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/

Revenue Drops 62% as Morgan Stanley Posts a Loss

Revenue Drops 62% as Morgan Stanley Posts a Loss

By DAVID JOLLY
Published: April 22, 2009
Morgan Stanley reported a bigger-than-expected first-quarter loss on Wednesday, as it wrote down soured real estate investments and took a hit on its own debt.
The bank reported a net loss of $177 million, or 57 cents a share, compared with a profit of $1.4 billion a year ago. Revenue fell 62 percent to $3 billion. Analysts surveyed by Reuters had expected a loss of about 9 cents a share and revenue of about $4.9 billion.
Results were helped by a one-time tax benefit of $331 million “from the anticipated repatriation of non-U.S. earnings at lower than previously estimated tax rates.”
Morgan Stanley said its results were hurt by a $1.5 billion decrease in net revenue related to the tightening of credit spreads on certain of its long-term debt and “net losses of $1 billion on investments in real estate, amidst the industry-wide decline in this market.”
Like its larger rival, Goldman Sachs, Morgan Stanley in September converted itself into a bank holding company from an investment bank in order to gain access to emergency Federal Reserve funds. Accounting rules governing holding companies required the banks to change their reporting periods to the calendar year from a Nov. 30 year-end, leaving December as an orphan month.
Morgan Stanley reported a net loss of $1.3 billion for December.
Goldman Sachs last week posted a net profit of $1.7 billion for the first quarter of 2009. For December, it lost $1 billion.
Morgan Stanley also cut its quarterly dividend to 5 cents a share from 27 cents, saying the move would allow it to conserve about $1 billion a year.
Some investors have greeted bank results in the last weeks with optimism, seeing in better-than-anticipated headline numbers signs that the financial industry is stabilizing. But many analysts have cautioned that one-time items and liberal accounting were allowing banks to dress up what would otherwise, considering the continuing deterioration of asset values, have been a bad quarter.
American banks face great uncertainty as the Treasury and financial regulators work out how they will disclose the results of stress tests of 19 large banks. American banks had reported $510 billion in write-downs related to the credit crisis by the end of 2008, the International Monetary Fund said Tuesday, and it predicted they would need to write-down an additional $550 billion in 2009 and 2010.
In spite of difficult business conditions, Morgan Stanley “delivered strong results in investment banking, commodities, interest rates and credit products as well as solid performance in global wealth management,” John J. Mack, the chairman and chief executive, said in a statement. “In fact, Morgan Stanley would have been profitable this quarter if not for the dramatic improvement in our credit spreads — which is a significant positive development, but had a near-term negative impact on our revenues.”
Morgan Stanley said it had a Tier 1 capital ratio, a measure of financial strength, of 16.4 percent at the end of the first quarter. It said its investment banking business had revenue of $800 million, and that it ranked first globally in announced mergers and acquisitions in the first quarter. The bank said its fixed income sales and trading business posted revenue of $1.3 billion reflecting strong results in commodities, interest rates and credit products.
Goldman Sachs said last week that it wanted to return $10 billion in federal bailout money received under the Troubled Asset Relief Program, or TARP, as soon as possible to rid itself of the restrictions on executive pay and other matters. Morgan Stanley’s loss might make it more difficult for it to follow suit in the near term. For its part, Goldman Sachs is awaiting Treasury Secretary Timothy F. Geithner’s approval before it can do so.
Like its rivals, Morgan Stanley has also benefited from an indirect subsidy in the form of Federal Deposit Insurance Corporation backing for their debt issues, which allows them to raise money far more cheaply than they could on their own. Morgan Stanley has issued $23 billion of debt under the program.
Morgan Stanley, which sold a 21 percent stake to Mitsubishi UFJ Financial Group in September for $9 billion, entered a joint venture this year with Citigroup’s Smith Barney brokerage unit to expand its brokerage business.
It also announced a new joint venture with Mitsubishi UFJ integrating the two firms’ Japanese securities businesses into the third largest brokerage franchise in Japan.
Mr. Mack told a Japanese newspaper this week that Morgan Stanley also wanted to buy an American retail bank to gain deposits.
The bank has a market value of about $27 billion. Its shares, which had gained about 54 percent this year through the market close Tuesday, fell about 2 percent in premarket trading Wednesday.
Louise Story contributed reporting.

