A Warren Buffet styled “Investment checklist”

A Warren Buffet styled “Investment checklist” 

http://davidparmenter.com/files/buffet-checklist-v4.pdf

A Warren Buffet styled “Investment checklist”
Business tenets
1. Is the business understandable?
2. Do you know how the money is made?
3. Does the business have a consistent operating history?
4. Does the company have favourable long term prospects?
5. Is there a big moat around the business (a high threshold of entry) ?
6. Is it a business that even a dummy could make money in?
7. Can current operations be maintained without too much needing to be spent?
8. Is the company free to adjust prices to inflation?
9. Have you read the annual reports of the main competitors?

Management tenets
10.Has the management demonstrated a high degree of integrity (honesty)?
11.Has the management demonstrated a high degree of intelligence?
12.Has the management demonstrated a high degree of energy?
13.Is management rational?
14.Is management candid with shareholders (evidence in the past of open disclosure to the shareholders when there have been problems)?
15.Has management resisted the temptation to grow quickly by merger?
16.Has management the strength not to follow the institutional imperatives ( avoid following current business and sector fads)?
17.Has the business been free of a major merger in the last 3 years ( many merger failures come out of the woodwork within this period) ?
18.Are stock options tied to SMT performance rather organisation’s performance (if your team wins you do not pay a .35 hitter the same as a .15 hitter.) ?
19.Are stock options treated as an expense?
Financial tenets
20.Is the return on equity adequate?
21.Is the company conservatively financed?
22.Has the company had a track record of earnings growth in most years above the stock market average?
23.Are the profit margins attractive (better than industry)?
24.Has the company created at least one dollar of market value for every dollar of earnings retained?
Value tenets
25.Is the value of discounted earnings greater than the current market value?
26.Have you discounted at a rate equal or greater than the 10 year bond rate (risk free rate) ?
27.Have cash flows been based on net income, plus

depreciation, depletion, and amortization, less capital expenditure and additional working capital requirements?

28.Has the company been temporarily punished for a specific risk that is not a long term risk (the market tends to over punish the share price)?

Warren Buffett on The Dangers of Timing the Market

Warren Buffett Tells You How to Turn $40 Into $10 Million

By Patrick Morris 

Warren Buffett is perhaps the greatest investor of all time, and he has a simple solution that could help an individual turn $40 into $10 million.

A few years ago, Berkshire Hathaway CEO and Chairman Warren Buffett spoke about one of his favorite companies, Coca-Cola, and how after dividends, stock splits, and patient reinvestment, someone who bought just $40 worth of the company's stock when it went public in 1919 would now have more than $5 million.  

Yet in April 2012, when the board of directors proposed a stock split of the beloved soft-drink manufacturer, that figure was updated and the company noted that original $40 would now be worth $9.8 million. A little back-of-the-envelope math of the total return of Coke since May 2012 would mean that $9.8 million is now worth about $10.8 million.

The power of patience

I know that $40 in 1919 is very different from $40 today. However, even after factoring for inflation, it turns out to be $540 in today's money. Put differently, would you rather have an Xbox One, or almost $11 million?

But the thing is, it isn't even as though an investment in Coca-Cola was a no-brainer at that point, or in the near century since then. Sugar prices were rising. World War I had just ended a year prior. The Great Depression happened a few years later. World War II resulted in sugar rationing. And there have been countless other things over the past 100 years that would cause someone to question whether their money should be in stocks, much less one of a consumer-goods company like Coca-Cola.

The dangers of timing

Yet as Buffett has noted continually, it's terribly dangerous to attempt to time the market:

"With a wonderful business, you can figure out what will happen; you can't figure out when it will happen. You don't want to focus on when, you want to focus on what. If you're right about what, you don't have to worry about when" 

So often investors are told they must attempt to time the market, and begin investing when the market is on the rise, and sell when the market is falling.

This type of technical analysis of watching stock movements and buying based on how the prices fluctuate over 200-day moving averages or other seemingly arbitrary fluctuations often receives a lot of media attention, but it has been proved to simply be no better than random chance. 

