Buy & Hold Investing? Give It Time

Uploaded on 18 Feb 2009
The Wall Street Journal's Jason Zweig shares his unique perspective on buy and hold investing, concluding that one should look at it differently.


Is buy and hold dead?
I don't think it is right.
That is exactly what people say right before buy and hold comes back to life.  
Nobody says that when the Dow was over 14,000 when buy and holding was a dangerous idea.
They only started saying this when the Dow was nearer 8,000.
But it is cheap now and it is inconceivable that buy and hold is a bad idea at Dow 8,000 than at Dow 14,000.

What about the idea of the market being in a long term bear market that could go on for years, like from 1966 to 1982?
Anytime you buy, it is going to take you years to get back to where you were and people should invest more actively.
We may enter at a protracted period when the returns from the market are below average, that doesn't mean that more active trading in and out of stocks are going to increase your returns.
Though the trading costs are lower now than before, the costs are still real.
If you can buy and hold through a protracted period of low returns, the flip side to this is, you are buying at lower market valuation than before.
People who bought and held from 1966 to 1982, or from 1929 to 1940s and 1950s, did quite well.
It was the people who only held who suffered.
If you are going to retire, you had a big problem.
But if you are younger, buying and holding is a spectacular idea.

But when people said to buy and hold, they do not mean, buy once and then do not put another dime in, and wait for it to go up.
They mean buying steadily, not trying to decide  where you think the bottom has bottomed, but keep buying at lower prices regularly.
Maybe we should not talk about investing.
Instead use the term savings.
If you think of putting money into the financial market in the form of savings, you don't expect to get your returns right away.  
You expect to get it over time and certainly that tricks people up.
Certainly, the returns had been terrible recently and if it is going to pay off, you must give it time.

Business Lessons From Billionaire Warren Buffett

Buffett: I would vastly prefer to own common stocks than fixed dollar income investments.

Stocks versus bonds, commodities.
Speculation versus investing.

I like to see what assets produce, rather than what they are worth.
I don't like fixed dollar investments at all.
Real test of asset is if you want it even if price were never quoted again.
I would rather have all the farmland in the U.S. than all the world's gold.
As an investor, I don't worry about where oil prices are going.
Stocks not as cheap as they were, but they still look attractive.
Sentiment has fluctuated while underlying fundamentals steady.
Good businesses are resilient and withstand inflation.
Railroad business is about 60% of the way back from bottom.
U.S. Companies saw great improvement in productivity during downturn.









ublished on 16 Jan 2014
View the original blog post: http://warrenbuffettnews.com/warren-b...

Warren Buffett: You should never sell a good business just to get money, this does not sense.

Warren Buffett on How to Buy a Business: Private Companies vs. Stock Market, Investing




A fair price to us is one where we get our money's worth in terms of future earnings.

Its easier for us to buy private businesses than public businesses.

If we have to pay 20% premium to market, we will generally do not wish to buy them.

If someone with a wonderful company wishes to sell and asked for my advice, I will asked them to just keep it.

If you own a wonderful business in life, the best thing is just keep it.

All you are going to do is to trade your wonderful business for a whole bunch of cash, which isn't as good as the business.

Then you have the problem of investing in other businesses and you probably have to pay the tax in between.

If you can figure out a way to keep your wonderful business, keep it.

Why do people sell? Family dynamics. Sometime, the person loses interest in the business.

YOU SHOULD NEVER SELL A GOOD BUSINESS JUST TO GET MONEY, THIS DOES NOT MAKE SENSE.


PAYING PREMIUMS FOR ELEPHANTS DOES NOT MAKE SENSE.

I DON'T CARE ABOUT LOCATION OF ANY POTENTIAL ACQUISITION.

Warren Buffett talks market all-time highs, says stocks "in a zone of reasonableness"

Market is in a zone of reasonableness at moment. In 5 years time, it will be higher.


"It is very important to talk to children about money very early on."
Warren Buffett

The younger the age at which a person starts his/her businesss determines his/her success.

Charlie Munger: I have seen so many idiots getting rich on easy businesses. Don't buy cheap bargains, but look for very good companies.

Don't buy cheap bargains, but look for very good companies.
I have observed what would work and what would not.
I have seen so many idiots getting rich on easy businesses.
Surely, I am interested in the easy businesses.

