Warren Buffett

  • 21 Jun
    Diversification vs. Concentration

    Diversification vs. Concentration

    • Index funds and diversification have worked extremely well in the past 35 years, however their success can be thanked to geography, as we hear only about the success in the U.S., and to declining interest rates.
    • If the S&P 500 had the same earnings yield as when the Vanguard fund gained traction, it would be at 557 points, yes 77% below current levels.
    • It’s better to wait in cash than buy a diversified index fund now.

    Introduction

    Some investment gurus advocate spreading your portfolio across various asset classes in order to limit your risks for the same return. On the other hand, others say diversification is for idiots and for those who don’t know what they’re doing. I’ll analyze their arguments and see what the best option is for you. More →

  • 02 Jun
    Should You Follow What Hedge Fund Managers Are Doing?

    Should You Follow What Hedge Fund Managers Are Doing?

    • I’ll describe in detail how you can follow hedge fund managers.
    • It’s very important to understand the risk reward profile of the fund manager.
    • Following allows us to find great investment ideas, but there are also big traps.

    Introduction

    Every fund has to disclose its portfolio to the SEC quarterly in a 13F form which allows us to track hedge fund managers’ portfolios. It’s easy to track what George Soros, David Tepper, Seth Klarman, Dan Loeb, Carl Icahn, David Einhorn, Bill Ackman, Warren Buffett, and many, many other interesting investment stars have been doing. The data is usually disclosed 45 days after the end of the quarter, but nevertheless shows what these guys have been doing.

    When you see the research power all those funds use, you might think it’s an excellent free lunch. Well, it could be, but there are a few things to be careful of. More →

  • 26 May
    Corporate America’s Focus Isn’t On Shareholder Value Creation

    Corporate America’s Focus Isn’t On Shareholder Value Creation

    • Earnings haven’t grown in the last 10 years. What is corporate management doing?
    • A temporarily higher stock price isn’t good for the majority of investors, especially those investing for the long term and retirement.
    • Buybacks are idiotic, management pays $ 3million for a home they can build for $1 million.
    • There is only one company that does smart buybacks.

    Introduction

    There’s a huge problem affecting corporate America that nobody is seeing because most people think in positives and negatives, and can’t think on an relative scale. What do I mean by this? Well, when shareholders judge management, they look at whether the bottom line is positive and in line with what the competition is doing. Nobody is assessing whether it could have been much better.

    We expect only the best from our favorite athletes and we hope our children develop to their full potential but when it comes to corporate management, we remain mostly silent and accept whatever they throw at us. More →

  • 16 May
    When CEOs Become Delusional: The Case of Unilever’s Polman

    When CEOs Become Delusional: The Case of Unilever’s Polman

    • Unilever CEO Polman declared himself more competent than Buffet just because Unilever has outperformed Berkshire in the last 8 years. The funny thing is, Unilever outperformed thanks to Buffett.
    • Not only that, but Berkshire outperformed Unilever on revenue and earnings while at equal valuations, Berkshire would also largely outperform.
    • The 8-year bull market has clearly gotten into some CEOs’ heads. This creates a very dangerous situation for long term shareholder value creation.

    Introduction

    In an interview with Jim Cramer, I was thunderstruck to hear Unilever’s CEO (NYSE: UL), Paul Polman, tell the world that his returns have been better in the last 8 years than Buffett’s Berkshire Hathaway (NYSE: BRK.A, BRK.B). More →

  • 15 May
    Why You Shouldn’t Love Dividends

    Why You Shouldn’t Love Dividends

    • It’s human nature to like immediate compensation. When it comes in the form of a dividend, even better.
    • However, there are far more disadvantages than advantages. Dividends are another indication of how irrational markets are.
    • We can’t even imagine what Microsoft or Apple would look like if their cash had been reinvested and not used for repurchases or dividends.

