myinvestingnotes.blogspot.my (Bullbear Buffett Stock Investing Notes)

Keep INVESTING Simple and Safe (KISS) ****Investment Philosophy, Strategy and various Valuation Methods**** The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!****Warren Buffett: Rule No. 1 - Never lose money. Rule No. 2 - Never forget Rule No. 1.

Friday, 20 July 2012

The Richest Man in Babylon

Charlie Munger's 10 Rules for Investment Success

By Morgan Housel
December 13, 2007

Those of you lucky enough to attend a Berkshire Hathaway (NYSE: BRK-A ) (NYSE:BRK-B ) annual shareholder meeting have undoubtedly heard Charlie Munger say, "I have nothing to add."

In reality, the guy has quite a bit to add. Thankfully for us, Munger is almost as forthcoming with his investment thoughts as his pal Warren Buffett. In his must-read book, Poor Charlie's Almanac, Munger puts forth a 10-step checklist that even the most inexperienced investors could benefit from.

1. Measure riskAll investment evaluations should begin by measuring risk, especially reputational.

It's crucially important to understand that from time to time, your investments won't turn out the way you wanted. To protect your portfolio, don't set yourself up for complete failure in the first place. Giving yourself a large margin of safety, avoiding people of questionable character, and only taking on risk when you can be sure you'll be satisfactorily rewarded are all steps in the right direction. Companies like Chipotle (NYSE: CMG ) might have perfectly bright futures, but when their shares are priced for perfection, they might nonetheless prove too risky for savvy investors.

2. Be independentOnly in fairy tales are emperors told they're naked.

With stockbrokers often rewarded for activity, not successful investments, it's critically important to make sure you believe that what you're doing is right. Chasing others' opinions may seem logical, but investors like Munger and Buffett often succeed by going against the grain. Big Berkshire investments such as Coca-Cola (NYSE: KO ) , and more recentlyPetrochina (NYSE: PTR ) , were largely ignored by the masses when they were first made.

3. Prepare aheadThe only way to win is to work, work, work, and hope to have a few insights.

It shouldn't surprise you that the best investments aren't the ones we typically read about in the paper. The diamonds in the rough are out there, but finding them requires effort. Buffett reads thousands of annual reports to cultivate ideas -- even if he only comes up with a few candidates each year. Munger advocates a constant curiosity for nearly everything in life. If you never stop asking the "whys" in what you do, you won't have trouble staying motivated.

4. Have intellectual humilityAcknowledging what you don't know is the dawning of wisdom.

Perhaps most crucially to Berkshire's success, its leaders never stray away from their comfort zones. In investing, a clear idea of what the business will look like in the future counts most. If you struggle to comprehend what the business does today, you might as well be throwing darts. While companies like Google (Nasdaq: GOOG ) and Boston Scientific (NYSE: BSX ) are certainly titans in their own right today, they might look drastically different in five to 10 years.

5. Analyze rigorouslyUse effective checklists to minimize errors and omissions.

The numbers don't lie. When researching investments, Buffett and Munger like to try to estimate the security's worth before they even look at its price. They are businessmen, not stock-market junkies. They focus their brainpower on the value of businesses, not convoluted economic forecasts or intricate market-timing techniques. Munger is incredibly brilliant, but the analytical rigor of his investment decisions is based around simplicity, not complexity.

6. Allocate assets wiselyProper allocation of capital is an investor's No. 1 job.

In the early days of Munger's investment partnership, he held very few securities. When good ideas came, he poured significant capital into them; otherwise, he simply enjoyed the California sun. The amount of money employed in each of your investments should relate directly to its attractiveness. When you find a great investment, don't be afraid to bet big on it.

7. Have patienceResist the natural human bias to act.

Munger said it best himself: "Half of Warren's time is sitting on his ass and reading; the other half is spent talking on the phone or in person to a highly gifted person that he trusts and trust him." While it can be tempting to jump in and out of the market, true fortunes are made from big commitments in quality companies, held indefinitely. When you're done with that, find a hobby. Spending all day watching stock tickers won't do you much good.

