Intrinsic Val. Share Discussion Threads

[thelongandtheshortandthetall] 08/1/2018 20:10

Thanks warranty

Just got it on kindle.

[warranty] 18/10/2016 14:28

To understand better the metrics used by Buffet it's worth getting hold of a copy of the book "Rule No.1" which is based on what WB as well as other similar minded and successful investors do. It's completely changed my view on investing and for the first time I can say I'm actually being successful myself. It does mean disciplining yourself and following the rules including only buying when companies meet all the criteria, so patience is difinitely a virtue. As WB says, rule no.1 is don't lose money and rule no.2 is don't forget rule no.1 !!! Certainly worth a read if you're seriously Buffet inclined.

[thelongandtheshortandthetall] 01/1/2015 18:15

Hi Sig

Yes WB does recommend Howard Marks and ive read 'the most important thing' sometimes the content went over me ed though. :0)

Along a similar line to your post above. We must find businesses that really are castles with strong moats.
This is my most fun thing. When I see a business with a moat or something that gives it and edge I really like it. Strange but I almost consider it like ive scored a goal or something. They are all around if you look about.

an example that jumps to mind is a big childcare nursery positioned at the one entance and exit to a large housing estate.

Also a barber shop in a small village. Too small a village to support two barber shops.

Plus, not too far from me there is a supplier of gardening/landscaping tools and they totally dominate a large geographical area. I dont know how anybody could compete with them.

These are very simple and clear just like the news paper businesses that WB and CM sort out. One news paper town new papers. Simple businesses with HUGE moats and they basically printed money like they printed the news!!

[sigala] 11/12/2014 19:56

Hi tlatsatt,

Cheers for the link - I've read the book but not listened to it before.

Phil Fisher had an excellent mind didn't he?

The good thing about listening to people like WB and Phil Fisher is their advice is helpful in the world of work and business generally, not nust the stock market. They look at investment from the point of view of the underlying business. They want to understand how the business ticks - what are its strengths, risks and opportunities.

Phil Fisher included all aspects of a business into his calculations.

I sometimes think that his book is almost more useful to a business owner/manager than an investor because it discusses what makes a business excel.

I keep meaning to get around to the other writer WB recommends - his name escapes me for the moment - was it Howard Marks? The book is called something like "The most important thing".

Not sure if I'm remembering that correctly.

Regards

[thelongandtheshortandthetall] 10/12/2014 13:29

Phillip Fishers - Common stock and uncommon profits. without the annoying adds every 15 minutes.

very very much worth a listen multiple times.

Our pal WB quotes PF from time to time.

[sigala] 27/10/2014 21:22

Hi tlatsatt,

thanks for the link - it looks a good talk - might even start listening to it tonight and see how far I get.

Yeah, the O' Leary quotes are funny in a Gerald Ratner sort of way, aren't they?

I reckon the most stressful corporate job in the world would be public relations manager for Ryan Air. They must have a few heart-stopping moments when Mr O' Leary is being interviewed by the media!!

Cheers

[thelongandtheshortandthetall] 27/10/2014 17:56

Hi Sig

Forgot to thank you for the Michael O'Leary quotes

Crazy what people in the public eye sometime ay!!

If you're interested here is a link to new a WB vids on youtube

[sigala] 30/9/2014 22:06

Some funny Michael O' Leary quotes - enough to make a branding expert hold their head in their hands:

[sigala] 30/9/2014 22:02

Hi Tlatsatt,

thanks for the link - very interesting.

Brands definitely form part if not all of a company's intrinsic value don't they?

It's quite interesting to think about what industries can support strong brands and what industries can't.

WB realised that Berkshire Hathaway had no chance to establish a brand in their field. They were supplying the liner material for suits. But no one ever asked for a suit with a Berkshire Hathaway lining. So their customers would pay the minimum price or go to one of their competitiors.

I guess petrol would be another brand weak industry. I never think I'm going to buy petrol from a Shell garage. Petrol is petrol, I just want to pay as little as possible for it.

Bubble wrap would be another brandless industry.

Companies in these industries can't get prices much above the cost of production.

I was at Tescos the other day and was looking at prices of baked beans. Heinz was on offer at 4 for £2.50p. Own brand economy beans were 4 for £1. I bet Heinzs cost of production is no higher because of their scale.

So their beans would be profitable at £1 - therefore the extra £1.50p is definitely profit.

And if we ever doubt the power of brands, then just look at how even Michael O Leary is changing his tune:

[thelongandtheshortandthetall] 29/9/2014 21:34

Hi Sigala
I thought I would share this here as I imagine it might be of interest to you from a WB view point.

Its a list of super brands.

You can read about how the lists are formulated via links at the bottom.

kind regards

[sigala] 09/9/2014 21:30

Thanks for the link tlatsatt - sounds interesting. I didn't know of them before but I will check them out.

