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Warren Buffet’s Advice: Billionaire’s Top Tips for Achieving Financial Independence

Businessman and venture capitalist – Warren Buffett is arguably the most successful investor of the 20th century (if not of all time). Buffett began investing at the early age of 11, and by the time he was 13 he was already running a small business as a paperboy. Fun fact: that same year, little Warren filed his first tax return, claiming his bike as a $35 tax deduction.

young-warren

Warren Buffett was almost certainly born with business in his blood; however, his words of wisdom can benefit your financial life as well (regardless of your blood chemistry). Although he is now in his mid 80s, Buffett has still yet to write a book. He definitely has enough knowledge for a small non-fiction series, though. Regardless, his voice remains the most respected and trusted amongst both, investment professionals and the investing public.

That being said, let’s take a look at what financial knowledge the Oracle of Omaha is willing to share. Saving his best investment advice for a little bit later, let’s first address Buffett’s more general financial tips for the average Joe.

Buffett strongly advises everyone to limit what they borrow. He claims that it’s simply not possible to become rich by living on borrowed money – which makes sense (to most people, at least).

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I’ve seen more people fail because of liquor and leverage – leverage being borrowed money. You really don’t need leverage in this world much. If you’re smart, you’re going to make a lot of money without borrowing.

Now that you are familiar with Buffett’s thoughts on loans, you need to start thinking of borrowing money as a ‘non option’. If, however, there is no other choice and you absolutely need to borrow some money, you should do so with an objective assessment of future cash flow. If you don’t have a solid plan to pay this debt off you will become a slave to the interest (perhaps even for life).

With Buffett being most recognized as an investor, let’s see what he has to say regarding stock.

In his 1989 letter to shareholders of Berkshire Hathaway, Warren Buffett claims that…

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Clearly, buying a stock is about much more than just the price. Finding a ‘wonderful’ company that you believe in, and ignoring gloomy economic and stock market forecasts may seem like risky business; and although it might be, it has worked for Buffett many times over. Coca-Cola being a prime example of a (at least financially) wonderful company that Buffett was smart enough to invest in.

coke-stocks

All this talk about “wonderful” companies raises some confusion.

What exactly is a wonderful company? Well, although it’s hard to quantify “wonderful”, Buffett has probably done it. According to the financial wiz – a “wonderful business” includes the following:

The business has to be understandable. You should be able to tell quite easily what the company is about.
There should also be a good return on the capital without much debt.
Cash flow should show profit, and the earnings are predictable.
Their franchises are strong, and they have the freedom to price the product as they see fit.
Finally the company shouldn’t take a genius to run, and the management must be owner-oriented.

Pretty solid advice. It’s definitely a good idea to include at least one such ‘wonderful’ company in your portfolio. If you’re patient enough, a wonderful company should (according to Buffett) always be worth the investment.

When investing it’s important to first understand the investment pyramid, and then develop an investment strategy. Consulting professional advisors regularly to review and diversify your investments is also a great idea. Like Buffett famously said –

Risk comes from not knowing what you’re doing.

finacial-pyramidIt’s human nature to want to make more money, and it’s very common to see potential investment opportunities that promise high returns. These offers are so mouthwateringly tempting that we fail to objectively analyze the higher risk that comes with these high rewards. As hard as it may be, it’s vital to stay disciplined and set all emotion aside when playing the investment game.

Since Warren Buffett himself holds a very disciplined investment style, it comes as no surprise that he is a strong promoter of patience in investing. Buffett claims that trying to get rich quick is a mistake, and that –

“It’s pretty easy to get well-to-do slowly. But it’s not easy to get rich quick.”

Pretty much all of Buffett’s advice can be summed up in a classic idiom – slow and steady wins the race. Over the years, this idiom has become Buffett’s mantra, and this approach consistently outperformed the market for decades, making Warren a billionaire many times over.

Another great Buffett quote regarding long-term thinking can be found in the 1986 letter to the shareholders of Berkshire Hathaway. The quote reads:

No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.

