World of Finance by M.Vijaya Sai |
Thoughts and ideologies behind the Successful people
· Carlos Slim-
Net Worth (USD) | Age | Born | Citizenship | Residence | Sources of wealth |
$74.4 billion | 71 | Mexico | Mexico | Mexico |
Mr. Slim says he likes competition in business, but blocks it at every turn. He loves talking about technology, but doesn't use a computer and prefers pen and paper. He hosts everyone from Bill Clinton to author Gabriel García Márquez at his Mexico City mansion, but is provincial in many ways, doesn't travel widely, and proudly says he owns no homes outside of Mexico.
The 71-year-old tycoon controls more than 200 companies -- he says he's "lost count" -- in telecommunications, cigarettes, construction, mining, bicycles, soft-drinks, airlines, hotels, railways, banking and printing. In all, his companies account for more than a third of the total value of Mexico's leading stock market index, while his fortune represents 7% of the country's annual economic output. One of the Mexico City eatery jokes on its menu: "This restaurant is the only place in Mexico not owned by Carlos Slim."
Mr. Slim says his success comes from spotting opportunity early, something he learned in part from reading futurist writer Alvin Toffler, who wrote the best-seller "Future Shock" in the 1970s, and who sends the mogul manuscripts to review. Pulling a dog-eared copy of Mr. Toffler's last book, "Revolutionary Wealth," Mr. Slim leafs through it and shows off his comments in the margins. "Some of his numbers were out of date," he mutters.
· Bill Gates-
Net Worth (USD) | Age | Born | Citizenship | Residence | Sources of wealth |
$56.0 billion | 55 | United States | United States | United States |
“Have a vision of what you want to achieve and hold on that vision come hell or high water”. Mr. Bill Gates vision was: “A personal computer on every desk”. When you have a vision, you can make the impossible possible. Almost everybody is familiar about how once upon a time the small business entrepreneur Bill Gates secured mighty IBM's contract to supply the latter's operating system. When he was negotiating with the IBM people, he had no operating system as yet. He was able to buy a Disk Operating System or DOS for $50 thousand. In the end, he got the contract. Why?Bill Gates was guided by his vision - that every desk all over the world should have a computer on it.
What is exactly what Bill has been doing all these years that has led him to be one of the richest men on the planet? What exactly lies its success?
More than being a super programmer Gates is considered a marketing genius” and continued “if something has managed to do well, is to sell products.” Let’s examine his success strategy.
*Identify a potential market for a product.
* No need to invent this great product yourself.
* Get this product and buy it for a good price.
* Then sell it in large volume.
* Then make it better and bring them again to sell.
* Then make it better, change his name and sell it again.
* Repeat the above steps and still selling.
* Use premises as a “new”, “improved”, “latest technology”, “greater security”, “faster”, “enhanced features”, etc. and bring them again to sell.
* If you criticize your product, use it as an excuse to offer a new proposal and still selling.
* Never stop selling, people always like the “new”.
So, Bill Gates has been selling improved versions of their product over and over again and if to this we add that a program is now also sold in various languages, and then the market is expanded almost indefinitely. And if you multiply it by every product we sell now, then we can understand because it remains one of the world’s richest business man.
This same strategy is commonly applied by many companies these in detergents, toothpaste, cars, phones, etc. Improve or implement new features to their products and sell them through ad campaigns restarted.
· Warren Buffett-
Net Worth (USD) | Age | Born | Citizenship | Residence | Sources of wealth |
$50.0 billion | 80 | United States | United States | United States |
Mr. Warren Buffett is considered as World’s best Investment gurus of the times. Let’s briefly examine his strategy to success and the methodology he adopts in investing in stocks.
Warren descends from the Benjamin Graham School of value investing. Value investors look for securities with prices that are unjustifiably low based on their intrinsic worth. Most often intrinsic value of security is analysed by analysing company’s fundamentals.
Warren chooses stocks solely on the basis of overall potential of a company. He looks each as a whole. He holds these stocks as a long term play. Warren doesn’t eye on capital gains but on ownership of quality companies extremely capable of generating positive earnings. When he invests in a company he is not considered with whether the market will eventually recognise its worth. He is considered how well the company can make money as business.
Methodology:
Ø Has the company consistently performed well? - Buffet looks Return on Equity (ROE) to measure the consistence performance of the company and compares with similar companies in same industry.
•ROE=Net Income / Shareholders Equity
The investor should view the ROE from past five to ten years to get a good idea of historical performance.
Ø Has the company avoided excess debt? – Buffett also considers Debt/equity carefully. Buffett prefers to see small amount of debt so that the earnings growth is being generated from shareholders equity as opposed to external borrowings.
•Debt-equity ratio=Total Liabilities / Shareholders Equity
This ratio indicates the proportion of assets being financed using debt and equity capital. Higher the ratio the more the debt rather than equity. The high level of debt compared to equity can result in high volatile earnings and large interest expenses.
Ø Are profit margins high enough? Are they increasing?
The profitability of the company not only depends on having good profit margin but also consistent increment in profit margin.
•Net Profit Margin=Net Income / Net Sales
To get a good indication of historical profits the investor should look at past five years trend. A high profit margin indicates that the firm is performing well. But, incremental profit margin means the efficiency of the management to be successful in controlling the expenses.
Ø How long has the company been public?
Warren typically considers only those companies which have been around for last ten years and more. Since warrens strategy is on long term perceptive his value investing means looking at the companies that have stood the test of time but are currently undervalued.
Ø Do the company’s products relay on commodities?
Warren tends to shy away from (but not always) from the companies whose products are indistinguishable from those of competitors, and those that rely solely on commodities such as oil and gas.
Ø Is the stock selling at twenty-five percent discount to its real value?
This is a challenge. Finding the company that meets other five mentioned criteria is one thing, but determining whether they are undervalued is most difficult value of investing. And this is Warren’s most important skill he processes. The investor must determine the intrinsic value of the company by analysing number of business fundamentals, including earnings, revenues, and assets of the company. And the companys intrinsic value should be higher than the liquidation value. What the company is worth if it is liquidated and sold today? The liquidation value doesn’t include intangibles such as brand name which is not directly stated in the financial statements.
Once Warren determines the intrinsic value as a whole. He now compares to the market capitalisation – (the current total worth). If his measurement of intrinsic value is at least twenty five percent higher than the company’s market capitalisation. Warren sees the company as the one with value.
CONCLUSION
Here in this article we tried to bring out values that these three successful people had back in their minds which laid the red carpet for their successful achievements. To recap in brief note: Carlos Slim succeeded in spotting the opportunities early. I.e. Early mover advantage. While Bill Gates had a great vision- “A personal computer on every desk”. And ultimate marketing skills supplementing his techno visionary ideas. Finally, Warren Buffett was too a visionary who believed on strong fundamentals and remarkable forecasting skills. We at finsai.net shall bring out more articles about thoughts and ideologies behind some more successful people. I thank all my readers for motivating me to be a better writer with your comments and ideas.
