The Warren Buffett school of Investing.
Printed From: The Equity Desk
Category: Market Strategies
Forum Name: Buffet, Lynch and other legends - Investing Strategies
Forum Discription: DIscuss about the strategies followed by the great investors. Share an idea which would have impressed the masters. Try and bring their International experience into the Indian Markets.
URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=215
Printed Date: 21/Jun/2024 at 2:04am
Topic: The Warren Buffett school of Investing.
Posted By: Ambarish
Subject: The Warren Buffett school of Investing.
Date Posted: 21/Aug/2006 at 11:25pm
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Warren Buffett: How He Does It Did you know that a $10,000 investment in Berkshire Hathaway in 1965, when Warren Buffett took control of it, grew to be worth over $50 million by 2003? By comparison, $10,000 in the S&P 500 would have grown to only $500,000. Whether you like him or not, Buffett's investment strategy, known as value investing, has been one of the most successful ever. Here we look at how Buffett amassed this fortune solely from investing. What Is the Buffett Investing Philosophy? Value investing looks for stocks whose prices are low for their companies' supposed intrinsic worth, which is determined by an analysis of certain characteristics and fundamentals of companies. Mirroring the mentality and shopping style of a bargain hunter, value investors looks for products that are beneficial and high quality but cheap in price. In other words, the value investor searches for stocks that he or she believes are undervalued by the market. Like the bargain hunter, the value investor tries to find those items that are valuable but not quite recognized as such by the majority of other buyers. Warren Buffett takes this value investing approach to another level. Many value investors aren't supporters of the Efficient Market Hypothesis but trust that the market will eventually properly start to favor those quality stocks that were, for a time, undervalued. Buffett, however, doesn't think in these terms. He isn't concerned with the supply and demand intricacies of the stock market. In fact, he is not really concerned with the activities of the stock market at all. He chooses stocks solely on the basis of their overall potential as companies--he looks at each company as a whole. Holding these stocks for the extended long term, Warren Buffett seeks not capital gain but ownership in quality companies that are highly capable of generating earnings. When Warren Buffett invests in a company, he is not concerned whether the market will eventually recognize the company's worth; he is concerned with how well that company can make money as a business. So How Does Buffett Find Low-Priced Value? Here we look at some of the questions that Buffett asks himself when he evaluates the relationship between a stock's level of excellence and its price. Keep in mind that these are not the only things that he analyzes: 1. Has the company consistently performed well? Sometimes ROE is referred to as "stockholder's return on investment." It tells the rate at which shareholders are earning income on their shares. Warren Buffett always looks at the return on equity (ROE) to see whether or not a company has consistently performed well in comparison to other companies within the same industry. ROE is calculated as follows: = Net Income / Shareholder's Equity Just having a high ROE last year isn't enough. The investor should view the ROE from the past five to ten years to get a good idea of the historical growth. 2. Has the company avoided excess debt? The debt/equity ratio is another key characteristic that Warren Buffett carefully considers. Buffett prefers to see a very small amount of debt, which means earnings growth is being generated from shareholders' equity. The debt/equity ratio is calculated as follows: = Total Liabilities / Shareholders' Equity This ratio indicates the proportion of equity and debt the company is using to finance its assets, and the higher the ratio, the more debt--rather than equity--is financing the company. A high level of debt compared to equity can result in volatile earnings and large interest expenses. For a more stringent test, investors sometimes use only long-term debt instead of total liabilities. 3. Are profit margins high? Are they increasing? The profitability of a company depends not only on having a good profit margin but also on consistently increasing this profit margin. This margin is calculated by dividing net income by net sales. To get a good indication of historical profit margins, investors should look back at least five years. A high profit margin indicates that the company is executing its business well, but increasing margins means that management has been extremely efficient and successful at controlling expenses. 