Now, that’s a good point. Buffett argues that money is part of nature, not something that can grow overnight. Most people make the mistake of overestimating what they think they’ll make in a year, and underestimating the potential earnings of a decade. Sticking to the Buffett Principle, you can make money without constantly changing portfolios, simply by staying invested for the long term.

longterm-finacial-plan

Life is like a snowball. The important thing is finding wet snow (opportunities) and a really long hill (long term).

This Buffett classic connects quite well with the idea of waiting for your investments to pay off. Investing with long-term plans in mind can be stressful, but it’s important not to panic while seeing short-term fluctuations. You only lose money when you sell, however, if you have the backbone to wait it out, you just might come out on top, after all –

Over the long term, the stock market news will be good.

I think it’s fair to say that Buffett is in the right here. Over the last century the United States has endured two wars, a great depression, numerous recessions, oil shocks and the like, yet the Dow rose from 66 to 18,000. It’s probably safe to say that it’ll keep climbing in the long run.

So, like Warren Buffett once said:

… If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.

time-is-money

This connects back to the aforementioned idea of a ‘wonderful’ company. Invest in what you believe in, and wait it out. It might even be best to not check on your investments every day. Getting a low evaluation might discourage you and force you to sell your stock at the worst possible time. Always look at the big picture.

To wrap it up – educate yourself, and know what you’re getting into. Follow Buffett’s simple words of advice, and be patient with your investments. After all, “it is not necessary to do extraordinary things to get extraordinary results.”

Tax Avoidance & Evasion: Are Taxes Only For The Little People?

Like the Queen of Mean notoriously said, “only the little people pay taxes,” and although she was convicted and sentenced on numerous counts of tax evasion, Leona Helmsley had a point.
queen-of-mean

It seems that big corporations, or anyone worth more than a few peanuts, is trying to minimize the amount of taxes they pay on their wealth. Let’s take a look at the largest scam ever and the way corporate America avoids billions of dollars in taxes every year.

So, how exactly does the corporate world get around the taxman? There are many clever tricks the filthy rich use to remain rich and get even richer – let’s take a look at a few.

First on the list are tax havens. This loophole is based on a very simple idea. If taxes are high in one geographic region, then you can either move your company somewhere else (where the tax payable is lower), or simply register it elsewhere. This workaround has been a significant asset to corporations, and for some time now relocating has been a quite standard way to reduce or completely avoid paying taxes. After all, this process is not that big of a disadvantage, since after everything is up and running, residents can usually return back to their home country.

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This is a big part of why tax evasion through these offshore havens occurs on a massive scale. A recent study has discovered that about a total of $20 trillion is currently hidden in offshore tax havens. If you’re curious, the most popular offshore destination is in the infamous Cayman Islands – one of the few territories with more registered organizations than people.

Shell companies are also used quite widely in tax evasion practices. These ‘shell’ companies have no substance, and only exist on paper. The shell company has a totally legal existence, but in reality the company doesn’t provide any actual services or sell any goods. By using these shells, large corporations (or any entities, really) are able to funnel all of their money through these companies – effectively avoiding the unpleasant tax brackets. You’re probably asking yourself – how can this actually work? Well, since most corporations use shell companies to buy and sell in foreign governments – they do not need to report these international operations domestically. The idea behind this sketchy practice is pretty clever, really.

Similar to the shell company method of tax evasion, shell trust funds are also quite popular. This scheme involves wealthy entities paying into a trust fund, which accepts their money as “donations”.

The next step in this scheme is my personal favorite. This same trust fund then offers its members very cheap loans (often times interest free). The borrowers then surely and consistently ‘forget’ to pay the sum back – effectively dressing up their salaries as low interest loans. Doing this allows members to write off most of their income tax, as they receive tax credits for their ‘donations’.

business-deal

Unethical? Maybe. Effective? Absolutely.

The three methods of tax evasion discussed above are the most popular ways of dodging the metaphorical tax bullet. Some lesser known, but shadier methods are also used by greedy billionaire entities.

