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s Profile & Performance
Warren Buffett is the most respected and successful investor in history. Buffett has been called "The Oracle of Omaha" for his impressive investing prowess. As of September 2007, he was the third richest person in the world. Buffett studied under the legendary Benjamin Graham at Columbia University. Graham had a major impact on Buffett's life and investment strategies. Buffett is Chairman of the miraculous Berkshire Hathaway, which he built from a textile company into a major corporation with a market cap in excess of $200 billion. Under Buffett's leadership, Berkshire shares averaged a 21.4% compounded annual gain in per-share book value from 1965-2006.
Warren Buffett follows a value investing strategy that is an adaptation of Benjamin Graham's approach. His investment strategy of discipline, patience and value consistently outperforms the market and his moves are followed by thousands of investors worldwide. Buffett seeks to acquire great companies trading at a discount to their intrinsic value, and to hold them for a long time. He will only invest in businesses that he understands, and always insists on a margin of safety. Regarding the types of businesses Berkshire likes to purchase, Buffett stated, "We want businesses to be one (a) that we can understand; (b) with favorable long-term prospects; (c) operated by honest and competent people; and (d) available at a very attractive price."
Since the current management took over control in 1964, Berkshire Hathaway has seen its book value growing at an average rate of 20.3% per annum, or 434,057% accumulatively. The results? The individual in charge -- Warren Buffett -- has become the top third richest person in the world and many investors who stuck around long enough have made serious fortunes as well. Thanks to the power of compounding growth! Read more...
Reasons commentators ascribe to Buffett’s offer to acquire one of North America’s largestrail networks, Burlington Northern Santa Fe (BNSF) are now familiar. Growing global trade, continued reliance on (especially low sulphur) coal, a resurgent and growing US economy (without needing to pick product ‘winners’ and ‘losers’), a low risk way to gain exposure to any rising process for commodities, a hedge against inflation given rail’s pricing power, a competitive advantage in rail’s oligopoly and high barriers to entry, more productive rail with more efficient and technologically advanced operations and a rise double-decker railway carriages, a way to play higher oil prices and cap and trade or carbon tax laws given that rail is 3 to 4 times more fuel efficient than trucks. Read more...
Investors can learn a lot by listening to Warren Buffett. I think they can learn even more by listening closely to Charles Munger. Unless Munger has something to add, he literally says “I have nothing to add.” If he does say something, you can assume it's worthwhile. Read more...
TABLE 3 - Performances of Buffett Partnership, Ltd.
Overall Results from Dow (%)
Partnership Results (%)
Limited Partners’ Results (%)
Warren Edward Buffett is regarded as one of the most successful investors in the world and the primary shareholder, chairman and CEO of Berkshire Hathaway. He was ranked as the world's wealthiest person in 2008 but dropped to third soon afterwards and remained there. United States President Obama gave him the Presidential Medal for Freedom. Buffett plans to give away 85% of his holdings to five foundations with the majority to Bill and Melinda Gates Foundation. Under Buffett's leadership, Berkshire shares averaged a 19.8% compounded annual gain in per-share book value from 1965-2011.
Buffett once said, “I'm 15 percent Fisher and 85 percent Benjamin Graham. The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety.” The three most important concepts conveyed by Graham in “The Intelligent Investor” were the investor’s attitude toward the market, the “margin of safety”, and the practice of looking at companies as businesses, not stocks. The pursuit of high return businesses usually leads to companies with minimal book values. Buffett’s basic understanding of companies to invest in is simply to read everything out there on the business and understand the industry, so that is why Buffett only invests in businesses he understands. He believes the most important knowledge in learning how to invest could be summarized in two college courses. The first would obviously be an investing class about how to value a business. The second would be how to think about the stock market and how to deal with the volatility. Buffett simply puts that a quality business always has a great product at a fair price, and with honest reliable management, and a quality manager is honesty, smart, and a hard worker. He mentions that when you buy a stock, you need to imagine that the stock market will be closed for 20 years and you will not be able to look at its price, so you won’t be distracted by the short term ups and downs. A company will be successful if it offers good products and services at a fair price while being run by honest, capable managers. Over the long run, such companies tend to appreciate and go up in value. Buffett never invested based on a macro or demographic trend.
