Tag: Buffett

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Master Series

Buffett on courses in business schools

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We only need two, according to Buffett, at 2008 shareholder Q&A session (transcript at GuruFocus). Note Q5, WB answer, he noted the following two courses:

1) how to value a business;

2) how to think about stock market fluctuations.

I think the first one is obvious, all the accounting, financial and quantitative skills. The second, is less obvious, it’s more about psychology. Buffett’s sidekick Charlie Munger summarized in his Human Misjudgement speech. Buffett also said something like “be cautious when others are greedy; be greedy when others are cautious“. This is certainly not science or a rule can be applied easily. For instance, if one person bought SPRD last Friday (like yours truely), it fell more today.

I noticed Danbin, a China hedge fund manager admires Buffett very much, also has his own way. He is almost religous about holding his stocks these days, amid the recent big drop of China market. You can read this article at his blog to get a glimpse. I am sure many of his clients are thinking or asking to bail out.

Oh, well, whatever it works for him/her. The key is to make money in the long run.

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Master Series

Buffett in Europe

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Warren Buffett is visiting Europe these days, mainly looking for acqusition targets (family private owned business). Here is an interview at IMD (Switzerland). IMD is a premier business school in the Europe (thanks to investmentpostcards). There is a link to webcast at the end of the post. It covered a range of topics, and the title was “How to grow wealth in a responsible and sustainable manner”.

On a side note, one of Buffett’s holding, Moody (NYSE:MCO) took a big hit recently because of mistake in giving out ratings. Interestingly, Buffett did not sell MCO shares in Q1 2008. He did sell some Well Fargo shares in Q1, this seems contradicts with he said in his annual letter: Moody probably lost intrinsic value in sub prime crisis, Well Fargo did not.

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Master Series

More Buffett Munger 08 shareholder Q&A

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I quoted some questions which are relevant for little guys (like me). The full transcript can be located at gurufocus. WB: Warren Buffett, CM: Charlie Munger, MX: yours truely.

BTW, I bought one more BRK.B yesterday, at $4130, not the lowest price of the day but about 5% off the price I bought for my first share. A few things happened since April 3 the day I bought it: the CEO of General Re resigned because of AIG scandal; Mars Wrigley deal; annual shareholder meeting (BRK.A and BRK.B both ran before the meeting); the Q1 earning result was not good because of paper loss of stock index derivatives. But I don’t think those things worsened the value of BRK in anyway.

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Q9: Melbourne Auz. Berkshire has bought a lot of shares in last twelve months in listed companies. Do you expect return to be between 7-10% pa over many years? Well below achievements in past.

WB: Yes. We would be very happy if we could buy pretax returns of 10%, dividends included. We would probably settle for a little less than that. Berkshire returns will be less, no question, in future than in past. We operate now in universe of marketable stocks with caps of 10bil, but really 50bil and up in order to have an impact. This universe is not as profitable. If we find 10bil, a 5% position is 500mil. If it doubles, we make 325m, this is less than 2/10ths of 1%. We have found things to do time to time to make money. They are nice, but don’t move needle much at Berkshire. Anyone who expects us to replicate past should sell their stock. We’ll get decent returns, but not indecent returns.

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Master Series

Buffett and Munger on Options

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In the annual shareholder meeting of Berkshire Hathaway, Buffett and Munger took on a series of questions from audience as usual. Although I did not go, I found some of those Q&A both interesting and educational. Thanks to gurufocus, the full transcript is here (WB: Warren Buffett, CM: Charlie Munger).

Q5: Would you use stock options to enter a position in a public co?

WB: If you want to buy or sell a stock, you should buy or sell a stock. We sold puts on Coca-cola once, but usually it is best to just buy stock. Using option technique is an idea where you get to buy a stock cheap. 4 out of 5 times you get it right and one time you may miss the opportunity to buy. We virtually have never used options to enter or exit a position. We have sold long term equity put options described in press report. We don’t get involved in fancy techniques.

CM: If I remember right, a public authority was wondering if they should set up an option exchange market. Warren was alone in the opinion (against it). You wrote a letter saying it wouldn’t do any good to throw out margin rules in this fashion. It doesn’t serve the country. I always thought Warren was totally right. Turning financial markets into gambling markets to enrich the croupiers doesn’t make sense.

