Infographic: Inside Warren Buffett's Brain
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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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How the Top Cryptocurrencies Performed in 2021

Cryptocurrencies had a breakout year in 2021, providing plenty of volatility and strong returns across crypto’s various sectors.

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crypto prices 2021

The Returns of Top Cryptocurrencies in 2021

2021 saw the crypto markets boom and mature, with different sectors flourishing and largely outperforming the market leader, bitcoin.

While bitcoin only managed to return 59.8% last year, the crypto sector’s total market cap grew by 187.5%, with many of the top coins offering four and even five-digit percentage returns.

2021 Crypto Market Roundup

Last year wasn’t just a breakout year for crypto in terms of returns, but also the growing infrastructure’s maturity and resulting decorrelation of individual crypto industries and coins.

Crypto’s infrastructure has developed significantly, and there are now many more onramps for people to buy altcoins that don’t require purchasing and using bitcoin in the process. As a result, many cryptocurrency prices were more dictated by the value and functionality of their protocol and applications rather than their correlation to bitcoin.

CryptocurrencyCategory2021 Returns
BitcoinCryptocurrency59.8%
EthereumSmart Contract Platform399.2%
Binance CoinExchange Token1,268.9%
SolanaSmart Contract Platform11,177.8%
CardanoSmart Contract Platform621.3%
XRPCryptocurrency277.8%
TerraSmart Contract Platform12,967.3%
AvalancheSmart Contract Platform3,334.8%
PolkadotSmart Contract Platform187.9%
DogecoinMeme Coin3,546.0%

Sources: TradingView, Binance, Uniswap, FTX, Bittrex

Bitcoin wasn’t the only cryptocurrency that didn’t manage to reach triple-digit returns in 2021. Litecoin and Bitcoin Cash also provided meagre double-digit percentage returns, as payment-focused cryptocurrencies were largely ignored for projects with smart contract capabilities.

Other older projects like Stellar Lumens (109%) and XRP (278%) provided triple-digit returns, with Cardano (621%) being the best performer of the old guard despite not managing to ship its smart contract functionality last year.

The Rise of the Ethereum Competitors

Ethereum greatly outpaced bitcoin in 2021, returning 399.2% as the popularity boom of NFTs and creation of DeFi 2.0 protocols like Olympus (OHM) expanded possible use-cases.

But with the rise of network activity, a 50% increase in transfers in 2021, Ethereum gas fees surged. From minimums of $20 for a single transaction, to NFT mint prices starting around $40 and going into the hundreds on congested network days, crypto’s retail crowd migrated to other smart contract platforms with lower fees.

Alternative budding smart contract platforms like Solana (11,178%), Avalanche (3,335%), and Fantom (13,207%) all had 4-5 digit percentage returns, as these protocols built out their own decentralized finance ecosystems and NFT markets.

With Ethereum set to merge onto the beacon chain this year, which uses proof of stake instead of proof of work, we’ll see if 2022 brings lower gas fees and retail’s return to Ethereum if the merge is successful.

Dog Coins Meme their Way to the Top

While many new cryptocurrencies with strong functionality and unique use-cases were rewarded with strong returns, it was memes that powered the greatest returns in cryptocurrencies this past year.

Dogecoin’s surge after Elon Musk’s “adoption” saw many other dog coins follow, with SHIB benefitting the most and returning an astounding 19.85 million percent.

But ever since Dogecoin’s run from $0.07 to a high of $0.74 in Q2 of last year, the original meme coin’s price has slowly bled -77% down to $0.17 at the time of writing. After the roller coaster ride of last year, 2022 started with a positive catalyst for Dogecoin holders as Elon Musk announced DOGE can be used to purchase Tesla merchandise.

Gamifying the Crypto Industry

The intersection between crypto, games, and the metaverse became more than just a pipe dream in 2021. Axie Infinity was the first crypto native game to successfully establish a play to earn structure that combines its native token (AXS) and in-game NFTs, becoming a sensation and source of income for many in the Philippines.

Other crypto gaming projects like Defi Kingdoms are putting recognizable game interfaces on decentralized finance applications, with the decentralized exchange becoming the town’s “marketplace” and yield farms being the “gardens” where yield is harvested. This fantasy aesthetic is more than just a new coat of paint, as the project with $1.04B of total value locked is developing an underlying play-to-earn game.

