Get Rich like Buffett by Taking Advantage of Psychotic Drunks!
Marc is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
People often wonder how they can get rich like Warren Buffett. Amazingly, Warren himself has spelled out exactly how he does it year after year. Buffett knows he can do this because 99% of individuals do not have the emotional control to follow his perfectly laid out plan. He continually gives you his secret sauce if you only care to listen. I did listen to Buffett and have done extremely well over the years as a result. Granted, it is difficult because you will have to do things that your emotions tell you not to do. Financial TV and all media will pull at you to take actions against your best interest. If you can overcome these forces and your fear you will do extremely well in the stock market over time.
Here is Buffett’s quote from the 2012 shareholder meeting:
“The beauty of stocks is they sell at a variety of prices. That’s how Charlie and I have gotten so rich. The market is a psychotic drunk, and sometimes Mr. Market does very strange things. It’s built into the system that stocks get mis-priced. Don’t behave like the psychotic drunk. The stock market is the most obliging, money-making place in the world.”
This quote falls right into line with Buffett's recommendation to read Graham's "Intelligent Investor" Chapters 8 and 20. Chapter 8 deals with market fluctuations and the concept of this psychotic drunk "Mr. Market". In Chapter 20 Graham preaches the concept of having a "Margin of Safety" in your purchase price. Buffett is telling us his secrets to success over and over. I sometimes wonder why so few listen to this legendary investor. Perhaps they "listen" but they don't follow in action where it counts.
A perfect example of this psychotic drunk in action is Apple (NASDAQ: AAPL) right now. In 20 years I’ve never seen such a mispricing of a company as widely followed as Apple. Today, Apple is priced for flat growth and then declining growth out just a few years. Even if earnings did go flat in a few years, the stock is still too cheap trading at 9 times 2012 earnings of $50 share (ex-cash. Apple has $110 per share in cash and no debt). Flat earnings growth are not in Apple’s five year forecast. Tablets are just getting started in this post PC mobile revolution. iPhone 5 is around the corner and the largest carrier is soon to come online. At 600 million subscribers, China Mobile represents an enormous growth driver for Apple. Next we have iTV, continued Mac growth and maybe even "one more thing."
Apple is a top worldwide brand and has one of the most loyal if not fanatical customer followings. It holds the number one spot in retail sales per square foot doubling Tiffany which is the next closest in sales per square foot. All others stores run distant to these two retail juggernauts in terms of sales per square foot. Apple makes more profit then 99% of companies worldwide and is growing faster then 95% plus of the S&P 500.
So maybe only some investors can acknowledge everything that is hiding in plain sight yet the psychotic drunk is doing his thing and giving buyers a chance to get rich by taking advantage of his generous offer to you right now. You have a great offer with a tremendous margin of safety built in if things don't go as well as planned.
Another stock I own which is actually growing slower then Apple yet sports a higher current PE and forward PE is Google (NASDAQ: GOOG). It trades for 18.5 times trailing earnings and just 12 times forward estimated earnings. While not as great a bargain as Apple (much lower margin of safety), Google still looks like a company still sporting a reasonable margin of safety with a super solid balance sheet that has 40 billion in net cash.
How many will be like Buffett or run with the psychotic drunk? What will you do? Will you wait to buy only when Mr. Market has regained his sanity and marks up these prices?
For additional blog posts by me on Apple, Buffett, Graham and the technology sector check out my personal blog www.oracleofjersey.com
EquityBull owns shares of Apple and Google. The Motley Fool owns shares of Apple and Google. Motley Fool newsletter services recommend Apple and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.