What does Trump want to prove with the new tariffs being levied on China?

Nobody really knows for sure. Probably not even Trump.

So far, the administration and Trump have not articulated what is realistic and what China could do that would lead the US to stop imposing tariffs.

It must be said that what Trump is doing with the tariff is not something — strictly speaking — new.

The US have a 25 percent tariff on imported trucks that goes back to the Chicken War” of 1963 with the European Union, where the European Union kept the US chicken out of their market, and in retaliation the US imposed a 25 percent tariff on trucks. Continue reading “What does Trump want to prove with the new tariffs being levied on China?”

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Why is the EU fighting so hard to stop the UK from leaving? Why not just let the UK go?

Think of the EU as a club where members don’t trust each other.

So this EU club set up certain rules that all members contributed to draft and agreed upon: if the rules are breached by one or more members, the other members can rely to an agreed juidicial body that will keep things in order.

One day, one of its most active, rich and powerful members decided that he has enough and wants to leave the club.

If the EU club still wants to exists, it must keep the sets of rules that all of its members previously agreed upon, even if one member, no matter how rich or powerful, decides to leave the club. Continue reading “Why is the EU fighting so hard to stop the UK from leaving? Why not just let the UK go?”

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To what extent is the value of Coinbase tied to the value of Bitcoin?

Not much as their revenues are made of commission (in the form of buy/sell spread on the actual market price) on the transactions made on their exchange.

In this respect, Coinbase is basically like a traditional Bank operating in the FX market: regardless of a certain market movement in price, the Bank will always buy at a little below the market price and sell at a little above market price, thus always making a profit.

For this reason, Coinbase value is more tied to the average number of daily transactions effected on its exchange rather than to the value of Bitcoin.

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What are some interesting facts about diamonds?

Nobody wants to buy a diamond.

The price of these stones is artificially inflated by De Beers and a small set of other diamond extractors, by artificially creating scarcity.

For decades, they had the marketing firepower and patience to invest in advertisement in order to induce people to believe that a diamond is the gift to make in order to celebrate a wedding or other joyful occurrences. In reality, the whole market is a scam artificially inflated by the astute players who rig it. Continue reading “What are some interesting facts about diamonds?”

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Why are some wealthy people so frugal?

Being frugal is awesome.

Learning to love being frugal has been a life changing experience for me for the following reasons:

  1. You must realize that you do not need 90% of the stuff on sale out there: the vast majority of the stuff advertised in front of our eyeballs 24/7 is completely not necessary. Except for extremely rare exceptions related to our basic needs, buying stuffy only adds complications to our lives and worries to our brains, while reducing our savings in the banks. This has nothing to do with being frugal, but rather with being merely rational. If you do not need something, you must not buy it, regardless how frequently you are bombarded by ads, recommendations, etc. Continue reading “Why are some wealthy people so frugal?”
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What is the single best financial move you have ever made in your life?

My single best financial move was when in 2008 (just before the Financial Crisis) I decided to invest every month a certain amount of my salary in a moderately risky ETF like Vanguard’s VOO or VIG: I did this no matter what and never touched this investment for a decade.

I also increased the monthly investment as soon as my career progressed so not to fall into the increased lifestyle trap like I observed my peers were doing.

This is admittedly a “boring” strategy than anybody can follow and does not require you to learn exotic options or get any insider information.

After I started a decade ago, also my mum, my little sister, my girlfriend, my old uncle and a few of my friends (all of them completely alien to any financial knowledge or investment experience) also took this (long-term) approach with excellent returns.

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How can one invest in Bitcoin?

There are more or less three options to buy Bitcoins:

A. On an Exchange:

  1. Open an account on one of the hundreds of available Exchanges (google: Coinbase, Kraken, Abra, whatever you prefer). Also there are many exchanges that target local markets so if you are not in Europe or the USA you may want to find a local Exchange that provides smooth transfers of funds from a local bank account;
  2. Once you will have opened an account, get yourself verified (proof of ID and domicile are normally required);
  3. Transfer funds from your bank account to the Exchange;
  4. Once the Exchange notifies you that the funds have been credited, you can buy Bitcoins.

B. On Localbitcoins.com: open an account and arrange to buy Bitcoins from one of the many local sellers in your area. You can agree to buy Bitcoins in person or via bank transfer and your purchase is protected by escrow. This is very convenient but prices are normally slightly above the market.

