Warren Buffett

  • 16 Jan
    Gruesome Industries For Trading, Not Investing

    Gruesome Industries For Trading, Not Investing

    • Even if the industry has wonderful growth numbers, profitability might remain out of reach.
    • We’ll define and describe the industries long term investors should avoid.

    Introduction

    Most of you are familiar with Warren Buffet’s comment on the airline industry in his 2007 letter to shareholders:

    “The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.”

    Now, most connect the above statement only to the airline industry. However, in a deflationary environment where our youngsters expect lots of things for free—think WhatsApp—and extremely low interest rates, there will be more industries where shareholder wealth creation will be difficult to achieve.

    In today’s article, we’ll define and analyze some of these industries. More →

  • 29 Dec
    Is Your Value Being Destroyed? Sven Tells You How To Spot It

    Is Your Value Being Destroyed? Sven Tells You How To Spot It

    • Buybacks and dividends continuously exceed earnings creating a financialized corporate environment and leaving less money for innovation and investments.
    • Such a situation isn’t sustainable in the long term.
    • We’ll close with an example of somebody willing to spend $21.5 billion of shareholders’ money to increase his salary by a few million.

    Introduction

    The end of each quarter is an excellent time to analyze what’s going on with buybacks and dividends. FactSet’s comprehensive analysis of quarterly buybacks and dividends for the S&P 500 is a great place to start.

    It’s of extreme importance to know what it is that management is doing with your money and if they are increasing or decreasing shareholder value. Today, we’ll analyze the situation and give you a few hints to enable you to easily analyze if the managers of the stocks you own add or subtract value with dividends and buybacks. More →

  • 14 Dec
    How To Make 50% On Your Investments

    How To Make 50% On Your Investments

    • To know a small cap stock in detail and its business environment, you’ll have to invest more of your time than anyone else.
    • Investing while following the 20-punch card rule is extremely difficult, even Buffett didn’t follow it.

    Introduction

    In a 1999 Businessweek interview, Warren Buffett said the following:

    “If I was running $1 million today, or $10 million for that matter, I’d be fully invested. Anyone who says that size does not hurt investment performance is selling. The highest rates of return I’ve ever achieved were in the 1950s. I killed the Dow. You ought to see the numbers. But I was investing peanuts then. It’s a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”

    Most investors invest peanuts, Buffett’s measure for $1 million, so they should all be able to make 50% a year. As in life you mostly get what you ask for, why not ask for 50% yearly returns? You might get it.

    In this article, we’ll discuss what Buffett meant when he said that, as well as a few strategies you could implement to reach 50% returns. More →

  • 25 Nov
    Want To Know What Your Returns Will Look Like In 17 Years? Buffett Has Some Insights

    Want To Know What Your Returns Will Look Like In 17 Years? Buffett Has Some Insights

    • We’ll discuss the primary reasons behind long term returns on investments.
    • With interest rates being close to zero, we have to exclude lower interest rates benefiting future returns.
    • General market conditions create a negative asymmetric risk reward situation, but there is a better option.

    Introduction 

    With the Dow passing 19,000 and the S&P 500 passing 2,200 points, it’s time to take a look at the markets, investors’ expectations, and the real possibilities that those expectations will be met. More →

  • 10 Nov
    Why You Should Switch To Active Investing Now

    Why You Should Switch To Active Investing Now

    • PE ratios in the S&P 500 are all over the place; 7 of the top 20 stocks have PE ratios below 15, 7 from 20 to 30, and 5 above 30.
    • You can buy stable, growing businesses at PE ratios below 15, so why would you stick to passive investing and buying riskier stocks at PE ratios of above 20?
    • Maybe you think passive investing meets the definition of “boring,” something investors such as Buffett advocated. I don’t wish you the excitement of watching your portfolio fall from a PE ratio of 24 to a PE ratio of 15. Therefore, think about rebalancing now before it’s too late.

