Sunday, September 26, 2010


The Snowball: Warren Buffett and the Business of Life

Written by Alice Schroeder, this books brings life to mostly hidden, less discussed and the complex nature of Warren Buffett's personal life and his relationships with his family members especially his mother, the ladies in his life and his children.

It discusses in detail his love and affection for his mentor Ben Graham and his relationships with Washington Post’s Kay Graham, Charlie Munger and Bill Gates (calling him his third son).

This book reveals Warren Buffett’s life being a shy kid who had passion about numbers and money from his childhood. As well, how he started building his youth business venture and saved money for the larger ventures to come later on in his life. It also examines his methods of investment partnerships, business decisions and countless problems he faced during his business ventures throughout his life in developing such an iconic empire what is now called “Berkshire Hathaway”.

For Value Investors, the book discusses the idea of Ben Gram's idea of “Cigarette butts” and his parting ways from Graham’s philosophy of value investing in “Cigarette butts” and proposing Buffett's investment philosophy to “buy a great business at a fair price than a fair business at a great price”.

His "Twenty Punches" approach to investing also makes you think very carefully as he said, "if you thought of yourself as having a card with only twenty punches in a lifetime, and every financial decision used up one punch. You'd resist the temptation to dabble. You'd make more good decision and you'd make more big decisions."

Overall, this is a wonderful biography and enjoyable reading. It should be kept by every person who loves Buffett's way of investing, wants to teach his/her children how to start savings and investments. It is a great book for the students of business and investments who want to be future leaders in business world.


For Canadians

Tuesday, April 13, 2010

Covered calls: A primer for layman investors (Part II)

In this part, I will discuss how to set up a covered call by an example.

Let us assume that I bought 100 shares of CMI @ 66.07 per share with a total investment of $6607 on Friday April 09, 2010. I can sell a call option for $1.50 per share netting $150.00 per contract for the expiry in month of May with a strike price of $70.00. One contract of option consists of 100 shares. My net cost per share will be 64.57 that is break even point for this contract, totaling $6457.00 per contract.

What are the possible scenarios at the expiry date.

1. If the value of stock rises above $70.00, I will make 5.43 per share and option will be exercised thus creating a net return of 8.40% for little over month (Expiry date is May 21).

2. If value of stock remains between $64.57 and $70.00 then the option will expire worthless and I will be able to keep 1.30/share free, that is, a return of 2.3% minimum.

3. If value of stock falls below $66.07 then a call premium will help to reduce my losses up to $64.57/share. My loss will start if stock falls below $64.57.

Summing up, this strategy does not eliminate the risk of investment completely but it does help to reduce the risk when prices are falling and enhances the returns when prices are stagnant.

Saturday, April 10, 2010

Covered Calls: A primer for layman investors and option traders

Covered call is a call option strategy for an investor who owns option-able stocks.In this strategy, an investor tries to increase his/her income on the stocks that he/she already owns by selling call options. It is considered the most conservative strategy in options trading. It is mostly suitable for investors who has neutral outlook for the stock.

In next part, I will discuss how to set up a covered call.