this [online.barrons.com]
billytickets
Billytickets - 6 years ago
Finally hit the 4000 dollar plateau this week.
vooch
Vooch - 6 years ago
On to 5000.

- Vooch

musto
Musto - 6 years ago
On to 9000 by 2012.

billytickets
Billytickets - 6 years ago
Just afew reasons to be bullish on this stock:

1) Hurricane season reaches its"peak" between aug15-31.While we are certainly not out of the woods yet, the probablity that this hurricane season would be especially bad has diminished greatly

2) By "investing " more money this year ,BRK gain in book value should increase being that he was colleceting T Bill type of interest and now will be collecting a mixture of dividends and interest instead

3) Large cap stocks are still relatively undervalued compared to historic averages and should"outperform" over the next 2 years or so

4) Private equity money has"dried up" giving BRK more opportunities for "ISCAR type" of investments and possibly something MUCH BIGGER


FYI :Of all the articles I have written this one generated the most emails. I think many readers realize that 7$ per day is"within" the reach of most gurufocus readers and can be a great "supplement" to your portfolio. If you have more"questions" or COMMENTS about this concept.please post them in this thread .peace
billytickets
Billytickets - 6 years ago
well peak of hurricane season has past .where do you see this stock by years end?
billytickets
Billytickets - 6 years ago
will we see 4200 by Jan 1st if we have no hurricanes?
billytickets
Billytickets - 6 years ago
NEwsflash:hurricane season is not going to be as bad as predicted Brk/b goes over 4100. Those of you who followed this "strategy" have to be pleased
John Krantz
John Krantz - 6 years ago
Billy: First off, i want to say that I agree with you, I think its interesting that people consider buying a great company for say, 32,000 in cheap leverage probably are paying on a vehicle for that amount that isnt going to make them anything, and will actually cost them money! Its definately something that you responsibly make sure you can afford first, just like you would with that new car payment.

With that said, being as though you have followed BRK for some time, what company do you think most resembles a "junior BRK". Many people will say MKL or LUK or BAM, but I am just curious to hear your personal thoughts on the matter.
billytickets
Billytickets - 6 years ago
Luk guys are the most like Berkshire that i have observed but honestly i dont follow companies like BRK because 1) BRK is not structured for buy and flip the stocks due to the fact taht cap gains are not taxed at lower rates.They do have the prefereed rates on divs though 2) Allocating largerbases of capital gets much harder because the"universe" of opportunities diminish

BRK is my favorite because the SUPER CAT business has a HUGE MOAT and the large cache of CASH is a PLUS and BRK unlike other insurers has a great cash flow to offset a 9/11 type of event.in 2001 BRK book value was down 6.2% while the S&P was down 11.9 howver in 2002 BRK was up 10% while S&P was down 22.1
billytickets
Billytickets - 6 years ago
maybe hurricane season is not so bad.lol 4300 and counting. Did anyone actually follow this advice in this article?
billytickets
Billytickets - 6 years ago
Posted by: billytickets (IP Logged)

Date: August 15, 2007 10:03PM


musto and armeetofo :You both are the 2 who "possess" the same temperment as me.My goal has been to be the happiest person in the world:not the richest.

Vooch who has had lunch with me knows That while some of my ideas are unorthodox ,that I really enjoy life.

In 3 months there are going to be 2 groups of people Those who followed the advice of this article and those who"wish they did".peace guys


Well its ALMOST 3 months later

Hope you "jumped ONBOARD" . You knew BILLYT wasnt gonna"forget" to remind you all now did you?lol


ticketbill@aol.com gets you the "book" to increase your net worth EVEN MORE.lolololol

billytickets
Billytickets - 6 years ago
berkshire B hit 4500 today.


Well you can go back and read what all the"detractors" said its all "public record". Hope you listened to Billyt

Those who didnt just might FOLLOW HIM next time or even buy his book

Then again they may wish Billy and his annoying posts and book away and mark him down as a lucky "big mouth" rube

decisions decisions.lol

The market like the Lord ,helps those who help themselves But unlike the Lord ,uthe market does not forgive those who know not what they do"

billytickets
Billytickets - 6 years ago
as Berkshire "approaches 4600 per share and has gone up over 30% in about 14 weeks Where are the posters who"scorned this"? I mean one member who remains nameless said that stock would yield less than 8% annaully overa 5 year period quoting"past performance"

Is that person aware that stocks whose Price change UNDERPerforms its INCREASE in Intrinsic value are BARGAINS?


