So many people ask us, how do you have time to read all of these books? The short answer is we don’t. That’s why we read books using an audio format. This means I can do two things at the same time - driving my car, doing dishes, working in the yard. The best way to read audio books is through Amazon's Audible service.
Reading is hands-down the most important element to a person's success. Further more, I find books to be much more important than "article reading". The reason is it forces people to focus. In today's day and age so many people have enormous distractors that make them bounce from one idea to the next. This is a dangerous environment because the knowledge people are acting on is skin-deep. Not having any substance beneath your understanding of the complex systems in this world means you might be making superficial decisions and potential mistakes in your thinking. At the end of the day, we want to answer this question: What are the fundamental attributes that give something its essence? Understanding the essence of complex systems allows individuals to be more creative, efficient, and productive. That’s why we read books.
We personally use an application called Audibles to listen to our books. This program is the best because it provides the cheapest price and the largest inventory of books. Audibles is owned and operated by Amazon.com.
As a BuffettsBooks user, if you sign-up for Audibles through this link, you will get a free book. If you don’t like the application, simply delete your account within 30 days and you won’t be charged a thing. We recently read the book, Thinking Fast and Slow. The book cost $40 to own the audio CD. If you use our link, you can download it for free with no obligation. Enjoy this tremendous tool – it’s been the most valuable asset in our entire toolbox.
So I actually use two different brokers because there are advantages and disadvantages for the way I have things set-up. To start, a broker is nothing more than a company that conducts trades on your behalf. I encourage people to separate their research tools from their broker(s). I personally find the recommendations from stockbrokers to be grossly plagued in self-interest. As you might suspect, a broker has an interest in selling you on their company’s mutual funds or highest commission products. You’ll want to avoid this trap. A knowledgeable investor needs to think for themselves and do their own homework. Since I don’t need the broker’s analytical tools, and subsequent high fees, I recommend the following.
I strongly recommend TradeKing. The reason TradeKing works well for me is because I want my frictional costs (or transactional costs) to be an absolute minimum. Although I don’t conduct a lot of trades a year (usually about 20 a year), those costs can really add up. Since most brokers charge about $10 a trade, that means I would spend $200 a year just on trading costs. Now, let’s imagine you’re like most investors and you trade a lot more than I do. For example, the typical day trader might buy and sell once a day during the 252 trading days in the year. That means they would conduct 504 trades in a year. Without much analysis, you can see that this behavior would cost the “investor” $5,040! That’s a lot of money. It’s very difficult to have any kind of returns when all the money is going to the broker.
TradeKing's personal trading accounts have no set-up fees. No annual fees, and they only charge $4.95 per trade. They'll even refund you $150 for fees associated with switching-over to their service if you use this BuffettsBooks link. So in short, I only spend about $99 a year conducting all of my trades. For the day trader, they would save about $2,545.20 a year with TradeKing if they were making 1 trade a day.
I recommend Scottrade. So I have a second broker because I also have a trading account within my business, The Pylon Holding Company. I don’t use TradeKing here because with corporate accounts, they charge a $200 annual fee and also a $250 start-up fee. It’s important to note that TradeKing does not assess these fees for personal accounts; only corporate accounts. As a result, I have a corporate trading account with Scottrade because they have no initial sign-up fee and no annual fees. Now the slight downside is that their trading costs are slightly higher, at $7.00 a trade. Since I only do about 20 trades per year, Scottrade offers a better value for my corporate account. (Cost per year is approximately $140; whereas TradeKing would have been $340 with the fees for being a corporation).
Since I live in the US, I do not have an account with Firstrade. I'm highlighting them to our international listeners because they have fantastic terms, conditions, and fees. Firstrade is compatable for most international investors, and their fee is only $6.95 per trade (and there’s no start up fees, annual fees, or costs when you wire your funds). I strongly recommend Firstrade for new investors as there is $0 minimum deposit, and you have access to a free live support chat to guide you through the process. Right now Firstrade is offering 100 commission free trades to new sign-ups if you use this BuffettsBooks link and deposit at least $5,000. The offer is valid for new US customers as well.
As a former attack helicopter pilot (click here if you want to see a video of me from back in the day), there was nothing more important than my checklist. With investing, I look at things the exact same way. In fact, it's not just me, Mohnish Pabria, Guy Spier, and countless others multi-million dollar investors do the same thing. Before I conduct any stock purchase, I reference my one page checklist and ensure each criteria is met. It might sound elementary, but it's a great way for me to mitigate any undue risks. Here's a link to download my checklist, but you'll need to sign-up for our mailing list to get it.
