MONEY stocks

Carl Icahn Was Way Off on His Apple TV Set Projections

150521_EM_AppleTVIcahn
Victor J. Blue—Bloomberg via Getty Images Billionaire activist investor Carl Icahn

The activist investor predicted that an Apple-designed TV could bring in $37.5 billion

It’s time to call it. The mythical Apple APPLE INC. AAPL 0.84% TV set is dead. Well, it’s dead to the extent that it was ever alive to begin with. While Apple has never officially acknowledged that it was interested in jumping into the hyper competitive TV market (how often does Apple tell you directly that it’s working on something?), there has been plenty of evidence over the years that the Mac maker seriously considered it.

According to The Wall Street Journal, the company has abandoned its plans to build a high-definition TV set. To be clear, Apple did think long and hard about making such a product, reportedly researching the idea for almost 10 years. Technically, the project wasn’t killed, but let’s be realistic. Apple isn’t making a TV.

R.I.P. Apple TV set. We hardly knew thee.
When Apple enters a market to disrupt the status quo, it needs a breakthrough innovation that differentiates itself while giving it stronger pricing power than incumbents. These innovations typically come in the form of interface paradigm shifts, like the iPhone’s capacitive touchscreen.

However, the TV market is notorious for slim margins and rapid commoditization since TVs are inherently little more than large displays. There’s simply not a lot of room to innovate or differentiate on the platform level. TV user interfaces absolutely have room for improvement, but there are some unavoidable limitations with trying to create a truly revolutionary TV interface.

Apple supposedly researched a wide range of display technologies that could potentially allow it to stand apart, and the company also considered adding FaceTime capabilities to the product. But video calling on a TV isn’t a “killer app.” It’s not like people rush out to buy Microsoft’s Xbox One primarily so they can Skype with friends and family.

Lacking any powerful differentiators and considering the high level of risk, Apple shelved the plans over a year ago, so says the WSJ.

Carl Icahn sees 85% upside
Incidentally, the report came out just hours after activist investor Carl Icahn published his latest open letter to Apple. Every few months, Icahn pens a letter to Tim Cook to applaud Apple’s ongoing aggressive capital returns and to continue to speculate about Apple entering new markets. In February, Icahn believed that Apple could build a $37.5 billion TV business in just 2 years.

Icahn now believes that Apple will enter not one, but two new markets in the coming years: the TV market and the car market. For the latter, Icahn thinks the Apple Car will be launched by 2020, in line with prior rumors. For this reason, he does not include any estimates in his model, which only goes through fiscal 2017. For what it’s worth, Icahn now pegs Apple’s valuation at $240 per share.

 

Saying “no” is one of Apple’s greatest strengths
Apple has said numerous times that TV remains an “area of intense interest” and that it feels that it can contribute to the space. But the thing is that Apple can accomplish those strategic goals and reap the benefits without getting too deeply into the hardware side. Consumers are now willing to buy set-top boxes beyond the ones that cable operators provide, a stark contrast to how the market was just five years ago as Steve Jobs observed.

That increased propensity opens up the door for opportunities to innovate, and that’s precisely what Apple is doing. The company is expected to release a new Apple TV set-top box next month at WWDC and is reportedly putting together its own slimmed-down subscription TV package. Who needs an Apple TV set?

MONEY stocks

You Think You Had a Bad Day? This Man Lost $14 Billion in a Half Hour

The founder of a renewable energy company lost big when the company's stock crashed.

MONEY investing strategy

How to Invest Better By Paying Less Attention

The secret to investing is not caring what happens.

Jiddu Krishnamurti spent his life giving spiritual talks. As he got older, he became more candid. In one famous moment, he asked the audience point-blank if they wanted to know his secret.

He whispered, “You see, I don’t mind what happens.”

I’ve spent the last five years as an investor trying to do the same. I’ve made a concerted attempt to care less about what happens in the investment world. I still pay attention, of course. It’s my job. But I’m far more selective about what I read. It has helped more than I could have possibly imagined.

