One Never Lose Money and Two Always Remember rule number 1 – the truth behind these rules.

16^th January 2020

One Never Lose Money and Two Always Remember rule number 1 – the truth behind these rules.

Dear Fellow Travellers,

Greetings from Hitesh!  We are in the third week of 2020. Sun has entered into Makar Rashi. Things are looking stable apparently. So, we are taking back to the most talked-about rule of Investments – given by Oracle of Omaha Mr.Buffett. He always talked about the two rules he follows while investing.

1.   Never Lose Money

2.   Always remember Rule Number 1.

Most new investors take them at face value as they have no time to study or read BUFFETT in totality. So, when they have losses – they feel frustrated/unlucky, as they believe BUFFETT is always making PROFIT. Today I will share my understanding of the same.

It is a Buffett style subtle joke for NORMAL Guy and his way of living.

When big guys crake a joke, it takes time for normal guys to understand. It is a big joke on GREEDY investors. 

Just read annual letters by BUFFETT and you will see he has booked losses a lot of time over a period of last 50 plus years, he has made tons of mistakes and missed a number of opportunities also. So, in reality, what he has told in the above rules and what he writes in his annual letters both are not matching. I will go with the ANNUAL LETTERS as they are talking about the FACTS while the RULES may be seen as a MOTIVATIONAL SPEAKERS TIP.

But BUFFETT is the most comprehensive thinker we have ever known and when he says two opposite things – it must have some meanings. Before we deal with this – let us look at what LORD KRISHNA had said to ARJUN in GITA.

What LORD KRISHNA said in Gita chapter 18, slok 2?

काम्यानां कर्मणा न्यासं सन्न्यासं कवयो विदुः ।, सर्वकर्मफलत्यागं प्राहुस्त्यागं विचक्षणाः ॥,

This is one of the most beautiful slok in Gita. Most guys don’t talk about it as they do not spend time in understanding GITA in details. Krishna was answering ARJUN about the meaning of sannyasi.

Lord Krishna said - "The sages understand Sannyas to be the renunciation of action with desire, But the most intelligent – like Krishna – see Sannyas as doing everything and leaving the fruits of KARMA to GOD".

The simple meaning of this is – one should not go for Actions to fulfill desires. All actions should be focused on meeting needs only. If you just do this – you are SANNAYSI. Look at SANNAYSI in India. Their actions focused on meeting their NEED ONLY. So, they have a lot of time for activities to take them towards MOKSHA.

Now, let us look at the life of BUFFETT.

Look at his lifestyle. He is staying in the same house for the last 50 years. He drives his car. He picks up and drops his guests at the airport by himself. He always tells never to spend money on things you don’t need or else you will have to sell things you need.

For BUFFETT – “NEVER LOSE MONEY” is a very comprehensive term and it applies to all aspects of LIFE and not to only investments, as being understood by masses.

When you APPLY “NEVER LOSE MONEY” to all areas of your life – you will have more and more money for investment and you will have more and more possibilities for making new money.

Where is your BIGGEST LOSS coming from?

Normal guys' biggest loss comes from lifestyle-related expenses, which are not mostly need-oriented but mostly desire oriented or to keep up with his or her friends and neighbors.

I see many guys with 2-3 mobiles / 2-3 cars and many such things. Many houses are like a GODOWNS. They just keep on buying things and throwing them in their house. It is normal to find unpacked boxes of many things lying in the storage areas. I see many guys buy things as if there is no tomorrow in SALE. More the discount, more the shopping. Now, say you got a 60% discount and bought something which you are not going to use it. According to Buffett, this is a 100% loss. 

Another area of loss comes by going after cheap things or things that are not having resale value. See rich people spending money. They buy ROLEX watches / Montblanc pens and things like that. They spend good money on eating quality foods. They buy certified jewelry or diamond. 

Now, look at the middle-class guys - they will go for cheap Rs.10 pen. They will buy 1000 pens in their lifetime. No return value. But RICH will spend Rs.20000 for his pen one time. He will use it for 20-30 years and give it to their sons. If they want to sell this pen after 20 years - they will get back their investment value at least as the price of a pen would have gone up to Rs.40000 in 20 years. In this way - middle-class guy lost Rs.10000 after pen while rich kept his Rs.20000 for his next generation.

So, if you want to follow Buffett's rule, you will have to look at your life in totality and the way you spend money very closely.

Does this mean that you should not do Discretionary Spending?

No. Its your money and you can do anything. If you have no money, then you can use your CREDIT CARD and do the shopping. You can take a loan and you can go for a vacation. Nobody can stop you.

But when you break the BUFFETT discipline – you are inviting STRESS / JEALOUSY / FRUSTRATION and many other mental diseases. This will reflect on your BODY and you will not be able to work like BUFFETT at 90.

One may ask - then why the hell one should EARN money?

In the second part of the above slok, Lord Krishna says – do everything and leave the fruits of the same in the GOD or Existence Hand.

Earning money is the measure of your skill sets in your profession or job or business. If you are making good money, it means you are excellent in your area (assuming all other things are equal). Use that money to increase the business as long as you want to play the game of business or give it donation like most billionaires are doing in the World. Let deprived people also fulfil their NEEDS, if not their desires.

When you do this – there is no loss to you. You have always made profits. While earning money you made profits / while using money – you spend it as per your NEED and leftover money is given to deprived people to meet their needs. From the generation of money to the spending – everywhere there is profit, profit, and only profit.

What NEXT?

When great guys or saints say something – it has a deep meaning but normal guys pick up according to his or her level of understanding and comforts. This creates a communication gap. This gap is results in the level of success between them and us. 

Have a Profitable Life.

Follow me on Twitter @hiteshmparikh / WhatsApp – +91-9869425399.

Live With Passion…Invest With Passion.

Hitesh Parikh

Your Personal Destiny Manager.