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 3)

Warren Buffett's Historical Investments (Part 3)

Coca-Cola Co.: Coca-Cola has the mother lode of durable competitive advantages. Coke is the world's top soft-drink company. It sells more than 230 brands of beverages, including coffees, juices, and teas. It commands 50% of the global soft-drink market and 2% of the world's daily fluid consumption. This is one of the biggest bets that Buffett ever made, and it's also one of his most profitable. Buy this one during a recession and panic sell-off. Under no circumstances should you ever pay more than 30 times earnings for it. Expect Buffett to be buying more anytime it drops to a PE below 25.

Price bought: During a recession and panic sell-off

Cox Communications: Provides cable TV service to 6 million customers and digital TV to 350,000 subscribers. Media conglomerate Cox Enterprises contorls 68% of Cox Communications' stock. It also offers Internet access and local and long-distance phone service. It is the monopoly cable TV provider in most of the markets it services. Think of it as 6.3 million people who are addicted to channel surfing sending it checks each month. Cox's net profit margin was 23% in 2000. Compare that to Ford Motors's net profit margin of 1% and you can see why Buffett loves the cable TV business and abhors the automobile business. This is a Buffett Foundation holding.

The Walt Disney Company: Buffett first bought into Walt Disney Company in 1966, when it was selling for $53 a share, which meant that the market was valuing the entire business for $80 million, less than Snow White and the other cartoons were worth. Included in the deal you also got Disneyland. Buffett bought $5 million worth and sold it a year later for $6 million.

Price bought: Bought $5 million at $53 a share (1966, when Disney was undervalued)
Price sold: Sold for $6 million (1967)
(If this 5% stake were kept, it is now worth $1 billion)

He says that if he had kept that 5% stake it would now be worth more than $1 billion (which equates to a 19% compounding annual rate of return for the 30-year period). Lessons like this taught Buffett that holding companies with a durable competitive advantage for the long term was the easiest way to become superrich. He later acquired 21.5 million shares of Disney when it acquired Capital Cities in 1995. At the top of the bullmarket between 1998 and 2000, he was rumored to be selling Disney directly in the market, and also, he sold it indirectly in the General Reinsurance deal.

Price bought: Acquired in 1995 when Disney acquired Capital Cities.
Price sold: Rumored to be selling at the top of bullmarket (1998 - 2000)

Disney is the second-largest media conglomerate in the world. It owns the ABC television network, TV stations, radio stations, theme park, movie studios, and of course, the monarch of the Magic Kingdom - Mickey Mouse. Wait for a recession to buy this one and then hold on for the ride of your life.

Exxon Corporation: In the early eighties the Fed jacked up interest rates to kill inflation. It also killed the economy and the stock market. Lots of stocks were selling cheap ut Buffett placed his bet on Exxon, the largest and best run of the oil companies, on the theory that no matter what happened to the economy, individuals and businesses would keep guzzling oil. The high interest rates kept Exxon's stock down to $44 a share, against earnings of $6.77, which equates to an initial return of 15.2%. It has been growing its per share earnings at an annual rate of 6.7% and had been buying back its own shares. Buffett paid approximately 6.5 times earnings. By 1987 it was trading at $87 a share, which would have given him an annual compounding rate of return of approximately 25%.

Price bought: $44 a share (at 6.5x earnings, in early 80s)
Earnings: $6.77 a share
Initial return: 15.2%
Per share earnings annual growth rate: 6.7%
Price at 1987: $87 a share

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 3)

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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

Interesting Blogs