From The TimesApril 6, 2009
Britain's water companies flush away £1m every day
Robin Pagnamenta, Energy and Environment Editor
Britain's water companies, who are preparing to hand over their next five-year investment plans to the industry regulator tomorrow, are “pouring £1 million down the drain every day”, according to KPMG.
The professional services company said that its analysis of the water industry revealed inefficiencies in the supply chain that could total more than £2 billion over the next five years.
The 22 water companies will ask Ofwat to allow them to boost their collective spending on upgrades to the UK's water and sewage network to £27 billion over the 2010-14 regulatory cycle, a 30 per cent increase on the five-year budget that is about to end.
But Adeeb Dhallai, advisory partner at KPMG, said that many of them could achieve the same improvements to the network for up to 20 per cent less than the figures they have proposed to Ofwat. He said that companies were wasting money by “gold-plating” engineering specifications for water filtration and purification plants and pumping stations. “Sometimes the specifications are far higher than what the business actually needs,” he said.
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GRAPHIC: What a waste of water
Mr Dhallai also blamed Britain's water companies, which include United Utilities, Severn Trent and Thames Water, for poor planning and budgeting decisions and said that many were mismanaging their relations with suppliers such as manufacturers of steel piping, filter beds and chemicals used for water treatment.
Ofwat will issue a draft response to the industry on July 23 followed by a “Final Determination” in November, which will split up its recommended budget between the companies and set the level of price rises that they can impose on their customers.
The companies, which are allowed to raise prices by an average 4.2 per cent a year above inflation, are urging Ofwat to allow them to increase customers' bills even as the retail prices index drops.
Mr Dhallai said: “They can deliver their capital projects for less than the allocated budget and retain the difference to help fund better customer service levels — or possibly better returns for shareholders.” He said that in the present economic climate, there was certain to be more pressure on the water companies to reduce price rises. “Ultimately, this action on efficiency could benefit all concerned — the water companies, their suppliers, and their 26 million UK customers.”
Turnover for Britain's water companies in 2007 was £9.2 billion, while operating profits rose £149 million to £2.9 billion. Capital expenditure, typically half of turnover, was equivalent to 53 per cent of turnover that year.
A spokeswoman for Ofwat declined to comment on the KPMG report.
Tony Wray, the chief executive of Severn Trent, which supplies water and sewage services to 3.7 million customers in the Midlands and Mid-Wales, said that it was focused on identifying waste and improving efficiencies throughout the business. He said that the company was targeting £200 million of capital efficiencies over the five-year period.
“This new approach will help us to reduce construction costs, enhance links across our supply chain, improve design efficiency, decrease waste and drive innovation,” he said.
From The TimesApril 6, 2009
Monday 4 May 2009
Stocks of drugs dwindle as chemists sell them abroad for higher profits
May 3, 2009
Stocks of drugs dwindle as chemists sell them abroad for higher profits
Tom Bawden
Stocks of hundreds of medicines are running low as British pharmacies export UK supplies to profit from the weakness of the pound.
Evidence has emerged that pharmacists are over-ordering drugs, a practice known as “skimming”, with a view to selling the stock overseas and profiting from higher prices in foreign currencies. The Times has learnt that drug wholesalers have restricted the supply of 370 medicines to pharmacies believed to be engaged in skimming.
The wholesalers fear that the exports, which have led to temporary shortages, could potentially keep some patients from receiving the medicines they need in time and result in death.
Skimming, which is not illegal, has grown in recent months as the fall in the value of the pound has made it profitable to buy drugs in sterling and sell them for euros. Furthermore, on January 1 the Government's Pharmaceutical Price Regulation Scheme came into force, imposing a 5 per cent price cut on prescription medicines bought by the NHS, further increasing the profit to be made from drug arbitrage. About 10 per cent of Britain's 12,500 pharmaceuticals are involved in “parallel exporting”,according to IMS Health. That has left those 370 drugs — all still patented and prescription-only because they are more in-demand and expensive — in danger of running out.
http://business.timesonline.co.uk/tol/business/industry_sectors/health/article6216779.ece
Stocks of drugs dwindle as chemists sell them abroad for higher profits
Tom Bawden
Stocks of hundreds of medicines are running low as British pharmacies export UK supplies to profit from the weakness of the pound.
Evidence has emerged that pharmacists are over-ordering drugs, a practice known as “skimming”, with a view to selling the stock overseas and profiting from higher prices in foreign currencies. The Times has learnt that drug wholesalers have restricted the supply of 370 medicines to pharmacies believed to be engaged in skimming.
The wholesalers fear that the exports, which have led to temporary shortages, could potentially keep some patients from receiving the medicines they need in time and result in death.
Skimming, which is not illegal, has grown in recent months as the fall in the value of the pound has made it profitable to buy drugs in sterling and sell them for euros. Furthermore, on January 1 the Government's Pharmaceutical Price Regulation Scheme came into force, imposing a 5 per cent price cut on prescription medicines bought by the NHS, further increasing the profit to be made from drug arbitrage. About 10 per cent of Britain's 12,500 pharmaceuticals are involved in “parallel exporting”,according to IMS Health. That has left those 370 drugs — all still patented and prescription-only because they are more in-demand and expensive — in danger of running out.
http://business.timesonline.co.uk/tol/business/industry_sectors/health/article6216779.ece
Even the investor's friend is counting his losses
But fans of folksy wisdom did not leave empty-handed. Mr Buffett said that he never used spreadsheets or formulae to decide whether a company was a good investment.
“It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.
From The TimesMay 4, 2009
Even the investor's friend is counting his losses
Christine Seib in New York
They came in record numbers, more than 35,000 of them, searching, perhaps, for a chink of light amid America's recessionary gloom and the kind of homespun wisdom that gladdens an investor's heart — and they got yet more bad news. Gathered at the feet of the Sage of Omaha, gloomy shareholders heard Warren Buffett disclose that his Berkshire Hathaway investment company had suffered a 12 per cent drop in operating profits and a 6 per cent fall in book value in the year's first quarter.
Amid hymns of praise for President Obama's handling of the US economy and grim warnings about the risk of inflation and the dire state of the American newspaper industry, Mr Buffett, 78, indicated yesterday that the recession still had a grip on Berkshire businesses. He said that most were down as a result of the recession. “We will continue to do quite well in our insurance and utility operations,” he said. “We won't do well in other operations.”
Berkshire last year reported net income of nearly $5 billion (£3.3 billion), but this was 62 per cent less than in 2007 and its worst result since Mr Buffett took over the textile maker in 1965 and turned it into a conglomerate made up of about 80 companies.
Berkshire is to release first-quarter figures on Friday, but Mr Buffett warned investors that that operating profit would be about $1.7 billion, after $1.9 billion in the same period last year. Berkshire's operating profit does not include gains or losses on 251 derivative contracts that it has sold, which damaged its performance last year. However, ahead of Friday's results announcement, Mr Buffett said that he expected losses on contracts against credit defaults maturing between this year and 2013.
Berkshire sells derivatives against credit losses on groups and individual companies and on the future level of various indices, including those using junk bonds. Although some contracts will not pay out for many years, if at all, and Mr Buffett does not intend to sell the contracts, Berkshire must account for rises and falls in their value. Berkshire is also exposed to the retail and property markets, which are being hammered by the downturn. Mr Buffett said that Berkshire was cutting jobs in some of its businesses.
There was something to savour, at least if you were Mr Obama. The thousands who had gathered in Omaha, Nebraska, to hear Mr Buffett, the world's second-richest man, opine on Berkshire, investment and the economy heard him praise the US Government's efforts to stimulate the economy. However, he also warned that rising inflation could be the price of the President's stimulus plan. “It's the right thing to do, but it won't be a free ride,” he said.
There were few clues about Mr Buffett's succession plan. The famed stockpicker told investors that choosing a single heir would be a waste of talent. “I don't really see any advantages in having some crown prince around,” he said. He has said previously that there are three internal candidates to become Berkshire's next chief executive and four internal and external candidates to be chief investment officer (CIO). Ajit Jain, who runs Berkshire's reinsurance business, is a favourite to become chief executive: Mr Buffett did not dispel that perception, telling investors that Mr Jain was irreplaceable. “We won't find a substitute for him,” he said. The four CIO candidates failed to beat the S&P 500 last year, Mr Buffett admitted, but all have beaten the index over the past ten years.
Howard Buffett, Mr Buffett's son, who is on Berkshire's board, will eventually become the company chairman.
Mr Buffett had harsh words for the US newspaper industry. Although he reportedly reads five newspapers a day, and owns one, the Buffalo News, he said: “For most newspapers in the United States, we wouldn't buy them at any price. They have the possibility of near-unending losses.”
But fans of folksy wisdom did not leave empty-handed. Mr Buffett said that he never used spreadsheets or formulae to decide whether a company was a good investment. “It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6216496.ece
“It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.
From The TimesMay 4, 2009
Even the investor's friend is counting his losses
Christine Seib in New York
They came in record numbers, more than 35,000 of them, searching, perhaps, for a chink of light amid America's recessionary gloom and the kind of homespun wisdom that gladdens an investor's heart — and they got yet more bad news. Gathered at the feet of the Sage of Omaha, gloomy shareholders heard Warren Buffett disclose that his Berkshire Hathaway investment company had suffered a 12 per cent drop in operating profits and a 6 per cent fall in book value in the year's first quarter.
Amid hymns of praise for President Obama's handling of the US economy and grim warnings about the risk of inflation and the dire state of the American newspaper industry, Mr Buffett, 78, indicated yesterday that the recession still had a grip on Berkshire businesses. He said that most were down as a result of the recession. “We will continue to do quite well in our insurance and utility operations,” he said. “We won't do well in other operations.”
Berkshire last year reported net income of nearly $5 billion (£3.3 billion), but this was 62 per cent less than in 2007 and its worst result since Mr Buffett took over the textile maker in 1965 and turned it into a conglomerate made up of about 80 companies.
Berkshire is to release first-quarter figures on Friday, but Mr Buffett warned investors that that operating profit would be about $1.7 billion, after $1.9 billion in the same period last year. Berkshire's operating profit does not include gains or losses on 251 derivative contracts that it has sold, which damaged its performance last year. However, ahead of Friday's results announcement, Mr Buffett said that he expected losses on contracts against credit defaults maturing between this year and 2013.
Berkshire sells derivatives against credit losses on groups and individual companies and on the future level of various indices, including those using junk bonds. Although some contracts will not pay out for many years, if at all, and Mr Buffett does not intend to sell the contracts, Berkshire must account for rises and falls in their value. Berkshire is also exposed to the retail and property markets, which are being hammered by the downturn. Mr Buffett said that Berkshire was cutting jobs in some of its businesses.
There was something to savour, at least if you were Mr Obama. The thousands who had gathered in Omaha, Nebraska, to hear Mr Buffett, the world's second-richest man, opine on Berkshire, investment and the economy heard him praise the US Government's efforts to stimulate the economy. However, he also warned that rising inflation could be the price of the President's stimulus plan. “It's the right thing to do, but it won't be a free ride,” he said.
There were few clues about Mr Buffett's succession plan. The famed stockpicker told investors that choosing a single heir would be a waste of talent. “I don't really see any advantages in having some crown prince around,” he said. He has said previously that there are three internal candidates to become Berkshire's next chief executive and four internal and external candidates to be chief investment officer (CIO). Ajit Jain, who runs Berkshire's reinsurance business, is a favourite to become chief executive: Mr Buffett did not dispel that perception, telling investors that Mr Jain was irreplaceable. “We won't find a substitute for him,” he said. The four CIO candidates failed to beat the S&P 500 last year, Mr Buffett admitted, but all have beaten the index over the past ten years.
Howard Buffett, Mr Buffett's son, who is on Berkshire's board, will eventually become the company chairman.
Mr Buffett had harsh words for the US newspaper industry. Although he reportedly reads five newspapers a day, and owns one, the Buffalo News, he said: “For most newspapers in the United States, we wouldn't buy them at any price. They have the possibility of near-unending losses.”
But fans of folksy wisdom did not leave empty-handed. Mr Buffett said that he never used spreadsheets or formulae to decide whether a company was a good investment. “It should be so obvious that you don't have to carry it out to tenths of a per cent,” he said.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article6216496.ece
Buffett attacks buyback strategy as 'foolish'
Buffett attacks buyback strategy as 'foolish'
Legendary investor Warren Buffett has attacked the strategy of companies buying back their own shares, arguing that it almost always destroys value.
By Garry White
Last Updated: 9:09PM BST 03 May 2009
Warren Buffett thinks most buybacks do not create value
Speaking at Berkshire Hathaway's annual meeting in Omaha, Nebraska, Mr Buffett said: "Most of the repurchasing in recent years was foolish." He added that companies invariably paid too much.
Mr Buffett said that only once in the last decade had he considered buying back Berkshire stock as its shares were trading "demonstrably lower than intrinsic value".
However, he stressed: "I don't think that situation exists now."
Many companies that bought back shares over the last two years are licking their wounds, particularly in the financial sector.
RBS launched a £1bn share buyback in 2006, paying an average of £18.38 for the shares, which now stand at just 44p. In January 2008, Lehman Brothers unveiled plans to buy back 19pc of its equity – just nine months before the investment bank went bust.
When a company has spare cash on its balance sheet that it does not need to invest in its business, it can use share buybacks to boost its earnings per share – in expectation that it receives a higher stock market rating.
Mr Buffett is not alone in having doubts over the practice. The UK Shareholders' Association (UKSA) has also argued that buybacks are often contrary to shareholders' interests, especially private investors. UKSA prefers the dividend route as a way of returning cash.
Buybacks have also come under criticism because they are regarded as a way to improve management benefits under share option or other remuneration schemes that relate to an improvement in earnings per share.
Mr Buffett also dismissed the US government's stress tests on bank balance sheets.
"I think I know their future, frankly, better than somebody that comes in to take a look," Mr Buffett said. "They may be using more of a checklist-type approach." He said he had applied his own stress test to Wells Fargo and it had passed with flying colours.
When Mr Buffett retires his role will be split, with his son Howard becoming chairman and a new chief executive appointed from within the group. However, he said all the internal candidates failed to beat the S&P 500 in 2008.
Following the biggest annual drop in profits since Mr Buffett began running the company in 1965, Berkshire Hathaway will report its first-quarter results on Friday. Mr Buffett said that operating profits would fall by around 10pc year-on-year to $1.7bn (£1.1bn). Operating profits do not include the changes in valuation of the company's investments and derivatives.
