How Warren Buffett Interprets the Income Statement

When it comes to analyzing the income statement, it is important to investigate further and drill down to detect what the quality of earnings are made up of and what the numbers interpret.

Gross Profit Margin: firms with excellent long term economics tend to have consistently higher margins

Durable competitive advantage creates a high margin because of the freedom to price in excess of cost
Greater than 40% = Durable competitive advantage
Less than 40% = competition eroding margins
Less than 20% = no sustainable competitive advantage
Consistency is key
Sales Goods and Administration: Consistency is key.

Companies with no durable competitive advantage show wild variation in SG&A as % of gross profit

Less than 30% is fantastic
Nearing 100% is in highly competitive industry
R&D: if competitive advantage is created by a patent or tech advantage, at some point it will disappear.

High R&D usually dictates high SG&A which threatens the competitive advantage
Depreciation: Using EBITDA as a measure of cash flow is very misleading

Companies with durable competitive advantages tend to have lower depreciation costs as a % of gross profit
Interest Expenses: Companies with high interest expenses relative to operating income tend to be either:

1) in a fiercely competitive industry where large capital expenditure required to stay competitive

2) a company with excellent business economics that acquired debt in leveraged buyout

Companies with durable competitive advantages often carry little or no interest expense.
Warren’s favorites in the consumer products category all have less than 15% of operating income.
Interest expenses varies widely between industries.
Interest ratios can be very informative of level of economic danger.
Important: In any industry, the company with the lowest ratio of interest to Operating Income is usually the one with the competitive advantage.

Net Earnings

Look for consistency and upward long term trend.
Because of share repurchase it is possible for net earnings trend to differ from EPS trend.
Preferred over EPS
Durable competitive advantage companies report higher % net earnings to total revenues.
Important: If a company is showing net earnings history greater than 20% on total revenues, it is probably benefiting from a long term competitive advantage.

If net earnings is less than 10%, likely to be in a highly competitive business
How Warren Buffett Interprets the Balance Sheet

Cash and Equivalents:

A high number means either:

1) The company has competitive advantage generating lots of cash

2) Just sold a business or bonds (not necessarily good)

A low stockpile of cash usually means poor to mediocre economics.

There are 3 ways to create large cash reserve.

1) Sell new bonds or equity to public

2) Sell business or asset

3) It has an ongoing business generating more cash than it burns (usually means durable competitive advantage)

When a company is suffering a short term problem, Buffett looks at cash or marketable securities to see whether it has the financial strength to ride it out.

Important: Lots of cash and marketable securities + little debt = good chance that the business will sail on through tough times.

Test to see what is creating cash by looking at past 7 yrs of balance sheets. This will reveal how the cash was created.
Inventory

Manufacturers with durable competitive advantages have the advantage that the products they sell do not change, and therefore will never become obsolete. Buffett likes this advantage.
When identifying manufacturers with durable competitive advantage, look for inventory and net earnings that rise correspondingly. This indicates that the company is finding profitable ways to increase sales which called for an increase in inventory.
Manufacturers with inventories that spike up and down are indicative of competitive industries subject to boom and bust.
Net Receivables

Net receivables tells us a great deal about the different competitors in the same industry. In competitive industries, some attempt to gain advantage by offering better credit terms, causing increase in sales and receivables.

If company consistently shows lower % Net receivables to gross sales than competitors, then it usually has some kind of competitive advantage which requires further digging.

Property, Plant & Equipment

A company with durable competitive advantage doesn’t need to constantly upgrade its equipment to stay competitive. The company replaces when it wears out. On the other hand, a company without any advantages must replace to keep pace.

Difference between a company with a moat and one without is that the company with the competitive advantage finances new equipment through internal cash flows, whereas the no advantage company requires debt to finance.

Producing a consistent product that doesn’t change equates to consistent profits. There is no need to upgrade plants which frees up cash for other ventures. Think Coca Cola, Johnson & Johnson etc.

