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Inside Warren Buffett’s Brain

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What springs to mind when you think of legendary investor Warren Buffett?

For some, it’s his humble Omaha origins or his long-lasting obsession with Coca-Cola. For other people, it’s Buffett’s impeccable investing track record and extraordinary wealth that make a lasting impression.

While these are all legitimate connections to make with the Buffett name, perhaps he is most synonymous with the discipline of value investing – the style and mindset Buffett has made famous over the decades.

The Warren Buffett Series

Part 2: Inside Buffett’s Brain

Today’s infographic provides a deep dive into Warren Buffett’s brain, and it explains everything about his investing philosophy, along with the framework he uses to evaluate potential opportunities.

It’s the second part of the Warren Buffett Series, which we’ve done in partnership with finder.com, a personal finance site that helps people make better decisions – whether they want to jump on the cryptocurrency craze or follow Buffett’s more traditional path to financial success.

The Warren Buffet Series: The Early YearsInside Warren Buffett's BrainPart 3Warren Buffett's Biggest Wins and FailsBest Buffett Quotes

Inside Warren Buffett's Brain
Note: Stay tuned for future parts with our free mailing list.

Warren Buffett’s investment philosophy is well-known.

He famously focuses on the intrinsic value of companies, and he buys stocks when they are “on sale”. Buffett’s not afraid to accumulate big positions in companies he likes – and his favorite holding period is “forever”.

While this formula may seem simple on paper, it’s extremely nuanced and complex in practice.

How Does Buffett’s Brain Work?

Warren Buffett has said that he borrows 85% of his investing style from Benjamin Graham, and 15% from Phil Fisher.

Benjamin Graham:
The godfather of value investing gave Buffett a framework for finding undervalued assets and companies.

Phil Fisher:
The famous growth investor showed Buffett the importance of investing with good management teams.

According to writer Robert Hagstrom, Buffett applies these ideas by focusing on four key principles of investing:

1. Analyze a stock as a business
Have the priorities of a business owner and look the company from a long-term perspective.
Is it increasing its intrinsic value? Would you want to own the entire company?

2. Ensure a “margin of safety”
Buffett considers “margin of safety” the three most important words in investing.
In other words, does a company have more intrinsic value than book value?

3. Manage a focused portfolio
Concentrate on a few stocks that will provide above-average returns over time. Buffett suggests investors think of this as owning a “punch card” with just 20 investment choices that can be made over a lifetime.

4. Protect yourself from Mr. Market
Mr. Market can be speculative and emotional, and he should not be relied upon as a predictor of future prices.
Instead, take advantage of Mr. Market periodically, whenever there is a fire sale.

Buffett’s Investment Criteria

Here are 12 key factors Warren Buffett considers when looking at potential opportunities:

1. Simplicity
Is the business easy to understand?

2. Operating History
Has the business been around for a long time, with a consistent operating history?

3. Long-Term Prospects
Is there reason to believe that the business will be able to sustain success in the long-term?

4. Rational Decisions
Is management wise when it comes to reinvesting earnings or returning profits to shareholders as dividends?

5. Candidness
Does the management team admit mistakes? Are they honest with shareholders?

6. Resisting the “Institutional Imperative”
Can the company resist temptations created by institutional dynamics, such as imitating peer companies, or resist changes in direction?

7. Profit Margins
Does the company have high profit margins?

8. Return on Equity
What is the return on equity (ROE) of the business?

9. Owners Earnings
What is the company’s ability to generate cash for shareholders, who are the residual owners? This is technically defined as free cash flow to equity (FCFE).

10. One Dollar Premise
For every dollar retained from net income, does the company create at least one dollar of market value?

11. Intrinsic Value
What is the value of the future owners’ earnings, discounted back to the present?

12. Margin of Safety
What’s the chance you’ll lose money on the stock, in the long run, if you buy it at today’s price?

Or to sum all of these ideas up succinctly, here’s a quote from the man himself.

My strategy is to find a good business – and one that I can understand why it’s good – with a durable, competitive advantage, run by able and honest people, and available at a price that makes sense.

– Warren Buffett

Other Notes

Part 3 of the Warren Buffett Series will be released in late February 2018.

Credits: This infographic would not be possible without the great biographies done by Roger Lowenstein (Buffett: The Making of an American Capitalist) and Alice Schroeder (The Snowball), as well as numerous other sources cataloging Buffett’s life online.

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Cities

Ranked: The Megaregions Driving the Global Economy

Today’s stunning map ranks the world’s most powerful megaregions — together, they contribute a whopping $28 trillion to the global economy.

