Tracking Warren Buffett's Berkshire Hathaway Portfolio - Q1 2015 Update

During Q4 2014, Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) US long stock portfolio decreased ~2% from $109.37B to $107.13B. The top-five positions account for over two-thirds of the portfolio: Wells Fargo (23.88%),Coca-Cola (15.14%), International Business Machines (11.92%), American Express (11.06%), and Wal-Mart (4.64%). There are 45 individual stock positions many of which are minutely small compared to the overall size of the portfolio.

Warren Buffett's writings (pdfs) are a treasure trove of information and are a very good source for anyone starting out on individual investing.

New stakes:

None.

Stake Disposals:

None.

Stake Increases:

International Business Machines (NYSE:IBM): IBM is Buffett's third-largest stake at 11.92% of the portfolio. The original position was purchased in Q3 2011 at prices between $157.54 and $185.21. Since then, the stake has gone up by almost 40% through periodic purchases. Last five quarters have seen minor buying and the stock currently trades at $173. Berkshire's cost-basis on IBM is at around $170. Buffett is very bullish on IBM and controls ~8% of the business. For investors attempting to follow Buffett, IBM is a very good option to consider for further research.

Deere & Company (NYSE:DE): DE stake was first acquired in Q3 2012 when around 4M shares were purchased at prices between $75.11 and $82.70. The position remained steady until Q3 2014 when an additional ~3.6M shares were purchased at prices between $82 and $91.38 - Berkshire avoided disclosing DE stake in Q3 2014 by making use of the "section 13(f) Confidential Treatment Requests". Last quarter, the position was increased by another 125% at prices between $80 and $91. This quarter saw a marginal increase. The stock currently trades at $89.13. The stake is at 1.42% of the portfolio and Buffett controls ~5% of the business.

Phillips 66 (NYSE:PSX): The 2% of the US long portfolio PSX stake as of Q4 2013 was reduced to a 0.71% stake in Q1 2014 at prices between $70.67 and $80.35. The position was further reduced by one-third the following quarter at prices between $76.69 and $86.33. This quarter saw an about-turn: ~14% increase at prices between $59 and $80. The stock currently trades at $81.05. Berkshire's cost-basis on PSX is much lower.

Precision Castparts (NYSE:PCP): PCP has seen steady buying in the last two quarters. Q4 2014 saw a ~37% increase at prices between $218 and $243 and this quarter saw another ~47% increase at prices between $200 and $241. The stock currently trades at $216. The stake is still very small at 0.82% of the US long portfolio.

Twenty First Century Fox (NASDAQ:FOX) (NASDAQ:FOXA): FOXA is a minutely small 0.20% of the US long portfolio stake established last quarter at prices between $31.77 and $39.01 and increased by ~31% this quarter at prices between $32.80 and $38.40. The stock currently trades at $33.99.

US Bancorp (NYSE:USB): USB, a 3.41% stake has been in the portfolio since 2006. The position was tripled during the 2007-2009 timeframe and since then was reduced by around 15% overall as of EOY 2012. In Q2 2013, ~17M shares were purchased at prices between $32.27 and $36.15. This quarter saw a 4.57% increase at prices between $40.94 and $45.12. Berkshire's cost-basis on USB is ~$32 and the stock is trading well above that price at $43.93. Buffett controls 4.7% of the business.

Wells Fargo & Co. (NYSE:WFC): WFC is Buffett's largest stake at 23.88% of the US long portfolio, well ahead of Coca-Cola (NYSE:KO) which is at 15.14%. This quarter saw a ~7M share stake increase at prices between $50.72 and $56.17. The previous significant activity was in Q2 2013: over 18M shares were purchased at the time at prices between $34.66 and $38.20. The stock currently trades at $55.52. Berkshire's average cost-basis is at around $25.

Stake Decreases:

Bank of New York Mellon Corp (NYSE:BK): BK is a 0.78% of the US stock portfolio stake. The bulk of the original position was purchased in Q2 2012 at prices between $19.51 and $24.67. The stake was increased by 30% in Q2 2013 at prices between $26.70 and $30.55 and since then had been kept relatively steady. Last three quarters have seen a combined ~16% reduction at prices between $35.95 and $41.53. The stock currently trades at $43.09.

