Warren Buffett speaks to UGA students

Uncovering the best value stocks****

Dow Hits All-Time High: What’s Next?

Dow Jones Industrial Average (^DJI) burst higher in early trading today, eclipsing the previous closing high of 14,164 set on October 9, 2007. As it stands, the DJIA is also trading above the record intraday high of 14,198.

These breakouts have the ability to run for a while and don't necessarily trigger an instant sell-0ff.

For now, the new record will usher in a moment of euphoria, a brief round of hand shakes, and a boatload of analysis as to which stocks and sectors will lead the way now and how much further this four-year old bull run can go.

http://finance.yahoo.com/blogs/breakout/dow-hits-time-high-next-lofty-stock-market-161851791.html

Warren Buffett Intrinsic Value Calculation

How do we determine the intrinsic value of a company?

"Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life." - Warren Buffett

"As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, will almost inevitably come up with at least slightly different intrinsic value figures." - Warren Buffett

Warren Buffett Stock Basics

Warren Buffett on Investing Small Sums

Buffett Explains The Three Types of Investments

Sucker Rally

Sucker Rally

A temporary rise in a specific stock or the market as a whole. A sucker rally occurs with little fundamental information to back the movement in price. This rally may continue just long enough for the "suckers" to get on board, after which the market or specific stock falls.

Also known as a "dead cat bounce" or a "bull trap."

Investopedia Says: 
A sucker rally is a buzz word describing a rise in price that does not reflect the true value of the stock. For example, suppose that two high-tech companies, "A" and "B", see an increase in stock price due to reporting strong financial statements, and a separate high-tech, company "C," sees a rise in stock price. If the real reason for the rally turns out to be because of potential acquisitions of A and B, then C will have had a sucker rally, rising along with A and B. 

What most schools don't teach

Learn computer programming, you would benefit from knowing about code.  
Computer programming is an empowering skill to learn.

Singapore to raise property tax rates for luxury homeowners

WRITTEN BY BLOOMBERG

TUESDAY, 26 FEBRUARY 2013 17:54

Singapore plans to raise taxes for luxury homeowners and investment properties, widening a four- year campaign to curb speculation after prices in Asia’s second- most expensive housing market rose to a record. The higher tax will apply to the top 1% of homeowners who live in their own residences, or 12,000 properties, Singapore Finance Minister Tharman Shanmugaratnam said in his budget speech yesterday, without giving a definition of what constitutes a high-end home. The government will also raise tax rates for vacant investment properties or those that are rented out, he said. Singapore joins Hong Kong in extending anti-speculation measures as low interest rates and capital inflows drive up demand and make housing unaffordable. Residential prices in Singapore climbed to a record in the fourth quarter as an increase in the number of millionaires drove up demand. “The graduated property tax on luxury properties may impact investors, particularly corporates and high-net-worth investors,” Petra Blazkova, head of CBRE Research for Singapore and Southeast Asia said in a statement. “It may put pressure on the holding cost of investment properties held by developers and investors.” The property index tracking 39 developers fell 1.2% to a one-month low at the close in Singapore. CapitaLand, Singapore’s biggest developer by assets, declined 1.5% to $3.86. City Developments, the second largest, slid 1.8% to $11.15. HONG KONG Singapore’s latest efforts were announced three days after Hong Kong increased property taxes. The Hong Kong government last week doubled sales taxes on property costing more than HK$2 million ($319,900) and targeted commercial real estate for the first time as bubble risks spread in the world’s most expensive place to buy an apartment. “The property tax is a wealth tax and is applied irrespective of whether lived in, vacant or rented out,” Shanmugaratnam said. “Those who live in the most expensive homes should pay more property tax than others.” For a condominium occupied by the owner in Singapore’s central region with an assessed annual rental value of $70,000, the tax will rise 5% to $2,780, according to the budget statement. If that home is rented out, the tax will climb 21% to $8,500, according to an example highlighted in the statement. Based on a 3% rental yield, that property is worth $2.3 million. Gains in levies for properties assessed at higher rental values will also increase at a faster pace, it said. For a house with an assessed rental value of S$150,000, worth $5 million based on the same yield assumption, the tax will rise 60% to $24,000. The revised taxes will take full effect from January 2015, according to the statement. Singapore is Asia’s most-expensive housing market after Hong Kong, according to a Knight Frank LLP and Citi Private Bank report released last year that compared 63 locations globally. http://www.theedgesingapore.com/the-daily-edge/business/42916-singapore-to-raise-property-tax-rates-for-luxury-homeowners-updated.html