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Ranked: The Megaregions Driving the Global Economy

If you’ve ever flown cross-country in a window seat, chances are, the bright lights at night have caught your eye. From above, the world tells its own story—as concentrated pockets of bright light keep the world’s economy thriving.

Today’s visualization relies on data compiled by CityLab researchers to identify the world’s largest megaregions. The team defines megaregions as:

  • Areas of continuous light, based on the latest night satellite imagery
  • Capturing metro areas or networks of metro areas, with a combined population of 5 million or higher
  • Generating economic output (GDP) of over $300 billion, on a PPP basis

The satellite imagery comes from the NOAA, while the base data for economic output is calculated from Oxford Economics via Brookings’ Global Metro Monitor 2018.

It’s worth pointing out that each megaregion may not be connected by specific trade relationships. Rather, satellite data highlights the proximity between these rough but useful regional estimates contributing to the global economy—and supercities are at the heart of it.

From Megalopolis to Megaregion

Throughout history, academics have described vast, interlinked urban regions as a ‘megalopolis’, or ‘megapolis’. Economic geographer Jean Gottman popularized the Greek term, referring to the booming and unprecedented urbanization in Bos-Wash—the northeast stretch from Boston and New York down to Washington, D.C.:

This region has indeed a “personality” of its own […] Every city in this region spreads out far and wide around its original nucleus.

Gottmann, Megalopolis (1961)

By looking at adjacent metropolitan areas rather than country-level data, it can help provide an entirely new perspective on the global distribution of economic activity.

Where in the world are the most powerful urban economic clusters today?

The Largest Megaregions Today

The world’s economy is a sum of its parts. Each megaregion contributes significantly to the global growth engine, but arguably, certain areas pull more weight than others.

MegaregionCitiesRegionPopulationEconomic Output (EO)EO per Capita
Total602.2M$28,135B$46,720
1. Bos-WashNew York, Washington, D.C., BostonNorth America 47.6M$3,650B$76,681
2. Par-Am-MunParis, Amsterdam, Brussels, MunichEurope43.5M$2,505B$57,586
3. Chi-PittsChicago, Detroit, Cleveland, PittsburghNorth America32.9M$2,130B$64,742
4. Greater TokyoTokyoAsia39.1M$1,800B$46,036
5. SoCalLos Angeles, San DiegoNorth America22M$1,424B$64,727
6. Seoul-SanSeoul, BusanAsia35.5M$1,325B$37,324
7. Texas TriangleDallas, Houston, San Antonio, AustinNorth America18.4M$1,227B$66,685
8. BeijingBeijing, TianjinAsia37.4M$1,226B$32,781
9. Lon-Leed-ChesterLondon, Leeds, ManchesterEurope22.6M$1,177B$52,080
10. Hong-ShenHong Kong, ShenzhenAsia19.5M$1,043B$53,487
11. NorCalSan Francisco, San JoseNorth America 10.8M$925B$85,648
12. ShanghaiShanghai, HangzhouAsia 24.2M$892B$36,860
13. TaipeiTaipeiAsia16.7M$827B$49,521
14. São PaoloSão PaoloSouth America33.5M$780B$23,284
15. Char-LantaCharlotte, AtlantaNorth America 10.5M$656B$62,476
16. CascadiaSeattle, PortlandNorth America8.8M$627B$71,250
17. Ista-BursIstanbul, BursaMENA14.8M$626B$42,297
18. Vienna-BudapestVienna, BudapestEurope12.8M$555B$43,359
19. Mexico CityMexico CityNorth America24.5M$524B$21,388
20. Rome-Mil-TurRome, Milan, TurinEurope13.8M$513B$37,174
21. Singa-LumpurSingapore, Kuala LumpurAsia12.7M$493B$38,819
22. Cairo-AvivCairo, Tel AvivMENA19.8M$472B$23,838
23. So-FloMiami, TampaNorth America 9.1M$470B$51,648
24. Abu-DubaiAbu Dhabi, DubaiMENA5M$431B$86,200
25. Osaka-Nagoya (tied)Osaka, NagoyaAsia9.1M$424B$46,593
25. Tor-Buff-Chester (tied)Toronto, Buffalo, RochesterNorth America8.5M$424B$49,882
27. Delhi-LahoreNew Delhi, LahoreAsia27.9M$417B$14,946
28. Barcelona-LyonBarcelona, LyonEurope7M$323B$46,143
29. ShandongJinan, Zibo, DongyingAsia14.2M$249B$17,535

Altogether, these powerhouses bring in over $28 trillion in economic output.