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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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401k and Personal Finance

Andrew Feinberg, Barron launches newsletter

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Kiplinger is a personal finance magazine I have since year 2001. In its May 08 issue, I found “Tune out the seers” (Promised Land column) by Andrew Feinberg, in which he is saying everyone (especially experts) likes to predict the market and economy, but we should just ignore them. Or in the case of famous guys like George Soros, we could pay a little attention. But we still need to understand the logic behinds his conclusion, and do not let others opinion change our plan without our own homework. Quote John Kenneth Galbraith: there are two kinds of forecasters. Those who don’t know and those who don’t know that they don’t know. The article is not online yet, but I found Andrew’s another article Let Your Winners Run entertaining. Hope you have not listened him blindly if you bought AAPL shares last year 🙂

Barrons launches daily stock alert
I started to subscribe Barrons since this year, and enjoyed it so far. I always think Barrons (along with WSJ), probally is the best business (finance) newspaper in this country. But one thing I also notice is the business of newspaper is deteriating in the US very rapidly, WSJ and Barrons is no exception. Thus the buyout of Dow Jones (parent company of WSJ aand Barrons) by Murdoch last year.

As a part of rescuce effort, now Barrons is launching Daily Stock Alert. I have not signed up for it, because I think all stock picks newsletters make money by the newsletter subscriptions, not by their own portfolio performance. If a guy (or a lady) is really that good at picking stocks, why not buying those stocks in their portfolio, and make the money from it (which is Mr. Buffett did so successfully in last 50 years).

Oh, BTW, Mr. Buffett picks stocks by himself, not from Barrons or other newsletters 🙂

Barrons stock alert pic

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Master Series

See’s Candies, Balance Transfer and Turbo Tax

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A Chinese version of the story can be read here (thanks to Shanzi for translation). You can read story (in English) from Buffett’s 2007 annual shareholder letter.

See's Candies

Why do I emphasize this story? Too many times I fall into some growth stories (hint: next Microsoft or Google), value traps (hint: Heelys and maybe Crocs), etc. This story serves as a reminder to myself: business is about making money. Less capital, more earings (not paper earning but the free cash flow), means great business. I think this story also implies not to take unnecessary risks or leverage: the recent down fall of financial firms exactly confirmed that.

Balance transfer
Also, I found this balance transfer (0% for 12 months, no fees) to be attactive.
http://www.fatwallet.com/t/52/810638/

The Turbo Tax online versions
I have used it since year 2001 (tax filing for year 2000), and I liked the product. One feature I like is TurboTax kept all the filings for previous years. A minor thing: I am going to save some money without using the State filing from Turbo Tax, because the calculation of State tax is fairly straightforward in my case (once the federal is done).

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Master Series

Confidence level

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(Update March 15) Remove Bill Miller from the Masters list. His holding Countrywide Financials, Sprint, Bear Stern blew up one after another. Although his 15 years streak to beat S&P is admirable, but 3 strikes in a row, not that impressive. I gave him a rating of 4.5, between good fund managers and masters 🙂

It also shows how tough to be a fund manager. I think it’s wise for Lynch to retire after 14 some years.

(Original)
1) Yahoo Message Board, many other stock bbs (the world renown mit for one).

2) Many articles on Seekingalpha etc.; many articles written by bloggers and financial journalists (people who make a living on writing or talking, not on investing). Jim Cramer and guys on Fast Money (blog dedicated to them) should also fall into this category. Sometimes I found we can almost use those as a reverse indicator: for instance, if Cramer says buy, take it as a sell 🙂

Shui Pi, the famous financial journalist and chief editor of ChinaTimes probablly should get 2.5.

3) Sell side analysts; Management with lots of stock options. Sell side analyst makes a living by help selling stocks. Management with stocks options tend to focus on stock price in the short term.

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Stocks

Reading Barrons Feb 16 2008

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Starting this year I got the Barrons’ subscription from my frequent flier miles (Northwest).

Barrons cover page
(picture from charleslockwood.com)

1) Joe Rosenberg is an investment guru, and he shared his insights on various stocks from MSFT, YHOO to PFE. He likes MSFT the stock, but he does not like the decision of buying YHOO, and he thinks Baller’s decision does not make sense financially. (P. 34)

He does not like PFE at this moment. Same as yours truely 🙂

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Master Series

Lynch and Buffett talked about downturn

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In this bear market, we can watch Cramer, read WSJ, Yahoo Finance, Google Finance etc. But all this can not substituted “reading what the real masters are thinking”.

With that in mind, here is Buffett’s talk about US economy Money available, cheap, due to rate cuts, quote the article:

Buffett said that what has taken place “is a re-pricing of risk and an unavailability of what I might call ‘dumb money,’ of which there was plenty around a year ago.”

and another my favorite:

“It’s sort of a little poetic justice, in that the people that brewed this toxic Kool-Aid found themselves drinking a lot of it in the end,” he said in reference to some of the large investment banks that were involved in designing and marketing complex investments that have soured in recent months and have generated billions in losses.

Peter Lynch is the legendary fund manager of Fidelity Magellian. Here is a PodCast (MP3) of his. He talked why we should not try to time the market.