One of the (many) topics I hope to touch on in this blog is travel. My wife and I recently had an opportunity to visit Savannah, Georgia. Savannah is known for its 24 public squares, each a different size and personality, as well as its Southern charm and hospitality.

Savannah’s squares are the result of an elaborate plan known as Oglethorpe’s Savannah Plan. As one of the earliest planned cities in North America, Savannah was built around a set of smaller communities, known as wards, with a central square surrounded by a certain number of private homes, public buildings and churches.

Interest in Savannah increased drastically after John Berendt’s Midnight in the Garden of Good and Evil was published. Berendt’s book is a nonfiction thriller which follows the many eccentric characters that the author came into contact while living in Savannah in the late 80s. A central element of the book is the murder trial of Jim Williams, a socialite accused of killing his employee. Despite its focus on so many different Savannahians, Berendt’s main character has been said to be Savannah itself due to Berendt’s masterful job of describing the city’s atmosphere and culture.

The book is an excellent read, even if you aren’t planning on visiting Savannah anytime soon. It spent 216 weeks on the NY Times’ bestseller list and has received many awards. I would recommend passing on the movie - it does an extremely poor job of explaining things and the acting is subpar (except for Kevin Spacey).

One of the most interesting thing about Savannah is its trees. The city is dominated by Live Oaks covered in Spanish Moss (like this one) which provide plenty of shade and add an eerie atmosphere to the city’s public squares and cemetaries.

All in all, I would highly recommend visiting Savannah. If you have been there and have any other hints or things to share, please do so in the comments!

“I don’t think the government ought to be involved with bailing out companies. I think the government ought to create the conditions so that companies can survive”

Who said this? Wait for it…. President Bush!…. at a news conference earlier this week…. The same week his administration requested and received approval to bail out Fannie Mae and Freddie Mac.

On my quest to learn more about Value Investing, several people have recommended that I read Robert Hagstrom’s The Warren Buffett Way. I recently had an opportunity to do so, and found it to be an excellent book that takes Benjamin Graham’s The Intelligent Investor one step further in its application to Warren Buffett’s methodology. You’ll understand in just a moment.

How Did Warren Buffett Become So Successful?
While many of us know Warren Buffett to be the most successful investor of all time, we often have very litte understanding of how he became that way. Hagstrom points to four individuals as major influences on his financial education:

Benjamin Graham
Benjamin Graham was Warren Buffett’s professor at Columbia University, and the author of The Intelligent Investor, which introduced the value investing philosophy. He taught Buffett the difference between investing and speculation (Investing is an operation which, upon thorough analysis, promises safety of principal and a satisfactory return) and the importance of building a margin of safety (which is really the core idea of value investing).
The Margin of Safety is the difference between what you pay for company and its intrinsic value. The less you pay, the greater the margin of safety, and the greater the company’s ability to withstand negative events. Because of the reversion to the mean, the company’s value is likely to increase to its intrinsic value.
The Margin of Safety can be increased by looking for companies selling at low prices relative to net current assets and low relative to earnings.
Graham’s influence on Buffett is that he taught Buffett the essential quantitative elements of value investing.

Philip Fisher
Whereas Graham’s influence was quantitative in nature, Fisher’s was qualitative. Fisher taught Buffett two things: Invest in companies with above-average potential, and align yourself with the most capable management. Each of these now form core principles of Buffett’s investment philosophy.
In assessing above-average potential, Fisher meant to look for the ability to grow sales at a rate greater than the industry average while maintaining consistent (or growing!) profit margins.

