A lesson in risk control

On April 28, there were four listed stocks on Bursa Malaysia that fell dramatically and devalued by 50 to 80 per cent in during two market days.

They were; Vis, Mnc, Itronic and Solution companies. This incident was similar to Singapore’s stocks such as LionGold, Asiason, Bluemont companies that plunged more than 80 per cent in markets values during October last year.

Sad to say, many investors still fell into the trap and incurred huge losses! After the ‘Black Monday’, many remisers, stock brokers, account executives, retail traders and even proprietary trading groups reported their losses from each party ranging from few tens of thousands to few millions of ringgit. Following that, some salaried staffs in the industry lost their jobs while some self-employed remisers lost their careers.

Amid the rout, many losers began to look for loan draft; some are ready to file bankruptcies while a minority have disappeared! Honestly, I have seen this situation in late 80s when I first entered the industry.

I saw that again in mid 90s when Singapore and Malaysia equities plunged, then followed by 1997 Asian financial crises.

In late 2001, the same situation occurred after the September 11 terrorist attack that rattled the global stock markets.

In 2008, the subprime crisis again dragged down global equities while everyone still enjoyed the high inflation growth.

Somehow, people always regretted when the worst things had happened. Prior to this situation, those who made handsome profits during ‘peaceful time’ would say I have been too ‘naggy’ and persistent about emphasising on risk management.

Perhaps, they felt like being cautious on risk control would hamper their trading growth! Nevertheless, it is true that the inefficiency of risk management is always the prime factor that brought these people down to their knees whenever there is a ‘Black Swan’ day! In my opinion, the easiest protocol is to cut losses like a robot whenever your stock falls by 10 per cent in value from your entry price.

If you want to be stubborn, then let the final 15 per cent value be your last gateway to remove your losses! For financial brokers, use this as a benchmark to check your clients on a daily basis.

Otherwise, the risk is too high to take on clients’ ignorant losses onto your back and erase your trading limits in the business.

Once, a senior had told me: If you think education from an experienced mentor is expensive, then try ignorance! To end this message, of course I totally agree with this statement! ~

DAR Wong is an approved Fund Manager in Singapore with 25 years of trading experiences in global financial markets. The expressions are solely his own.

theborneopost.com/2014/05/10/a-lesson-in-risk-control/

Bursa Malaysia reprimands, strikes off TA Securities dealer

http://www.thesundaily.my/news/1137953

12 August 2014 

PETALING JAYA: Bursa Malaysia Securities Bhd has publicly reprimanded, imposed a fine of RM360,000 and ordered to strike off Oh Kok Boon, a dealer, for manupulating dealing activities in six counters.

He was found to have made manipulative dealings in Biosis Group Bhd, Metronic Global Bhd, Ariantec Global Bhd, Luster Industries Bhd, Harvest Court Industries Bhd and Naim Indah Corp Bhd.

Oh was a commissioned dealer's representative at TA Securities Holdings Bhd main office at the time of breach.

He was found engaged in numerous manipulative or false dealing activities over a period of time in the accounts of several clients involving clients who were his family members as well.

Oh was said to have bought Harvest Court and Naim Indah shares on or before the due date for settlement by passing on these to other clients via married direct business transactions (DBT), which were executed at prices higher than the prevailing market price.

"These married DBTs were used as a tool/device that provided savings/avoided losses to the selling clients in the down trending market of these securities," Bursa said.

By doing so, Oh and his clients were able to prolong the holding period of the shares and also drive up the stock prices which contributed towards artificial inflated or increased volume for the counters.

Bursa said the on-market trading activities undertaken by Oh over a period of several months in the six counters with the execution of opposing buy or sell orders for a group of his clients resulted in their opposing orders being matched against each other.

These cross trades between Oh's clients at the dictated increased or decreased share prices had impacted or influenced the price movement or trading volume of the six counters, Bursa said.

The manipulative trading activities by Oh had the effect of creating a false or misleading appearance of active trading in the securities of the six counters as the trades were not due to natural market forces of supply and demand.

Bursa said it was not acceptable for Oh as a registered person to merely execute orders as instructed by his clients without making proper assessment of the orders and exercising reasonable due care and diligence in undertaking dealing activities so as to avoid manipulative or false dealing activities.

