Warren Buffet’s Simple Advice for 2009

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We begin this New Year with dampened enthusiasm and dented optimism. Our happiness is diluted and our peace is threatened by the financial illness that has infected our families, organizations and nations. Everyone is desperate to find a remedy that will cure their financial illness and help them recover their financial health. They expect the financial experts to provide them with remedies, forgetting the fact that it is these experts who created this financial mess.

Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older.

This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

• Hard work - All hard work bring a profit, but mere talk leads only to poverty.
• Laziness - A sleeping lobster is carried away by the water current.
• Earnings - Never depend on a single source of income. (At least make your Investments get you second earning)
• Spending - If you buy things you don’t need, you’ll soon sell things you need.
• Savings - Don’t save what is left after spending; Spend what is left after saving.
• Borrowings - The borrower becomes the lender’s slave.
• Accounting - It’s no use carrying an umbrella, if your shoes are leaking.
• Auditing - Beware of little expenses; A small leak can sink a large ship.
• Risk-taking - Never test the depth of the river with both feet. (Have an alternate plan ready )
• Investment - Don’t put all your eggs in one basket.

I’m certain that those who have already been practicing these principles remain financially healthy. I’m equally confident that those who resolve to start practicing these principles will quickly regain their financial health.

Let us become wiser and lead a happy, healthy, prosperous and peaceful life.

Image source: BusinessWeek

P.S : Thanks to my friend Anjali, for directing me to this article

The Hot Chip Case Study

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Yesterday, when i came back from office, there was a power cut at home. I was getting bored &  I wanted some thing to munch. So, I went into the main street to the nearest Hot chip store.

I bought 250 gm of potato chips for Rs 45. During the 5 min i spent at the shop, i saw that he could sell 1.5 kg of potato chips. I came back home and enquired my mom about the cost of potatoes. She said that the maximum price she had paid in her experience was Rs 25. I couldn’t resist from making these quick calculations

The calculations shown here are very conservative, considering the sale of only 2 kg of chips per hour.

Chips (in Kgs) sold per hour (Minimum)	2
No of operating hours (Minimum)	6
Total number of Kgs sold/day (Minimum)	12
No of business days	30
Revenues	Per kg (Rs)	Per month (Rs)
Selling cost of potato chips	180	64800
Expenses (Conservative)	Per kg (Rs)	Per month (Rs)
Raw potatoes	25	9000
Edible oil	10	3600
Salary of the only employee who makes chips	14	5000
Rent of the shop	19	7000
Electricity	1	300
Raw material transport	1	500
Miscellaneous expenses	8	3000
Total Expenses	79	28400
Net Income from potato chips/month		36400
Profit margin on each kg		56 %

Rs 36,400 is the profit (Munafa) which the 22 year old boy in the shop makes per month by selling potato chips.

The story is not over here. The raw material (Potatoes & Oil) cost is actually much less than Rs 25, as he buys them in bulk. Potato chips is only one of the items he sells at the shop. There are at least 10 other varieties of chips.  I haven’t included the calculations for other items as i don’t have the data. So, the boy in reality is earning much more than Rs 36,400. Accounting for other uncertainties and losses, he would earn a minimum of Rs 36,400. 

The boy’s profit is more than what an average engineer earns during his first year of job. I don’t intend to insult the education system or the highly qualified engineers in the country. The point i am trying to drive is as follows.

Some smart guys realize the business man in them at a very early stage. They know the magic of Dhandha.

If you start-up your business at the age of 18 after PUC and invest 4 years to make it a profitable business, you are an independent and successful business man by the age of 22. Wah, what a feeling. 

The guess the boy in the hot-chip shop is doing the business for a survival. Some don't do it for survival. They grow every year, investing in the right areas and build a mighty empire around them. For example, Steve Jobs built “Apple” during the same years of his life and was worth 10 million USD at the age of 22. When ever i feel low, i listen to his commencement speech at Stanford University. Only accomplished people can deliver such great speeches.

Dhirubhai Ambani is an Indian example of such heroes. These heroes don’t mind the initial risks and set-backs. They are very clear about their objective and are highly confident about reaching there. That’s why they are famous. They accomplished what many other people holding 3 to 4 academic degrees couldn’t.

In this thought process, I remembered the movie “Guru” (based on Dhirubhai Ambani’s Life story) by Maniratnam. I would have watched it over 10 times by now. Will watch it once again over the weekend for a dose of inspiration.

I wish i die as a founder of at least a small company or at least a shop, and rather not as a retired employee. Today is not the day. I wish it comes asap :) (A day of successful business, not death)