How I Trade Stocks For a Living -- [Chapter 1]

CHAPTER 1:  CAN YOU BEAT WARREN BUFFETT  ("SAGE OF OMAHA")?​ 
 
Warren Buffett, the world's most legendary investor, is the reason why you
should never throw away investing concepts in favor of short term trading.  I
personally have never heard of any short term trader who is a billionaire,
and neither have you.  Investing is about wealth creation and nobody
epitomizes that more so than the "Sage of Omaha".   
 
'Buffett created Berkshire Hathaway in 1969, after shutting down his
13-year-long partnership with a select group of seven recruited investors
(from among his family and friends). This group, formed in 1956, put in a
total of $105,000, of which only $100 was Buffett's. By 1962 the group's
capital had grown to more than $7 million, more than $1 million of which
belonged to Buffett. He charged a fee of only 25 percent of profits above 6
percent, and he would forgo his fee if his performance did not exceed the
return on government bonds, which yielded the same 6 percent.'   
 
So in his early years as an investor, he turned $100,000 into $7 million
within 6 years time.  That's almost an average of a DOUBLE every single
year for 6 consecutive years:
(year 1) = $200k
(year 2) = $400k
(year 3) = $800k
(year 4) = $1.6 million
(year 5) = $3.2 million
(year 6) = $6.4 million
 
Those are astounding results for an investor!  Warren Buffett has always
been elusive with his investment strategies, so nobody is really that certain
on how he did this.  Some claimed that he also used Arbitrage Techniques
(i.e.  company takeovers) and short term "special situation" plays to juice up
his returns in his earlier years.  I think there's probably some truth to that
because I can't see it possible to be simply a buy and holder and get that
kind of returns on investment.  Hey, but then again, Warren Buffett was and
still is a very brilliant man.
 
Throughout the life of his investment vehicle, Berkshire Hathaway, Warren
Buffett averaged about ​23% return per year​ from the formation of his holding company to present day.  So if you started out investing $10,000
with him in the 1960's, today you would have nearly $50 million worth.  Ah,
the beauty and power of compounding!   The concept of compounding (or
compounding interest) is very important to keep in mind when you're
trading or investing.   The average 23% may not seem like much in the
short run, but over 40 years time it's colossal.   
 
If you had invested $1,000 with Warren Buffett in 1956 (about $7,760 in 2008
dollars), you would have amassed $30 million at the end of 2007.  (As of
Feb 2010, the fortune would be at about $25 million.)   Warren Buffett's 50
year results were phenomenal, and why he's one of the wealthiest men in
the world, and deservedly so.  You see, the system he uses follows his two
most basic rules of investing in the markets.
 
"Rule No.1 is never lose money. Rule No.2 is never forget rule number one."​ -- Warren Buffett
 
The quote above may sound too simplistic and an impractical cliche to you,
but I think you would be missing a crucial point -- the basis of his incredible
run and massive fortune.  Warren Buffett really is someone who "never loses
money".  Look at the graph!  Now, I doubt that every single one of his
investments made money.  In fact, he has had numerous losing
investments.   But he has constructed his system such that, by buying
strong companies with long term moats at sale prices, he's virtually
guaranteed not to lose money over an extended period of time.   Likewise,
you must design your system in such a way that you follow Warren Buffett's
number #1 rule, in order for you to be successful over an extended period of
time.
 
No investor has yet to match Warren Buffett's long term results.  So how in
the world do regular people like us have a chance?  We just might, with
what I'm going to show you in this manual - The Beanieville System.  Does
my system follow Rule No.1?  I believe the answer is yes, but you won't
know until you're done reading this manual.
 
Investors who don't care much about the market or trading should probably
invest in Berkshire Hathaway, especially if their returns aren't better than
Warren Buffett's, which apparently goes for most people.  Why waste your
time being an active investor when all the work you put in still can't be
better than by simply investing in Berkshire Hathaway?  On the other hand,
what if you want to be more active in your trading (as in hoping to make
your trading full-time one day and leaving the corporate world altogether), 
and you want to generate income and you want to also beat Buffett's
returns?  In the second case, passively investing like Warren Buffett or
investing in Berkshire Hathaway isn't really for you.  I think what I have
figured out is the only thing I know of that will give you a fighting chance at
beating Warren Buffet and making a living as an active investor or trader.

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