Book value per share, a key measure of investment companies, will be down another 6pc from the end of 2008, as the value of Berkshire's share investments fell and losses on derivatives contracts mounted. This is added to book value losses of 9.6pc in 2008.
Berkshire Hathaway lost around $7.5bn in the value of its investments and derivatives last year, the majority of which were unrealised. Profits last year slid by 62pc to $3,224 per Class A share.
Berkshire Hathaway shares have fallen from a peak of $147,000 in September 2008 to $92,005 now.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5269092/Buffett-attacks-buyback-strategy-as-foolish.html
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10 ways to get a better return on your money
Legendary investor Warren Buffett has attacked the strategy of companies buying back their own shares, arguing that it almost always destroys value.
By Garry White
Last Updated: 9:09PM BST 03 May 2009
Warren Buffett thinks most buybacks do not create value
Speaking at Berkshire Hathaway's annual meeting in Omaha, Nebraska, Mr Buffett said: "Most of the repurchasing in recent years was foolish." He added that companies invariably paid too much.
Mr Buffett said that only once in the last decade had he considered buying back Berkshire stock as its shares were trading "demonstrably lower than intrinsic value".
However, he stressed: "I don't think that situation exists now."
Many companies that bought back shares over the last two years are licking their wounds, particularly in the financial sector.
RBS launched a £1bn share buyback in 2006, paying an average of £18.38 for the shares, which now stand at just 44p. In January 2008, Lehman Brothers unveiled plans to buy back 19pc of its equity – just nine months before the investment bank went bust.
When a company has spare cash on its balance sheet that it does not need to invest in its business, it can use share buybacks to boost its earnings per share – in expectation that it receives a higher stock market rating.
Mr Buffett is not alone in having doubts over the practice. The UK Shareholders' Association (UKSA) has also argued that buybacks are often contrary to shareholders' interests, especially private investors. UKSA prefers the dividend route as a way of returning cash.
Buybacks have also come under criticism because they are regarded as a way to improve management benefits under share option or other remuneration schemes that relate to an improvement in earnings per share.
Mr Buffett also dismissed the US government's stress tests on bank balance sheets.
"I think I know their future, frankly, better than somebody that comes in to take a look," Mr Buffett said. "They may be using more of a checklist-type approach." He said he had applied his own stress test to Wells Fargo and it had passed with flying colours.
When Mr Buffett retires his role will be split, with his son Howard becoming chairman and a new chief executive appointed from within the group. However, he said all the internal candidates failed to beat the S&P 500 in 2008.
Following the biggest annual drop in profits since Mr Buffett began running the company in 1965, Berkshire Hathaway will report its first-quarter results on Friday. Mr Buffett said that operating profits would fall by around 10pc year-on-year to $1.7bn (£1.1bn). Operating profits do not include the changes in valuation of the company's investments and derivatives.
Book value per share, a key measure of investment companies, will be down another 6pc from the end of 2008, as the value of Berkshire's share investments fell and losses on derivatives contracts mounted. This is added to book value losses of 9.6pc in 2008.
Berkshire Hathaway lost around $7.5bn in the value of its investments and derivatives last year, the majority of which were unrealised. Profits last year slid by 62pc to $3,224 per Class A share.
Berkshire Hathaway shares have fallen from a peak of $147,000 in September 2008 to $92,005 now.
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5269092/Buffett-attacks-buyback-strategy-as-foolish.html
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Time for Buffett to answer some tough questions
Time for Buffett to answer some tough questions
Berkshire Hathaway shareholders are heading for the "Woodstock for capitalists" – the company's annual gathering in Omaha. Warren Buffett, the Berkshire boss, has changed the format to encourage more questions about the business. Investors should take him up on that.
By Richard Beales
Last Updated: 6:20PM BST 01 May 2009
The legendary investor is 78 and his long-time sidekick, Charlie Munger, is 85. With his track record and public profile, Buffett is the epitome of the corporate "key man", as Fitch Ratings pointed out in knocking Berkshire's triple-A rating down a notch in March. He has, he says, chosen his successors. While their identities are undisclosed, it's a safe bet they know what they are doing. But the culture that brings 30,000-odd shareholders to Omaha every year will unavoidably change.
Another important Buffett decision of late has been to expose Berkshire to big derivatives bets – $67bn of potential exposure at the end of 2008. This is in spite of once calling such instruments "financial weapons of mass destruction".
Buffett recognises the apparent double standard, and brings to derivatives much of the common sense he applies to other investments. The contracts he has written, so far, are relatively straightforward and he has limited expected losses to an amount Berkshire could easily handle.
Berkshire shares have lost a third of their value in the past year. It is suddenly looking like what it is – a largely unhedged equity investment vehicle with a focus on the financial sector.
Its giant insurance businesses don't look so special at the moment. Large stakes in American Express, Wells Fargo and rating agency Moody's underline the finance focus. Along with the succession question, that may help to explain why Berkshire's shares appear to be trading at a discount to the market value of its holdings.
But another development should generate optimism among the Berkshire faithful: opportunities to invest on the cheap ought now to be plentiful. Buffett picked up some good deals last year, Berkshire still has strong credit and plenty of cash – and the Sage is still around.
After years in which few bargains were available and Berkshire's size made meaningful deals hard to come by, he has the chance to redeem himself.
http://www.telegraph.co.uk/finance/breakingviewscom/5258851/Time-for-Buffett-to-answer-some-tough-questions.html
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Buffett told: name your successor
Berkshire Hathaway shareholders are heading for the "Woodstock for capitalists" – the company's annual gathering in Omaha. Warren Buffett, the Berkshire boss, has changed the format to encourage more questions about the business. Investors should take him up on that.
By Richard Beales
Last Updated: 6:20PM BST 01 May 2009
The legendary investor is 78 and his long-time sidekick, Charlie Munger, is 85. With his track record and public profile, Buffett is the epitome of the corporate "key man", as Fitch Ratings pointed out in knocking Berkshire's triple-A rating down a notch in March. He has, he says, chosen his successors. While their identities are undisclosed, it's a safe bet they know what they are doing. But the culture that brings 30,000-odd shareholders to Omaha every year will unavoidably change.
Another important Buffett decision of late has been to expose Berkshire to big derivatives bets – $67bn of potential exposure at the end of 2008. This is in spite of once calling such instruments "financial weapons of mass destruction".
Buffett recognises the apparent double standard, and brings to derivatives much of the common sense he applies to other investments. The contracts he has written, so far, are relatively straightforward and he has limited expected losses to an amount Berkshire could easily handle.
Berkshire shares have lost a third of their value in the past year. It is suddenly looking like what it is – a largely unhedged equity investment vehicle with a focus on the financial sector.
Its giant insurance businesses don't look so special at the moment. Large stakes in American Express, Wells Fargo and rating agency Moody's underline the finance focus. Along with the succession question, that may help to explain why Berkshire's shares appear to be trading at a discount to the market value of its holdings.
But another development should generate optimism among the Berkshire faithful: opportunities to invest on the cheap ought now to be plentiful. Buffett picked up some good deals last year, Berkshire still has strong credit and plenty of cash – and the Sage is still around.
After years in which few bargains were available and Berkshire's size made meaningful deals hard to come by, he has the chance to redeem himself.
http://www.telegraph.co.uk/finance/breakingviewscom/5258851/Time-for-Buffett-to-answer-some-tough-questions.html
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Change will headline at Buffett's 'Woodstock for capitalists'
Warren Buffett loses coveted triple-A rating
Moody?s strips Warren Buffett?s Berkshire Hathaway of AAA rating
Berkshire Hathaway triple-A credit rating put at risk
Buffett told: name your successor
Stock market: 'Eventually shares will have the mother of all rallies'
Stock market: 'Eventually shares will have the mother of all rallies'
The stock market has jumped by about 500 points in the past couple of weeks, but investors thinking of putting their Isa money into shares want to know one thing: is this the start of a sustained recovery or a dead cat bounce?
By Richard Evans
Last Updated: 1:06PM BST 02 Apr 2009
Stock markets have shown signs of life in the past few weeks. Since London's benchmark FTSE100 touched a six-year low earlier this month, falling below 3,500 at one stage, it has rallied strongly, closing at 3,912 on Tuesday.
America's Dow Jones index has also put in a good performance, posting one of its largest ever one-day rises following the announcement of a bail-out for banks' toxic assets.
£50,000 to be won in our Fantasy Fund Manager game
But British investors wondering whether to use this year's Isa allowance before the deadline of April 5 have reason to be cautious: the markets have staged several apparent recoveries during the economic crisis, only to fall back again.
So is it different this time – is this a long-term recovery or just a dead cat bounce? Should you forget taking out a stocks and shares Isa this year, or dip a toe in the market? We asked the experts where they thought the market was heading and which equity investments, if any, Isa buyers should consider buying.
MARK HARRIS, FUND OF FUNDS MANAGER AT NEW STAR
"The direct answer is that there is no way of knowing for sure whether the recent rallies are a blip or something more sustainable, but in my view the March lows were significant.
"In early March we saw markets deeply oversold and widespread investor pessimism. Conditions were ripe for a bounce. Interestingly, a number of markets such as Brazil and China did not make new lows – they did not fall below their levels of November 2008.
"We have seen a marked increase in the determination of the US Federal Reserve to combat the various issues plaguing the financial system. This has resulted in a 20pc-plus bounce in most equity markets, which is the extent of the rallies in 2008 to January 2009.
"Valuations are supportive at lower index levels, but we have little visibility on earnings. In fact the earnings season through April is likely to be extremely difficult and may result in the markets retracing some of this rally's gains.
"I think the lows in March may prove to be significant, but that a 'test' may occur in April. If we can make a higher low for equities in April, it will be positive for further gains. But I should reiterate that I still believe that we are in a very challenging environment, and that it will be a couple of years before we can say that this bear market is truly over.
"So, put simply, we will see the rally which is just unfolding, then a correction of about 15pc, and then a further rally to take the market up in total by about 40pc from the lows."
JUSTIN URQUHART STEWART OF SEVEN INVESTMENT MANAGEMENT
"Shares on a five-year view may be OK, although prices could be highly erratic.
"I think it's too risky putting all my money into one asset class so I've diversified my investments into a mix of commodities, property, international shares and fixed interest securities such as bonds.
"You can do this yourself in a self-select Isa but it could be expensive and time consuming. An easier way is to buy a multi-asset fund, which you can hold within an Isa.
"Multi-asset funds can be actively or passively managed. I favour the passive type because costs – which can make a big difference over 10 years – are lower. Active funds can have total expense ratios of 2pc.
"Passive funds track the performance of the various asset types using exchange traded funds (ETFs). Examples include Seven's own and products from Evercore Pan Asset.
"Among the managers to offer active funds are Jupiter, Merlin, Seven, Midas, Credit Suisse, M&G, Fidelity and Jupiter. Fidelity's Wealthbuilder has a good record while Jupiter's fund is higher risk but well managed."
MARK DAMPIER, HEAD OF RESEARCH, HARGREAVES LANSDOWN
"Come what may, do buy an Isa – use your whole allowance (£7,200, of which £3,600 can be cash).
"Unless you trust politicians – and I don't – they are going to try to get more money out of you by raising taxes. So shelter as much as possible from tax while you can.
"Some people think the Isa allowance is so small that it's not worth bothering. But the yearly sums accumulate: a couple who had used their full allowances for every year that Isas and their predecessors, Peps and Tessas, have existed could have built up £190,000 by now – and that's discounting investment growth.
"If you are nervous about the markets you can keep your money in cash, even in a stocks and shares Isa (although without the tax breaks), to drip feed into the market. This prevents you from putting it all in just before a fall.
"I suspect this rally is more of a dead cat bounce; it comes from a very low position. There seems to be a base at about 3,500. Let's be a bit careful but with the market about 50pc below its peak it has to be an interesting time to think about investing.
"I don't believe, as some do, that corporate bonds are a bubble. If you buy through a fund such as M&G Strategic, Jupiter or Investec Sterling Bond, you will get a yield of 5pc to 6pc. If equity markets do eventually improve, bonds will have risen first.
"If you do want to buy equities, I would always go for a fund manager with a long-term track record such as Neil Woodford of Invesco Perpetual. But at the other end of the spectrum I also back emerging market funds such as Aberdeen's – that's where real long-term growth will be found, although prices will be volatile.
"With inflation of over 3pc on the CPI you would normally have interest rates at 5pc, not 0.5pc. So given the risk of inflation taking off I'd consider gold, via a fund such as BlackRock Gold & General.
"This rally is still more hope than anything else, the kind that has a habit of disappointing. I wouldn't push a load of money in; I'd wait for bad days and drip-feed it in then. The markets are not about to race away but one of these days they will, so don't wait for ever.
"Eventually, there will be the mother of all rallies."
ANDREW WILSON, HEAD OF INVESTMENTS AT TOWRY LAW
"All investors should aim to hold a diversified investment portfolio incorporating a wide range of different asset classes. The actual blend of assets should be determined by their objectives and attitude to risk.
"Given how far markets have fallen over the last year, it might make sense for some people to top up their equity exposure. This has the added benefit of averaging down on the 'book cost' of their shares, and at a time when valuations appear quite attractive over any sensible time horizon.
"However, it is not appropriate to add equity exposure to an already predominantly equity based portfolio. In this case one might consider other assets such as high quality corporate bonds or commercial property instead.
"The MSCI World index bottomed on the March 6 and we have seen a significant rally since then. What is fascinating is that absolutely nobody called it in advance and in fact none of the so-called experts have subsequently described it as anything other than a 'dead cat bounce'.
"We may not know for some time as to whether it actually was the bottom. There was certainly a washout of private investors in the week running up to March 6, with an extraordinary $30bn being sold out of US equity mutual funds, which is the kind of capitulation that can mark market lows."
JEREMY BATSTONE-CARR, CHARLES STANLEY
"I'm not convinced that the recent rally is the real thing. Plenty of imponderables remain regarding the latest TARP extension [US toxic assets bail-out]. Also, we're closing in on the end of the quarter so some window dressing from deeply oversold levels also taking place.
"Essentially, the blizzard of daily macroeconomic data releases will gradually tell us when we're past the worst and things are convincingly less bad. We suspect that that time will be confirmed in the second quarter and investors will start to buy risk assets again as the trough in corporate earnings becomes more clearly visible (probably in the final quarter of 2009 or the first quarter of 2010).
"The history of previous earnings recessions is that investors typically buy equities about six months from the trough and do well over the ensuing six-month period. Typically they buy cyclicals over defensives and mid caps do well. Only at the trough can the investment case for financials be made convincingly, although they have bounced encouragingly off multiyear lows so far.
