This Has Been a Huge Win for Buffett

By Steve Symington 

March 19, 2013 

Since Warren Buffett released his annual letter to Berkshire Hathaway (NYSE: BRK-B  ) (NYSE: BRK-A  ) shareholders earlier this month, I've spent some time dissecting the world-famous CEO's unsurprisingly eloquent words of wisdom.

First, I explored the value of Buffett's relatively hidden series of bolt-on acquisitions. After all, while it may seem crazy that any company could quietly spend $2.3 billion to absorb 26 distinct, profitable businesses into its existing operations in a single year, Berkshire managed to do just that in 2012.

Next, I noted Buffett's propensity for outperforming the broader market over the long haul, thanks (in Buffett's words) not just to Berkshire's "outstanding businesses, a cadre of terrific operating managers, and a shareholder-oriented culture," but also largely to the company's incredible ability to effectively function as a defensive stock.

Let's talk about the big boys
Now, we're going to take a look at an excerpt from Buffett's letter in which he highlights the strengths of some of Berkshire's larger "outstanding businesses":

Last year I told you that BNSF, Iscar, Lubrizol, Marmon Group and MidAmerican Energy -- our five most profitable non-insurance companies -- were likely to earn more than $10 billion pre-tax in 2012. They delivered. Despite tepid U.S. growth and weakening economies throughout much of the world, our "powerhouse five" had aggregate earnings of $10.1 billion, about $600 million more than in 2011. Of this group, only MidAmerican, then earning $393 million pre-tax, was owned by Berkshire eight years ago.

Buffett goes on to note the $9.7 billion gain in annual earnings delivered to Berkshire by the five companies was "accompanied by only minor dilution," thanks to the fact that three of the five businesses were acquired on an all-cash basis. The fifth, of course, was Burlington Northern, of which 70% was paid for in cash with the remainder covered by newly issued Berkshire shares, which increased the amount outstanding by 6.1%. 

Sure enough, here's yet another example that Buffett knews what the heck he was doing when he acquired five huge, solidly profitable companies to the benefit of Berkshire shareholders with little dilution. Of course, that's not to mention Buffett has also been actively working to reverse at least some of that dilution, most notably through the company's recent substantial share buybacks.

Even still, let's put things in perspective by digging a little deeper to see just how effective these acquisitions have been. In addition to owning 89.8% of MidAmerican, here's the skinny on Buffett's remaining aforementioned purchases, circa the end of 2011:

• May, 2006: Purchased an 80% stake in Iscar for $4 billion in cash.
• December 2007: Acquired 64% of Marmon Holdings for $4.8 billion in cash.
• November, 2009: Acquired the remaining stake of BNSF for $26.3 billion in cash and stock.
• March, 2011: Acquired Lubrizol for $9 billion in cash, at the same time assuming $700 million of its debt.
• In "early" 2011: Acquired an additional 16% of Marmon for approximately $1.5 billion, bring Berkshire's stake to 80%.

When we consider the fact that Berkshire's slice of net earnings from MidAmerican last year totaled more than $1.3 billion, that leaves nearly $8.4 billion in 2012 earnings achieved as a direct result of Buffett's spending $46.3 billion over the past seven years for its stakes in Iscar, Marmon, BNSF, and Lubrizol -- not a bad recurring return on investment by any measure, thanks to Buffett's supreme demonstrations of patience and a long-term outlook. What's more, Buffett later wrote that "unless the U.S. economy tanks -- which we don't expect -- our powerhouse five should again deliver higher earnings in 2013."

As an aside, it's also important to note that Berkshire yet again raised its stake in Marmon late in the fourth quarter of 2012, bringing it to 90%. Additionally, according to its most recent 10-K, Berkshire will purchase the remaining 10% sometime in 2014 with a price to be determined from an existing formula based on Marmon's future earnings.

Of course, any one of Berkshire's "powerhouse five" could easily be considered a fantastic business in its own right. After all, that is why Buffett bought each of them in the first place. However, Berkshire's comprehensive value becomes much more apparent when you combine those businesses with its world-class insurance operations, which not only provided a $1.6 billion underwriting profit in 2012, but the float from which also gave Buffett more than $73 billion in free money to invest. 