If you want to see what SOMEONE is really all about "rereading" past threads will be very educational and HUMOROUS in some cases as this thread.I can think of 3 self proclaimed value investors who said this summer that JNJ at 61 and BRK/B at 3580 were either"dead" or should be sold to buy stocks with higher upsides or simply BRK had done poorly over the last 5 years so why would ANYONE own it going forward( like i said i THOUGHT a real value investor looked for bargains)

Ok i am a shameless self promoter and humility has ESCAPED me but the reason peopel read me and BUY my BOOK is not because of my charm,likeability or tact.

Its because my performance which is SHAMELESSLY trumpted by my not so humble self has been ACCURATE ( to the determiment of my skeptics .lol)

Many including friends and relatives have predicted my demise for many years now.


My POINT is FIND YOUR MENTOR and STYLE and FINETUNE IT UNTIL YOU REACH YOUR FINANCIAL GOALS ( of course I think my plan is BEST and reading my book will FINETUNE YOURS of course)

YOu are NOt right or wrong BECAUSE the PUBLIC AGREES or DISAGREES with YOU .

when Sam walton opened his first store an old codger told his friend within Sam's earshot .THis kid will never make it. Sam Walton's wealth that was split among his family BEFORE he got rich EXCEEDS WELL OVER 100 billion dollars .

So you see it really doesn't matter what others think now does it?

DO what you love Love what you do and DELIVER MOre than you promise



billytickets
Billytickets - 6 years ago
We are up OVER 1000 points now on BRK/b hurricane season officially ends tomorrow


If you want to become"educated" reread this article and reread how some posters tried to predict Berkshire's future by looking in the"past". Hope they don't drive a car like that.lol

Who said you can't make any money on big caps?

billytickets
Billytickets - 6 years ago
well guess what hurricane saeson was not as bad as the hurricane center thought BRK/B is well over 4700 near 4750 now.Reread and Reread this article and PAY ATTENTION TO ALL COMMENTS BOTH positive and NEGATIVE .peace
danielw
Danielw - 6 years ago


Congratulations. You made over 30% in less than a year on an undervalued stock. I know class can't be bought with money but, thank goodness, grammar books can. In my humble opinion, such a purchase would be a wise idea. However, you should still try to get some class. It costs nothing but pays dividends anyway...

--Daniel
billytickets
Billytickets - 6 years ago
Daniel first of all thanks for your compliment on about wise purchase I appreciate it.

Those who have my book know the grammar in it is FINE. My typist and proofreader do fine and EVERYONE who ordered the book says its VERY CONCISE DETAILED and most important DUPLICABLE. I am a poor typist and dont really care about how things"appear" on this forum.I care about being RIGHT and all this "LACK OF CLASS" in your "untested" marketing mind is SIMPLY Wise strategy in MY MIND. (Im fortunate Iam my market analyst and NOT you) has resulted in INCREASED BOOK SALES for teh last 5 weeks. SEE I understand "marketing" as well as investing but thanks for the"advice" but like WEB i do not need "marketing tips.I do admit I have been listening to"class" tips from my mom and my teachers for years but I didnt listen when I was poor and Im afraid people who have reached financial security are Loathe to change( why should they)

WEB the greatest is not as humble as he wants to you to think.When asked if he had a computer once he said "iam a computer" and also tells peopel in his annual report that he DOES NOT want any"advice' on stocks to buy( which i agree with) but that certainly is NOT humility.He is respected on this forum NOT because he is humble( Gandhi was much more humble and did not fly on his own jet and drive a cadillac)but because HE IS THE GREATEST INVESTOR whose Investing style I have emulated

Of course if I had 52 bilion and relatives willing to invest a million dollars in my first partnership( the inflation adjusted amount of 100,000 Webs relatives invested with him 53 years ago)and had studied at Columbia and my dad was a congressman I would probably not have to resort to such shameless self promotion but us poor"dagos" may not have class but we have "mental toughness" and desire and are respected by WHAT we say and do NOT because we 'READ EMILY POST. I merely wish to"share my system" so others who were not born with a silver spoon won't have to struggle and I will CONTINUE to KEEP SPREADING the WORD of FINANCIAL SALVATION. I don't "understand" humility ( i really do but I detest it) but DO understand sales and marketing which has given me the"means" to EXCEL in making capital allocation decisions.

My constant shameless self promotion keeps building my"brand name" which if you look at my investments ,you will see i LOVE Brand names like Jello marlboro Kool aid Oreos( my favorite) Planters BUD Corona and all the nice brand names BRK owns like KO P&G jand J and my other favorite Dairy Queen

My"key" is that I do what I love Love what I do and deliver more than I promise. Being ANTI EsTablishment made me ABLE to buy Tobacco stocks when they were "shunned" . WEB should have been buying but "all of a sudden" did not want direct ownership of tobacco stocks ( HE somehow forgets he bought RJR Reynolds JUnk Bonds and Made a Fortune in the late 80s and in 1983 almost 50% of his ENTire common stock portfolio was RJ Reynolds which was just ready to be passed by Philip Morris as the number 1 cigarette company in America but many people apparaently like to"rewrite history")

Again thanks for the feedback every chance i get to talk INCREASES the Billytickets Brand Name. thanks again for your well intentioned "advice" but I think well just stick with whats working.peace
0xgf
0xgf - 6 years ago
Question for billytickets, if you have time to respond:

1) Are you suggesting to go on margin and buy stocks ? Personally, I don't have more than 30% invested in stocks!