Charter Communications (NASDAQ:CHTR): CHTR is a 1.08% of the US long portfolio position. It was established in Q2 2014 at prices between $118 and $158 and more than doubled in Q3 2014 at prices between $151 and $164. Last quarter saw a further ~25% increase at prices between $140 and $170. This quarter saw a minor ~3.5% reduction. The stock currently trades at around $181.

National Oilwell Varco Inc. (NYSE:NOV): NOV is a minutely small 0.09% of the US long portfolio stake. The original position was established in Q2 2012 at prices between $60 and $80.67. It was increased by ~19% in Q2 2013 at prices between $64.14 and $71.57. Last four quarters have seen a combined ~78% reduction at prices between $47.46 and $65.53. The stock currently trades at $51.27.

NOTE: The implied performance of this position by the prices quoted above is negatively skewed because of the effect of National Oilwell Varco's NOW Inc. spinoff. The terms called for NOV shareholders to receive one share of NOW Inc. for every four shares of NOV held.

Liberty Global PLC (NASDAQ:LBTYA) (NASDAQ:LBTYK): The minutely small 0.25% position in Liberty Global established in Q4 2013 at prices between $37.50 and $44.50 (adjusted for the 03/2014 stock-split) was increased significantly to a 0.57% position in Q1 2014 at prices between $40.37 and $46. The stake was further increased by ~17% in the following quarter at prices between $38.49 and $45.61. Last two quarters had seen marginal buying while this quarter saw a marginal reduction. The stock currently trades at $49.43 and the stake is at 0.84% of the US long portfolio.

MasterCard Inc. (NYSE:MA), Viacom (NASDAQ:VIAB), Visa Inc. (NYSE:V), & Wabco Holdings (NYSE:WBC): These are very small (less than ~0.60% of the US long portfolio each) stakes that were decreased marginally this quarter. Berkshire controls 6.6% of Wabco Holdings.

Kept Steady:

Restaurant Brands International (NYSE:QSR): QSR is a 0.30% of the US long portfolio position established last quarter at prices between $35 and $42. The stock currently trades just outside that range at $42.14. The stock started trading in December 2014 following a merger/rename transaction between Tim Hortons and Burger King Worldwide - QSR has already increased ~22% since the first day of trading (12/10/2014). There was heavy activist involvement previously and the latest filing show Bill Ackman directly owning 38M shares (18.80% of business). Berkshire's stake in the business is at around 4.2%.

Suncor Energy (NYSE:SU): SU is a small 0.61% of the US long portfolio position first purchased in Q2 2013 at prices between $27.40 and $32. Last year saw a ~24% increase at prices between $27.74 and $43.08. The stock currently trades at $30.42.

DaVita Inc. (NYSE:DVA): DVA is a 2.93% of the US long portfolio position that was aggressively built-up over several quarters: the original stake was doubled in Q1 2012, increased by over 50% in Q2 2012, 24% in Q4 2012, and an additional 16% in Q1 2013. There has been marginal buying since. The bulk of the stake build-up happened at prices between $30 and $49. The stock currently trades at around $81.48. In May 2013, Berkshire's Ted Weschler signed an accord with DVA, limiting open-market purchases to 25% of the company- the position is currently at 17.9% of the business.

DIRECTV (NASDAQ:DTV): DTV is a 2.49% position first purchased in Q3 2011. The bulk of the current stake was purchased in Q4 2011 at prices between $40.60 and $47.87. In Q2 2014, the position was reduced by around one-third at prices between $74 and $88.25. In Q3 2014, the pattern reversed: a ~28% stake increase at prices between $83.55 and $87.72 and that was followed with a ~5% increase last quarter at prices between $82.56 and $87.89. The stock currently trades at around $91.46. AT&T (NYSE:T) is in the process of acquiring DTV in a $95 per share cash-and-stock deal ($28.50 per share cash and the rest in stock protected with a collar).

General Motors (NYSE:GM): GM is a 1.44% of the US long portfolio position that was first purchased in Q1 2012 at prices between $21 and $30. The stake was increased by 60% in Q2 2013 at prices between $27.53 and $35.03. Q1 2014 saw a 25% reduction at prices between $34 and $41 and in the following quarter there was an about-turn: 9.86% increase at prices between $31.93 and $37.09. Q3 2014 saw another ~21% increase at prices between $31.94 and $37.97 and last quarter saw a marginal increase. The stock currently trades at $34.91.