As we look at Berkshire from a broader standpoint, this also goes to show just how relentless and effective Buffett's efforts have been to diversify his company's income streams. In addition, considering the fact that Buffett still has a cash pile of least $15 billion pegged for acquisitions (even after putting $12 billion to work last month for a 50% stake in Heinz(NYSE: HNZ  ) ), you can bet it won't be long before he adds another elephant to the ranks of his powerhouse brands.

Foolish final thoughtsIn the end, I'm reminded of a comment last year from a friend of mine when he joked that Berkshire was his favorite "mutual fund." There's certainly some truth to the statement, but I think even that doesn't do justice to the depth of Berkshire's enviable moat. 

As Buffett wrote in his 2011 shareholder letter, "When you look at Berkshire, you are looking across corporate America." Thanks to his unparalleled good judgment, though, it might be more accurate to rephrase that statement as "When you look at Berkshire, you are looking across [the best of] corporate America" (addition mine).

http://www.fool.com/investing/general/2013/03/19/this-has-been-a-huge-win-for-buffett.aspx

Socio-economic targets achievable by moving from race-based to a needs-based policies.

Thursday February 28, 2013

Rafizi: NEP will be phased out

By MARTIN CARVALHO
mart3@thestar.com.my

PETALING JAYA: Pakatan Rakyat will gradually do away with the New Economic Policy (NEP) and move towards a needs-based economic policy if it takes over Putrajaya, said PKR strategy director Rafizi Ramli.

“We are going to move from race-based to needs-based policies and that will automatically phase out the NEP,” he said during a briefing on Pakatan Rakyat's election manifesto here yesterday.

He added that this could be achieved as Pakatan would focus on restructuring the economy towards the RM4,000 household income target under its manifesto.

He clarified that Pakatan was not against affirmative action via the NEP.

“What we are really against is corruption and cronyism under the guise of 30% bumiputra equity under the NEP,” he said.

Earlier, Rafizi said that the social-economic targets set under the manifesto were achievable between a five- to 10-year period.

He was confident that Pakatan would remain in power to execute its economic restructuring plans.

However, he conceded there was no guarantee that the RM4,000 household income would be achieved as it is merely an economic target.

Asked on how Pakatan intends to foot the annual RM45.75bil expenditure costs to achieve the manifesto's numerous promises such as lowering fuel and electricity costs, abolishing toll, free education and financial aid to the needy, Rafizi said three approaches would be taken.

He outlined thrift spending, weeding out corruption, priority spending on necessary projects and increase in revenue collection due to stronger economic growth of between 6.5% and 7.5% as sources of funds.

He cited Pakatan-led Selangor state government's annual savings of 24% or RM104mil as a yardstick for Pakatan's target of saving RM49.5bil through its three-pronged approach.

http://thestar.com.my/news/story.asp?file=/2013/2/28/nation/12770540&utm_source=also_see&utm_medium=link&utm_campaign=None%20in%20family%20discussed%20purchase%20with%20me%2C%20Shahrizat%20tells%20court

Ten signs your stock will double

Date March 16, 2013

Nathan Bell

Everyone loves the idea of buying stocks that double in price. But how do you spot them? Here are 10 quick pointers:

1. Out of favour

A stock that's out of favour – hated even – is potentially an investor's most rewarding opportunity.

Intelligent Investor recommended News Corp in July 2011 at the height of the phone-hacking scandal when the price had fallen to $14.58. Since then it's more than doubled.

What most investors missed was the fact that the company's newspaper businesses were insignificant compared with its pay TV and movie operations, which were travelling along nicely. It was the quintessential out-of-favour stock.

2. Hidden progress

Computershare, the world's largest share registry, last year completed the purchase of BNY Mellon. As a result, it now controls about 60 per cent of the US registry market. That has huge potential to deliver cost savings and higher earnings when corporate activity recovers. The company has made hidden progress but the market is yet to catch up.

3. New technology

Sirtex owns an innovative treatment for liver cancer that costs $US14,000 ($13,500) per dose. When Intelligent Investor recommended it as a "speculative buy" in November 2010 at a price of $5.90, the company was involved in litigation with a major shareholder, directors owned very few shares and profitability was declining.

But new clinical trials were underway that could increase the market size for Sirtex's product tenfold.

