Weekend thoughts w/e 050308

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Here is a link to Q&A transcript of Berkshire Hathaway 08 shareholders meeting. I believe this is more comprehensive than CNBC’s live blog I posted earlier.

Berkshire first quarter earning
It went down more than 60% over same period a year ago (PDF). But the number does lie sometime, because this is mostly from paper loss of very long term derivative. One may wonder how come Buffett got into this derivative thing? Isn’t that risky?

Well, in a way we are all invovled in this derivative world. Think auto insurance. When we pay premium for car insurance, it’s like buying a put for our cars and the insurance company is selling the put. If the underlying (car) got demaged, we will be paid by the insurance company for the loss. But most of times our cars are fine, and the insurance companies make money. We all know insurance is Berkshire’s main business and Buffett’s expertise area. My point is Buffett is not new to derivative. He is the financial guru of our time. While his main expertise is buying common stocks and business (in which he emphasize the moat, the durable competitive edge), he also has good understanding and made money on bonds, commodity and foreign currency etc. One interesting example I read from his latest annual letter is he bought Amazon Euro (junk) bond after dot com bubble: he got upsides both from the apperication of Euro and Amazon itself a few years later.

Chinese speaking representative in BoA
We went to the local BoA branch, and to our surprise, one of the financial representative speaks Chinese (Mandarin). He said he had worked in Beijing. One thing I heard is foreigners in Beijing tends to learn Chinese, while those in Shanghai don’t. On a related matter, it appears the interest of learning Chinese is rising among foreigners.

Food stocks

Barrons did an article on food stocks a few months ago. It reviewed the large food companies from General Mills to Wrigley (the most expensive from PE). Since then Wrigley has been taken over by Mars with Berkshire’s help. I remember Buffett said: food companies generally have good assets. I think the most important of all is: one got to eat (and drink). Also, American food and drink companies grew internationally in recent years. Coca Cola (NYSE:KO)has been sold all over the world, a big step from 1988 when Buffett bought the stock.

Interestingly, when I read this Chinese article from Netease titled most generous Chinese companies: the companies gave out most dividend to stock holders in terms of payout ratio, food companies such as Shuang Hui Sauage (000895) is on the top of the list. So, buy “what you eat” is a viable strategy?

A stock worth to hold for 10 years
When Buffett looks at a stock these days, he is looking to hold for 5, 10 or 15 years. Interestingly, I found this Chinese article (寻找可以见证10年的股票—宁财神, through Danbin blog), in which the author is looking for a Chinese A share stock worth to hold for 10 years.

My answer: 601398, ICBC or 工商银行. Buy it at under 6.00 Yuan, though (remember Buffett’s margin of safety teaching 🙂

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