Goodwill

Whenever you see an increase in goodwill over a number of years, you can assume it’s because the company is out buying other businesses above book value. GOOD if buying businesses with durable competitive advantage.

If goodwill stays the same, the company when acquiring other companies is either paying less than book value or not acquiring. Businesses with moats never sell for less than book value.

Intangible Assets

Intangibles acquired are on balance sheet at fair value.
Internally developed brand names (Coke, Wrigleys, Band-Aid) however are not reflected on the balance sheet.
One of the reasons competitive advantage power can remain hidden for so long.
Total Assets & Return on Total Assets

Measure efficiency using ROA
Capital is barrier to entry. One of things that make a competitive advantage durable is the cost of assets needed to get in. This is why we calculate the Asset Reproduction Value along with the EPV.
Many analysts argue the higher return the better. Buffett states that really high ROA may indicate vulnerability in the durability of the competitive advantage.
E.g. Raising $43b to take on KO is impossible, but $1.7b to take on Moody’s is. Although Moody’s ROA and underlying economics is far superior to Coca Cola, the durability is far weaker because of lower entry cost.

Current Liabilities
Includes accounts payable, accrued expenses, other current liabilities and short term debt.

Stay away from companies that ‘roll over the debt’ e.g. Bear Stearns
When investing in financial institutions, Buffett shies from those who are bigger borrowers of short term than long term debt.

His favorite ‘Wells Fargo’ has 57 cents short term debt for every dollar of long term
Aggressive banks (like Bank of America) has $2.09 short term for every dollar long term
Durability equates to the stability of being conservative.

Long Term Debt coming Due

Some companies lump their yearly long term debt due with short term debt on the balance sheet. This makes it seem like there is more short term debt than the real amount.

Important: Companies with durable comparable advantages need little or no LT debt to maintain operations.

Too much debt coming due in a single year spooks investors and can offer attractive entry points.

However, a mediocre company in problems with too much debt due leads to cash flow problems and certain bankruptcy.

Long Term Debt

Buffett says that durable competitive advantages carry little to no LT debt because the company is so profitable that even expansions or acquisitions are self financed.

We are interested in long term debt load for the last ten years. If the ten yrs of operation show little to no long term debt, then the company has some kind of strong competitive advantage.

Buffett’s historic purchases indicate that on any given year, the company should have sufficient yearly net earnings to pay all long term within 3 or 4 year earnings period. (e.g. Coke + Moody’s = 1yr)

Companies with enough earning power to pay long term debt in less than 3 or 4 years is a good candidate in our search for long term competitive advantage.

BUT, these companies are targets for leveraged buy outs, which saddles the business with long term debt
If all else indicates the company has a moat, but it has ton of debt, a leveraged buyout may have created the debt. In these cases the company’s bonds offer the better bet, in that the company’s earnings power is focused on paying off the debt and not growth.
Important: little or no long term debt often means a Good Long Term Bet

Total Liabilities & Debt to Shareholders Equity Ratio

Debt to shareholders equity ratio helps identify whether the company uses debt or equity (includes retained earnings) to finance operations.
Company with a moat uses earning power and should show higher levels of equity and lower level of liabilities.
Debt to Shareholders Equity Ratio : Total Liabilities / Shareholders Equity
Problem with using as identifier is that economics of companies with durable competitive advantages are so great they don’t need large amount of equity or retained earnings on the balance sheet to get the job done.
Important: if the Treasury Share Adjusted Debt to Shareholder Equity Ratio is less than 0.8, the company has a durable competitive advantage.

Retained Earnings: Buffett’s Secret

One of the most important indicators of durable competitive advantage. Net earnings can be paid out as dividends, used to buy back shares or retained for growth.

If the company loses more than it has accumulated, retained earnings is negative.