"Thereafter we see clouds looming again. The huge fiscal stimulus leaves us all with a huge debt burden while the monetary authorities will be looking to take some earlier easing off the table.
"Our best guess is that the cross section over the next three years will look like recession-revival-recession, not an obviously propitious environment for equity investing although, as ever, the skill will be to get the timing right and the thematic call right."
Telegraph Invest Direct
Make the most of this years ISA allowance through Telegraph Invest Direct, provided by Skipton Financial Services Limited. To find out more, please call 0800 085 5337 or for 0% initial commission and great savings, invest online at www.telegraph.co.uk/investdirect.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/5047837/Stock-market-Eventually-shares-will-have-the-mother-of-all-rallies.html
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FTSE 100 heads for best week in two months
The stock market has jumped by about 500 points in the past couple of weeks, but investors thinking of putting their Isa money into shares want to know one thing: is this the start of a sustained recovery or a dead cat bounce?
By Richard Evans
Last Updated: 1:06PM BST 02 Apr 2009
Stock markets have shown signs of life in the past few weeks. Since London's benchmark FTSE100 touched a six-year low earlier this month, falling below 3,500 at one stage, it has rallied strongly, closing at 3,912 on Tuesday.
America's Dow Jones index has also put in a good performance, posting one of its largest ever one-day rises following the announcement of a bail-out for banks' toxic assets.
£50,000 to be won in our Fantasy Fund Manager game
But British investors wondering whether to use this year's Isa allowance before the deadline of April 5 have reason to be cautious: the markets have staged several apparent recoveries during the economic crisis, only to fall back again.
So is it different this time – is this a long-term recovery or just a dead cat bounce? Should you forget taking out a stocks and shares Isa this year, or dip a toe in the market? We asked the experts where they thought the market was heading and which equity investments, if any, Isa buyers should consider buying.
MARK HARRIS, FUND OF FUNDS MANAGER AT NEW STAR
"The direct answer is that there is no way of knowing for sure whether the recent rallies are a blip or something more sustainable, but in my view the March lows were significant.
"In early March we saw markets deeply oversold and widespread investor pessimism. Conditions were ripe for a bounce. Interestingly, a number of markets such as Brazil and China did not make new lows – they did not fall below their levels of November 2008.
"We have seen a marked increase in the determination of the US Federal Reserve to combat the various issues plaguing the financial system. This has resulted in a 20pc-plus bounce in most equity markets, which is the extent of the rallies in 2008 to January 2009.
"Valuations are supportive at lower index levels, but we have little visibility on earnings. In fact the earnings season through April is likely to be extremely difficult and may result in the markets retracing some of this rally's gains.
"I think the lows in March may prove to be significant, but that a 'test' may occur in April. If we can make a higher low for equities in April, it will be positive for further gains. But I should reiterate that I still believe that we are in a very challenging environment, and that it will be a couple of years before we can say that this bear market is truly over.
"So, put simply, we will see the rally which is just unfolding, then a correction of about 15pc, and then a further rally to take the market up in total by about 40pc from the lows."
JUSTIN URQUHART STEWART OF SEVEN INVESTMENT MANAGEMENT
"Shares on a five-year view may be OK, although prices could be highly erratic.
"I think it's too risky putting all my money into one asset class so I've diversified my investments into a mix of commodities, property, international shares and fixed interest securities such as bonds.
"You can do this yourself in a self-select Isa but it could be expensive and time consuming. An easier way is to buy a multi-asset fund, which you can hold within an Isa.
"Multi-asset funds can be actively or passively managed. I favour the passive type because costs – which can make a big difference over 10 years – are lower. Active funds can have total expense ratios of 2pc.
"Passive funds track the performance of the various asset types using exchange traded funds (ETFs). Examples include Seven's own and products from Evercore Pan Asset.
"Among the managers to offer active funds are Jupiter, Merlin, Seven, Midas, Credit Suisse, M&G, Fidelity and Jupiter. Fidelity's Wealthbuilder has a good record while Jupiter's fund is higher risk but well managed."
MARK DAMPIER, HEAD OF RESEARCH, HARGREAVES LANSDOWN
"Come what may, do buy an Isa – use your whole allowance (£7,200, of which £3,600 can be cash).
"Unless you trust politicians – and I don't – they are going to try to get more money out of you by raising taxes. So shelter as much as possible from tax while you can.
"Some people think the Isa allowance is so small that it's not worth bothering. But the yearly sums accumulate: a couple who had used their full allowances for every year that Isas and their predecessors, Peps and Tessas, have existed could have built up £190,000 by now – and that's discounting investment growth.
"If you are nervous about the markets you can keep your money in cash, even in a stocks and shares Isa (although without the tax breaks), to drip feed into the market. This prevents you from putting it all in just before a fall.
"I suspect this rally is more of a dead cat bounce; it comes from a very low position. There seems to be a base at about 3,500. Let's be a bit careful but with the market about 50pc below its peak it has to be an interesting time to think about investing.
"I don't believe, as some do, that corporate bonds are a bubble. If you buy through a fund such as M&G Strategic, Jupiter or Investec Sterling Bond, you will get a yield of 5pc to 6pc. If equity markets do eventually improve, bonds will have risen first.
"If you do want to buy equities, I would always go for a fund manager with a long-term track record such as Neil Woodford of Invesco Perpetual. But at the other end of the spectrum I also back emerging market funds such as Aberdeen's – that's where real long-term growth will be found, although prices will be volatile.
"With inflation of over 3pc on the CPI you would normally have interest rates at 5pc, not 0.5pc. So given the risk of inflation taking off I'd consider gold, via a fund such as BlackRock Gold & General.
"This rally is still more hope than anything else, the kind that has a habit of disappointing. I wouldn't push a load of money in; I'd wait for bad days and drip-feed it in then. The markets are not about to race away but one of these days they will, so don't wait for ever.
"Eventually, there will be the mother of all rallies."
ANDREW WILSON, HEAD OF INVESTMENTS AT TOWRY LAW
"All investors should aim to hold a diversified investment portfolio incorporating a wide range of different asset classes. The actual blend of assets should be determined by their objectives and attitude to risk.
"Given how far markets have fallen over the last year, it might make sense for some people to top up their equity exposure. This has the added benefit of averaging down on the 'book cost' of their shares, and at a time when valuations appear quite attractive over any sensible time horizon.
"However, it is not appropriate to add equity exposure to an already predominantly equity based portfolio. In this case one might consider other assets such as high quality corporate bonds or commercial property instead.
"The MSCI World index bottomed on the March 6 and we have seen a significant rally since then. What is fascinating is that absolutely nobody called it in advance and in fact none of the so-called experts have subsequently described it as anything other than a 'dead cat bounce'.
"We may not know for some time as to whether it actually was the bottom. There was certainly a washout of private investors in the week running up to March 6, with an extraordinary $30bn being sold out of US equity mutual funds, which is the kind of capitulation that can mark market lows."
JEREMY BATSTONE-CARR, CHARLES STANLEY
"I'm not convinced that the recent rally is the real thing. Plenty of imponderables remain regarding the latest TARP extension [US toxic assets bail-out]. Also, we're closing in on the end of the quarter so some window dressing from deeply oversold levels also taking place.
"Essentially, the blizzard of daily macroeconomic data releases will gradually tell us when we're past the worst and things are convincingly less bad. We suspect that that time will be confirmed in the second quarter and investors will start to buy risk assets again as the trough in corporate earnings becomes more clearly visible (probably in the final quarter of 2009 or the first quarter of 2010).
"The history of previous earnings recessions is that investors typically buy equities about six months from the trough and do well over the ensuing six-month period. Typically they buy cyclicals over defensives and mid caps do well. Only at the trough can the investment case for financials be made convincingly, although they have bounced encouragingly off multiyear lows so far.
"Thereafter we see clouds looming again. The huge fiscal stimulus leaves us all with a huge debt burden while the monetary authorities will be looking to take some earlier easing off the table.
"Our best guess is that the cross section over the next three years will look like recession-revival-recession, not an obviously propitious environment for equity investing although, as ever, the skill will be to get the timing right and the thematic call right."
Telegraph Invest Direct
Make the most of this years ISA allowance through Telegraph Invest Direct, provided by Skipton Financial Services Limited. To find out more, please call 0800 085 5337 or for 0% initial commission and great savings, invest online at www.telegraph.co.uk/investdirect.
http://www.telegraph.co.uk/finance/personalfinance/investing/shares/5047837/Stock-market-Eventually-shares-will-have-the-mother-of-all-rallies.html
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Bulls sniff the air as signs of a turnaround emerge
Comment: bulls sniff the air as signs of a turnaround emerge
Take a glance at the most popular funds sold this year and you quickly get an idea of the mindset of investors – it is one of caution. Cash and corporate bonds have been the order of the day.
By Paul Farrow
Last Updated: 8:22PM BST 01 May 2009
It always takes a brave soul to go against the crowd. It takes an even braver soul to take a punt on riskier assets in today's grim climate.
But you begin to wonder whether investors have got their timing wrong – again. I say this because the first month of our Fantasy Fund Manager competition has shown some staggering results from equity-based funds.
More than 98pc of the thousands of players who signed up at the beginning of April to play the year-long portfolio game and a chance to win £50,000 have delivered a positive return so far. The average gain is 4pc. The portfolios of more than a dozen are up by more than 15pc, with the leader of the pack up by 24pc.
The performance of some of the actual funds during the first month may also surprise you. The F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc. Believe it or not, a commercial property trust rose by 30pc.
One of the reasons for the bumper gains is that these leading funds are investment trusts, whose share prices have been trading on large discounts to net asset value because confidence had hit rock bottom.
When such a trust has a reversal in fortunes, it gives an added boost to the share price as the discount narrows on the good news.
But the past month's numbers also go to show that there is money to be made, despite the severe recession, and that not every company is a busted flush.
Confidence is often the overriding factor when it comes to share price movements, rather than company fundamentals.
The outbreak of swine flu gave stock markets the jitters before the first person in the UK had been diagnosed. The initial volatility, which subsided, had nothing to do with profits and losses.
There have been gloomy forecasts since the financial crisis first reared its head more than a year ago, but the stock market optimists are slowly beginning to be bolder and more open in their thoughts. For some, the worst may be over.
Certainly, Gervais Williams could hardly contain his excitement when I spoke to him last week about his fund, Gartmore Fledging Trust (which invests in the smallest companies in the FTSE All-Share). "It is an astonishing portfolio of unloved companies. Many are trading at 20pc to book value, huge discounts with yields of 9pc."
Mr Williams is seeing opportunities in well known businesses that have been relegated to the bottom of the FTSE in terms of size, but could return to former glories. He cites JJB Sports, the recession-hit sports retailer, as an example. Its share price was around 3p but it is now trading at 23p after it announced an agreement that could secure the company's future. That the FTSE100 closed the week at an 11-week high has also led to expectations that we are about to enter a bull market.
Anthony Bolton reckons that we may already be in the first days of a bull market. He is worth listening to. Mr Bolton, you may recall, is as close as you will get to a fund manager having the Midas touch, turning £1,000 into £147,000 over 28 years.
He says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".
Mr Bolton correctly called the end of the commodity bull run last summer and anyone who heeded his advice then will have been saved from a mauling.
The majority of fund managers and equity analysts have, until know, been reluctant to call an end to the bear market. Many still won't and there continues to be far more stock market bears than bulls out there. But it gives us reason to hope.
Lies, damned lies and statistics
Last month, Nationwide said that house prices rose by 0.9pc. As I have said before, house price indices can be unreliable. Nationwide, for instance, uses its own mortgage-offer data and takes figures used in the previous month.
That's not all. The Nationwide index is seasonally adjusted, rather than showing actual price changes. If you look at the real price change, prices actually rose by 2.2pc in March, not 0.9pc, according to Ray Boulger, the mortgage expert from John Charcol.
Mr Boulger admits the housing market is seasonal but says that there are so many other factors, such as the availability of credit, confidence and interest rates, to consider too. And given the current conditions, they are extremely relevant factors in determining whether prices have fallen and by how much.
Nationwide said last week that its seasonally adjusted figures show that prices fell by 0.4pc in April. But if you want to enjoy the Bank holiday on a more positive note, look at the "real figures". They show house prices rose by 0.6pc.
http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/5258390/Comment-bulls-sniff-the-air-as-signs-of-a-turnaround-emerge.html
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Investments: Spread the risk to maximise returns
Take a glance at the most popular funds sold this year and you quickly get an idea of the mindset of investors – it is one of caution. Cash and corporate bonds have been the order of the day.
By Paul Farrow
Last Updated: 8:22PM BST 01 May 2009
It always takes a brave soul to go against the crowd. It takes an even braver soul to take a punt on riskier assets in today's grim climate.
But you begin to wonder whether investors have got their timing wrong – again. I say this because the first month of our Fantasy Fund Manager competition has shown some staggering results from equity-based funds.
More than 98pc of the thousands of players who signed up at the beginning of April to play the year-long portfolio game and a chance to win £50,000 have delivered a positive return so far. The average gain is 4pc. The portfolios of more than a dozen are up by more than 15pc, with the leader of the pack up by 24pc.
The performance of some of the actual funds during the first month may also surprise you. The F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc. Believe it or not, a commercial property trust rose by 30pc.
One of the reasons for the bumper gains is that these leading funds are investment trusts, whose share prices have been trading on large discounts to net asset value because confidence had hit rock bottom.
When such a trust has a reversal in fortunes, it gives an added boost to the share price as the discount narrows on the good news.
But the past month's numbers also go to show that there is money to be made, despite the severe recession, and that not every company is a busted flush.
Confidence is often the overriding factor when it comes to share price movements, rather than company fundamentals.
The outbreak of swine flu gave stock markets the jitters before the first person in the UK had been diagnosed. The initial volatility, which subsided, had nothing to do with profits and losses.
There have been gloomy forecasts since the financial crisis first reared its head more than a year ago, but the stock market optimists are slowly beginning to be bolder and more open in their thoughts. For some, the worst may be over.
Certainly, Gervais Williams could hardly contain his excitement when I spoke to him last week about his fund, Gartmore Fledging Trust (which invests in the smallest companies in the FTSE All-Share). "It is an astonishing portfolio of unloved companies. Many are trading at 20pc to book value, huge discounts with yields of 9pc."
Mr Williams is seeing opportunities in well known businesses that have been relegated to the bottom of the FTSE in terms of size, but could return to former glories. He cites JJB Sports, the recession-hit sports retailer, as an example. Its share price was around 3p but it is now trading at 23p after it announced an agreement that could secure the company's future. That the FTSE100 closed the week at an 11-week high has also led to expectations that we are about to enter a bull market.