Caring gives a false impression that what you’re thinking about is important. If I pay attention to quarterly earnings, shouldn’t I be a better investor? If I check what the market did this morning, am I not more informed?

Common sense tells you yes. But it’s wrong. More often than not, not caring is the way to go.

My journey started with a realization that the more media investors paid attention to, the worse they did. The more they analyzed, the more decisions they had to make. The more decisions they made, the more chances they had at being wrong, letting their emotions take over, and doing something regrettable. Find someone who has mastered personal finance, and you’ll find someone with a pathological ability to not give a damn.

There are so few exceptions to this rule it’s astounding. Where is the evidence that paying attention to every last piece of market news makes you a better investor? I’ve looked. I can’t find it.

So I stopped caring about a few things.

1. Finding the perfect portfolio

Investors crunch numbers to find the perfect number of international stocks they should own at a certain age, the precise amount they should allocate to bonds, and exactly when they should cut back on stocks when historical models show they’re overvalued.

Here’s the truth: None of these models are perfect, so back-of-the-envelope, “good enough” estimations will usually do just fine.

Harry Markowitz won the Nobel Prize for creating modern portfolio theory, a formula that precisely calculates the optimal asset allocation to maximize return at a given level of risk.

With his own money, he found this too complicated.

“I visualized my grief if the stock market went way up and I wasn’t in it — or if it went way down and I was completely in it,” Markowitz once said. “So I split my contributions 50/50 between stocks and bonds.”

Good enough.

2. Quarterly earnings

The median company in the S&P 500 was founded in 1949. So it’s 66 years old. Therefore quarterly earnings tell you what happened in the last 90 days, or 0.3%, of its life. The odds that groundbreaking developments will occur in such a short period of time are slim, and they approach zero as time goes on. It’s the equivalent of judging how your day is going by analyzing the last four minutes.

Amazon.com CEO Jeff Bezos says he runs his life on a “regret minimization” framework. His goal is to look back at age 80 and regret as few things as possible.

What are the odds that I’ll be 80 years old and say, “Man, I wish I paid more attention to Microsoft’s Q2 2011 revenue”? Pretty low. So I choose not to care.

3. Wondering why the market fell

The Dow fell 0.4% on Wednesday. Why?

Lots of reasons were given. One article blamed fluctuating interest rates. Another cited “Greece worries.” Others pointed to the Fed, weak GDP growth, and falling energy prices.

“Random, unidentified marginal sellers were a little bit more motivated than random, unidentified marginal buyers” wasn’t mentioned. But it’s the best explanation for why stocks fell. The same goes for almost every day.

4. Getting other investors to agree with me

Let’s say your weather app says it’ll be 78 and sunny tomorrow, and mine says it will be 74 and overcast.

Would we argue about this? Go on TV and duke it out? Call each other names?

Of course not. We’d say, “Eh, let’s just see what happens. Probably doesn’t matter either way.”

Investors don’t think this way. The fights people get into about whose forecast is right are off the charts.

Unlike weather, money is an emotional subject. And unlike tomorrow’s temperature, our investment decisions are in our control. So many investors get offended when others disagree with them. But once you realize that A) your views are just as biased as everyone else’s and B) there’s a good chance you’re both wrong, you stop seeing any reason to argue. Debate, sure. But life’s too short to argue.

Investing is so much more fun when you come to terms with these things. Set up a portfolio that suits you — one that lets you sleep at night and gives you a reasonable chance of meeting your financial goals. Give it room for error. Have a backup plan. It’s the best you can do.

After that, you see, I don’t mind what happens.

For more:

Contact Morgan Housel at mhousel@fool.com. The Motley Fool has a disclosure policy.
TIME stocks

Why This Investor Says Apple Is Worth More Than $1 Trillion

Billionaire activist investor Carl Icahn speaks during a Bloomberg Television interview at the Robin Hood Investors Conference in New York City on Oct. 21, 2014.
Bloomberg/Getty Images Billionaire activist investor Carl Icahn speaks during a Bloomberg Television interview at the Robin Hood Investors Conference in New York City on Oct. 21, 2014.

