Warren Buffett losing US$700 million in Tesco & iCapital International Value Fund

This fund started investing in July 2009. Its performance in AUD since then is shown below together with the benchmarks MSCI ACWI index and ASX200.

Table: 1 Jul 2009 to 31 Aug 2014

		Total Return		% Change
	Currency	01-Jul-2009	31-Aug-2014
ICIVF	A$	1.0000	1.4639	46.39
MSCI ACWI	A$	1204.2423	461.3982	50.71
ASX200	A$	306.1537	5625.9000	45.22

Commentary

Mindful of the rich valuation many markets are trading at, Capital Dynamics (Australia) Ltd continues to maintain the high cash level of your fund. Is this right?

Patience is more than inactivity; it is working diligently without being anxious. Although constantly on the lookout for new opportunities, Capital Dynamics (Australia) Ltd needs to have the patience to wait for the right investment to fall into the right price range.

Unfortunately, many amateur and professional investors succumb to all sorts of pressure to avoid subpar quarterly performance or personal pressures to avoid the feeling of being left out as the market surges. They make the classic mistake of seeing investment opportunities because they want it to be there, not because they’re actually there.

An investor who has fallen into this trap, in other words, will start to gradually twist the facts, skew his own perception of the situation, and even erode his own standards for investment, just to make that investment opportunity available.

In this day and age, patience is in short supply now, which is precisely why it is a valuable core strategy. As we wait, it is interesting to note that the Oracle of Omaha, Warren Buffett, is getting hit in the Tesco debacle, having lost over US$700 million on his US1.7 billion investment, which was made in 2007. 

What is not known to many, however, is the fact that Capital Dynamics (Australia) Ltd sold all of your fund’s holdings in Tesco Plc way back in 2011. Less than a year later, Tesco dumbfounded investors by issuing a profit warning for the first time in 20 years, and reported a decline in annual profit last year. While not a massive $320 billion global conglomerate and lacking the resources and manpower Buffett has, Capital Dynamics (Australia) Ltd, a relatively small investment firm, is proudly rooted in Asia but with a global perspective and capabilities.


The NAV and distribution history of i Capital International Value Fund can be viewed at www.capitaldynamics.com.au or www.funds.icapital.biz.


Those who invested in this fund would have received this report.

A Very Simple and Effective Approach to Investing.

From Detergent To Driverless Cars: Stock Picking Lessons From 60 Years On (And Off) The Street

Investors, entrepreneurs and financial journalists alike are obsessed with what the rise of the Millennial generation will mean for the future of money. Yet, a conversation with an industry veteran served as a reminder that looking back can be just as important as looking forward — even in stock picking.

Gail Winslow has worked in the wealth management industry for 59 and 1/2 years — “to be exact.” She got her start as a Girl Friday — a term coined in 1940 for what we now know as an executive assistant. A Radcliff educated go-getter, Winslow quickly tired of “doing all the dirty work” at D.C. based Ferris and Company so six months in she became a Registered Representative of the New York Stock Exchange. Today, Winslow is 84 and manages close to $200 million worth of assets at RBC Wealth Management, mostly working with clients nearing retirement age (though Winslow proves that is not always synonymous with nearing retirement).

A lot has changed during her six-decade career. To name just one: the S&P 500 finished 1955 at 45.5 points. This summer it crossed 2,000 for the first time. Nevertheless, when choosing stocks Winslow continues to depend on a few faithful principles she learned long ago – many of these drawn from unexpected sources like her mother-in-law, the hair care aisle of the drug store and her washing machine.

Sometime in the early 1960s Winslow called her mother-in-law to suggest she sell some stock. The market was getting “toppy.” Her mother-in-law pulled out her portfolio and asked, “Do you think Chase Manhattan is going to cut their dividend?” Winslow said no. “Do you think General Motors is going to cut their dividend?” No again. They went through every holding before the older woman declared, “I think I’ll just continue to hold.”

(For what it is worth, in 2000, Chase merged with J.P. Morgan, forming mega bank JPMorgan Chase. The company still pays a dividend; its most recent payout was 40 cents a share. For its part, General Motors cut its long standing dividend in June 2008 part of an attempt to save money before its 2009 bankruptcy. A quarterly dividend was reinstated earlier this year at 30 cents a share.)