Related articles

• Bursa M’sia takes action against dealer
• Bursa Malaysia reprimands, fines Melvin Yap
• Bursa Malaysia Securities fines and publicly reprimands dealer
• SC fines AmInvestment RM100,000
• Bursa Malaysia reprimands Ingenuity and Focus

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High Court maintains two year jail sentence and RM3 million fine on market manipulator

Posted on 10 April 2014 - 05:40am

sunbiz@thesundaily.com

Print

PETALING JAYA: The Kuala Lumpur High Court has dismissed the appeal by Datuk Phillip Wong Chee Kheong for the offence of manipulating Suremax Group Bhd's shares.

Wong was appealing against a two-year jail term and a fine of RM3 million meted out by the Sessions Court upon his conviction under section 84(1) Securities Industry Act 1983.

"This case sets a new benchmark for imprisonment of market manipulators and the SC will continue to seek deterrent sentences to ensure that investors are protected and that the integrity of the market is constantly maintained," SC said in a statement yesterday.

Wong, 53, was earlier convicted by the Sessions Court after a full trial on Jan 7, 2011 for executing transactions in nine accounts that did not involve any change in beneficial ownership of the said shares.

His appeal against this conviction was dismissed by the High Court judge on March 18, 2014.

Yesterday, Wong again appealed against the sentence by Sessions Court in 2011. His Counsel sought a minimum sentence on the grounds that he is now a bankrupt and has an aging mother to care for.

In response, the Securities Commission Malaysia (SC) highlighted that this case involved a full trial where it had called 38 witnesses and had tendered extensive documentary evidence proving Wong's active involvement in the manipulation which took place over a five-month period.

It was also submitted that the Sessions Court Judge did not err when meting out the sentence as she had emphasised that market manipulation was a serious offence undermining investor confidence and the integrity of the securities market.

In affirming the sentence, the High Court Judge found no merit in the appeal and held that the sentence was not manifestly excessive but instead was commensurate with the offence.

Related articles

• High Court affirms duo’s conviction on Suremax share manipulation
• Ex-teacher gets dressing down by judge after losing appeal on rape
• Court upholds six-year jail sentence on businessman
• Businessman loses final bid to be declared whistleblower
• Mechanic gets four years, caning for gang robbery

Success Will Come and Go, But Integrity is Forever

If I could teach only one value to live by, it would be this: Successwill come and go, but integrity is forever. Integrity means doing the right thing at all times and in all circumstances, whether or not anyone is watching. It takes having the courage to do the right thing, no matter what the consequences will be. Building a reputation of integrity takes years, but it takes only a second to lose, so never allow yourself to ever do anything that would damage your integrity.

We live in a world where integrity isn’t talked about nearly enough. We live in a world where “the end justifies the means” has become an acceptable school of thought for far too many. Sales people overpromise and under deliver, all in the name of making their quota for the month. Applicants exaggerate in job interviews because they desperately need a job. CEOs overstate their projected earnings because they don’t want the board of directors to replace them. Entrepreneurs overstate their pro formas because they want the highest valuation possible from an investor. Investors understate a company’s value in order to negotiate a lower valuation in a deal. Customer service representatives cover up a mistake they made because they are afraid the client will leave them. Employees call in “sick” because they don’t have any more paid time off when they actually just need to get their Christmas shopping done. The list could go on and on, and in each case the person committing the act of dishonesty told themselves they had a perfectly valid reason why the end result justified their lack of integrity.

It may seem like people can gain power quickly and easily if they are willing to cut corners and act without the constraints of morality. Dishonesty may provide instant gratification in the moment but it will never last. I can think of several examples of people without integrity who are successful and who win without ever getting caught, which creates a false perception of the path to success that one should follow. After all, each person in the examples above could have gained the result they wanted in the moment, but unfortunately, that momentary result comes at an incredibly high price with far reaching consequences.  That person has lost their ability to be trusted as a person of integrity, which is the most valuable quality anyone can have in their life. Profit in dollars or power is temporary, but profit in a network of people who trust you as a person of integrity is forever.

