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CFA

Bet against Buffett?

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It seems there is lots of confusion about Berkshire (NYSE:BRK.A, BRK.B) options (paper) loss in its Q1 earning report, especially among individual investors. First, let me quote Buffett’s take on those options in his recent annual shareholder letter (link to letters):

“The second category of contracts involves various put options we have sold on four stock indices (the S&P 500 plus three foreign indices). These puts had original terms of either 15 or 20 years and were struck at the market. We have received premiums of $4.5 billion, and we recorded a liability at yearend of $4.6 billion. The puts in these contracts are exercisable only at their expiration dates, which occur between 2019 and 2027, and Berkshire will then need to make a payment only if the index in question is quoted at a level below that existing on the day that the put was written. Again, I believe these contracts, in aggregate, will be profitable and that we will, in addition, receive substantial income from our investment of the premiums we hold during the 15- or 20-year period.

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Investing

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

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Master Series

Early days of Berkshire shareholder meeting

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(Update) Meet the Buffetts (NBR Susie Gharib interview with 3 Buffett children, Howard, Susie, and Peter).

Working with Buffett (NBR Susie Charib interview 3 CEOs working for Berkshire subsidiaries).

Berkshire shareholder meeting at its early days
Quote from CNBC:

Buffett: It’s a gathering of partners. And, you know, we have a lot of partners, but I like the fact they feel part of the act. And to see it’s a real company, real products, real people. And, I get to see real stockholders, so it’s, it’s, it’s a gathering.

Becky: It started out as a very small event. When was the first, when was the first one?

Buffett: Well, if you go way back we used to hold ’em in New Bedford, Mass., where Berkshire Hathaway started. So I would go back there. And, and it was me and somebody taking the minutes… And we would have about anywhere between 8 and 12 people, for the next 10 or so years until about 1981. And my aunt Katie would come and my Uncle Fred. I always packed the audience with people that would be sure to nominate me.

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401k and Personal Finance CFA

CFA, 401k, Berkshire shareholder meeting

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I printed out the CFA exam admission ticket yesterday, the test will be hold on June 7. Still got to read up the economics (my least favorite topic). So far I have read “financial management and statement analysis”, “quatitive methods”, “equity analysis and portfolio management”, and I’ve almost completed the “Options and derivatives”. Another thing I need to read is “Ethics”: I intentionally put it off and prepared to read it right before the test. As I get older, my memory is not as good 🙂

401k
I checked out the 401k and Rollover IRA at Vanguard this morning. I was surprised to find, after all these craziness, my portfolio is down 3.77% YTD. One thing I noticed is April was a good month for stocks. All the major indices went up.

Berkshire shareholder meeting

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Master Series

Buffett U of FL talk

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A bit long. It was a talk Buffett gave to MBA students at the Business school at University of Florida, in 1998 (10 years ago). But I promise it’s both fun and educational 🙂

Chinese translation (中文)
English (PDF) (24 pages).

Google Video (88 minutes) original link here.

He talked about “chewing gum business” in the talk (address to question: What makes a company something that you like).

Categories
Investing

A good Chinese article on Value Investing

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Buffett is in the news again yesterday. This time he is playing sidekick (financing) to help Mars to buy Wrigley (NYSE:WWY), the chewing gum company. One interesting Buffett comment I heard from CNBC is “I have doing taste testing of the Wrightly gum for 70 years”.

Fun aside, Buffett and value investing have also been very popular in China in recent years, thanks to the boom/bust of Chinese stock market. There are tons of books on Buffett and his investing strategy, either translated from English, or written by someone who really does not know value investing. I saw a guy (who admires Buffett and claims to be value investor) talked about how great PetroChina is, and encourage small investors to buy at CCTV-2. Now we all know how PetroChina (NYSE:PTR) A share (601857) did.