Along with gamification, 2021 saw crypto native and non-crypto developers put a big emphasis on the digital worlds or metaverses users will inhabit. Facebook’s name change to Meta resulted in the two prominent metaverse projects The Sandbox (SAND) and Decentraland (MANA) surge another few hundred percent to finish off the year at 16,261% and 4,104% returns respectively.

With so many eyes on the crypto sector after the 2021’s breakout year, we’ll see how developing U.S. regulation and changing macro conditions affect cryptocurrencies in 2022.

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Energy

The Periodic Table of Commodity Returns (2012-2021)

Energy fuels led the way as commodity prices surged in 2021, with only precious metals providing negative returns.

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commodity returns 2021 preview

The Periodic Table of Commodity Returns (2022 Edition)

For investors, 2021 was a year in which nearly every asset class finished in the green, with commodities providing some of the best returns.

The S&P Goldman Sachs Commodity Index (GSCI) was the third best-performing asset class in 2021, returning 37.1% and beating out real estate and all major equity indices.

This graphic from U.S. Global Investors tracks individual commodity returns over the past decade, ranking them based on their individual performance each year.

Commodity Prices Surge in 2021

After a strong performance from commodities (metals especially) in the year prior, 2021 was all about energy commodities.

The top three performers for 2021 were energy fuels, with coal providing the single best annual return of any commodity over the past 10 years at 160.6%. According to U.S. Global Investors, coal was also the least volatile commodity of 2021, meaning investors had a smooth ride as the fossil fuel surged in price.

Commodity2021 Returns
Coal160.61%
Crude Oil55.01%
Gas46.91%
Aluminum42.18%
Zinc31.53%
Nickel26.14%
Copper25.70%
Corn22.57%
Wheat20.34%
Lead18.32%
Gold-3.64%
Platinum-9.64%
Silver-11.72%
Palladium-22.21%

Source: U.S. Global Investors

The only commodities in the red this year were precious metals, which failed to stay positive despite rising inflation across goods and asset prices. Gold and silver had returns of -3.6% and -11.7% respectively, with platinum returning -9.6% and palladium, the worst performing commodity of 2021, at -22.2%.

Aside from the precious metals, every other commodity managed double-digit positive returns, with four commodities (crude oil, coal, aluminum, and wheat) having their best single-year performances of the past decade.

Energy Commodities Outperform as the World Reopens

The partial resumption of travel and the reopening of businesses in 2021 were both powerful catalysts that fueled the price rise of energy commodities.

After crude oil’s dip into negative prices in April 2020, black gold had a strong comeback in 2021 as it returned 55.01% while being the most volatile commodity of the year.

Natural gas prices also rose significantly (46.91%), with the UK and Europe’s natural gas prices rising even more as supply constraints came up against the winter demand surge.

Energy commodity returns 2021

Despite being the second worst performer of 2020 with the clean energy transition on the horizon, coal was 2021’s best commodity.

High electricity demand saw coal return in style, especially in China which accounts for one-third of global coal consumption.

Base Metals Beat out Precious Metals

2021 was a tale of two metals, as precious metals and base metals had opposing returns.

Copper, nickel, zinc, aluminum, and lead, all essential for the clean energy transition, kept up last year’s positive returns as the EV batteries and renewable energy technologies caught investors’ attention.

Demand for these energy metals looks set to continue in 2022, with Tesla having already signed a $1.5 billion deal for 75,000 tonnes of nickel with Talon Metals.

Metals price performance 2021

On the other end of the spectrum, precious metals simply sunk like a rock last year.

Investors turned to equities, real estate, and even cryptocurrencies to preserve and grow their investments, rather than the traditionally favorable gold (-3.64%) and silver (-11.72%). Platinum and palladium also lagged behind other commodities, only returning -9.64% and -22.21% respectively.

Grains Bring Steady Gains

In a year of over and underperformers, grains kept up their steady track record and notched their fifth year in a row of positive returns.

Both corn and wheat provided double-digit returns, with corn reaching eight-year highs and wheat reaching prices not seen in over nine years. Overall, these two grains followed 2021’s trend of increasing food prices, as the UN Food and Agriculture Organization’s food price index reached a 10-year high, rising by 17.8% over the course of the year.

Grains price performance 2021

As inflation across commodities, assets, and consumer goods surged in 2021, investors will now be keeping a sharp eye for a pullback in 2022. We’ll have to wait and see whether or not the Fed’s plans to increase rates and taper asset purchases will manage to provide price stability in commodities.

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