Every one person who trusts you will spread the word of that trust to at least a few of their associates, and word of your character will spread like wildfire. The value of the trust others have in you is far beyond anything that can be measured.  For entrepreneurs it means investors that are willing to trust them with their money. For employees it means a manager or a boss that is willing to trust them with additional responsibility and growth opportunities. For companies it means customers that trust giving them more and more business. For you it means having an army of people that are willing to go the extra mile to help you because they know that recommending you to others will never bring damage to their own reputation of integrity. Yes, the value of the trust others have in you goes beyond anything that can be measured because it brings along with it limitless opportunities and endless possibilities.

Contrast that with the person who cannot be trusted as a person of integrity.  Warren Buffet, Chairman and CEO of Berkshire Hathaway said it best:, “In looking for people to hire, look for three qualities: integrity, intelligence, and energy.  And if they don’t have the first one, the other two will kill you.”  A person’s dishonesty will eventually catch up to them. It may not be today, and it may not be for many years, but you can rest assured that at some point there will always be a reckoning.

A word of advice to those who are striving for a reputation of integrity: Avoid those who are not trustworthy. Do not do business with them. Do not associate with them. Do not make excuses for them.  Do not allow yourself to get enticed into believing that “while they may be dishonest with others, they would never be dishonest with me.” If someone is dishonest in any aspect of his life you can be guaranteed that he will be dishonest in many aspects of his life. You cannot dismiss even those little acts of dishonesty, such as the person who takes two newspapers from the stand when they paid for only one. After all, if a person cannot be trusted in the simplest matters of honesty then how can they possibly be trusted to uphold lengthy and complex business contracts?

It is important to realize that others pay attention to those you have chosen to associate with, and they will inevitably judge your character by the character of your friends. Why is that?  It is best explained by a quote my father often says when he is reminding me to be careful of the company I am keeping:  “When you lie down with dogs you get fleas.” Inevitably we become more and more like the people we surround ourselves with day to day. If we surround ourselves with people who are dishonest and willing to cut corners to get ahead, then we’ll surely find ourselves following a pattern of first enduring their behavior, then accepting their behavior, and finally adopting their behavior. If you want to build a reputation as a person of integrity then surround yourself with people of integrity.

There is a plaque on the wall of my office which reads: “Do what is right, let the consequence follow.” It serves as a daily reminder that success will indeed come and go, but integrity is forever.

~Amy (for my daily blogs go to www.amyreesanderson.com/blog)

Related on Forbes:

http://www.forbes.com/sites/amyanderson/2012/11/28/success-will-come-and-go-but-integrity-is-forever/

Stock market bubble: Sound advice

"We do not specifically look to profit from a bubble in the stock market.  We just make sure we are not impoverished by it."

Keys to Successful Investing

Keys to Successful Investing

Know Yourself 
Know your investing objectives
Know your time horizon
Know your risk tolerance
Know your financial capacity and reserves

Know your investing philosophy and strategy
Keep it simple and safe (relevant, powerful and focussed)
Never lose money (Rule No 1 and Rule No 2 of Warren Buffett )
Develop and stay with your investing philosophy and strategy (value investing, long term)
Know the difference between investing and speculation/gambling (avoid speculation and gambling)
Avoid market timing (a most dangerous game to play, best avoided)
Selective stock picking (earning power, economic moat, durable competitive advantage, franchise value)
Know your rules for buying (circle of competence, margin of safety, buy quality, great companies at wonderful price)
Know your rules for selling (sell the losers- fundamentals deteriorated permanently or underperformers)
Know your rules for portfolio management (concentrated, defensive and offensive strategies)
Keep good records to guide your investing (an essential to your success in your investing journey)
Reinvest your dividends and dollar cost averaging (take advantage of compounding)

Ongoing activities to invest for the future
Continue to learn and explore.
Continue to master the understanding of all types of businesses
Continue to master valuation of business  
Continue to master the understanding of market behaviour and Mr. Market
Continue to master behavioural finance to understand herd and individual behaviour.
Continue to learn, develop, refine and explore investing knowledge, concepts and applications.
Continue to research companies and businesses.
Continue to seek opportunities in good and bad markets.