Anthony Bolton reckons that we may already be in the first days of a bull market. He is worth listening to. Mr Bolton, you may recall, is as close as you will get to a fund manager having the Midas touch, turning £1,000 into £147,000 over 28 years.
He says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".
Mr Bolton correctly called the end of the commodity bull run last summer and anyone who heeded his advice then will have been saved from a mauling.
The majority of fund managers and equity analysts have, until know, been reluctant to call an end to the bear market. Many still won't and there continues to be far more stock market bears than bulls out there. But it gives us reason to hope.
Lies, damned lies and statistics
Last month, Nationwide said that house prices rose by 0.9pc. As I have said before, house price indices can be unreliable. Nationwide, for instance, uses its own mortgage-offer data and takes figures used in the previous month.
That's not all. The Nationwide index is seasonally adjusted, rather than showing actual price changes. If you look at the real price change, prices actually rose by 2.2pc in March, not 0.9pc, according to Ray Boulger, the mortgage expert from John Charcol.
Mr Boulger admits the housing market is seasonal but says that there are so many other factors, such as the availability of credit, confidence and interest rates, to consider too. And given the current conditions, they are extremely relevant factors in determining whether prices have fallen and by how much.
Nationwide said last week that its seasonally adjusted figures show that prices fell by 0.4pc in April. But if you want to enjoy the Bank holiday on a more positive note, look at the "real figures". They show house prices rose by 0.6pc.
http://www.telegraph.co.uk/finance/personalfinance/comment/paulfarrow/5258390/Comment-bulls-sniff-the-air-as-signs-of-a-turnaround-emerge.html
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FTSE 100 enjoys biggest monthly gain in six years
FTSE 100 enjoys biggest monthly gain in six years
UK stocks posted their biggest monthly gain in six years, as banks and commodity producers rallied on optimism the worst of the recession may be over.
Royal Bank of Scotland and Barclays jumped 13.6pc and 9.7pc respectively as Anthony Bolton, Fidelity International's veteran equity investor, said financial shares are set to rally and ignite an equity bull market.
Kazakhmys, the mining company, rose 4.7pc after reporting an increase in production and as copper climbed. BG Group. the oil explorer, advanced after reporting better-than-expected results.
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The FTSE 100 climbed 54.12, or 1.3pc, to 4,243.71 in London. The index of leading shares has risen 8.1pc this month, the biggest advance since 2003. The FTSE All-Share Index rose 1.4 percent today.
The market is “positive for an economic turnaround”, said Joshua Raymond, a London-based market strategist at City Index.
“All major sectors are higher today so the buying we have seen has been broad and this is indicative of investor sentiment at the moment.”
The UK benchmark has rebounded 21pc from its low this year on March 3, trimming this year decline to 4.3pc, as investors speculate the pace of the economic slowdown is easing. UK consumer confidence climbed to the highest level in a year in April while a separate report today showed house prices fell 0.4pc this month, less than economists had forecast.
Bolton, president of investments at Fidelity, said that low valuations indicate recent gains that began in March are the start of a bull market. He favors financials, consumer cyclical, technology and “value stocks,” such as retailers, automakers and construction-related shares.
“All the things are in place for the bear market to have ended,” Mr Bolton said in a Bloomberg Television interview.
http://www.telegraph.co.uk/finance/markets/5252022/FTSE-100-enjoys-biggest-monthly-gain-in-six-years.html
UK stocks posted their biggest monthly gain in six years, as banks and commodity producers rallied on optimism the worst of the recession may be over.
Royal Bank of Scotland and Barclays jumped 13.6pc and 9.7pc respectively as Anthony Bolton, Fidelity International's veteran equity investor, said financial shares are set to rally and ignite an equity bull market.
Kazakhmys, the mining company, rose 4.7pc after reporting an increase in production and as copper climbed. BG Group. the oil explorer, advanced after reporting better-than-expected results.
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FTSE 100 builds on last week's gains
The FTSE 100 climbed 54.12, or 1.3pc, to 4,243.71 in London. The index of leading shares has risen 8.1pc this month, the biggest advance since 2003. The FTSE All-Share Index rose 1.4 percent today.
The market is “positive for an economic turnaround”, said Joshua Raymond, a London-based market strategist at City Index.
“All major sectors are higher today so the buying we have seen has been broad and this is indicative of investor sentiment at the moment.”
The UK benchmark has rebounded 21pc from its low this year on March 3, trimming this year decline to 4.3pc, as investors speculate the pace of the economic slowdown is easing. UK consumer confidence climbed to the highest level in a year in April while a separate report today showed house prices fell 0.4pc this month, less than economists had forecast.
Bolton, president of investments at Fidelity, said that low valuations indicate recent gains that began in March are the start of a bull market. He favors financials, consumer cyclical, technology and “value stocks,” such as retailers, automakers and construction-related shares.
“All the things are in place for the bear market to have ended,” Mr Bolton said in a Bloomberg Television interview.
http://www.telegraph.co.uk/finance/markets/5252022/FTSE-100-enjoys-biggest-monthly-gain-in-six-years.html
Housing market to recover quicker than economists first feared
Housing market to recover quicker than economists first feared
The end is in sight for the housing market downturn, according to a leading economic think tank, which has upgraded its previously more pessimistic forecast.
By Harry Wallop, Consumer Affairs Editor
Last Updated: 9:57AM BST 04 May 2009
The housing market is predicted to bottom out later this year Photo: Chris Radburn/PA Wire
House prices only have a little further to fall, and should slowly start to pick up next year, according to the Centre for Economics and Business Research.
The think tank earlier this year predicted that house prices could tumble by as much as 40 per cent from their £196,000 peak in the summer of 2007. But it now thinks it is more likely they will decline by 28 per cent "peak to trough" by the time the housing market finally hits the bottom later this year.
By the end of 2013 house prices should have increased by 23 per cent to £170,000 from their predicted nadir this year of £144,000.
The improved forecast comes on the back of a series of more positive figures to emerge from the housing market.
The Royal Institution of Chartered Surveyors said last month that the number of potential buyers asking estate agents to look around properties had increased for five consecutive months.
RICS said the number of new buyer enquiries increased at the fastest pace since September 2003. Moreover, the number of properties being sold by estate agents during March increased for the first time since November 2007.
Meanwhile, the Land Registry said house prices dropped by just 0.4 per cent during March, the lowest monthly fall for 11 months.
But the CEBR cautioned home owners not to get carried away by the positive data, warning that house prices have a further 8 per cent to fall, as rising unemployment will cause increased number of people to sell their homes in a hurry.
However, it is forecasting a relatively robust recovery by 2012.
Ben Read, managing economist at cebr, added: "Going forward, house prices are likely to remain in the doldrums for some time, as what is likely to be a slow recovery in the real economy translates into weak wage growth and stubbornly high unemployment – factors that will put a fairly heavy lid on house price inflation.
"We may start to see stronger house price growth towards 2012 or 2013 as the huge downturn in new housebuilding over the past 12 to 18 months leads to significant under-supply over the medium term."
The think tank predicts the average cost of a home will increase by just 3.1 per cent between the fourth quarter of this year and the final three months of 2010, followed by a further 2.5 per cent rise the following year.
But the house price growth is expected to pick up again during 2012 or 2013, with the average cost of a property recovering to £170,000 by the final quarter of 2013, up from a predicted £144,000 at the end of this year.
This will still be below the peak price of £196,000 that was hit during 2007.
http://www.telegraph.co.uk/finance/economics/houseprices/5268360/Housing-market-to-recover-quicker-than-economists-first-feared.html
The end is in sight for the housing market downturn, according to a leading economic think tank, which has upgraded its previously more pessimistic forecast.
By Harry Wallop, Consumer Affairs Editor
Last Updated: 9:57AM BST 04 May 2009
The housing market is predicted to bottom out later this year Photo: Chris Radburn/PA Wire
House prices only have a little further to fall, and should slowly start to pick up next year, according to the Centre for Economics and Business Research.
The think tank earlier this year predicted that house prices could tumble by as much as 40 per cent from their £196,000 peak in the summer of 2007. But it now thinks it is more likely they will decline by 28 per cent "peak to trough" by the time the housing market finally hits the bottom later this year.
By the end of 2013 house prices should have increased by 23 per cent to £170,000 from their predicted nadir this year of £144,000.
The improved forecast comes on the back of a series of more positive figures to emerge from the housing market.
The Royal Institution of Chartered Surveyors said last month that the number of potential buyers asking estate agents to look around properties had increased for five consecutive months.
RICS said the number of new buyer enquiries increased at the fastest pace since September 2003. Moreover, the number of properties being sold by estate agents during March increased for the first time since November 2007.
Meanwhile, the Land Registry said house prices dropped by just 0.4 per cent during March, the lowest monthly fall for 11 months.
But the CEBR cautioned home owners not to get carried away by the positive data, warning that house prices have a further 8 per cent to fall, as rising unemployment will cause increased number of people to sell their homes in a hurry.
However, it is forecasting a relatively robust recovery by 2012.
Ben Read, managing economist at cebr, added: "Going forward, house prices are likely to remain in the doldrums for some time, as what is likely to be a slow recovery in the real economy translates into weak wage growth and stubbornly high unemployment – factors that will put a fairly heavy lid on house price inflation.
"We may start to see stronger house price growth towards 2012 or 2013 as the huge downturn in new housebuilding over the past 12 to 18 months leads to significant under-supply over the medium term."
The think tank predicts the average cost of a home will increase by just 3.1 per cent between the fourth quarter of this year and the final three months of 2010, followed by a further 2.5 per cent rise the following year.
But the house price growth is expected to pick up again during 2012 or 2013, with the average cost of a property recovering to £170,000 by the final quarter of 2013, up from a predicted £144,000 at the end of this year.
This will still be below the peak price of £196,000 that was hit during 2007.
http://www.telegraph.co.uk/finance/economics/houseprices/5268360/Housing-market-to-recover-quicker-than-economists-first-feared.html
Asia establishes $120bn crisis fund
Asia establishes $120bn crisis fund
Thirteen Asian countries have agreed to set up a $120bn (£80.5bn) crisis fund to boost liquidity and overcome the economic crisis.
By Garry White Last Updated: 9:41PM BST 03 May 2009
Finance ministers of the 10-member Association of Southeast Asian Nations (ASEAN), alongside China, Japan and South Korea, unveiled the deal in Indonesia, where they were attending the annual meeting of the Asian Development Bank (ADB). The scheme is known as the Chiang Mai Initiative, or CMIM.
"We are pleased to announce that we have reached agreement on all the main components of the CMIM and decided to implement the scheme before the end of the year," the ministers said in a joint statement.
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The two largest donors will be Japan and China, with a $38.4bn contribution. Hong Kong will give $4.2bn as part of China's share. The next largest contributor is South Korea, at $19.2bn.
Indonesia, Singapore, Malaysia and Thailand will each provide $4.77bn.
The ministers tried to deflect speculation that the fund's aim was to circumvent the International Monetary Fund (IMF) so countries would not be forced to make unpopular economic reforms, as happened in the late 1990s. Rajat Nag, managing director general of the ADB, denied this was "a substitute for the IMF".
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5269076/Asia-establishes-120bn-crisis-fund.html
Thirteen Asian countries have agreed to set up a $120bn (£80.5bn) crisis fund to boost liquidity and overcome the economic crisis.
By Garry White Last Updated: 9:41PM BST 03 May 2009
Finance ministers of the 10-member Association of Southeast Asian Nations (ASEAN), alongside China, Japan and South Korea, unveiled the deal in Indonesia, where they were attending the annual meeting of the Asian Development Bank (ADB). The scheme is known as the Chiang Mai Initiative, or CMIM.
"We are pleased to announce that we have reached agreement on all the main components of the CMIM and decided to implement the scheme before the end of the year," the ministers said in a joint statement.
Related Articles
Japan's Nikkei leads Asian stocks higher after G20 summit
Singapore's economy contracts 20pc in first quarter
Japan favourites to win Asian Five Nations
Boarding schools go after foreign pupils
Stock markets slide in Asia
The two largest donors will be Japan and China, with a $38.4bn contribution. Hong Kong will give $4.2bn as part of China's share. The next largest contributor is South Korea, at $19.2bn.
Indonesia, Singapore, Malaysia and Thailand will each provide $4.77bn.
The ministers tried to deflect speculation that the fund's aim was to circumvent the International Monetary Fund (IMF) so countries would not be forced to make unpopular economic reforms, as happened in the late 1990s. Rajat Nag, managing director general of the ADB, denied this was "a substitute for the IMF".
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5269076/Asia-establishes-120bn-crisis-fund.html
Is there a bull market around the corner?
Is there a bull market around the corner?
The FTSE100, made of up Britain's biggest companies closed last week at an 11-week high at 4,243.
By Paul Farrow
Last Updated: 8:19AM BST 04 May 2009
The stockmarket bulls have been very quiet of late, but that might be about to change. The FTSE100, made of up Britain's biggest companies closed last week at an 11-week high at 4,243 and some fund managers are beginning to talk up a bull market.
One such bull is Anthony Bolton, who is worth listening to. Mr Bolton recently stepped down from running one of the UK's most popular unit trusts, Fidelity Special Situations. The reason for its popularity was simple. Under Bolton's stewardship the fund turned an outlay £1,000 into £147,000 over a 28 year period.
Mr Bolton says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".
There has been evidence of a recovery already - and not just because of the performance of the FTSE100. Ten funds delivered a return of more than 20pc in April alone. The top performer, F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc.
But you need to tread carefully with some of these funds. They are niche, volatile and are unlikely to be suitable investments for most people.
F&C Private Equity Trust, is a fund of funds – investing funds that invest in private equity companies.
Hamish Mair, manager of F&C Private Equity Trust, said that the entire private equity sector has bounced from the unprecedented lows of late March and is confident that it will continue its recovery.
"At those levels, the market was implying that just about every listed private equity fund had problems and a good number of them were going to go bust," Mr Mair said. "Even if we are facing a severe recession, I think the collapse of the entire capitalist system – which this scenario implies – is still fairly unlikely.''
Despite the stunning performance numbers many analysts are cautious on the F&C trusts's ability to maintain its performance. The private equity sector, as a whole, is still fragile and many companies could struggle to repay bank borrowings, they said.