If a company isn’t adding to its retained earnings, it isn’t growing its net worth.
Rate of growth of retained earnings is good indicator whether it’s benefiting from a competitive advantage.
Microsoft is negative because it chose to buyback stock and pay dividends
The more earnings retained, the faster it grows and increases growth rate for future earnings.
Treasury Stock

Carried on the balance sheet as a negative value because it represents a reduction in shareholders equity.
Companies with moats have free cash, so treasury shares are hallmark of durable competitive advantages.

When shares are bought back and held as treasury stock, it is effectively decreasing the company equity. This increases return on shareholders equity.
High return is a sign of competitive advantage. It’s good to know if it’s generated by financial engineering or exceptional business economics or combination.
To see which is which, convert negative value of treasury shares into a positive and add it to shareholders equity. Then divide net earnings by new shareholders equity. This will give the return on equity minus effects of window dressing.

Important: presence of treasury shares and a history of buyback are good indicators that company has competitive advantage

How Warren Buffett Interprets the Cash Flow Statement

Capital Expenditures

Never invest in telephone companies because of big capital outlays

Important: company with durable competitive advantage uses a smaller portion of earnings for capital expenditure for continuing operations than those without.

To compare capex to net earnings, add up total capex for ten-yr period and compare with total net earnings over the same period

Important: if historically using less than 50%, then good place to look for durable competitive advantage. If less than 25%, probably has a competitive advantage.

The world’s ‘most innovative’ economy

Major Breakthrough on Kra Canal Potential

This idea actually was thought of back in 1800....

One Of The Only Ways To Get Really, Really Rich

Want to be remarkably successful? Want to get really rich? (While there are many ways to feel "rich," in this case we're talking about monetary wealth.) Then check out this little gem of an investment opportunity.

It's a simple investment. You only have to invest almost all of your money. On the upside, after a year you might earn 3 percent more. The downside? Any day you could lose it all, for reasons usually outside your control and that you will almost never see coming.

Would you make that investment? Of course not.

Yet millions of people do — every day they go to work for someone else.

Of course the analogy isn't perfect. Until you're laid off or fired you do earn a salary. But when you work for someone else, your upside is always capped — sure, you might occasionally get a raise, but in most cases 3 to 4 percent is the best you can expect.

Yet your downside is always unlimited because getting fired or laid off can make your income disappear overnight — and with it the considerable investments you've made in time, effort, dedication, and sacrifice.

Extremely limited upside. Unlimited downside.

That's a terrible investment.

Rich in Wealth
So if you hope to get really rich, working for someone else will never get you there. But don't just take my word for it, the government agrees.

The IRS Statistics of Income Division, a place where fun surely goes to die, has published "400 Individual Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year, 1992-2009," or in non government-speak, "400 People Who Earned a Freaking Boatload of Money."

In 2009, it took $77.4 million in adjusted gross income to crack the top 400. (That just barely got you in; the average income of everyone on the list was $202.4 million.)

Where it gets interesting is how the top 400 made their money:

Wages and salaries: 8.6 percent
Interest: 6.6 percent
Dividends: 13 percent
Partnerships and corporations: 19.9 percent
Capital gains: 45.8 percent
A few conclusions are obvious:

Working for a salary won't make you really rich.
Making only safe "income" investments won't make you really rich.
Investing only in stock of large companies won't make you really rich.
Owning a business or businesses could not only build a solid foundation of wealth but could someday...
Generate a huge financial windfall — and make you really rich.
Don't trust the IRS? Fine. Check out the top 10 on the Forbes billionaires list. Gates. Buffett. Ellison. Koch. Walton. Adelson. All entrepreneurs. (I worked my way down into the 200s and still couldn't find an employee, so I got bored and stopped looking.)

Clearly getting really rich in financial terms is the result of investing in yourself and others, of taking risks, of doing hundreds of small things right...and then doing one or two big things really right.

But what if you don't get one or two big things really right? There's another way to get really rich.

