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

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

Sunday 1 August 2010

Warren Buffett: History of Assets owned by Berkshire Hathaway and its investments

http://blog.moneydesktop.com/warren-buffets-investment-history/

The Top 10 Most Profitable Public Companies in the World

Top 10 Profitable Companies in China

http://www.chinadaily.com.cn/business/2009annualreports/index.html

Profitable Company

Sun Tzu & The Art of War - Applied to Portfolio & Risk Management

It would be helpful for you to have these two texts, especially Clavell's, to reference as you read through these comments.

Once you get past the first section of these comments, Application of Selected Sun Tzu Phrases To Portfolio Management and Risk Management, the following sections are organized to follow the chapter titles in Clavell's book; with Griffith's chapter titles in parentheses, and quotes treated as supplemental information.

Within each chapter section, before each Clavell quote or series of quotes, I have inserted a brief heading label that characterizes the substance of the quote(s) and the companion portfolio management and risk management corollaries.

	• Selected Phrases - Application of Selected Sun Tzu Phrases To Portfolio Management and Risk Management
	• Chapter I - Laying Plans (Estimates)
	• Chapter II - On Waging War (Waging War)
	• Chapter III - *The Sheathed Sword* (Offensive Strategy)
	• Chapter IV - Tactics (Dispositions)
	• Chapter V - Energy (Energy)
	• Chapter VI - *Weak Points & Strong* (Weaknesses and Strengths)
	• Chapter VII - *Maneuvering* (Maneuvre)
	• Chapter VIII - Variation Of Tactics (The Nine Variables)
	• Chapter IX - The Army On The March (Marches)
	• Chapter X - Terrain (Terrain)
	• Chapter XI - The Nine Situations (The Nine Varieties of Ground)
	• Chapter XII - *Attack By Fire* (Attack by Fire)
	• Chapter XIII - *The Use Of Spies* (Employment of Secret Agents)
	• Summary - Summary of The Art Of War as applied to Portfolio and Risk Management.

http://www.strategies-tactics.com/suntzu.htm

Business Strategy, Planning and Execution

Dynamic Portfolio Management Process

The goal is Return Optimization.

Investment Success Is Hard

CREATING INVESTMENT SUCCESS STORIES
Our investment philosophy is based on some long-term observations:

Most capital markets are highly efficient. Outperforming them is difficult and means increasing risk and costs. Many investors rationally seek these returns, but caution is essential.
Risk matters. Risk control can avoid painful surprises and ensure that an investment program is maintained during difficult periods.
Costs matter. They matter so much that they can mean the difference between success or failure. In particular, if the portfolio pays taxes, tax efficiency is paramount.

The arithmetic of investing is unforgiving.
Costs are certain, volatility dampens growth, and returns are difficult to predict. This sobering reality means long-term investment success is very often the result of portfolio structure and attention to detail.

http://www.parametricportfolio.com/

Personalized Wealth Management Solutions

Our approach is best reflected in our portfolio management principles:

In partnership with our clients
Big Picture fit
Wealth preservation first
Focus on absolute returns

http://www.bfi-wealth.com/index.php?id=24

Portfolio Management and Research

A multi-agent architecture to the problem of financial portfolio management.

The interface agent or portfolio manager interacts primarily with the human user as shown in the uppermost part of the diagram, while the set of analysis or task agents coordinate, decompose, and delegate tasks received from the interface agent or from other task agents. Information agents monitor stock and other financial sources. Data culled from the infosphere and stored locally by information agents are sent to one or more task agents upon request, and, following a process of data analysis and integration at the task agent level, are ultimately displayed to the user via the interface agent.