Equity swaps are a great example of the classic ‘scratch my back and I’ll scratch yours’ scenario. This scheme works when two wolfish corporations come to an agreement to help one another reduce their tax payable. This is done by exchanging the gain and loss of a set of assets without actually transferring the ownership. Everybody wins! Well, everyone besides the IRS…

Goes to show – the more money you have the more you want. Moral values go right out of the window the second there is an opportunity to stuff more money into your (already) tight pockets. That being said, you’ve got to commend the creativity some companies and corporations display while squeezing through these tight loopholes.

An example of such creativity is the way some corporations avoid paying their capital gains tax.

Before going off on this rather sneaky method of tax evasion, let’s first review what capital gains tax actually is. This tax kicks in each and every time there are capital gains (didn’t see this coming, huh?). Capital gains, as a term, refers to the profit realized on the sale of any non-inventory asset that was purchased at a cost lower than what you’ve sold it for. Property, stocks, bonds and all sorts of precious metals are popular commodities on which capital gains are often realized. So, if you’re lucky enough to profit on the sale of your assets, you’re legally subject to this tax. Obviously, anywhere there is tax to be paid there are also greedy, rich people, very interested in avoiding it.

capital-gains

Although, the loopholes surrounding capitals gains tax are getting patched up rather quickly, there are still ways of getting around paying this tax. Using shares as an example of a non-inventory asset, let’s take a look at how one might get around their legal obligation to pay the tax.

One cunning way involves borrowing some money from an investment bank – using the aforementioned shares as collateral after purchasing options (at a fixed rate). What you do next is simply not pay the loan back, and the investment bank will be forced to cash your collateral. This allows the borrower to avoid being caught in the capitals gains tax net, while still having access to all of the cash – pretty ingenious if you ask me.

The above is evidence enough that the big guys don’t usually have any intention of paying their full dues. If there is a way to cut on tax, you can bet your bottom dollar that the corporate world will do their best to do just that. After all, the rich have to find new ways of getting richer.

Now that we know what actually goes on behind the closed doors of corporate America, let’s ask another question. Who are the biggest offenders in these tax schemes?

Well, every industry has its perpetrators, and we see giants from tech (like Microsoft), pharmacies, investment banks (looking at you Goldman Sachs), retailers, fast-food chains, and even heavy machinery companies. Literally, almost all billion dollar corporations do their best to keep as much of their ‘hard earned’ money tax-free. Officially, the corporate tax rate in the United States is around the 35% mark, however, many corporations pay only small fraction of that. Some are even sneaky enough to get a hefty refund from the federal government – more on that later.

microsoft

Let’s take a look at a few companies that take advantage of sneaky accounting, and shady (yet effective) tax practices.

The well-known General Electric (GE) has pulled in more than $80 billion in profit over the last decade. According to the average of 35% corporate tax rate, GE should have paid about $28 of those $80 billion back to the government. In reality GE only paid an average of 2.3% back in taxes over the decade, or a total of approximately $1.85 billion. Still a substantial sum, but peanuts compared to the corporate standard.

Verizon has done even better. According to a number of studies, the telecommunications giant hasn’t paid a pretty penny of tax in the last 3 years. To make this fact even better, Verizon does not only avoid being taxed, but the company also receives billions of dollars back in the form of tax subsidies. When confronted, Verizon obviously denied any tax evasion allegations.

The popular online marketplace – Amazon, also has some great tax sheltering tactics (all legal, of course). Although, Amazon didn’t reduce their taxable income by quite as much as some of the other companies listed here, the online store definitely deserves a shout-out. America’s most beloved retailer only pays back about 4.3% out of 35% corporate standard tax, while completely complying with the law.

amazon-screen

The household names listed above are only a small fraction of the thousands of companies that practice the same shady tax principles. While the average American shells out thousands of dollars each year in taxes, legal loopholes often allow million (and billion) dollar companies to pay nothing at all.

Overnight Millionaires With Bitcoin: Everything You Need To Know About The Cryptocurrency

Bitcoin has been building an online following for awhile because it offers something unique that investors want. Some people also like the idea that you can generate cash essentially from nowhere, letting a gadget the size of your toaster run 24/7 for a shot at a few bucks. It’s also appealing to investors looking for big gains on a risky new currency, or a way for online shoppers to anonymously buy just about anything under the sun.

