Warren Buffett: Time is ticking away

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

Source: Letters to shareholders 1989

Read more: http://www.businessinsider.com/warren-buffett-quotes-on-investing-2010-8?op=1#ixzz1oXEVskKF

Warren Buffett: The Fourth Law Of Motion

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



Source: Letters to shareholders, 2005


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

Warren Buffett: Wonderful v Fair

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


Source: Letter to shareholders, 1989


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

Warren Buffett: Choose sleep over extra profit

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


Source: Letter to shareholders, 2008

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

Warren Buffett: The right moment to strike

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


Source: Businessweek, 1999


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

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

Oriental Holdings Berhad (At a Glance)

8.3.2012
Oriental Holdings
Income Statement
	31/12/2011	31/12/2010	Absolute Chg	Change
	RM (m)	RM (m)
Revenue	3132.23	3220.46	-88.23	-2.74%
Gross Profit			0.00	#DIV/0!
Operating Profit	441.63	341.86	99.77	29.18%
Financing costs	-10.36	-7.81	-2.55	32.66%
PBT	461.26	384.41	76.85	19.99%
PAT	371.20	307.95	63.25	20.54%
PAT (to shareholders)	288.50	249.59	38.91	15.59%
EPS (basic) sen	46.51	40.23	6.28	15.61%
Balance Sheet
NCA	2475.054	2249.009	226.05	10.05%
CA	3530.074	3262.515	267.56	8.20%
Total Assets	6005.128	5511.524	493.60	8.96%
Total Equity	5092.038	4738.73	353.31	7.46%
NCL	30.315	36.096	-5.78	-16.02%
CL	882.775	736.698	146.08	19.83%
Total Liabilities	913.09	772.794	140.30	18.15%
Total Eq + Liab	6005.128	5511.524	493.60	8.96%
Net assets per share	709.230	664.970	44.26	6.66%
Cash & Eq	2882.239	2596.361	285.88	11.01%
LT Borrowings	9.415	11.76	-2.35	-19.94%
ST Borrowings	525.567	406.643	118.92	29.25%
Net Cash	2347.257	2177.958	169.30	7.77%
Inventories	259.525	267.138	-7.61	-2.85%
Trade receivables	359.536	356.18	3.36	0.94%
Trade payables	326.945	316.499	10.45	3.30%
Quick Ratio	3.70	4.07	-0.36	-8.88%
Current Ratio	4.00	4.43	-0.43	-9.70%
Cash flow statement
PBT	461.261	384.412	76.85	19.99%
OPBCWC	415.149	366.555	48.59	13.26%
Cash from Operations	480.743	518.110	-37.37	-7.21%
Net CFO	407.753	407.355	0.40	0.10%
CFI	-94.432	19.695	-114.13	-579.47%
CFF	-17.084	-46.092	29.01	-62.93%
Capex	-53.798	-46.713	-7.09	15.17%
FCF	353.955	360.642	-6.69	-1.85%
Dividends paid	-56.052	-38.772	-17.28	44.57%
DPS (sen)	9.04	6.25	2.79	44.57%
No of ord shares (m)	620.362	620.362	0.00	0.00%
Financial Ratios
Gross Profit Margin	-	-	#VALUE!	#VALUE!
Net Profit Margin	9.21%	7.75%	1.46%	18.85%
Asset Turnover	0.52	0.58	-0.06	-10.73%
Financial Leverage	1.18	1.16	0.02	1.40%
ROA	4.80%	4.53%	0.28%	6.09%
ROC	10.51%	9.75%	0.76%	7.84%
ROE	5.67%	5.27%	0.40%	7.57%
Valuation	8.3.2012	8.3.2011
Price	6.27	5.12	1.15	22.46%
Market cap (m)	3889.67	3176.25	713.42	22.46%
P/E	13.48	12.73	0.76	5.94%
P/BV	0.76	0.67	0.09	13.96%
P/FCF	10.99	8.81	2.18	24.77%
P/Div	69.39	81.92	-12.53	-15.29%
DPO ratio	0.19	0.16	0.04	25.07%
EY	7.42%	7.86%	-0.44%	-5.61%
FCF/P	9.10%	11.35%	-2.25%	-19.86%
DY	1.44%	1.22%	0.22%	18.05%