American Express (NYSE:AXP), Coca-Cola, and Procter & Gamble (NYSE:PG): These are very large stakes that were kept steady during the last two years. Buffett has said these positions will be held "permanently". Berkshire's cost-basis on AXP, KO, and PG are at around $8.49, $3.25, and $6.40 and ownership stakes are at 14.8%, 9.2%, and 1.9% respectively.

Chicago Bridge & Iron (NYSE:CBI): CBI is a 0.57% of the US long portfolio position that was increased by 47% in Q2 2013 at prices between $50.92 and $63.75. Last quarter saw a 12% stake increase at prices between $65.51 and $87.65. The original position was purchased in Q1 2013 at prices between $46 and $62. The stock currently trades at $55.01. Berkshire controls 9.9% of the business. For investors attempting to follow Berkshire, CBI is a good option to consider for further research.

Goldman Sachs (NYSE:GS): GS is 2.22% of the US long portfolio stake established in Q4 2013. Berkshire Hathaway received $5B worth of warrants to buy GS stock during the financial crisis (October 2008) at a strike price of $115 (43.5M shares) that was to expire October 1, 2013. Buffett exercised the right before expiry to start this long position. GS currently trades at $203.

Liberty Media (NASDAQ:LMCA) (NASDAQ:LMCK): LMCA is a petite 0.43% stake first purchased in Q4 2011. It was increased by ~75% in Q1 2012 and roughly doubled the next quarter. Q2 2014 saw a ~24% stake reduction and since then has been kept steady.

Moody's Inc. (NYSE:MCO): MCO is a 2.39% of the US long portfolio stake that was decreased by 14% in Q2 2013 at prices between $52.23 and $68.62. The stock currently trades at $110. Buffett's cost basis is ~$10 and so he is sitting on large long-term gains on the ten-bagger. The stock returned around 48% in 2013, 23% in 2014, and another ~13% so far this year. Berkshire controls 11.5% of the business.

USG Corporation (NYSE:USG): USG is a very long-term holding and there was a significant 21.39M share stake increase in Q4 2013 due to conversion of notes at $11.40 per share - Berkshire acquired the convertible notes during the financial crisis (2/2009) and USG opted to redeem them on 12/16/2013. Q2 2014 saw a ~11.5% stake increase at prices between $29.57 and $33.16. The stock currently trades at $28.10. Buffett controls around 27% of the business and overall cost-basis is at around $19.

VeriSign Inc. (NASDAQ:VRSN): VRSN was first purchased in Q4 2012 at prices between $34.15 and $49.48. The position was more than doubled in Q1 2013 at prices between $38 and $48 and another one-third the following quarter at prices between $44.39 and $49.27. Q1 & Q2 2014 also saw a combined ~17% increase at prices between $47 and $63. The stock currently trades at $64.09. The current position is at ~10% of the business although as a percentage of the portfolio the stake is still very small at 0.81%.

Verizon Communications (NYSE:VZ): VZ is a small 0.68% of the US long portfolio position established in Q1 2014 at prices between $46 and $49.30. It was increased by ~36% the following quarter at prices between $45.94 and $50.05. The stock currently trades at $49.79.

Wal-Mart Stores (NYSE:WMT): WMT stake was first purchased in 2005. It has since been built up to a 4.64% position (top-five stake). The position was increased by 4% in Q1 2013 at prices between $68 and $75 and another 17% in Q1 2014 at prices between $72.66 and $78.91. The stock currently trades at $79.24. Berkshire's cost-basis on the position is at around $56.

Costco Wholesale (NASDAQ:COST), General Electric (NYSE:GE), Graham Holdings (NYSE:GHC), Johnson & Johnson (NYSE:JNJ), Kraft Foods Group (NASDAQ:KRFT), Lee Enterprises (NYSE:LEE), M&T Bank (NYSE:MTB), Media General (NYSE:MEG), Mondelez International (NASDAQ:MDLZ), NOW Inc. (NYSE:DNOW), Sanofi (NYSE:SNY), Torchmark Corporation (NYSE:TMK), United Parcel Service (NYSE:UPS), Verisk Analytics (NASDAQ:VRSK), : These are minutely small positions (less than ~0.5% of the portfolio each) kept steady this quarter. Although the relative size of the position is small, it should be noted that Berkshire controls 3.6% of Media General. The DNOW position was established in Q2 2014 as a result of National Oilwell Varco's spin-off of its distribution business. Also, per the annual report, Berkshire has a $2.03B position in Sanofi - so in addition to the 13F securities listed in the spreadsheet, Berkshire also owns Sanofi securities listed in Euronext Paris. The only other large non-US individual stock position reported in the AR is Munich RE at $4B (11.8% of the business).

