Bullbear Buffett

Thursday, 8 March 2012

Warren Buffett: The "lack of change" appeal

" Our approach is very much profiting from lack of change rather than from change. With Wrigley chewing gum, it's the lack of change that appeals to me. I don't think it is going to be hurt by the Internet. That's the kind of business I like."

Source: Businessweek, 1999

Warren Buffett: Game Pressure

"The stock market is a no-called-strike game. You don't have to swing at everything--you can wait for your pitch. The problem when you're a money manager is that your fans keep yelling, 'Swing, you bum!'"

Source: The Tao of Warren Buffett, by Mary Buffett and David Clark, via Engineeringnews.com

Warren Buffett: No limit. Our favorite holding period is forever.

"When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever."

Source: Letter to shareholders, 1988

Warren Buffett: Timing is Everything

"Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful."

Source: Letter to shareholders, 2004

Warren Buffett: Watch carefully... who is swimming naked

"After all, you only find out who is swimming naked when the tide goes out."

Source: Letter to shareholders, 2001

Warren Buffett: Time is ticking away

"Time is the friend of the wonderful business, the enemy of the mediocre."

Source: Letters to shareholders 1989

Warren Buffett: The Fourth Law Of Motion

"Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases."

Source: Letters to shareholders, 2005

Read more: http://www.businessinsider.com/warren-buffett-quotes-on-investing-2010-8?op=1#ixzz1oXDgcNy9

Warren Buffett: Wonderful v Fair

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Wonderful v Fair

Source: Letter to shareholders, 1989

Read more: http://www.businessinsider.com/warren-buffett-quotes-on-investing-2010-8?op=1#ixzz1oXDD3b9D

Warren Buffett: Choose sleep over extra profit

" I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits."

Choose sleep over extra profit

Source: Letter to shareholders, 2008

Read more: http://www.businessinsider.com/warren-buffett-quotes-on-investing-2010-8#choose-sleep-over-extra-profit-15#ixzz1oXCaRr4n

Warren Buffett: The right moment to strike

"The best thing that happens to us is when a great company gets into temporary trouble...We want to buy them when they're on the operating table."

The right moment to strike

Source: Businessweek, 1999

Read more: http://www.businessinsider.com/warren-buffett-quotes-on-investing-2010-8#the-right-moment-to-strike-14#ixzz1oXBp6ldD

The type of stock you would like to buy and hold forever

Oriental Holdings Berhad (At a Glance)

8.3.2012
Oriental Holdings


Income Statement
	31/12/2011	31/12/2010	Absolute Chg	Change
	RM (m)	RM (m)
Revenue	3132.23	3220.46	-88.23	-2.74%
Gross Profit			0.00	#DIV/0!
Operating Profit	441.63	341.86	99.77	29.18%
Financing costs	-10.36	-7.81	-2.55	32.66%
PBT	461.26	384.41	76.85	19.99%
PAT	371.20	307.95	63.25	20.54%
PAT (to shareholders)	288.50	249.59	38.91	15.59%

EPS (basic) sen	46.51	40.23	6.28	15.61%




Balance Sheet
NCA	2475.054	2249.009	226.05	10.05%
CA	3530.074	3262.515	267.56	8.20%
Total Assets	6005.128	5511.524	493.60	8.96%

Total Equity	5092.038	4738.73	353.31	7.46%
NCL	30.315	36.096	-5.78	-16.02%
CL	882.775	736.698	146.08	19.83%
Total Liabilities	913.09	772.794	140.30	18.15%
Total Eq + Liab	6005.128	5511.524	493.60	8.96%

Net assets per share	709.230	664.970	44.26	6.66%


Cash & Eq	2882.239	2596.361	285.88	11.01%
LT Borrowings	9.415	11.76	-2.35	-19.94%
ST Borrowings	525.567	406.643	118.92	29.25%
Net Cash	2347.257	2177.958	169.30	7.77%


Inventories	259.525	267.138	-7.61	-2.85%
Trade receivables	359.536	356.18	3.36	0.94%
Trade payables	326.945	316.499	10.45	3.30%


Quick Ratio	3.70	4.07	-0.36	-8.88%
Current Ratio	4.00	4.43	-0.43	-9.70%



Cash flow statement
PBT	461.261	384.412	76.85	19.99%
OPBCWC	415.149	366.555	48.59	13.26%
Cash from Operations	480.743	518.110	-37.37	-7.21%
Net CFO	407.753	407.355	0.40	0.10%
CFI	-94.432	19.695	-114.13	-579.47%
CFF	-17.084	-46.092	29.01	-62.93%


