The numbers speak for themselves: Keeping an eye on the holdings of Warren Buffett is a good idea.

Although the name Berkshire Hathaway is not synonymous with its chairman and CEO, Warren E. Buffett--the greatest investor of all time--it definitely should be. Despite Berkshire’s origins in the textile industry it was not until 1964, when Buffett stepped into the driver’s seat of this holding company, that Berkshire really started to post astonishing gains year in and year out.

Buffett’s investing ideals are by no means original. He is the prodigy student of Ben Graham, the father of value investing, but Buffett's educational influences did not stop there. He combined what Graham taught with the investment principles of Philip Fisher. Fisher focused on what a company did and how it made money, stressing the qualitative fundamental characteristics of companies. By combining the teachings of both Graham and Fisher, Buffett, through his Berkshire investing vehicle, has been able to post unfathomable annual returns.

In adhering to the principles of value investing, Buffett is the personification of patience and discipline, two characteristics often in short supply in money managers. His buy-and-hold strategy had proven extremely profitable over the last 40 years. Berkshire’s so-called “bread and butter” is the insurance business, and amongst other insurance companies, Berkshire wholly owns the GEICO Corporation. The reveune from this stream of business was over $1.5 billion in 2004. But do not let this mislead you; Buffet shows little hesitation to invest in other sectors of the economy, as long as he feels he is getting a good deal. View Buffett's holdings now - click here.

Some of the most important factors value investors analyze are such things as ROE, debt-to-equity and price-to-book ratios, all in an effort to determine a company’s intrinsic value. If Buffett deems a company’s intrinsic value to be higher than its current price, and its management and business operations to be sustainable, he will almost certainly invest. However, based on his staple of only about 30 stocks, it is fairly apparent that very few companies pass the Warren E. Buffett invest-ability test.

Although we can talk all about Buffett’s accolades over the past 40 years, the numbers speak for themselves. Suffice to say that keeping an eye on the holdings of Warren Buffett is a good idea. If you are not watching the best investor in the world, who are you watching?

Berkshire Hathaway	Average Annual Return	3-Year	5-Year
Common Stock (BRK.a/b)	21.9%	8.48%	9.48%
S&P 500(Benchmark)	10.4%	17.17%	0.64%

Company Name:	Berkshire Hathaway
Portfolio Manager:	Warren Buffett
Focus:	Value
Updates:	Shares Held, Change in Shares, and Position Change as of 9/30/08 - all other information 15 minutes delayed