The results of the trials aren't due until next year but the share price has almost doubled since late 2010 in anticipation of the potential financial rewards.

4. Investment in R&D

In his book, Common Stocks and Uncommon Profits, Philip A. Fisher suggests that the best companies to buy are those investing heavily in research and development to provide future profits.

After recommending blood products manufacturer CSL in March 2011 at $33.97, its share price surpassed $60 recently. This year the company will invest more than $400 million in research and development – more than its entire revenue in 1997.

5. Industry tailwinds

Air travel tends to grow at about twice GDP growth. That's a lovely tailwind for an airport business (less so for airlines where the benefits get competed away). At the bottom of the market in 2009, Sydney Airport stock hit a low of $1.45. With passenger growth recovering, the stock price is now $3.16 and it has paid handsome distributions along the way.

6. Changes to industry structure

The internet has all but destroyed traditional newspaper companies. In their place have arisen online classifieds sites such as Realestate.com.au, Carsales and Seek. All trade at multiples of their float price while companies such as Fairfax struggle. The structural shift has destroyed some businesses and created others.

7. Owner-managers

When owner-managers put their money on the line, pay close attention. Investors in four-wheel-drive accessories manufacturer ARB Corporation and Flight Centre would understand the benefits. Stocks that double tend to have exceptional management with a vested interest in maximising the value of their shareholding.

8. Insider buying

Directors buying stock is another indicator of a potentially cheap stock. Flight Centre's Graham Turner last purchased shares on market at a price of $3.84 on March 16, 2009. Now, the company's share price is well over $30. Directors know their businesses well. It pays to watch their activity.

9. Financial strength

The strong financial position of serviced office provider Servcorp meant it could purchase cheap leases during the GFC and reap the benefits when the market recovered. That's one of the reasons why the stock has increased more than 40 per cent since the middle of last year.

10. Unrecognised by the market

When the stock price fell below $20 a year-and-a-half ago, complaints about Macquarie Group's return on equity failed to recognise the value of its large capital cushion, and investors ignored its more stable businesses such as funds management, which were growing, and supported a decent dividend. The market is now catching on, with its share price more than doubling since the 2009 market lows.

Genuinely independent thinking and a thorough understanding of the facts increase your chances of buying stocks that will double in price. Next time you're considering a stock purchase, use this checklist.

The more factors you can tick off, the greater the chance of your next purchase doubling in price.

This article contains general investment advice only (under AFSL 282288).

Nathan Bell is the Research Director at Intelligent Investor Share Advisor, shares.intelligentinvestor.com.au.



Read more: http://www.smh.com.au/money/investing/ten-signs-your-stock-will-double-20130316-2g72h.html#ixzz2NvyYjZln

Are you scared to invest? FEAR is your friend

Monday March 18, 2013

Are you scared to invest? Billionaire Warren Buffett's tips on how to overcome it

Financial Snacks - By Joyce Chuah

“If you’re going to be this way each time your shares drop by one sen, you might as well just sell them off!”

Fear is a common emotion in our lives and in many instances, it protects us from danger.

However, investors' fear may be more punishing than protective, writes JOYCE CHUAH.

I HAVE often said this in my seminars: “Many of us want to invest but a few of us are NOT prepared to be investors.”

The common question among investors is often “How much are we making?” True, profits are after all the benchmark we set for a successful investment plan. However, many often choose to forget that in the process of seeking profits, there will be times of unrealised losses and times of unfavourable returns due to events beyond anyone's control.

Even if it is an event which one tries to predict (such as the general election date!), many forget that such events are just temporary and not catastrophic, where total and irrecoverable loss cannot happen. The test of a successful investor is when the rubber hits the road' − that is, when faced with a loss position, can you prevent yourself from reacting and allowing fear to push you to sell your loss positions?

Fear protects us from danger, as in a fight or flight situation. But investors' fear may be more punishing than protective because it prepares us to react and changes our perspective of the external events.

Joyce Chuah

I have often said that the acronym F.E.A.R. stands for “False Evidences Appearing Real”, as fear deletes, distorts and generalises events which may are not as adverse as they seem or as we are told.

It is no wonder that Warren Buffett is one of most successful investors in the world. He practises what he termed as “inactivity” as an investor. Instead of reacting to fear, Buffett says, investors should learn to be calm and inactive.