Looking back, Winslow says in that moment she learned that income is the difference between a speculator and an investor. “Investors say they want their stocks to go up,” says Winslow, “but they really don’t want them to go down.”

Winslow knew innately that women of the day were largely conservative, and with just one other female in the office, found herself uniquely qualified to help Washington’s high power women — researchers at the National Institute of Health, high ranking women in the military and wives of Senators (the nation had just one female senator in the 1960s). “They didn’t want to lose what they had. So I dealt early on with large American corporations that had proven track records.”

When Winslow got her start members of the Baby Boomer generation (born 1946 to 1964) were entering their teenage years. They liked, “Toni Home Permanents,” – hair perms – “bathing suits, potato chips, Frito Lay and Gillette.” Products, she says, that mothers were buying for their teens or helping them use. With 10,000 Baby Boomers now turning 65 each day Winslow is drawn to health care stocks and senior housing REITs.

These days Winslow also looks to the generation of 80 million born after 1980 for inspiration – the Millennials. With Millennials reluctant to purchase homes, Winslow is wary of housing stocks but intrigued by the rental industry. Pointing out that in her day “you put a cigarette in your mouth at 14,” she notes that young people today are health conscious, so avoids cigarette companies and looks to food companies that seem to be taking advantage of trends toward nutritious and natural.

Another thing Millennials love? Technology — and Winslow is a fan too. She has held Intel, Microsoft and IBM for decades. Apple has been in her portfolio for 15 years. (Apple shares are up 3,600% since September 1999.) Winslow is currently intrigued by driverless cars and other technologies that improve safety. For Winslow though, technology does not include just computer companies and complex software.

"Early on in the 50s new products came out and many of them were products used by women in the home – including detergent,” recalls Winslow. “Before that we used ivory soap which we squashed around and which left scum. When Tide came out I thought, ‘wow, is this great.’”

While she is still a fan of dividend payers for her contemporaries, she tells her grandchildren and their fellow Millennials to look for stocks with increasing earnings. Management, she says, should be investing profits back into company growth rather than paying out a high percentage in dividends.


An article from Forbes

http://www.forbes.com/sites/samanthasharf/2014/07/30/the-recession-generation-how-millennials-are-changing-money-management-forever/

A Warren Buffet styled “Investment checklist”

A Warren Buffet styled “Investment checklist” 

http://davidparmenter.com/files/buffet-checklist-v4.pdf

A Warren Buffet styled “Investment checklist”
Business tenets
1. Is the business understandable?
2. Do you know how the money is made?
3. Does the business have a consistent operating history?
4. Does the company have favourable long term prospects?
5. Is there a big moat around the business (a high threshold of entry) ?
6. Is it a business that even a dummy could make money in?
7. Can current operations be maintained without too much needing to be spent?
8. Is the company free to adjust prices to inflation?
9. Have you read the annual reports of the main competitors?

Management tenets
10.Has the management demonstrated a high degree of integrity (honesty)?
11.Has the management demonstrated a high degree of intelligence?
12.Has the management demonstrated a high degree of energy?
13.Is management rational?
14.Is management candid with shareholders (evidence in the past of open disclosure to the shareholders when there have been problems)?
15.Has management resisted the temptation to grow quickly by merger?
16.Has management the strength not to follow the institutional imperatives ( avoid following current business and sector fads)?
17.Has the business been free of a major merger in the last 3 years ( many merger failures come out of the woodwork within this period) ?
18.Are stock options tied to SMT performance rather organisation’s performance (if your team wins you do not pay a .35 hitter the same as a .15 hitter.) ?
19.Are stock options treated as an expense?
Financial tenets
20.Is the return on equity adequate?
21.Is the company conservatively financed?
22.Has the company had a track record of earnings growth in most years above the stock market average?
23.Are the profit margins attractive (better than industry)?
24.Has the company created at least one dollar of market value for every dollar of earnings retained?
Value tenets
25.Is the value of discounted earnings greater than the current market value?
26.Have you discounted at a rate equal or greater than the 10 year bond rate (risk free rate) ?
27.Have cash flows been based on net income, plus

depreciation, depletion, and amortization, less capital expenditure and additional working capital requirements?

28.Has the company been temporarily punished for a specific risk that is not a long term risk (the market tends to over punish the share price)?

