Buffett's Value Investing Style

Warren Buffett is the world famous stock market guru. Recently, he bought stakes of General Electric Co (GE) and Goldman Sachs Group. General Electric Co (GE) is a technology and services giant company which is listed in Dow Jones board; whereas, Goldman Sachs Group (GS) is a financial heavyweight company, which is listed in New York Security Exchange (NYSE). Through his famous investment company; Bershire Hathaway, Buffett invested US$8bil in these two companies. His action startled many people in stock market. When everybody was taking their money out from the Wall Street, he invested such a huge amount of money. There is no surprise actually because he at one time said that the best time to enter the market was when everybody was not interested in stocks. He also stated that it was difficult to buy a popular stocks and made profit from it. Besides, he also said that when everybody was in fear was the best time to enter the market but not when everybody was greedy. According to financial specialists, Buffett investment is a long term investment.

Currently, stock prices are considered as irrational due to the heavy sell down. So, now it is the best time to invest. When investing in a company, we should invest to the company management and market strategy. In this type of investment, good stocks should be held as long as possible by the investors.

When investing in stock market, Warren Buffett is very careful. He sets very strict requirements to select stocks. So, stocks that fulfill his requirements are seldom being found.

• Earnings versus growth, 
• high return on equity, 
• minimal debts, 
• strength of management and 
• simple business model 

are five main criteria, which are used by Buffett to select stocks to invest.

He usually concentrates in a few solid stocks, which able to give high return of investment. These few stocks usually are in the industries that he understands the most. He is also very careful to the local bourse, which is an emerging market that could be very volatile. Besides, he is also watchful to the market sentiment, which could be easily affected by many other external factors.

Good stocks are worth to hold for as long as possible. This is because good stocks such as blue chip stocks are able to ride through bad times and recover over time. Buffett is the most successful and trusted investors. His investments in GE and Goldman Sachs will restore the confidence of some of the investor on the Wall Street. When Buffett invests in stocks, underlying fundamentals of a company are the must will be investigated by him rather than market sentiment. Because of his astute investment skill, he is dubbed as “The Oracle of Omaha”. Intrinsic value of a business is always will be determined by him and he is willing to pay a good price for it as long as the business has the intrinsic value. Buffett is very prudent and holds a principle that if he can not understand the operation of the business; he will not invest in it. That’s why, he escaped the dotcom market crash. He will check the fundamentals of the companies that he intends to invest by analyzing the companies’ annual reports. This is his simple investment principle.

He is the chairman of Berkshire Hathaway and this company’s stock is the most expensive on Wall Street. In a letter last year to his shareholders, he stated that Bershire was looking to invest to the companies, which had competitive advantage in a stable industry for long-term prospects. His philosophy is that the stock price will increase as long as the business does well. Investment in PetroChina, which is an oil and gas firm in China, was one of his most successful investments. He bought the stake for this company for an initial sum of US$500 mil and then sold it for US$3.5 bil. Investments in companies such as Coca-Cola, American Express and Gillette are also among his successful investments.

http://fourstarinvestor.com/buffetts-value-investing-style/336/

GE reassures over profits of finance arm

From Times Online
March 19, 2009

GE reassures over profits of finance arm
Christine Seib, New York

Shares in General Electric (GE) rose almost 7 per cent in morning trading after the conglomerate reassured investors about the profitability of its troubled finance business.

GE, which saw its shares plummet to an 18-year low of $5.87 this month on capital raising and ratings downgrade fears, said that GE Capital was likely to be profitable this year even in a worst-case economic scenario.

The company’s stock was up by 6.9 per cent at $11.03 each by 10.50am as shareholders welcomed the news.

Michael Neal, chief executive of GE Capital, said: "Even in the adverse case we’re probably break-even to slightly profitable".

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Keith Sherin, GE’s chief financial officer, added that the company had run stress tests of GE Capital’s portfolio of business and found nothing that would force GE to raise additional capital.

GE Capital, which sells commercial and personal loans as well as making proprietary investments in real estate, has been hit by the souring property market.

GE has put aside $10 billion against expected losses at the unit, which once accounted for about half of GE’s earnings but has shrunk to less than one-third.

Shares in GE started to rise last week after Standard & Poor’s stripped the company of its AAA credit rating, taking it to AA-plus.

Investors had expected the downgrade to be worse, so took the one-notch demotion as a sign that there was no further bad news to come from the finance business.

http://business.timesonline.co.uk/tol/business/article5939737.ece