I have been re-reading some Buffett recently, particularly on owner's earnings - maybe I will try to post something about this to this thread soon.

Regards

[thelongandtheshortandthetall] 09/9/2014 11:54

Hi Sigala



I thought I would post this here. These guys are real Buffett fans. They talk so much sense and you can tell they study Buffetts techniques and philosophy's in great detail! I find their videos very helpful.

I would love to meet the PPFAS people and perhaps attend one of these meetings.
They seem very genuine and likeable to me and not flash like many Fund managers might be etc.

They have loads of videos on youtube all worth watching. I sometimes have them on while online.

[thelongandtheshortandthetall] 03/8/2014 14:42

An interesting audio book about WB



I just re read the bit about WB being like a bond villain.. funny concept that.
He has enough wealth to be one if he wanted.

[sigala] 19/7/2014 15:32

Hi tlatsatt,

Yes - he's certainly an interesting character isn't he?

I was listening to an interview with WB the other day and he said that "emotional stability" was one of the most important things for an investor. Specifically this is the ability to trust the facts about a company no matter how crazy the market gets. If WB has examined the company's balance sheet and trading record then he comes to a view whether to buy sell or hold based on that.

If he buys and then the share price slumps 50% he is not shaken. He just checks the facts and will buy more.

In other words, he is not affected by the crazy behavior of the market.

Obviously his self confidence has to be based on having a sound method for valuing businesses. If we have that then the behaviour of the market is only relevant to the extent that it gives us opportunities to profit.

I think the emotional aspect to investing is often underestimated, it can be more comforting to just immerse ourselves in numbers and ratios.

But the ability to not be swayed by crowd behaviour is a very rare quality in social beings like we are.

Yes - we're lucky that WB was not a bad guy......he would have ended up like one of those bond villains with a giant underground base with miniature railways and lots of people in boiler suits.

Regards

[thelongandtheshortandthetall] 18/7/2014 22:51

Hi Sigala

Sorry for slow reply. I hope you're keeping well. I bet you are. I bet practicing Buddhism is pretty good for your health and well being. Just the orange robes I'm not too sure about. hehe

Funny you should use the saying 'you reap what you sow' this is one of my favourites and can be used to describe so many aspects of life.
I think its a biblical one. Something about planting mustard seads to grow mustard. I read it once and it stuck with me and was a great lesson.

To few people appreciate that if you go around frowning all day all you get is a head ache. But if you smile all day its amazing how many people smile back and then open up a bit and share things with you that generally gives you more to smile about.

From an investment point of view it pretty apt too!

The snowball is a good read. I must admit I was far more interested in the first half than the second. As each mega deal kind of blended into one another.
Perhaps its my limited focus thing again but once you get to billions and zillions it all becomes a bit blury. I bet though that at the center of these mega deals there are a few personalities and all the same attributes of the pinball busines, golf ball sales and paper routes just a quite a few less digits involved.
Buffett was quite an operator at a young age. For someone that claims to of been so shy he sure managed to rope a couple other boys into his schemes. They usually did most of the ugly work too. This is a skill that certainly has paid dividends for him as time goes on. I am truely amazed at Buffets ability to deligate. I struggle with this myself even on a tiny scale.

I think when WB says he is wired for capital allocation he is totally right.

'The fact that WB has not neglected his humanity has actually made him a more effective businessman and investor IMO. By living in a good way he experiences a calmer mind than if he was cheating people or riding roughshod over them. A clear mind is the most useful thing in investment I would say.'

This also works best in the long term.

I think Buffett worked this out completly after the dempsy mill affair that put lots of people out of work and didnt make him many friends in that area. I certainly dont think Buffett set out for things to end the way they did. But what is certain he never did it again. Even as Berkshire Hathaway was to WB a failing business he and munger continued to keep it open but slowly shut it down so they didnt throw aged staff out that wouldnt be able to rerain in another trade. This is commendable I think.

I would say that self deprecating humour (WB often makes fun of himself) actually belies a human trait that elludes most. This trait enables him to except a losing posisition and hold on when others just wouldnt be able to take getting it wrong and then sell out before they have a chance of being proved right.

Being able to take the pain of looking foolish from time to time will help in the long run of investing IMO.

For fun. On the total flipside. Imagine if WB was a badman and craved power. With his skills he would probably be king of the whole planet by now.
Perhaps that is his plan lol.

learning about investing and Buffett will definitely pay double dividends for us.

Cheers

[sigala] 12/7/2014 10:44

Hi tlatsatt,

I've finally got around to reading "The Snowball" - I think you've already read that book?

It's giving me much more background to Warren Buffett as a person. He's an interesting and unusual man isn't he?

