As we wrap up 2017, we are glad to announce that several of our columnists wrote articles that received double-digit five-star ratings from readers. Four articles that received top rankings include:
- “How Warren Buffett Squeezes So Much Value out of So Few Stock Ideas” by G. Gannon
- “Building a Circle of Competency” by Grahamites
- “Intrinsic Value: Warren Buffett’s Thoughts” by D. Ahern
- “Some Thoughts on Holding Cash” by Science of Hitting
Squeezing so much value out of so few stock ideas
Gannon listed four factors that can maximize the value out of a stock idea: high growth, low price, big position size and long holding period. The columnist also discussed three investing styles, ranging from Ben Graham and Walter Schloss’ deep-value investing strategies to the Phillip Fischer growth investing strategy. While Buffett’s four-criterion investing approach does not consider growth, the Buffett-Munger strategy implies strong growth potential by focusing on high quality companies.
Buffett once said that in order to make “50% a year on one million dollars,” investors must “turn over many rocks” and find companies that are “off the map.” The GuruFocus Manual of Stocks for Premium members gives a one-page summary of each stock listed on the Standard & Poor’s 500 index. Premium Plus members can customize their stock manuals, e.g., download the stock manual of companies from the All-in-one Screener results.
As discussed in a previous article, the GuruFocus Checklist allows users to grade a company using one of our predefined checklists or their own custom checklist. The predefined checklists include Phil Fischer’s growth companies checklist, Ben Graham’s net-net checklist, the Invest like a Guru checklist and two Peter Lynch checklists.
Circle of competency
Buffett discussed in his 1996 shareholder the concept of “circle of competence”: an investor does not necessarily need to be an expert in every company, but just the “selected business” within his or her circle of competence.
One area within my circle of competence is the retail sector, headed by companies like Amazon.com Inc. (AMZN, Financial), eBay Inc. (EBAY, Financial), Nike Inc. (NKE, Financial) and Alibaba Group Holding Co. (BABA, Financial). I enjoy visiting shopping malls around the world, including the TeeMall in Guangzhou, China and the Forum Shops at Caesars Entertainment Corp. (CZR, Financial) Las Vegas.
One thing I track while I visit the shopping malls is the amount of foot traffic in stores. During “Tax-Free Weekend” this past year, I visited the Grapevine Mills Mall, which contained a Ross Stores Inc. (ROST, Financial) store and a Sears Holdings Corp. (SHLD, Financial) outlet store. While Sears had nearly no foot traffic, Ross was flooded with customers purchasing items at low prices. One key driver of comparative store sales is foot traffic: generally, stores with high foot traffic have higher sales growth potential than those with little or no foot traffic.
A word on owner earnings and staying in cash
Buffett discussed his owner earnings calculation in a 1986 shareholder letter. Table 1 shows a sample calculation of Apple Inc.’s (AAPL, Financial) owner earnings per share.
| Ticker | AAPL |
| Net income | 48351 |
| Depreciation, depletion and amortization | 10157 |
| Change in deferredtax | 5966 |
| Change in working capital | -5550 |
| Shares outstanding | 5183.586 |
| Five-year average maint capex | 9667.87 |
| Owner earnings per share (TTM) | 9.5 |
Table 1
Science of Hitting mentioned that although investors can miss significant gains if they stay in cash, some prefer to stay on the sidelines and only go at bat when the opportunities occur. As Buffett’s market indicator keeps setting new 10-year highs, investors must protect themselves from the eventual market correction. As of Dec. 28, the expected market return over the next eight years based on current market levels is -2% including dividends.
Please continue sharing good value investing ideas
One major addition to GuruFocus in 2017 is the value investing forum, a place where users can share odds and ends about value investing. While we got numerous good Forum posts during the first four months, we can still increase good Forum traffic in 2018. We encourage our columnists and users to not only write good articles, but also to share good insights on the Forum.
Disclosure: The author has no positions in the stocks mentioned.
