Only One Warren Buffett: Buffett's investing style is to buy great companies at reasonable prices.

Buffett is often thought of as a pure value investor, buying companies and shares only when they are dirt cheap. He does some of that, and his investments in Goldman and GE last year were an example.

But far and away Buffett's investing style is to buy great companies at reasonable prices. His simple definition of a great company is one which has a sustainable competitive advantage, like a railway, for example.

Price wise, he is not getting Burlington on the cheap. The Financial Times calls Burlinton's valuation "generous", but also says "Buffett is not a man to quibble (on price) when he sees something he likes".

Buffett imitators often try to buy shares in a company because they are cheap. Buffett himself concentrates on buying great businesses. The difference is chalk and cheese, and it's the reason why there's only one Warren Buffett.

http://www.fool.co.uk/news/investing/investing-strategy/2009/11/04/theres-only-one-warren-buffett.aspx

"What do you think of the market?"

Perhaps the most common investment question is "What do you think of the market?"

• To an informed group of market analysts, the question invites intellectual discussion and is very difficult to answer succinctly. 
• In casual conversation with friends, however, the question can be like an overused pickup line at a cocktail party.

Expectations about the future are extremely important in the determination of security prices.  Even if you are a firm believer in the efficient market hypothesis, it is difficult to make informed investment decisions with complete disregard for:

• the current level of the popular indexes or
• the prospects for the economy. 

The Greenspan Model

The Greenspan Model is a heuristic many people use as one means of estimating the over- or under- valuation of the broad market.  The model is simple:  just subtract the S&P 500 earnings yield from the current yield on a 10-year Treasury security.

Greenspan market value = 10-year Treasury yield - S&P 500 earnings yield

When the result is positive, the market is overvalued. 

When it is negative, the market is undervalued.

According to the Greenspan model, the broad stock market was overvalued for the entire decade of the 1990s.  There were buying opportunity in 2003 and 2004, but in the mid-2005 stocks were starting to get pricey again.

As with historical PE ratios or earnings yield figures, the Greenspan model offers some historical indication of the reasonableness of the current level of the market, given estimated earnings and the interest rate environment.

Your Once-in-a-Lifetime Investing Opportunity

Your Once-in-a-Lifetime Investing Opportunity
By Chuck Saletta

December 3, 2008


"Panic" might be too weak a word for what's going on out there. It's not just that the stock market has been affected -- the far larger lending market has seized up as well. Banks don't want to lend to each other, much less those of us out here in the real world, and the bond markets remain off-limits to all but the strongest of borrowers.


And all of that is leaving everyone terrified. The long-term future simply doesn't matter all that much to a company that risks oblivion in the next week if it can't roll over its maturing debt or cover tomorrow's margin call.


The companies hit hardest by this mess have been the ones that were built on the presumption of easy, cheap, and unlimited credit. Homebuilders like Centex (NYSE: CTX) are in a world of hurt, and even the strongest automobile titans like Toyota (NYSE: TM) are feeling the impact of the credit crunch. But it was investment banks and financial institutions -- the largest and fiercest players on Wall Street -- that were literally ground zero for this implosion.


The list of companies brought down by the implosion -- Bear Stearns, Lehman Brothers, Fannie Mae, Freddie Mac -- includes some of the most notable names on Wall Street. The list of companies struggling to survive the economic downturn grows longer by the day. And that's creating a once-in-a-lifetime investing opportunity -- for you.


It's your turn There are unbelievable bargains available now, the likes of which we haven't seen since the days of Benjamin Graham. Under less unusual circumstances, Wall Street's financial wizards would be leveraging themselves to the hilt to take advantage of the market's current conditions. But with their funds cut off, redeemed, or diverted into mere survival, they're forced to sit on the sidelines, rendered completely unable to act.
That's where you come in. As long as you have the patience to wait out the volatility, you can buy those very same bargains (without the leverage) and be richly rewarded when things return to normal.


The country, the stock market, and the strongest companies of the era survived the Great Depression. We'll get through this mess, too. Much the way Benjamin Graham and his protege Warren Buffett did after past catastrophes, the superinvestors of this generation will make their fortunes buying on the heels of this one.


Where to play



Even if you don't aspire to be the next Graham or Buffett (and don't have $5 billion sitting around with which to invest in a struggling company), there are plenty of bargains available to you right now.


But be careful out there -- not every company that has fallen is legitimately cheap. We're in the throes of a global economic rout, after all, and many companies deserve their slashed share prices.


Those whose prices have dropped as a result of forced selling or general market malaise, on the other hand, are the most likely to reward their shareholders for holding on through this mess.

They typically have

• Strong balance sheets,


• Reasonable or cheap valuations, and


• Moats protecting their core businesses.
  

Companies like these, for instance:
Company/Moat/Value proposition
Wal-Mart
(NYSE: WMT)
Unparalleled supply chain.Scale to leverage best prices.
Trailing P/E below 16;$5.9 billion in cash on hand.
Microsoft
(Nasdaq: MSFT)
So dominant, it's routinely classified as a monopoly.Nobody likes Vista, but they're buying it anyway.
Trailing P/E below 11;$19.7 billion in cash on hand.
Altria
(NYSE: MO)
In spite of knowing better, people still smoke.Government-enforced market-share protection thanks to master settlement agreement.
Forward P/E around 9;more cash on hand than total debt.
Oracle
(Nasdaq: ORCL)
Dominant position in database market gives it leverage in related business software categories.
Trailing P/E below 15;more cash on hand than total debt.
Verizon
(NYSE: VZ)
Captive markets for line-based phone services.Already built-out cellular network.
Trailing P/E below 15;total debt less than 1/2 of revenue.

Although these companies are likely to be affected by the U.S.'s newly declared year-old recession and the general tightening of consumer credit, their basic businesses are solid. Solid businesses, clean balance sheets, and cheap prices compared to intrinsic value mean these are the types of opportunities you should be taking advantage of right now -- while you still can.

This won't last forever

In ordinary times, companies this strong would not be available at such attractive prices. These deals are available only because the global financial meltdown has knocked out so very many of the institutional investors who would ordinarily bid these companies up much higher.

If you want to pay bargain-basement prices for some of the strongest businesses around, this is when you should pounce. It's not easy to buy when everyone is panicking, but it's precisely how generations of successful value investors have made their fortunes.

At Motley Fool Inside Value, we're taking advantage of the brief window we've been given -- and we're excited to buy companies like these at such reasonable prices. You can get a free, 30-day trial, with all of our recommendations but no obligation to subscribe, just by clicking here.
At the time of publication, Fool contributor and Inside Value team member Chuck Saletta owned shares of Microsoft. Wal-Mart and Microsoft are Motley Fool Inside Value selections. The Fool's disclosure policy knows the corporate American Express number but isn't telling.

http://www.fool.com/investing/value/2008/12/03/your-once-in-a-lifetime-investing-opportunity.aspx



Also read:

http://financialfellow.com/2008/11/24/yet-another-reason-to-start-saving-for-retirement-early/