Investing for the long term

Individuals need to see that investing is not like placing a wager on the 49ers to cover the spread against the Cowboys, but instead it's buying a tangible piece of a business.

It is absolutely important to understand the relative price you are paying for that business, but what isn't important is attempting to understand whether you're buying in at the "right time," as that is so often just an arbitrary imagination.

In Buffett's own words, "if you're right about the business, you'll make a lot of money," so don't bother about attempting to buy stocks based on how their stock charts have looked over the past 200 days. Instead always remember that "it's far better to buy a wonderful company at a fair price."

http://www.fool.com/ecap/the_motley_fool/homerun-warren-buffett-tells-you-how-to-turn-40-2/?paid=7283&psource=esatab7410860090&waid=7284&wsource=esatabwdg0860078&utm_source=taboola&utm_medium=referral

Here's the truth: The last five years will probably be the best five-year period you'll ever experience as an investor.

Investors have been in denial for five years. Stocks went up 26% in 2009, but two-thirds of investors thought they fell. Stocks rose 15% in 2010, but half of investors said they went down. Stocks rose in 2011, yet more than half of investors said they declined, according to surveys from Franklin Templeton.

Volatile… but normal

Last year, Gallup showed that the average American thinks very little of the stock market. Only one-third agreed that it was an "excellent/good" way to grow assets. Millenials use words like "casino," "rigged," and "crapshoot" to describe stocks.

But if you calculate every five-year period since 1871, the last half-decade ranks as the fourth-best time to have been in an investor. Adjusted for inflation, the S&P 500 gained more in the last five years than it did from 1995 to 2000, during the roaring bull market of the 1990s. The difference is, back then, investors were obsessed with the market's gains. Today, they're oblivious.

Here's the truth: The last five years will probably be the best five-year period you'll ever experience as an investor. The last decade has been average. If you've struggled through this period, or keep telling yourself that buy and hold doesn't work, or that the market is a scam, it's your own fault. Stocks have done over the last decade what stocks have done for countless decades: offered a pretty decent return with lots of volatility mixed in the middle.

The fact that the average investor has been oblivious to this progress shows that the average investor is participating in a game he or she does not understand and doesn't agree with. That's unfortunate. But it means there's a simple answer to all the stories you hear about investors not trusting the market: the market isn't the problem. You, and your expectations, are the problem. You are your own worst enemy.

Read more: http://www.smh.com.au/business/motley-fool/investing-are-you-the-problem-20140902-10bchy.html#ixzz3CS9ir57I

Your Financial Psychology Determines Your Financial Success

Louis G. Scatigna, CFP | Wednesday, August 27, 2014

Nothing makes people crazier than money: not love, politics, sex, or religion. The smartest, most levelheaded people can suddenly become totally irrational when money is involved. For example, when it comes time to pay the check, the wealthiest, most extravagant people may calculate their shares down to the last penny.

Our financial psychology determines how we deal with money. It’s important to understand this about ourselves because it will provide greater insights into why we handle our money as we do. People tend to make more financial mistakes as a result of their feelings about money than they do because of the financial realities involved.

Diagnosis
Essentially, we all fall into one of 2 basic financial psychologies. We may be mild or extreme cases, but we all tend to fit in one of the following categories. They are:
 

Attitude of abundance
Believing that we have or will always get whatever we need to live a good life and to support our families and ourselves. Those who have an attitude of abundance feel that the world is filled with opportunities and possibilities.

I have clients who have little money and don’t seem concerned. They never complain about finances, live comfortable lives, take frequent vacations and are generous. They seem to feel that everything will be fine and that somehow they’ll get whatever they need.

Attitude of lack
Believing that you may not have or be able to get whatever you need. I also have clients who are millionaires and have an attitude of lack. They’re always concerned that they won’t have enough.

Many of them are tightwads, compulsive savers who are always worried that they may lose what they have. Most of these people grew up in difficult financial conditions that left a lasting impression they can’t shake.

The way we relate to money has more to do with our attitude about life in general than how much money we have. Our feelings of abundance or lack do not correlate to how much we actually have, but our financial state of mind.