Rich in Life
I've spoken to hundreds of entrepreneurs, and each and every one does the same thing. When we talk about the financial side of being an entrepreneur — exit strategies, revenues, IPOs, cashing out — they're interested but far from animated.

But when we talk about the life of an entrepreneur, about how it feels to be an entrepreneur, they all light up. They start to gush about the challenges, the responsibility, the sense of mission, the sense of purpose, the sense of fulfillment and excitement of working with and for a real team, the amazing feelings of empowerment and the control over their own destinies....

It happens every time.

The bootstrappers with infinite dreams and negligible revenues light up.

The successful entrepreneurs such as Joel Gascoigne, who helped expand Buffer from a personal project into a business with a talented team with real revenues, light up.

The hugely successful entrepreneurs such as Scott Dorsey, who helped steer ExactTarget out of a garage, into an IPO, and then into an acquisition by SalesForce.com, light up.

Every entrepreneur lights up when we talk about being an entrepreneur because they feelalive: free to chart their own courses, to make their own decisions, to make their own mistakes — to let the sky be the limit not just financially but also (and almost always more importantly) personally, too.

And in that way, regardless of financial return, they feel really rich. And they are really rich — regardless of income or wealth.

Really, Really Rich
That's why the only way to become really rich financially and really rich personally — in other words really, really rich — is to start your own business. Even if it's just on the side. Even if it's just a slightly stepped-up hobby.

There's no reason not to. You don't have to quit your job right away; in fact, you probably shouldn't. (One of the best ways to minimize your risk is to keep your full-time job while you build your foundation for success.) Plus the basics of starting a business are easy; you can do it in one day.

Here's the deal.
In return for less freedom, less control, and less fulfillment, every day you go to work for someone else your upside is always capped and your downside is always unlimited.

The downside for entrepreneurs is also unlimited — but in return, they enjoy the possibility of an unlimited financial upside and an unlimited personal upside.

Take a chance on yourself. Try to get really, really rich. Maybe you'll only become really rich.

One out of two is still awesome — and you will have achieved it on your terms.

If your friends and family think you were crazy for starting a business, show them this article. If you've been thinking about starting a business and people say you're being foolish, show them this article.

If the people around you don't understand how personally fulfilling taking a chance on yourself can be, have them check this out.

And then get started on your entrepreneurial journey, even in the smallest and safest way. Every step you take will bring you closer to becoming at the very least really rich — and maybe, just maybe, really, really rich — and will let you join a group of people who live their lives their way, on their own terms.

Who are those people?

Entrepreneurs. Be one.

It's the best investment you can make — because it means you're investing in yourself.

The Best Alternative to the Flawed P/E Ratio

Investors have clung to the price-to-earnings (P/E) ratio for more than seven decades. It's a simple way to get a sense of how a company's market value compares to its earnings. But there's a pretty significant problem with P/E.

Neither the "P" nor the "E" is an especially accurate gauge.

As I'll illustrate, a company's stock price is not a wholly accurate gauge of a company's value in the real world. And earnings, as we learned in the Enron/Worldcom era, can be easily manipulated.

Instead, if you want to really get a sense of a company's value relative to other firms, you should familiarize yourself with its enterprise value (EV) and EBITDA.  

A Flawed Metric
It's pretty easy to see why market capitalization (stock price multiplied by the number of shares outstanding) is a flawed metric. Let's look at two companies that both have a market capitalization of $500 million ($10 stock price multiplied by 50 million shares outstanding) and $50 million in profits. The first company has $100 million in cash while the other carries $100 million in debt. Surely you'd prefer that cash rich company, all other things being equal.

And that's where EV comes in. You simply add the firm's debt to its market capitalization and then subtract its cash in order to get to enterprise value.

Enterprise Value = Market Capitalization + Debt - Cash

In this instance, the company with all that cash is more inexpensively valued ($500 million + $0 - $100 million = $400 million) compared to the debt-laden firm ($500 million + $100 million - $0 = $600 million).