4. How long has the company been public? Buffett typically considers only companies that have been around for at least ten years. As a result most of the technology companies that have had their IPOs in the past decade wouldn't get on Mr. Buffett's radar. It makes sense that one of Buffet's criteria is longevity: value investing means looking at companies that have stood the test of time but are currently undervalued. Never underestimate the value of historical performance, which demonstrates the company's ability (or inability) to increase shareholder earnings. Do keep in mind, however, that the past performance of a stock does not guarantee future performance--the job of the value investor is to determine how well we can trust that the company has a capacity to perform as well as it did in the past. 5. Do the company's products rely on a commodity? Initially you might think of this as a radical approach to narrowing down a company, but Buffett tends to shy away (but not always) from companies whose products are indistinguishable from competitors, and those that rely solely on a commodity such as oil and gas. He does not put his money into companies that rely on the price of an underlying commodity. If the company does not offer anything different than another firm within the same industry, be wary as a value investor. 6. Is the stock selling at a 25 percent discount to its real value? This is the kicker. Finding companies that meet the other five criteria is one thing, but determining whether they are undervalued is the key for value investing, and finding a company that is trading at a 25 percent discount is not always easy. To check this, we must determine the intrinsic value of a company by analyzing a number of business fundamentals, including earnings, revenues, and assets. A company's intrinsic value is usually higher than its liquidation value, which is what a company would be worth if it were broken up and sold today--the liquidation value doesn't include intangibles such as the value of a brand name, which is not directly stated on the financial statements. Once Buffett determines this intrinsic value of the company as a whole, he compares it to its current market capitalization, which is the current total worth (price) of the entire company. If his measurement of intrinsic value is at least 25 percent higher than the company's market capitalization, Warren Buffett sees the company as one that has value. Sounds easy, doesn't it? Well, Buffett's success, however, depends on his unmatched skill in accurately determining this intrinsic value. While we can outline some of his criteria, we certainly have no way of knowing exactly how he gained such precise mastery over calculating value. Conclusion Well, as you have probably noticed, Warren Buffett's investing style, like the shopping style of the bargain hunter, reflects a practical, down-to-earth attitude. This attitude Buffett maintains toward also his lifestyle and overall philosophy on life: he doesn't live in a huge house, he doesn't collect cars, and he doesn't take a limousine to work. The value-investing style is not without its critics, but whether you support Buffett or not, the proof is in the pudding. As of 2003, he holds the title of the second richest man in the world, with a net worth of over $30 billion (Forbes 2003). If you choose to practice this kind of investing style, keep in mind that it takes time to do the proper analysis and to get good at it ------------- www.halwasiya.uni.cc Wining is not everything, it is the only thing |
Replies:
Posted By: reema
Date Posted: 21/Aug/2006 at 8:52am
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I have read buffet and graham but the problem is I cannot see the way they saw. They had a very unique way of investing which with all credit to the general investot can only be read and appreciated but rarely followed.
Very rarely will you get a company growing at 25% and selling at less then intrinsic value. When you get that share the markets are down and there is no money to be invested we are already loaded on.
------------- You should try to add wealth not multiply it |
Posted By: kulman
Date Posted: 17/Sep/2006 at 8:04pm
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Asked what advice he could provide to young people on the verge of careers in managing investments, Buffett boiled down his principles into four cardinal rules: 2. Look for sound fundamental economics. Investors should seek out companies that have a sustainable economic advantage a phenomenon Buffett called "a castle with a moat around it." Consider Coca Cola, for example. The company's brand name has represented enjoyment for generations, which no competitor can buy for millions of dollars. "Share of market follows share of mind," noted Buffett. 3. Find competent leadership. Companies with a sustainable economic advantage need honest, capable and hardworking leaders to retain their lead. Berkshire-Hathaway's managers have one instruction: Widen the moat. That keeps the castle valuable.
4. Buy at the right price. Purchases must be made at the right price if they are to pay off. Buffett cited example after example to show how he had used these principles to make investment decisions during his career. As a young investment manager, he took Moody's manuals and went through them page by page until he found the companies he sought. A bus company in Asked why he has not retired despite his phenomenal wealth, Buffett said the reason is that he has more fun doing what he does than anything else. "The fundamental thing is that the process should be fun," he said. "I had just as much fun when I had $10,000 to invest as I do now. It's crazy to do things for your resume. It's like saving up sex for your old age. You should do what you enjoy as you go along, and work with people you admire. I look forward every day to the next day. I'm wired for this game." ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 29/Sep/2006 at 11:19pm
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Basantjee I came across an article where Warren Buffet tries to explain how he learnt the lessons in investing.