Carl Icahn tells Tim Cook Apple is worth $240/share

Carl Icahn on Monday morning published an open letter to Apple CEO Tim Cook, arguing that the tech giant’s stock is worth $240 per share.

That would be 83.38% higher than today’s opening trades for Apple, and would bump the company’s market cap up to a whopping $1.38 trillion.

Icahn also wants Apple’s board to undertake a push larger share buyback than the $50 billion package that is currently approved (which followed an $80 billion buyback for which Icahn had agitated). From Icahn’s letter:

It is our belief that large institutional investors, Wall Street analysts and the news media alike continue to misunderstand Apple and generally fail to value Apple’s net cash separately from its business, fail to adjust earnings to reflect Apple’s real cash tax rate, fail to recognize the growth prospects of Apple entering new categories, and fail to recognize that Apple will maintain pricing and margins, despite significant evidence to the contrary. Collectively, these failures have caused Apple’s earnings multiple to stay irrationally discounted, in our view.

This is hardly the first time Icahn has told Apple that its shares are severely undervalued. Back in February, he argued that the company’s shares were worth $216 a piece.

This article originally appeared on Fortune.com.

MONEY Tech

3 Key Lessons From the New Elon Musk Biography

Bloomberg via Getty Images

A look at the new biography ahead of its release next week.

The biggest takeaway from technology journalist Ashlee Vance’s new biography, Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future, is clear: The South African-born self-made billionaire’s ambition will stop at nothing. But what really makes this tale of drive so interesting is Musk’s track record to date. He’s the man behind PayPal, Tesla Motors TESLA MOTORS INC. TSLA 0.47% , SpaceX, and SolarCity SOLARCITY CORP COM USD0.0001 SCTY 0.74% . Vance’s take on Musk gives readers an unbiased glimpse into the entrepreneur’s undeniable success in some of the world’s toughest industries for start-ups.

Ahead of the book’s release on May 19, here are some of the most intriguing excerpts.

The PayPal Mafia

While Musk made his first fortune from an early start-up called Zip2, it was at PayPal that the entrepreneur first showed his ability to challenge a complex industry already set in its ways.

Musk’s central role as co-founder of PayPal shouldn’t be overlooked. In retrospect, the PayPal history is evidence of Musk’s unquestionable genius at rallying talented individuals around a big goal and making things happen.

PayPal also came to represent one of the greatest assemblages of business and engineering talent in Silicon Valley history. Both Musk and [Peter] Thiel had a keen eye for young, brilliant engineers. The founders of start-ups as varied as YouTube, Palantir Technologies, and Yelp all worked at PayPal. Another set of people — including Reid Hoffman, Thiel, and [Roelof] Botha — emerged as some of the technology industry’s top investors. PayPal staff pioneered techniques in fighting online fraud that have formed the basis of software used by the CIA and FBI to track terrorists and of software used by the world’s largest banks to combat crime. This collection of super-bright employees has become known as the PayPal Mafia — more or less the current ruling class of Silicon Valley — and Musk is its most famous and successful member.

Musk’s uncanny ability to build successful organizations hit new levels after PayPal.

“During a time in which clean-tech businesses have gone bankrupt with alarming regularity, Musk has built two of the most successful clean-tech companies in the world,” Vance writes. “The Musk Co. empire of factories, tens of thousands of workers, and industrial might has incumbents on the run and has turned Musk into one of the richest men in the world, with a net worth around $10 billion.”

Musk’s track record suggests his lofty goals are achievable

Vance goes beyond simply laying out Musk’s track record. His portrait of Musk shows just how crucial the entrepreneur was to the major achievements behind every start-up he was involved with. Going even further, Vance’s report of Musk led him to believe PayPal’s achievements might have been limited by a cautious board of directors who had trouble wrapping their minds around Musk’s unbridled ambition.