Warren Buffett on The Dangers of Timing the Market

Warren Buffett Tells You How to Turn $40 Into $10 Million

By Patrick Morris 

Warren Buffett is perhaps the greatest investor of all time, and he has a simple solution that could help an individual turn $40 into $10 million.

A few years ago, Berkshire Hathaway CEO and Chairman Warren Buffett spoke about one of his favorite companies, Coca-Cola, and how after dividends, stock splits, and patient reinvestment, someone who bought just $40 worth of the company's stock when it went public in 1919 would now have more than $5 million.  

Yet in April 2012, when the board of directors proposed a stock split of the beloved soft-drink manufacturer, that figure was updated and the company noted that original $40 would now be worth $9.8 million. A little back-of-the-envelope math of the total return of Coke since May 2012 would mean that $9.8 million is now worth about $10.8 million.

The power of patience

I know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today's money. Put differently, would you rather have an Xbox One, or almost $11 million?

But the thing is, it isn't even as though an investment in Coca-Cola was a no-brainer at that point, or in the near century since then. Sugar prices were rising. World War I had just ended a year prior. The Great Depression happened a few years later. World War II resulted in sugar rationing. And there have been countless other things over the past 100 years that would cause someone to question whether their money should be in stocks, much less one of a consumer-goods company like Coca-Cola.

The dangers of timing

Yet as Buffett has noted continually, it's terribly dangerous to attempt to time the market:

"With a wonderful business, you can figure out what will happen; you can't figure out when it will happen. You don't want to focus on when, you want to focus on what. If you're right about what, you don't have to worry about when" 

So often investors are told they must attempt to time the market, and begin investing when the market is on the rise, and sell when the market is falling.

This type of technical analysis of watching stock movements and buying based on how the prices fluctuate over 200-day moving averages or other seemingly arbitrary fluctuations often receives a lot of media attention, but it has been proved to simply be no better than random chance. 

Investing for the long term

Individuals need to see that investing is not like placing a wager on the 49ers to cover the spread against the Cowboys, but instead it's buying a tangible piece of a business.

It is absolutely important to understand the relative price you are paying for that business, but what isn't important is attempting to understand whether you're buying in at the "right time," as that is so often just an arbitrary imagination.

In Buffett's own words, "if you're right about the business, you'll make a lot of money," so don't bother about attempting to buy stocks based on how their stock charts have looked over the past 200 days. Instead always remember that "it's far better to buy a wonderful company at a fair price."

http://www.fool.com/ecap/the_motley_fool/homerun-warren-buffett-tells-you-how-to-turn-40-2/?paid=7283&psource=esatab7410860090&waid=7284&wsource=esatabwdg0860078&utm_source=taboola&utm_medium=referral

Here's the truth: The last five years will probably be the best five-year period you'll ever experience as an investor.

Investors have been in denial for five years. Stocks went up 26% in 2009, but two-thirds of investors thought they fell. Stocks rose 15% in 2010, but half of investors said they went down. Stocks rose in 2011, yet more than half of investors said they declined, according to surveys from Franklin Templeton.

Volatile… but normal

Last year, Gallup showed that the average American thinks very little of the stock market. Only one-third agreed that it was an "excellent/good" way to grow assets. Millenials use words like "casino," "rigged," and "crapshoot" to describe stocks.

But if you calculate every five-year period since 1871, the last half-decade ranks as the fourth-best time to have been in an investor. Adjusted for inflation, the S&P 500 gained more in the last five years than it did from 1995 to 2000, during the roaring bull market of the 1990s. The difference is, back then, investors were obsessed with the market's gains. Today, they're oblivious.

Here's the truth: The last five years will probably be the best five-year period you'll ever experience as an investor. The last decade has been average. If you've struggled through this period, or keep telling yourself that buy and hold doesn't work, or that the market is a scam, it's your own fault. Stocks have done over the last decade what stocks have done for countless decades: offered a pretty decent return with lots of volatility mixed in the middle.

The fact that the average investor has been oblivious to this progress shows that the average investor is participating in a game he or she does not understand and doesn't agree with. That's unfortunate. But it means there's a simple answer to all the stories you hear about investors not trusting the market: the market isn't the problem. You, and your expectations, are the problem. You are your own worst enemy.

Read more: http://www.smh.com.au/business/motley-fool/investing-are-you-the-problem-20140902-10bchy.html#ixzz3CS9ir57I