One of the things that occurs to me is that WB is one of those people who actually develops through their lives. He has gone from the very raw bunch of characteristics that he was born with (some good and some not so good) and he's tried to work on that raw material and polish it.

When he was younger he sounded very one dimensional - obsessive about making his money but socially very awkward. He had some amazing natural talents (such as his piercing intelligence), but he also had major hindrances as well. WB said he didn't feel put together as a person until his wife had been able to do that for him with her care and love.

I enjoy studying investment using WB as a model because it also involves developing our human qualities as well as our investment understanding. If we practice our investment with no regard to human qualities then we're going backward as people. Our bank balance might increase, but our store of humanity gets eroded.

I'm not saying WB is perfect, but then I'm sure he doesn't claim that himself. But he seems to understand the true importance of things.

As he said it is the way that we are loved by others that measures what we've put into this life at the end of the day. And the love and respect of others is that thing that can't be bought. Some billionaires seem very lonely and bereft of genuine love, perhaps because of the way they behave or have led their lives. As WB has said, really their life has been a disaster - they have more money than they could ever need but have chased away any genuine human affection and warmth.

The fact that WB has not neglected his humanity has actually made him a more effective businessman and investor IMO. By living in a good way he experiences a calmer mind than if he was cheating people or riding roughshod over them. A clear mind is the most useful thing in investment I would say.

Also his good reputation now precedes him, so people feel safe doing business with him, and want to work for him.

These are all positive benefits of the way he conducts himself.

Strangely, for one of the richest men in the world, I don't think that WB is overcome by a lust for riches. He is not in thrall to dollars. He doesn't feel the need to show off his wealth with super yachts or mansions in Malibu. So his mind is not gripped by those things.

In fact, so ungrasping is he of his wealth that he is donating it all away.

As I've mentioned before, I have a long interest in Buddhism, and WB is a very interesting study from that point of view because it is possible to see in WB's life the effect of Karma in a positive and direct way IMO.

You could summarise karma by saying that "we reap what we sow" so in the case of WB we can see he is enjoying the results of how he has conducted himself in life.

Hey, I went more hippyish than you!!

Hope you're keeping well.

[thelongandtheshortandthetall] 02/7/2014 22:03

Hi Sigala and thread

Here is a link to a short film about Benjamin Graham on youtube


At 1 minute 25 seconds:
Spinoza said
'You must look at things in the aspect of eternity'

I was going to post the other day about WBs superior appreciation of time or more aptly the superior way he takes a long term view. This I believe is at the center of his abilities and marks him out from most other investors whether professional or not. Professionals normally have shorter time horisons due to monthly or quarterly returns demmanded of them. And PIs are, at least in the begining of their trading carears permenantly overwhelmed by the need to trade and turnover their portfolios. Usually overwhelmed by the massive amount of info shoved at them all the time. I would say that most PIs probably give up after a few years of negetive returns and so give up just before they infact realise most of their mistakes can be avoided. But even when under no outside imfluence people tend to only think short term while Buffett is seriously thinking about Berkshire Hathaway in 200 years.

The quote I have highlighted above is something that BG said to one of his new students on the first day of an investment course.
I think that Buffett being a student of BG the philosopher and BG the investor also helped to shape Buffetts abilities. I would say that to understand Buffett in a deeper way we must be slighly more philisophical ourselves.

I dont want to sound to hippyish but Buffett made himself basically the richest man in the world at one point and this can not be done solely on numbers and facts alone. It was done with a certain type personality and reason behind the decisions and behind the numbers and the facts.

Anyway I'm just gibbering on.

TTFN

[thelongandtheshortandthetall] 29/6/2014 12:25

Hi eeza

Thanks for that. I hadnt noticed.
Cheers

[eeza] 27/6/2014 08:28

Need to insert Stock o pedia (as one word) in place of the dash after www.

[thelongandtheshortandthetall] 26/6/2014 21:09

Not a bad little balanced piece.

[sigala] 14/6/2014 19:07

Hi tlatsatt,

that is all excellent info - extremely useful because it is from your direct experience. Your summary makes a lot of interesting points - HWDN's sounds like they've cornered a good niche. I think I will make HWDN's my next share to research, so I will try to offer what I can when I've had a good Look over them.

Your summary of HWDN's is all about their business - and that's what really matters in WB type investment. Understand the business and why they are strong. That tells us much more about their prospects than anything else.

I guess the question will also be if HWDN represent value at the current price.....again I'll try to look into it.

Thanks for the contribution tlatsatt.

Enjoy your night out, and yes......come on England!! I just hope our boys were watching Holland last night - a start like that would do nicely!!

cheers

[thelongandtheshortandthetall] 14/6/2014 18:41

I have read a couple of years of the annuals though not anywhere near ten years worth to be honest.
I totally agree that reading the annuals is a MUST before considering buying and I have to thank for that. MUST try and read the ten years worth though as this is something I too want to do.
I have read many annual reports in the last year but not in the focused way you do......yet.

