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.

Saturday 5 September 2009

Invest like the masters: Warren Buffett

From MoneySense magazine, November 2006

Invest like the masters: Warren Buffett

We've plumbed the minds of four great stock pickers to find your smartest investments.
Warren Buffett David Dreman Peter Lynch James O'Shaughnessy

Want to invest like a master? Then look to the works of Warren Buffett, Peter Lynch, David Dreman, and James O'Shaughnessy. These four gentlemen are all great investors, and all of them have either written books on how to invest or, in Buffett's case, produced years of informative shareholder letters. Remarkably, none are shy about sharing their market-beating techniques. In this feature, we examine how each of these wizards thinks and we spell out what each looks for in a stock. But that's just for starters. We've also scoured the markets for stocks that our famous investors might be interested in buying right now. To provide a truly continental perspective, half of our picks come from the U.S. and half from Canada.

We think you'll find a few of these gems to be just right for your portfolio. Remember, though, that not even a great investor beats the market each and every year. To make sure that a given stock is right for you, take out your magnifying glass and examine any investment in detail before putting your money down. Remember that you should spend at least as much time thinking about what could go wrong as what could go right. After all, that's what the best investors do.

Warren Buffett

The greatest investor in history likes to buy quality companies trading at reasonable prices. Oddly enough, the firm that may best fit that description is his own,

When he was five, Warren Buffett set up a gum stand outside his home and sold Chiclets to passersby. Now 76, Buffett still knows how to make a buck. He's the second-richest man in the U.S. (trailing only his friend, Bill Gates) and is starting to give away his fortune to charity. Along the way to his billions, Buffett studied and worked with the venerable Benjamin Graham, the father of value investing, before opening up his own hedge fund in the 1950s. But most people know Buffett as the principal owner of Berkshire Hathaway, which he runs out of a small head office in Omaha, Neb.

Buffett started buying stock in Berkshire Hathaway, then a distressed textile firm, in 1962, when its shares were trading below $8 per share (all prices in U.S. dollars). Today Berkshire Hathaway is a sprawling conglomerate with large insurance operations and trades above $96,000 per share. The trip from $8 to $96,000 represents an average annual gain of about 24% over more than 40 years. Talk about the power of compounding!

In recent years, Buffett has moved away from buying publicly traded shares in favor of acquiring entire private companies in friendly transactions. Nonetheless, he continues to buy a few public stocks — usually in quality companies trading at reasonable prices.

If you want to benefit from Buffett's stock-picking acumen, the simplest route is to invest in his company. (If $96,000 for a Berkshire Class A share sounds a mite steep for your wallet, you can choose instead to pick up "B" shares for only about $3,200 apiece.) In recent years the stock has stalled, partly due to fears that Buffett may not live much longer. Nonetheless, Berkshire Hathaway is the epitome of a quality company. It trades at a below-market price-to-earnings ratio (P/E) of 14.3 and a low price-to-book-value ratio of 1.5. In our view, it's a bargain without Buffett and a steal with him.

Another way to cash in on Buffett's eye for a deal is to buy what Berkshire Hathaway has been buying. Berkshire has bought into several public companies over the past year. By delving into regulatory filings and news releases we selected 10 such stocks for Buffett's best stocks. We wanted to reassure ourselves that the stocks haven't gained too much since Berkshire Hathaway's recent purchases, so we show each stock's price appreciation over the last year. Amazingly, you can buy many of these stocks at or below the price that Buffett recently paid.

While we don't think that buying Buffett's best stocks will automatically produce 24% returns, we do think that our list is a good place for any Buffett-style investor to start looking for prospects. For more insight into Buffett's style, read his frank and funny annual letters to shareholders. You'll find a free archive of them at BerkshireHathaway.com.

Buffett's best stocks

Company Industry
Price* P/E ROE 1-yr. Gain
ConocoPhillips Oil and gas
$59.53 5.5 25.8% -14.9%
Home Depot Home improvement
$36.27 12.4 23.6% -4.9%
TycoConglomerate
$27.99 17.3 11.4% 0.5%
United ParcelDelivery services
$71.94 19.6 24.1% 4.1%
General ElectricConglomerate
$35.30 22.0 17.4% 4.8%
Anheuser-BuschBeer
$47.51 19.7 55.7% 10.4%
Wal-MartDiscount stores
$49.32 19.3 22.1% 12.6%
TorchmarkInsurance
$63.11 13.2 15.0% 19.5%
Wells FargoBank
$36.18 15.4 19.7% 23.5%
USGBuilding materials
$47.07 — — **

Source: yahoo.com, Sept. 29, 2006
*In U.S. dollars
**Recently emerged from bankruptcy

http://www.canadianbusiness.com/my_money/investing/article.jsp?content=20061128_104045_4328

No comments:

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)

Saturday 5 September 2009

Invest like the masters: Warren Buffett

No comments:

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