Ticker	Company	Share Value x1000	Change in Value x1000	Current Value x1000	Shares Held	Change in Shares	% of Portfolio	Position Change
COP	ConocoPhillips	$5,710,262	$5,710,262	$4,438,024	77,955,800	77,955,800	8.17%	Increase
PG	Procter & Gamble Co.	$5,592,762	($843,794)	$4,816,725	80,252,000	(25,595,000)	8.00%	Decrease
KFT	Kraft Foods Inc.	$3,930,416	($3,436)	$3,643,586	120,012,700	(18,259,800)	5.62%	Decrease
WFC	Wells Fargo & Co. Del	$2,481,957	($4,421,097)	$1,835,180	66,132,620	(224,522,248)	3.55%	Decrease
WSC	Wesco Finl Corp.	$2,036,002	($145,429)	$1,919,089	5,703,087	0	2.91%	No Change
USB	US Bancorp	$1,781,615	($132,505)	$1,148,504	49,461,826	(19,169,200)	2.55%	Decrease
JNJ	Johnson & Johnson	$1,703,512	($2,269,769)	$1,474,345	24,588,800	(37,165,648)	2.44%	Decrease
MCO	Moody's	$1,632,000	($21,120)	$1,129,440	48,000,000	0	2.34%	No Change
WMT	Wal-Mart Stores, Inc.	$1,194,464	$73,595	$1,032,915	19,944,300	0	1.71%	No Change
BUD	Anheuser Busch Cos. Inc.	$898,264	$38,213	$727,693	13,845,000	0	1.29%	No Change
AXP	American Express Co.	$893,546	($4,817,626)	$1,097,072	25,220,034	(126,390,666)	1.28%	Decrease
UNP	Union Pacific Corp.	$633,751	($38,652)	$686,118	8,906,000	0	0.91%	No Change
MTB	M & T Bank Corporation	$584,530	$110,850	$569,008	6,549,360	(165,700)	0.84%	Decrease
WPO	Washington Post Co.	$580,487	($433,538)	$393,650	1,042,615	(685,150)	0.83%	Decrease
NKE	Nike Inc.	$511,183	$55,703	$565,128	7,641,000	0	0.73%	No Change
USG	USG Corporation	$437,048	($67,777)	$205,037	17,072,192	0	0.63%	No Change
COST	Costco Wholesale Corp.	$341,142	($27,374)	$297,061	5,254,000	0	0.49%	No Change
KMX	Carmax Inc.	$258,217	($44,030)	$383,637	18,444,100	(2,855,900)	0.37%	Decrease
CMCSK	Comcast Corp	$236,640	$11,520	$210,720	12,000,000	0	0.34%	No Change
GE	General Electric Co.	$198,336	($9,256)	$127,947	7,777,900	0	0.28%	No Change
IR	Ingersoll-Rd Company LTD.	$175,674	($35,281)	$211,880	5,636,600	0	0.25%	No Change
BAC	Bank of America Corp.	$175,000	($42,217)	$69,800	5,000,000	(4,100,000)	0.25%	Decrease
ETN	Eaton Corporation	$163,411	$0	$230,224	2,908,700	0	0.23%	No Change
UNH	United Health Group Inc.	$161,986	($6,014)	$213,408	6,379,900	(20,100)	0.23%	Decrease
LOW	Lowes Companies Inc.	$153,985	$8,735	$131,820	6,500,000	(500,000)	0.22%	Decrease
STI	Sun Trusts Banks Inc.	$144,175	$28,105	$82,839	3,204,600	0	0.21%	No Change
NSC	Norfolk Southern Corp.	$127,984	$6,843	$110,297	1,933,000	0	0.18%	No Change
NRG	NRG Energy, Inc.	$123,750	$0	$114,950	5,000,000	0	0.18%	No Change
KO	Coca Cola	$115,067	($10,280,933)	$123,488	2,176,000	(197,824,000)	0.16%	Decrease
SNY	Sanofi Aventis	$111,253	($18,474)	$102,791	3,384,633	(519,300)	0.16%	Decrease
WBC	Wabco Holdings Inc.	$95,958	$0	$104,868	2,700,000	0	0.14%	No Change
HD	Home Depot Inc.	$95,793	($2,126)	$106,116	3,700,000	(481,000)	0.14%	Decrease
UPS	United Parcel Service Inc.	$89,882	$2,029	$95,328	1,429,200	0	0.13%	No Change
IRM	Iron Mountain Inc.	$82,315	($7,217)	$78,336	3,372,200	0	0.12%	No Change
GSK	GlaxoSmithKline	$65,646	($1,148)	$55,163	1,510,500	0	0.09%	No Change
GCI	Gannett Inc.	$58,299	($16,410)	$45,336	3,447,600	0	0.08%	No Change
TMK	Torchmark Corp.	$31,532	($134,088)	$28,083	527,279	(2,296,600)	0.05%	Decrease
CDCO	Comdisco Holding Co.	$14,466	($220)	$13,082	1,521,162	(16,704)	0.02%	Decrease

http://www.coattailinvestor.com/members/default.aspx

A classic definition of a shrewd investor

 "(O)ne who bought in a bear market when everyone else was selling and sold out in a bull market when everyone else was buying." 

Safety with a security residing in earnings -not collateral

 "Experience has shown that in most cases safety resides in the earning power, and if this is deficient the assets lose most of their reputed value." 

Why bargains occur

 "The market is fond of making mountains of molehills and exaggerating ordinary vicissitudes into major setbacks. Even a mere lack of interest or enthusiasm may impel a price decline to absurdly low levels." 

Enthusiasm on Wall Street Is Dangerous

Graham warned ". . . that while enthusiasm may be necessary for great accomplishments elsewhere, in Wall Street it almost invariable leads to disaster."

He didn't explain his rationale for this view, but enthusiasm destroys our critical faculties and leads us to believe we have a "sure thing". Coupled with greed, thinking an investment is a sure thing is most dangerous. We tend to bet heavily on the stock, forgetting the legendary Bernard Baruch's warning that every investment is something of a gamble. Moreover, enthusiasm leads a person into speculation, which Graham greatly deplored.

The Prevalent Approach to Investing Often Does Not Work

The prevalent approach to investing is first to choose the best industry, and then to invest in the best company in that industry, regardless of the stock's price. 

Graham did not think well of this approach because he believed it was too unreliable. Good business does not always translate into good investment returns, and even the experts have difficulty selecting and concentrating on those issues which will become winners. Finally, the application of this method may place an investor in popular, overvalued stocks.

Famous Mr. Market Parable

Stocks will fluctuate substantially in value. For a true investor, the only significant meaning of price fluctuations is that they offer ". . . an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal." 

Using his famous Mr. Market parable, Graham suggests the attitude one should adopt toward fluctuations in prices. Imagine owning a $1,000 interest in a business along with a partner, Mr. Market. 

Every day the accommodating Mr. Market offers either to buy your interest or to sell you a larger interest. Sometimes his price is ridiculously high, allowing you a good opportunity to sell. At other times his price is ridiculously low, allowing you a good opportunity to buy. Still at other times, his quotes are roughly justified by the business outlook, and you can ignore them. 

The point is that the market is there for your convenience and profit. And market valuations are often wrong. Price fluctuations, Graham believes ". . . bear no relationship to underlying conditions and values." It is a mistake, he argued, to let the market determine what stocks are worth. Generally an investor will be wiser to form independent stock valuations, and then to exploit divergences between those valuations and the market's prices.

Graham's Mr. Market parable is related to his view of technical analysis. According to Graham, nearly all of technical analysis is based on buying stock when prices have risen and selling when they have fallen. Based on over 50 years' experience, he had ". . . not known a single person who had consistently or lastingly made money by thus 'following the market.'" This approach, he declared, ". . . is as fallacious as it is popular." 

Investment Experience and Stock Market History Are Important

Ben Graham's 57 years on Wall Street were most instructive, and he expressed his appreciation to them when he alluded to his "old ally, experience". 

To an important extent, you learn to invest by investing. Too often we have to make the same mistake as others before the lesson is instructive. All of us, it seems, must learn through the school of hard knocks. We would do better to learn from the likes of Ben Graham. 

Graham was a careful student of stock market history, and he placed great emphasis on it. He thought that "No statement is more true and better applicable to Wall Street than the famous warning of Santayana : `Those who do not remember the past are condemned to repeat it.'" Graham could ridicule investors grasp of stock market history, referring to their "proverbial short memories". 

It was Graham's knowledge of the long sweep of stock market history that prompted his view that ". . . the investor may as well resign himself. . .to the probability . . . that most of his holdings will advance, say, 50% or more from their low point and decline the equivalent one-third or more from their high point at various periods in the next 5 years." Historical insight is critical to successful investing. It is only through knowledge of the past that we can tell anything about the future.

Did Graham Insist on a Sure Thing?

It is too strong to say that Graham insisted on a sure thing, but he clearly wasn't much of a risk taker.

In his own words, "From the first we wanted to make sure that we were getting ample value for our money in concrete, demonstrable terms. We were unwilling to accept the prospects and promises of the future as compensation for a lack of sufficient value in hand."

Graham is proof that successful investment need not be risky investment. 

Graham Declines to Predict Earnings

In The Intelligent Investor, Graham evaluated the investment merit of several stocks, but not once did he predict earnings for those stocks. (On other occasions, however, he did venture to predict earnings.) For instance, at the conclusion of his analyses of ELTRA and Emhart stocks, he concluded, "We make no predictions about the future earnings performance. . ." 

That Graham, an eminent security analyst, should decline to predict earnings is intriguing. He obviously did not have much confidence in his ability to predict earnings - nor in others' predictions, especially long-term predictions. Sophisticated investors have always been aware of this difficulty. For instance, John Maynard Keynes, the brilliant British economist, more than a half-century ago emphasized the great difficulty involved in forecasting investment returns. In regard to this difficulty, Keynes said : "The outstanding fact is the extreme precariousness of the basis of knowledge on which our estimates of prospective yield have to be made. Our knowledge of the factors which will govern the yield of an investment some years hence is usually very slight and often negligible. If we speak frankly, we have to admit that our basis of knowledge for estimating the yield ten years hence of a railway, a copper mine, a textile factory, the goodwill of a patent medicine, an Atlantic liner, a building in the City of London amounts to little and sometimes to nothing; or even five years hence. In fact, those who seriously attempt to make such estimates are often so much in the minority that their behavior does not govern the market. "
Apparently because of such problems, Graham believed that the security valuation process is not very reliable. After discussing some problems valuing ALCOA, Graham said, "ALCOA is surely a representative industrial company of huge size. . .[it] supports to some degree, the doubts we expressed [earlier] as to the dependability of the appraisal process when applied to the typical industrial company." 

Because the appraisal process is unreliable, it is prudent to diversify one's investments. Perhaps it is enough, Graham thought, for an investor to be assured that he or she is getting good value, even if an accurate valuation is impossible. 

Finally, the inherent inaccuracy of this valuation process may explain Graham's observation that he had never ". . . seen dependable calculations made about common-stock values . . . that went beyond simple arithmetic or the most elementary algebra." In valuing stock, crude, simple calculations often are as good as you can do.

How do you find stocks with a margin of safety?

In part, they are found by avoiding stocks which are unlikely to possess this margin. Popular stocks are avoided since they are likely to be fully priced, and growth stocks are avoided since they tend to be popular and since they tend to perform poorly in bad markets. And you follow rules pertaining to low price/earnings ratios, low price/book value ratios, etc., which are designed to exclude stocks without a margin of safety.

Graham's advice to avoid growth stocks may be surprising. The reason is that great wealth is seldom achieved without growth stock investment, and Graham himself apparently amassed much of his fortune, while considerably enhancing his reputation, from a single growth stock. However, when Graham and his investment partners violated this principle, they controlled the firm and thus possessed inside knowledge of its affairs. Graham and partners held on to this stocks, too, because it had become "family business." In this case, they also violated Graham's often -stated admonition to be well diversified ; 20 percent of their funds initially went into this one stock. Still, Graham's disdain for growth stocks - because they are often popular, tend to become overpriced in good markets, and tend to perform poorly in bad markets - is well founded.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

Graham was most insistent that any security purchased should represent good value. He felt stocks should be bought like groceries, not like perfume, and he distilled his investment philosophy down to just three words, "MARGIN OF SAFETY".

By margin of safety, he meant that any stock bought should be worth considerably more than it costs. He sometimes suggested at least 50 percent more. Stocks bought with a margin of safety give some assurance that one has invested wisely. And stocks bought with a margin of safety should be low risk, high return investments.

Investment Performance Depends on Intelligent Effort

Graham disagreed with the usual postulated risk-return relationship, that is, to earn a higher return an investor must accept higher risk. To the contrary, he felt that the more intelligent effort one put into investing, the better the bargains bought. And the better the bargains, the lower the risk.

Thus intelligent investing provides high yields and low risk. Finance academicians often fail to appreciate this point.

Will Graham Make You Rich ?

Few investors--except in old age--will get rich adhering strictly to Graham's investment philosophy.

His conservative, diversified approach for most practitioners is likely to yield investment results only a little better than average. His aim is to assist investors to obtain good value for their money, not to make them rich quick.

Graham believed that this is the only legitimate function for an investment advisor. Most investors would do well to achieve such results because professional investors on average do not fare so well.

Still, it would be good to remember Graham`s caution that : "(A)ny approach to moneymaking in the stock market which can be easily described and followed by a lot of people is by its terms too simple and too easy to last. Spinoza`s concluding remark applies to Wall Street as well as to philosophy: "All things excellent are as difficult as they are rare."

Ben Graham offers a keen insight into moneymaking and a wise philosophy. The investment principles he enunciated are timeless. The seeker of investment truth will discover in the old sage a gold mine of wisdom, one who creditably promises a "fattening of the pocketbook", and a fine companion as well. We would do well before we make our next commitment to think his motto, MARGIN OF SAFETY.

The Benefits and Drawbacks of Preferred Stock Investing

The Benefits and Drawbacks of Preferred Stock Investing
BY STOCK RESEARCH PRO • MAY 8TH, 2009

Some companies issue two types of stock: common and preferred stock. While each offers a portion of ownership in the company, there are significant differences between the two. Preferred stock is often seen as a hybrid instrument; a mix between a stock and a bond. Although preferred stock is an equity security, it has many characteristics that are similar to a debt instrument.

Why Companies Offer Preferred Stock
For the issuing company, preferred stock can be easier to market than common stock as most holders of preferred shares tend to be bond institutional investors. This is due to tax law that enables U.S. corporations that pay income taxes to exclude a large portion (70%) of their dividend income from taxable income. Additionally, if cash flow problems arise for the issuing company, they may suspend dividend payments to preferred shareholders.

Even so, the amount of preferred stock issued by a company usually represents a very small percentage of its funding (compared to common stock and debt).

Unique Features of Preferred Stock
The following is a list of common characteristics of preferred stock:
Redeemable: A preferred stock is said to be redeemable or “callable” in that the company that issues the shares reserves the right to redeem them at a pre-determined price and its own discretion.
Participating: This feature enables preferred share holders to participate in the dividends to common shareholders, usually at a pre-determined rate.
Convertible: The convertible option provides preferred shareholders with the option of converting preferred stock to common stock.
Cumulative: Under the cumulative feature, if the company fails to pay its dividend to preferred shareholders, it must make up the dividend before any dividends can be paid to common shareholders.