Recent Financial Results

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

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

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

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

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

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

A criterion of investment vs. speculation:

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

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

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


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

The investor's concept of a margin of safety

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

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

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

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

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


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

Benjamin Graham - The Intelligent Investor

 Summary

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

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

3. Principles of business

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

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

Petronas Gas (At a Glance)

8.3.2012
Petronas Gas
Income Statement
	31/3/2011	31/3/2010	Absolute Chg	Change
	RM (m)	RM (m)
Revenue	3524.95	3221.84	303.11	9.41%
Gross Profit	1787.17	1178.36	608.81	51.67%
Operating Profit	1921.65	1258.50	663.16	52.69%
Financing costs	-20.10	-20.24	0.14	-0.69%
PBT	1901.55	1238.26	663.29	53.57%
PAT	1440.38	935.19	505.18	54.02%
EPS (basic) sen	72.8	47.3	25.50	53.91%
Balance Sheet
NCA	6881.563	6993.848	-112.29	-1.61%
CA	3493.725	2756.563	737.16	26.74%
Total Assets	10375.288	9750.411	624.88	6.41%
Total Equity	8393.908	7942.896	451.01	5.68%
NCL	1542.517	1583.279	-40.76	-2.57%
CL	438.863	224.236	214.63	95.71%
Total Liabilities	1981.38	1807.515	173.87	9.62%
Total Eq + Liab	10375.288	9750.411	624.88	6.41%
Net assets per share	4.242	4.014	0.23	5.68%
Cash & Eq	2756.079	2181.502	574.58	26.34%
LT Borrowings	423.58	437.682	-14.10	-3.22%
ST Borrowings	0	0	0.00	#DIV/0!
Net Cash	2332.499	1743.82	588.68	33.76%
Inventories	100.399	144.017	-43.62	-30.29%
Trade receivables	374.513	338.373	36.14	10.68%
Trade payables	326.728	192.022	134.71	70.15%
Quick Ratio	7.73	11.65	-3.92	-33.64%
Current Ratio	7.96	12.29	-4.33	-35.24%
Cash flow statement
PBT	1901.554	1238.260	663.29	53.57%
OPBCWC			0.00	#DIV/0!
Cash from Operations	2573.192	1794.760	778.43	43.37%
Net CFO	2233.579	1535.141	698.44	45.50%
CFI	-654.443	-321.970	-332.47	103.26%
CFF	-1009.326	-984.386	-24.94	2.53%
Capex	-478.366	-314.717	-163.65	52.00%
FCF	1755.213	1220.424	534.79	43.82%
Dividends paid	-989.365	-963.989	-25.38	2.63%
DPS (sen)	50.00	50.00	0.00	0.00%
No of ord shares (m)	1978.732	1978.732	0.00	0.00%
Financial Ratios
Gross Profit Margin	50.70%	36.57%	14.13%	38.62%
Net Profit Margin	40.86%	29.03%	11.84%	40.78%
Asset Turnover	0.34	0.33	0.01	2.82%
Financial Leverage	1.24	1.23	0.01	0.69%
ROA	13.88%	9.59%	4.29%	44.74%
ROC	23.76%	15.09%	8.68%	57.52%
ROE	17.16%	11.77%	5.39%	45.74%
Valuation	8.3.2012	8.3.2011
Price	16.8	11.7	5.10	43.59%
Market cap (m)	33242.70	23151.16	10,091.53	43.59%
P/E	23.08	24.76	-1.68	-6.77%
P/BV	3.96	2.91	1.05	35.87%
P/FCF	18.94	18.97	-0.03	-0.16%
P/Div	33.60	24.02	9.58	39.91%
DPO ratio	0.69	1.03	-0.34	-33.36%
EY	4.33%	4.04%	0.29%	7.26%
FCF/P	5.28%	5.27%	0.01%	0.16%
DY	2.98%	4.16%	-1.19%	-28.52%

