Warren Buffett always seems to rely on one of the basic principles: the occasional cost. In both everyday life and investment, it seems to ignore or ignore this basic principle unconsciously or deliberately. Well, I think such an intelligent investor, like Buffett, will know this.
Let's take a look at what the cost calculation is where Buffett is using and how to make better decisions with the rather unusual costs.
Opportunity Costs – What Is It?
But before examining the scope of application, we first need to clarify the possibilities of cost. To do this, the following starting position begins:
Assuming you've got more than 1000 euros and now think about what to do with it. On the one hand vacation on summer vacation and enjoy a few days of sun and peace. Or invest in money, invest in retirement, and keep a better financial future. Both are very attractive, do not you agree?
However, as this is an or-decision, the examples are cost-effective. These are depending on what you decide on each of the other options that need to be added at this point.
Costs of the opportunities therefore do not involve any financial costs, but the abandonment of the next best decision, which ultimately did not or did not take into account. So far, so clear? Think of where Warren Buffett applies this principle everywhere.
Warren Buffett's greatest resignation when investing
I'm sure Warren Buffett is carefully considering all investment decisions, Berkshire Hathaway (WKN: A0YJQ2) and shareholders are the best decision. In the truest sense of the word, however, the resignation is particularly impressive, as it is linked to $ 20 billion, Buffett always likes to keep it in cash.
With this $ 20 billion cash position, which has grown considerably in recent years, Buffett is always out of the money investing and generates a higher return, which is not intuitive at first.
However, this Buffett's minimum cash position means there is always some degree of flexibility and, in cases (for example, in case of sharp correction), the promotional price may be advantageous.
However, if you do not use such an investment opportunity regularly, it seems to be less attractive than always when it has a 99% or 100% equity cap. It is a very interesting way of thinking, which can be attributed to the possible costs.
Measuring process in real life as well
But this is not just about Buffett's investment. Even in real life, Buffett follows the principles of cost and profit. For example, your doctor once advised her to eat better – Buffett himself says she feels like a six-year-old or she is exercising on a regular basis.
As Buffett appreciates his eating habits, he decided to choose the less bad, the sport here. The resignation Coca Cola and ice cream would probably have been more burdensome than running his pulse on a regular basis.
So you can use the options
As we have seen, the cost of options is an excellent way to make decisions. Whether your A or B kit, consumption or savings, eat pizza or turbid vegetables. Exemptions from the remedy are pervading everywhere.
Those who deliberately listen to these can better discuss whether a possible path is really right or not. By doing so, it helps people to go a little better for (financial) life.
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Vincent Berkshire owns shares in Hathaway (B shares). Motley Fool recommends Berkshire Hathaway (B-Stocks).