Coinbase, a regulated Bitcoin exchange, officially came online just last week, lending a little bit more credibility to the cutting-edge currency. Over the course of 2013 Bitcoin made huge gains, piling on nearly 6500% in value in order to trade as high as $1250 per coin. The exchange rate has since fallen to what the market sees as a more realistic valuation, averaging about $230 per coin. However, the rise in Bitcoin prices turned a lot of nerdy hobbyists into overnight millionaires.

Bitcoin Millionaires

bitcoin-millionaires

The way that Bitcoin itself is set up, and the fact that it’s only recently been seen as a reportable asset, makes the exact number of Bitcoin millionaires a bit of a mystery. A few investors, like Jered Kenna and Charlie Shrem have come forward, giving out interviews to big business websites like Bloomberg after price jumps in 2013. Kenna cleared a cool $1,400,000 on his 5,000 Bitcoins when the priced surged over $280 in April of 2013.

Other Bitcoin success stories, like Roger Ver, have made their money by approaching the cryptocurrency in a more traditional way. Ver helped to set up BitInstant, and unofficial exchange that was built to help fill the gap left behind when Mt. Gox went belly up. Since becoming involved in the currency as a consultant, he has gone on to drop his holdings in the Yen and US Dollar in order to focus on Bitcoin exclusively, to the tune of millions of dollars in profits.

Getting in the Game

getting-into-the-game

If you’re interested in making an investment in Bitcoins, there are a few things you need to know. The first is that Bitcoin is volatile, with no national GDP to prop it up, the currency is known to swing wildly especially when there is movement in the market because of outside forces. Since Bitcoin doesn’t rely on any one nation to set its intrinsic value, to a certain extent it looks to worldwide events — for better or worse. European banking woes are just as likely to cause swings in the value of Bitcoin, as is improving American domestic housing demand. It may well be the first truly international currency.

Another key fact to keep in mind before you jump into Bitcoin is the fact that a huge amount is sitting dormant. The anonymous inventor behind Bitcoin holds hundreds of millions of dollars worth of the currency in an account that’s never been touched. If, or when, that money starts to move it could have huge consequences for the market value of Bitcoin. Nobody knows exactly who’s holding it or what they plan to do with it, but those untouched coins could be used as big leverage to move the whole market.

A Good Idea with a Bad Reputation

bitcoin-reputation

The bottom line is that Bitcoin is still mostly seen as a way to anonymously buy black market goods or as a high-stakes investment opportunity. Legitimate currency traders might be looking on with a scowl, but Bitcoin has already demonstrated that it has the potential to make millionaires out of its early adopters. Still, its been tainted by its use as the de facto currency behind online drug marketplace Silk Road.

Following in Bitcoin’s Financial Footsteps

bitcoin-future

Bitcoin, for better or worse, has been so successful that it’s opened the door for a bunch of other copycat currencies. Other cryptobucks are using a similar model, with some small updates, in order to give consumers more options when it comes to spending money anonymously. Both Dogecoin, named after a popular meme, and Litecoin are widely used in some of the same places where Bitcoin is accepted, and both tend to be more affordable and stable.

Bitcoin’s potential for huge gains, its inherent anonymity, and the buying power that it grants its users, all mean that this currency won’t be going away anytime soon. Whether or not that means you should get involved depends mostly on your tolerance for risk in the name of profits..

We Found Out How Much Facebook Lost During 91 Minutes of Downtime

If you’re the normal everyday person living in 2015 who avoids all sorts of real human contact, you undoubtedly noticed that something was amiss on the Internet. Facebook, Instagram, and Tinder all simultaneously went offline for exactly 91 minutes. Yes, no “Top 10 Cat Butts That Look Like Buddha” popping up in your News Feed, no photographic proof that your cousin went to Starbucks on your Instagram, and certainly no swiping on women who probably wouldn’t actually sleep with you anyways on Tinder. It’s truly amazing how far humanity has advanced.

