Bullbear Buffett

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.

Wednesday, 10 December 2025

Johnson & Johnson: has a secure growing income stream and ability to deploy massive capital for high-return growth

Here is a comprehensive summary of Johnson & Johnson's financial statements and an overall assessment.

1. Income Statement Summary: The Earnings Story

Core Business is Healthy & Growing: After the 2022 dip due to the Kenvue spin-off, revenue has returned to steady growth (4.3% in 2024). Underlying growth in Pharma and MedTech is solid.
Exceptional Profitability: The company boasts a very high Gross Profit Margin (~69%), showcasing its pricing power and efficient production in high-margin healthcare sectors.
Earnings Distorted by One-Time Events: Reported Net Income is heavily impacted by massive "Unusual Expenses" ($6.2B in 2024) and the 2023 spin-off gain. Look at EBITDA (~$28B, margin ~32%) for operational performance.
Heavy Investment in the Future: R&D spending is high and increasing ($17.3B in 2024), reflecting commitment to the pharmaceutical pipeline.
Recent Quarter (Q3 2025) Shows Strength: Excluding a one-time gain in Q1 2025, pretax income trended up to $7.5B in Q3 2025, indicating improving core operations.

Key Takeaway: The underlying business is robust and profitable. Ignore the noise from spin-off/restructuring costs; focus on sales growth and EBITDA margins.

2. Balance Sheet Summary: The Financial Fortress

Extremely Strong & Conservative: The balance sheet is a key strength. Leverage is very low (Debt-to-Equity ~0.58), providing immense resilience and flexibility.
War Chest of Liquidity: Cash holdings are substantial (~$18.6B) even after a major acquisition, providing dry powder for more strategic moves.
Asset-Light, IP-Heavy Model: Assets are dominated by Intangibles ($96.8B, ~50% of assets) like patents and brands, not factories. This is typical for a pharma/medtech innovator.
Shareholder-Friendly: An enormous Treasury Stock balance (~$75.9B) evidences decades of aggressive share buybacks, a core pillar of capital return.
Post-Spin-Off Reshuffling: The surge and subsequent reduction in cash and short-term debt in 2025 show active liability management and strategic deployment of capital from the Kenvue separation.

Key Takeaway: J&J has a AAA-quality balance sheet. It is not just strong; it is a strategic weapon enabling bold M&A without undue risk.

3. Cash Flow Statement Summary: The Engine & Its Use

Powerful Cash Generation: Operating Cash Flow (OCF) is the engine, generating a massive ~$24B annually with superb margins (25-28% of Sales). Earnings are high quality and convert to cash.
Disciplined Investment: Capital Expenditures are low (~4-5% of Sales), but Strategic Acquisitions are significant ($15.1B in 2024, $14.5B in Q2 2025). This is how J&J buys growth.
Predictable, Generous Shareholder Returns: Dividends are sacrosanct, steady, and growing (~$11.8B annually). Share buybacks are consistently executed.
Prudent Financing: Debt is used strategically to fund large acquisitions (e.g., $15.1B issued in Q1 2025), which is then rapidly paid down from the copious OCF.
Strong Free Cash Flow: Annual Free Cash Flow is consistently robust ($17-20B), funding all priorities comfortably.

Key Takeaway: J&J follows a classic blue-chip cash cycle: Generate massive OCF → Fund growth via M&A → Return all excess cash to shareholders. The model is executed flawlessly.

Overall Financial Summary & Investment Thesis

Johnson & Johnson is a financially elite company transitioning strategically from a diversified conglomerate to a focused healthcare innovator.

Financial Health: Excellent (A+). The combination of high profitability, a fortress balance sheet, and immense, predictable cash flows places J&J in the top tier of corporate financial health globally. There is minimal solvency or liquidity risk.
Strategy & Capital Allocation: Clear and Active.
1. Invest for Growth: Major, ongoing R&D spend combined with bold, bolt-on acquisitions (evident in 2024-2025 cash flows) to strengthen Pharma and MedTech.
2. Return Capital Reliably: A dependable, growing dividend and consistent share buybacks.
3. Maintain Financial Strength: Using debt strategically but always quickly returning to conservative leverage ratios.
Investment Profile:
- Defensive Core: Provides stability through reliable dividends and recession-resistant cash flows.
- Growth Optionality: Offers potential for acceleration through its R&D pipeline and strategic M&A, funded by its unparalleled balance sheet.
- Low Risk: The financial structure inherently reduces downside risk.

Bottom Line: Johnson & Johnson is not just weathering its corporate transformation; it is leveraging its unparalleled financial strength to aggressively shape its future. An investor is buying a secure, growing income stream coupled with a call option on management's ability to wisely deploy a massive war chest for high-return growth. The primary watch item is no longer the spin-off—it is the execution and integration of its new acquisitions.

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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?

Bullbear Buffett

Wednesday, 10 December 2025

Johnson & Johnson: has a secure growing income stream and ability to deploy massive capital for high-return growth

1. Income Statement Summary: The Earnings Story

2. Balance Sheet Summary: The Financial Fortress

3. Cash Flow Statement Summary: The Engine & Its Use

Overall Financial Summary & Investment Thesis

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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

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