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.

Tuesday 24 March 2009

Buffett: A Complete Fool

Buffett: A Complete Fool
By Selena Maranjian March 23, 2009 Comments (0)

Good old Jim Cramer. His provocative ways have brought a lot of eyeballs and ears to his Mad Money show on CNBC, and he draws attention elsewhere, too. Daily Show host Jon Stewart, for example, recently clobbered him in a high-profile fashion. Stewart enjoyed showing clips of Cramer saying some regrettable things. Well, now it's my turn to bring up some of Mr. Cramer's words.
It seems that during a recent appearance on The Today Show, Cramer suggested that Warren Buffett should be "attacked" more than the "little guys" who report on the stock market on TV. He said: "You know, Warren Buffett, I could run tapes [of things he's said] -- he would look like a complete fool."
Of course I sat up at that. Buffett, a Fool? Like us? Why, that would be great! So I went looking for some of Buffett's words to support such a proposition. Here are some I found in Janet Lowe's book, Warren Buffett Speaks:

"[L]ook at stocks as small pieces of the business." Here, Buffett cites value investor Benjamin Graham. This is how we at The Motley Fool have long viewed stocks. While others may simply study stock-price movements and trends, we've focused on the companies behind the stocks, looking for long-term winners.

"You pay a very high price in the stock market for a cheery consensus. Uncertainty actually is the friend of the buyer of long-term values." Several of our approaches thrive on uncertainty. For instance, our Rule Breaker investing approach (meant to help you seek aggressive growth with a portion of your portfolio) actually likes to see stocks that the mainstream considers to be overvalued, in part because that creates uncertainty among the investing public that can mask their true value. Meanwhile, the approach of our Inside Value newsletter team includes companies that are currently scorned due to temporary troubles, such as American Express (NYSE: AXP).

"The three most important words of investing: 'margin of safety.'" When we invest, we like to look for a margin of safety, too. If you buy a company that seems worth $50 per share for $45, it may be a good buy. But if you can buy it for $35 or $40, you'll enjoy a greater margin of safety. Even the entire market is offering a greater margin of safety right now -- to many people, it seems a great time to buy. (Even Buffett himself took to the op-ed page a while back, saying he was buying American stocks.)

"We like stocks that generate high returns on invested capital [ROIC] where there is a strong likelihood that it will continue to do so." We respect ROIC, too. Here are some companies with good returns on invested capital that have also earned the respect of our 130,000-member strong Motley Fool CAPS community, having earned a top rating of five stars:

Company
ROIC

Western Union (NYSE: WU)
27.5%
Noble (NYSE: NE)
20.8%
Accenture (NYSE: ACN)
74%
Cognizant Technology (Nasdaq: CTSH)
18.8%
Colgate-Palmolive (NYSE: CL)
34.1%
Agrium (NYSE: AGU)
24.6%
Sources: Capital IQ, a division of Standard and Poor's; Motley Fool CAPS.

"Never ask the barber if you need a haircut." Our entire company was founded on the premise that we were like Shakespeare's dramatic Fools -- here to tell you the truth, unlike the professionals on Wall Street, who faced conflicts of interest and often profited from your trading.

Teaching and sharing
There are other similarities, too. For one thing, Buffett has spoken admiringly of his mentor Ben Graham's generosity in teaching others about investing, and also about how open he was with his stock ideas. Buffett himself keeps his stock trading as secret as he can (he's obligated by law to make some regular disclosures), but he does actively carry on the Graham tradition of teaching, hosting many groups of students who visit Omaha and also teaching the rest of us through his annual letters to shareholders and appearances in the media.
We at the Fool have similar impulses, having founded our company with the mission "to educate, amuse and enrich." Since our early days, we've aimed to teach our readers (and learn from them, as well), and we've shared our investing ideas.
So there you have it -- Warren Buffett does indeed look like a complete Fool. Of course, he's been delivering his messages since well before the Fool was born. So maybe it's more a matter of us looking rather like Buffett.

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Longtime Fool contributor Selena Maranjian owns shares of American Express. American Express, Accenture, and Western Union are Motley Fool Inside Value selections. The Fool owns shares of American Express.

http://www.fool.com/investing/value/2009/03/23/buffett-a-complete-fool.aspx

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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)

Tuesday 24 March 2009

Buffett: A Complete Fool

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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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