In this text Warren Buffett explains how taxes, Wall Street greed, and executive ego help him get rich.
Berkshire Hathaway shareholders get yearly message from Warren Buffet. This year’s brings the insight into the possibilities to get rich from tax code, harshness of the Wall Street, and humans’ weakness.
“At Berkshire, we can — without incurring taxes or much in the way of other costs — move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.”
Basically, he is saying that shifting money from profitable businesses to the promising ones makes money. For example, coal brings money, but solar power has more potential for growth. Financial markets do that shifting. Buffet explains what to do to avoid losing extra money.
Profitable companies make money, gain profit and share dividends to shareholders. But, shareholders have to pay taxes for those dividends. Now, if a company has diverse businesses, it can shift money from their profitable business to the promising one and thus avoid paying taxable dividends.
Buffet advocates the rule of rich people paying more taxes on their dividend and capital income, which affects him as well, but is good for his business.
Wall Street and basically every other intermediate that deals with people’s money will always be something that money holders don’t appraise. Bankers’ services, hedge fund managers, mutual funds – it all costs. Sometimes the people who allocate money end up with more money than people whose money is being allocated.
A pronoun says:
“If you are a librarian; your room is full of books, if you are a carpenter; your room is full of tools, if you are money manager, your room is full of money.”
Warren Buffet suggests finding strategies to allocate money to different operations without the middleman.
Overcoming ego is the key to success in every aspect of life, and the life as a whole itself. When profitable companies look for places to invest, they tend to look for familiar grounds. A technology company spreads its business into more technology, but hardly will spread to economic branch, or turn to energy industry. Buffet suggests investing in a whole range of businesses.