His thoughts are best summed up in four of his famous wise quotes:

“The stock market is designed to transfer money from the active to the patient.”

“Stop trying to predict the direction of the stock market, the economy, interest rates, or elections.”

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 10 years.”

“My success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”

http://biz.thestar.com.my/news/story.asp?file=/2013/3/18/business/12815616&sec=business

Eurozone officials decided levy to be imposed on all deposits in Cyprus

On Saturday, Eurozone officials decided that a 6.75% levy would be imposed on all deposits under €100,000. Accounts over €100,000 would have a levy of 9.9%. The intention is to bring down the bailout cost. Although Eurozone officials insisted that this measure of imposing levies on deposit is limited to Cyprus. There are genuine fear among investors regarding Italy and Spain.

The global anxiety due to Cyprus are now heightened.

Santa Claus politics underscore Malaysia’s elections - the "sweeteners" will be paid for by the same voters who thought they got them for free

Santa Claus politics underscore Malaysia’s elections, says Singapore paper

MARCH 17, 2013

As Election 2013 fever spurs Malaysian politicians from both sides to serve up expensive sweets to boost their bid. - file picKUALA LUMPUR, March 17 — As Election 2013 fever spurs Malaysian politicians from both sides to serve up expensive sweets to boost their bid, a Singapore paper reminded voters today that they would be the ones to pick up the tab. 

“The intense fight for votes has led both the administration of Prime Minister Najib Razak and the opposition PR to promise more and more populist measures. 

“You could call it Santa Claus politics,” Reme Ahmad, assistant foreign news editor in the widely-read Straits Times, wrote in an opinion piece for the paper’s Sunday edition. 

He noted that Najib who leads the ruling Barisan Nasional (BN) has been dishing out more cash “gifts” to offset rising living costs that are the main concerns of a significant 40 per cent of the 13.3 million voters struggling with bread-and-butter issues; and signal there may be more to come if the coalition maintains power. 

Among the billions of ringgit worth of sweeteners he listed were the second round of RM500 cash aid for each household, RM200 smartphone rebates for the hundreds of thousands of youths, the RM250 student book vouchers and just last week, pay hikes for the country’s 230,000 policemen and soldiers who are seen to form a core deposit in the coalition’s vote bank. 

The writer noted that the Pakatan Rakyat (PR) opposition, which is seen to be a viable contender to take federal power for the first time, has also promised many goodies. 

Among them, he listed free university education, cheaper utility bills, lower transport costs through cuts in car and petrol prices and highway tolls that formed the key proposals in PR’s manifesto launched last month. 

“But here is one worry the politicians are downplaying. 

“With all the goodies disbursed or promised, will the next government shift more public money towards productive activities such as upgrading ports and boosting worker education, or will it be forced to give yet more sugar and spice to voters fattened by everything nice?” the writer asked. 

Reme said that the reality was that sugary deals and promises of more handouts will not necessarily reel in the votes, as several political observers here have said. 

“The harsh reality is that the more you give, the more people want. 

“A second point is that the freebies have to be paid for by somebody down the line,” Reme said. 

He pointed that Malaysia is already into its 16th year of a budget deficit since the 1997 Asian financial crisis that the money to pay for the government’s spending came from taxes and “other piggy banks, such as national oil firm Petronas”. 

He reminded that tax revenue that could have been spent to build new roads may instead be funnelled for other purposes to keep the political election pledges, like petrol price subsidies or compensating highway companies to remove their toll booths. 

“In other words, they will be paid for by the same voters who thought they got them for free.”

http://www.themalaysianinsider.com/malaysia/article/santa-claus-politics-underscore-malaysias-elections-says-singapore-paper

Words of Wisdom on Dividend Policy From Big Tesco Backer Warren Buffett

By G. A. Chester 

March 7, 2013 

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If you're a U.K. investor just starting out, U.S. investing legend Buffett may be new to you -- perhaps your interest in the man has been piqued by reading about how he's taken a big stake in Tesco  (LSE: TSCO  ) (NASDAQOTH:TSCDY  ) .LONDON -- Last week, Berkshire Hathaway  (NYSE: BRK-A  ) (NYSE: BRK-B  ) boss Warren Buffett released his annual letter to shareholders.

