myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Sunday, 7 June 2009

Warren Buffett's Historical Investments (Part 1)

Warren Buffett's Historical Investments (Part 1)

These are companies Warren Buffett invested either personally, through his foundation, or through Berkshire Hathaway. Be aware that simply because Warren Buffett has made investments in these companies or they met his selective criteria doesn't mean he would buy them today. He bought when the price was right. Remember: You want to identify the company with a durable competitive advantage and then let the price of its shares determine when you pull the trigger. The right price may come tomorrow or it may come five years from now.

Also keep in mind that at times Mr. Market is wildly enthusiastic about some of these businesses and prices them high. On other days he will be very pessimistic about their prospects and price them low. You are interested in the days that Mr. Market is pessismistic, not the others.

Amerada Hess: This is an oil company. Buffett made this investment based on asset evaluation. He multiplied the price of oil by the number of barrels it had in the ground and found that it was selling at a significant discount. He paid $26 a share and we believe he sold it a year later at approximately $50 a share. Not too shabby.

Price paid: $26 a share (Price selling at a significant discount based on asset evaluation.)
Price sold: $50 a share (Sold a year later)

American Broadcasting Companies: ABC is a television network that in the early seventies had one of the most durable competitive advantages around. We believe Buffett started buying it during an advertising recession in 1978 for approximately $24 a share and sold it in 1980 for approximately $40 a share. After it merged with Capital Cities in 1984, it merged with Disney.

Price paid: $24 a share in 1978 (during an advertising recession)
Price sold: $40 a share in 1980

American Express: This is a major financial services company that just about does it all. But its strength is travel-industry-related services for businesses, and at this, it's king. Its credit card business is a kind of toll bridge that makes money every time someone uses an American Express card. Buffett first invested in the company in the sixties during the salad-oil scandal that destroyed its equity base but not its core business. Buffett sold out after the company recovered.

Price bought: In 1960s during the salad-oil scandal when its equity base destroyed.
Price sold: After the company recovered.

In the early nineties AmEx started to have problems. From September 1991 to September 1994 the company lost approximately 2.2 million individual card users and saw its share of the total credit card market drop from 22.5% in 1990 to 16.3% in 1995. This was caused in part by AmEx's push to become a one-stop shop for all your financial needs. In diversifying into different financial products, it lost focus on its credit card operations - the bread and butter of its business. Keep in mind that businesses with a durable competitive advantage are sometimes managed by teams that ignore the wonderful underlying parts of the business that made the company great in the first place. In AmEx's case, Harvey Golub rode to the rescue as the company's new CEO. Buffett jumped on Golub's wagon and began buying the stock. Remember, you invest not only in the company, but also in the people who run it. Buffett made his 1994 purchase right before the spin-off of Lehman Brothers (an investment bank). AmEx gave its shareholders one-fifth of a share in Lehman for every share of AmEx they owned. The one-fifth Lehman was worth approximately $4. Buffett paid $26 a share for the AmEx and then got $4 a share in Lehman stock via the spin-off. Today his AmEx stock is worth approximately $166 a share, which equates to a 30% compounded annual rate of return. When it comes to the American Express card, Warren is happy that people don't leave home without it.

Price bought: $26 a share (In 1994, when AmEx was having problems.)
Price subsequently: $166 a share (30% compounded annual rate of return)

Anheuser-Busch: This is the world's largest brewing company. It has what Buffett calls a durable competitive advantage: You order your beer by brand name, and brand names it has aplenty: Budweiser, Bud Light, Busch, Michelob, Red Wolf lager, ZiegenBock Amber, and O'Doul's. It gets great returns on equity and total capital and has strong earnings growth. You need a recession or panic sell-off to get a buying opportunity on this one. Anheuser-Busch is a Buffett Foundation holding.

Price bought: You need a recession or panic sell-off to get a buying opportunity on this one.
Great ROE, ROTC and strong earnings growth.

Related topics:
Warren Buffett's Historical Investments (Part 1)
Warren Buffett's Historical Investments (Part 2)
Warren Buffett's Historical Investments (Part 3)
Warren Buffett's Historical Investments (Part 4)
Warren Buffett's Historical Investments (Part 5)
Warren Buffett's Historical Investments (Part 6)
Warren Buffett's Historical Investments (Part 7)
Warren Buffett's Historical Investments (Part 8)
Warren Buffett's Historical Investments (Part 9)

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My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?

myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Sunday, 7 June 2009

Warren Buffett's Historical Investments (Part 1)

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All equity security investments present a risk of loss of capital

The Ultimate Hold-versus-Sell Test

Some thoughts on Analysing Stocks (KISS)

Benjamin Graham

Sell the losers, let the winners run.

Investment Style

Warren Buffett

Political and Economic News

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