Buffett does not work with companies who are around for less than ten years such as technology companies. He only invests in a company that he completely understands, and he admits that he do not understands most of the technology companies. He observes the company’s overall potential only after years of progress. He has no concern with short term market and stock activities rather a company’s capability in the end to gain profits. Buffett’s main concern is the company’s potential to do business and continue to do it in the future. He mentions that when you buy a stock, you need to imagine that the stock market will be closed for 20 years and you will not be able to look at its price, so you will not be distracted by the short term ups and downs. A company will be successful if it offers good products and services at a fair price while being run by honest, capable managers. Over the long run, such companies tend to appreciate and go up in value. The ideal business is one that generates very high returns on capital as well as can invest that capital back into the business at equally high rates or at least maintain high earnings without continued reinvestment. Buffett assesses the intrinsic value of a company by comparing it with its present market capitalization to not less than 25%, which is higher than the market capitalization of company. It is important to look not for what is cheapest stock, but where the most value is delivered. Buffett also consider debt equity ratio carefully and avoids companies with excess of debt. He does not think price-to-earnings, price-to-book or price-to-sales ratios tell very much because all you need to evaluate a business is economic characteristics. One successful example is GEICO. Buffett wanted to invest and own GEICO ever since he learned from the future CEO of GEICO about its method of selling was direct marketing, which gave it an enormous cost advantage over competitors that sold through agents.
One of the first and most important question to ask before buying a business is, “Does the owner love the business or does he/she love the money?” Berkshire Hathaway is not big believers in contracts and constraints when buying a business. They want to buy businesses based on retaining the former owners’ passion for the business. When Buffett invests, he wants his managers to have full control over their company and shares rather than rely on brokerage firms, and Buffett is not fond of business meetings in general. He does not believe in fear as a manager style from his experience of working under Ben Graham, Don Keough, and his dad. Buffett’s described his management methods as “I don’t call managers of my businesses, they call me.” Buffett sends letter of motivation telling his managers to treat their jobs like it is the only business that their family can own for the next 100 years and they cannot sell it, and progress is not measure it by the earnings in the quarter but the moat around that business, what gives it competitive advantage over time has widened or narrowed.
Berkshire Hathaway Culture
At Berkshire Hathaway, they are not trying to appeal to people who care about next quarter or year, they want to appeal to people who view this as a lifetime investment. By not splitting shares, Berkshire Hathaway intends to attract the best shareholders.
The companies that Buffett like to invest in are $10-15 billion acquisitions, but it is hard to find one that's not being auctioned, which he does not do. Because Berkshire Hathaway has so much money now, they do not look for partners and sharing profits when they can obtain entire companies. Anything that is unpopular is always great to look at.
Buffett’s role on the board of directors is not to influence the company or its CEO much at all. If someone’s spent 20-30 years rising to become CEO, Buffett does not want a board telling them what to do. Overwhelmingly, the most important job of the board is to pick the right CEO.
Berkshire Hathaway has constantly thought about whether they could put all excess cash to work rather than to pay dividends, but so far it has always been better to put it to work. It would be a mistake for example for See’s Candy to retain money because they have no ability to use the cash they make to generate a high return internally so they pay out.
Short selling is not worth it to Berkshire Hathaway because they are too big, but even if it was it is too much risk. Berkshire doesn't hedge its currency exposure either. Also, Berkshire Hathaway would not go into the health insurance business because it is so ingrained into national policy that it is a tough business.
Berkshire Hathaway has the largest wind farm capacity in the country by being the net exporter of wind energy in Iowa and has been very receptive and progressive. Rates have not risen in Iowa for about 10 years. This is a way of looking into the future in energy.
Morale is good in Berkshire Hathaway subsidiaries, where managers hardly ever leave. In 38 years, it never had a CEO leave to work for a competitor. Buffett sees four people in the organization that can do his job in ways both better and worse than he can, but nevertheless they have been in the organization a long time Buffett wants his business culture keep on going.
Buffett’s Business Opinions
Buffett does not worry about the next big industry that will take over the economy because it is impossible to predict. The test of a good business is time and market share such as with Coke or Gilette and when knock offs just do not sell. Growth is good, but Buffett prefers strong economics. Also, Buffett would not put McDonald in the same class in terms of inevitability in dominating the market as Coke because of the various reasons people can chose alternative foods.