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
22-Feb-12		31-Dec-11		Other	31-Dec-11		921,247		343,978		17.39		-
24-Nov-11		31-Dec-11		Other	30-Sep-11		927,324		350,091		17.70		-
17-Aug-11		31-Dec-11		Other	30-Jun-11		916,553		386,724		19.54		-
11-May-11		31-Mar-11		4	31-Mar-11		891,190		266,563		13.48		-

ttm-EPS  68.11 sen
Price  RM 16.72
PE (ttm) 24.5x

Why Warren Buffett likes IBM?

Finally, we made two major investments in marketable securities:

• (1) a $5 billion 6% preferred stock of Bank of America that came with warrants allowing us to buy 700 million common shares at $7.14 per share any time before September 2, 2021; and 
• (2) 63.9 million shares of IBM that cost us $10.9 billion. (= $170.58 per share)

Counting IBM, we now have large ownership interests in four exceptional companies: 13.0% of American Express, 8.8% of Coca-Cola, 5.5% of IBM and 7.6% of Wells Fargo. (We also, of course, have many smaller, but important, positions.)

This discussion of repurchases offers me the chance to address the irrational reaction of many investors to changes in stock prices. When Berkshire buys stock in a company that is repurchasing shares, we hope for two events:

• First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and 
• second, we also hope that the stock underperforms in the market for a long time as well. 

A corollary to this second point: “Talking our book” about a stock we own – were that to be effective – would actually be harmful to Berkshire, not helpful as commentators customarily assume.

Let’s use IBM as an example. As all business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today.

• Their operational accomplishments were truly extraordinary. 
• But their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. 

Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders.

• The company has used debt wisely, 
• made value-adding acquisitions almost exclusively for cash and 
• aggressively repurchased its own stock.

Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%.

• Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.
• Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares. 

Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?
I won’t keep you in suspense.

• We should wish for IBM’s stock price to languish throughout the five years.

Let’s do the math.

• If IBM’s stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. 
• If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.

If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million#  greater under the “disappointing” scenario of a lower stock price than they would have been at the higher price. *At some later point our shares would be worth perhaps $1 1⁄2 billion more than if the “high-price” repurchase scenario had taken place.

The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares),

• you are hurt when stocks rise. 
• You benefit when stocks swoon. Emotions, however, too often complicate the matter: 

Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.

Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus. And here a confession is in order:

• In my early days I, too, rejoiced when the market rose. 
• Then I read Chapter Eight of Ben Graham’s The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. 
• Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life.

In the end, the success of our IBM investment will be determined primarily by its future earnings.

• But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity. 
• And if repurchases ever reduce the IBM shares outstanding to 63.9 million, I will abandon my famed frugality and give Berkshire employees a paid holiday.

http://www.berkshirehathaway.com/letters/2011ltr.pdf

#   If IBM were to earn, say, $20 billion in the fifth year,  Berkshire's share of profits in the 2 scenarios are as follows:

• 7% of $20 billion = $1.4 billion
• 6.5% of $20 billion = $1.3 billion.
• The difference due to the sharebuyback at lower prices give an extra $100 million in profit.

*At some later point our shares would be worth perhaps $1 1⁄2 billion more than if the “high-price” repurchase scenario had taken place.

I am having difficulty understanding how Warren Buffett derived this $1 1/2 billion figure.   Perhaps, my readers can help me here.   Thanks. 