While stocks are certainly getting pricier, they do not appear to be irrationally overvalued.

Nine reasons to smile about the stock market

By John Wasik

CHICAGO | Mon Feb 25, 2013 5:51pm EST

(Reuters) - Over the past few months, it has been much easier to make a case that widespread financial anxiety is easing, although trying to quantify the upsurge can be like trying to catch a frog. As soon as you grab for it, it jumps.

At the beginning of last year, investors were grouchy about nearly everything and kept putting money into bond funds, while the stock market slipped. Then numerous economic indicators started pointing north and sour global financial news became less prevalent, and the tide turned as money started flowing out of bonds and into stocks.

As financial anxiety eases, investors feel they can take more risk and worry less about the worst-case scenario. This is good news for the overall economic picture in the United States.

While there are sure to be bumps in coming months, the prevailing trend is for a sluggish recovery in the United States and abroad and the current stock rally - the S&P 500 index is up more than 6 percent year to date through February 22 - might continue to be bolstered by the Fed's easing policy.

For sure, it seems brighter days lie ahead and here is why:

* The tide seems to be turning on the major fears: The euro zone probably won't collapse, the U.S. is continuing to rebound and hyperinflation is not around the corner. Meager inflation and interest rates combined with less global anxiety will give legs to the current stock rally. It's as if the mass psychology of pessimism has turned a corner.

* Although the U.S. economy is not adding enough jobs to fuel a robust recovery, that is still a positive for stocks since it means the Federal Reserve will keep its quantitative easing policy in place in some form. Interest rates held at nearly zero translate into low financing costs for nearly every company.

While low interest is still a losing game for savers in search of yields, those willing to take more risk will return to the stock market and find it there. Just keep in mind that once the jobless rate reaches 6.5 percent, the Fed might change its mind and raise rates. But that doesn't appear on anybody's radar screen at the moment.

* Consumer optimism is also building, although it is more like a slow dripping faucet than a geyser. According to the National Association of Business Economists (NABE) outlook released on Monday, consumer spending is forecast to rise to 2.4 percent next year from just under 2 percent this year.

* Business spending is turning around. Companies spend money when they sense an improving economic climate. A Thomson Reuters survey released on Friday found that spending plans by S&P 500 companies are exceeding analyst estimates. That translates into more capital expenditures and hiring.

* The U.S. real estate market continues to mend. Even more important in the NABE forecast is its forecast that residential investment is expected to grow nearly 15 percent over the next year along with higher home prices and housing starts. That will stoke the wealth effect as homeowners feel more of a cushion from real estate and invest more discretionary income in stocks.

* Low inflation - and the diminished expectation of hyper-inflation - also plays well on Wall Street. One signal that inflation angst is easing is the price of gold and investors who trade in it. Money management company PIMCO, the world's largest bond-fund manager; and leading hedge-fund managers George Soros and Julian Robertson all reduced their stakes in the SPDR Gold Shares ETF, the largest exchange-traded fund that holds pure bullion, according to regulatory filings.

All of this signals that these influential investors are perhaps less worried about the financial climate in the West and inflation in particular. Since the SPDR ETF is a direct investor in gold, it is one of my favorite proxy anxiety indexes. When its price rises, it is a sign of skittishness about economic health, the dollar's value and inflation. When it drops, it shows that nervousness is abating.