Alice Schroeder on How Buffett Values a Business and Invests

On November 20, 2008, Alice Schrooder, author of “The Snowball: Warren Buffett and the Business of Life”, spoke at the Value Investing Conference at the Darden School of Business. She gave some fascinating insights into how Buffett invests that are not in the book. I hope you find them useful.

1. Much of Buffett’s success has come from training himself to practice good habits. His first and most important habit is to work hard. He dug up SEC documents long before they were online. He went to the state insurance commission to dig up facts. He was visiting companies long before he was known and persisting in the face of rejection.
2. He was always thinking what more he could do to get an edge on the other guy.
3. Schroeder rejects those who argue that working harder will not give you an edge today because so much is available online.
4. Buffett is a “learning machine”. This learning has been cumulative over his entire life covering thousands of businesses and many different industries. This storehouse of knowledge allows Buffett to make decisions quickly.
5. Schroeder uses a case study on Mid-Continent Tab Card Company in which Buffett invested privately to illustrate how Buffett invests.
6. In the 1950′s, IBM was forced to divest itself of the computer tab card business as part of an anti-trust settlement with the Justice Department. The computer tab card business was IBM’s most profitable business with profit margins of 50%.
7. Buffett was approached by some friends to invest in Mid-Continent Tab Card Company which was a start-up setup to compete in the tab card business. Buffett declined because of the real risk that the start-up could fail.
8. This illustrates a fundamental principle of how Buffett invests: first focus on what you can lose and then, and only then, think about return. Once Buffett concluded he could lose money, he quit thinking and said “no”. This is his first filter.
9. Schroder argues that most investors do just the opposite: they first focus on the upside and then give passing thought to risk.
10. Later, after the start-up was successfully established and competing, Buffett was again approached to invest capital to grow the business. The company needed money to purchase additional machines to make the tab cards. The business now had 40% profit margins and was making enough that a new machine could pay for itself in a year.
11. Schroeder points out that already in 1959, long before Buffett had established himself as an expert stock picker, people were coming to him with special deals, just like they do now with Goldman Sachs and GE. The reason is that having started so young in business he already had both capital and business knowledge/acumen.
12. Unlike most investors, Buffett did not create a model of the business. In fact, based on going through pretty much all of Buffett’s files, Schroder never saw that Buffett had created a model of a business.
13. Instead, Buffett thought like a horse handicapper. He isolated the one or two factors upon which the success of Mid American hinged. In this case, sales growth and cost advantage.
14. He then laid out the quarterly data for these factors for all of Mid Continent’s factories and those of its competitors, as best he could determine it, on sheets of a legal pad and intently studied the data.
15. He established his hurdle of a 15% return and asked himself if he could get it based on the company’s 36% profit margins and 70% growth. It was a simple yes or no decision and he determined that he could get the 15% return so he invested.
16. According to Schroder, 15% is what Buffett wants from day 1 on an investment and then for it to compound from there.
17. This is how Buffett does a discounted cash flow. There are no discounted cash flow models. Buffett simply looks at detailed long-term historical data and determines, based on the price he has to pay, if he can get at least a 15% return. (This is why Charlie Munger has said he has never seen Buffett do a discounted cash flow model.)
18. There was a big margin of safety in the numbers of Mid Continent.
19. Buffett invested $60,000 of personal money or about 20% of his net worth. It was an easy decision for him. No projections – only historical data.
20. He held the investment for 18 years and put another $1 million into the business over time. The investment earned 33% over the 18 years.
21. It was a vivid example of a Phil Fisher investment at a Ben Graham price.
22. Buffett is very risk averse and follows Firestone’s Law of forecasting: “Chicken Little only has to be right once.” This is why Berkshire Hathaway is not dealing with a lot of the problems other companies are dealing with because he avoids the risk of catastrophe.
23. He is very realistic and never tries to talk himself out of a decision if he sees that it has cat risk.
24. Buffett said he thought the market was attractive in the fall of 2008 because it was at 70%-80% of GDP. This gave him a margin of safety based on historical data. He is handicapping. He doesn’t care if it goes up or down in the short term. Buying at these levels stacks the odds in his favor over time.
25. Buffett has never advocated the concept of dollar cost averaging because it involves buying the market at regular intervals – regardless of how overvalued the market may be. This is something Buffett would never support.