In a similar vein, it's incredibly important to assess the impact that debts and cash balances have on profits. You can figure out what profits look like before interest expense (on that debt) and interest income (on that cash) by using EBITDA (earnings before interest, taxes, depreciation and amortization). In the example above, let's go on to assume both companies have $50 million in profits, but EBITDA of $60 million. [Learn how to calculate EBITDA and see an example.]

In this instance, the company with an EV of $400 million and EBITDA of $60 million has an EV/EBITDA ratio of about 6.7 ($400 million/$60 million = 6.7). The other company, the one with all the debt, has an EV/EBITDA ratio of 10 ($600 million/$60 million = 10). Just like the P/E ratio, a lower EV/EBITDA ratio is always more appealing (more company for your dollar). But unlike the P/E ratio, the EV/EBITDA ratio is difficult to manipulate.

Real World Example in the Oil and Gas Industry
Investors often use this formula when looking at firms with a high degree of depreciation or high levels of debt. EV/EBITDA is especially useful when looking at oil and gas drillers. EBITDA works best because reported earnings can become very distorted by accounting rules as oil and gas wells are slowly depleted and must be written off (against earnings) over time. And enterprise value is more helpful than market value because it ensures debt-laden companies are valued on a truly equivalent basis versus those that use more judicious levels of debt.

Let's look at two of the hot names in the oil and gas sector. Analysts are currently recommending shares of Apache Corp (NYSE: APA(link is external)) and Anadarko Petroleum (NYSE: APC(link is external)).  Each of those energy exploration firms has an EV/EBITDA multiple of just over 5 (based on projected 2010 EBITDA) while the average EV/EBITDA multiple in their peer group is just under 7. That seems to indicate APA and APC are relatively undervalued.

But if you looked at Anadarko strictly on a P/E basis, you'd wonder why shares hold any appeal, trading at nearly 30 times projected 2010 net income.

As an investor, it's important to continually sharpen your skills and put new tools in the toolbox. And it makes sense to go through and calculate EV/EBITDA for all your current holdings. You especially want to look at how they compare to other companies in their industries. If they sport a much higher EV/EBITDA ratio (even if the P/E ratio looks more reasonable), then that might tell you it's time to sell. If the EV/EBITDA ratio is much lower, it may be time to buy some more.

With This Ratio, Cash Flows Are King

Formula for enterprise value is EV = Market Capitalization + Total Debt + Preferred Stock - Cash

If you're like most investors, you probably use the price-to-earnings ratio (P/E) to measure the value of a company. By dividing the market price by earnings, you can get an easy-to-understand measure of a firm's value and a simple way to compare different companies to each other. 

Want a better indicator than the P/E ratio?

Calculating free cash flow relative to a company's valuation can be a better way to compare your alternatives. Add free cash flow indicators to your stock evaluation tool kit.

Cash flow, and especially free cash flow, is important to valuing a company. The price-to-free cash flow ratio (P/FCF), or its inverse, the free cash flow yield, is a great indicator when you know how to use it. 

Calculating Free Cash Flow
Free cash flow alone won't help you value a company, but dividing free cash flow by company valuation gives you the free cash flow yield, and this number is an easy way to compare investment alternatives. You can use if much in the same way as you use earnings yield or dividend yield.

Fortunately, calculating the free cash flow yield is pretty straightforward. First, use the Cash flow statement to subtract capital expenditures from cash flow from operations.

Next, divide free cash flow by the value of the company, also known as its market capitalization.

The formula is Free Cash Flow Yield = Free Cash Flow / Market Capitalization.

The market cap of a publicly-traded company can be easily calculated by multiplying its share price by total shares outstanding. You can also find market capitalization pretty easily on sites like CNBC.com and Yahoo! Finance.

If you invert the calculation, it is comparable to the P/E ratio. And like the P/E ratio, the P/FCF ratio lets you compare different companies' ability to generate cash flow regardless of their size. 