Buffet strongly believes that hedge funds are a huge fad. He said once that, you can pick any ten hedge funds and I'll bet that on average they will underperform the S&P over the next ten years. You can't create more money out of American business than the business itself creates; so most of these hedge funds will not be able to justify their outlandish fees over the long-term and they will disappear. In the money management industry Buffett mentions that that any 10 partnerships with over $500 million in assets and put them up against the S&P 500, they will trail the S&P, after fees, over time. If you know enough about the person and how they’ve done in the past, you can occasionally find someone. But if you’re running a big pension fund, with everyone calling on you, you will likely invest in the best salespeople.
To Buffett, the practices related to accounting charges, done to smooth out earnings and make future earnings look good is like we follow a policy of “criticize by practice, and praise by name” or you could say we hate the sin, but love the sinner. “Why should I penalize my shareholders for not doing something that others will do to help theirs?” Today, it is just the norm.
Buffett does not like to invest in gold because people will always need to drink and eat more, which is why he would rather invest in Coca-Cola and See’s Candies or even just land rather than just a metal. It gets very dangerous to assume high growth rates to infinity, and that is when people over commit.
Buffett cannot predict how the utilities industry is going to develop with deregulation and who is going to make the money in ten years. Although, he can see how it destroys a lot of value through the high cost producer once they are not protected by a monopoly territory. Overall, Buffett keeps away from the utilities industry as well as since the Public Utilities Holding Company Act limits Berkshire Hathaway's ability to acquire utilities.
When it comes to inflation the best thing to combat the threat of inflation is to have a lot of earnings power of your own such as owning a business that can price in inflationary terms and does not require big capital investments.
When it comes to investment banks being too complex and making complex contracts without the management being aware of the risks, Buffett thinks it is probably true in most places. Big investment banks and big commercial banks are almost too big to manage effectively in the way they have elected to run their business.
The current bankruptcy process attracts bankruptcies and over pay the lawyers. Anytime there’s some big and complicated like a bankruptcy, there might be some mispricing. And recently, the mispricing has been on the high side. Therefore, Buffett believes that over the next 10-15 years, we’re likely to do something big in the bankruptcy area.
IPOs are too small and less are up for negotiation, so Buffett believes that scanning an average group of 100 stocks is more likely to find anything interesting than by scanning 100 IPOs.
Buffett’s idea on “economies of intelligence” is about finding businesses where you have to be smart only once instead of being smart forever. For example retailing is a business where you have to be smart forever: your competitors will always copy your innovations, but buying a network TV station in the early days of television required you to be smart only once, which a terrible manager can still make a fortune. Given the choice between businesses where you have to be smart forever or one where you have to be smart once, Buffett advised being smart once.
Buffett is very careful to avoid asbestos liabilities; it is a cancer on the American corporate world and it is growing.
Buffett described that often stocks are overvalued because there is a promoter or a crook behind it, and there are way more stocks that are dramatically overvalued than dramatically undervalued.
Buffett feels OK with losing a lot of money in the insurance business, as long as being paid appropriately for the risk.
Buffett plans on buying more real estate brokerage companies over the next decade.
The important qualities a person need are intelligence, patience, and interest, but the biggest thing is to be rational.
Buffett wants his legacy to be running a unique and independent company in true pursuit of shareholder value and to improve the way people invest and run their companies.
For foreign investments, transparency matters; the accounting doesn’t matter so much to Buffett. Since Berkshire Hathaway only invests in the hundreds-of-million-dollar-size range that rules out a lot of market. As long as Berkshire Hathaway is able to value what’s underneath of it, they will invest. But because something like 53% of all the value of the public companies in the world is in the U.S., most are domestic. Right now investing in such industries as insurance in China and India which are growing is reasonable but both countries limit the amount that Berkshire Hathaway can own and how much. So Buffett put it in this way, why put my managerial talent to work on something where we only own 20% vs. 100%? But, Buffett likes and invested in PetroChina because they will pay out 45% of their earnings, is the 4th most profitable oil company in the world, and far cheaper than Exxon, BP, Shell etc. since it is 90% owned by the government of China.