“History has demonstrated that while Musk’s goals can sound absurd in the moment, he certainly believes in them and, when given enough time, tends to achieve them,” Vance argues.

Some of Musk’s current visions that are often criticized as overly optimistic include:

  • At Tesla, where Musk is CEO, he wants to sell 500,000 vehicles per year by 2020, up from management’s target to sell just 55,000 vehicles this year.
  • At SpaceX, the other company where Musk is currently CEO, he wants to put a man on Mars in 10 years.
  • Combining Tesla’s new battery storage business and the solar panel operations at SolarCity, where Musk serves as chairman, Musk wants to catalyze a global transition to sustainable energy.

Sparking a new level of innovation in Silicon Valley

After studying Musk, Vance believes that the entrepreneur is playing a key role in pushing Silicon Valley toward greater innovation and more meaningful work.

Vance describes a lull in Silicon Valley between 2002 and 2007:

Between Google and Apple’s introduction of the iPhone in 2007, there’s a wasteland of ho-hum companies. And the hot new things that were just starting out — Facebook and Twitter — certainly did not look like their predecessors — Hewlett-Packard, Intel, Sun Microsystems — that made physical products and employed tens of thousands of people in the process. In the years that followed, the goal went from taking huge risks to create new industries and grand new ideas, to chasing easier money by entertaining consumers and pumping out simple apps and advertisements.

But Musk’s bold vision and willingness to take risks, paired with surprisingly robust execution, in the automotive, space, and energy industries, Vance explains, set a new precedent.

‘To me, Elon is the shining example of how Silicon Valley might be able to reinvent itself and be more relevant than chasing these quick IPOs and focusing on getting incremental products out,’ said Edward Jung, a famed software engineer and inventor. ‘Those things are important, but they are not enough. We need to look at different models of how to do things that are longer term in nature and where the technology is more integrated.’ The integration mentioned by Jung — the harmonious melding of software, electronics, advanced materials, and computer horsepower — appears to be Musk’s gift. Squint ever so slightly, and it looks like Musk could be using his skills to pave the way toward an age of astonishing machines and science fiction dreams made manifest.

Of the many profiles of business leaders, Vance’s take on Musk is among the best. The author’s objective and unbiased viewpoint captures Musk’s good and bad, his achievements and failures. Based on more than 30 hours of conversations with Musk, and interviews with close to 300 people, this investigative biography captures many facets of the inventor and entrepreneur. Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future should be required reading for anyone in business.

TIME stocks

This Is Why Tech Bubbles Actually Happen

Andrew Burton—2015 Getty Images A trader works on the floor of the New York Stock Exchange during the afternoon of Feb. 13, 2015 in New York City.

Study's revealing new findings

We tap our phone, we expect to be able to make a call, send a text or open an app. We key in our PIN at an ATM, we expect to get cash. We punch in a time on the office microwave, we expect our lunch to heat up. In short, when we depend on technology for countless everyday tasks, we take for granted that it’s going to work.

A new study finds that this automatic assumption has a surprising, far-reaching dark side. Much as we expect the technology we interact with every day to be successful, we expect stocks of publicly traded technology companies to be successful — even if there isn’t any evidence that they perform any better than old-economy stalwarts.

We unconsciously confer on technology, especially new technology that we don’t really understand, an almost magical status. “We found that people weren’t particularly excited about the prospects of old technology,” says Christopher Robert, associate professor of management at the University of Missouri — Columbia and one of the paper’s authors. “You’re more likely to have faith that something you don’t really understand will work.
That’s because “technology” gets lumped together as this sort of monolithic entity, Robert explains. “We develop [a mental] shortcut that all of these technologies are successful and they work and then overgeneralize that perception to all technology,” he says. “We often don’t see its failures,” he points out, because those either never make it to market or fail to become a part of our daily lives.