2) Where do you get an interest only loan ?

3) Your picks are all based on WEB. What happens when WEB retires ?

Thank you.
billytickets
Billytickets - 6 years ago
OXGF i have an abundance of time there are no stocks in my"zone"

1) Iam suggesting that if you are going to pick GREAT stocks like me that You can afford to make BIGGER bets. I prefer to borrow on zero% credit cards or from friends and relatives FIRST but margin is ok provided 1) your interest rate is less than 7% 2) Your dividend income is at least 75% of your margin interest OR your margin interest is an amount that YOU CAN EASILY afford 3) use a formula like I use in my books with great filters or DEVELOP one yourself

2) My home equity loans were interest only when I took them out in 1999-2002 .Now that I understand margin I use it and that is "interest only"

3)More than 70% of my portfolio Mo and KFT were NOT owned by WEB. And when my "books formula" told me to buy bRK/B WEb was not buying . My "formula" told me that BUD WMT and JNJ were"buys" as those who have purchased the book can confirm.The fact that WEB purchased the same stocks ( but my basis is lower on all 3) "proved i was getting my money in right" which is no shock since my"formula and filters were "based on his stock picks over a 25 year span.


I feel he is my UNPAID and very competent "advisor" and the fact he invested almost 5 billion in BNI was CERTAINLY the reason I have taken such a large position ( and feel that anyone who dose not buy it from 81.70 or under is REMISS) . I feel that not having WEB around will make my capital allocation decisions "harder" since he will not be"around" to "check my work". But I have done great allocating capital in tickets sports memorbalia ,texas hold em as well as stocks and over 90% of the profits i have made in capital allocation were NOT web investments) so I am not really worried. Read this and see if I should be worried.lol peace


Follow my logic. If my Mo and KFT is paying me about 14.5% on my invested price annually and im 45 years old and the div double about every 7 years at age 66 my div yield will be 116% and if I have invested a "decent sum of money" I wil have created a dividend machine.If I am fortunate to live another 21 years to 87 ( which both my garndparents and 1 grandma have done) then my div yield will be 892% and I will have paid ZERO Capital gain and taken advantage of the "tax free loan " from the US treasury that WEB and Munger talk about. WEb basis in his 1.5 million BERKSHIRE A Shares a shares he held ( until he started to giving to Gates Foundation) was 12 dollars a share. (So about 140,000$ per shares X1.5 Million is the amount of the tax free loan WEB has used over the past 42 years)that large interest free loan he has collected for 42 years has HELPED make him very RICH. and Charlie is quoted as saying is worth 1-3% annually compounded. Who am I to agrue with 2 multibillionaires

Sorry to go on so long but I wanted to make my point.Just think about a 25 year old compounding dividends at these rates? My duaghter got some MO in 2002 with abasis of 25 and Kraft with a basis of 11. IF YOU have children IMAGINE what the DIVidENDS will be WORTH when she is 88 years old .They are over 10% NOW. Hope this is "interesting" to you and others?peace

value sniper
Value sniper - 6 years ago
billyt- i am new to this board and have to tell you i like your ideas, as well as others on here. In 2005 I took an equity loan for 25k @ 5.1 % along with my own dry powder and bought 10 b shares @2760. The best part is I asked a wealthy friend of mine for a loan at the time and offered for him to hold the shares as collateral and he declined. Being a curious man,the self made wealthy seem to be that way, he followed my progress and approached me on it in july of 06 brk was @2995 for a 9% gain. I told him I only bought 10 shares because that was all I could borrow and he asked me if I still thought it was a good buy @2995 and I said all I could get my hands on. He told me to come see him on Monday and he cut me a check for 15K @5.5% Intr only and the papers were signed.
billytickets
Billytickets - 6 years ago
sniper good hit.Today BRK /B continued its ascent towards 5000 by crossing 4900 today.
billytickets
Billytickets - 6 years ago
Pabrai said on Bloomberg that he felt BRK was worth 5000 this summer when it was selling at 3580 and MR Market just "corroborated" his story a few minutes ago.
billytickets
Billytickets - 6 years ago
How many folks wish they would have followed this? Do you think any of the skeptics will come out and say they were wrong? Whoops Mr Market kinda "spoke" didn't he.lol

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide