Tuesday, 3 July 2012

Avoid Common Investment Mistakes. Keep your emotions in check.

A recent report from Barclays Wealth identified four of the most common mistakes people make:

Focusing on single investments rather than the big picture.Consequence: not being appropriately diversified

Concentrating on a short-term time horizon. Consequence: mistiming the market

Taking more risks when comfortable and less risks when not.Consequence: buying high, selling low

Taking actions in hopes of gaining control. Consequence: high fees from trading too frequently

http://money.cnn.com/2012/06/25/investing/investment-mistakes-net-worth.moneymag/index.htm

Monday, 2 July 2012

Jeremy Siegel - Efficient Market Theory and the Recent Financial Crisis

Warren Buffett to Fired CEO: Boat Party Didn't Sink You

Published: Wednesday, 27 Jun 2012 | 5:34 PM ET

By: Alex Crippen
Executive Producer

Getty Images

Denis Abrams, former Benjamin Moore CEO

Warren Buffett says he didn't fire Benjamin Moore's CEO because he spent company money on a yacht party in Bermuda for top executives at the Berkshire Hathaway subsidiary.

Dow Jones reports that in a June 21 letter he sent to Denis Abrams, Buffett wrote:

"The recent story coupling a top management convocation on a boat with the decision to make a management change at Benjamin Moore is completely false."

In fact, Buffett told the fired CEO that he would have had "no objection at all" to the party if he'd been asked beforehand and "there was no reason" to let him know about the event in advance.

Instead, Buffett writes, the decision was "based on a differing view about distribution channels and brand strategy... It was a decision of key importance and therefore one I needed to make."

Dow Jones says it got the letter from an Abrams representative and its authenticity has been confirmed by Buffett's assistant.

In a written statement to Dow Jones, Abrams says his departure "was about strategy and not performance."

In its story tying Abram's firing to the boat party, the New York Post said the event celebrated the company's first quarterly sales increase since 2007.

But it also reported company morale has been bad after Abrams fired sales executives and antagonized retailers by trying to "strong-arm them into exclusive distribution deals."

Even so, it's extremely unusual for Buffett to drop his usual "hands-off" policy and fire the CEO of a subsidiary.

Dow Jones' Market Talk quotes Buffett watcher Jeff Matthews as saying: "It is completely out of character for him to replace managers on the basis of strategy and ideas about distribution channels. It must have been something else seriously going wrong at the business."

http://www.cnbc.com/id/47985723

Warren Buffett Explains Why Fear Overshadows Greed

By: Alex Crippen

Getty Images

Warren Buffett

It's a good time to remember one of Warren Buffett's classic rules: "Be fearful when others are greedy, and be greedy when others are fearful."

With so much fear in the financial markets right now, it's not a surprise that Buffett is being greedy.

He reminds Fortune's Andy Serwer that "the lower things go, the more I buy. We are in the business of buying." (He, of course, won't say exactly what he's buying.)

Buffett often makes a comparison to the price of hamburgers at McDonalds. If the price tag is reduced he doesn't get worried, he buys more and feels good that he's paying less for the same hamburger than it would have cost him the day before.

He acknowledges, however, that overcoming fear is easier said than done. "There is no comparison between fear and greed. Fear is instant, pervasive and intense. Greed is slower. Fear hits."

http://www.cnbc.com/id/44108052

WARREN BUFFETT THE BILLIONAIRE NEXT DOOR GOES GLOBAL

Sunday, 1 July 2012

Jeremy Siegel Still Invests For The Long Run (Video)

Charlie Rose - An Hour with Warren Buffett

How Management Affects Moats - Morningstar Video

How to Choose Dividend Stocks - Morningstar Video

How to Handle No-Moat Firms (Morningstar)

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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