| Posted: 10 Dec 2007 04:25 Last Edited By: Scarborough | |
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There's something which I wonder about...
How does Buffett typically stumble upon his leads? Example He has just recently started buying into railroads. A cursory glance into the economics of railroads says "Ah great investment potential!” and He started buying into power and energy mid 90's. Each time a news flash announces that WEB is now buying this, I find myself kicking myself and saying “AAARGH!!, why didn’t I see that one!” Railroads haven't been in vogue since the robber barons of the late 19th century and power plants since the 60's. How does Buffett wield his Geiger counter? There are three ways, in my opinion, that one can go about finding the latest gem. a) Analyzing ALL the available companies and options each year, find the ones which, on the face of it, seem favorable or have low PE ratios and then delve into the economics. b) Analyze the major shifts in macro economics each time or determine the economic trends, find the companies either benefiting or being disadvantaged by these trends and delve into their management. c) Have a standard check list of all the industrial sectors, at the beginning of each year go through each of these sectors and determine which have been having a rotten time of late, delve into the economics to find out why they haven’t been doing so well, then analyze the management. This sounds like the easiest. But wait. It requires a large circle of competence / confidence i.e. across a large cross-section of industry. Would anyone have thoughts on this? |
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| Posted: 17 Mar 2008 02:50 | |
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| I just found a online shop topbagzone.com, there are nearly all kinds of handbags and purses in the market, you can go there have a look. | |
| Posted: 06 Apr 2008 11:27 Last Edited By: Webmaster | |
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The most imporant part of Value Investing is the Business Valuation Process.
Paco |
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| Posted: 01 May 2008 01:38 | |
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I seem to have found the answer to my question.
The recent Fortune article based on an interview with Warren Buffett which coincided with a class visit from Wharton Business School has shed some light on this matter: the means to spot and get investment ideas stems from continual reading. Buffett indicated that he spends his days at the office, desk bound whilst reading. Now this reading, of course not an epiphany to most astute investors, indicates where he gets his investment ideas from. Returning to my original question, this then would suggest a more or less random exposure to industries. Instead of contriving some sort of strategy to hone in on potential homes for cash, a wait and see approach it would seem is the course to follow. Though to be more accurate, wait and see should be “wait and be receptive”. If you were trying to weed out only red cars on the roads, would you hire a helicopter, survey the highway system and attempt to spot the nicest red car on the road below, or would you pitch your umbrella and open up your deck chair on the side of the road, whilst relaxing and observing all the cars traveling past you. This has the advantage of little expended effort, as well as forcing you to consider all the other colored cars whizzing by – lime green cars, perhaps not having been considered, might also present some utility. So the private investor needs to know his limitations. The vast amount of reading required to glean investment ideas may very well be prohibitive. Difficult to perform when investing is not a full time occupation. But should investing be a hobby, spending this time is not too dissimilar to building model aircraft in the evenings. The private investor need only find 10 or so valuable publications or websites, which he can scan each day and able to provide the broadest exposure to a lot of industries and companies (look even at the avertisements). At multiple points during this literature perusal the investor must stop and ask himself: Which company / industry makes this product, do I understand this company, are the economics of the business favorable and do I like what management is doing… and then move on. This approach would also allude to the failing of rubbish fund managers. Should the investor entrust his money to a manager, he must be sure that this manager does his reading and is able to formulate independent ideas. In my experience this is far from the case. Money managers, for the most part get their ideas from the stock market, commentators and other money managers. If the private investor cannot afford the time to read on his own, entrusting a money manager would be the same as outsourcing this reading responsibility. If a 28 year old punk with an MBA, no maturity and no loyalty to investors, is too busy at lunches and vacations in the Hamptons, he isn’t reading. That was the last thought… Hoping that this lends credibility to this forum Scarborough |
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| Posted: 05 May 2008 14:34 | |
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This is a great topic, I want to comment on a few things but need to
get back to work. I'll return a little bit later. |
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| Posted: 06 May 2008 13:05 | |
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Quote:
If a 28 year old punk with an MBA, no maturity and no loyalty to investors, is too busy at lunches and vacations in the Hamptons, he isn’t reading. That was the last thought... I'm still unable to properly comment on this, it's such an amazing post that you made and I've got to get back to work, but the quoted part of what you wrote above is INCREDIBLE prescient in the sense that it typifies the hollow cored nature of the business. |
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| Posted: 06 May 2008 20:34 | |
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Just spotted this in one of the news feed articles on the front page
of this website (Warren Buffett News): In response to a question from Barbara Kiviat of Time on how he and Munger control their emotions, Buffett replied: "[It] comes about from having an investment philosophy grounded in the idea that a stock is a piece of a business. If you look at it that way, there's no reason to get excited whether some analyst is recommending it or the company is splitting the shares two-for-one, or whatever. The only way to drive the extraneous thoughts out of your mind is to have a philosophy. And for us that philosophy comes from Benjamin Graham and The Intelligent Investor, especially chapters 8 and 20. It's not very complicated stuff." "You have to have the right temperament. I tell the students who come visit me that if you have more than 120 or 130 I.Q. points, you can afford to give the rest away. You don't need extraordinary intelligence to succeed as an investor. You need a philosophy and the ability to think independently...It doesn't make any difference what other people think of a stock. What matters is whether you know enough to evaluate the business," he opined. "You should be able to write down on a yellow sheet of paper, 'I'm buying General Motors at $22, and GM has [566] million shares for a total market value of $13 billion, and GM is worth a lot more than $13 billion because _______________." And if you can't finish that sentence, then you don't buy the stock. [Note: Buffett mentioned GM for illustrative purposes only.] All this requires some temperamental detachment from other people's behavior. Both Charlie and I have a natural instinct in that direction. We value our opinions more than others' -- perhaps to an extreme!" Kiviat followed up by asking whether they mind being regarded as "a bastion of calm" by others. Buffett simply stated, "I think they're probably right," while Munger was more loquacious: "Not only are they right, but it's a huge advantage to us to get the reputation of being wiser and stronger than other places. Would any of you object to being considered wiser and stronger when you're trying to get anything in life? The key is not to be seduced by crazy ideas, but instead just stick to the fundamentals year after year. Academia doesn't get too interested in us -- we're too simple. What would the professors do? A great many of the formulas [they use to analyze securities and markets] are dead wrong. They exist purely to give the intellectual class something to do. We don't do anything just exercise our intellectual proclivity for mathematical formulas." Then Buffet said one of the most remarkable things I've ever heard him say: "There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month." Look at that sentence again. What Buffett is actually saying is that most people's emotions work backwards: They get greedy when stock prices go up and fearful when they go down. Instead, if you are a true investor, you should shop for stocks the same way you shop for anything else: Look for sale prices, and never regard falling prices as inherently bad news. Instead, falling prices create the opportunity to buy even more of something that was already worth owning. In that single sentence Buffett captured the difference between investing and speculating: An investor, like Buffett, wants the price of a stock to fall below the value of its underlying business so he can buy even more and hold for as long as possible. A speculator (like Jim Cramer) only wants the price of a stock to go up, with no regard for the value of the underlying business at all, so he can sell as fast as possible. To the investor, the market's opinions do not matter. To the speculator, they are the only thing that matters. |
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