Buffett investment took control of Berkshire Hathaway which was in textile manufacturing in 1962 when he first became a millionaire early that year. By 1965 Buffett was the owner but the textile business was falling apart so Buffett began investing in the insurance industry. In 1973 Berkshire bought stocks in the Washington Post Company. Next, in 1979, Berkshire acquired $3.5 billion of stocks in ABC Capital Cites. Then in 1998, he acquired General. In 2002, he signed an $11 billion of contracts to pass down US dollars versus other currencies, and he gained over $2 billion by April 2006. In November 2011, Warren Buffet has acquired in the last 8 months approximately 5.5% of International Business Machine stocks, which values approximately $11 billion. He became the richest man in 2008 with $62 billion, but Buffet could not sustain being number one due to loss of 25 billion in only 12 months in 2008- 2009.
Buffett was criticized during 2007 and 2008 for early distribution of capital that led to suboptimal business deals. Berkshire Hathaway resulted in a loss of 77% decline in earnings throughout 2008.
Buffett went door to door selling chewing gum, Coca-Cola, or weekly magazines as a child and worked in his grandfather's grocery store. Buffett showed interest in the stock market and investing growing up when he spent time in the customers' lounge of a regional stock brokerage near the office of his father's own brokerage company. At the age of 11, he bought three shares of Cities Service Preferred for himself, and three for his sister. In high school he delivered newspapers, selling golf balls and stamps, detailing cars, and he invested in a business owned by his father and bought a farm worked by a tenant farmer. He filed his first income tax return in 1944 at age 14. In 1945, Buffett and a friend spent $25 to purchase a used pinball machine to be placed in the local barber shop, and within months, they owned several machines in different barber shops. By the time he finished college, Buffett had accumulated more than $90,000 in savings measured in 2009 dollars.
Buffett attended college in 1947 at the Wharton Business School of the University of Pennsylvania for two years then transferred to the University of Nebraska–Lincoln where he graduated with a Bachelor of Science in business administration. After his undergraduate studies, Buffett enrolled at Columbia Business School. Buffett learned about Benjamin Graham (author of "The Intelligent Investor") and David Dodd, two well-known securities analysts taught there. He earned a Master of Science in economics from Columbia in 1951. Buffett also attended the New York Institute of Finance.
Buffett's Bites: The Essential Investor's Guide to Warren Buffett's Shareholder Letters by L. J. Rittenhouse
The Essays of Warren Buffett : Lessons for Corporate America by Warren Buffett
The Snowball: Warren Buffett and the Business of Life by Alice Schroeder
The Intelligent Investor: A Book of Practical Counsel by Benjamin Graham
International Stocks that are Warren Buffett's Portfolio, as reported in Berkshire Hathaway 10-Ks:
Buffett lives in this house in the Happy Hollow neighborhood that he bought in 1958 but built in 1921 for $31,500. It has 5 bedrooms, 2.5 bathrooms and is 6234 square feet. In 2005 it had a taxable value of $690,000. Down the same street about 1 mile away are the Berkshire Hathaway offices in Omaha, Nebraska.
"While there are some Warren Buffett in the world, identifying one is like finding a needle in the haystack", Burton Malkiel, Economist, Princeton University.Mr. Malkiel was probably not too far from reality, as very few individuals have been able to outperform the market over time. However, he probably didn’t know about GuruFocus.com, which follows the best investors, those with proven track records and who usually outperform the market in the long term.ACI Partnership fund is one of the few needles found in the haystack, a real compounding machine delivering an outstanding performance since its inception in 2008 with, according to my calculation, a 257.8% return compared to 163.4% for the S&P 500 index (including dividends) over this same period*. The following interview will probably convince you, just as I was, that James East, who manages the ACI Partnership fund portfolio, is an exceptional investor with an astute mind that few other investors possess.*http://acipartnership.com/homeindex/ACI_Partnership_Funds_Abstract_2015A.pdfHistory of ACI Partnership and James EastJames East is the founder and capital allocator at ACI Partnership. Mr. East is a former engineer who became a full-time investor. It was at the young age of 11 that he bought his first stock "Uniroyal", known as a tire company, but also for its tennis shoes which he liked when he was a kid. He then read Benjamin Franklin's autobiography and was introduced to the power of compounding. He was good in math and went on to study aerospace engineering at Georgia Tech while maintaining a real passion for investing as a part-time hobby. As an engineer, he had a successful career and worked for 10 years on the development of rocket engines for the space shuttle at NASA.During his studies, he learned about Phil Fisher, which led him to learn about Warren Buffett (Trades, Portfolio), then Benjamin Graham. At the onset, his investment style was 85% Fisher; now it is 85% Benjamin Graham and 15% Phil Fisher, in