Note: Tesco plc (OTCPK:TSCDY) was another position listed in the 2013 annual report. Berkshire liquidated that stake in 2014: sold 301M shares and realized $444M in losses.

http://seekingalpha.com/article/3188926-tracking-warren-buffetts-berkshire-hathaway-portfolio-q1-2015-update?auth_param=ii05t:1algnhc:3c52ec511450202061d175f0e7d641b4&uprof=44

Is McDonald's Losing Its Economic Castle?

May. 17, 2015 6:35 PM ET  |  7 comments  |  About: McDonald's Corporation (MCD), Includes: BWLD, CBRL, ZOES

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)

Summary

• Is there really much to like about McDonald's anymore?
• Let's walk through its challenges, and whether it means the company's Economic Castle is deteriorating.
• We give our high-level thoughts on the turnaround plan and disclose our fair value estimate of shares.
• We also have some interesting ideas at the end of the article that many may be overlooking.

What in the world is an Economic Castle?

Berkshire Hathaway's Warren Buffett has popularized the concept of an "economic moat," perhaps best described in common language as sustainable competitive advantages. But an Economic Castle? Are we just confused?

In short, no.

Whereas economic moat analysis focuses on the duration of a company's economic profit stream, as measured by return on invested capital less the costs of which to attain that capital, economic castle analysis focuses on the magnitude of economic profit creation over the realizable near term.

Unlike the substantial duration risk inherent to predicting economic profits 20, 30 or more years into the future, the economic castle framework posits that the strongest performing companies during certain phases of the economic cycle will be those that generate the most economic value over the foreseeable future.

http://seekingalpha.com/article/3190106-is-mcdonalds-losing-its-economic-castle?auth_param=ii05t:1ali5us:13045f7ae0127a1efc301785d852f4b2&uprof=44

Warren Buffett’s Best Advice for 2015. Essentially a good review of and reliving the post 2008 GFC.

Published on 26 Dec 2014

Warren Buffett’s Best Advice for 2015

Warren Buffett says:

“My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors — whether pension funds, institutions or individuals — who employ high-fee managers.”



Comment:

Listening to this video gives you a good review of financial crisis and stock market volatilities post-2008 GFC.  The video is a collection of live interviews of Buffett during this period and gives a good review of the unfolding crisis with Buffett's live responses to the crisis as it unfolded.

Were you frightened out of the market or you embraced the market during this period?

Warren Buffett shared his thinking of the stock market and other asset classes during this crisis period generously, and today, in 2015, his approach and philosophy are sound, safe and first class;  proven to be absolutely right and rewarding.

A lot of great lessons to learn in this video.


For those looking at buying first single family home, here was Buffett's advice in 2012.
This was the best time for you to buy.   Maybe different in 5 years from then.
Certain conditions need to be fulfilled:
- you should know where you are going to live.
- you must have a reasonable income.
- single family home can be bought with a 30 years mortgage at low interest rates of 4%.

Don't buy:
- if you are going to move in 6 months time.
- if you are uncertain about your job situation.

These are simple and common sense first class advice from Buffett.

Buffett is optimistic that single family homes will double in value over a very short period during his interview.
He is tempted to do this business but it would be extremely difficult to manage so many single units of homes and also dealing with so many people with difficult behaviours.

(@1.40 of video)



Additional note:

For those who are in their 50s or more, you may ponder over this particular fact.  Buffett first invested in shares at the age of 11 years old.  His present networth is about $70 billion.   1% of his wealth were acquired in the first 50 years of his life; the other 99% after his 50th birthday.

Once you have your initial capital and is on the growth path, the power and magic of compounding over many years can do wonders.

Always buy income generating assets as they will definitely beat any non-income generating assets over the long term and less subjective to prices offered and set by another based on sentiment (speculating).



Buffett:  When the market is down, I'm happier buying

Buffett:  Stock market, generally, is best place to have money

Warren Buffett started investing at 11yo and he regrets not starting earlier!!! What is also not widely known is that he made 95% of his money after the age of 65 years old!!! There is hope for us, old folks. Hahaha. But then again, we can't all be Warren Buffett.

