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, 15 May 2011

What Caused the Great Depression?

Stories from the Great Depression

The Crash of 1929 & The Great Depression (PBS)

1929 Wall Street Stock Market Crash

The most devastating stock market crash in the history of the United States;
Its from my favorite documentary by PBS - New York.

This particular part about Wall Street crash of 1929 is from episode 5 of the series with title: Cosmopolis

There are lots of archive photos, footages and drawings throughout the series and in my opinion it was great work done with finding them.

1929 Stock Market Crash

Warren Buffett Biography pt 1

Warren Buffett's investment advice (Excellent)

Stock Investing for beginners

Here you will find free stock information,and how to buy stocks also and how to day trade.
www.StockInvestingProfits.com

Jim Rogers You Can Make a lot of Money if You do your Homework

Jim Rogers Bares the Secrets of Investing - Bloomberg

Rogers Writes Letter to His Two Young Daughters - Investing Secrets:
1. Question Everything,
2. Never Follow the Crowd, and
3. Beware of Boys

Value Investing: Buy Cheap, Obscure and Out of Fashion

Value Investing Process

Search
- Cheap
- Ugly
- Obscure
- Otherwise ignored

Valuation
- Asset
- Earnings Power
- Franchise

Review
- Key Issues
- Collateral Evidence
- Personal Biases

Risk Management
- Margin of Safety
- Some Diversification
- Patience - Default Strategy

Important Points
- Market Irrationality Creates Opportunity
- Know what you know: Inherent Quality of Information & Circle of Competence
- Look for Margin of Safety

Professor Bruce C. Greenwald discusses his executive education course in value investing and what differentiates the practice from other investment strategies. "Most investors are constitutionally oriented to buying lottery tickets," he says. "And that's what creates the value opportunities for the plodding, careful investors."

For more programs from the Columbia Business School: http://fora.tv/partner/Columbia_Business_School

Saturday, 14 May 2011

Warren Buffett's Secret "Value" Formula

Warren Buffett Value Formula separates weak industries from strong ones.

Warren Buffett's Secret "Value" Formula

Which Industries Does Warren Buffett Avoid?

Is Warren Buffett Really A Value Investor?

Posted: May 6, 2011 11:46AM by Ryan C. Fuhrmann, CFA

TUTORIAL: P/E Ratio

He's one of the most famous investors of all time and has certainly earned his nickname of "The Oracle of Omaha". Warren Buffett has long been hailed as avalue investor. But is that statement still accurate?

What Is Value Investing?

Value investing can mean a number of different things, but is generally meant to refer to a class of investors who look for investments trading at a price below where certain valuation fundamentals suggest they should be trading at. For example, a stock can trade at a price-to-earnings (P/E) or price-to-book (P/B) value below its peers or the market average in general. Overall, value investing is an investment philosophy of finding undervalued securities that should eventually increase in value to be closer in line with (or above) the metrics of rivals or stock market averages.

On the flip side, growth investors are said to be more interested in the growth potential of a security whose underlying company has above-average sales or profit expansion prospects. Given this higher growth potential, a growth investor may be willing to pay above-average P/E, P/B or other valuationmetrics compared to rivals or the market in general.

The value investing crowd has its origins in the 1934 text "Security Analysis" by Benjamin Graham and David Dodd and has been further developed by Warren Buffett, a past student of Graham who has also preached that a security eventually trades up to its intrinsic value. Buffett championed Graham's approach to buy a security with a satisfactory margin of safety, or, in Graham's words, "a favorable difference between price on the one hand and indicated or appraised value on the other." (This simple measure can help investors determine whether a stock is a good deal. For more, see Value Investing Using The Enterprise Multiple.)

Where Does Buffett Fit?

In this context, Buffett is considered a value investor. More specifically, he relies on estimating a firm's future cash flows and discounting them back to the present to get an estimated intrinsic value for a company when it comes to investing in its stock. Intrinsic value is a theoretical value assuming one could know a firm's future cash flows with certainty, so the reality is that it is a very subjective measure and investors may come to widely varying estimations of intrinsic value, even when looking at the same set of data, valuation metrics, etc.

But in the context of value versus growth investing, Buffett is actually a bit of both. In his words, "growth and value investing are joined at the hip" and that understanding is required to find a company and underlying stock with solid growth prospects and a market value well below intrinsic value. The best illustration of this is the growth of Berkshire Hathaway's non-insurance businesses over the past four decades. Below is a chart that Buffett provided in Berkshire's 2010 shareholder letter:

Period	Annual Earnings Growth
1970-1980	20.8%
1980-1990	18.4%
1990-2000	24.5%
2000-2010	20.5%

Over this time period, earnings growth averaged 21% annually while Berkshire's stock price grew at an annual compounded rate of 22.1%, almost completely mirroring the growth in earnings. In this respect, Buffett is the ultimate growth investor because earnings grew about twice the level of the stock market during this period. In Buffett's words from this year's shareholder letter, "market prices and intrinsic value often follow very different paths - sometimes for extended periods - but eventually they meet." (Find out how Mr. Market's mood swings can mean great opportunities for you. See Take On Risk With A Margin of Safety.)

TUTORIAL: DCF Analysis

The Bottom Line

Again, perhaps the most appropriate conclusion to make is that Buffett is both a value and growth investor. At the outset of making an investment, it is reasonable to conclude that he uses a margin of safety by purchasing a stock with valuation metrics that are well below average. But overall, growth has to be there so that the firm can eventually trade up closer to its intrinsic value and growth potential must be well above average to double the market's return over the long haul.

To be a truly successful investor, individuals must take both a value and growth perspective when it comes to spotting undervalued investments andoutperforming the market over time. Valuation multiples including P/E and P/B ratios are a good starting point, but at the end of the day it is also necessary to estimate a firm's growth prospects and cash flows going forward, and come to an independent determination of intrinsic value. (For more, see The 3 Most Timeless Investment Principles.)

Disclosure: At the time of writing Ryan C. Fuhrmann did not own shares in any company mentioned in this article.

http://financialedge.investopedia.com/financial-edge/0511/Is-Buffett-Really-A-Value-Investor.aspx?partner=wbw0511

Interview Warren Buffet in Switzerland: Buying a Business

Invest in what you understand and in business that is easy to evaluate.

Warren Buffet - Investment Strategies

Learn Simple Steps To Become Rich

Personal Finance & Investing : How to Become a Millionaire

How to Become a Millionaire - Money Rule #1

Investment advice by Warren Buffett: His Biggest Mistake

Dumbest investment by Warren Buffett: Berkshire Hathaway

Warren Buffett on Secret of His Success (Excellent)

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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?