What about companies that use debt, especially a lot of it, to fund their business?  If you use the company’s market capitalization to calculate your valuation ratio, you can end up with misleading information. In this case, a more sophisticated approach would be to use enterprise value (EV) as the divisor for the free cash flow yield calculation.

When a company uses a substantial amount of debt, EV offers a better measure of the value of a company because it includes the value of preferred shares, minority interest and cash.

The formula for enterprise value is EV = Market Capitalization + Total Debt + Preferred Stock - Cash

The table below shows the free cash flow calculations for six large, well-known companies from several industries.

Freeport McMoRan, a large mining company, sports a low P/E ratio, which on first analysis seems to indicate the company is a good buy. But when we calculate free cash flow, Freeport McMoRan doesn't look so good: free cash flow / free cash flow and EV / free cash flow both leap higher.

On the other hand, Limited Brands generates more free cash than one would expect by just looking at the company’s trailing and forward P/E ratios. Since cash in the bank is what we all want, it pays to look into the ability to generate cash of any company you have an interest.

Most mature companies are able to generate excess cash. Comparing free cash flow generated per market or enterprise value provides an excellent way to assess the value of several mature companies.

For growth companies who plow capital back into the business to fuel growth, there are a couple of other ways to use cash flow to assess future growth. But that is a subject another time.

Overcoming These Challenges Will Make You More Successful

It’s truly fascinating how successful people approach problems. Where others see impenetrable barriers, they see challenges to embrace and obstacles to overcome.

Their confidence in the face of hardship is driven by the ability to let go of the negativity that holds so many otherwise sensible people back.

Martin Seligman at the University of Pennsylvania has studied this phenomenon more than anyone else has, and he’s found that success in life is driven by one critical distinction—whether you believe that your failures are produced by personal deficits beyond your control or that they are mistakes you can fix with effort.

Success isn’t the only thing determined by your mindset. Seligman has found much higher rates of depression in people who attribute their failures to personal deficits. Optimists fare better; they treat failure as learning experiences and believe they can do better in the future.

This success mindset requires emotional intelligence (EQ), and it’s no wonder that, among the million-plus people that TalentSmart has tested, 90% of top performers have high EQs.

Maintaining the success mindset isn’t easy. There are seven things, in particular, that tend to shatter it. These challenges drag people down because they appear to be barriers that cannot be overcome. Not so for successful people, as these challenges never hold them back.

Age. Age really is just a number. Successful people don’t let their age define who they are and what they are capable of. Just ask Betty White or any young, thriving entrepreneur. I remember a professor in graduate school who told our class that we were all too young and inexperienced to do consulting work. He said we had to go work for another company for several years before we could hope to succeed as independent consultants. I was the youngest person in the class, and I sat there doing work for my consulting clients while he droned on. Without fail, people feel compelled to tell you what you should and shouldn’t do because of your age. Don’t listen to them. Successful people certainly don’t. They follow their heart and allow their passion—not the body they’re living in—to be their guide.

They follow their heart and allow their passion—not the body they’re living in—to be their guide.

Negativity. Life won’t always go the way you want it to, but when it comes down to it, you have the same 24 hours in the day as everyone else does. Successful people make their time count. Instead of complaining about how things could have been or should have been, they reflect on everything they have to be grateful for. Then they find the best solution available, tackle the problem, and move on.

When the negativity comes from someone else, successful people avoid it by setting limits and distancing themselves from it. Think of it this way:

If the complainer were smoking, would you sit there all afternoon inhaling the second-hand smoke?

Of course not. You’d distance yourself, and you should do the same with all negative people.

A great way to stop complainers in their tracks is to ask them how they intend to fix the problem they’re complaining about. They will either quiet down or redirect the conversation in a productive direction.

Toxic people. Successful people believe in a simple notion: you are the average of the five people you spend the most time with. Just think about it—some of the most successful companies in recent history were founded by brilliant pairs. Steve Jobs and Steve Wozniak of Apple lived in the same neighborhood, Bill Gates and Paul Allen of Microsoft met in prep school, and Sergey Brin and Larry Page of Google met at Stanford.