How often do you think about Pets.com or the mini-disk? Probably not much. Now, how often do you think about Google or Apple?

“The success stories are very salient,” Robert says. “When you get an Apple or a Google… being really successful, people pay a lot of attention to that, but they don’t pay as much attention to the failures.”

This mental double standard makes us likely to view tech company stocks through rose-colored glasses. Robert’s experiments found that we’re were more likely to invest in (hypothetical) high-tech stocks than stocks of other industries, even when both produce similar financial results. We’re also more likely to ignore the cardinal rule of investing — that past performance is no guarantee of future results — when it comes to tech stocks. In experiments, subjects who saw growth in a tech company’s past were more likely to invest, assuming that the good times would just keep rolling.

Except, of course, the market doesn’t exactly work like that. The dot-com implosion of 2000 should have been a cautionary tale, yet here we are just 15 years later, with economists once again warning that sky-high valuations for today’s tech darlings could indicate a second tech bubble in the making.

“I suspect that the same processes might take place as they did [in 2000],” Robert says. “Of course, technology does keep marching along and is successful as writ large — however, individual companies might not be as successful.”

And when people pile into certain stocks because they just assume they’ll do well without looking at the fundamentals, they drive up valuations even further, and the whole phenomenon snowballs. “When you see a lot of investment going into technology-oriented co’s that don’t have any [profits]… that’s a sign that there might be a little bit of irrational exuberance regarding those companies,” Robert says. “You never see these companies that make asphalt shingles getting these huge, pumped-up PE ratios.”

MONEY

Warren Buffett Says He Would Never, Ever Do These 3 Things

Warren Buffett And BofA CEO Brian Moynihan Speak At Georgetown University
Drew Angerer/Getty Images

His rules help explain why Berkshire Hathaway is a top stock

During Berkshire Hathaway’s annual meeting this past weekend, Warren Buffett and his second-in-command, Charlie Munger, had me — along with 40,000 other shareholders — on the edge of my seat as they answered questions on anything and everything.

Over the course of more than five hours, it became clear that as long as Buffett is as the helm, there are three things he will never do. Those three things also help make Berkshire Hathaway one of the best investments you can choose today.

1. Break up Berkshire Hathaway
As Buffett explained during the meeting, “We have the ideal operation.” There is roughly a 0% probability that the company will be broken up. One of the reasons, as Buffett pointed out, is that there are “a lot of benefits to having the companies on the same tax return.”

For example, in his 2014 letter to shareholders, Buffett explained that See’s Candies creates consistently huge earnings and that “we would have loved, of course, to intelligently use those funds to expand our candy operation.” But the efforts didn’t pan out, and now See’s Candies’ excess earnings are put to work more effectively in other places.

Think of this as an alternative funding source. While many other companies are forced to take on large amounts of debt to fund growth, Berkshire can funnel money from one of its 60 subsidiaries to another. Best of all, because of Berkshire’s structure, it can do so without paying tax.

These are massive advantages. Berkshire saves millions of dollars a year in taxes, and as some companies hit their growth ceiling, money can instantly be transferred elsewhere. This ability gives Berkshire almost unlimited potential to efficiently scale in size.

2. Worry about macroeconomics
Not only does Buffett insist on keeping Berkshire in one piece, but he also plans to continue adding new and wonderful businesses to the mix. When selecting these companies, Buffett made it clear that he will “never make an acquisition based on macro factors.”

That may sound foreign to investors who consistently hear doom and gloom about interest rates, unemployment, or projections for weak economic growth.

Those things have no impact on his decision-making, because, as he put it, “We know we don’t know.” In other words, he believes that forecasting economic trends is nearly impossible and therefore useless. That’s why he thinks that “any company that has an economist has one employee too many.”