Your Cheat Sheet to Financial Professionals

•   
• By Henry Truc
 
• October 12, 2010

What is a financial professional? The term loosely covers anyone that works in an industry dealing with, well, finance. This could be someone as prominent as a stock broker on Wall Street or someone as common as your local insurance agent or tax accountant. Knowing the area of expertise each one deals with will help you pinpoint the right hire to help you meet your financial goals. After all, you wouldn’t have your insurance representative do your taxes or your CPA accountant picking your stocks.

The following is a simple break down of five of the most common industry professionals working in finance. While some responsibilities do blend together and some professionals do double dip in expertise, this guide should help clarify where each professional fits in the world of finance.

Financial Planner

While their services vary widely, most financial planners review the whole of a client’s monetary situation and devise a strategy for accomplishing their savings, debt and investing goals. They also help serve as an investment manager to plan for major expenditures like retirement, college or a home purchase. They may make recommendations for investment products and services that will assist in achieving these milestones.

Credentials: The most common certification that designates a qualified financial planner is a CFP credential. In order to become a Certified Financial Planner, a person must hold a Bachelors degree, obtain at least three years of financial planning experience, complete a CFP Board-Registered Education Program and pass a three-part, 10-hour exam. Continuing education is required to maintain certification.

Skills:

• Strong interpersonal skills
• Sales ability
• Familiarity with legal restrictions and laws regarding retirement plans, tax shelters, insurance and trusts
• Understanding of complex mathematical concepts, budgets and financial and legal documents

What to Look for: There is no state or federal law that requires a person claiming to be a financial planner to actually be certified. For this reason, you should only hire a professional that has credentials and can provide references.

The CFP Board can be contacted regarding inquiries about particular individuals. In addition to receiving certification, qualified financial planners are registered with the SEC or the state securities commission where the business is located. You should also determine if your financial planner has taken a fiduciary oath to “to act in good faith and in the best interests of the client.” Financial planners are either compensated through fee-only or commission structures.

Financial Analyst

Financial analysts are also known as security analysts or investment analysts. They work for banks, insurance companies, securities firms and other institutions examining financial data to help a company and their clients make investment decisions. The primary duty of most financial analysts is to perform extensive research, write reports and create presentations based on these results to aid in determining the value and appropriate action on investments.

Credentials: It’s recommended that analysts obtain a Masters degree in business administration (MBA) in addition to their Bachelors degree. Analysts may also receive certification by the CFA Institute in the form of a Chartered Financial Analyst designation.

In addition to holding a degree, Chartered Financial Analyst candidates are required to pass three exams that cover topics like accounting, economics and security analysis, and have four years of qualified, professional work experience. CFA charterholders are also obligated to adhere to a strict Code of Ethics and Standards.

Skills:

• Analytical, mathematical and problem-solving skills
• Advanced knowledge of statistical software and spreadsheets
• Ability to communicate complex financial ideas simply
• Motivated to seek out obscure information
• Possesses in-depth knowledge of the economy, tax laws and markets

What to Look For: Financial analysts are generally employed by institutions rather than individual investors, but you may still be interested in who is making recommendations for your portfolio within a firm. The combination of education, experience and success record will determine how qualified a particular analyst is and a designation as a CFA is seen as a key certification for financial analysts.

Accountant

Accountants keep track of money. Most have a specialty: Public accountants work for public accounting companies and do accounting, auditing, tax and consulting work. Management accountants keep track of the money earned and spent by the companies they are employed with. Government accountants ensure sure that government accounting records are correct and review the records of people doing business with the government. You can also find individual accountants to help you with your money records and taxes.

Credentials: A Bachelors degree in accounting is usually the minimum education requirement. Masters degrees in accounting or business with a concentration in accounting are also available. Any accountant that files a report with the Securities and Exchange Commission must be credentialed as a Certified Public Accountant. Obtaining certification as a CPA requires (in 46 states) completion of an extra 30 hours of related undergraduate college coursework.

Skills:

• Knowledge of finance, accounting, budgeting and cost control principles
• Proficiency with financial and accounting software
• Extensive knowledge of federal and state financial regulations
• Ability to analyze financial data and communicate effectively through financial reports, statements and projections

What to Look For: It is not necessary for an accountant to be certified, so any additional professional designation is demonstrative of advanced knowledge in their field. A CPA is probably the most well-known designation, yet many other special certifications may be obtained by accountants depending upon their particular focus. One such example is the Certified Management Accountant title conferred by The Institute of Management Accountants.