I bought first stock at age 11. I bought 3 shares of Cities Service Preferred at $38 . My sister followed me and did the same. The price then declined to $27 and sister complained every day on the way to school. When the stock recovered to $40, she and I sold. I had a $5 profit. The stock then rose to $200. The lesson I learned was not to get involved with others on investments, or else their emotions will spill over.
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By the way, seems that your gem of a comment went unnoticed:
When Arjun was asked by Dronacharya what did he see on the tree he replied "The eye of the bird. Acharya"
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 29/Sep/2006 at 11:31pm
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Yes, and the trick is to learn the lesson rather then complaint about the mistakes. I have seen one very peculiar behaviour with investors. They never want to board a train that has not started to move and the moment the speedometer hits 60kmph they are ready to jump in. Now among all the stocks that we discussed no one would bother to buy the ones that have not moved and once they make their first 40% move people would start to get in when they should be doing the exact reverse of that. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 10/Oct/2006 at 8:18am
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http://money.cnn.com/2006/10/10/news/newsmakers/buffett_scandals/index.htm?postversion=2006101012 -
Buffett sounds off on Wall Street scandals
Interesting read! Corporate America is still bleeding with Backdated Options scams. I request our US based forum members to throw some light on the same.
We have seen that: whatever happens in the West, our tendency is to follow them. I hope India Inc managers do not apply that theme to scams (SEBI need to watch ESOPs carefully) ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: catcall
Date Posted: 12/Oct/2006 at 9:37pm
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Just a sobering thought on this issue. Today ,with the stupendous success of Warren Buffet, almost ever investor and his aunt have been through the books and principles of WB. Stories about his sucesses in Coke and Berkshire Hathaway are now folklore in the punter's (forgive me for using this word in a WB article!!) world. And yet how many duplicates or even miniature replicas has the world produced of W B? The harsh truth is that just as there have been only one Bradman in cricket with all the cricketing manuals, so also there is only one W B. We ordinary mortals can however strive to work on those basic principles.
I feel that the most important difference that exists between WB and the rest is the conviction behind his descisions. After the "Go-Go-" years of the 20s' the the depression of the 30s most investors would have lost both confidence and conviction in thier investment descisions. (the investors panic reactions in the two large falls in our markets is a case to point!!) ,unlike the inimitable W B
Best to set realistic goals to our investments and enjoy the ride than to wait for the destination... Happy investing!
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Posted By: kulman
Date Posted: 12/Oct/2006 at 9:39pm
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The previous post was Buffet's warning on backdated options scandal in US. Today's flash news: http://www.marketwatch.com/news/story/Story.aspx?guid=%7B9990D621%2D12DA%2D48F5%2D9712%2DEE5D50D5BA91%7D&siteid= - Stock-option backdating costs more CEOs their jobs--
I hope & wish that such things won't occur in India Inc.
Any views from forum members about how accounting tricks play roll in this and how to find the same out?
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: catcall
Date Posted: 12/Oct/2006 at 9:47pm
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Dear Kulman,
You can hope that such things won't occur in India Inc. after all Umeed pe duniya kayam hai
 , but it's like gambling that a thief will not find out that the house door has only a dummy lock!! Dont forget, this is the only place where 'aadmi bhi chara khata hai!Better to prepare for the worst!
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Posted By: kulman
Date Posted: 12/Oct/2006 at 10:05pm
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Wah Catcall janaab, kya khoob kahaa! La-jawaab!!
I recall a ghazal by Mirza Ghalib on Ummeed:
Koi Ummeed bar (complete) nahin aati
Koi soorat nazar nahin aati
Maut ka ek din mu-ayyan (defined) hain
Neend kyon raat bhar nahin aati?
Aage aati thi haal-e-dil pe hasi
Ab kisi bhi baat par nahin aati
Hain kuchh aisi hi baat ke jo choop hoon
Warna kya baat kar nahin aati?
Hum wahan hain jaha se hum ko bhi
Kuchh hamaari khabar nahin aati
Marte hain aarzoo mein marne ki
Maut aati hain, par nahin aati
Kaaba kis mooh se jaoge 'Ghalib'
Sharm tum ko magar nahin aati?
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: catcall
Date Posted: 12/Oct/2006 at 10:12pm
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Kulmanji....Addab arz Hai!!
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Posted By: kulman
Date Posted: 12/Oct/2006 at 10:14pm
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Catcall jee
Aap ki zara-nawazi ke liye shukriyaa!