C. Work in exchange for Bitcoin: you can work as a freelancer and ask to be paid in Bitcoins, instead of cash. I pay many of my contractors across the planet with Bitcoins, Litecoins and Ethereum and they are all very happy with this.

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What is the single best decision taken by Warren Buffett?

Warren Buffett regards his 1972 decision to buy See’s Candy as one — if not THE — best decision he ever made.

In his 1983 Letter to Shareholders, Buffett states: “When we purchased See’s in 1972, it will be recalled, it was earning about $2 million on $8 million of net tangible assets. Let us assume that our hypothetical mundane business then had $2 million of earnings also, but needed $18 million in net tangible assets for normal operations. Earning only 11% on required tangible assets, that mundane business would possess little or no economic Goodwill.

A business like that, therefore, might well have sold for the value of its net tangible assets, or for $18 million. In contrast, we paid $25 million for See’s, even though it had no more in earnings and less than half as much in “honest-to-God” assets. Could less really have been more, as our purchase price implied? The answer is “yes” – even if both businesses were expected to have flat unit volume – as long as you anticipated, as we did in 1972, a world of continuous inflation.

To understand why, imagine the effect that a doubling of the price level would subsequently have on the two businesses. Both would need to double their nominal earnings to $4 million to keep themselves even with inflation. This would seem to be no great trick: just sell the same number of units at double earlier prices and, assuming profit margins remain unchanged, profits also must double.

But, crucially, to bring that about, both businesses probably would have to double their nominal investment in net tangible assets, since that is the kind of economic requirement that inflation usually imposes on businesses, both good and bad. A doubling of dollar sales means correspondingly more dollars must be employed immediately in receivables and inventories. Dollars employed in fixed assets will respond more slowly to inflation, but probably just as surely. And all of this inflation-required investment will produce no improvement in rate of return. The motivation for this investment is the survival of the business, not the prosperity of the owner.

Remember, however, that See’s had net tangible assets of only $8 million. So it would only have had to commit an additional $8 million to finance the capital needs imposed by inflation. The mundane business, meanwhile, had a burden over twice as large – a need for $18 million of additional capital.

After the dust had settled, the mundane business, now earning $4 million annually, might still be worth the value of its tangible assets, or $36 million. That means its owners would have gained only a dollar of nominal value for every new dollar invested. (This is the same dollar-for-dollar result they would have achieved if they had added money to a savings account.)

See’s, however, also earning $4 million, might be worth $50 million if valued (as it logically would be) on the same basis as it was at the time of our purchase. So it would have gained $25 million in nominal value while the owners were putting up only $8 million in additional capital – over $3 of nominal value gained for each $1 invested.

Remember, even so, that the owners of the See’s kind of business were forced by inflation to ante up $8 million in additional capital just to stay even in real profits. Any unleveraged business that requires some net tangible assets to operate (and almost all do) is hurt by inflation. Businesses needing little in the way of tangible assets simply are hurt the least.

And that fact, of course, has been hard for many people to grasp. For years the traditional wisdom – long on tradition, short on wisdom – held that inflation protection was best provided by businesses laden with natural resources, plants and machinery, or other tangible assets (“In Goods We Trust”). It doesn’t work that way. Asset-heavy businesses generally earn low rates of return – rates that often barely provide enough capital to fund the inflationary needs of the existing business, with nothing left over for real growth, for distribution to owners, or for acquisition of new businesses.

In contrast, a disproportionate number of the great business fortunes built up during the inflationary years arose from ownership of operations that combined intangibles of lasting value with relatively minor requirements for tangible assets. In such cases earnings have bounded upward in nominal dollars, and these dollars have been largely available for the acquisition of additional businesses. This phenomenon has been particularly evident in the communications business. That business has required little in the way of tangible investment – yet its franchises have endured. During inflation, Goodwill is the gift that keeps giving.

Results

In 1972

Sales- 16 million pounds of candy worth $30 million i.e $1.8 /lb of candy

Purchase price – $ 25 million

After-tax earnings – $2 million

Invested capital – $8 million

Return on invested capital – 25%

In 2006

Sales 33 million pounds of candy worth $ 383 million i.e $11.6 / lb of candy

Pre-tax earnings – $ 80 million

After- tax earnings – $ 60 million

Invested capital – $ 40 million

Reinvested capital – $ 32 million

Cumulative profit before tax sent to Berkshire – $ 1.35 billion

So Berkshire invested only $ 32 million and earned $ 1.35 billion dollars over a period of 34 years.

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