Stockbroker

Stockbrokers work privately or for stock brokerage houses. They seek out and assist retail clients, including both corporations and individuals, in determining the best investments based on their interpretation of financial data provided by analysts. They then facilitate the transaction on the client’s behalf. Additionally, stockbrokers develop investment plans for clients, maintain records, monitor transactions and review financial reports.

Credentials: While a college degree is not necessarily required, most stockbrokers have one. Many also pursue MBAs, especially for high-level positions. It is required that they are licensed by passing the General Securities Registered Representative Examination, also known as the Series 7. Many states require stockbrokers to pass the Uniform Securities Agents State Law Examination as well.

Skills:

• Excellent interpersonal and communication skills
• Ability to identify market trends and how they affect investments like stocks or bonds
• Comprehensive understanding of financial health of investments, balance sheets, P/E ratios, etc.
• Recognition skills of unique investment opportunities

What to Look For: Personal qualities and skills are often considered to be even more important than academic training. The track record of the stockbroker is also important. Since they are often entrusted with large sums of money and sensitive information, it is especially important that you trust your stockbroker. Like a financial advisor, you need to determine whether their motivations are dictated by their commission structure or helping you build wealth.

Insurance Agent

Insurance agents are generally the first point of contact between an individual, family or business and an insurance company. They specialize in one or several types of insurance, including life insurance, health insurance and property or home insurance. Insurance agents search for new clients and assist them in selecting an insurance policy. Captive agents work on the behalf of a single company while insurance brokers match the best policy with their client among several insurance companies they represent.

Credentials: The most important aspect of being an insurance agent is sales. Some insurance agents only have a high school education with a proven ability in sales while others obtain a college degree in business, economics or finance. A few schools offer specific Bachelors degrees in the field of insurance. Insurance agents learn most of their skills by shadowing other agents, however. Additionally, most states mandate licensure and ongoing education every two years.

Skills:

• Sales expertise
• Specialized knowledge of particular insurance type
• Aptitude for explaining highly technical concepts
• Ability and desire to stay up-to-date on constantly changing industry and coverage policies

What to Look For: All agents are required to be licensed to sell insurance in whatever state(s) they work. Separate licenses are needed for every type of insurance policy being sold. Most states require that an agent complete coursework and pass an examination before receiving a license. Be sure that any insurance agent you work with holds a license in their particular field, whether it be life, health, auto, property insurance, etc. Agents may also receive additional certification or professional designations by organizations such as The National Alliance for Insurance Education and Research.

You can cut down on a lot of confusion and wasted time by going straight to the professional who meets your financial needs. By above guide to match the appropriate person with what you’re looking for, you should have a good start in finding a qualified industry professional.

http://www.gobankingrates.com/personal-finance/your-cheat-sheet-financial-professionals/

5 Secrets to Investing Success from Warren Buffett’s Annual Meeting

At the recent meeting, Buffett cited the factors that contributed to his success.

My trip to Omaha this past weekend meant only one thing, a chance to listen and learn from two of the greatest investors of all time: Warren Buffett and his second in command, Charlie Munger.

Over five hours, the two fielded questions from shareholders on matters ranging from the state of Berkshire Hathaway to the German economy. But one question really grabbed my attention: What has allowed you to become such a successful investor?

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In response, Buffett cited the five most important factors that contributed to his success.

1. “Enjoy the game”

MORE

This Is Why Warren Buffet Dumped His Exxon HoldingWarren Buffett on Scorecards, Investing, Friends, and the Family Motto

Practice makes perfect, and the simple truth is that you’re more likely to practice what you love. As Buffett said, he has always been interested in investing — in fact, he bought his first stock at age 11.

2. “A great teacher”The enthusiasm Buffett brings to the company’s annual meeting, and his obvious joy in educating others, makes it clear that 73 years later he still has great passion for investing.

Buffett had the first ingredient down pat, but he didn’t have a clear strategy. That began to take form after he read The Intelligent Investor for the first time in 1949. Buffett eventually attended Columbia Business School where he trained under the legendary value investor, and author of the The Intelligent Investor, Ben Graham.

Buffett’s investment philosophy has developed over time, but one major brushstroke hasn’t, and it is a Graham adage he shared in his 2013 letter to shareholders: “Price is what you pay, value is what you get.”

We can’t all go to Columbia, but we do have access to books written about or by legendary investors, and the opportunity to seek out intelligent people to learn from.

