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Posted at 18/10/2016 14:28 by warranty 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. |
Posted at 11/12/2014 19:56 by sigala 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 |
Posted at 19/7/2014 15:32 by sigala 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 |
Posted at 18/7/2014 22:51 by thelongandtheshortandthetall Hi SigalaSorry 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 |
Posted at 12/7/2014 10:44 by sigala 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. |
Posted at 02/7/2014 22:03 by thelongandtheshortandthetall Hi Sigala and threadHere 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 |
Posted at 14/6/2014 10:43 by thelongandtheshortandthetall Hi Guys Here is a link to a quick fact sheet for Howdens If you scroll down you will see a graph that shows the growth in revenue and the rise in the number of depots over twenty years. And here is a snippet from the 2013 annual report. Chief executive - Matthew Ingle 'A depot breaks even with sales of around £650,000 per year, so it will come as no surprise to know that all our depots are profitable, and some are very profitable'. Piedro your numbers don't paint a very good picture I must admit. However when you look at the success they have achieved over twenty years the quality of the business is (IMO) undeniable. My favourite part is the simplicity of the business and the way they have continued to implement the model with out going off track. The business is reliant on the housing market and consumer confidence and will make for some upy downy earnings I guess and that is why the CAGRs could be skewed over a 5 or 10 year period. If anyone is interested in HWDNs here is a link to the 2013 annual report. Also here is another snippet. I think they will issue a special dividend at some point in the near future. That is what we are looking for. Businesses that produce excess cash way after all reinvestment in the business has taken place. 'The Board continues to monitor the cash balances in light of the Group's future investment opportunities, expected peak working capital requirements and the trading outlook. To the extent the Group has sustainable levels of capital in excess of expected requirements, the Board expects to return it to shareholders'. Im not saying HWDNs is perfect but it is sure easier to understand than the BLVN an oil exploration company drilling off the coast of Cameroon. |
Posted at 12/6/2014 16:52 by thelongandtheshortandthetall Hi SigalaGreat posts by the way. Trouble with trying to isolate some good WB stuff is there is so much of it. You could literally fill pages and pages in the header. I totally agree with you re sees candy. What an amazing business and as long as they continue to advertise and keep doing what they do how can it go wrong. They paid, I believe $25m dollars for it. Might go check that actually. And have never put more money in. Only used what the business has generated. They have drawn hundreds of millions from it since. That is the perfect money machine example. We will struggle to remain invested/part owners of companies like that as sooner or later someone comes along and tips over the apple cart. Can you imagine the average ceo he or she would be trying to expand with huge amounts of gearing, giving out massive special divis when cocoa is cheap then placing more shares when things aren't so good. Sees is probably where it is because WB and CM are happy to ride the ups and downs instead of permanently chasing the wind. Talking of chasing the wind and trying to be a hero investor. My small part ownership of GKP is definitely giving the roller coaster ride I deserve lol. Those poor people in Iraq really cant know what is going on. Considering civilisation virtually started there they are in a right mess now. - I am well up concentrating deeper into WB and his methods but it would be a huge shame if the others from VLG didn't get involved and keep posting as you will obviously be leaning further toward this thread as time goes on and that thread may go quiet. Mainly a shame as I don't have anything offer you that you don't already know esp where WB is concerned but im sure people will gravitate here as time goes on. Also We should be aware that WB himself is an example of so many different styles of investing. So often people attribute quotes to WB when in fact they are not his at all. for example Be greedy when others are fearful etc. Is not his and another that springs to mind: buy businesses that and idiot could run because sooner or later an idiot will. that one is from peter lynch. Im not saying WB claims them as his own. most of the time he states from whom he heard it (probably in person!). My point is that to focus too narrowly on WB is not something WB would do himself. Hope that makes sense. One thing that I will give absolute credit to WB in helping me is. the circle of competence idea. Wow my circle gets smaller all the time. |
Posted at 08/6/2014 18:32 by sigala Thanks Loftus 16,that is a book I really need to read as I've heard its excellent. Yes, that definition seems to get to the heart of the matter. What I would like to do is look at a bond and calculate an Intrinsic Value for that as a starting point. A bond is easier because (hopefully) the future cash flows to the investor are stable and certain. We can easily see what a bond is going to pay us if we invest in it. It's a simple calculation. We can then compare this stream of guaranteed earnings that will come to us in the future and then work out what value the right to receive those earnings should be priced at in the current moment. Mainly we are thinking about inflation here aren't we? We need to ensure that the bond will comfortably pay us more over the years than inflation will take away. regards |
Posted at 06/6/2014 20:02 by sigala Welcome to Intrinsic Value Intrinsic value has been defined by Warren Buffett as the present value of all cash that can be taken out of a business during the remaining life of that business. This is a companion thread to and is intended as a place to discuss in more detail the specific investing strategies and methods of Mr Buffett perhaps needs no introduction to most investors, but how many of us can say we understand how he has achieved investment returns of more than 20% p.a compounded over more than 4 decades? I am hoping that this thread can stimulate discussion about WB's methods with a view to increasing our understanding of how he does what he does. I do not claim to be an expert on WB's strategies, but I have tried to understand what I can from his writings and speeches. Hopefully through discussion we can all deepen our understanding. Hopefully we will also be able to identify specific investment opportunities that fit the criteria of a Buffett type investment. For readers who may be new to Warren Buffett there are many, many books that have been written about him. But if you have the time and inclination, I would certainly recommend reading his letters to the shareholders of Berkshire Hathaway which are available at berskshirehathaway.c I am indebted to ADVFN poster Piedro for originally bringing the letters to my attention. |
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