So what are the symptoms of each financial psychology?
 Those in the abundance camp tend to invest rather than save. They are not always looking for guaranteed or safe investments and are more prone to taking risks. They feel that if they lose money, they can always make it back. People with an attitude of abundance usually live better lifestyles and fuller lives. They are not averse to spending their money to buy the good things life has to offer and don’t waste much time worrying about the stock market, their mortgages and money in general.

Conversely, people with an attitude of lack are always worried that they won’t have enough. Deep down, they’re afraid that they might have to struggle so they sock money away to make it through those difficult times. People with an attitude of lack tend to be savers rather than investors. They would be devastated if they lost any money since they only have a finite amount. They like to stockpile their money and avoid risk, so they put their money in the lowest yielding, but safest vehicles.

The groundwork for our attitudes toward money is laid in childhood. We are strongly influenced by our parents’ attitudes and their fears, as well as our family’s financial status. “Depression Era” children, whose parents struggled to put food on the table, naturally have different attitudes toward money than children who grew up in affluent environments.

Many of us have also been influenced by how we saw our friends, family, and neighbors deal with money. We wanted what they had and wanted to live like they did, so we adopted their attitudes and tried to copy their behavior. They became our role models.

Unfortunately, many people sabotage their financial futures. Spendaholics, who get a rush from spending money, feel better when they do so. In some extreme cases, the only time certain people feel good is when they’re spending.

Our psychology affects how we invest. Some of us are high rollers (always willing to shoot for the moon in the hopes of making a big score), while people at the other end of the spectrum are the squirrels (frightened investors so afraid to lose money they own the most conservative investments that bear the smallest returns).

Which are you? Here are some of the most common profiles. See where you fit.
 

The High Roller
Thinks that everything in life is a gamble. Wants big returns in a short period of time. Uses high-risk investment strategies and is always looking to hit the jackpot.

Usually, incurs big losses since his or her investments lack good diversification and asset allocation. Gets bored with conservative, long-term investments and tends to speculate in individual stocks, commodities and real estate.

The Abdicator
Has little or no interest in managing money. Frequently, women who know nothing about investments, but also includes men. Prefer to have someone else handle their money and will usually do what their financial advisors suggest.

Trusting and often surprised when they lose money. They are frequently taken advantage of by unscrupulous characters.

The Credit Junkie
Addicted to acquiring things rather than to building their wealth. They are usually in denial regarding their addictive spending. Tend to carry big credit card balances, drive nice cars purchased with large loans.

Since much of their income goes toward debt payments, they have little savings or net worth. They wonder why it’s so hard to get ahead while they sabotage themselves through needless, compulsive spending.

The Money Master
Like the fitness freak who spends all his or her time in the gym, the Money Master is obsessed with money management. Is well educated in all money-related matters, tends to avoid others’ advice and takes full control of his or her investments.

Employs risk controls, but isn’t fearful of investing money in a diversified investment portfolio. Reaches financial goals, but also enjoys his or her money success by living an abundant and balanced life.

The Squirrel
Savers who are as conservative as they come. They don’t overspend and they live frugally. Squirrels operate with an attitude of lack because they fear they will never have enough money.

Usually most or all of their money is in banks and treasury bills. Willing only to get low returns because they find the stock market way to risky and are deathly afraid of losses. Since they get such low returns, they have trouble keeping pace with inflation.

The way we relate to money is a learned behavior that is hard to change. And when it comes to money, people tend to go to extremes. Some spend their working years saving for retirement, but when they retire, they won’t spend any of it — even the interest generated by their savings and investments. Others spend freely and then have nothing left.

- See more at: http://www.hcplive.com/physicians-money-digest/blogs/the-financial-physician/08-2014/Your-Financial-Psychology-Determines-Your-Financial-Success?utm_source=Informz&utm_medium=PMD&utm_campaign=PMD+8%2D28%2D14#sthash.knIrgN3T.dpuf

What a Pump and Dump Looks Like

How to avoid the pump and dump
When a company is promoting a low-priced stock with low trading volume, it's a sure sign that it's a pump and dump.