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: manishdave
Date Posted: 12/Oct/2006 at 4:31am
I wish it was simple.
Sometimes I heas some weired accounting things in US which is quite legal. For example pension accounting. Companies ASSUME long term return on their pension portfolio. And ofcourse they are overly optimistic. So even in particular year, they lost 10% in real life, on p/l they count assumed return which may be 9-9.5% gain! This is legal.
Second weired practice I am not very sure but recall reading somewhere. That practice is lets say company lends against house for 30 years. They ASSUME profit they will make each year. Then they discount interest and put whole profit in current financial year. Again I am not very sure about this practice and would like to know if somebody has idea.
In India we dont have lots of professional companies. They are OWNed by promotors. So if promotors are honest, we need to worry less about ESOP and other practices. But in long run many professional companies go for giving away options. It is MONKEY SEE MONKEY DO business. Dont think that we will learn only technology from US, we will also learn ACCOUNTING.
There are all kind of scams in CEO/executive compensation. Before back dating they were repricing options because stocks wen down below option price. Our companies(not all) steal in cash, US companies steal in Stcoks. Does it make difference?
I dont think anybody anywhere can control stealing by management.
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Posted By: kulman
Date Posted: 12/Oct/2006 at 7:47am
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Thanks Manish jee for your take on backdating options scam.
Basant jee may be able to throw light on ESOPs from Indian accounting viewpoint.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 12/Oct/2006 at 10:19am
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A couple of years back Manish sent me a nice writeup. It stated that General Motors had a hole in their retirement fund and to bridge that they had taken a long term debt component which would be invested in the capital markets the incremental return would be used to fund that hole.Manish do you still have that piece/link? ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 23/Oct/2006 at 7:45pm
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http://www.marketwatch.com/news/story/Story.aspx?guid=%7B7E849E24%2D4CC9%2D4FA0%2D8A26%2D9852C0314CEF%7D&siteid= - The $100,000 stock: Berkshire Hathaway still soars
From around the $10 level in the 1960s, it grew to the $100 mark in the 1970s, the $1,000 mark in the 1980s and the $10,000 mark in the 1990s. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 29/Oct/2006 at 11:43am
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Kulman..... and all the Buffet fans.... specially for you...
you can http://video.google.com.au/videoplay?docid=-6231308980849895261&q=warren+buffett - see Warren Buffett speak to a group of MBA sudents at University of Florida ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: manishdave
Date Posted: 30/Oct/2006 at 7:36pm
Sorry Basant,
I dont have that link right now. But I will post it if I come across it.
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Posted By: kulman
Date Posted: 30/Oct/2006 at 10:08pm
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BubbleVision
Thanks a lot for that video link to Buffet's lecture. All these days I had transcript of this but it's always great to see the legend talking.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 31/Oct/2006 at 4:14pm
BubbleVision: It is absolutely great on your part to post these links. yesterday I heard the Buffet thing twice - only the first half. I replayed the first 45 minutes since I wanted everything to sink in. Would play the second part today at night again so that it gets into my black matter and turns it grey ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 31/Oct/2006 at 10:37pm
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One can download the movie in wmv format (>300MB) here:
http://bear.cba.ufl.edu/karceski/fin4504k/Warren%20Buffett%20MBA%20talk%20at%20UF.wmv - BUFFET'S MBA TALK
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 01/Nov/2006 at 6:55am
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If one wants to have text (transcript in pdf format) of Buffet's talk to MBA students at Univ of Fl, please http://www.tilsonfunds.com/BuffettUofFloridaspeech.pdf - click here (the size of this file is ~120KB)
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 05/Nov/2006 at 6:18am
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I saw that Buffet video referred by BubbleVision many times over. It's like a discourse on life....
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 07/Nov/2006 at 5:38pm
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Buffet's hamburger analogy: Economic theory tells us that higher prices dampen demand and lower prices increase demand. But when the stock market witnesses a bull run, investors do not behave like normal consumers. The higher stock prices go, the more they appeal to investors, a psychology that often proves detrimental to the interests of both investors as well as the market.
Buffett elucidates a point beautifully in a letter he sent to his shareholders in 1997.
A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef?
Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves.
But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong.
Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the hamburgers they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.