The acquisition of Burlington Northern Santa Fe in 2009 is a great example of Buffett’s approach. No economic indicator, at least that I know of, would have suggested buying a railroad company in the middle of a recession. But what Buffett knew was that BNSF was among the leaders in its industry. He knew it was a well-run company, operating in an industry with high barriers to entry. He knew trains are a cost-efficient and effective way to transport goods, and he believed that would continue to be true decades from now.

It’s that type of long-term thinking, along with a focus on acquiring great businesses, that has allowed Berkshire to be so successful. Today, BNSF accounts for 20% of Berkshire net income. Buffett referred to the company in his 2014 annual letter as “by far, Berkshire’s most important non-insurance subsidiary.”

3. Treat Berkshire as his company
When Buffett thinks about the structure of Berkshire, or what businesses to acquire, he’s thinking about what’s in the best interest of shareholders.

This sentiment has been clear for decades, but Buffett took it a step further when he was asked about whether Berkshire — the company, not Buffett personally — will be getting involved in philanthropy. Buffett’s reply: “I work for the shareholders […] and they should make their own decisions about philanthropy.” Munger added, “My taste for giving away someone else’s money is also quite restrained.”

Take a second to consider just how amazing that commentary really is. Over the course of 50 years, these two men turned Berkshire Hathaway from a textile company into a $300 billion insurance conglomerate, yet they don’t view the company as theirs.

Moreover, Buffett holds 34% of the voting power at Berkshire, which makes him far and away the largest shareholder. So he could do just about anything he wanted, and no one could do anything about it — but he doesn’t. He, along with Munger, continues to treat shareholders as partners, and that is, perhaps, the simplest and most important reason I think Berkshire Hathaway is a great buy today.

That’s also why I am delighted to be a shareholder, and why I plan to be for a long time.

MONEY stocks

7 Stock-Picking Mistakes Even Savvy Investors Make

darts in the stock section of the newspaper
Dan Saelinger—Getty Images

... and how to fix them

Everybody loves a winner.

That explains why America seems to be obsessed with stories of amazing stock pickers, such as the New Jersey teen wonder who allegedly turned $10,000 into $300,000 by trading penny stocks from his smartphone

However, even some of the smartest (and luckiest!) investors make mistakes sometimes. Here are six dumb mistakes to watch out for the next time you’re picking investment options.

1. Having No Investment Goals

If you don’t know where you’re going, you’ll never know when you get there.

However deeply people may agree with this statement, there are still those who lack clear investment goals. Your first step in investing is defining these goals.

Here are three examples of good ones:

  • In order to avoid the extra cost of private mortgage insurance, you would like to save for a down payment that is at least 20% of a $300,000 apartment in your city within the next 10 years.
  • You first child is just born and you would like to have $35,000 available for his or her college tuition by their 18th birthday.
  • Planning to retire 33 years from today, you and your spouse calculated you’d need $3,000 every month to cover your expenses during retirement.

Notice the two things that these goals have in common: a specific dollar amount and a target date. These two elements are the starting point for any discussion about investing. They allow you to establish a timeline and select benchmarks to evaluate your performance.

Before you even think about stock picking, establish your investment goals. (See also: 5 Dumb 401(k) Mistakes Smart People Make)

2. Ignoring Your Risk Tolerance

There are two key elements to determining your risk tolerance.

First, there is your time horizon. A rule of thumb is that the longer your time horizon, the riskier your investments may be. Since you don’t need the funds for quite a while, you can better sustain the ups and downs of the market and chase higher returns. On the other hand, if you need the funds a year from now, you’re better off taking more conservative investments.

Second is your available “play money.” A person with a net worth of $1 million is more likely to better stomach the price fluctuations of a $25,000 investment than a person with a net worth of $75,000. Also, don’t forget about potential liquidity issues. The second individual would be in a really tough situation if he were to suddenly need those $25,000 to pay damages from a lawsuit or meet another type of big financial obligation.

Pick investments according to your time horizon and bankroll.

3. Spending Instead of Investing

While some people are very eager to start stock picking, others think they can’t even afford it.