John Burr Williams
The previous two teachers gave Buffett the skills necessary to determine if the company was something he wanted to buy. Williams gave Buffett the tool to assess the intrinsic values of the companies he wants to buy. That tool is the Discounted Cash Flow (DCF) Model, and Williams developed it in his PhD thesis, The Theory of Investment Value.
The basis for the DCF model is that you can find what a security is worth today by estimating all the cash the company will earn over its lifetime and then discount that back to the present value and determine it on a per-share basis. As Buffett says, “Just like a cow for her milk, or a hen for her eggs, so is a company for its earnings”. Never forget that a share is a mere representation of a company, and you are buying the company rather than a share. On a technical note, Buffett uses the long-term (10 year) US bond rate as his discount rate. Where this rate is very low, Buffett uses 10%. He uses the risk-free government rate because he believes the risk is covered in the transaction itself (by factoring in the margin of safety).

Charles Munger
Munger is the Vice-Chairman of Berkshire Hathaway. He was a successful investor in his own right prior to associating with Buffett, generating compound annual returns of 19.8% from 1962-75 vs. 5% for the Dow. His long-standing friendship and work association with Buffett has had a profound effect on Buffett, as evidenced by the number of times Buffett writes “Charlie and I” in the Berkshire annual reports.
Munger’s greatest contribution is perhaps helping Buffett get away from a strict value philosophy to consider those companies that don’t perfectly fit Graham’s quantitative rules. He taught “it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price”, which is precisely the case in some of Berkshire’s greatest investments.

Hagstrom sums these four up as follows:

• Graham gave Buffett the intellectual basis for investing, the margin of safety, and helped Buffett learn how to master his emotions to take advantage of market fluctuations
• Fisher gave Buffett an updated, workable methodology that enabled him to identify good long-term investments and manage a portfolio over the long term, and taught the value of concentrating on a few good companies.
• Williams gave him a mathematical model for calculating intrinsic value
• Munger helped Buffett appreciate the economic returns that come from buying and owning great businesses

In the next part, I will review the 12 tenets of the Warren Buffett way!

Review Navigation
Part 1 | Part 2 | Part 3

This is the second of a multi-part series (also published at DefiningSomeday.com) with suggestions on what you should be doing with your personal finances. The first part of this series, Personal Finance in Your… 20s, is located here.In order to write about different ages, I am going to have to make some assumptions. I’ll do my best to make explicit my assumptions so that you can determine how well my suggestions fit with your personal situation.

Assumptions: In your 30s, you are established in your career and starting a family. You likely have some residual student and other debt associated with college or university. This is a stressful time because you are settling down, starting a family, buying a home, buying newer cars and incurring many other major costs. You aren’t at the top of your game yet, but you are making a lot more money than you were in your 20s… unfortunately, your expenses have grown much faster than your income.

Here are my suggestions for financial moves in your 30s that will set you up to be financially stable later in life (Several of these are the same as when you were in your 20s):

1. PAY OFF YOUR DEBT
If you still have lingering debt, you’ve got to get rid of that. The way to pay off your debt depends largely on the type of person you are. For most readers, I suggest paying down your debt using the Snowball method. Essentially, list all debts in order of smallest to largest. If two debts are close, then put the higher interest rate debt above. Commit to paying the minimum payment on every debt, and then start paying off the smallest debt first, working your way down the list until you are debt free.

The central benefit of the Snowball method is the psychological benefit of seeing results. In MBA-lingo, this is all about building momentum toward change.

If you are a person with a history of financial discipline, you will get ahead quicker by NOT following the Snowball method and instead paying off your debts in order of highest interest to lowest interest. This means you will pay less interest in paying down your debts.

Note that once you get to the low-interest loans, it may be in your best interest (haha a pun!) to just pay the minimum monthly payment and invest at a higher rate elsewhere. Consider also whether the interest payments you are making are tax-deductible, as this lowers the effective rate of interest you are paying.

2. DON’T ADD HIGH INTEREST DEBT
While you are paying off your debt, make sure you aren’t adding other debt just as fast as you are paying off your current debt. Cut up your credit cards if you have to. At the very least, hunt for a credit card with a lower interest rate. Buying with Credit Cards should be a LAST RESORT.