    Introduction

    Yesterday we discussed how the economy is doing well but that the market isn’t responding accordingly. This is because of the high valuations where only exceptional catalysts can push the market higher while any kind of negative news easily brings it into negative territory. However, by analyzing recent earnings, we have found large discrepancies among sectors in revenue and earnings growth. We understand this is normal for a well-diversified portfolio, but do we have to own more of the overvalued stocks and less of the undervalued stocks as a market capitalization weighted index fund does? More →

  • 19 Oct
    Does That Company Have A Moat? You’ll Want To Find Out Before Buying Stock In It…

    Does That Company Have A Moat? You’ll Want To Find Out Before Buying Stock In It…

    • Moats are and will always be elusive as there is no computer algorithm or rule to help us in finding them.
    • Analysis of economies of scale, competition, and margins can help, but we’ll discuss some examples where common sense is what wins out.
    • Moats exist in the technology sector and aren’t that difficult to spot.

    Introduction 

    Warren Buffett’s most commonly referenced piece of advice is to buy a good business with a large moat at a fair price and hold it forever. This is easier said than done as in today’s complex world, moats become stronger and weaker at the same time. More →

  • 18 Oct
    Investing Advice From John Maynard Keynes

    Investing Advice From John Maynard Keynes

    • It’s good to invest for the long run, but don’t let that be an excuse for investing in overvalued stocks as in the long run, we all die.
    • Often shunned as irrelevant, inflation must be considered when investing.
    • Markets are irrational and get more irrational as people think less. ETFs are the perfect example.

    Introduction

    You probably remember Keynes from Economics 101 as his ideas fundamentally changed the way people looked at economics in the first part of the 20th century. Before Keynes, a laissez-faire (let people do as they choose) economy with low or no government involvement, was the norm.

    By studying the causes of business cycles, Keynes came to the conclusion that government intervention is necessary to moderate boom and bust cycles in an economy. He endorsed the New Deal in a letter to President Franklin D. Roosevelt in 1933, and the New Deal remains a perfect example of his theories. More →

  • 23 Sep
    A Gesture of Goodwill?

    A Gesture of Goodwill?

    • There is a difference between accounting and economic goodwill.
    • Facebook’s $18 billion goodwill acquisition of WhatsApp looks a lot like AOL Time Warner’s goodwill of $128 billion.
    • Economic goodwill not on balance sheets is what to look for. Unfortunately, you won’t see it anywhere.

    Introduction

    Accounting is an essential part of analyzing a company as different accounting regulations and principles bring about totally different analysis results.

    In today’s article, I’m going to give you a small piece of insight on how I do research, how it differs from the usual screening processes that most use, and why it is important. I won’t elaborate on all the possible inconsistencies instance-by-instance as that analysis is better left to books on accounting. Instead, we will discuss one small line item on the balance sheet, goodwill, and how it can severely skew one’s perception of a company. More →

  • 14 Sep
    Diversify Like The Big Boys Do

    Diversify Like The Big Boys Do

    • Temporal diversification diversifies your portfolio through time by buying only the assets that are cheap at the moment and avoiding the ones in a bubble.
    • By buying in cycle troughs you enjoy high-dividend yields that allow you to buy other assets that are in temporal distress.
    • This high yield lowers the need to sell and lowers your tax bill.

    Introduction

    Today we’ll introduce you to a new concept—“temporal diversification,” a term that has begun to gain traction, especially in academic circles—that isn’t yet common knowledge but is already being used by the best investors. Using the example of Berkshire Hathaway, we’ll provide an overview of the concept of temporal diversification and will provide some ideas for increasing your returns by diversifying your portfolio not just for the current moment, but for your whole investing life. More →

  • 11 Sep
    Sunday Edition: Identifying Undervalued Stocks

    Sunday Edition: Identifying Undervalued Stocks

    The $64 million dollar question asked by every investor is, “when is the right time to make an investment and actually buy shares in the said company?”

    One of the big advantages of value investing is the fact that the question of when you should invest, while never being irrelevant, is only a secondary concern. 

    The focus is on first determining whether a stock is available at a discount compared to how much the business is worth; if a discount exists, the value investor has an immediate advantage over the rest of the market (which has yet to recognize the stock should be priced higher than it is) and should take a position as quickly as possible. More →

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