I can tell you that Buffett's annual letters never fail to educate, amuse, and enrich. You'll find abundant pearls of wisdom in his witty, colourful, and incisive commentaries -- as, indeed, will old hands.

586,817% and countingLet's start with why Buffett has captured the attention of millions of investors around the world. The bottom line is, his Berkshire Hathaway group has an outstanding record of increasing shareholder value over the best part of five decades.

Between 1965 and 2012, Berkshire's book value per share has increased by a mind-boggling 586,817%, representing a compound annual growth rate of close to 20%. Such gains over such a long period are unparalleled.

Successful businessesBuffett's strategy of wealth creation for Berkshire is something ordinary investors like us can learn from in weighing up companies we may want to invest in.

Successful businesses generate cash. Buffett is clear about what a company should do with that cash, in the following order of priority:

• First, examine reinvestment possibilities offered by its current business for increasing the competitive advantage over rivals.
• Second, look at acquisitions that are likely to make shareholders wealthier on a per-share basis than they were prior to the acquisition.
• Third, consider repurchasing the company's own shares to enhance each investor's share of future earnings.
• Fourth, by default, pay dividends to shareholders.

Reinvestment and acquisitionsBy reinvestment in the business, Buffett is referring to spending on projects "to become more efficient, expand territorially, extend and improve product lines or to otherwise widen the economic moat separating the company from its competitors."

When we, ourselves, are considering companies to invest in, we can check how intelligently management is reinvesting in the business by looking at such things as whether market share is being maintained/increased, and whether margins are being maintained/grown relative to rivals.

Buffett considers small bolt-on acquisitions that can easily be integrated into existing operations as part of the reinvestment in the business. The acquisitions referred to in stage two of his four steps are those that add something new to the company -- some form of diversification.

When we are considering companies to invest in, we can check whether management has a good track record of adding shareholder value through making such acquisitions.

Repurchasing sharesBuffett is strict about when it's right for a company to repurchase its own shares. Again and again over the years, he has stressed that the only time to do share buybacks is when the shares are available "far below," "well below," or "at a meaningful discount from" intrinsic value -- and "conservatively calculated" intrinsic value at that.

Last year, Berkshire spent $1.3bn repurchasing its own shares. At the moment, Buffett is prepared to pay up to 120% of Berkshire's book value for the shares.

So, if you're interested in buying shares in Berkshire yourself, you have it from the horse's mouth that 120% of book value represents a meaningful discount to conservatively calculated intrinsic value at the present time.

DividendsBerkshire doesn't pay dividends, but not because Buffett is against them per se. It's simply that he has always seen opportunities in steps one to three for employing Berkshire's cash flows more fruitfully for shareholders.

At the moment, the discount to intrinsic value is such that share buybacks are an efficient way for Berkshire to employ excess cash, but Buffett says that if things change materially "we will re-examine our actions."

Buffett is perfectly happy for the quoted companies in Berkshire's portfolio -- American Express, Coca-Cola, IBM, and Wells Fargo are his "Big Four" -- to use excess cash to make share repurchases "at appropriate prices," or to otherwise pay him dividends. He says: "We applaud their actions and hope they continue on their present paths."

Buffett no doubt feels the same about his big U.K. investment in Tesco, whose shares -- at 380p -- are currently trading on an historically low earnings multiple, and offer investors a healthy 4% dividend yield.

Berkshire's 415,510,889 shareholding in Tesco (5.2% of the company) should net Buffett a dividend payout of something over £60m this year alone.

http://www.fool.com/investing/international/2013/03/07/words-of-wisdom-from-big-tesco-backer-warren-buffe.aspx

Investors’ Quandary: Get In Now?

By JEFF SOMMER

So is it too late for investors to join the party?

The stock market has already more than doubled since the dark days of 2009. Records are being set, and most indexes have risen nearly every week this year.

Nearly all strategists point out that it is much better to buy at a market bottom than to invest after a record has been set. Nonetheless, for those willing to accept the risk, there are strong arguments, based on history and on market fundamentals, for believing that the bull market may still have room to run.

Chief among them is the expansive monetary policy of the Federal Reserve. “The old song on Wall Street is ‘Don’t fight the Fed,’ and that certainly has been the case in this market,” said Byron Wien of the Blackstone Group, who is a veteran of many market rallies and slumps. “The Fed and other central banks have been driving the market, and there’s no sign that’s going to stop.”