The user's portfolio manager displays a comprehensive summary of the user's portfolio. The interface also allows the user to buy and sell stocks and to request the preparation of a Financial Data Summary or fundamental analysis of the user's stock holdings. The other display available to the user is a price/news graph that dynamically integrates intra-day trading prices and news stories about a stock.

http://www.cs.cmu.edu/~softagents/warren.html

Options Usage in Equity Portfolio Management

Options are a financial instrument that can be considered whenever equity fund managers seek to:

Generate extra returns: by writing options and collecting premium income when your market view is that you are happy to cap upside
Reduce risk: by buying put options as insurance, or by writing premium income which cushions downside price moves
Reduce transactions costs: by gaining exposure to stocks or an index using options, rather than paying full stock transactions costs
Reduce market impact costs of acquiring stock: by accumulating exposure via options, and then selling those options when the required stock weight has been reached.
Capital gains implications: because you can effectively sell stock by selling call options, capital gains implications can be managed.

The diagram bellow demonstrates how equity portfolio managers can expand the range of portfolio outcomes by using various options strategies.

The yellow (centre) choices of neutral, long or short stock can be augmented by a range of strategies that enhance yield (blue circles) and that protect the portfolio (red circles).

http://www.asx.com.au/products/indices/types/buy_write/options_portfolio_mgmt.htm

A sound financial plan must address the insurance coverages you, your spouse and family members may require.

Risk Management
A sound financial plan must address the insurance coverages you, your spouse and family members may require.

Life insurance is used to pay for funeral expenses, repay outstanding debts, make charitable donations and provide living expenses for surviving family members. It can also be used to cover estate taxes and probate fees to enable your estate to be liquidated in the most appropriate manner.
Disability income insurance^§ is to help partially replace income of persons who are unable to work because of sickness or accident. In terms of its financial effect on the family, long-term disability can be just as severe as death. Disability income protection can come from several sources: social insurance programs, employer-provided benefits, and individually purchased policies.
Long Term Care Insurance- Long Term Care Insurance is still a relatively new type of insurance product. Many people do not understand what long-term care insurance policies cover, how and when the policies pay benefits, and who should obtain coverage.

http://www.cspgllc.com/section2.cfm

Typical Portfolio Management Process

Your investment choice should focus on meeting your financial goals. During this process, you should consider current and future growth objectives, income needs, time horizon and risk tolerance. These considerations form the blueprint for developing a portfolio management strategy. The process involves, but is not limited to, the following important stages.

Set investment objectives
Develop an asset allocation strategy
Evaluate/Select investment vehicle
Portfolio review -- Ongoing portfolio monitoring

http://www.cspgllc.com/section2.cfm

My 18 points guide to Successfully compounding your money in Stocks

Be a good stock picker.
Think as a business owner.
Always look at value rather than the price. Do the homework.
Buy and hold is alright for selected stocks.
Compounding is your friend, get this to work its magic.
Mr. Market is there to be taken advantage of. Do not be the sucker instead. BFS;STS.
Always buy a lot when the price is low.
Never buy when the stock is overpriced.
It is alright to buy when the selected stock is at a fair price.
Phasing in or dollar cost averaging is safe for such stocks during a downtrend, unless the price is still obviously too high.
Do not time the market for such or any stocks.
By keeping to the above strategy, the returns will be delivered through the growth of the company's business.
So, when do you sell the stock? Almost never, as long as the fundamentals remain sound and the future prospects intact.
The downside risk is protected through only buying when the price is low or fairly priced.
Tactical dynamic asset allocation or rebalancing based on valuation can be employed but this sounds easier than is practical, except in extreme market situations.
Sell urgently when the company business fundamental has deteriorated irreversibly.
You may also wish to sell should the growth of the company has obviously slowed and you can reinvest into another company with greater growth potential of similar quality. However, unlike point 16, you can do so leisurely.
In conclusion, a critical key to successful investing is in your stock picking ability.

http://myinvestingnotes.blogspot.com/2012/07/my-18-points-guide-to-successfully.html

11 Lessons From Peter Lynch

Peter Lynch taught me:

1. Behind every stock is a company. Find out what it’s doing.
2. Never invest in any idea you can’t illustrate with a crayon.
3. Over the short term, there may be no correlation between the success of a company’s operations and the success of its stock. Over the long term, there’s a 100% correlation.
4. Buying stocks without studying the companies is the same as playing poker – and never looking at your cards.
5. Time is on your side when you own shares of superior companies.
6. Owning stock is like having children. Don’t get involved with more than you can handle.
7. When the insiders are buying, it’s a good sign.
8. Unless you’re a short seller, it never pays to be pessimistic.
9. A stock market decline is as predictable as a January blizzard in Colorado. If you’re prepared, it can’t hurt you.
10. Everyone has the brainpower to make money in stocks. Not everyone has the stomach.
11. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.