My primary tool for research is MorningStar. I like MorningStar for four main reasons:
For starters, I think that MorningStar’s executive, Pat Dorsey, is one of the best investors out there, and he has constructed the site in a manner that makes sense. Read Dorsey’s book and you’ll quickly agree. Without a membership (using the site for free), you can really gain a lot of information and conduct fantastic research. I find that MorningStar’s numbers are the most accurate - many websites like Google or MSN Money have countless mistakes.
Should you pay for a Premium Account? So that’s a tough one. I really think it depends on how serious you are and how much you plan on investing. I personally have a premium account with MorningStar because I think they provide enormous value to my financial decisions each month. With a premium account, you get access to MorningStar’s Certified Financial Analysts CFAs (the Jedi Knights of accounting). I find their exclusive reports very accurate and I use their reports to back-up my own intrinsic value calculations and risk assessments. Just so you know, getting a CFA is extremely difficult and very few people have one – most people in the finance industry have a CFP – Certified Financial Planner (a completely different certification). The reports by the MorningStar CFAs often highlight risks that I missed in my own cursory reviews. The reports provide an intrinsic value estimate (or fair Value Estimate), and a buy/sell price range. I find their assessments to be accurate and based on Discount Cash Flow (DCF) models that are relative to the current estimated returns on the S&P 500. Another thing I particularly like is the Economic Moat discussion that each report provides. When you talk about Warren Buffett and the importance of competitive advantage, you’ll quickly realize this is one of his most important variables because it determines the company’s ability to sustain future business and margins. In the premium reports, the CFA’s have an entire section that addresses the “Economic Moat” or competitive advantage of each business. In short, these analysts are dedicated to individual companies and immerse themselves in the company’s performance. Most importantly, they aren’t trying to sell you on any particular fund or stock that serves their own self-interest (like many CFPs at large brokerage firms). Unfortunately, the reports are only available to premium members. Since the service cost $199 a year, I’m sure many people might be hesitant to try it out. Hey, it beats the heck out of a Bloomberg Terminal ($30,000 a year!). Regardless of the price, if you use this link, you can try it out, 14 days for free. If you’re on the fence after 14 days, simply cancel it. This way you reduce your risk (of $199 annually), and you get a feel for the value it might add to your investment decisions.
During the 2003 Berkshire Hathaway Shareholder’s Meeting, Warren Buffett and Charlie Munger were asked:
Question: “How do you build your investment Knowledge?”
Warren: We read a lot. We read daily publications, annual reports, etc…
Charlie: The more basic knowledge you have, the less new knowledge you have to get. The guy who plays chess blindfolded (Note: a chess master comes to Omaha during the Berkshire annual meetings, and exhibits his ability to beat people while blindfolded), he has a knowledge of the board, which allows him to do this. I’d hate to give up the Wall Street Journal.
One of the things I try to avoid is watching investment shows on TV. I find the constant rampage of random recommendations to be …MAD (if you will). In order to stay current with the news, I find the Wall Street Journal to be much more valuable. The articles in the Journal typically cover interest rates, the decisions of the FED, general industry directions and much more. Again, you’re reading articles by accomplished professionals that aren’t trying to sell you something. One of the most difficult things to do as an investor is seperate the critical variables from the noise. I personally get the Wall Street Journal for that reason. It helps me to stay current in business news, all while flushing-out the propoganda machine.
How to Get the Wall Street Journal For Free
So this recommendation is extremely biased, but I’m putting it on here anyway. I recommend you listen to our Podcast. On average, America’s spend 1 hour driving to and from work everyday. Instead of listening to the local radio station talk about celebrities in Hollywood, turn your car into a learning laboratory. During our show, we bring on accomplished investment authors and review books by billionaires. If you go to our investing podcast, you can subscribe to the show (at the top navigation bar) and then listen to us through your smart phone each week. We would love to have you as a listener!
Additionally, I highly recommend you get a subscription to Audibles. For a few bucks a month, you can get a subscription to Amazon's audio book service and start reading a book every month. Heck, if you've got a long drive, you could knock-out four books a month. Regardless, I find this single tool probably the most enjoyable and rewarding experience. I don't have time to read books at home, but I do have a lot of time in transit during the week. It's amazing how much more you learn from reading books than surfing the web. When you read a book, you're generally focusing on a specific area of expertise from an accomplished professional. When you conduct research on the web, it's hit or miss. The best way to become a more intelligent investor is to increase your bredth of expertise, nothing accomplishes that better than audio books.