Some investors think they, too, can benefit from the scam by buying the stock on its way up, then selling before the dump. The problem is that you don't know when the crash will come and you will likely be caught in the trap. 

- See more at: http://www.hcplive.com/physicians-money-digest/investing/IU-Have-You-Been-Pumped-and-Dumped?utm_source=Informz&utm_medium=PMD&utm_campaign=PMD+8%2D19%2D14#sthash.WLmYizQr.dpuf


http://www.wealthdaily.com/report/anatomy-of-a-pump-and-dump/81g

Warren Buffett's Bear Market Maneuvers

Buffett's strategy for coping with a down market is to approach it as an opportunity to buy good companies at reasonable prices. Buffett has developed an investment model that has worked for him and the Berkshire Hathaway shareholders over a long period of time. His investment strategy is long term and selective, incorporating a stringent set of requirements prior to an investment decision being made. Buffett also benefits from a huge cash "war chest" that can be used to buy millions of shares at a time, providing an ever-ready opportunity to earn huge returns.


http://www.investopedia.com/articles/stocks/09/buffett-bear-market-strategies.asp?rp=i&utm_source=coattail-buffett&utm_medium=Email&utm_campaign=WBW-8/14/2014

A lesson in risk control

On April 28, there were four listed stocks on Bursa Malaysia that fell dramatically and devalued by 50 to 80 per cent in during two market days.

They were; Vis, Mnc, Itronic and Solution companies. This incident was similar to Singapore’s stocks such as LionGold, Asiason, Bluemont companies that plunged more than 80 per cent in markets values during October last year.

Sad to say, many investors still fell into the trap and incurred huge losses! After the ‘Black Monday’, many remisers, stock brokers, account executives, retail traders and even proprietary trading groups reported their losses from each party ranging from few tens of thousands to few millions of ringgit. Following that, some salaried staffs in the industry lost their jobs while some self-employed remisers lost their careers.

Amid the rout, many losers began to look for loan draft; some are ready to file bankruptcies while a minority have disappeared! Honestly, I have seen this situation in late 80s when I first entered the industry.

I saw that again in mid 90s when Singapore and Malaysia equities plunged, then followed by 1997 Asian financial crises.

In late 2001, the same situation occurred after the September 11 terrorist attack that rattled the global stock markets.

In 2008, the subprime crisis again dragged down global equities while everyone still enjoyed the high inflation growth.

Somehow, people always regretted when the worst things had happened. Prior to this situation, those who made handsome profits during ‘peaceful time’ would say I have been too ‘naggy’ and persistent about emphasising on risk management.

Perhaps, they felt like being cautious on risk control would hamper their trading growth! Nevertheless, it is true that the inefficiency of risk management is always the prime factor that brought these people down to their knees whenever there is a ‘Black Swan’ day! In my opinion, the easiest protocol is to cut losses like a robot whenever your stock falls by 10 per cent in value from your entry price.

If you want to be stubborn, then let the final 15 per cent value be your last gateway to remove your losses! For financial brokers, use this as a benchmark to check your clients on a daily basis.

Otherwise, the risk is too high to take on clients’ ignorant losses onto your back and erase your trading limits in the business.

Once, a senior had told me: If you think education from an experienced mentor is expensive, then try ignorance! To end this message, of course I totally agree with this statement! ~

DAR Wong is an approved Fund Manager in Singapore with 25 years of trading experiences in global financial markets. The expressions are solely his own.

theborneopost.com/2014/05/10/a-lesson-in-risk-control/

Bursa Malaysia reprimands, strikes off TA Securities dealer

http://www.thesundaily.my/news/1137953

12 August 2014 

PETALING JAYA: Bursa Malaysia Securities Bhd has publicly reprimanded, imposed a fine of RM360,000 and ordered to strike off Oh Kok Boon, a dealer, for manupulating dealing activities in six counters.

He was found to have made manipulative dealings in Biosis Group Bhd, Metronic Global Bhd, Ariantec Global Bhd, Luster Industries Bhd, Harvest Court Industries Bhd and Naim Indah Corp Bhd.