A guide to property valuations

WHETHER you’re a potential homebuyer or a greenhorn property investor, your impending venture into the property market will very much revolve around valuations. You might have heard the term being thrown about by experienced property market players, but how much do you know about valuations and how the process would influence your purchase? Here’s what you need to know.

What is valuation?

Officially, “market value” is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties have each acted knowledgeably, prudently and without compulsion. Valuation calculations take into account recent transacted prices from the Government’s Valuations and Property Services Department (JPPH). Additionally, launch prices of new and upcoming projects in the area play a factor. Once a valuation is done, a bank would usually extend a loan of 90% based on the figure.

Chart from http://loanstreet.com.my/learning-centre/entry-costs-buying-property

How valuation affects you

Say you’ve got your eye on an apartment unit, and after negotiating with the seller, the two of you agree on a price of RM500,000. A 90% loan means that you would need to fork out a down payment of RM50,000, aside from other entry costs. Now, here’s where the valuation comes into play – for a housing loan, a report by a real estate valuation firm recognised by the bank you’re dealing with is needed. If a valuation firm only prices the said property at RM450,000, you would only be eligible for a loan of 90% from RM450,000. Basically, this means that if you were to go ahead and purchase it, you would need to bear the price difference and come up with RM95,000; and not the RM50,000 you were initially expecting.

Why the disparity?

If you observed the Malaysian property market, you would know that prices in certain areas have surged upwards quite quickly. Herein

lies the issue – as it takes up to six months for JPPH to collect and analyse transaction data, which valuation firms rely on for their calculations. Basically, this means that valuations would be centred on outdated prices from up to six months earlier, and are likely to be lower than current prices.

Although many firms take the trouble to ensure an accurate and fair valuation by taking into account as many relevant factors as possible, many others only do as much as they need to, resulting in common cases of disparities between valuations and negotiated prices.

What can you do?

Here’s the bit where you have control over. It’s a well-known fact among veteran property players that different banks can provide different valuations on a single piece of property. Some bank sales agents may aggressively push up their valuations of your property, just so they can obtain more transactions. You could take advantage of this and go “shopping” for valuation rates. Remember to mention what the other branches are offering as you might just end up with the valuation that you want.

> Loanstreet.com.my is a website where visitors can compare and apply for loans online.

http://www.starproperty.my/index.php/articles/investment/a-guide-to-property-valuations/?utm_source=TSOL&utm_medium=widget&utm_campaign=a-guide-to-property-valuations

Lessons learned from Sir John Templeton

Lessons from Sir John Templeton

“A MAJOR CAUSE OF HIGHER PRICES is higher prices; but when the trend is reversed, then lower prices lead to still lower prices. To buy when others are despondently selling and to sell when others are avidly buying requires the greatest fortitude and pays the greatest ultimate rewards.” Sir John Templeton “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy and the time of maximum optimism is the best time to sell.” Sir John Templeton 15 Personal Attributes  Self Reliance  Reasonable Risk Taking  Sense of Stewardship  A Drive towards Diversity  Bargain Hunting Mentality  Broad Social and Political Awareness  Flexibility  Devote Large Amounts of Time to Study   An Ability to Retreat from Daily Pressures   Develop an Extensive Friendship Network   Patience   Thought Control   Positive Thinking   Simplicity   Great Intuitive Powers “If you want to have a better performance than the crowd, you must do things differently from the crowd.” Sir John Templeton Where were the buyers on March 9, 2009? The truth is that it is very hard to buy at the point of maximum pessimism. Humans are not wired to do so. Stock Prices are 14x More Volatile than Actual Fundamentals – This Creates Opportunities for those who are Prepared Methods Sir John Used to Take Advantage of these Events Preparation, Preparation, Preparation  Always stored some funds in reserves, one basis for his thrift...sought out crises  Maintained a wish list, had already researched and prepared a list of companies he wanted to own at a bargain price   Maintained good-to-cancel limit orders in the market 20% below the current price   An optimist, held a fundamental belief in the continued innovation, ambitions and ingenuity of others

Intelligent Finance

http://www.mgmt.uestc.edu.cn/prc/papers/IWIF-II%20PAN%20Heping-Intelligent%20Finance%20C4%20-%20FSA.ppt

