No race of aliens has taught us so much about finance, markets, and economics as Star Trek's Ferengi. The Ferengi Rules of Acquisition, a personal and financial code of ethics, offers a buffet of aphorisms on making money by any means necessary. Greed is the number one virtue for the Ferengi, and they use the word "ethics" only in its loosest form. But some of their rules may have some truth for investors on Earth. So what can the Ferengi Rules of Acquisition teach us about investing? Here are a few examples that I have illustrated with some familiar companies (click the link for more).
Paying attention to the the Ferengi Rule 45, "Expand or Die", shows you why Chipotle Mexican Grill (NYSE: CMG) saw its share price plunge last fall. Rule 89, "Ask not what your profits can do for you, but what you can do for your profit", teaches us about dividend reinvesting with dividend growing companies, like Coca-Cola (NYSE: KO) which has raised its dividend for 50 straight years. Rule 162, "Even in the worst of times, someone turns a profit", leads us to Costco (NASDAQ: COST), which increased its sales and retained its membership while the 2008-09 recession was hurting the rest of the retail sector.
But not everything the Ferengi say is wise. If you followed Rule 261, "A wealthy man can afford anything except a conscience", you might forego investing in socially responsible companies like Whole Foods Market (NASDAQ: WFM), whose CEO is a leader in the Conscious Capitalism movement. And if you listen to Rule 94, "Females and finances don't mix", you ignore investor psychology studies that say women generally make better investors than men here on Earth; Warren Buffett used "feminine" investing traits to increase the book value of Berkshire Hathaway (NYSE: BRK-A, NYSE: BRK-B) 586,817% since 1965. [more]
With the 2013 installment of Warren Buffett's annual letter to Berkshire Hathaway (NYSE: BRK-A, NYSE: BRK-B) shareholders hitting the Internet recently, plenty of stories have been published highlighting the most quotable passages from the letter. News articles abounded with the best examples of Buffett's traditional wisdom and wit. But I have delved deeper into the letter and found six more notable passages that nobody else is talking about.
Why is nobody talking about Buffett's demand that we bow down before his lieutenant? Or Buffett's false assertion that hamburgers and Chinese food cannot co-exist in one restaurant? Or Buffett throwing down and trash talking one of his company's biggest rivals in the insurance industry? Don't gloss over these less-covered bits of Warren Buffett's wisdom. [more]