Just as great people help you to reach your full potential, toxic people drag you right down with them. Whether it's negativity, cruelty, the victim syndrome, or just plain craziness, toxic people create stress and strife that should be avoided at all costs.

If you’re unhappy with where you are in your life, just take a look around. More often than not, the people you’ve surrounded yourself with are the root of your problems.

You’ll never reach your peak until you surround yourself with the right people.

What other people think. When your sense of pleasure and satisfaction are derived from comparing yourself to others, you are no longer the master of your own destiny. While it’s impossible to turn off your reactions to what others think of you, you don’t have to hold up your accomplishments to anyone else’s, and you can always take people’s opinions with a grain of salt. That way, no matter what other people are thinking or doing, your self-worth comes from within.

Successful people know that caring about what other people think is a waste of time and energy. When successful people feel good about something that they’ve done, they don’t let anyone’s opinions take that away from them.

No matter what other people think of you at any particular moment, one thing is certain—you’re never as good or bad as they say you are.

Fear. Fear is nothing more than a lingering emotion that’s fueled by your imagination. Danger is real. It’s the uncomfortable rush of adrenaline you get when you almost step in front of a bus. Fear is a choice. Successful people know this better than anyone does, so they flip fear on its head. They are addicted to the euphoric feeling they get from conquering their fears.

Don’t ever hold back in life just because you feel scared. I often hear people say, “What’s the worst thing that can happen to you? Will it kill you?” Yet, death isn’t the worst thing that can happen to you...

The worst thing that can happen to you is allowing yourself to die inside while you’re still alive.

The past or the future. Like fear, the past and the future are products of your mind. No amount of guilt can change the past, and no amount of anxiety can change the future. Successful people know this, and they focus on living in the present moment. It’s impossible to reach your full potential if you’re constantly somewhere else, unable to fully embrace the reality (good or bad) of this very moment.

To live in the moment, you must do two things:

1) Accept your past. If you don’t make peace with your past, it will never leave you and it will create your future. Successful people know the only good time to look at the past is to see how far you’ve come.

2) Accept the uncertainty of the future, and don’t place unnecessary expectations upon yourself. Worry has no place in the here and now. As Mark Twain once said,

Worrying is like paying a debt you don’t owe.

The state of the world. Keep your eyes on the news for any length of time and you’ll see it’s just one endless cycle of war, violent attacks, fragile economies, failing companies, and environmental disasters. It’s easy to think the world is headed downhill fast.

And who knows? Maybe it is. But successful people don’t worry about that because they don’t get caught up in things they can’t control. Instead, they focus their energy on directing the two things that are completely within their power—their attention and their effort. They focus their attention on all the things they’re grateful for, and they look for the good that’s happening in the world. They focus their effort on doing what they can every single day to improve their own lives and the world around them, because these small steps are all it takes to make the world a better place.

They focus their effort on doing what they can every single day to improve their own lives and the world around them...

Bringing It All Together

Your success is driven by your mindset. With discipline and focus, you can ensure that these seven obstacles never hold you back from reaching your full potential.

What other challenges do successful people overcome? Please share your thoughts in the comments section below as I learn just as much from you as you do from me.

ABOUT THE AUTHOR:

Dr. Travis Bradberry is the award-winning co-author of the #1 bestselling book, Emotional Intelligence 2.0, and the cofounder of TalentSmart, the world's leading provider of emotional intelligence tests and training, serving more than 75% of Fortune 500 companies. His bestselling books have been translated into 25 languages and are available in more than 150 countries. Dr. Bradberry has written for, or been covered by, Newsweek, BusinessWeek, Fortune, Forbes, Fast Company, Inc., USA Today, The Wall Street Journal, The Washington Post, and The Harvard Business Review.