Source: http://www.dnaindia.com/report.asp?NewsID=1062314 - This article in DNA Money
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 07/Nov/2006 at 6:07pm
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Kulman.. i may have posted that link, but i have not seen that Video so far. i will do that as soon as i have time. i would like to request you to write something on that.... BTW, you are doing a great work on this buffet forum.... ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: tyler_durden
Date Posted: 07/Nov/2006 at 6:36pm
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i have read buffet's investment strategy, benjamin grahams first book, peter lynch's strategy and of intelligent investors who re members of this forum.
i can summarise it as: 1. buy only when you can find something worth buying. 2. time and not the timing is key to success. 3. concentrated holdings for maximising gains. 4. buy something which you understand. 5. buy at max pessimism and sell at max optimism. anyone who can follow this will make money. i have lost a lot of money earlier (and losing even now) just because i couldn't control my "greed" at times. most of us often buy at wrong times the wrong stock just because we fear that we might miss the bull run. and if a slide starts then we sell at wrong times out of fear. so if fear and greed are driving our behaviour in stock market we will end up being a loser. so Emotional intelligence rather than IQ matters more in this field. can any of the senior member(basant ji, kulman ji, omshivaya ji or reetesh) tell me how you control these emotions of yours. i am workin on it but often fail 
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Posted By: kulman
Date Posted: 07/Nov/2006 at 6:49pm
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Tyler
I may be a senior member by number of posts criteria, but not in any other way. I'm learning (which is a continuous process especially in capital markets) & have a feeling that it will take at least next 20-30 years (I'm already 40) to develop suitable 'temperament' or what you termed as Emotional Intelligence.
One thing I can confess openly is that after joining this forum there is tremendous improvement in my thought process. I may not have made huge money but I have stopped losing it. That to me is a marked improvement.
And now I can proudly say "I am not a Mungerilal!"
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 07/Nov/2006 at 7:03pm
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I may not have made huge money but I have stopped losing it. That to me is a marked improvement. : Money saved is money made ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: BubbleVision
Date Posted: 07/Nov/2006 at 7:06pm
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Tyler...
i have particularly liked the "jstk" tag line which says "If you buy for a non-value reason, you will end up selling for a non-value reason". This quote to me says a lot about Investing.... and is absolutely true.
I too claim that i have learnt a lot since joining the forum and all its wonderful members. I particularly learnt a lot in the discussion which is located http://theequitydesk.com/forum/forum_posts.asp?TID=358 - Here.... and http://theequitydesk.com/forum/forum_posts.asp?TID=235 - Here.... and http://theequitydesk.com/forum/forum_posts.asp?TID=7 - Here...
I would also congratulate you for having the courage to accept a mistake (i dont have that courage at times)... and the first step is always when one recognises a mistake. Then he can take the steps to improve, which i am sure you will.
------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: tyler_durden
Date Posted: 07/Nov/2006 at 7:33pm
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point taken " money saved is money made."
and " If you buy for a non-value reason, you will end up selling for a non-value reason ". "my first aim will be not to make money but to ensure safety of my principal." i think this is how i can summarise thoughts of all three of you. |
Posted By: kulman
Date Posted: 08/Nov/2006 at 11:02pm
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Starting with this post, I shall try to put together Buffet's words of wisdom from that video (his lecture at Univ of Fl): I urge you to work in jobs that you love. I think you are out of your mind if you keep taking jobs that you dont like because you think it will look good on your resume. I was with a fellow at Harvard the other day who was taking me over to talk. He was 28 and he was telling me all that he had done in life, which was terrific. And then I said, What will you do next?
Well, he said, Maybe after I get my MBA I will go to work for a consulting firm because it will look good on my resume.
I said, Look, you are 28 and you have been doing all these things, you have a resume 10 times than anybody I have ever seen. Isnt that a little like saving up sex for your old age?
When you get out of here take a job you love, not a job you think will look good on your resume. You ought to find something you like. If you think you will be happier getting 2x instead of 1x, you are probably making a mistake. You will get in trouble if you think making 10x or 20x will make you happier because then you will borrow money when you shouldnt or cut corners on things. It just doesnt make sense and you wont like it when you look back.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 09/Nov/2006 at 3:43pm
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Time is the friend of the wonderful business; it is the enemy of the lousy business. If you are in a lousy business for a long time, you will get a lousy result even if you buy it cheap. If you are in a wonderful business for a long time, even if you pay a little bit too much going in you will get a wonderful result if you stay in a long time.