Gartmore Fledgling invests in the smallest companies in the FTSE All-Share – typically companies that have fallen from grace. Gervais Williams, manager of Gartmore Fledgling remains upbeat and said: "It is an astonishing portfolio of unloved, cheap companies with high yields."
The Gartmore fund holds JJB Sports, for example. Its share price was about 3p but it is now trading at 23p after it was announced its landlords and creditors had voted for a company voluntary agreement (CVA) that could secure the company's future. It also holds Pendragon, the car dealer, which has seen its share price rise from 2p to 14p in recent weeks.
Nick Sketch, an investment director at Rensburg Sheppards, the investment management company, is confident that stock markets will continue to rise and that they will be higher by the end of the year. "I do not know any of my colleagues who do not believe that markets will not be higher in two years either," he added.
Mr Sketch says the time to buy shares are when they are cheap (as they are now), but warns that it may not be an easy ride as it 'will not work out every time. "There are certain to be some hiccups along the way because of the economic uncertainty. They will be write-downs and increasing unemployment," Mr Sketch added.
Among his favourite funds for those investors in it for the long-term are SVM Global and Impax Environmental Trust (which invests in wind farms, water recycling plants and solar energy companies).
The SVM fund is a diversified fund investing in just about every asset from equities, to property to hedge funds – and has a bias towards emerging markets at the moment. "Its two fund managers have a good long-term track record. They are more cynical than most managers, which we also like," said Mr Sketch."The Impax fund has risen by 50pc over the past five years."
Steve Forbes, managing director at Alan Steel Asset Management is convinced that we are at the start of a bull market.
"Many people are doubting that the recovery in share prices is the start of the bull run – and we take that as a huge positive because the last thing we want is a consensus. The markets are shrugging off bad news, while people have few places left to put their money. Returns on cash are so poor that shares are looking an attractive alternative."
Forbes recommends overseas equity income funds because he believes that high yielding shares will do well and suggests M&G Global Dividend is worth a look. "We also like Psigma Equity Income, managed by Bill Mott, for those wanting a UK fund," he added.
But not everyone is confident shares will continue to go up and up.
Mark Dampier at Hargreaves Lansdown is unconvinced that stock markets have seen the worse. "I wouldn't rush to buy shares right now," he said. "There's plenty of talk of green shoots of recovery but the trouble is I'm not convinced there are any roots."
However, he continues to invest on the dips and says that if investors are in it for the long-term, then emerging market funds are a decent place to be. He cites Aberdeen Emerging Markets, managed by Hugh Young and JM Finn Global Opportunities, as among his favourites.
Mr Dampier will also be investing his own money in a fund launched today – the Artemis Strategic Assets managed by former 1990s star fund manager, William Littlewood.
The Artemis fund will offer a multi-asset mix, investing in equities, bonds, commodities and currencies in long and short positions, as well as cash. The fund's objective is to beat cash and the FTSE All-Share index over a three year cycle.
Mr Littlewood was a hugely popular fund manager in the 1990s until he stunned the investment fraternity when he walked away from Jupiter in 2000 suffering from burnout. His popular £1.6bn Jupiter Income Trust had returned 607pc over the previous nine years versus the average income fund which returned 270pc.
But Mr Littlewood returns to the fray in a cautious mood. He told the Telegraph: "If I am right in saying this is not an ordinary recession then investors in the short run need to be careful about equities, particularly cyclical ones. To me we are in a binary world where it is deflation today and inflation tomorrow. Unfortunately as with all investments, timing is difficult. While we stay in deflationary times shares are likely to disappoint, and a fall below the stock market lows in March should not be ruled out."
http://www.telegraph.co.uk/finance/personalfinance/investing/5271431/Is-there-a-bull-market-around-the-corner.html
The FTSE100, made of up Britain's biggest companies closed last week at an 11-week high at 4,243.
By Paul Farrow
Last Updated: 8:19AM BST 04 May 2009
The stockmarket bulls have been very quiet of late, but that might be about to change. The FTSE100, made of up Britain's biggest companies closed last week at an 11-week high at 4,243 and some fund managers are beginning to talk up a bull market.
One such bull is Anthony Bolton, who is worth listening to. Mr Bolton recently stepped down from running one of the UK's most popular unit trusts, Fidelity Special Situations. The reason for its popularity was simple. Under Bolton's stewardship the fund turned an outlay £1,000 into £147,000 over a 28 year period.
Mr Bolton says that "all the things are in place for the bear market to have ended". And "when there's a strong consensus, a very negative one, and cash positions are very high, as they are at the moment, I'd like to bet against that".
There has been evidence of a recovery already - and not just because of the performance of the FTSE100. Ten funds delivered a return of more than 20pc in April alone. The top performer, F&C Private Equity trust returned a staggering 68pc, while the second best performer, Gartmore Fledgling, climbed 39pc.
But you need to tread carefully with some of these funds. They are niche, volatile and are unlikely to be suitable investments for most people.
F&C Private Equity Trust, is a fund of funds – investing funds that invest in private equity companies.
Hamish Mair, manager of F&C Private Equity Trust, said that the entire private equity sector has bounced from the unprecedented lows of late March and is confident that it will continue its recovery.
"At those levels, the market was implying that just about every listed private equity fund had problems and a good number of them were going to go bust," Mr Mair said. "Even if we are facing a severe recession, I think the collapse of the entire capitalist system – which this scenario implies – is still fairly unlikely.''
Despite the stunning performance numbers many analysts are cautious on the F&C trusts's ability to maintain its performance. The private equity sector, as a whole, is still fragile and many companies could struggle to repay bank borrowings, they said.
Gartmore Fledgling invests in the smallest companies in the FTSE All-Share – typically companies that have fallen from grace. Gervais Williams, manager of Gartmore Fledgling remains upbeat and said: "It is an astonishing portfolio of unloved, cheap companies with high yields."
The Gartmore fund holds JJB Sports, for example. Its share price was about 3p but it is now trading at 23p after it was announced its landlords and creditors had voted for a company voluntary agreement (CVA) that could secure the company's future. It also holds Pendragon, the car dealer, which has seen its share price rise from 2p to 14p in recent weeks.
Nick Sketch, an investment director at Rensburg Sheppards, the investment management company, is confident that stock markets will continue to rise and that they will be higher by the end of the year. "I do not know any of my colleagues who do not believe that markets will not be higher in two years either," he added.
Mr Sketch says the time to buy shares are when they are cheap (as they are now), but warns that it may not be an easy ride as it 'will not work out every time. "There are certain to be some hiccups along the way because of the economic uncertainty. They will be write-downs and increasing unemployment," Mr Sketch added.
Among his favourite funds for those investors in it for the long-term are SVM Global and Impax Environmental Trust (which invests in wind farms, water recycling plants and solar energy companies).
The SVM fund is a diversified fund investing in just about every asset from equities, to property to hedge funds – and has a bias towards emerging markets at the moment. "Its two fund managers have a good long-term track record. They are more cynical than most managers, which we also like," said Mr Sketch."The Impax fund has risen by 50pc over the past five years."
Steve Forbes, managing director at Alan Steel Asset Management is convinced that we are at the start of a bull market.
"Many people are doubting that the recovery in share prices is the start of the bull run – and we take that as a huge positive because the last thing we want is a consensus. The markets are shrugging off bad news, while people have few places left to put their money. Returns on cash are so poor that shares are looking an attractive alternative."
Forbes recommends overseas equity income funds because he believes that high yielding shares will do well and suggests M&G Global Dividend is worth a look. "We also like Psigma Equity Income, managed by Bill Mott, for those wanting a UK fund," he added.
But not everyone is confident shares will continue to go up and up.
Mark Dampier at Hargreaves Lansdown is unconvinced that stock markets have seen the worse. "I wouldn't rush to buy shares right now," he said. "There's plenty of talk of green shoots of recovery but the trouble is I'm not convinced there are any roots."
However, he continues to invest on the dips and says that if investors are in it for the long-term, then emerging market funds are a decent place to be. He cites Aberdeen Emerging Markets, managed by Hugh Young and JM Finn Global Opportunities, as among his favourites.
Mr Dampier will also be investing his own money in a fund launched today – the Artemis Strategic Assets managed by former 1990s star fund manager, William Littlewood.
The Artemis fund will offer a multi-asset mix, investing in equities, bonds, commodities and currencies in long and short positions, as well as cash. The fund's objective is to beat cash and the FTSE All-Share index over a three year cycle.
Mr Littlewood was a hugely popular fund manager in the 1990s until he stunned the investment fraternity when he walked away from Jupiter in 2000 suffering from burnout. His popular £1.6bn Jupiter Income Trust had returned 607pc over the previous nine years versus the average income fund which returned 270pc.
But Mr Littlewood returns to the fray in a cautious mood. He told the Telegraph: "If I am right in saying this is not an ordinary recession then investors in the short run need to be careful about equities, particularly cyclical ones. To me we are in a binary world where it is deflation today and inflation tomorrow. Unfortunately as with all investments, timing is difficult. While we stay in deflationary times shares are likely to disappoint, and a fall below the stock market lows in March should not be ruled out."
http://www.telegraph.co.uk/finance/personalfinance/investing/5271431/Is-there-a-bull-market-around-the-corner.html
Investment Pyramid
Investment Philosophy
It's Not What You Win That Counts
It's What You Don't Lose
Introduction
We suggest reading the beginner's section and the glossary of terms for starters. There is a lot of information available in these two areas – take advantage of them.
We feature three (3) model portfolios. The following overview covers the basic ideology behind the three portfolios and our investment philosophy. The portfolios are:
Conservative
Moderate
Aggressive
Conservative
The conservative portfolio emphasizes safety and risk control. It is for the investor who wants the least amount of risk exposure while still maintaining a solid rate of return. The emphasis is on the return of one’s money, as compared to the return on one’s money.
The conservative portfolio emphasizes safety and risk control. It is for the investor who wants the least amount of risk exposure while still maintaining a solid rate of return. The emphasis is on the return of one’s money, as compared to the return on one’s money.
Moderate
The moderate portfolio's focus is on both the return of one's investment and the return on investment. Safety is still of prime importance. So too is the preservation of wealth. The goal is larger profit margins as compared to the conservative portfolio.
Aggressive
The aggressive portfolio is for investors who have experience in trading and who know the ropes so to speak. They understand their overall financial situation in detail. Aggressive investors have made the conscious decision to take on more risk than the average investor does – in order to gain the opportunity to make larger profits.
A well-defined plan is in place to control and manage the risks. Reassessment of the plan is essential so that the portfolio adjusts to changes in the market accordingly. Hence the aggressive portfolio is much more active than the conservative and moderate portfolios.
Money Management & Asset Allocation
Money management and asset allocation are two key building blocks of any serious portfolio – be it conservative, moderate, or aggressive. Constant reassessment and adjustment of the portfolios with market changes is key as well.
Investment Pyramid
We use an inverted pyramid to illustrate the structure and foundation of our investment philosophy. At the base of the pyramid are the safest asset classes. They are also the soundest of all available investment vehicles. Various investment categories sit on top of the foundation forming a hierarchical scale from the safest assets at the bottom – to the riskiest assets at the top.
Psychology
The market thrives on two basic emotions: Fear and Greed
The market thrives on two basic emotions: Fear and Greed
One can keep holding a stock after significant increases in price, never selling or booking profits, always hoping for additional profits. Suddenly the stock starts falling precipitously. Half of the profits that were on paper vanish. Did greed keep us from selling or was it the fear of giving up possible gains?
The market will teach us much about ourselves if we listen to it. It is hard to listen to the market as opposed to what our mind thinks about the market. This is true in all things. Listening is an art form.
Do Not Take the Big Hit
The main reason investors take a big hit is generally due to emotional and psychological reasons. We all have our own unique personality that we bring to the table.
The main reason investors take a big hit is generally due to emotional and psychological reasons. We all have our own unique personality that we bring to the table.
Whatever emotional and psychological weaknesses we have, the market will quickly search them out, and bring them into play – usually quite fast.
Most often then not the market does not have to beat us – we beat ourselves. To be successful we need to know our weaknesses. We should to try to correct our weaknesses as we become aware of them. We must know our strengths – and use them to our advantage.
This is done by first recognizing them and then having a plan to keep them under control – just as we keep the other types of risk under control: market risk, timing risk, currency risk, etc.
Discipline and money management will allow us to cut our losses quickly – and to let our winners run freely. There is nothing wrong with being wrong – only in staying wrong.
Summary
The above is a general outline of our investment philosophy. The following points are most important:
Assessment of our financial situation and investment goals is key.
Assess our psychological make-up – including strengths and weaknesses.
Define the primary market trends in the market.
Choose a portfolio to meet our own specific goals.
Have a well-defined plan including asset allocation and money management.
Use a combination of the various types of analyses available.
Utilize the inverted pyramid to define safety versus risk
Do not take the big hit
Remember the slogan:
It's Not What You Win That Counts
It's What You Don't Lose
What is the most important lesson from financial crisis?
Updated: Monday May 4, 2009 MYT 11:32:51 AM
What is the most important lesson from financial crisis?
OMAHA, Nebraska: Billionaires Warren Buffett and Charlie Munger said Sunday the most important lessons of the recent financial turmoil are that companies should borrow less and build a system of severe disincentives for failure.
Berkshire Hathaway Inc.'s top two executives offered that frank assessment of businesses' role in the current recession at a news conference held a day after 35,000 attended the company's annual meeting in Omaha.
The two men also said most of the nation's biggest banks are not too big to fail, but consumers shouldn't be worried about bank failures because of the protections built into the system.
Buffett said having severe disincentives for failure and proper incentives for success is key to ensuring large financial institutions are run well.
He said people didn't become more greedy in the last decade, but the system allowed people to take advantage of it.
"I think the most important lesson is the world needs a whole lot less leverage," said Buffett, who is Berkshire's 78-year-old chief executive and chairman.
In speaking of disincentives, Buffett suggested that if an executive would be shot if the company fails, then the company would definitely borrow more carefully.
Buffett said Fannie Mae and Freddie Mac show that intense regulation can't prevent problems because those mortgage finance firms were some of the most regulated companies before government seized control of them amid mounting mortgage losses.
But Buffett said assigning blame for the economic mess doesn't make a ton of sense because so many people made mistakes.
"I think that virtually everyone associated with the financial world contributed to it," Buffett said.
Munger, Berkshire's 85-year-old vice chairman, said a combination of factors caused the financial mess.
He said the nation tolerated way too much debt, immorality and stupidity, and now it's paying the price.
"We have failed big-time on multiple fronts," Munger said.
He said gross immorality persisted in the consumer credit and derivatives businesses, and many people were taken advantage of.