* Money flowing out of gold probably is not heading into bond funds. Sanguine investors are more at ease with higher stock risk premiums. In the past year, the SPDR fund has dropped nearly 5 percent (through January 30), with losses in the past one and three months. Its volume on February 20 was more than six times what it was November 20 of last year, so there a lot of dollars moving in and out of the fund.

Bullion prices have been steadily falling since last October. During the same period that gold has been declining in value, U.S. stocks have been on a steady rise. The SPDR S&P 500 ETF, which tracks the largest American stocks, has gained 16.5 percent year-to-date through January 30. When investors are optimistic, that is a sign that overall anxiety has possibly dropped.

* Investors are generally upbeat. While overall consumer confidence is not entirely robust, according to the Conference Board and Rasmussen Indexes, investors are still favoring the stock market. A one-year stock confidence index tracked by the Yale School of Management's International Center for Finance shows that some 72 percent of individuals and institutions think the stock market will rise in the coming year.

* Stocks might not be overvalued. The CAPE index prepared by Yale professor Robert Shiller, which shows a "cyclically adjusted price-earnings" ratio reflecting inflation-adjusted earnings from the previous decade, indicates an above-average valuation for stocks, although they are not anywhere near where they were in 2000, just before the dot-com crash. The CAPE ratio is currently at 23 and the average is 16.46. In 2000, the index was at 44, when stocks were incredibly overvalued. While stocks are certainly getting pricier, they do not appear to be irrationally overvalued.

One caveat is what happens with the U.S. budget sequester, which will trigger some $85 billion in federal spending cuts, beginning on March 1. If it is not resolved soon, the budget cuts might roil the U.S. economy and markets.

http://www.reuters.com/article/2013/02/25/us-column-wasik-anxiety-idUSBRE91O17M20130225

Comment:  

Faith in equities was at an all-time low as equity markets collapsed in 2008 and continued to do so during the start of 2009.

It is moments of maximum pessimism that the seeds of fantastic investment performance are sown.  

Mr. Market, in his usual modus operandi, is not discriminating between healthy, solid businesses, versus severely impaired businesses during these times.

For the true value investor, this historic market sell-off has created investment opportunities of historic proportions.  

As Buffett said in October 2008, "If you wait for robbins, spring will be over."

Benjamin Graham and his profound investment principles

Graham had become well known during the 1920's.  At a time when the rest of the world was approaching the investment arena as a giant game of roulette, he searched for stocks that were so inexpensive they were almost completely devoid of risk.  

One of his best known calls was the Northern Pipe Line, an oil transportation company managed by the Rockefellers.  The stock was trading at $65 a share, but after studying the balance sheet, Graham realized that the company had bond holdings worth $95 for every share.  The value investor tried to convince management to sell the portfolio off, but they refused.  Shortly thereafter, he waged a proxy war and secured a spot on the Board of Directors.  The company sold its bonds off and paid a dividend in the amount of $70 per share.

When he was 40 years old, Graham published "Security Analysis", one of the greatest works ever penned on the stock market.  At the time, it was risky; investing in equities had become a joke [the Dow Jones had fallen from 381.17 to 41.22 over the course of three to four short years following the crash of 1929]. It was around this time that Graham came up with the principle of "intrinsic" business value - a measure of a businesses' true worth that was completely and totally independent of the stock price. Using this 'intrinsic value', investors could decide what a company was worth paying for - and make investment decisions accordingly.  His subsequent book, "The Intelligent Investor" [which Warren celebrates as "the greatest book on investing ever written"] introduced the world to Mr. Market - the greatest investment analogy in history.

Through his simple yet profound investment principles, Graham became an idyllic figure to the twenty-one year old Buffett. 

http://beginnersinvest.about.com/library/titans/nwarrenbio.htm

For Buffett, the Long Run Still Trumps the Quick Return

DECEMBER 3, 2012

BY ANDREW ROSS SORKIN

Donald Bowers/Getty Images for FortuneWarren Buffett at a New York book party for “Tap Dancing to Work,” by Carol Loomis.

“If somebody bought Berkshire Hathaway in 1965 and they held it, they made a great investment — and their broker would have starved to death.”