Another critical factor is the flow of funds into the stock market, said Laszlo Birinyi, who runs a stock research firm in Westport, Conn. “There is still a lot of money sitting on the sidelines — and there are a lot of people who are still jumping in, and that, in itself, is a good thing for the market,” he said.

According to his calculations, the net inflow into domestic stocks over the last 12 months has totaled $76.7 billion, which helps to explain why the Standard & Poor’s 500-stock index has risen more than 13 percent in that period. Net inflows to stocks amount to $27.75 billion this calendar year, he said, and barring a big shock, they are likely to continue. “We’re in the fourth and last stage of a long-running bull market,” he said. “We think there’s a lot more to come.”

No one really knows whether history is a reliable guide, but the pattern of past bull markets also suggests that this one could continue to flourish. At the moment, according to the Bespoke Investment Group, the nearly four-year run of the United States stock market is the eighth-longest in the last 100 years, and it is the sixth-strongest in terms of the return of the S.& P.’s 500 index. And since 1900, when the Dow Jones industrial average reached a nominal high, as it did on Tuesday, the Dow has averaged a 7.1 percent rise over the next 12 months.

“We believe stock valuations are still reasonable, and that the momentum of the market will keep moving it upward,” said Paul Hickey, co-founder of Bespoke.

Because of the intervention of the Fed, even some longtime market bears are reluctant to bet against the current rally. “This is impressive, no doubt about it,” said David A. Rosenberg, the former chief North American economist at Merrill Lynch and now chief strategist of Gluskin Sheff in Toronto. “There are many major risks out there, but at the moment the central banks are doing a spectacular job of buffering them.”

Mr. Rosenberg has a reputation for being a “permabear,” and he has recently emphasized investing in high-yield bonds and corporate credit instruments over stocks. As far as the immediate future of the stock market goes, he said, “I think we’re overdue for a correction.”

Major problems on the horizon, he said, include a weak economy that is being hobbled further by the recent payroll tax increase and the indiscriminate federal budget cuts that have just been put in place. And the troubles in the euro zone, which flared last month in Italy, are far from over, he said, “There are problems everywhere you look.”

Yet he is reluctant to predict a sustained stock market decline. Precisely because the economy is weak, he said, the central banks will be forced to keep short-term interest rates low. “People seeking income have been fleeing other asset classes,” he said, “and they have been moving their money into the stock market.”

For the short term, problems in Europe may actually be helping the United States, said Michael G. Thompson, managing director of S&P Capital IQ’s Global Markets Intelligence. “The gridlock produced by the Italian election has been a catalyst for the United States market,” he said in a telephone interview from London. “It seems to have reminded people that Europe is unstable — and so it has given them another reason to move money into the United States.”

Mr. Thompson said that while earnings growth for the S.& P. 500 had slowed, a combination of low rates and “canny management by C.E.O.’s of big companies” made it likely that corporate profits would hit a record this year. “As long as the Fed keeps its foot on the gas and as long as we stay out of a recession, I think there’s a good chance this market will continue.”

Not everyone is sanguine, however. “It’s getting downright embarrassing to be bearish with all this exuberance around,” said Rob Arnott, the chairman of Research Affiliates, an asset management firm in Newport Beach, Calif. “With so many people eager to buy stocks, it’s a wonderful time for us to take some risk off the table.”

Mr. Arnott, who manages the Pimco All Asset Fund, said the economy was weak enough that there was a reasonable chance the United States was already back in an undeclared recession. An economic or financial shock could induce a sharp market decline, he said.

“My view is simple,” he said. “Could this rally continue? Absolutely. But do I want to take a risk on a rally that will at some point certainly reverse and leave a lot of people helplessly trying to de-risk in an unliquid market decline? No. I don’t want to be part of that crowd.”

In the logic of contrarian investing, this kind of pessimism encourages Mr. Birinyi. “Market sentiment has not reached irrationally positive levels yet,” he said. “That implies to me that the market is still grounded, and that it can keep on rising.”

http://www.nytimes.com/2013/03/06/business/investors-quandary-get-in-now.html?_r=0

A Conversation With Warren Buffett (Extended) on Philanthrophy

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."