Then the accounting profession failed to catch problems and tolerated too much foolishness, Munger said.
He said accounting rules that allow companies to report huge profit just before failing doesn't make sense.
"We do not need insane accounting that rewards people that can't handle the temptation," Munger said.
But it still might be hard to get Congress to pass sensible rules for investment banks and derivatives, Munger said, because of the amount of lobbying investment banks have done.
"We're going to have a hell of a time getting this fixed the way it should be fixed," Munger said.
Buffett said he's not sure how the government will handle the results of the stress tests officials are conducting on the 19 largest U.S. banks, but he doesn't think the government should rule out the failure of most of the banks.
"These 19 banks are not too big to fail," Buffett said.
"You can make a deal for any but the top four on the list."
To prove his point Buffett pointed to the examples of Wachovia and Washington Mutual banks, which both failed in the past year and were sold to competitors.
The stress tests are supposed to determine which banks would need more cash if the economy weakens further.
Federal Reserve officials have said the banks will be required to keep extra capital on hand in case losses escalate, which means some banks would be forced to raise money.
Buffett said consumers should not worry about bank failures because the Federal Deposit Insurance Corp. is there to protect them with the resources it collects by charging banks fees, so taxpayers don't pay when the FDIC rescues banks.
"I'm not worried at all about a run on the banks," said Buffett, whose company holds large stakes in Wells Fargo & Co., US Bancorp, M&T Bank, Bank of America and Sun Trusts Banks
Given the age of Buffett and Munger, there is always speculation on who might replace them.
Buffett said Sunday that investors would know if either had health problems.
"If I know of anything serious - or anything that might be interpreted as serious - health problems, Berkshire would disclose it," Buffett said.
"We don't want rumors flying around."
But Munger joked there might be a high threshold for disclosing anything about his health: "In my case, I'm so nearly dead anyway that it's a minor detail."
Both Munger and Buffett said they feel great.
Berkshire's Class A stock lost 32 percent in 2008, and Berkshire's book value - assets minus liabilities - declined 9.6 percent, to $70,530 per share.
That was the biggest drop in book value under Buffett and only the second time its book value has declined.
But Buffett always measure's the company's book value performance in relation to the S&P 500, which fell 37 percent in 2008, so he's not bothered by stock price fluctuations.
"We don't consider it our worst year by miles," Buffett said Sunday.
Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, and candy companies, restaurants, natural gas and corporate jet firms.
Berkshire also has major investments in such companies as Coca-Cola Co. and Burlington Northern Santa Fe Corp.
On the Net: Berkshire Hathaway Inc.: www.berkshirehathaway.com
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click here
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
What is the most important lesson from financial crisis?
OMAHA, Nebraska: Billionaires Warren Buffett and Charlie Munger said Sunday the most important lessons of the recent financial turmoil are that companies should borrow less and build a system of severe disincentives for failure.
Berkshire Hathaway Inc.'s top two executives offered that frank assessment of businesses' role in the current recession at a news conference held a day after 35,000 attended the company's annual meeting in Omaha.
The two men also said most of the nation's biggest banks are not too big to fail, but consumers shouldn't be worried about bank failures because of the protections built into the system.
Buffett said having severe disincentives for failure and proper incentives for success is key to ensuring large financial institutions are run well.
He said people didn't become more greedy in the last decade, but the system allowed people to take advantage of it.
"I think the most important lesson is the world needs a whole lot less leverage," said Buffett, who is Berkshire's 78-year-old chief executive and chairman.
In speaking of disincentives, Buffett suggested that if an executive would be shot if the company fails, then the company would definitely borrow more carefully.
Buffett said Fannie Mae and Freddie Mac show that intense regulation can't prevent problems because those mortgage finance firms were some of the most regulated companies before government seized control of them amid mounting mortgage losses.
But Buffett said assigning blame for the economic mess doesn't make a ton of sense because so many people made mistakes.
"I think that virtually everyone associated with the financial world contributed to it," Buffett said.
Munger, Berkshire's 85-year-old vice chairman, said a combination of factors caused the financial mess.
He said the nation tolerated way too much debt, immorality and stupidity, and now it's paying the price.
"We have failed big-time on multiple fronts," Munger said.
He said gross immorality persisted in the consumer credit and derivatives businesses, and many people were taken advantage of.
Then the accounting profession failed to catch problems and tolerated too much foolishness, Munger said.
He said accounting rules that allow companies to report huge profit just before failing doesn't make sense.
"We do not need insane accounting that rewards people that can't handle the temptation," Munger said.
But it still might be hard to get Congress to pass sensible rules for investment banks and derivatives, Munger said, because of the amount of lobbying investment banks have done.
"We're going to have a hell of a time getting this fixed the way it should be fixed," Munger said.
Buffett said he's not sure how the government will handle the results of the stress tests officials are conducting on the 19 largest U.S. banks, but he doesn't think the government should rule out the failure of most of the banks.
"These 19 banks are not too big to fail," Buffett said.
"You can make a deal for any but the top four on the list."
To prove his point Buffett pointed to the examples of Wachovia and Washington Mutual banks, which both failed in the past year and were sold to competitors.
The stress tests are supposed to determine which banks would need more cash if the economy weakens further.
Federal Reserve officials have said the banks will be required to keep extra capital on hand in case losses escalate, which means some banks would be forced to raise money.
Buffett said consumers should not worry about bank failures because the Federal Deposit Insurance Corp. is there to protect them with the resources it collects by charging banks fees, so taxpayers don't pay when the FDIC rescues banks.
"I'm not worried at all about a run on the banks," said Buffett, whose company holds large stakes in Wells Fargo & Co., US Bancorp, M&T Bank, Bank of America and Sun Trusts Banks
Given the age of Buffett and Munger, there is always speculation on who might replace them.
Buffett said Sunday that investors would know if either had health problems.
"If I know of anything serious - or anything that might be interpreted as serious - health problems, Berkshire would disclose it," Buffett said.
"We don't want rumors flying around."
But Munger joked there might be a high threshold for disclosing anything about his health: "In my case, I'm so nearly dead anyway that it's a minor detail."
Both Munger and Buffett said they feel great.
Berkshire's Class A stock lost 32 percent in 2008, and Berkshire's book value - assets minus liabilities - declined 9.6 percent, to $70,530 per share.
That was the biggest drop in book value under Buffett and only the second time its book value has declined.
But Buffett always measure's the company's book value performance in relation to the S&P 500, which fell 37 percent in 2008, so he's not bothered by stock price fluctuations.
"We don't consider it our worst year by miles," Buffett said Sunday.
Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, and candy companies, restaurants, natural gas and corporate jet firms.
Berkshire also has major investments in such companies as Coca-Cola Co. and Burlington Northern Santa Fe Corp.
On the Net: Berkshire Hathaway Inc.: www.berkshirehathaway.com
Latest NYSE, NASDAQ and other business news, from AP-Wire
For latest Bursa Malaysia indices, charts and other information click here
New York Stock Exchange: http://www.nyse.com
Nasdaq Stock Market: http://www.nasdaq.com
For Tokyo Stock Exchange click here
Buffett admits investment mistakes but shareholders keep the faith
Buffett admits investment mistakes but shareholders keep the faith
The legendary stockpicker dubbed the Sage of Omaha still wowing the crowds despite 35% drop in Berkshire Hathaway share price
Andrew Clark in Omaha, Nebraska
guardian.co.uk, Sunday 3 May 2009 19.47
It is usually a festival of financial self-congratulation in the US heartland. But a sombre tone descended on Warren Buffett's annual investor meeting as the legendary stockpicker was obliged to defend the worst year of his career.
Facing a record crowd of 35,000 shareholders in his Berkshire Hathaway business empire, who had come from as far afield as Australia and South Africa, Buffett admitted this weekend that he had failed to "cover himself in glory" since the global financial crisis began.
"It's been an extraordinary year," he said. "I'm not sure you'll see this again in your lifetime."
Held in Buffett's home city of Omaha, the quirky annual gathering of Berkshire's shareholders has become known as Woodstock for capitalists. Investors queued from 4am yesterday to snatch prime seats in the Qwest arena. A light-hearted video depicted the billionaire being demoted to a mattress salesman in one of his Nebraska Furniture Mart stores as punishment for the loss of Berkshire's treasured triple-A credit rating.
For six hours, Buffett, 78, and his lifelong business partner, Charlie Munger, 85, fielded queries chosen by a panel of journalists about their investment approach. "There's always a lot of things wrong with the world," Buffett told investors. "Unfortunately, it's the only world we've got so we have to deal with it."
Losing Berkshire's blue-chip credit rating, Buffett admitted, was "disappointing", causing the firm to "lose some bragging rights around the world" in terms of the rock-solid reliability of the insurance policies it sells. It was part of a string of setbacks for Berkshire, which has seen its shares slump by 35% since the start of 2008.
The book value of the company's assets, which include a stake in Tesco and ownership of Northern Electric, fell by 9.6% in only his second negative year since 1965. Investments ranging from Fruit of the Loom underwear to American Express credit cards and NetJets corporate aircraft caught the thick edge of the recession. First-quarter operating profits fell from $1.9bn (£1.3bn) to $1.7bn.
Shareholders, by and large, are still unstinting in their faith. Charles Hostetler, an insurance agent from Kansas, compared Buffett to a St Louis Cardinals baseball star of the 1960s, Bob Gibson. "You've got a great pitcher like Bob Gibson. He had one bad year in a 20-year career and 18, 19 good years," said Hostetler. "You wouldn't give up on him after one bad year, now would you?"
He added: "It wasn't a good year for Berkshire, but it wasn't a good year for America either."
But Wall Street critics say Buffett's Midas touch has deserted him through a series of unforced errors. A punt on two Irish banks went spectacularly awry as their stocks plunged by 89% and he made a costly investment in the energy firm ConocoPhillips just as the oil price peaked last summer.
Many have queried a decision by Buffett to plunge into derivatives – once scorned by the billionaire as "financial weapons of mass destruction". At the end of 2008, Berkshire had contracts with a notional long-term value of $67bn betting on the long-term performance of stocks and bonds.
Buffett has also found himself on the back foot over Berkshire's 20% stake in the credit-rating agency Moody's.
Quizzed about this, he said: "There was almost total belief throughout the country that house prices not only wouldn't fall significantly but would keep rising. The ratings agencies built that into their models."
The cult-like status of Buffett endures, despite these mishaps. In the Qwest arena's exhibition hall, shareholders snapped up packs of playing cards bearing images of Buffett and a popular T-shirt for children reads: "Warren Buffett is building my future."
Some took a more sceptical view. David Newton, a South African who came from Johannesburg for the meeting, welcomed the tougher examination of Buffett: "Last time I was here was completely a prayer meeting. If somebody had asked Warren if they should fly to the moon and he'd said yes, they'd have gone straight off and done it."
Still sprightly in his seventies and adept at playing the ukulele, Buffett has balked at publicly naming a successor, saying he sees no value in having a "crown prince" lurking around. He has, however, revealed that he has four potential proteges in mind. In a worrying sign, Buffett disclosed that none of these apprentice investment managers had beaten a 37% drop in the S&P 500 index last year. "You would not say they covered themselves with glory," he said. "But I didn't cover myself in glory either, so I'm pretty tolerant of that."
Bad news for papers
A former paperboy, Warren Buffett is a fan of newspapers but he offered a gloomy perspective on prospects for publishers struggling with falling readerships and dwindling advertising. "For most newspapers in the United States, we wouldn't buy them at any price," said Buffett, who has a stake in the Washington Post and owns the Buffalo News in New York.
Buffett said circulations were being eroded at an accelerating pace, hitting commercial revenue: "They were essential to advertisers only as long as they were essential to readers, and that is changing … I don't see anything on the horizon that causes that erosion to end." Although a technophobe, he feels newspapers, with the possibility of "unending losses", offer little attraction for investors.
http://www.guardian.co.uk/business/2009/may/03/warren-buffett-shareholder-meeting
The legendary stockpicker dubbed the Sage of Omaha still wowing the crowds despite 35% drop in Berkshire Hathaway share price
Andrew Clark in Omaha, Nebraska
guardian.co.uk, Sunday 3 May 2009 19.47
It is usually a festival of financial self-congratulation in the US heartland. But a sombre tone descended on Warren Buffett's annual investor meeting as the legendary stockpicker was obliged to defend the worst year of his career.
Facing a record crowd of 35,000 shareholders in his Berkshire Hathaway business empire, who had come from as far afield as Australia and South Africa, Buffett admitted this weekend that he had failed to "cover himself in glory" since the global financial crisis began.
"It's been an extraordinary year," he said. "I'm not sure you'll see this again in your lifetime."
Held in Buffett's home city of Omaha, the quirky annual gathering of Berkshire's shareholders has become known as Woodstock for capitalists. Investors queued from 4am yesterday to snatch prime seats in the Qwest arena. A light-hearted video depicted the billionaire being demoted to a mattress salesman in one of his Nebraska Furniture Mart stores as punishment for the loss of Berkshire's treasured triple-A credit rating.
For six hours, Buffett, 78, and his lifelong business partner, Charlie Munger, 85, fielded queries chosen by a panel of journalists about their investment approach. "There's always a lot of things wrong with the world," Buffett told investors. "Unfortunately, it's the only world we've got so we have to deal with it."
Losing Berkshire's blue-chip credit rating, Buffett admitted, was "disappointing", causing the firm to "lose some bragging rights around the world" in terms of the rock-solid reliability of the insurance policies it sells. It was part of a string of setbacks for Berkshire, which has seen its shares slump by 35% since the start of 2008.
The book value of the company's assets, which include a stake in Tesco and ownership of Northern Electric, fell by 9.6% in only his second negative year since 1965. Investments ranging from Fruit of the Loom underwear to American Express credit cards and NetJets corporate aircraft caught the thick edge of the recession. First-quarter operating profits fell from $1.9bn (£1.3bn) to $1.7bn.
Shareholders, by and large, are still unstinting in their faith. Charles Hostetler, an insurance agent from Kansas, compared Buffett to a St Louis Cardinals baseball star of the 1960s, Bob Gibson. "You've got a great pitcher like Bob Gibson. He had one bad year in a 20-year career and 18, 19 good years," said Hostetler. "You wouldn't give up on him after one bad year, now would you?"
He added: "It wasn't a good year for Berkshire, but it wasn't a good year for America either."
But Wall Street critics say Buffett's Midas touch has deserted him through a series of unforced errors. A punt on two Irish banks went spectacularly awry as their stocks plunged by 89% and he made a costly investment in the energy firm ConocoPhillips just as the oil price peaked last summer.