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Though hacker group “Lizard Squad”, the lovely folks behind the Christmas Day PlayStation Network outage, is claiming responsibility, Facebook is claiming that the problem was caused internally by one of their own engineers. Oh, to be that guy who had to give Mark Zuckerberg a call explaining how he tripped on a wire. The 91 minute outage is the longest outage in the storied history of Facebook (of several short blips over the year), and left desperate users trying to remember their Twitter passwords to have the hashtag #FacebookDown trending Worldwide instantly.

It is rare that websites such as Facebook vanish from the Internet, and with good reason when you consider how much money they lose by even 1 minute of unavailability. When Amazon went offline for a mere 40 minutes in August 2013, it was estimated that they lost out on $4.8 million in sales. That’s a lot of thermal underwear (as of writing on the 27th of January, Amazon’s daily top selling item)! So that got us to wondering, what is the monetary value of 91 minutes of downtime worth to Facebook? Never mind the human capital in engineers who mysteriously disappeared.

something-went-wrong

According to Facebook’s last quarterly earning statement, in Q4 2014 the company brought in $2.590 billion in the 91 days spanning October 1st, and December 31st. That’s a staggering $28.46 million per day. That means that for every minute that Facebook is offline they lose $19,764, and for every hour Facebook has to do without an additional $1,185,875 added to their coffers. So for 91 minutes of downtime like we saw on January 26th, Facebook missed out on nearly $1.8 million. Of course every company plans for this, so it is unlikely Mark Zuckerberg is cutting back on his billionaire chic wardrobe of hoodies, and jeans due to this unprecedented outage.

Target Bankrupt in Canada, CEO Receives More Pay Than 17,000 Employees Combined

Target Canada CEOThere are at least 17,000 Target employees in Canada who won’t be living the First Class Life any time soon thanks to being laid off at the 130 Target stores across the country, but former CEO Gregg Steinhafel will be laughing all the way to the bank.

For those unfamiliar, Canada is home to 35 million slightly frozen citizens. It is an exciting and emerging market that many American corporations have their eyes on closely, especially after the 2008 Financial Crisis that Canada managed to shelter itself from just fine. However, it’s not always a success story north of the border, many American companies fail to hit their mark. Partly because Canadians are a rare and interesting species that survives on roughly 3 tablespoons of maple syrup per day, and partly because corporations fail to do their market research before opening for business. Evidently that previous line could well have been taken from Target’s confidential in-house memos on the Canadian consumer. This is precisely what happened when Target decided to put on their parkas and head north.

Consumers quickly realized the products were priced significantly higher than expected as Target assumed Canadians would pay more to avoid Wal-Mart, a serious miscalculation because after-all, how many People of Wal-Mart submissions actually come from Canada? As well as the inflated prices, the selection was thinner than Burger King’s healthy menu items, and that’s if there were even any products on the shelves to begin with, thanks to horrible mismanagement of the entire supply chain. Due to those empty shelves and prices higher than the Wal-Mart down the street, Canadians avoided Target like a herd of charging moose.

target closed in Canada empty shelves

In the end, business failed miserably and Target lost more money than Saudi Arabia’s monthly allowance for fancy napkins, around $5 billion dollars in all. Now all of the stores are beginning to liquidate stock, and all 17,000 employees are out of work. However with any failed business, those employees laid off are owed some form of severance pay for their loss of work and presumed emotional distress. After a little bit of complicated math, each employee is being paid approximately $3100, representing 16 weeks of glorious minimum wage earnings for their hardships.

Now this wouldn’t be a story without some controversy, so here is where former Target CEO, Gregg Steinhafel enters the arena. He stepped down after not only bungling Target’s $7 billion expansion to Canada, but he also failed to protect his company from a massive data breach in which hackers stole the personal information of up to 110 million customers. Because of his massive failure he is being rewarded with $61 million. Yes, that is $5 million more than every single Canadian Target employee let go, combined. Just that alone could have him living a pampered first class lifestyle for quite some time, and I have a feeling none of those terminated employees will have any idea of what that means for the foreseeable future.

Does this questionable move by Target change your thoughts on the company? Let us know what you would do with being handed $61 million and told to ride quietly off into the retirement sunset!