What first caught my eye?
My friend and I were approached by a sales rep whom I thought was pretty convincing about the benefits of HWDNs. They are very proactive in getting new customers.

They offer amazing discounts to regular customers.
My friend has used them in the past whilst working for someone else. He has now joined/got an account for himself and has used their services with no complaints.
When you go to one of their depots you get the feeling that they are serious about cost control.
As they are a major kitchen manufacturer they have huge savings due to scale. These savings go to the customer and the shareholders
According the annuals around a handful of people run each depot. A couple of knowledgable guys behind the sales counter and a couple in the warehouse loading vans and organising stock. nice and simple.
They dont bother with expensive and difficult deliveries either. Which can and does destroy profits in similar builders merchants type businesses. For example sending lorries out with 5 tonnes of sand doesnt make any money. when drivers, fuel, insurance, maintenance etc. is all paid for.
They can arrange for delivery but that cost and hassle will be carried by the cusomer.
They are basically a kitchen making machine. They do it well with both the local builder and the customer in mind. For the builder they make their products in a way that can be easily fitted and for the end user they are at the front of kitchen design.

The main reason they are successful is they take care of their customers. The local builder. The local builder needs absolute reliability in their supplies. This is something HWDNs repeat time and time again in thier literature to shareholders. They basically promise to hold in stock and make available at a moments notice any of their products.
If you go to b&q for exampe you would probably get a look of confusion from one of the young people that happen to of been put on kitchens for the day when you ask for a 'fabricated half inch pipe' lol

Also the system of 'the local builder' is here to stay.
For exapmle carillion or balour beaty will never be able to compete with Terry Construction the local builder from down the road. Terry construction will have a more personal service and without seven layers of managers they will be cheaper too.
Tesco have actually moved into kitchens now. and I think they offer a supply and fit service. We'll se how this goes and if it effects the market for HWDNs.

So the local builder is here to stay and people will always need kitchens.

So in summery. They have great economies of scale and they are proactive about growth with a clear plan to open up to 700 deopots, currenty they have around 550. They also have 11 in france and I think they will do very well their once the local french builder cottons on to the avialability of the stock. A system that is the back bone of HWDNs.

What I reall want is to find a similar company but not so far along its growth path. But as you say if you get familir what sucessful companies look like perhaps it will easier to identify them earlier on.


Loads of spelling mistakes im sure. Sorry about that in a mega rush.

TTFN

Come on england!!

ps sorry just relised I havent really answered any of your questions I'll be back tomorrow at some 'pint'. hehe

[sigala] 14/6/2014 17:32

Hi tlatsatt,

thanks for the further info on HWDN, they certainly seem to be an interesting business. I think you may be on to something with them.

Having said that, I have only had the briefest of glances at what they do, and how they do it. But certain things are starting to interest me about them.

Maybe I will move them up in the list of companies that are on my research to do list.

As I've mentioned before I like to read the annual reports of a company I'm interested in. I usually go back ten years and read them in sequence. I find that process really familiarises me with the business, what is does, what it's market is like, what the corporate culture is (which is a very important factor). I also get some sense of what management resources they have. It can be interesting to track the carrier path of board members and senior management over the decade - that can reveal some of the corporate dynamics.

Have you read any annual reports for HWDN yet?

From what I can see, HWDN seem to have been able to significantly de-leverage their balance sheet in recent years while at the same time raising turnover and profits. They do seem to be highly cash generative currently, and as you mention their cash position is swelling significantly.

ROE currently is a superb 38% (according to ADVFN) - and margins are healthy.

It would be interesting to go back and research earlier years - did HWDN have a tough time a few years ago? As their business matures perhaps they will become more cyclical in the earnings as the housing market changes? These are just questions off the top of my head.

HWDN's are becoming more interesting to me as a business - what first caught your attention about them tlatsatt?

regards

[thelongandtheshortandthetall] 14/6/2014 12:12

Ive just relised.
The funny thing is that I continue to hold BLVN because of PFCs future involvement in their projects.
If memory serves PFC will be stumping up £500million to assist BLVNs operations.

I'll be very happy if PFC just take BLVN over to be honest.

Good luck all.

$500m not £s

Petrofac website - dated 6/11/12
'Subject to an agreed FDP and satisfaction of certain other conditions, including co-venturer and government approvals, the strategic alliance's risk service arrangements envisage that Petrofac will subsequently execute the planned development through the provision of project management, engineering, procurement and construction services, and will invest up to US$500 million as part of Bowleven's financial commitment to develop the asset. Petrofac's investment would be remunerated through a share of Bowleven's production revenue'.