Guan Chong (At a Glance)

8.3.2012
Guan Chong
Income Statement
	31/12/2011	31/12/2010	Absolute Chg	Change
	RM (m)	RM (m)
Revenue	1,382.80	1,160.06	222.74	19.20%
Gross Profit			0.00	#DIV/0!
Operating Profit	156.667	116.494	40.17	34.49%
Financing costs	-6.598	-5.045	-1.55	30.78%
PBT	150.069	111.449	38.62	34.65%
PAT	124.641	101.383	23.26	22.94%
EPS (basic) sen	38.68	31.63	7.05	22.29%
EPS (diluted) sen	37.27	N/A
Balance Sheet
NCA	250.665	154.497	96.17	62.25%
CA	650.093	329.878	320.22	97.07%
Total Assets	900.758	484.375	416.38	85.96%
Total Equity	268.494	187.145	81.35	43.47%
NCL	23.118	26.804	-3.69	-13.75%
CL	609.146	270.426	338.72	125.25%
Total Liabilities	632.264	297.23	335.03	112.72%
Total Eq + Liab	900.758	484.375	416.38	85.96%
Net assets per share	82.550	74.820	7.73	10.33%
Cash & Eq	13.16	11.414	1.75	15.30%
LT Borrowings	8.917	13.213	-4.30	-32.51%
ST Borrowings	427.672	192.767	234.91	121.86%
Net Cash	-423.429	-194.566	-228.86	117.63%
Inventories	466.392	155.988	310.40	198.99%
Trade receivables	170.337	160.357	9.98	6.22%
Trade payables	161.907	71.817	90.09	125.44%
Quick Ratio	0.30	0.64	-0.34	-53.10%
Current Ratio	1.07	1.22	-0.15	-12.51%
Cash flow statement
PBT	150.069	111.449	38.62	34.65%
OPBCWC	182.743	120.958	61.79	51.08%
Cash from Operations	-54.949	97.135	-152.08	-156.57%
Net CFO	-72.380	85.099	-157.48	-185.05%
CFI	-106.673	-44.423	-62.25	140.13%
CFF	180.136	-38.568	218.70	-567.06%
Capex	-107.002	-40.362	-66.64	165.11%
FCF	-179.382	44.737	-224.12	-500.97%
Dividends paid	-38.932	-18.300	-20.63	112.74%
DPS (sen)	14.00	9.88	4.12	41.70%
No of ord shares (m)
basic	317.957	319.74	-1.78	-0.56%
diluted	330.026	319.74	10.29	3.22%
Financial Ratios
Gross Profit Margin	---%	---%	0.00%	#DIV/0!
Net Profit Margin	9.01%	8.74%	0.27%	3.14%
Asset Turnover	1.54	2.39	-0.86	-35.90%
Financial Leverage	3.35	2.59	0.77	29.62%
ROA	13.84%	20.93%	-7.09%	-33.89%
ROC	18.01%	26.56%	-8.55%	-32.18%
ROE	46.42%	54.17%	-7.75%	-14.31%
Valuation	8.3.2012	8.3.2011
Price	2.6	2.12	0.48	22.64%
Market cap (m)	858.07	677.85	180.22	26.59%
P/E	6.88	6.69	0.20	2.97%
P/BV	3.20	3.62	-0.43	-11.77%
P/FCF	-4.78	15.15	-19.94	-131.57%
P/Div	22.04	37.04	-15.00	-40.50%
DPO ratio	0.31	0.18	0.13	73.05%
EY	14.53%	14.96%	-0.43%	-2.88%
FCF/P	-20.91%	6.60%	-27.51%	-416.75%
DY	4.54%	2.70%	1.84%	68.06%

Recent Financial Results

Announcement Date		Financial Yr. End		Qtr	Period End		Revenue RM '000		Profit/Lost RM'000		EPS		Amended
24-Feb-12		31-Dec-11		4	31-Dec-11		392,438		32,894		10.24		-
09-Nov-11		31-Dec-11		3	30-Sep-11		365,721		26,238		8.16		-
11-Aug-11		31-Dec-11		2	30-Jun-11		334,641		35,377		10.84		-
16-May-11		31-Dec-11		1	31-Mar-11		290,000		30,132		9.44		-