Warren E. Buffett was sitting across from me over lunch at a private club in Midtown Manhattan last week, lamenting the current state of Wall Street, which promotes a trading culture over an investing culture and offers incentives for brokers and traders to generate fees and fast profits.

“The emphasis on trading has increased. Just look at the turnover in all of the stocks,” he said, adding with a smile: “Sales people have forever gotten paid by selling people something. Generally, you pay a doctor for how often he gets you to change prescriptions.”

“You can’t buy 10 percent of the farmland in Nebraska in three years if you set out to do it,” he said. Yet, he pointed out, he was able to buy the equivalent of 10 percent of I.B.M. in six to eight months as a result of the market’s liquidity. “The idea that people look at their holdings in such a way that that kind of volume exists means that to a great extent, it’s a casino game,” he said. Of course, unlike many investors, he plans to hold his stake in I.B.M. for years.Mr. Buffett, 82, is famous for investing in companies that he sees as solid operations and essential to the economy, like railroads, utilities and financial companies, and holds his stakes for the long run. The argument that the markets are better off today because of the enormous amount of liquidity in the stock market, a function of quick flipping and electronic trading, is a fallacy, he said.

Mr. Buffett was in a reminiscing mood about a bygone era, in part because he was in New York to make the rounds on television to discuss a new book chronicling his 61-year career, which began in 1951 at Buffett-Falk & Company in Omaha. (After lunch, he was going to visit “The Daily Show With Jon Stewart.”)

The book, “Tap Dancing to Work,” by a longtime journalist and good friend of his, Carol Loomis of Fortune magazine, is a compendium of articles that she and others wrote in Fortune that creates a series of narratives spanning the arc of his career.

Ms. Loomis, who first met Mr. Buffett in 1967 — and whose long career is a story unto itself — also came to our lunch. Ms. Loomis may know more about Mr. Buffett than he knows about himself. (“There’s nothing here you’re going to like,” she said, after surveying the various pies when the dessert cart came around. She was right: he took a quick look and asked if they served ice cream. They did.)

As we talked about the “good old days” — he spoke of some of his early friends who were successful hedge fund investors, like Julian Robertson, who founded Tiger Management — it became clear that he was less enamored of the investor class of the next generation.

When I asked, for example, if there were any private equity investors that he admired, he flatly replied: “No.”

When I asked if he followed any hedge fund managers, he struggled to name any, before saying that he liked Seth Klarman, a low-key value investor who runs the Baupost Group, based in Boston.

“They’re not as good as the old ones generally. The field has gotten swamped, so there’s so much money playing and people have been able to raise money by just saying ‘hedge fund,’” he said. “That was not the case earlier on; you really had to have some performance for some time before people would put money with you. It’s a marketing thing.”

For a moment, he paused, and then posited that if he started a hedge fund today, “I’d probably grow faster, because a record now would attract money a lot faster,” speculating that his record of returns would attract billions of dollars from pension funds and others. But he then acknowledged a truism of investing that he knows all too well, as the manager of an enterprise that is now worth some $220 billion: “Then money starts getting self-defeating at a point, too.”

Until 1969, Mr. Buffett operated a private partnership that was akin in some ways to a modern hedge fund, except the fee structure was decidedly different. Instead of charging “2 and 20” — a 2 percent management fee and 20 percent of profits — Mr. Buffett’s investors “keep all of the annual gains up to 6 percent; above that level Buffett takes a one-quarter cut,” Ms. Loomis wrote. However, in 1969, he announced he would shutter his partnership. “This is a market I don’t understand,” he said, according to Ms. Loomis.

He believed that the stock market of 1968 had become wildly overpriced — and he was right. By the end of 1974, the market took a tumble. Instead, he remained the chief executive of Berkshire Hathaway, one of his early investments.

“If you want to make a lot of money and you own a hedge fund or a private equity fund, there’s nothing like 2 and 20 and a lot of leverage,” he said over a lunch of Cobb salad. “If I kept my partnership and owned Berkshire through that, I would have made even more money.”