Many have queried a decision by Buffett to plunge into derivatives – once scorned by the billionaire as "financial weapons of mass destruction". At the end of 2008, Berkshire had contracts with a notional long-term value of $67bn betting on the long-term performance of stocks and bonds.
Buffett has also found himself on the back foot over Berkshire's 20% stake in the credit-rating agency Moody's.
Quizzed about this, he said: "There was almost total belief throughout the country that house prices not only wouldn't fall significantly but would keep rising. The ratings agencies built that into their models."
The cult-like status of Buffett endures, despite these mishaps. In the Qwest arena's exhibition hall, shareholders snapped up packs of playing cards bearing images of Buffett and a popular T-shirt for children reads: "Warren Buffett is building my future."
Some took a more sceptical view. David Newton, a South African who came from Johannesburg for the meeting, welcomed the tougher examination of Buffett: "Last time I was here was completely a prayer meeting. If somebody had asked Warren if they should fly to the moon and he'd said yes, they'd have gone straight off and done it."
Still sprightly in his seventies and adept at playing the ukulele, Buffett has balked at publicly naming a successor, saying he sees no value in having a "crown prince" lurking around. He has, however, revealed that he has four potential proteges in mind. In a worrying sign, Buffett disclosed that none of these apprentice investment managers had beaten a 37% drop in the S&P 500 index last year. "You would not say they covered themselves with glory," he said. "But I didn't cover myself in glory either, so I'm pretty tolerant of that."
Bad news for papers
A former paperboy, Warren Buffett is a fan of newspapers but he offered a gloomy perspective on prospects for publishers struggling with falling readerships and dwindling advertising. "For most newspapers in the United States, we wouldn't buy them at any price," said Buffett, who has a stake in the Washington Post and owns the Buffalo News in New York.
Buffett said circulations were being eroded at an accelerating pace, hitting commercial revenue: "They were essential to advertisers only as long as they were essential to readers, and that is changing … I don't see anything on the horizon that causes that erosion to end." Although a technophobe, he feels newspapers, with the possibility of "unending losses", offer little attraction for investors.
http://www.guardian.co.uk/business/2009/may/03/warren-buffett-shareholder-meeting
FACTBOX: Berkshire Hathaway at a glance
FACTBOX: Berkshire Hathaway at a glance
Sat May 2, 2009 3:30pm EDT
Buffett: Berkshire may lose money on some derivatives
Saturday, 2 May 2009 02:14pm EDT (Reuters) - Berkshire Hathaway Inc, the insurance and investment company run by billionaire Warren Buffett, will hold its annual shareholder meeting on Saturday in Omaha, Nebraska.
The meeting attracted 32,000 people last year. Along with the annual meeting for Wal-Mart Stores Inc, it is perhaps one of the most heavily anticipated shareholder galas.
Buffett, 78, took over Berkshire in 1965 when it was a struggling textile mill. Berkshire now owns close to 80 companies and has a market value of roughly $145 billion.
The following information about Berkshire and its investments is drawn from the company's 2008 annual report and its website:
FINANCIAL INFORMATION:
2008 net income: $4.99 billion
Change from prior year: down 62 pct
2008 net income per share: $3,224
2008 revenue: $107.786 billion
Cash and equivalents at year-end: $25.54 billion
Common stock investments at year-end: $49.07 billion
DERIVATIVES HOLDINGS (dollar amounts in millions):
Notional
Assets Liabilities Value
Equity index put options -- $10,022 $37,134
Credit default
obligations: --
High-yield indexes -- 3,031 7,892
Individual corporate -- 105 3,900
States/municipalities -- 958 18,364
Other 503 528
Counterparty netting and
funds held as collateral (295) (32)
Totals 208 $14,612
SELECTED COMPANIES OWNED:
Benjamin Moore Iscar Metalworking
Borsheim's Fine Jewellery Marmon Holdings
Clayton Homes MidAmerican Energy
Fruit of the Loom National Indemnity
Geico Nebraska Furniture Mart
General Re NetJets
International Dairy Queen See's Candies
MAJOR STOCK INVESTMENTS AS OF DEC. 31, 2008:
Market
Shares Pct Cost Value
Owned * Company Owned (mlns) (mlns)
151,610,700 American Express 13.1 $ 1,287 $ 2,812
200,000,000 Coca-Cola Co 8.6 1,299 9,054
84,896,273 ConocoPhillips 5.7 7,008 4,398
30,009,591 Johnson & Johnson 1.1 1,847 1,795
130,272,500 Kraft Foods Inc 8.9 4,330 3,498
3,947,554 POSCO 5.2 768 1,191
91,941,010 Procter & Gamble 3.1 643 5,684
22,111,966 Sanofi-Aventis 1.7 1,827 1,404
227,307,000 Tesco PLC 2.9 1,326 1,193
75,145,426 US Bancorp 4.3 2,337 1,879
19,944,300 Wal-Mart Stores Inc 0.5 942 1,118
1,727,765 Washington Post 18.4 11 674
304,392,068 Wells Fargo & Co 7.2 6,702 8,973
Others 6,035 4,870
Total Common Stocks $37,135 $49,073
* Also has holdings in Burlington Northern Santa Fe Corp and Moody's Corp carried at "equity value," equal to cost plus retained earnings since purchase, minus taxes that would be paid if the earnings were paid as dividends. Accounting treatment usually required when ownership tops 20 percent.
(Reporting by Jonathan Stempel in Omaha, Nebraska; Editing by Lisa Von Ahn)
http://www.reuters.com/article/newsOne/idUSTRE54127Q20090502?sp=true
Sat May 2, 2009 3:30pm EDT
Buffett: Berkshire may lose money on some derivatives
Saturday, 2 May 2009 02:14pm EDT (Reuters) - Berkshire Hathaway Inc, the insurance and investment company run by billionaire Warren Buffett, will hold its annual shareholder meeting on Saturday in Omaha, Nebraska.
The meeting attracted 32,000 people last year. Along with the annual meeting for Wal-Mart Stores Inc, it is perhaps one of the most heavily anticipated shareholder galas.
Buffett, 78, took over Berkshire in 1965 when it was a struggling textile mill. Berkshire now owns close to 80 companies and has a market value of roughly $145 billion.
The following information about Berkshire and its investments is drawn from the company's 2008 annual report and its website:
FINANCIAL INFORMATION:
2008 net income: $4.99 billion
Change from prior year: down 62 pct
2008 net income per share: $3,224
2008 revenue: $107.786 billion
Cash and equivalents at year-end: $25.54 billion
Common stock investments at year-end: $49.07 billion
DERIVATIVES HOLDINGS (dollar amounts in millions):
Notional
Assets Liabilities Value
Equity index put options -- $10,022 $37,134
Credit default
obligations: --
High-yield indexes -- 3,031 7,892
Individual corporate -- 105 3,900
States/municipalities -- 958 18,364
Other 503 528
Counterparty netting and
funds held as collateral (295) (32)
Totals 208 $14,612
SELECTED COMPANIES OWNED:
Benjamin Moore Iscar Metalworking
Borsheim's Fine Jewellery Marmon Holdings
Clayton Homes MidAmerican Energy
Fruit of the Loom National Indemnity
Geico Nebraska Furniture Mart
General Re NetJets
International Dairy Queen See's Candies
MAJOR STOCK INVESTMENTS AS OF DEC. 31, 2008:
Market
Shares Pct Cost Value
Owned * Company Owned (mlns) (mlns)
151,610,700 American Express 13.1 $ 1,287 $ 2,812
200,000,000 Coca-Cola Co 8.6 1,299 9,054
84,896,273 ConocoPhillips 5.7 7,008 4,398
30,009,591 Johnson & Johnson 1.1 1,847 1,795
130,272,500 Kraft Foods Inc 8.9 4,330 3,498
3,947,554 POSCO 5.2 768 1,191
91,941,010 Procter & Gamble 3.1 643 5,684
22,111,966 Sanofi-Aventis 1.7 1,827 1,404
227,307,000 Tesco PLC 2.9 1,326 1,193
75,145,426 US Bancorp 4.3 2,337 1,879
19,944,300 Wal-Mart Stores Inc 0.5 942 1,118
1,727,765 Washington Post 18.4 11 674
304,392,068 Wells Fargo & Co 7.2 6,702 8,973
Others 6,035 4,870
Total Common Stocks $37,135 $49,073
* Also has holdings in Burlington Northern Santa Fe Corp and Moody's Corp carried at "equity value," equal to cost plus retained earnings since purchase, minus taxes that would be paid if the earnings were paid as dividends. Accounting treatment usually required when ownership tops 20 percent.
(Reporting by Jonathan Stempel in Omaha, Nebraska; Editing by Lisa Von Ahn)
http://www.reuters.com/article/newsOne/idUSTRE54127Q20090502?sp=true
FACTBOX: Berkshire's Buffett on succession, acquisitions
FACTBOX: Berkshire's Buffett on succession, acquisitions
Sat May 2, 2009 3:30pm EDT
(Reuters) - Berkshire Hathaway Inc, the insurance and investment company run by Warren Buffett, has been preparing succession plans for when the 78-year-old billionaire steps down. It also still hunts for acquisitions, preferably large.
In 2008 Berkshire spent $6.1 billion on acquisitions. It spent $4.5 billion for a 60 percent stake in Marmon Holdings Inc, which was owned by the Pritzker family of Chicago and makes such things as railroad tank cars, plumbing pipes, metal fasteners, and wiring and water treatment products used in residential construction. Berkshire later boosted its stake to 63.6 percent.
Berkshire also made a series of large investments in 2008, including $6.5 billion to help fund Mars Inc's purchase of chewing gum company Wm Wrigley Jr Co. It also invested $5 billion in Goldman Sachs Group Inc and $3 billion in General Electric Co.
Berkshire ended 2008 with $25.54 billion in cash. Buffett has repeatedly said he would like to keep $10 billion on hand.
The company is holdings its annual meeting on Saturday in Omaha, Nebraska.
The following information about Buffett's succession plans and Berkshire's acquisition strategy is drawn from the company's 2007 and 2008 annual reports:
BUFFETT ON HIS POTENTIAL SUCCESSORS (FROM 2007 REPORT)
"We have for some time been well prepared for CEO succession because we have three outstanding internal candidates. The board knows exactly whom it would pick if I were to become unavailable, either because of death or diminishing abilities. And that would still leave the board with two backups.
"We have indeed now identified four candidates who could succeed me in managing investments. All manage substantial sums currently, and all have indicated a strong interest in coming to Berkshire if called. The board knows the strengths of the four and would expect to hire one or more if the need arises. The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation."
ACQUISITION CRITERIA (FROM 2008 REPORT)
"We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
(1) Large purchases (at least $75 million of pretax earnings unless the business will fit into one of our existing units),
(2) Demonstrated consistent earning power (future projections are of no interest to us, nor are 'turnaround' situations),
(3) Businesses earning good returns on equity while employing little or no debt,
(4) Management in place (we can't supply it),
(5) Simple businesses (if there's lots of technology, we won't understand it),
(6) An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).
"The larger the company, the greater will be our interest: We would like to make an acquisition in the $5-20 billion range... We will not engage in unfriendly takeovers... We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give."
(Reporting by Jonathan Stempel in Omaha, Nebraska)
http://www.reuters.com/article/topNews/idUSTRE54127T20090502?pageNumber=2&virtualBrandChannel=0&sp=true
Sat May 2, 2009 3:30pm EDT
(Reuters) - Berkshire Hathaway Inc, the insurance and investment company run by Warren Buffett, has been preparing succession plans for when the 78-year-old billionaire steps down. It also still hunts for acquisitions, preferably large.
In 2008 Berkshire spent $6.1 billion on acquisitions. It spent $4.5 billion for a 60 percent stake in Marmon Holdings Inc, which was owned by the Pritzker family of Chicago and makes such things as railroad tank cars, plumbing pipes, metal fasteners, and wiring and water treatment products used in residential construction. Berkshire later boosted its stake to 63.6 percent.
Berkshire also made a series of large investments in 2008, including $6.5 billion to help fund Mars Inc's purchase of chewing gum company Wm Wrigley Jr Co. It also invested $5 billion in Goldman Sachs Group Inc and $3 billion in General Electric Co.
Berkshire ended 2008 with $25.54 billion in cash. Buffett has repeatedly said he would like to keep $10 billion on hand.
The company is holdings its annual meeting on Saturday in Omaha, Nebraska.
The following information about Buffett's succession plans and Berkshire's acquisition strategy is drawn from the company's 2007 and 2008 annual reports:
BUFFETT ON HIS POTENTIAL SUCCESSORS (FROM 2007 REPORT)
"We have for some time been well prepared for CEO succession because we have three outstanding internal candidates. The board knows exactly whom it would pick if I were to become unavailable, either because of death or diminishing abilities. And that would still leave the board with two backups.
"We have indeed now identified four candidates who could succeed me in managing investments. All manage substantial sums currently, and all have indicated a strong interest in coming to Berkshire if called. The board knows the strengths of the four and would expect to hire one or more if the need arises. The candidates are young to middle-aged, well-to-do to rich, and all wish to work for Berkshire for reasons that go beyond compensation."
ACQUISITION CRITERIA (FROM 2008 REPORT)
"We are eager to hear from principals or their representatives about businesses that meet all of the following criteria:
(1) Large purchases (at least $75 million of pretax earnings unless the business will fit into one of our existing units),
(2) Demonstrated consistent earning power (future projections are of no interest to us, nor are 'turnaround' situations),
(3) Businesses earning good returns on equity while employing little or no debt,
(4) Management in place (we can't supply it),
(5) Simple businesses (if there's lots of technology, we won't understand it),
(6) An offering price (we don't want to waste our time or that of the seller by talking, even preliminarily, about a transaction when price is unknown).
"The larger the company, the greater will be our interest: We would like to make an acquisition in the $5-20 billion range... We will not engage in unfriendly takeovers... We prefer to buy for cash, but will consider issuing stock when we receive as much in intrinsic business value as we give."
(Reporting by Jonathan Stempel in Omaha, Nebraska)
http://www.reuters.com/article/topNews/idUSTRE54127T20090502?pageNumber=2&virtualBrandChannel=0&sp=true
Buffett offers bleak outlook for U.S. newspapers
Buffett offers bleak outlook for U.S. newspapers
Sun May 3, 2009 12:33am EDT
OMAHA, Nebraska (Reuters) - Warren Buffett is fond of newspapers -- he reads five a day -- but the billionaire investor warned shareholders of his Berkshire Hathaway Inc that the reeling industry may never recover because it lacks a sustainable business model.
