General Guidance for Stock Investing

Macroeconomics and Investing

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Executive Summary


Warren Buffett gave real life situations about the market, America, Berkshire Hathaway, bonds, and the government. His insights surely bring about more knowledge to investors. After all the examples, these investors, young or old, now have more idea with what lies before them.


The market is over-reacting. With this, the oil prices are changing, which is a major topic nowadays. However, Buffett is not worried because the oil prices do not affect the future of his businesses. Oil prices are just unpredictable. Despite the changes in oil prices, the economy hasn’t experienced a significant interruption yet.


In one of the annual shareholders meeting, Buffett painted a much more optimistic picture of America, because has always been optimistic even though he knew things were going to hell. The country has gone through recessions, World Wars, Civil wars, and more, but there is a resiliency in the American system. There are bad crops occasionally, but there will still be good crops after all. America has good soil metaphorically speaking.


Despite the changes market situation, Berkshire Hathaway’s business is back on track, but inching. The cinema industry is interesting as it is going up and down quite a bit. The electronic distributer and TTI are booming at Asia, Europe, and America. The railroad business has picked about 60% of the way back from the bottom. It was a different business 2 years ago, and it gets better by the quarter. Berkshire’s machine of tools just got the January figures. People are buying it simply because they’re using it.


In contrary to the previous praises in Berkshire’s businesses, the residential construction is stuck in the field, but they are on the way to improving it in about a year. 9,400 employees were laid off in the businesses that cater to the need, but hiring will soon start again once the business starts to pick up. They are building 2 million houses because people create 2 million families per year on average.


Buffett neither like short-term and long-term bonds, nor intermediate terms. It’s a terrible mistake to buy a fixed dollar at current rates. When people run out of cash because they’re afraid of everything, they’re going to the worst investments possible. The government has had monetary policy for a year already. The idea of overdosing the patient two years ago was a terrific idea, because the patient needed every bit of it.


The government is spending more money than what they can take in. 10% of GDP means massive stimulus, and massive stimulus means massive monetary activity. The most important factor coming out of the recession is the natural regenerative capacity of capitals. They are psychologically important because they expect the government to do that. The main thing that makes the economy come back is the 300 million people who are trying to figure out how to live better tomorrow than they live today.


As the song goes, “No man is an island.” The industry, the government, the businesses, and the people all need to work together to get America booming.

Full Text


The market is over-reacting, and surprisingly, Buffett isn’t sure whether this is something to be concerned about or not. He said that would depend on the future.


The market is going through a lot now, which has always been the case.


Oil prices are dictating. In terms of investments, Buffett is not worried, because the oil prices do not affect Coca Cola’s future 5 years from now, nor his other businesses.


8 months ago, nobody worried about cut on prices; it’s unpredictable. If oil gets short and the price increases even more, people buy it regardless of price. Simply because they need it. The demand is pretty inelastic. Even if real interruptions occur, there are big supplies of oil and excess capacity somewhere around. However, it is true that a big enough interruption could cause a big change in price.


The economy hasn’t experienced a significant interruption yet though. The oil market is 2% of the global supply and half of that is cut at one point or another. Despite that, oil prices are running back up at $100. The case isn’t a surprise situation yet, but the market is anticipating. If people aren’t worried about Libya getting cut off, they’re worried about the unrest being spread, which is a rational thing to worry about. The price reflects an anticipating market.


On another side, the annual shareholders meeting painted a much more optimistic picture of America. Buffett was optimistic even when he knew things were going to hell. Life happens. America gets off the track from time to time, particularly in 2008, but America is unstoppable. The country has gone through recessions, World Wars, Civil wars, and more. There is a resiliency in the American system. It sputters from time to time in the future, but it catches up eventually. There are bad crops occasionally, but there will still be good crops after all. According to Buffett, America has good soil metaphorically speaking.


Buffett’s businesses right now are back on track, but probably inching. Unfortunately, residential construction is not inching, but instead, it is not going at all. It is currently undergoing an uneven situation. Berkshire Hathaway has booming businesses, but they also have a field that is stuck. That’s the reality in the economy. You can’t have it all. The company has been getting better for almost 2 years now. Although not consistently, it is not at a dramatic pace either.


Also, the cinema is interesting as the industry is going up and down quite a bit during a period. There isn’t too much change in the underlying trend. The electronic distributer and TTI are booming at Asia, Europe, and America. There are always these little things that cause a couple of penny, which all go to all kinds of customers. The railroad business has picked about 60% of the way back from the bottom. It was a different business 2 years ago, and it gets better by the quarter. Berkshire’s machine of tools just got the January figures. January was indeed a record month – not by a huge margin, but it just keeps getting better every month. People are buying it simply because they’re using it.


Regarding extra jobs and unemployment, the business was better in 2009 and 2010 according to Buffett. They only contracted 3,000 jobs from 260,000 roughly on case, which improved the business quite a lot. There were real games and productivity on the down side. People always had a tight in the belt, but good news is that period is largely over. The gains in business will be much more reflected in appointment than they have in the first year and a half.


The housing businesses are stuck and there are still a lot of paint to look at in housing. 9,400 employees were laid off in the businesses that cater to the need. Hiring will start again once the business starts to pick up. The industry has been out this 600,000 range quite a while. The man for housing comes from household formations. Household formations are running considerably high than housing starts. The excess housing supplies are being sucked up, but at a significant rate.


2 million houses are being built, because people are creating 2 million families a year on average. Families don’t go away, so the only way to solve this is to under produce household formations. Berkshire has been doing that for a couple of years already. In about a year, the excess supplies will be snapped up. The real thing to do is clean the excess. Any artificial exhilaration of demand just mean disappointment later on.


With regards to the government, they shouldn’t have moved the 4th quarter demands into the first quarter. They are very forward looking as they come to the recognition that the treasure’s not going to be there.


Buffett neither like short-term and long-term bonds, nor intermediate terms. It’s a terrible mistake to buy a fixed dollar at current rates. When people run out of cash because they’re afraid of everything, they’re going to the worst investments possible. The government has had monetary policy for a year already. The idea of overdosing the patient two years ago was a terrific idea, because the patient needed every bit of it.


What people don’t realize about fiscal policy is you can call any bill in Washington. Stimulus Bill was spending more money, but the government was taking it. The country has a massive stimulus going out – stimulus that we never have seen since World War 2. The government is spending more money than what they can take in. 10% of GDP means massive stimulus, and massive stimulus means massive monetary activity. The most important factor coming out of the recession is the natural regenerative capacity of capitals. They are psychologically important because they expect the government to do that. The main thing that makes the economy come back is the 300 million people who are trying to figure out how to live better tomorrow than they live today.


America doesn’t need as much neither monetary nor fiscal stimulus going out. They need to save the federal government big time, because the government really did a job in the fall of 2008. They ruined everything. The government is recovering because there are managers. Berkshire is trying to find out how to do more businesses tomorrow than yesterday; Apple and Amazon are thinking all times how to get there customers up.


As the song goes, “No man is an island.” The industry, the government, the businesses, and the people all need to work together to get America booming.