    Introduction

    When a company announces increased buybacks or hikes its dividend, the market usually reacts very positively. However, there are some people that aren’t so enthusiastic about dividends and especially buybacks as they see the former as a poor allocation of the company’s cash and the later as a fast way to destroy shareholder value. In this article, we’ll analyze why dividends aren’t as good as they seem at first sight. More →

  • 18 Apr
    What’s Better, Trading Or Investing?

    What’s Better, Trading Or Investing?

    • Both trading and investing can lead to satisfying returns, but the important thing is knowing which is best for you.
    • Psychological traits of both successful investors and traders are the same: patience, discipline, rationality, sticking to a well-defined, tested and working strategy, and risk reward calculations.

    Introduction

    I started off investing as a convinced value investor looking for, and investing in, bargains. My way has brought me extremely satisfying returns that, alongside lots of youthful exuberance, made me, quite often, enter into fierce discussions with traders. I would try to convince traders that trading is too risky and they would try to convince me that holding stocks for a long period of time is even riskier. More →

  • 14 Apr
    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    Debunking Bad Investment Advice: Don’t Buy That Wonderful Brand At Just Any Price

    • As wonderful as a company may be, the price paid for it is the determining factor for investment returns.
    • Many companies with great brands have seen their stock prices appreciate while their fundamentals stagnate.
    • Buffett has mostly bought at wonderful prices. Keep that in mind when investing.

    Introduction

    It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

    Many asset managers and financial advisors have Buffett’s quote on their promotional materials and web pages. However, more arguments can be made against the above statement than for it. We’ll go through some examples to help prevent you from falling into the trap of paying what the market thinks is a fair price for companies that might not be that wonderful after all. More →

  • 31 Mar
    Don’t Give Up On Stock Picking. Do It The Right Way.

    Don’t Give Up On Stock Picking. Do It The Right Way.

    • Passively managed funds are extremely dangerous as their positive performance is self-reinforcing due to the huge positive net inflows.
    • But don’t jump to actively managed funds as, on aggregate, they will always underperform the market in the long term because they are the market.
    • The only solution is to invest like a business owner. You can do this by investing yourself or by finding an active manager who has the same principles.

    Introduction

    A recent Wall Street Journal article described how BlackRock (NYSE: BLK) is switching to robots from using humans to improve its stock picking for its actively managed funds. BLK’s reasoning is that its stock picking unit lagged in performance and has had many withdrawals that cut assets under management to $275 billion from $317 billion in the last three years despite the S&P 500 surging 27% in the same period. The hope is that robots will perform better at lower cost. More →

  • 27 Mar
    Want To Find Great Investments? Find Mismatches Between Market Perception & Reality

    Want To Find Great Investments? Find Mismatches Between Market Perception & Reality

    • A great company isn’t always a great investment, while a bad company can be a great investment.
    • In this environment, it’s very difficult to find great investments as only 35% of listed companies are creating value for shareholders.
    • The essence of investing is to find mismatches between the market’s perception and the company’s future.

    Introduction

    One of the most famous investing quotes is Buffett’s reflection on owning great businesses:

    “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

    In the current market, investors seem to focus only on the “wonderful company” part and totally forget the “fair price” part. More →

  • 24 Mar
    Using Intrinsic Value To Measure Portfolio Performance

    Using Intrinsic Value To Measure Portfolio Performance

    • The market is irrational and can’t be used as the only measure of investment performance.
    • Imagine if all the businesses you own suddenly delisted, you’d look at their value in a different way.
    • Intrinsic value is based on the business owner perspective which is essential for reaching healthy long term returns.

    Introduction

    This past Tuesday was a bad day for stocks with both the Dow and the S&P 500 falling more than 1%. This isn’t very significant for now, apart from the fact that it broke the longest run the S&P 500 has ever seen without a 1% decline (64 days in comparison to 34 days in August 1995). However, it’s an excellent introduction to today’s topic on how we measure investment performance. More →

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