At Saturday's annual meeting of Berkshire, which owns the Buffalo News and has a big stake in Washington Post Co, Buffett said that as readership falls, so does the attraction of newspapers for advertisers, and for investors in the companies that publish them.
"For most newspapers in the United States, we would not buy them at any price," Buffett said. "They have the possibility of nearly unending losses. ... I do not see anything on the horizon that sees that erosion coming to an end."
Many U.S. newspapers have lost 20 percent or more of their advertising revenue as changes in technology and reading habits shrink circulation and more readers to get their news online.
Several newspapers in large U.S. cities have closed in recent months, and the future of the money-losing Boston Globe, owned by The New York Times Co, remains up in the air.
"Twenty, thirty years ago, they were a product that had pricing power that was essential," said Buffett. "They have lost that essential nature."
Buffett said Berkshire would hold on to the Buffalo News, a daily newspaper in the New York state city of the same name, if only because Berkshire buys businesses for the long term and does not sell simply because the companies hit a rough patch.
He did not rule out having to squeeze out excess costs, including possible job cuts, or eventually shuttering the paper if it goes too deeply into the red.
"On an economic basis you should sell this business. I said I agree 100 percent but I am not going to do it," he said. "The union has been cooperative in having an economic model that will at least give us a little bit of money."
Charlie Munger, Berkshire's vice chairman, called the decline of the newspaper industry "a national tragedy."
"What replaces it will not be as desirable as what we are losing," he said.
(Reporting by Lilla Zuill and Jonathan Stempel; Editing by Xavier Briand)
http://www.reuters.com/article/businessNews/idUSTRE5420I820090503
Sun May 3, 2009 12:33am EDT
OMAHA, Nebraska (Reuters) - Warren Buffett is fond of newspapers -- he reads five a day -- but the billionaire investor warned shareholders of his Berkshire Hathaway Inc that the reeling industry may never recover because it lacks a sustainable business model.
At Saturday's annual meeting of Berkshire, which owns the Buffalo News and has a big stake in Washington Post Co, Buffett said that as readership falls, so does the attraction of newspapers for advertisers, and for investors in the companies that publish them.
"For most newspapers in the United States, we would not buy them at any price," Buffett said. "They have the possibility of nearly unending losses. ... I do not see anything on the horizon that sees that erosion coming to an end."
Many U.S. newspapers have lost 20 percent or more of their advertising revenue as changes in technology and reading habits shrink circulation and more readers to get their news online.
Several newspapers in large U.S. cities have closed in recent months, and the future of the money-losing Boston Globe, owned by The New York Times Co, remains up in the air.
"Twenty, thirty years ago, they were a product that had pricing power that was essential," said Buffett. "They have lost that essential nature."
Buffett said Berkshire would hold on to the Buffalo News, a daily newspaper in the New York state city of the same name, if only because Berkshire buys businesses for the long term and does not sell simply because the companies hit a rough patch.
He did not rule out having to squeeze out excess costs, including possible job cuts, or eventually shuttering the paper if it goes too deeply into the red.
"On an economic basis you should sell this business. I said I agree 100 percent but I am not going to do it," he said. "The union has been cooperative in having an economic model that will at least give us a little bit of money."
Charlie Munger, Berkshire's vice chairman, called the decline of the newspaper industry "a national tragedy."
"What replaces it will not be as desirable as what we are losing," he said.
(Reporting by Lilla Zuill and Jonathan Stempel; Editing by Xavier Briand)
http://www.reuters.com/article/businessNews/idUSTRE5420I820090503
Sunday 3 May 2009
Buffett dispenses gloom at Berkshire fest
Buffett dispenses gloom at Berkshire fest
OMAHA, Nebraska (Reuters) - Warren Buffett told a record crowd at a somber annual meeting of his Berkshire Hathaway Inc that first-quarter operating profit fell and the company's book value declined 6 percent, as the recession hurt many of the company's businesses and investments.
Operating profit fell about 12 percent from a year earlier to $1.7 billion, as most of Berkshire's businesses were "basically down," Buffett told an estimated 35,000 people at the meeting in downtown Omaha.
The decline in book value results in part from falling stock prices and higher losses on derivatives contracts, and comes on top of a 9.6 percent decline last year, the biggest drop since Buffett began running the company in 1965.
Buffett acknowledged that Berkshire will probably lose money on derivatives tied to the credit quality of junk bonds, though he still expects to make money on a much larger and longer-term derivatives bet that stock prices will rise.
Berkshire's cash stake fell to about $22.7 billion on March 31 from $25.5 billion at year end, Buffett said. Berkshire expects to report results on May 8.
The outlook punctuated a meeting that had a decidedly more serious and somber tone from years past as many investors expressed worries about the economy, Berkshire's investments, and how long the 78-year-old Buffett plans to stay on the job.
Half the questions were pre-screened by journalists, providing a tougher and more substantive dialogue with Buffett and his 85-year-old vice chairman, Charlie Munger.
Berkshire's stock has fallen 39 percent since December 2007, but Buffett said no stock buybacks are planned because Berkshire's share price is not "demonstrably below" the company's intrinsic value. Profit fell 62 percent last year.
Buffett offered a gloomy forecast for parts of the economy and Berkshire itself, saying some units are laying off workers as managers "look at the reality of the current situation."
He also said massive federal efforts to stimulate activity could pay off, at a possible cost of higher inflation.
"It has been a very extraordinary year," Buffett said. "When the American public pulls back the way they have, the government does need to step in.... It is the right thing to do, but it won't be a free ride."
DERIVATIVES
Buffett said housing prices have yet to stabilize broadly, that retailers may be under pressure for a "considerable period of time," and that he would not buy most U.S. newspaper
companies "at any price."
He also said that in insurance, which comprises about half of Berkshire's operations, the earnings power "was not as good last year as normal" and "won't be as good this year."
Buffett had transformed Berkshire from a failing textile maker into a company with close to 80 businesses that sell such things as Geico car insurance, paint, ice cream and underwear.
Buffett is often considered the world's greatest investor, but recent missteps have prompted speculation the world's second-richest person has lost his touch.
Berkshire still has three internal candidates to replace him as chief executive, including one the board could appoint immediately if the occasion arose.
Buffett said the four candidates to replace him as chief investment officer failed in 2008 to outperform the Standard & Poor's 500, which fell 38 percent that year.
But he said the candidates' performance has been "modestly to significantly better than average" over 10 years, and that he was confident they could repeat that in the next 10 years.
Marc Rabinov, a shareholder from Melbourne, Australia, who said he was attending his 13th meeting, called succession a "big problem." But he added: "They are very good at being able to assess character, and that's the most important thing about who replaces him."
Much of the worry about Berkshire has focused on Buffett's use of derivatives in making long-term bets on the direction of stocks and junk bonds, and which have so far resulted in billions of dollars of paper losses.
While Buffett still expects the contracts tied to equity stock indexes to make money, he said "we have run into far more bankruptcies in the last year than is normal."
He said he now expects the contracts tied to credit defaults, which mature between 2009 and 2013, will show a loss before investment income, and perhaps after as well.
Buffett distinguishes his derivatives from others, given that he collects billions of dollars of premiums upfront to invest and posts little collateral. He called other derivatives "a danger to the system. There is no question about that."
CONFIDENCE IN BANKS
Buffett expressed confidence in Wells Fargo & Co, one of Berkshire's biggest investments, saying it has "by far the best competitive position" of any large U.S. bank.
He noted that Wells Fargo shares fell below $9 earlier this year, and that at that price, "If I had (to) put all of my net worth into stock, that would be the stock." The bank's shares closed Friday at $19.61.
Buffett added that if he wanted to turn Berkshire into a bank holding company, "I would love to buy all of US Bancorp, or I would love to buy all of Wells."
He also defended Berkshire's roughly 20 percent stake in Moody's Corp, and said the credit rating agency "made a huge mistake" but was not alone in failing to foresee the housing and credit crisis. He also said "the rating agency business is probably still a good business."
Buffett also said Berkshire can weather its recent loss of its "triple-A" credit ratings from Moody's and Fitch ratings. "The 'triple-A' is not going to be material to Berkshire," he said, "but it still irritates me."
While declining to name candidates to replace him as chief executive officer and chief investment officer, Buffett said "it would be impossible" to replace Ajit Jain, who runs much of his insurance businesses and whom investors believe is a CEO contender. "We won't find a substitute for him," Buffett said.
Buffett also said that while Berkshire is less nimble than when it was smaller, "our sustainable competitive advantage is we have a culture and business model that people would find very, very difficult to copy."
Munger added that "the stupidity in the management practices of the rest of the corporate world" will likely benefit Berkshire in the future.
(Reporting by Jonathan Stempel and Lilla Zuill, editing by Vicki Allen)
http://www.reuters.com/article/businessNews/idUSN0236003720090503?feedType=RSS&feedName=businessNews&sp=true
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OMAHA, Nebraska (Reuters) - Warren Buffett told a record crowd at a somber annual meeting of his Berkshire Hathaway Inc that first-quarter operating profit fell and the company's book value declined 6 percent, as the recession hurt many of the company's businesses and investments.
Operating profit fell about 12 percent from a year earlier to $1.7 billion, as most of Berkshire's businesses were "basically down," Buffett told an estimated 35,000 people at the meeting in downtown Omaha.
The decline in book value results in part from falling stock prices and higher losses on derivatives contracts, and comes on top of a 9.6 percent decline last year, the biggest drop since Buffett began running the company in 1965.
Buffett acknowledged that Berkshire will probably lose money on derivatives tied to the credit quality of junk bonds, though he still expects to make money on a much larger and longer-term derivatives bet that stock prices will rise.
Berkshire's cash stake fell to about $22.7 billion on March 31 from $25.5 billion at year end, Buffett said. Berkshire expects to report results on May 8.
The outlook punctuated a meeting that had a decidedly more serious and somber tone from years past as many investors expressed worries about the economy, Berkshire's investments, and how long the 78-year-old Buffett plans to stay on the job.
Half the questions were pre-screened by journalists, providing a tougher and more substantive dialogue with Buffett and his 85-year-old vice chairman, Charlie Munger.
Berkshire's stock has fallen 39 percent since December 2007, but Buffett said no stock buybacks are planned because Berkshire's share price is not "demonstrably below" the company's intrinsic value. Profit fell 62 percent last year.
Buffett offered a gloomy forecast for parts of the economy and Berkshire itself, saying some units are laying off workers as managers "look at the reality of the current situation."
He also said massive federal efforts to stimulate activity could pay off, at a possible cost of higher inflation.
"It has been a very extraordinary year," Buffett said. "When the American public pulls back the way they have, the government does need to step in.... It is the right thing to do, but it won't be a free ride."
DERIVATIVES
Buffett said housing prices have yet to stabilize broadly, that retailers may be under pressure for a "considerable period of time," and that he would not buy most U.S. newspaper
companies "at any price."He also said that in insurance, which comprises about half of Berkshire's operations, the earnings power "was not as good last year as normal" and "won't be as good this year."
Buffett had transformed Berkshire from a failing textile maker into a company with close to 80 businesses that sell such things as Geico car insurance, paint, ice cream and underwear.
Buffett is often considered the world's greatest investor, but recent missteps have prompted speculation the world's second-richest person has lost his touch.
Berkshire still has three internal candidates to replace him as chief executive, including one the board could appoint immediately if the occasion arose.
Buffett said the four candidates to replace him as chief investment officer failed in 2008 to outperform the Standard & Poor's 500, which fell 38 percent that year.
But he said the candidates' performance has been "modestly to significantly better than average" over 10 years, and that he was confident they could repeat that in the next 10 years.
Marc Rabinov, a shareholder from Melbourne, Australia, who said he was attending his 13th meeting, called succession a "big problem." But he added: "They are very good at being able to assess character, and that's the most important thing about who replaces him."
Much of the worry about Berkshire has focused on Buffett's use of derivatives in making long-term bets on the direction of stocks and junk bonds, and which have so far resulted in billions of dollars of paper losses.
While Buffett still expects the contracts tied to equity stock indexes to make money, he said "we have run into far more bankruptcies in the last year than is normal."
He said he now expects the contracts tied to credit defaults, which mature between 2009 and 2013, will show a loss before investment income, and perhaps after as well.
Buffett distinguishes his derivatives from others, given that he collects billions of dollars of premiums upfront to invest and posts little collateral. He called other derivatives "a danger to the system. There is no question about that."
CONFIDENCE IN BANKS
Buffett expressed confidence in Wells Fargo & Co, one of Berkshire's biggest investments, saying it has "by far the best competitive position" of any large U.S. bank.
He noted that Wells Fargo shares fell below $9 earlier this year, and that at that price, "If I had (to) put all of my net worth into stock, that would be the stock." The bank's shares closed Friday at $19.61.
Buffett added that if he wanted to turn Berkshire into a bank holding company, "I would love to buy all of US Bancorp, or I would love to buy all of Wells."
He also defended Berkshire's roughly 20 percent stake in Moody's Corp, and said the credit rating agency "made a huge mistake" but was not alone in failing to foresee the housing and credit crisis. He also said "the rating agency business is probably still a good business."
Buffett also said Berkshire can weather its recent loss of its "triple-A" credit ratings from Moody's and Fitch ratings. "The 'triple-A' is not going to be material to Berkshire," he said, "but it still irritates me."
While declining to name candidates to replace him as chief executive officer and chief investment officer, Buffett said "it would be impossible" to replace Ajit Jain, who runs much of his insurance businesses and whom investors believe is a CEO contender. "We won't find a substitute for him," Buffett said.
Buffett also said that while Berkshire is less nimble than when it was smaller, "our sustainable competitive advantage is we have a culture and business model that people would find very, very difficult to copy."
Munger added that "the stupidity in the management practices of the rest of the corporate world" will likely benefit Berkshire in the future.
(Reporting by Jonathan Stempel and Lilla Zuill, editing by Vicki Allen)
http://www.reuters.com/article/businessNews/idUSN0236003720090503?feedType=RSS&feedName=businessNews&sp=true
Related News
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02 May 2009
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02 May 2009
Buffett says Wells Fargo to ride out credit crisis
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Buffett offers bleak outlook for U.S. newspapers
12:33am EDT
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Buffett: Berkshire may lose money on some derivatives
02 May 2009
Buffett says candidates to replace him did not beat S&P 500
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FACTBOX: Berkshire's Buffett on succession, acquisitions
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FACTBOX: Berkshire Hathaway at a glance
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