One-way ticket18
And,’ Anisa continued, ‘it seems the word risk doesn’t automati-
cally mean something bad for you nancial gurus.’
‘That’s right. For you, risk always means something bad. There’s
the risk of breaking your leg skiing, or the risk of losing your job.
By the way, where is it you said you work?’
‘I didn’t.’ Anisa smiled at me again but this time her eyes
remained cold. She wasn’t a woman who gave too much away
about herself. Never mind, I told myself, plenty of time left to
nd out more about her.
I continued. ‘Money men don’t see risk in the same way as the
general public. In fact, we love risk. Risk leads to return. And
return is our objective.’
Take a chance on me
‘I’ll give you an example. The safest investment in any country
is normally a government bond. Let’s assume you buy a Japanese
government bond which pays 3 per cent every year. You plan to
hold it for ten years, so your money can compound.
‘But if you took some risk, you could get a lot more return. How
much would you get in ten years if you chose an investment
which paid 10 per cent per year? And what about 20 per cent?’
Anisa invests ¥100,000 for 10 years
At 3%, her money will grow to ¥134,392
At 10%, her money will grow to ¥259,374
At 20%, her money will grow to ¥619,174
Conrad put up a pudgy hand to interrupt. ‘But risk means that
you can lose all your money. Why gamble with your savings?
When I receive money from my associates I want to preserve my
capital and get some growth. And I want to do it without taking
any risk.’
19Taking risks
Inflation has a big effect on your real return
‘But you’ve forgotten one really big thing, Mr Conrad. Ination.
Ination eats away at your returns. Bank adverts always quote
the nominal return but what’s vital to us is the real return. This
is what you get once you’ve stripped out the pernicious impact
of ination. The lower your headline return, the bigger the hit
from ination. Ination causes money to lose its purchasing
power.’
I sketched these gures out on a napkin.
If the nominal rate of Return is . . . 3%
. . . you need to strip out inflation of 2%
. . . to find the real rate of return 1%
Conrad looked crestfallen. Some men can turn anything into a
competition. He was clearly determined to have the last word on
this subject.
‘You young people think I’m some sort of fuddy-duddy. But I’ve
made steady returns over many years just by picking low-risk
investments.’ Conrad gave me the smile of a fat cat who owned
a fund dealing solely in premium-rated cream. ‘You can think of
me as the poor man’s Warren Buffett.’
‘Who?’ asked Anisa.
s
Who’s Warren Buffett?
He’s the best investor the world has ever seen, that’s all.
Buffett is the living embodiment of the value investor. He buys
shares when he believes them to be undervalued and because they
have long-term potential (‘our favourite holding period is forever’).
He prefers simple businesses that produce a long stream
case study
One-way ticket20
of cash flow. The next time you buy a pack of four Gillette razor
blades for £10, stop for a second and consider how much of that is
pure profit for Gillette’s shareholders.
Buffett’s got a sense of humour, too, something which is not
always shared with the stuffed shirts of Wall Street: ‘Rule No. 1:
Never lose money. Rule No. 2: Never forget Rule No. 1.’
Buffett has spent the last decade at the top of the world’s
rich lists, but is personally frugal and has vowed to donate
99 per cent of his wealth to charity. His annual letters to
shareholders and TV appearances are masterpieces of self-
deprecating humour. But behind this folksy exterior is one of
global finance’s smartest operators: ‘Of the billionaires I have
known, money just brings out the basic traits in them. If they
were jerks before they had money, they are simply jerks with a
billion dollars.’
It takes a special kind of billionaire – humble, stable, acutely self-
aware of how he is perceived – to get away with that sort of joke.
And you have to admire a man who has condemned the wasteful
way companies are run, and then buys a corporate jet with
Berkshire Hathaway’s money. Calling the plane The Indefensible
makes the joke even funnier.
So that’s Buffett, and we got through that without using his
nickname, The Sage of Omaha.
Weird fact – there are at least fifty books currently available
which have Buffett’s name in the title. The only living person
with more on the shelves is the Dalai Lama, whose investment
strategies are unrecorded.
s
Switzerland is the most beautiful country in which I’ve led courses.
We passed shimmering lakes and snow-capped mountains. Trust
Conrad to ruin the mood: ‘We are sure to be late. The police will
triple-check every passport because of these insurrections in the
Middle East.’
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