Capex	-53.798	-46.713	-7.09	15.17%
FCF	353.955	360.642	-6.69	-1.85%

Dividends paid	-56.052	-38.772	-17.28	44.57%
DPS (sen)	9.04	6.25	2.79	44.57%

No of ord shares (m)	620.362	620.362	0.00	0.00%


Financial Ratios
Gross Profit Margin	-	-	#VALUE!	#VALUE!
Net Profit Margin	9.21%	7.75%	1.46%	18.85%
Asset Turnover	0.52	0.58	-0.06	-10.73%
Financial Leverage	1.18	1.16	0.02	1.40%


ROA	4.80%	4.53%	0.28%	6.09%
ROC	10.51%	9.75%	0.76%	7.84%
ROE	5.67%	5.27%	0.40%	7.57%

Valuation	8.3.2012	8.3.2011
Price	6.27	5.12	1.15	22.46%
Market cap (m)	3889.67	3176.25	713.42	22.46%

P/E	13.48	12.73	0.76	5.94%
P/BV	0.76	0.67	0.09	13.96%
P/FCF	10.99	8.81	2.18	24.77%
P/Div	69.39	81.92	-12.53	-15.29%

DPO ratio	0.19	0.16	0.04	25.07%

EY	7.42%	7.86%	-0.44%	-5.61%
FCF/P	9.10%	11.35%	-2.25%	-19.86%
DY	1.44%	1.22%	0.22%	18.05%

Recent Financial Results

Announcement Date	Financial Yr. End	Qtr	Period End	Revenue RM '000	Profit/Lost RM'000	EPS	Amended
23-Feb-12	31-Dec-11	4	31-Dec-11	718,547	124,009	17.53	-
18-Nov-11	31-Dec-11	3	30-Sep-11	765,083	42,053	4.74	-
25-Aug-11	31-Dec-11	2	30-Jun-11	850,571	122,725	16.79	-
31-May-11	31-Dec-11	1	31-Mar-11	798,027	82,413	7.45	-

Stock Performance Chart for Oriental Holdings Berhad

I have posted that cash hoard can be a boon or bane.

A company with a lot of cash and no debt is good. This indicates their business is good and they are generating cash.

It is how the management allocates this cash that the shareholders should be aware of.

What can the management do with this cash?
- Pay down debt.
- Return un-allocated cash back to the shareholders through capital repayment or dividends.
- Grow the company's existing business.
- Expand the company's business into new areas, e.g. through acquisition.
- Buy back own shares.

The cash actually belongs to the shareholders. When the management cannot find better use for the cash, the cash should ideally be returned, so that the shareholders can then reinvest it for higher returns.

A criterion of investment vs. speculation:

Many see no benefit in distinguishing the investor from the speculator.

Graham disagrees -- he believes the margin of safety may be "the touchstone to distinguish an investment operation from a speculative one."

The speculator believes the odds are in their favor when they take their chance and they might claim a margin of safety as a result from a propitious time, skill in analysis, adviser or system, etc. But these claims are unconvincing.

http://www.conscious-investor.com/books/intelligentinvestor.pdf

The investor's concept of a margin of safety

The investor's concept of a margin of safety rests upon a simple and definite arithmetical reasoning from statistical data.

There is no guarantee that the fundamental quantitative approach will be successful in the future, but no reason for pessimism.
"To have a true investment there must be present a true margin of safety."

"It is our argument that a sufficiently low price can turn a security of mediocre quality into a sound investment opportunity--provided

that the buyer is informed and experienced and
that he practices adequate diversification.

For if the price is low enough to create a substantial margin of safety, the security thereby meets our criterion of investment.

http://www.conscious-investor.com/books/intelligentinvestor.pdf

Benjamin Graham - The Intelligent Investor

Summary

1. Investment is most intelligent when it is most businesslike.

2. Every corporate security may best be viewed as an ownership interest in, or a claim against a specific business enterprise ... and the investor seeking to make profits from his security purchases and sales, is embarking on a business venture which must be run in accordance with accepted business principles.

3. Principles of business

know your business -- for the securities investor, this means do not try to make "business profits" out of securities--that is returns in excess of normal interest and dividend income.
do not let anyone else run your business unless you can adequately supervise, and you have unusually strong reason to have confidence in the integrity and ability of the person.
do not enter upon an operation unless a reliable calculation shows that it has a fair chance to profit-- not based on optimism, but on arithmetic.
have the courage of your knowledge and experience

http://www.conscious-investor.com/books/intelligentinvestor.pdf

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?