order to focus more on the downside. He identified seven different approaches used by Benjamin Graham: two associated with price and five with quality. While the net-net approach covers but a small portion of Benjamin Graham's written works and is something ACI Partnership fund never did, its main aspect is to focus on the risk of losing permanent capital, and for the ACI Partnership fund it’s really a quality assessment rather than a quantitative issue.The interviewWhen we look at the performance of your portfolio, you registered positive returns during the financial crisis. Can you explain to us how this was accomplished?It had a lot to do with the process of looking to protect the downside and being very selective on the price; this imposed a limit on buying just anything. At the time the market was becoming inflated. In this 2006-07 period, I had my radar list of investment prospects, but not one even came close to my targeted purchase price. Since I couldn’t buy anything, our cash level in the fund kept growing, and we got close to a 40% cash position, and we also had a large position in Fairfax. Fairfax delivered good returns during the crisis because they profited from the CDS purchase to protect them and also it allowed them to profit from the crisis.It all boils down to psychology; I had the personality to be patient. As Charlie Munger (Trades, Portfolio) said, you need to sit and wait, it’s not easy. You see your friends with Facebook and Netflix going up every day, so you have to fight this little envy or jealousy and wait for your fat pitch, and fat pitches come rarely. To make an analogy with baseball, I hit lots of singles, some doubles and occasionally some triples.Do you take the macro-economy into account?I’m very micro, focusing on specific companies, but at the same time you need to keep an eye on the macro. You can’t completely ignore it, but if you are like Warren Buffett (Trades, Portfolio) you don’t have to worry about the macro. Should you be running under a billion dollars, I think you need to at least be aware of what’s happening in the macro level.As an average investor, you should at least be aware of what’s happening in your country. For Canada, a question to ask would concern the real-estate. Is there an issue there? We will see how it evolves with time.Where and how do you find investment ideas?As an example, let’s take a look at Greece. The headlines say there’s a carnage underway in Greece and everybody’s leaving; that’s a place to just start looking. So you start, and my technique is to draw up a list of between 30 and 100 stocks to keep under my radar, for different periods of time. They are potential investment ideas that may eventually reach the right price. The companies on the list are all companies I have already researched in order to understand their competitive advantage. If they prove to have some and go on to reach a certain level, I go into a deeper research mode, and evaluate potential problems. There might be management issues, and you estimate their probabilities. Some ideas may be under the radar for a long period, and most of them have been for 3 to 5 years, some for 10 years. That reminds me a story of Warren Buffett (Trades, Portfolio), who sometimes read some annual reports for decades before finally buying some shares in a company.Can you give us an example of a company that was on your radar for 10 years?Old Republic Insurance. During late ’99, early ’00 dot-com crisis all the stocks were going down. Those were incredible times, all the value stocks were going down every single day. I then had a 10-year history on this particular company, not necessarily the best company I ever came across but at the then price of 40 % of book value, it was making money, had an interesting yield, was stable and it was not going bankrupt.There was a good variety of that type of opportunity available during the crash. This is really my strategy: I have my radar list of companies on which I do some research and when the price becomes attractive, I do more research to dig even deeper.Are you always waiting to do deeper analyses?You have to be quicker these days, more than 5 or 10 years ago. I have usually done enough research to know my comfort zone, and when the price gets closer to it, I start diving deeper, always looking for competitive advantage. I ask myself: How much lower can it go before the market starts to turn around again? Then I try to assess the causality that created the low valuation, for example is it a sector or a management issue? You assess the probabilities for each situation and then revaluate your buy price. It may also happen that I decide to discard it from the radar because the new research reveals that it’s not a good investment.Do you have another example for us?Yes, a recent example happened a few months ago with Dreamworks. For some reason, one day the market told me that I didn’t want Dreamworks anymore. I sold off 15-20% over a couple of days for no reason, no nothing; it was a great opportunity so I pulled the trigger on it. I had Dreamworks on my radar for three years, and at one point it was really close to my buy price, then came a buyout rumour and the stock went up. This is the problem with value investors, we wait for the price to be cheap and it never gets there.Over the last 3 years they had done some reorganisation in the corporation which