Strategies of the Great Masters (ppt)

http://hum14.files.wordpress.com/2009/01/chapter-22-strategies-of-the-great-masters.ppt

The Value of Cumulative Research 
A Competitive Advantage. Lessons of the Masters

http://www.valueinvestorconference.com/ppt/2012/12%20VIC%2012%20Auxier.pptx

Time to Invest? There have always been reasons not to invest.

https://www.franklintempleton.com/retail/ppt/sales_tools/2020_PPT_FA.ppt

Invest Yourself! (Ppt)

http://econ.org/investyourself/Invest%20Yourself%20PowerPoint.ppt

What is happiness to you?

Common Stocks and the Investment Banking Process (ppt)

http://people.hofstra.edu/Ivan_D_Orlic/chapter16.ppt

Basics of Investing (ppt)

Basics of Investing (ppt)

Stock Market Investing for the 21st Century (ppt)

Investing in Common Stocks (ppt)

Stock market basics and Pricing (ppt)

Stock Investing Basics (ppt)

Value Stock Investing (ppt)

Buffett and Beyond (PDF)

http://csinvesting.org/wp-content/uploads/2012/05/book-on-buffett-methods-of-clean-surplus.pdf

THE WARREN BUFFETT WAY (PDF)

http://www.sfu.ca/~poitras/BUFFET.pdf

Warren Buffett - The Sage of Omaha (ppt)

http://classes.uleth.ca/200701/mgt4412a/Presentations/Group%20Two%20Presentations/Warren%20Buffett%20-%20Group%208.ppt

Stay in the Stock Market, says Warren Buffet

Stay in the Stock Market, says Warren Buffet


Many investors will feel jittery if they read the news especially as the Ukraine crisis drags on and diplomats scramble to find a peaceful solution to the crisis that has pitted Russia against the U.S. and the rest of the G7 countries. The most recent development in the crisis was that the Russian envoy to the UN has told the international body that Russia “does not want” a Ukraine war all while clashes broke out in parts of the country according to the BBC.

The crisis in Ukraine is already having an effect on the markets. The Wall Street Journal reported that Asian stock markets are lower due to the crisis while the Associated Press has also reported that the U.S. stock market has dipped due to the crisis.

Investors are naturally unnerved by news of the possibility of another war. The rational person would try to hold on to their cash in times of uncertainty. The risk triggers a fight or flight response and some investors choose to sell their stocks and hold on to their cash.

What Warren Buffet Thinks About the Ukraine Crisis and Investing in Stocks

In an interview with CNBC’s Squawk Box, Berkshire Hathaway Chairman and CEO Warren Buffett said the crisis in Ukraine had actually had a positive effect on his business. A stock that Buffett had been looking to acquire soon had actually fallen in price in London. Buffett said he “felt good” that the stock that they we’re buying was cheaper. When asked whether he will buy more, he said “absolutely.”


Buffett’s remarks about buying stocks during a time of uncertainty speak of his view about holding onto cash or investing in stocks even in a time of war. He told CNBC that you can be sure the value of money will go down if there was a very major war. The Oracle of Omaha said holding cash is the last thing (that investors will) want to do in a war and that (investors) will want to own a farm or an apartment house instead.

The famed investor advised investors to own securities instead of cash during a war. He said the stock market actually advanced during the Second World War. Buffet even added that he bought his first stock just after the attack on Pearl Harbor in 1942.

An index fund that mirrors the overall market’s performance can be a great way for even non experts to invest in the stock market advised Buffett. Buffett recommends the Vanguard S&P 500 stock index fund for these types of investors.



- See more at: http://www.comparehero.my/blog/stay-stock-market-says-warren-buffet/#sthash.tDIM3gBy.dpuf

Has Warren Buffett Nailed Another Market Top?

I know. I know. Warren Buffett is not a market-timer, has no idea what the market will be doing this year, or next, or at any specific time in the future. Or so he says, and the media seems to accept it as fact.

So we probably shouldn’t pay attention to what he is doing and saying now.

However, in spite of what he says, Buffett has a remarkable track record of accurately calling the serious market tops and bottoms.