The Benefits of Preferred Stock Investing for Individuals
The fact that individuals do not enjoy the same tax advantages as corporations should not preclude them from considering investment in preferred stock. Some of the benefits of preferred stock investing for individual investors include:
• Greater price stability and payment priority (of both dividends and liquation proceeds) than common stock holders
• Greater liquidity than many bond holdings
• Relatively low investment per share

The Potential Downside to Investing in Preferred Stock
The “callability” and limited upside potential are the two negative factors most often referenced for preferred stock. Additionally, preferred shareholders do not receive voting rights and, like bond holders, are exposed to interest rate changes.


http://www.stockresearchpro.com/the-benefits-and-drawbacks-of-preferred-stock-investing

Bullbear Stock Investing Notes
http://myinvestingnotes.blogspot.com/

Understanding Earnings per Share and its Impact on Stock Price

Understanding Earnings per Share and its Impact on Stock Price
BY STOCK RESEARCH PRO • MAY 9TH, 2009

A company’s Earnings per Share (EPS) represents the portion of the company’s earnings (after deducting taxes and preferred share dividends) that is distributed to each share of the company’s common stock. The EPS measure gives investors a way to compare stocks in an “apples to apples” way.

The Importance of Earnings per Share in Evaluating Stocks
Fundamental stock evaluation revolves primarily around the earnings a company generates for its shareholders. Earnings, of course, represent what the company makes through its operations over any particular period of time. While smaller, newer companies may have negative earnings as they establish themselves, their stock prices will reflect future earnings expectations. Larger companies are judged mainly on the earnings measure. Decreased earnings for these companies are likely to negatively impact their stock prices.

The Earnings Cycle
Earnings are reported every calendar quarter with the process beginning shortly after the end of a fiscal quarter (a three month period).

Calculating Earnings per Share
The formula for earnings per share can be written as:

(Net Income – Preferred Stock Dividends) / Average Outstanding Shares

Because the number of shares outstanding can fluctuate over the reporting term, a more accurate way to perform the calculation is to use a weighted average number of shares. To simplify the calculation, though, the number used is often the ending number of shares for the period.

Investors can then divide the price per share by the earnings per share to arrive at the price to earnings ratio (P/E Ratio) or “multiple”. This ratio gives us an indication of how much investors are willing to pay for each dollar of earnings for any particular company.

Basic v. Diluted Earnings per Share
In calculating the EPS, one of two methods can be used:
Basic Earnings per Share: Indicates how much of the company’s profit is allocated to each share of stock.
Diluted Earnings per Share: Fully reflects the impact the firm’s dilutive securities (e.g. convertible securities) may have on earnings per share.

Types of Earnings per Share
EPS can be further subdivided into various types, including:
Trailing EPS: Calculated based on numbers from the previous year
Current EPS: Includes numbers from the current year and projections
Forward EPS: Calculated based on projected numbers
Please note that most quoted EPS values are based on trailing numbers.

http://www.stockresearchpro.com/understanding-earnings-per-share-and-its-impact-on-stock-price

Bullbear Stock Investing Notes
http://myinvestingnotes.blogspot.com/

Evaluating Company Management in Fundamental Analysis

Evaluating Company Management in Fundamental Analysis
BY STOCK RESEARCH PRO • APRIL 21ST, 2009

When evaluating a stock, many investors will look at the strength and effectiveness of company management as part of the due diligence process. The corporate scandals of recent years have reminded all of us of the importance of having a high-quality management team in place. The role of the management team, as far as investors are concerned, is to create value for the shareholders. While most investors see the significance of strong management, assessing the competence of an executive team can be difficult.

The Role of Company Management
A strong management team is critical to the success of any company. These are the people who develop the ongoing vision of the company and make strategic decisions to support that vision. While it can be said that every employee brings value, it is the management team that “steers the ship” through competitive, economic and the other pressures associated with running a company. In measuring the effectiveness of the management team the investor is able to determine how well the company is performing relative to its industry competitors and the market as a whole.

Assessing Management Performance
Some of the metrics a fundamental investor might use in measuring the effectiveness of company management might include:
Return on Assets: The ROA provides an indication of company profitability in relation to its total assets. Part of effective company management is the efficient leverage of company assets to produce earnings.

A Return on Assets Calculator

Return on Equity: The ROE measures net income as a percentage of shareholders equity. For shareholders, the ROE provides a means of measuring company profitability against how much they have invested. The ROE is best used to compare the profitability of the company (and company management, by extension) with other companies in the industry.

A Return on Equity Calculator

Return on Investment: The ROI measures the effective use of debt for the benefit of the company. Skillful use of debt resources by company management can play a significant role in the growth and prosperity of the company.


http://www.stockresearchpro.com/evaluating-company-management-in-fundamental-analysis

Bullbear Stock Investing Notes
http://myinvestingnotes.blogspot.com/