3. “It requires a certain emotional stability.”

Buffett and Munger are extraordinarily rational. They understand prices will rise and fall, and view falling stock prices as an opportunity to buy great businesses for less.

Theoretically, this isn’t difficult to grasp. If the same thing can be purchased at a lower cost, it’s a better deal. Yet when the stock market tumbles, it can be difficult not to panic and sell out.

Munger suggested we should all “avoid being a perfect idiot” in such situations. Which is about the best advice anyone can receive.

4. “Exceptional focus”

In a 2013 article by the Omaha World-Herald, Berkshire investment manager Todd Combs remembered Buffett coming into one of his classes at Columbia. Buffett was asked how the students could prepare for a career in investing. He grabbed a stack of pages of reports and other documents, and replied:

Read 500 pages like this every day. … That’s how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it.

If the reading alone doesn’t prove Buffett’s focus, he suggested in his 1993 letter to shareholders, “Indeed, we’ll now settle for one good idea a year.” One big idea and 182,500 pages of reading per year. That’s focus.

5. “Keep yourself open to good accidents.”

Buffett was asked if he went back in time, could he recreate Berkshire Hathaway? He replied that the “odds are against it.” Mainly, he suggested, because he had experienced much good luck.

For instance, despite both growing up in Omaha, Buffett and Munger were introduced through a mutual contact when Buffett was in his late 20s and Munger in his mid-30s. Flash-forward more than 50 years, and in his 2014 letter to shareholders, Buffett credited Munger as the architect of Berkshire Hathaway: “The blueprint he gave me was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.”

The two men’s introduction might have been fortuitous, but turning a meeting into a lifelong partnership is the ultimate example of being “open to good accidents.”

Bonus: “made some of that luck by being curious” — Charlie Munger

Buffett noted that he was also lucky to have accidentally met Lorimer Davidson in 1951. Davidson, who was named CEO of GEICO in 1958, spent four hours educating Buffett on the insurance industry during their chance meeting.

What Buffett did not mention was that his curiosity about GEICO encouraged him to hop on a train from Washington, D.C. to Maryland and visit the company. It was closed. Unfazed, Buffett pounded on the door until the custodian showed up and pointed him toward Davidson. After the meeting, Buffett began buying shares of GEICO and eventually purchased the company in 1995.

As Munger explained, he and Buffett are “dissatisfied with what they know,” and their curiosity forces them to continue learning and adapting. This has helped them — and can help you — create some of their own luck.

Dave Koppenheffer owns shares of Berkshire Hathaway. The Motley Fool has a disclosure policy.

http://time.com/money/3854027/warren-buffett-investing-advice/?xid=fbshare

How to Invest in Great Companies Like Warren Buffett

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• By Morgan Quinn
 
• December 2, 2014

Warren Buffett didn’t become the world’s fourth richest person by accident — he is one of the most strategic and calculated investors of our time, with a long-term investment strategy that has been described as the “Rip Van Winkle approach.” Buffett always invests in companies with good long-term prospects, staying away from technology, startups and any flash-in-the-pan bets. (The Oracle of Omaha also stays away from mutual funds, because he believes that over-diversification can hamper returns. Instead, he makes significant investments in just a handful of companies.)

Warren Buffett Among ‘Best Personal Finance Expert’ of 2014 Finalists — Vote For Your Top Pick Here>>

What Warren Buffett Looks for in Investments

Buffett’s investments are, well, pretty boring. He favors companies that offer basic services and products: razors, laundry detergent, soft drinks, auto insurance. He subscribes to the Benjamin Graham school of value investing: Look for securities that are undervalued based on their intrinsic worth — because, though intrinsic worth is difficult to measure, it’s the best way is to analyze a company’s fundamentals.

Fundamentals are what contribute to the financial valuation of a company, security or currency. For a business, that means revenue, earnings, assets, liabilities and growth. To find this, you’d have to look at a company’s balance sheet, income statements and cash flow to determine its health and growth prospects. If the company carries little debt and has a lot of cash, those are strong fundamentals.

“The trick to investing is to buy good businesses.”

Buffett reportedly says this when people ask for his investing advice; of course, this kind of dictum can lead to more questions: How do you know if the business is good? How do you even know where to look? The answer is, in many ways: It’s just as easy as Buffett says it is.