That record began in 1956, when he launched Buffett Partnership Ltd., a limited partnership investment company, similar in make-up to the hedge-funds of today. He managed that fund with major success, with performance that would have turned an investor’s $10,000 in 1957 into $300,000 by 1969.

He then pulled off one of the most exquisite market-timing moves of all time.

After making those huge gains in the 1960’s bull market, and while investors were still piling into the stock market with excitement, Buffett liquidated his partnership fund and returned their significantly elevated assets to his investors, telling them they’d probably be better off in government bonds for the next several years.

And indeed, the horrible 1970’s decade began almost immediately, with the Dow losing 35% in the 1969-70 bear market.

Buffett stayed away from the stock market, in spite of the 1969-1973 bull market lifting the Dow back to its 1969 peak and somewhat higher. He settled for managing the businesses he had acquired control of, including textile mill Berkshire Hathaway (which he soon began expanding into the insurance industry).

And then, with another superb market-timing move, after the Dow had lost 45% of its value in the 1973-74 bear market, Buffett returned to the stock market.

In a famous 1974 interview in Forbe’s magazine, he said, “This is the time to start investing again.” And he did so big-time, using Berkshire Hathaway as the holding company for his investments.

Were those two market moves the end of his market-timing history? Not at all.

Thanks to the powerful 1990’s bull market, by 1999, Berkshire Hathaway had certainly become way too big to be able to liquidate if Buffett became bearish on the market.

But at what turned out to be the top of that spectacular 1990’s bull market, in 1999 Buffett raised Berkshire’s cash level to a huge $48 billion.

He didn’t describe it as market-timing of course, simply saying “I just can’t find anything I want to invest in right now.”

At the same time, in September, 1999, as reported in Fortune magazine, he said, “What I am about to say – assuming it’s correct – will have implications for the long-term results to be realized by American stock-holders. . . . . Over the next 17 years, equities will not perform anything like – anything like – they have performed over the past 17 years. . . If I had to pick a probable annual return it would be 4% after inflation, and if 4% is wrong, I believe the percentage is as likely to be less as more.”

Exquisite market timing?

The market almost immediately rolled over into the severe 2000-2002 bear market and the so-called “lost decade”.

So should we be concerned that, according to the latest SEC filings of Berkshire Hathaway, Buffett has again raised and is sitting on, $49 billion in cash? And in a recent interview said, “Stocks have moved a long way. They were very cheap five years ago. That’s been corrected. . . We’re having a hard time finding things to buy.”

Of course, once again holding $49 billion in cash is not due to ‘market-timing’, but just because he’s not able to find any stocks cheap enough to buy.

And maybe he’s changed his mind from his 1999 prediction about market problems for 17 years. Besides as he says, he’s not a market-timer and never has any idea what the market will do. Yeah.

He has my attention.

Sy is president of StreetSmartReport.com and editor of the free market blog Street Smart Post. Follow him on twitter @streetsmartpost. He was the Timer Digest #1 Gold Timer for 2012 (Gold Timer of the Year), as well as the #2 Long-Term Stock Market Timer.

http://www.forbes.com/sites/sharding/2013/09/20/has-warren-buffett-nailed-another-market-top/

For Warren Buffett, the cash option is priceless

The Globe and Mail - September 24, 2012
For Warren Buffett, the cash option is priceless

By BOYD ERMAN

The Oracle of Omaha's company has $41-billion sitting around earning negligible interest. But his method of investing does not make this a waste of funds

If holding cash in your portfolio for little return is driving you crazy, maybe it's time to look at it the way Warren Buffett does.

Mr. Buffett, the world's most successful (and richest) value investor, is sitting on almost $41- billion (U.S.) of cash at his Berkshire Hathaway holding company, the most in a year. Partly, that heap of greenbacks is a safety blanket. But it's something more. As with most matters Buffett, the strategy is more complicated than it looks, Alice Schroeder says.

She should know. The former Wall Street analyst may know more about Mr. Buffett than anyone outside his family and inner circle: She spent more than 2,000 hours with him while writing The Snowball: Warren Buffett and the Business of Life.