Oh was a commissioned dealer's representative at TA Securities Holdings Bhd main office at the time of breach.

He was found engaged in numerous manipulative or false dealing activities over a period of time in the accounts of several clients involving clients who were his family members as well.

Oh was said to have bought Harvest Court and Naim Indah shares on or before the due date for settlement by passing on these to other clients via married direct business transactions (DBT), which were executed at prices higher than the prevailing market price.

"These married DBTs were used as a tool/device that provided savings/avoided losses to the selling clients in the down trending market of these securities," Bursa said.

By doing so, Oh and his clients were able to prolong the holding period of the shares and also drive up the stock prices which contributed towards artificial inflated or increased volume for the counters.

Bursa said the on-market trading activities undertaken by Oh over a period of several months in the six counters with the execution of opposing buy or sell orders for a group of his clients resulted in their opposing orders being matched against each other.

These cross trades between Oh's clients at the dictated increased or decreased share prices had impacted or influenced the price movement or trading volume of the six counters, Bursa said.

The manipulative trading activities by Oh had the effect of creating a false or misleading appearance of active trading in the securities of the six counters as the trades were not due to natural market forces of supply and demand.

Bursa said it was not acceptable for Oh as a registered person to merely execute orders as instructed by his clients without making proper assessment of the orders and exercising reasonable due care and diligence in undertaking dealing activities so as to avoid manipulative or false dealing activities.

Related articles

• Bursa M’sia takes action against dealer
• Bursa Malaysia reprimands, fines Melvin Yap
• Bursa Malaysia Securities fines and publicly reprimands dealer
• SC fines AmInvestment RM100,000
• Bursa Malaysia reprimands Ingenuity and Focus

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High Court maintains two year jail sentence and RM3 million fine on market manipulator

Posted on 10 April 2014 - 05:40am

sunbiz@thesundaily.com

Print

PETALING JAYA: The Kuala Lumpur High Court has dismissed the appeal by Datuk Phillip Wong Chee Kheong for the offence of manipulating Suremax Group Bhd's shares.

Wong was appealing against a two-year jail term and a fine of RM3 million meted out by the Sessions Court upon his conviction under section 84(1) Securities Industry Act 1983.

"This case sets a new benchmark for imprisonment of market manipulators and the SC will continue to seek deterrent sentences to ensure that investors are protected and that the integrity of the market is constantly maintained," SC said in a statement yesterday.

Wong, 53, was earlier convicted by the Sessions Court after a full trial on Jan 7, 2011 for executing transactions in nine accounts that did not involve any change in beneficial ownership of the said shares.

His appeal against this conviction was dismissed by the High Court judge on March 18, 2014.

Yesterday, Wong again appealed against the sentence by Sessions Court in 2011. His Counsel sought a minimum sentence on the grounds that he is now a bankrupt and has an aging mother to care for.

In response, the Securities Commission Malaysia (SC) highlighted that this case involved a full trial where it had called 38 witnesses and had tendered extensive documentary evidence proving Wong's active involvement in the manipulation which took place over a five-month period.

It was also submitted that the Sessions Court Judge did not err when meting out the sentence as she had emphasised that market manipulation was a serious offence undermining investor confidence and the integrity of the securities market.

In affirming the sentence, the High Court Judge found no merit in the appeal and held that the sentence was not manifestly excessive but instead was commensurate with the offence.

Related articles

• High Court affirms duo’s conviction on Suremax share manipulation
• Ex-teacher gets dressing down by judge after losing appeal on rape
• Court upholds six-year jail sentence on businessman
• Businessman loses final bid to be declared whistleblower
• Mechanic gets four years, caning for gang robbery

Success Will Come and Go, But Integrity is Forever

If I could teach only one value to live by, it would be this: Successwill come and go, but integrity is forever. Integrity means doing the right thing at all times and in all circumstances, whether or not anyone is watching. It takes having the courage to do the right thing, no matter what the consequences will be. Building a reputation of integrity takes years, but it takes only a second to lose, so never allow yourself to ever do anything that would damage your integrity.