Read: Warren Buffett Reveals His No. 1 Investment Strategy That Anyone Can Follow

5 Tips for Investing Like Warren Buffett

1. Do Your Research

According to CNBC, Warren Buffett reads five newspapers a day, but let’s not forget he also has a team of economists and analysts under his wing, as well as companies offering him premium stocks in hopes he will invest (we should all be so lucky!).

Start with quarterly reports, familiarize yourself with the language of business and become proficient at reading financial statements. According to Buffett, “Accounting is a language all its own and getting comfortable in a foreign language takes a little experience, a little study early on, but it pays off big later.”

2. Figure Out What You Know

This is a basic principle of Buffett’s investment strategy. Good companies are in an industry you understand, selling products and services that people love, have long-term value and are fairly priced. Finding out what you know is easy — here’s how you do it.

3. Do the Math

• Return on equity: Buffett prefers this metric over earnings per share because return on equity measures management’s ability to create shareholder value. The math is simple: Divide the net income by shareholder equity — that equals return on equity. Run the numbers on a few competitors; the winning number should come in over 15 percent.
• Debt-to-equity ratio: A company with a low debt-to-equity ratio is conservatively financed, another Buffett parameter. This is another easy equation: Simply divide the company’s total liabilities by stockholders’ equity. Debt-to-equity ratios can vary by industry, but since we are playing it safe like Buffett, look for debt-to-equity ratios below 1. High ratios can mean a company has been financing its growth with debt, which is not usually a sustainable practice — it can lead to volatile or uncertain earnings, high interest rate charges or even bankruptcy.
• Price-to-book ratio: Buffett does not like to pay a premium for anything, including stock prices. He has famously said, “Whether we are talking about socks or stocks, I like buying quality merchandise when it is marked down.” A simple way to find out if a stock is priced is low is to calculate the price-to-book ratio. The P/B ratio is calculated by dividing the current closing stock price by the company’s total assets expressed on its balance sheet. A lower P/B ratio might indicate a stock is undervalued or it can mean the company is earning a very poor return on its assets, which is why the return on equity number you calculated earlier is so important.
• Forward price-to-earnings ratio: The forward price-to-earnings ratio is used to compare current earnings to potential future ones, but it’s just an estimate and should not be considered reliable data – its merely a forecasting exercise. To calculate the forward P/E, divide the market price per share by the expected earnings per share. If earnings are expected to grow, the ratio will be low. The lower the forward P/E ratio, the better the value.

Related: 7 Unbelievable Ways Warren Buffett Practices Frugality

4. Start Small and Sit Tight

Once you have determined which company you want to invest in, open a brokerage account with a low minimum. Start with a small number of stocks until you get more confident. Don’t overthink this — perfect timing is impossible to predict. Many investors make the mistake of trying to time their purchases or obsess over moving their investments around to get better returns. Rapidly trading in and out of stocks can be profitable in the short-term but you will lose long-term returns because turnover increases the taxes paid on capital gains and commission dollars.

5. Ignore Both Optimists and Pessimists

Ignore the negative Nellies — there will always be negativity in the marketplace and people insisting an economic downturn is just around the corner. Ignore the eternal optimists, too — the people who swear things are only going up from here. Focus your efforts on finding a good company you know that is undervalued by the market. Don’t worry about the highs and the lows — you’re in this for the long haul. If you’ve done your research you should trust yourself and the investment. After all, remember this famous piece of Buffett advice: “As long as you know the company you’re investing in, the better it is for a buyer. Down days always make me feel good.”

http://www.gobankingrates.com/personal-finance/invest-great-companies-like-warren-buffett/

THE BIG PICTURE. Investing is less about the stock price and more about the value of the business.

The Big Picture

Finding companies you know is only the beginning; the circle of competence is only meant to help you stay within your arena of expertise. 

Once you have generated a list of the companies you understand, the next step should be conducting an analysis of the financials. 

Don’t worry — you don’t have to be a finance whiz to understand the basics of the stock market. 

For example, Berkshire Hathaway’s investment philosophy is surprisingly simple: The company should have 
1.  consistent earning power, 
2.  good return on equity, 
3.  capable management and 
4.  be sensibly priced. 


Investing is less about the stock price and more about the value of the business — is it a good one?

Successful investing is more about learning over time and slowly expanding your circle of competence. For now, stick with what you know and focus on the long term. 

Anyone can find success in the stock market; you just have to keep it simple. 

As Buffett has famously said, “You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” And you know what? $60 billion says he’s right.