Ms. Schroeder argues that to Mr. Buffett, cash is not just an asset class that is returning next to nothing. It is a call option that can be priced. When he thinks that option is cheap, relative to the ability of cash to buy assets, he is willing to put up with super-low interest rates, said Ms. Schroeder, who followed Mr. Buffett for years before she became his biographer.

"He thinks of cash differently than conventional investors," Ms. Schroeder says. "This is one of the most important things I learned from him: the optionality of cash. He thinks of cash as a call option with no expiration date, an option on every asset class, with no strike price."

It is a pretty fundamental insight. Because once an investor looks at cash as an option – in essence, the price of being able to scoop up a bargain when it becomes available – it is less tempting to be bothered by the fact that in the short term, it earns almost nothing.

Suddenly, an investor's asset allocation decisions are not simply between earning nothing in cash and earning something in bonds or stocks. The key question becomes: How much can the cash earn if I have it when I need it to buy other assets that are cheap, versus the upfront cost of holding it?

"There's a perception that Buffett just likes cash and lets cash build up, but that optionality is actually pretty mathematically based, even if he does the math in his head, which he almost always does," Ms. Schroeder said last week in Toronto, drawing on knowledge gained during the five years she spent working on The Snowball.

Much of that time was spent on the couch in his office in Omaha, Neb., where she said nothing much happens but a lot of reading and thinking. In that time, and the hours spent digging through his files, she said she discovered that while Mr. Buffett likes to speak in folksy aphorisms, in fact, his investing is very complicated.

For someone driven by a quest to find things that are undervalued, as Mr. Buffett is, knowing the price of cash as a call option is the key. The "call premium" on the cash option is essentially the opportunity cost. It is the difference between what he can earn somewhere else and the nil return on holding cash, said Ms. Schroeder, addressing the crowd at the annual Investment Industry Association of Canada conference, after which she sat down for a Canadian exclusive interview.

 "There are times when he feels like that option premium is really cheap, compared to the intrinsic value of the option itself," she says.

The option theory of cash is something Mr. Buffett does not tend to get into when he is up on stage at his annual investor meeting, dishing out his homespun take on life and investing. That's probably because Mr. Buffett views himself as a teacher, and he wants to reach a broad audience, she says.

"Generally speaking, he likes to keep concepts simple," Ms. Schroeder says. "He says, 'I like to have all that cash around because you can use it.'"

However, it is a lesson that Ms. Schroeder said she wishes more people would learn. For many investors, there is a sense that holding cash is a cop-out. Investors who see their fund managers holding a lot of cash tend to think that they are not getting their money's worth, which is wrong, she says.
"If investors would realize that what they are paying for is someone to have the expertise to know when to buy a call option called cash, and move in and out of that, then perhaps there might be more value placed on that service." 

Buffett is a happy man. In the second quarter of this year, his firm, Berkshire Hathaway, made $6.4 billion in net profit, the most it has ever made in a three-month period

Warren Buffett’s firm just made the most money ever in a single quarter

 Tap to expand image

Warren Buffett is a happy man. In the second quarter of this year, his firm, Berkshire Hathaway, made $6.4 billion in net profit, the most it has ever made in a three-month period.  To put that in perspective, ExxonMobil made $8.8 billion and Apple made $7.7 billion in the same period—and they make oil and some of the world’s most beloved consumer devices, respectively.

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The firm’s profits in the second quarter were boosted by its stakes in other companies, as the share prices of most of the American companies Buffett invests like Wells Fargo have soared, and by gains from derivatives. US railroads, through the company it owns, BNSF, contributed almost $1 billion to the company’s bottom line. Berkshire’s more expensive Class A shares have risen 6% so far this year, and are worth more than $180,000 each.

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Berkshire Hathaway’s huge bump in earnings exceeds the $5.1 billion that the firm made in a single quarter back in 2005. And it’s a long way from 2009, when it posted its first quarterly loss in eight years during the financial crisis. Last year, Berkshire even acquired a beloved ketchup maker. “With Heinz, Berkshire now owns 8 1/2 companies that, were they stand-alone businesses, would be in the Fortune 500,” Buffett said in his last annual report. “Only 491 1/2 to go.”

http://qz.com/244132/warren-buffetts-firm-just-made-the-most-money-ever-in-a-single-quarter/