Here is a link to the video: http://www.youtube.com/watch?v=PnTm2F6kiRQ

http://www.valueinvestingfundamentals.com/?p=96

How to Invest in High Growth and Great Value Stocks with Accelerated Returns

Published on 18 Oct 2012

Kathlyn Toh - professional investor and trader in the U.S. and global stock market shared how we can invest into the greatest companies in the world by paying only 10% of the stock price and getting 10X faster returns.

The Scientific Approach to Achieving Double Digit Returns Using Value Investing

Value Investing and dividend growth investing (Webinar)

Simple Definitions of Value Investing

Value investing is buying QUALITY STOCKS when they are UNDERVALUED.

Value investing is buying GOOD COMPANIES when they are available at SENSIBLE PRICES.














Summary:

Buy quality companies when they are undervalued.

Dividends are key; especially increasing dividends.

Investing is not risky if you know what you are doing.#


Modest realistic aim:

To achieve a double digit dividend yield return based on your cost price over a reasonable number of years of investing in a stock.


# Invest in recession proof companies that are increasing dividend payments year after year.







More videos:
https://www.youtube.com/watch?v=GB6KQ_gvum0&list=PL8D865987D9956CD9

The Benefits of Dollar-Cost Averaging in a Volatile Market

The Benefits of Dollar-Cost Averaging


Volatile Market that ends up flat

Period      Amount       Price        No of shares 
             Invested $      $       Purchased 
1       1,000       100       10.00 
2       1,000         80       12.50 
3       1,000         60       16.67 
4       1,000         80       12.50 
5       1,000       100       10.00 
                  
Total Invested       5,000             
Total shares purchased                   61.67 
Average cost of shares purchased $                   81.08 
Value at period 5 ($)             6,166.67       
                  
                  
                  
Ebullient Market that rises continually                  
                  
Period      Amount       Price        No of shares 
             Invested $      $       Purchased 
1       1,000       100       10.00 
2       1,000       110       9.09 
3       1,000       120       8.33 
4       1,000       130       7.69 
5       1,000       140       7.14 
                  
Total Invested       5,000             
Total shares purchased                   42.26 
Average cost of shares purchased $                   118.32 
Value at period 5 ($)             5,916.32       


The table above shows that you actually end up with more money in the scenario where the market is very volatile and ends up exactly where it began.

In both cases, a total of $5,000 is invested over the 5 periods.  

In the flat volatile market, the investor ends up with $6,167, while in the scenario where market prices rise continually, the investor's final fund stake is only $5,915.



Learning Points:

Warren Buffett, has a nice way of showing that you might actually wish for lower stock prices (at least for awhile) after you begin your investment program.

He writes:

If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?  Likewise, if you are going to buy a care from time to time but are not an auto manufacturer, should you prefer higher or lower car prices?  These questions, of course, answer themselves.

But now for the final exam:  If you expect to be a net saver during the next 5 years, should you hope for a higher or lower stock market during that period?   Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall.  In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying.  This reaction makes no sense.  Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

How to be a millionaire? Save regularly and save early.

Dollar Cost Averaging Can Reduce the Risks of Investing in Stocks and Bonds

Dollar cost averaging is not a panacea that eliminates the risk of investing in common stocks.  

It will not save your investment plan from a devastating fall in value during a year such as 2008, because no plan can protect you from a punishing bear market.  

You must have both the cash and the confidence to continue making the periodic investments even when the sky is the darkest.

No matter how scary the financial news, no matter how difficult it is to see any signs of optimism, you must not interrupt the automatic pilot nature of the program.  

Because if you do, you will lose the benefit of buying at least some of your shares after a sharp market decline when they are for sale at low prices.  

Dollar cost averaging will give you this bargain.  Your average price per share will be lower than the average price at which you bought shares.  

Why?  Because you will buy more shares at low prices and fewer at high prices.

Some investment advisers are not fans of dollar cost averaging, because the strategy is not optimal if the market does go straight up.  (You would have been better off putting all $5,000 into the market at the beginning of the period.).  