increased the intrinsic quality of the business. Their production costs, overhead and expenses were too high. The management realized that, and reduced the quantity of movies instead of diluting talent. They reduced their production costs. They also started to become more of a content provider than a movie producer, signing some content contracts with Netflix and Verizon, for example.In this example the opportunity lasted only 4 or 5 days, so you had to be quick. And this is the market we have these days, so we have to be quicker. I was able to buy it because I revaluated the business and it was a better business than 3 years before. I evaluated it from a balance sheet point of view: they had redeployed some of the capital. There was a very limited downside in my opinion with a really positive upside.Do you first look for the downside?Yes, my first assessment is the downside, always. Using George Soros (Trades, Portfolio)' terminology of reflexivity, these phenomena always overshoot. They overshoot on the top and they overshoot on the bottom. If I can figure out what the floor is, although it’s potentially going through the floor. As value investors, we always buy too early and we sell too early. When you have a 10-15-year history and you look back at your own result, you realize that you always buy too early and sell too early, obviously those are your winners. For your losers, obviously, you bought too early and didn’t sell early enough.How has the idea of Reflexivity as it applies to financial markets promoted by George Soros (Trades, Portfolio), influenced your thinking? I’m an engineer by training, so I was very familiar with reflexivity in the first place because of feedback loops that make complete sense to me because I see them in nature, I saw them in dynamics, and with an engineering background you see those patterns all the time. Feedback loops always overshoot; it’s the same thing with the market, they always overshoot, they overshoot on the top, and they overshoot on the bottom.Right now we have a record of buy backs, but in 2008-09 you couldn't find a company that was doing buy backs as most of them were scared. In 2010-11 the level of buy backs wasn't that high, so I asked myself, why don’t you buy back your stock? You should be buying your stock! Now every company out there wants to buy back its stock, it went up 2x or 3x since 2008-09 and now they are buying it back!Can you give us an example of reflexivity for a particular case?Fairfax would be a good example in 1997-98. At that time its stock was traded at more than 4 times its book value, it was over the price I would have paid. They issued shares at those prices to make their acquisition of the undervalued insurance business, which had the effect of making a high price go higher; that’s reflexivity on the upside. It was trading close to $550 (Canadian dollar) per share, they made two acquisitions that didn’t meet their expectations and the company got into trouble, driving the price on a reflexive process on the way down to $70 per share in 2003.Fairfax has been one of your larger holdings for 15 years, can you comment on this?Fortunately and unfortunately, we were in Fairfax during their hard times and rocky roads. Many lessons have been learned through the Fairfax story. I think that finally the story is widely known and in a good way in the investment community, because they had some really bad breaks, some self-inflicted wounds, but underneath all of that cacophony, there is really a fantastic underlying business. For example Fairfax Asia is unbelievable, Odyssey RE is probably the gold standard in Reinsurance.So there are many qualities in Fairfax that don’t reap the appreciation that they should because of the overhanging issue that the investment community has with Fairfax. For example the community is asking: "Why you are hedging?’’ The answer is that they are trying to protect their capital because of the past experience they had, as they never want to be in the same situation again.Another example is they just bought BRIT insurance, fantastic, unbelievable, that’s what Fairfax wants to do and it’s also what their Shareholders want them to do. They bought 100% of Brit but turned around and announced they will sell 29%. They had just bought the shares, so the shareholders were wondering what was happening. At the shareholders meeting they gave a good reason: In 4 years, they will own it 100%. So it’s something that came out in the press release, it doesn’t always. You need to know the historical reference and the character and principles on which decisions are made. Even though I trust them, I don’t always agree with what they do, but as I said, it’s my biggest holding and I have been with them for a very long time.Going forward, I think Fairfax is in a sweet spot because of the global footprint and platform they have in insurance operations and to be honest, the insurance industry hasn't been that great over the last 10 years, except for Odyssey Re and Fairfax Asia, but they have been overshadowed. It took them literally 10 years to recover from the Crum & Foster problems which they had bought, along with TIG. The due diligence they now perform is quite superior, they learned a lesson and I know Fairfax will not repeat those same mistakes again.I had my opportunity because of their mistakes. Historically they are value investors, they are a team, and