Or it could be that those others may be listening to their “lizard brain” a bit too much. The idea of the “lizard brain” refers to the instincts that helped our ancestors to survive back in the stone age. Given scarce resources and the ever-present possibility of death, our ancestors prefered to enjoy things right away instead of waiting.

Old habits die hard. Given the choice of enjoying $500 right now or receiving $3,000 in five years, most of us would chose the first option. However, this is a bad idea.

By refusing to invest even just a little bit, you’re incurring a huge opportunity cost. For example, let’s imagine that you make an initial investment to your 401(k) of $100. Assuming your 401(k) has a return rate of 5% compounded annually and you contribute $100 every month for 20 years, you would end up with $40,845.78.

Start investing today. Right now. Even a little bit! 20 years from now, you’ll be glad that you did.

4. Paying Too Much in Fees

This is one of Warren Buffett’s top three investing mistakes to avoid. (See also: 5 Investors With Better Returns Than Warren Buffett)

While you can’t be 100% sure about the return of your stock picks, you can be 100% sure of how much money you’re paying in management and trade fees. For example, if you were to invest $10,000 in the average actively managed U.S. mutual fund, you would pay $132 in fees. On the other, you would pay just $17 by investing the same $10,000 in the Vanguard Total Stock Market Index, the largest index mutual fund.

5. Trying to Beat the Market

Here’s another reason to choose index mutual funds.

Most actively managed funds fail to achieve returns above their respective benchmark. Only about 20%–35% of fund managers are able to “beat the market.” These are the pros that do this for a living. Are you sure that you can do better than them on your spare time while juggling your job and family life?

Over the long-term, index funds are typically top performers and do better than 65%–75% of actively managed funds. And index funds cost you less than a fund manager, too.

6. Betting on a Single Stock

There are too many stories about people getting filthy rich by putting all their money on Apple stock.

Before you decide to put all your eggs in one basket, consider the performances of these two other past media darlings.

Groupon

Launched in November 2008, Groupon quickly became the leader of the deal-of-the-day movement. Groupon became one of the fastest companies to reach a $1 billion valuation. Heck, Groupon was doing so well that it turned down a $6 billion buyout offer from Google. However, an original investment of $10,000 in Groupon on November 7, 2011 would only be worth about $2,554.66 today.

Enron

It’s hard to believe that Enron was once a media darling. Back in 2001, Enron’s stock was priced at 70 times earnings and 6 times book value. Out of the 22 analysts covering Enron, 19 of them rated the stock a “buy.” The maximum stock price of $90 in August 2000 convinced several people to put all their nest eggs on Enron. A little over two years later, the stock was trading below $1.

The lesson is that history tends to repeat itself, so don’t bet all your money on a single stock. (See also: 10 Investing Lessons You Must Teach Your Kids)

7. Not Rebalancing Your Portfolio

Last but not least, remember that asset prices vary over time.

Your investment plan sets a target allocation of your monies in different types of investments. For example, you may have 50% in domestic stocks, 30% in foreign stocks, 20% in bonds, and 10% in T-bills.

Let’s imagine that your foreign stock holdings had a nice upward ride for the last five years. So, now they represent 50% of your total investment portfolio’s value. It’s a good idea to rebalance your portfolio to set back your allocation of funds to the target 30% so that you’re not taking more risk than you’re comfortable with.

It’s shocking how simple it can be to avoid these six investing mistakes.There’s no secret to stock picking — it just requires planning and sticking to that plan. It may not sound exciting, but it’s more likely to make you a profit. And isn’t that why you really invest?

More From Wise Bread:

 

MONEY Warren Buffett

13 Priceless Warren Buffett and Charlie Munger Quotes From the 50th Anniversary Meeting

150512_INV_BuffettMunger
Nati Harnik—AP Berkshire Hathaway Chairman and CEO Warren Buffett, right, speaks alongside Vice Chairman Charlie Munger.

This year’s event offered numerous gems.