Lynch’s advice had a profound effect on my stock market approach. He taught me that investment success isn’t the result of developing the right macro-economic view or deciding when to jump in or out of the market. Success is about researching companies to identify those that are likely to report positive surprises.

Capital Expenditure

A great company with a Durable Competitive Advantage will have a ratio of Capital Expenditures to Net Income of less than 25%. Less is better.

Capital Expenditures are expenses on:
- fixed assets such as equipment, property, or industrial buildings
- fixing problems with an asset
- preparing an asset to be used in business
- restoring property
- starting new businesses

A good company will have a ratio of Capital Expenditures to Net Income of less than 50%.

A great company with a Durable Competitive Advantage will have a ratio of less than 25%.

Less is better.

Benjamin Graham's 113 Wise Words

The true investor scarcely ever is forced to sell his shares, and at all times he is free to disregard the current price quotation. He need pay attention to it and act upon it only to the extent that it suits his book, and no more. Thus the investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage. That man would be better off if his stocks had no market quotation at all, for he would then be spared the mental anguish caused him by other persons' mistakes of judgement."

Philip Fisher's Wise Words

"The refusal to sell at a loss, while completely natural and normal, is probably one of the most dangerous in which we can indulge ourselves in the entire investment process.

More money has probably been lost by investors holding a stock they really did not want until they could 'at least come out even' than from any other single reason. If to these actual losses are added the profits that might have been made through the proper reinvestment of these funds if such reinvestment had been made when the mistake was first realized, the cost of self-indulgence becomes truly tremendous."

(Common Stocks and Uncommon Profits)

The Ultimate Hold-versus-Sell Test

Here is the overriding primary test, followed by observations on why it is so critically important:

Knowing all that you now know and expect about the company and its stock (not what you originally believed or hoped at time of purchase), and assuming that you had available capital, and assuming that it would not cause a portfolio imbalance to do so, would you buy this stock today, at today's price?

No equivocation. Yes or no?

Answers such as maybe or probably are not acceptable since they are ways of dodging the issue. No investor probably buys a stock; they either place an order or do not.

Here is the implication of your answer to that critical test: if you did not answer with a clear affirmative, you should sell; only if you said a strong yes, are you justified to hold.

Some thoughts on Analysing Stocks (KISS)

Ideally a stock you plan to purchase should have all of the following charateristics:

• A rising trend of earnings dividends and book value per share.
• A balance sheet with less debt than other companies in its particular industry.
• A P/E ratio no higher than average.
• A dividend yield that suits your particular needs.
• A below-average dividend pay-out ratio.
• A history of earnings and dividends not pockmarked by erratic ups and downs.
• Companies whose ROE is 15 or better.
• A ratio of price to cash flow (P/CF) that is not too high when compared to other stocks in the same industry.

Margin of Safety Concept: Stocks should be bought like groceries, not like perfume

The high CAGR in the early years of the investing period, due to buying at a discount, tended to decline and approach that of the intrinsic EPS GR of the companies over a longer investment time-frame.

Chapter 20 - “Margin of Safety” as the Central Concept of Investment

A single quote by Graham on page 516 struck me:

Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.

Basically, Graham is saying that most stock investors lose money because they invest in companies that seem good at a particular point in time, but are lacking the fundamentals of a long-lasting stable company.

This seems obvious on the surface, but it’s actually a great argument for thinking more carefully about your individual stock investments. If most of your losses come from buying companies that seem healthy but really aren’t, isn’t that a profound argument for carefully studying any company you might invest in?