Mr. Buffett says he now considered himself as much a business manager as an investor. “The main thing I’m doing is trying to build a business, and now we built one. Investing is part of it but it is not the main thing.”

Today, Mr. Buffett is particularly circumspect about the investment strategies that hedge funds employ, like shorting, or betting against, a company’s stock. He used to short companies as part of a hedging strategy when he ran his partnership, but now he says that he and Charlie Munger, his longtime friend and vice chairman of Berkshire, see it as too hard.

“Charlie and I both have talked about it, we probably had a hundred ideas of things that would be good short sales. Probably 95 percent of them at least turned out to be, and I don’t think we would have made a dime out of it if we had been engaged in the activity. It’s too difficult,” he explained, suggesting that the timing of short investments is crucial. “The whole thing about ‘longs’ is, if you know you’re right, you can just keep buying, and the lower it goes, the better you like it, and you can’t do that with shorts.”

One of his big worries these days is about what’s going to happen to all the pension money that is being invested in the markets, often with little success, in part because investors are constantly buying and selling securities on the advice of brokers and advisers, rather than holding them for the long term. “Most institutional investors, whoever is in charge — whether it’s the college treasurer or the trustees of the pension fund of some state — they’re buying what they’re sold.”

Most pension funds probably didn’t buy Berkshire in 1965 and hold it, but if they had, they would have far fewer problems today. At the end of her book, Ms. Loomis notes that when she mentioned Mr. Buffett’s name for the first time in Fortune magazine in 1966 — accidentally spelling Buffett with only one “t” — Berkshire was trading at $22 a share. Today it is almost $133,000 a share.

http://dealbook.nytimes.com/2012/12/03/for-buffett-the-long-run-still-trumps-the-quick-return/

Million Dollar Traders (Full Series 1 of 3)

Bruce Greenwald on Value Investing

Do not miss his comments @ 9 minutes on Buffett's buying of Washington Post in Summer of 1972.  The share price of Washington Post dropped 45% after he bought; and it was still a great investment.

If you behave the way such as Graham and Dodds prescribe, there are no bad days in the market.  When the market is down, you got bargains and it is lovely to think of what you are buying at low prices. When the market is up, the bargains are gone, but you are rich.

Bruce Greenwald on Intelligent Investing - Forbes Interview - June 2010

Bruce Greenwald on Value Investing

What Do Investors Do in Volatile Stock Market?

What Do Investors Do in Volatile Stock Market?
Volatile Markets Increase Risk for Long-Term Investors



The stock market is volatile.

Sometimes it is more volatile than others. I think it is safe to assume the stock market will be more volatile in the future than it has been in the past.

What does this mean for long-term investors?

It means, among other things, that you should be careful about when you buy and when you sell.

If that seems simplistic, it is still the best advice for long-term investors.

On the sell side, plan on reducing your exposure in stocks at least five years before you need the money.

If the stock market zooms up, don’t be afraid to sell sooner than you planned.

The reason is in volatile markets the danger of a horrendous fall is greater now than it probably ever has been.

High frequency trading and other automated buy/sell systems can turn a small decline into to a free-fall (or light a fire under a small push up).

There’s no way to predict when prices will return after a dramatic rise or fall – they could come back quickly or not.

Likewise, if you are still more than five years away from needing the cash (typically at retirement) and the market does a nose-dive, don’t be afraid to pickup some bargains.

As market volatility increases, long-term investors must ask themselves if they have the risk tolerance to see five, even ten percent daily losses or gains.

Volatility simply makes investing in stocks more risky. If you have time to wait out extreme dips, you will probably be OK.

Traders may (or more likely, may not) make money in volatile markets, however long-term investors face disaster if they wait until the last moment to cash out of stocks.

Don’t put yourself in the position of needing the cash out of your investments in the near term (less than five years).


http://stocks.about.com/od/advancedtrading/a/051010volatilestocks.htm

If the stock market is so volatile, why would I want to put my money into it?