they are truly honest, they just make mistakes. Regarding the story that came out in the media on Fairfax from 2001 to 2006, 99% of it was false, and much of it has been proven to be false. There’s an ongoing legal case out there trying to prove that 100% of it consisted of false accusations, but from an investor point of view it’s been resolved fairly.Going back to the 7 Graham approach template, 2 about cheap prices and 5 about qualities, do you look more for qualities?It took me a while, I was stuck in the growth camp. From 25 to 35 years old I advocated the Fisher compound stock growth and better business. But after reading more Graham I really changed to be more concerned with protecting the downside.I think that a successful investor can be a trader in private equity, commercial real-estate and many other fields, but the really successful are those who match up their investments with their personality. My personality is more laid back, patient, if I were not patient I would not have lasted so long with the Fairfax investment given their volatility. It did hurt, but differently from owning a growth stock, the difference being a deep value situation that becomes extremely undervalued because of bear attacks that I hold onto because of my personality and the research I did. Matching your personality to your investment style is really important. For example, there are successful venture capitalists that probably don’t have the personality to be a successful value investor. For my part, I need to see the business history that allows me to see the value, and I mean value in the tangible and intangible more on the quality side, be it brand, better costumer contact, and length of time in business.So there are all kinds of adjustments I make on the assets but also and more so on the liabilities, most of the time increasing them. Regarding the assets usually I cut them and most of the time there’s little advantage left when compared with the market of that day. Also, the balance sheet will correct itself if the right management is in place and if you are correct on your analysis. More...
FAIFAX, INSSURANCE, REFLEXIVITY, ACI PARTNERSHIP FUND, JAMES EAST
As an undergraduate at Wharton in the 1960s, Howard Marks (Trades, Portfolio) stumbled upon one of the guiding principles of his life — the Buddhist concept of mujo. In his Japanese studies course, mujo was defined as “the turning of the wheel of the law.” Marks explains: “Change is inevitable. The only constant is impermanence. … We have to accommodate to the fact that the wheel turns and the environment changes.” This constant flux applies not only to human lives but economies and markets. “It’s very helpful to view the world as behaving cyclically and oscillating rather than going in a straight line. Everything is cyclical.” More...
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Precision Castparts (PCP) was founded in Portland, Oregon circa 1949. The company manufactures structural investment castings, forged components and airfoil castings for aircraft jet engines and power turbines. More...
BUFFETT, LOU SIMPSON, AIRCRAFT MARKET, ENERGY MARKET
To be considered prudent investors we must recognize and accept the undeniable reality that all true investing is done in future time. Consequently, the key to long-term investment success is to forecast the future as accurately as we possibly can. Of course, we must simultaneously recognize and accept that forecasting the future can only be accomplished within a reasonable degree of accuracy. Forecasting the future, and investing for that matter, can never be perfect. Nevertheless, our investing success will ultimately be achieved based on how good our forecasts turn out to be. More...
In the past, Warren Buffett (Trades, Portfolio) has said that he prefers to complete his analysis of a company before knowing where the stock is trading; the rationale for doing so is clear. However, despite my efforts, our connected world has won every time: I don’t think I’ve ever even made it through my initial analysis on a company without checking the stock price less than 10 times, let alone once. More...
Warren Buffett (Trades, Portfolio) has famously said that GAAP earnings should be an investor’s beginning point when it comes to analyze a company’s earnings power. I know most of us will agree with Buffett on this point. However, many investors shiver when thinking about Non-GAAP owners’ earnings because of either unfamiliarity with accounting or the perceived complexity in figuring out the true earnings’ power of a business just by looking at the often 100 page plus SEC filings. More...
Warren Buffett (Trades, Portfolio) did an interview in Detroit with Dan Gilbert where they discussed a variety of issue. One of the topics was Detroit and the potential turnaround in the city. It's a great interview with a lot of information about the Detroit turnaroud and what Warren Buffett (Trades, Portfolio) thinks about Detroit. More...
BILLIONIARE,WARREN BUFFETT,QUICKEN LOAN, DAN GILBERT,DETROIT
Someone recently asked at a meeting of prominent individual investors about millennials and investing to help newly minted college graduates. My recommendation was Patrick O'Shaughnessy and his excellent book for millennial investors. Also referenced was O'Shaughnessy's father and all his works. More...
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