We live in a world where integrity isn’t talked about nearly enough. We live in a world where “the end justifies the means” has become an acceptable school of thought for far too many. Sales people overpromise and under deliver, all in the name of making their quota for the month. Applicants exaggerate in job interviews because they desperately need a job. CEOs overstate their projected earnings because they don’t want the board of directors to replace them. Entrepreneurs overstate their pro formas because they want the highest valuation possible from an investor. Investors understate a company’s value in order to negotiate a lower valuation in a deal. Customer service representatives cover up a mistake they made because they are afraid the client will leave them. Employees call in “sick” because they don’t have any more paid time off when they actually just need to get their Christmas shopping done. The list could go on and on, and in each case the person committing the act of dishonesty told themselves they had a perfectly valid reason why the end result justified their lack of integrity.

It may seem like people can gain power quickly and easily if they are willing to cut corners and act without the constraints of morality. Dishonesty may provide instant gratification in the moment but it will never last. I can think of several examples of people without integrity who are successful and who win without ever getting caught, which creates a false perception of the path to success that one should follow. After all, each person in the examples above could have gained the result they wanted in the moment, but unfortunately, that momentary result comes at an incredibly high price with far reaching consequences.  That person has lost their ability to be trusted as a person of integrity, which is the most valuable quality anyone can have in their life. Profit in dollars or power is temporary, but profit in a network of people who trust you as a person of integrity is forever.

Every one person who trusts you will spread the word of that trust to at least a few of their associates, and word of your character will spread like wildfire. The value of the trust others have in you is far beyond anything that can be measured.  For entrepreneurs it means investors that are willing to trust them with their money. For employees it means a manager or a boss that is willing to trust them with additional responsibility and growth opportunities. For companies it means customers that trust giving them more and more business. For you it means having an army of people that are willing to go the extra mile to help you because they know that recommending you to others will never bring damage to their own reputation of integrity. Yes, the value of the trust others have in you goes beyond anything that can be measured because it brings along with it limitless opportunities and endless possibilities.

Contrast that with the person who cannot be trusted as a person of integrity.  Warren Buffet, Chairman and CEO of Berkshire Hathaway said it best:, “In looking for people to hire, look for three qualities: integrity, intelligence, and energy.  And if they don’t have the first one, the other two will kill you.”  A person’s dishonesty will eventually catch up to them. It may not be today, and it may not be for many years, but you can rest assured that at some point there will always be a reckoning.

A word of advice to those who are striving for a reputation of integrity: Avoid those who are not trustworthy. Do not do business with them. Do not associate with them. Do not make excuses for them.  Do not allow yourself to get enticed into believing that “while they may be dishonest with others, they would never be dishonest with me.” If someone is dishonest in any aspect of his life you can be guaranteed that he will be dishonest in many aspects of his life. You cannot dismiss even those little acts of dishonesty, such as the person who takes two newspapers from the stand when they paid for only one. After all, if a person cannot be trusted in the simplest matters of honesty then how can they possibly be trusted to uphold lengthy and complex business contracts?

It is important to realize that others pay attention to those you have chosen to associate with, and they will inevitably judge your character by the character of your friends. Why is that?  It is best explained by a quote my father often says when he is reminding me to be careful of the company I am keeping:  “When you lie down with dogs you get fleas.” Inevitably we become more and more like the people we surround ourselves with day to day. If we surround ourselves with people who are dishonest and willing to cut corners to get ahead, then we’ll surely find ourselves following a pattern of first enduring their behavior, then accepting their behavior, and finally adopting their behavior. If you want to build a reputation as a person of integrity then surround yourself with people of integrity.

There is a plaque on the wall of my office which reads: “Do what is right, let the consequence follow.” It serves as a daily reminder that success will indeed come and go, but integrity is forever.

~Amy (for my daily blogs go to www.amyreesanderson.com/blog)

Related on Forbes:

http://www.forbes.com/sites/amyanderson/2012/11/28/success-will-come-and-go-but-integrity-is-forever/

Stock market bubble: Sound advice

"We do not specifically look to profit from a bubble in the stock market.  We just make sure we are not impoverished by it."