But I found this one (written by Jingzhou Lawyer, 锦州律师) to be different. I found he has a very good understanding of value investing, much better than many pros in China. So let me quote some:

任何人价值投资的理念是一个三合一的系统。缺少了任何一项都不是真正的价值投资。 价值投资就是：选择强势公司的股，以便宜的价格买入，不轻易交易。

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Categories
earning

Weekend thoughts w/e 042608

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The future of food
I watched the movie (documentary) The Future of Food in the weekend, via the NetFlix “instance play” feature. This 2004 documentary is about the genetic engineered seeds, and its effect on farmers and our daily food. I remember a few years ago there was a lot talk about genetic modified food, and its resistence in Europe. The critism seems subsided recently due to the global food shortage. Agriculture chemical companies such as Monsanto (NYSE: MON), which is the top GM (genetic modified) seed maker in the world (also main subject in the film), are red hot on the Wall Street these days. The interesting thing for me, is how GM seed is changing the global agriculture industry, including many small family farms in developing countries, and at the same time, affecting our food safety and sustainability of farming.

Here is a 9 minutes introduction of the film on YouTube.

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Investing

Multi-dimensional investing

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It’s the NBA playoffs season again, and I watched the two games between Phoenix Sun and San Antonio Spur lately. As you may know, I am a big fan of Phoenix Sun/Nash. But they disappointed me again this year: they lost 2 games in a row. The main reason is that Phoenix is pretty much a one-dimensional team: a fast tempo, “Nash passing, Stoudemire dunk” team. After the Spurs sealed the ball from Nash to Stoudemire, Suns lost its touch. I did not see meaningful contributions from other key players (Diaw, Barbosa, Bell), and Shaq is just a bit too old. So what’s my point? In the NBA, the team with the best balance of offense and defense wins (if we exclude referee, luck factor). A team can not win the championship simply by one strategy, one super star,…they need the supporting cast, the defense as well as offense.

Back to the investing. Yesterday we saw a huge disppointment from Starbucks (Nasdaq:SBUX) earning report. It says “it experienced the worst consumer enviroment”.

starbucks coffee cup size pic
(picture souce: will work for food)

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earning

China Mobile, Syngenta update

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In last two days China Mobile (NYSE:CHL) and Syngenta (NYSE:SYT) released its Q1 results (Bloomberg: CHL result, SYT result). Both are doing very well lately. Today CHL got an upgrade from Zacks. But let’s not got too excited on the stocks, as a general rule. Also keep in mind sometimes we could use the analyst upgrade or downgrade as an opposite indicator (market sentiment).

Remember a company’s fundamental does not change before and after an analyst wrote a report.

China Mobile’s strength or new growth mainly comes from the rural areas, and data/internet plan in urban areas. While I apploud its management’s forward looking strategy, I am not sure how long this momentum can sustain. Note CHL trades at a much higher price compared to other mobile operators, and it is the No. 1 carrier in the world according to market cap. Here is another interesting Chinese article about China Mobile (from Caijing).

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Shanghai Composite

Two policies to stablize China market

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(Update Apr 24) The trading tax bullet worked, at least for a day. The Shanghai composite index went up 305 points, or 9.29%. Similar performance from Shenzhen. All but two stocks in the two markets went up, many went up 10% (the limit). See the below picture for more details.

SHA_COMP_042408
(The thumbnail above is clickable, for faster download, click here for a full size picture)

(Original) The Chinese goverment (regulatories) has listened, and now they are pulling the trigger. Here are the two new policies:

On April 20 Sunday evening, they unveil the new lockup share transaction rules. Basically they are saying any large block of shares (larger than 1% of overall shares) has to go through a special trading platform, to avoid the large supply of unlocked shares. Reasonable move. But I heard people already abused the system. Guess what? They sell 0.99% instead of 1% (Chinese news from Sina). This is one thing I don’t like some of my countrymen: they cut corners and bend the rules. One reason Chinese have not made good quality cars like the Japanese do?

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