I made the trip to Omaha recently to glean investing wisdom from two of the greatest investors of all-time — Warren Buffett and his second-in-command, Charlie Munger — but I left with much more. Here are 13 of the most memorable life lessons from Berkshire Hathaway’s 2015 annual meeting.

1. On diets

Buffett said: “I am one-quarter Coca Cola. … if had eaten broccoli and brussel sprouts, I don’t think I would have lived as long.” Buffett added, “I don’t see a lot of smiles on the faces of people at Whole Foods.”

Both Buffett and Munger spent the majority of the meeting chowing down on See’s Candies and drinking Coke — though Buffett did mix in some pineapple juice for his voice. Say what you will about their diet — Buffett is 84, and Munger is 91. Maybe they cracked the code: Do what makes you happy.

2. On predicting the future

Buffett made it clear that Berkshire will “never made an acquisition based on macro factors.” This is because “we know we don’t know.”

Worrying about interest rates and the global economy is stressful, and you have no control over macroeconomic events. Just do as Buffett and Munger do: focus on what you can predict and control.

3. On taking risk

Buffett explained that he and Munger missed some opportunities early on and that they could have “pushed harder.” Munger replied: “It’s obviously true. If we’d used the leverage that some others did, Berkshire would have been much bigger … but we would have been sweating at night. It’s crazy to sweat at night.”

To which Buffett added slyly, “Over financial things.”

4. On finding the right people

When asked about Berkshire Hathaway’s investment managers Todd Combs and Ted Weschler, Munger said: “We want people where … every aspect about their personality makes you want to be around them. … Trust first, ability second.”

Surround yourself with people whom you want to be around and whom you can trust — sound advice.

5. On reputations

When asked how Berkshire Hathaway has built its culture, Munger suggested that it’s about “behaving well as you go through life.” Buffett added, “Over time, you get the reputation you deserve. … I believe the same is true for companies.”

6. On seeing a glass half-full

Munger was asked about insurance premiums for older adults. More precisely, it was a complaint that, even when healthy, elders have to pay more for insurance.

Munger replied: “You find you’re not deteriorating as fast as your contemporaries. You may be paying an unfair price for your auto insurance, but it’s a good tradeoff.”

Given the choice of either staying healthy or paying lower premiums, I’d take the first choice, too.

7. On selecting a spouse

“Look for someone with low expectations,” Munger said.

8. On being liked

The duo was asked by a young boy how they have gotten people to like them. Munger said, “Get very rich and generous.”

Buffett added, “People see all sorts of virtue when you’re writing a check.”

9. On philanthropy

When asked about his pledge to donate 99% of his wealth, Buffett said, “There’s no Forbes 400 in the graveyard.” He added that his equity holdings have “no utility to me, but have enormous utility around the world.”

Later, Buffett said that his goal was to figure out how he could “do the most good.” We may not all have billions of dollars to donate, but I think we can all appreciate the sentiment.

10. On how to succeed

“We’ve now watched a lot of other people get started. The ones who follow [Benjamin] Graham have done pretty well.” Munger continued, “Avoid being a perfect idiot.”

11. On continuing to learn

Munger was asked what matters to him most. He replied, “I think it’s dishonorable to stay stupider than you have to be.”

12. On preparing for opportunity

Buffett was asked why Berkshire Hathaway holds so much cash — never less than $20 billion — and he replied, “You never know when the phone will ring.”

Moral of the story: Make sure you’re ready when the stock market offers you an opportunity you can’t miss.

13. On big-picture thinking

When Buffett was asked whether today’s companies are too short-term-focused, he said, “We don’t ignore yearly earnings, but we don’t live by them.”

Buffett added that he is looking for businesses to be “widening their moat,” or improving their competitive advantage. Essentially, while earnings are important, he wants businesses to be constantly improving, and that doesn’t always immediately translate to bottom-line results.

Insert any personal goal or aspiration, and this applies.

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