Unsurprisingly, Bos-Wash reigns supreme even today, with $3.6 trillion in economic output, over 13% of the total. The corridor hosts some of the highest-paying sectors: information technology, finance, and professional services.

The largest city in Brazil, São Paulo, is the only city in the Southern Hemisphere to make the list. The city was once heavily reliant on manufacturing and trade, but the $780 billion city economy is now embracing its role as a nascent financial hub.

On the other side of the world, the cluster of Asian megaregions combines for $8.7 trillion in total economic output. Of these, Greater Tokyo in Japan is the largest, while Shandong might be a name that fewer people are familiar with. Sandwiched between Beijing and Shanghai, the coastal province houses multiple high-tech industrial and export processing zones.

The data is even more interesting when broken down into economic output per capita—Abu-Dubai churns out an impressive $86,200 per person. Meanwhile, Delhi-Lahore is lowest on the per-capita list, at $14,946 per person across nearly 28 million people.

Where To Next?

This trend shows no sign of slowing down, as megacities are on the rise in the coming decade. Eventually, more Indian and African megaregions will make its way onto this list, led by cities like Lagos and Chennai.

Stay tuned to Visual Capitalist for a North America-specific outlook coming soon, and a deep dive into the biggest factors contributing to the growth of these megaregions.

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Agriculture

Cultivating Cannabis: The Journey from Seed to Harvest

The estimated $63.5 billion green rush has led to increased revenues in cannabis cultivation—positively impacting other industries

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Cultivating Cannabis: The Journey from Seed to Harvest

Cannabis is emerging from the shadows of strict regulation, prompting the growth of a global market worth almost $25 billion today. This green rush has led to increased revenues throughout the entire cannabis supply chain—most notably in cannabis cultivation.

Such growth is rippling across industries such as energy and agriculture technology, with innovation allowing for greater scale.

Today’s infographic from Water Ways Technologies follows the journey of the cannabis plant, and explores cutting-edge technology that will fuel the future of cannabis cultivation.

Breaking Down the Cultivation Process

Cannabis is an annual plant, meaning it naturally goes through its entire life cycle in one year. However, this cycle is shortened to 3 months in commercial cultivation to improve productivity.

Plants can be grown from either a seed or a clone. The cloning method guarantees consistency, cost savings, and provides genetic stability from a disease-free source. All of these factors contribute to its popularity with commercial growers and the medical cannabis community.

Each stage requires different variables to ensure the highest standards are being met.

    1: Creating a Mother Plant: 3 months, 4 times a year

Mother plants create an endless supply of clones, making this stage the most crucial. The mother plant starts as a seed, chosen for desirable qualities that the grower wants to replicate—like aroma, flavor, and yield.

    2: Making a Clone: 7-10 days

Growers then take clippings from the chosen mother plant, and dip each one in water and fertilizer. They are then soaked in rooting fluid and placed in a plug (individual cell), before entering an incubator.

The clippings remain here until they finish rooting. The incubator maintains the plant’s moisture by facilitating leaf absorption.

    3: Vegetation Process: 3-4 weeks

The clones are transferred to growing rooms and placed into a light substance similar to soil. They are moved on to flood benches—large tables that re-circulate excess water and fertilizer—which enable the optimal uptake of nutrients.

During this phase, the clones require 18 hours of light and 6 hours of darkness. There must be a constant analysis of the radiation levels to combat any damage from the artificial light source.

    4: Flowering: 6-8 weeks

Following the vegetation process, the plants are separated into different flowering rooms. During this phase, buds grow and develop a solid cannabinoid and terpene profile. Terpenes are organic compounds that give cannabis varieties their distinctive aromas like citrus, berry, mint, and pine.

    5: Post-harvest: 1-3 weeks

The cannabis plant is harvested once it reaches maturity. The flowers are de-budded, trimmed, and set on drying trays in a post-harvest room with low humidity, before they are ready for extraction.

This final stage requires a substantial amount of time and attention to detail, to ensure the best quality and most potent product possible.

Cultivating the Future of Cannabis

Efficiently producing high-quality, consistent cannabis will help meet growing consumer demand. Water Ways Technologies is an agro-tech company helping to propel this growth, by providing cultivators with data-driven insights from their precise irrigation system.

With a strong understanding of the full cannabis life cycle, Water Ways Technologies ensures that adjustments can be made at different stages throughout the growing process, resulting in the highest standards, and wider profit margins for investors.

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