8. Be decisiveWhen proper circumstances present themselves, act with decisiveness and conviction.

This also goes back to not following the herd. When others are jubilant, you should be scared, and vice versa. Don't let others' emotions sway you; the market masses should help you find opportunities in their absence, not guide you down their own path to mediocrity.

9. Be ready for changeAccept unremovable complexity.

Investing success requires us to accept inevitable changes. Munger and Buffett hated railroads for decades, but as the times changed, they threw their old thoughts out the door and invested billions. The world around us won't always conform to our preferences and prejudices, and sometimes our best ideas will prove incorrect. If you aren't willing to roll with a changing market, you may find yourself fighting a lost cause.

10. Stay focusedKeep it simple and remember what you set out to do.

In chasing little, unimportant things, we often overlook huge and critical factors. But by keeping it simple, we can fixate on what really matters: buying good companies at a good price, and holding them until they're fully priced.

Charlie Munger often gets overshadowed by his more famous partner, but don't assume that's any reflection of Munger's own genius. He's undoubtedly been a guiding light for Buffett himself, and by any count, he should go down as one of the greatest investors of all time.

For related Munger-esque Foolishness:

http://www.fool.com/investing/general/2007/12/13/charlie-mungers-10-rules-for-investment-success.aspx#.UAlFemGono0

5 Shares Warren Buffett Might Buy Today

16 July 2012

A look at Buffett's buys to see what UK shares he may consider.

Warren Buffett is the world's best investor.

In an investment career spanning decades, Mr Buffett has frequently explained his investment strategy.

Using what I know about Buffett, I have tried to identify the UK-listed companies he might consider buying. Given the funds available to Mr Buffett, he is unlikely to invest outside the FTSE 100 (UKX). I have added some extra shares I expect Buffett would like if he could buy smaller companies.

1) Tesco

Buffett already owns shares in Tesco (LSE: TSCO). Perhaps he will be buying more. Tesco has a very strong position in its industry, bringing with it substantial buying power. Although recent trading has worried the markets, Buffett is not being put off.

If you want to know more about Buffett's reasons for buying Tesco then get our special free report on the company "The One UK Share Warren Buffett Loves". This report is free and will be delivered to your inbox immediately. It contains must-read information for anyone that wants to understand Warren Buffett, the wonder-investor.

2) Reckitt Benckiser

One theme common in analysis of Warren Buffett's investment style is that of the 'defensive moat' -- a competitive advantage that is hard to replicate.

Companies that own respected brands can enjoy greater economies of scale (because they are selling more) and better terms from retailers (because some brands are must-stock products). The result is large profits and high reliability of future earnings.

Reckitt Benckiser (LSE: RB) owns a portfolio of leading consumer brands. These include Dettol, Nurofen and Durex. The company's brand assets have helped deliver massive investment returns for shareholders. In 2002, Reckitt Benckiser paid shareholders a dividend of 25.5p per share. For 2012, this dividend reached 125p per share. In this time, the shares have increased more than threefold.

A smaller alternative might be Portmeirion (LSE: PMP). This £50m tableware firm owns brands that date back to the 18th century. Portmeirion has not cut its dividend since it started paying out in 1988.

3) AG Barr

Buffett is a known investor in Coca-Cola (NYSE:KO.US). He likes the company's product, its strong brand, market position and pricing power.

The closest share to Coca-Cola in the UK is probably AG Barr (LSE: BAG).

AG Barr is the Glasgow-headquartered manufacturer of Irn-Bru, where it vies with Coca-Cola for top spot among the nation's soft drinkers. The company also owns the fast-growing Rubicon and KA brands.

In the last five years, AG Barr has demonstrated compound annual earnings growth rate of 11.9% per year. The dividend has similarly increased, on average, 9.8% a year in that time.

With a market capitalisation of just £490m, AG Barr is likely too small for Buffett to invest in. If you are willing to buy shares in even smaller companies, you might take a look at Nichols (LSE: NICL). This is the company behind Vimto. Nichols has a market capitalisation of £260m. The company has increased its shareholder dividend year-on-year since 2004. In the last five years, eps at Nichols has increased, on average, by 17.1% a year.