Question:   If the stock market is so volatile, why would I want to put my money into it?

In this question, volatility refers to the upward and downward movement of price. The more prices fluctuate, the more volatile the market is, and vice versa. Now, to answer this question, we must ask another one: is the stock market really volatile?

The answer is, "Yes, it is … sometimes." The market is volatile, but the degree of its volatility adjusts over time. Over the short term, stock prices tend not to climb in nice straight lines. A chart of day-to-day stock prices looks like a mountain range with plenty of peaks and valleys, formed by the daily highs and lows. However, over months and years, the mountain range flattens into more of a gradual slope. What this implies is that if you are planning to hold a stock for the long term (more than a few years), the market instantly becomes less volatile for you than for someone who is trading stocks on a daily basis.

And in some cases, short-term volatility is seen as a good thing, especially for active traders. The reason for this is that active traders look to profit from short term movements in the market and individual securites, the greater the movement or volatility the greater the potential for quick gains. Of course, there is the real possibility of the quick losses, but active traders are willing to take on this risk of loss to make quick gains.

A long-term investor, on the other hand, doesn't have to worry about this day-to-day volatility of the market. As long as the market continues to climb over time, as it has historically, your good investments will appreciate and you'll have nothing to worry about. Because of this long-term appreciation, many choose to invest in the stock market.


Read more: http://www.investopedia.com/ask/answers/03/070403.asp#ixzz2KBrWomXz

Volatility and the Stock Market

Is market volatility running high or is it running low (maybe too low)?

I've read several news articles just this week saying the market is increasingly volatile. I've also seen analyses expressing surprise that volatility hasn't jumped higher as the S&P has slid 7.2% from its September high.

The answer is that volatility-as measured by the CBOE Volatility Index (VIX)-is right now on the borderline between historical "high" and "low."

The VIX is based on S&P options, where option pricing reflects traders' volatility expectations. When options are expensive (relative to stock price, etc.), it means traders are betting on high volatility; when options are cheap, it means traders are betting on low stock volatility. The VIX index quantifies what volatility traders "must be" expecting.

Analysts generally use the VIX as a measure of investor sentiment. High VIX reflects high uncertainty. And because markets are usually more volatile when prices are falling, a high VIX can also suggest high expectations for falling prices.

A low VIX means low expected volatility, which is more associated with expectations of rising prices.

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What's high and what's low depends on the time span you consider. The 20-year chart below shows four alternating VIX eras; low from 1993 to 1996, then high from 1997 to 2003, then low again from 2003 to 2007, and back to high from 2007 on. The dividing line between high and low is in the area of .14 to .18. The VIX is currently at .16, right in that boundary zone.

Relative to the "high" VIX era that started in 2007 (ranging all the way from .14 to .80), current volatility is very low. Even setting aside that astonishing VIX spike up to .80 in late 2008 (the height of the financial crisis), current readings are at about one-third the levels posted in short bursts in 2010 and 2011.

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The second chart takes a closer look at the last three years. It shows four occasions when VIX dipped down to (and a little below) the current level.

The first low was in April 2010, followed by a sharp spike as the market corrected for three months. The second low was in April-May 2011, again followed by a VIX spike as the market corrected for five months. The third occasion was in March 2012, followed by a less dramatic VIX rise as the market corrected for two months. The final VIX low of these three years was in September 2012, and the market has pulled back for the two months since.

The VIX has been rising as the market retreated over these last two months. But it hasn't risen very much, and it's still in that borderline zone between high-eras and low-eras. For now (until proven otherwise), the presumption has to be that volatility is still low in a continuing high-VIX era, rather than (potentially) high in a new low-VIX era.

What does it all mean? Simply that additional market weakness is unlikely unless/until either (a) VIX spikes higher again, or (b) the market enters a new low-VIX era by sliding down below the boundary zone to about .14 to .16.

http://www.nasdaq.com/article/volatility-and-the-stock-market-cm191664#.URNAFB11_wM