http://www.nytimes.com/2009/04/23/business/23bank.html?ref=business

Survivors of crisis find a silver lining

From The TimesApril 15, 2009

Survivors of crisis find a silver lining

David Wighton: Business editor's commentary

For a moment, it looked just like the good old days. Goldman Sachs' profits soar way above forecasts to $1.8billion in the first quarter as it plans for a 20 per cent pay rise for staff. Crisis, what crisis?

Except, of course, the crisis has had a big impact on Goldman. It is just that the impact on Goldman - and rivals such as Barclays Capital - has not been all bad.

The reason that Goldman's huge fixed income, currency and commodities arm generated record revenues of $6.56 billion was not that its customers did record business, although volumes were healthy enough.

It was because half of its competitors have blown themselves up and many of the others are wandering around in a daze. As a result, customers are having to pay up to get trades done.

The spread between the buying and selling prices for everything from sterling to silver has widened dramatically, fattening up Goldman's margins a treat.

These trading profits absorbed continued losses in credit products, including about $800 million before hedges on commercial mortgage loans and securities.

Elsewhere things were not so pretty. Equities trading, the advisory businesses and asset management were all down and there were further losses from property and other investments.

The returns to shareholders have been diluted by the big increase in Goldman's capital, which is now being expanded by another $5billion, which may be used to pay off the $10 billion owed to the US Government.

But Goldman still managed to generate a return on equity of 14 per cent.

The speed with which the underlying business of the surviving investment banks seems to be bouncing back must make companies in other stricken sectors look on with incredulity.

Boston Consulting Group has constructed a “bull” case that has global investment banking net revenues before writedowns reaching $374billion next year.

That is 15 per cent higher than the record level of 2007. Even its “bear” case of $258billion is not far off the level of 2006. Returns will not be as high, because of lower leverage, but then the cake will be shared out between fewer mouths.

The Goldman figures looked particularly encouraging for Barclays.

Thanks partly to its rescue of Lehman Brothers' US business last year, Barclays Capital is strong in all those areas where Goldman reported good results - particularly debt, currencies and commodities - and smaller in those areas that struggled.

London investors took note and Barclays shares jumped another 10per cent to 195.5p yesterday, four times their low in January.

A lot could still go wrong. But the history of previous banking crises shows that the survivors not only live but live well. Those that double up at the bottom, like Barclays, can live very well indeed.

http://www.timesonline.co.uk/tol/comment/columnists/article6094574.ece


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Buffett's Investment in Goldman Sach

Some interesting thoughts.

Examples: The similarities between Salomon and GS--Warren never will, and will never need to, take on a role at GS that is similar to the one he did at Salomon. The only way Buffett will lose with the GS deal is if the company goes under--not impossible, but extremely unlikely. In the meantime he is collecting 10% interest, is assured return of capital (except if GS goes under), an is assured a 10% fee if the debt is repaid early. The warrants, if he gets to exercise it for a profit, is icing on the cake.

Another example: his 1999 call of a sideways market until 2016 was brilliant indeed. But remember the SP500 was in the 1300 to 1400 range then. In Nov 2008, with the SP500 around 750, the 1999 call if proven right, means a 1350 or so SP 500 in 2016--or an approximately 80% gain in 8 years. This is a annualized return of about 7 or 8%, plus a dividend of over 3% --for a cumulative return of around 10% for the next 8 years. Perhaps Mr. Cooper considers this inadequate. REMEMBER: Graham defined Investment as "an operation which, upon thorough analysis promises safety of capital and an adequate return"

http://seekingalpha.com/article/112389-buffett-s-biography-is-goldman-sachs-the-new-salomon-brothers