4) Smith & Nephew

Smith & Nephew (LSE: SN) is a specialist manufacturer with a market capitalisation of £5.8bn. The company is a world leader in the manufacturer of artificial joints for orthopaedic healthcare. In a world with an ageing population, Smith & Nephew looks well placed to cash in.

In the last five years, Smith & Nephew has increased earnings per share at an average rate of 13.3% and shareholder dividends by 10.0% a year on average.

Smith & Nephew is a beneficiary of the strength of its brand. Healthcare buyers are likely very reluctant to start using a rival without a comprehensive history of successful deployment. This helps ensure strong profit margins and a high degree of earnings reliability. All this considered, I am slightly surprised to see the shares trading on a forward price-to-earnings (P/E) ratio of just 13.1 times consensus earnings estimates.

A smaller alternative might be Diploma (LSE: DIPL). Diploma supplies connectors and valves to the energy and aerospace industries. Similar to Smith & Nephew, its products must be reliable as they are so expensive to replace. The result is Diploma can demand a high price for its products as the risk involved in switching supplier are high.

5) SAB Miller

SAB Miller (LSE: SAB) is a global brewer with strong brands, strong cash flows and operates in an industry that continues to enjoy growth. I'm guessing Warren Buffett might also like this stock.

I wrote about SABMiller recently in my article 12 Shares That Thrashed The Market.

If you are interested in a smaller alternative, Greene King (LSE: GNK) might be the share for you. The brewer and pub chain has a market capitalisation of £1.3bn. Greene King trades on just 10.1 times consensus forecasts for the coming year and is expected to yield 4.6%.

Further investment opportunities:

http://www.fool.co.uk/news/investing/2012/07/16/5-shares-warren-buffett-might-buy-today.aspx?source=ufwflwlnk0000001

Think and Grow Rich - Napoleon Hill

Napoleon Hill: The Rare Recordings

Napoleon Hill Think and Grow Rich (Rare Live Recording)

Evaluating a Business Idea

Thursday, 19 July 2012

Jim Rohn - Three Keys To Greatness

Published on Mar 28, 2012 by MarcoBelgrade

A guide for teenagers to achieve financial independence and success.

Jim Rohn covers the three places to begin for any teenager (or adult) in their quest for a future full of success, happiness and wealth.

1. Price and promise - the power of vision and setting goals.

2. Personal development - expanding your knowledge through books,
tapes, seminars and other successful people.

3. The principles of wealth - earning, saving, giving and investing.

Over the years, Jim Rohn has heard from thousands of people - many who saw or heard Jim early in their life who later went on to achieve success. Don't let yourself or your family miss out on this powerful 56 minute video that can inspire, teach and lead you to success.

"A very big thank you to Jim, all his staff and all his associates for helping me becoming more valuable to myself, family and the marketplace. Thousands of participants in my banking courses have watched Jim's "3 Keys to Greatness" video. It's been a great way to end my courses. It has been my greatest satisfaction and joy to see faces brighten up as neon signs. They all depart with "It is Possible and I Can" attitudes. May God's best and richest be yours." -- Micah

"I am a huge fan of your "words of wisdom" as I call it. After watching your "3 Keys to Greatness" I have to say, Great, and thanks!" -- Rob McKinney

The Money Masters [Full Documentary]

Sun Tzu The Art of War - Audiobook

The Science of Being Great by Wallace D. Wattles

The Science Of Getting Rich (Circa 1910)

What They Don't Teach in Business School about Entrepreneurship

The Neuroscience of Emotions

Is there Power in Positive Thinking?

Dale Carnegie How to Stop Worrying and Start Living

Napoleon Hill - Think And Grow Rich - ORIGINAL Full Length

Motivate Yourself (Must Watch!)

How to Win Friends & Influence People - Audiobook

Rich Dad Poor Dad - Listen to the Complete book

The Millionaire Mind

Visualization Video for a New Life

This video may give you a hand in getting into the "Feeling Place" of your positive thoughts in the quest for your dreams

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?