3. INSURANCE
It is time to start looking at insurance. The earlier you buy insurance, the better. The longer you wait, the more likely you will have problems (cancer, heart disease) that might make you uninsurable. If you start early, you can get good rates that are locked in, or give a guaranteed option to increase the insurance at a set rate, which allows you to increase if you get sick. Investigate life insurance options with an insurance broker or online.

4. SAVE FOR THE KIDS
As soon as you have kids, you should open an education savings account (tax deferred), like an RESP (in Canada) and start putting aside a regular amount. The earlier you start, the better!

5. RETIREMENT SAVING
If you work for a company with a share purchase plan or a retirement plan, take advantage of this. Many employers match their employees’ share purchases, which is fantastic. If your employer does not offer such a plan, ask your financial institution to set you up on a similar automatic-savings plan. The transfer of your funds into these plans is often automatic, which means the amount you are investing or saving comes right off of each of your paycheques before it is deposited in your account. This reduces the psychological hurdle of seeing that you have money in your account, and then mustering the willpower to take it out and deposit it somewhere safe where you can’t spend it. I call this manual saving, which is hard and does not produce consistent results like those you can expect to see with automatic savings.

When you get a raise, if you set it up so that the raise automatically goes into a savings program, you will just keep living like you were before, but saving more!

6. WHO CARES ABOUT THE JONESES?
Don’t fall into the “Keeping up with the Joneses” mentality. This is where you feel obligated to buy new cars, buy new homes, etc, just because other people your age are doing so. This is a surefire way to get in over your head and wind up unhappy. Make decisions because they work for you.

Check out my post on Renting vs. Buying to see if it makes sense for you to buy or rent. Too many people rush to buy when it doesn’t make financial sense.

Do you have anything to add? What advice would you give someone in their 30s?

Several months ago, I read an article in the New York Times called “An Enduring Measure of Fitness: The Simple Push-Up which prompted me to make a ridiculous-sounding (to me, at the time) goal of being able to complete fifty push-ups in a row by mid-summer, when I have a family trip planned. At the time, I could barely do 15 push-ups, so the idea of reaching 50 seemed grossly ambitious.

Why push-ups? Essentially because they do an excellent job of working many different upper-body muscles, they are quick and can be done anywhere (meaning I would have no excuse to not continue working toward my goal).

The family trip I mentioned is next week, and yesterday, at 9:50 pm, I achieved a set of 50 push-ups. Mission accomplished! I have been steadily adding several reps to each set per week, doing as many as 200 push-ups every other day. I am eager to learn better methods of progressing, so if you have had success with particular methods, please let me know!

So what’s next? Last week I stumbled across the Hundred Push-Up Challenge, which I am going to start - aiming for a set of 100 push-ups by December 31.

Have you undertaken a similar goal of reaching a physical milestone? Let me know in the comments!

I recently had the opportunity to read Ewan McGregor and Charley Boorman’s Long Way Round: Chasing Shadows Across the World. In between film shoots, the two actors pursued a lifelong goal of taking the long way ’round - riding their motorcycles from London, England to New York City via Asia (flying across the Bering Strait).

The book follows the two through Europe, Ukraine, Kazakhstan, Mongolia, Siberia, Alaska, Canada and finally to NYC, traveling on the pristine roads of Europe and North America to the unpaved, pot-hole laden paths of Russia (such as the Road of Bones).

I would recommend this book to anyone with an interest in completing a circumnavigation (One of my life goals) because of the brutal honesty with which the two write (The book is written almosta s a dialogue between the two actors, each telling parts of the story and picking up where the other left off) about their adventure and the decidedly un-Hollywood manner in which they completed it.

For more information, check out the website for the book: http://www.longwayround.com

I hope to read their new book, Long Way Down: An Epic Journy by Motorcycle from Scotland to South Africa, which follows their adventure motorcycling down through Africa. I’ll keep you updated!

If you’ve read this book, let’s hear what you thought of it!