But it does provide a reasonable insurance policy against poor future stock markets.  

And it does minimize the regret that inevitably follows if you were unlucky enough to have put all your money into the stock market during a peak period such as March of 2000 or October of 2007.

There is tremendous potential gains possible from consistently following a dollar-cost averaging program.

Because there is a long-term uptrend in common stock prices, this technique is not necessarily appropriate if you need to invest a lump sum such as a bequest.

If possible, keep a small reserve (in money fund) to take advantage of market declines and buy a few extra shares if the market is down sharply.  

Though you should not try to forecast the market, it is usually a good time to buy after the market has fallen out of bed.

Just as hope and greed can sometimes feed on themselves to produce speculative bubbles, so do pessimism and despair react to produce market panics.  

The greatest market panics are just as unfounded as the most pathological speculative explosions.  

For the stock market as a whole (not for individual stocks), Newton's law has always worked in reverse:  What goes down has come back up.  

(A Random Walk Down Wall Street, by Burton Malkiel)

Roller coaster ride of the stock market (Market Volatility).

What is Financial Planning and How Can We Fix It

Cash Flow Investments

Cash-Flowing Investments
Private Equity
Hedge Funds
Alternative Strategies
Mortgages
Real Estates
High-Yield Bonds

versus

Volatile Stock Market

Fundamentals of Wealth Management - The Complete Lesson

Published on 7 May 2012
The complete lesson.

Dow Wealth Management offers the services of a world-class investment firm dedicated to improving clients' financial lives and making their futures more secure. As an independent firm, Dow Wealth Management provides objective advice and is committed to excellence for its clients. The Dow family has been investing traditionally in the securities markets since 1937.

Before attempting to structure a portfolio that might be capable of delivering long-term investment success, we must first understand the nature of the financial markets in which we will operate and the inherent limitations we are sure to confront as investors.

This video, Fundamentals in Wealth Management, will help to acquaint the investor with these dynamics and then illustrate how Dow Wealth Management seeks to position its clients' portfolios for long-term investment success. We could call it "How to survive bad markets...and thrive in good ones."



@6.08 The 3 issues addressed in this video.

1. The Life Cycle of Family Wealth: Accumulation, Preservation and Growth of Mature Wealth. Wealth preservation and growth became more important than wealth accumulation.
2. Defining the Investment Problem: The Dow Wealth Management Analysis
3. The Dow Wealth Management Approach

Burton Malkiel: How to Invest

Uploaded on 12 Feb 2010

Princeton economist Burton Malkiel says simplicity is key to a successful portfolio. He discusses emerging markets, index funds, and more with Eric Schurenberg

Random Walk Down Wall Street by Burton Malkiel

Uploaded on 13 Sep 2011

Dr. Burton G. Malkiel, the Chemical Bank Chairman of Economics at Princeton University and author of the widely read investment book, A Random Walk Down Wall Street, shared his investment views and strategies in a talk on September 12 to SIEPR Associates.

The fundamentals of portfolio management

Lessons In Financial Literacy: In this show, Anil Chopra, Group CEO & Director of Bajaj Capital Ltd and Gaurav Mashruwala, a financial planner, share their views to understand the subject of financial planning better. The show talks about the importance of investment planning, investment planning steps and ideal saving break-up.

https://globalconnections.hsbc.com/global/en/tools-data/country-guides/my-march-2013?utm_source=outbrain&utm_medium=click&utm_content=1&utm_campaign=global+gc+2013

Country Guide: Malaysia

In association with PwC

---

Malaysia’s export-driven economy is spurred by high technology, knowledge-based and capital-intensive industries. Political and economic stability, investor-friendly business policies, cost-productive workforce, and a host of other amenities, makes this country an enticing place for foreign investment - especially in areas such as manufacturing, and particularly in high- technology, biotechnology industries.

CFA Level I Portfolio Management An Overview Video Lecture

Uploaded on 26 Sep 2011
This CFA Level I video covers concepts related to:

• Portfolio Perspective
• Portfolio Definition
• Diversification
• Investment's Contribution to Risk and Return
• Markowitz Framework: Standard Deviation as a measure of Risk
• Diversification Ratio

For more updated CFA videos, Please visit www.arifirfanullah.com.