--From Buffet's lecture ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 10/Nov/2006 at 6:51pm
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Buffet was asked during that lecture about fall of LTCM...this is a small portion of his response: The downside, especially if you are managing other peoples money, is not only losing all your money, but it is disgrace, humiliation and facing friends whose money you have lost. Yet 16 guys with very high IQs entered into that game. I think it is madness. It is produced by an over reliance to some extent on things. Those guys would tell me back at Salomon; a six Sigma event wouldnt touch us. But they were wrong. History does not tell you of future things happening. They had a great reliance on mathematics. They thought that the Beta of the stock told you something about the risk of the stock. It doesnt tell you a damn thing about the risk of the stock in my view. Sigmas do not tell you about the risk of going broke in my view and maybe now in their view too. But I dont like to use them as an example. The same thing in a different way could happen to any of us, where we really have a blind spot about something that is crucial, because we know a whole lot of something else. It is like Henry Kauffman said, The ones who are going broke in this situation are of two types, the ones who know nothing and the ones who know everything. It is sad in a way. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 10/Nov/2006 at 10:19am
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Buffet starts that lecture with a little sermon....This is a must read ....
I wish I had known about Buffet during my teens. It would have a lot of difference (not for the money part of it....as I already consider myself as financially independant...because I have defined my needs...which are pretty basic in nature..so I do not leverage...never ever borrowed money even to buy house. I sleep well every night)
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Buffet:
Think for a moment that I granted you the right--you can buy 10% of one of your classmates earnings for the rest of their lifetime. You can't pick someone with a rich father; you have to pick someone who is going to do it on his or her own merit. And I gave you an hour to think about it. Will you give them an IQ test and pick the one with the highest IQ? I doubt it. Will you pick the one with the best grades? The most energetic? You will start looking for qualitative factors, in addition to (the quantitative) because everyone has enough brains and energy. You would probably pick the one you responded the best to, the one who has the leadership qualities, the one who is able to get other people to carry out their interests. That would be the person who is generous, honest and who gave credit to other people for their own ideas. All types of qualities. Whomever you admire the most in the class. Then I would throw in a hooker. In addition to this person you had to go short one of your classmates. That is more fun. Who do I want to go short? You wouldn't pick the person with the lowest IQ, you would think about the person who turned you off, the person who is egotistical, who is greedy, who cuts corners, who is slightly dishonest.
As you look at those qualities on the left and right hand side, there is one interesting thing about them, it is not the ability to throw a football 60 yards, it is not the ability the run the 100 yard dash in 9.3 seconds, it is not being the best looking person in the class, they are all qualities that if you really want to have the ones on the left hand side, you can have them. They are qualities of behavior, temperament, character that are achievable, they are not forbidden to anybody in this group.
And if you look at the qualities on the right hand side the ones that turn you off in other people, there is not a quality there that you have to have. You can get rid of it. You can get rid of it a lot easier at your age than at my age, because most behaviors are habitual. The chains of habit are too light to be felt until they are too heavy to be broken. There is no question about it. I see people with these self-destructive behavior patterns at my age or even twenty years younger and they really are entrapped by them. They go around and do things that turn off other people right and left. They don't need to be that way but by a certain point they get so they can hardly change it.
But at your age you can have any habits, any patterns of behavior that you wish. It is simply a question of which you decide.
If you did this Ben Graham looked around at the people he admired and Ben Franklin did this before him. Ben Graham did this in his low teens and he looked around at the people he admired and he said, "I want to be admired, so why don't I behave like them?" And he found out that there was nothing impossible about behaving like them. Similarly he did the same thing on the reverse side in terms of getting rid of those qualities. I would suggest is that if you write those qualities down and think about them a while and make them habitual, you will be the one you want to buy 10% of when you are all through. And the beauty of it is that you already own 100% of yourself and you are stuck with it. So you might as well be that person, that somebody else!
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 10/Nov/2006 at 10:34am
|
Absolutely Brilliant Kulman....
Thanks a lot for having wonderful thoughts on this forum.... ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 11/Nov/2006 at 8:34am
|
While replying to a question on LTCM, this is a part of what Buffet replied:
The whole LTCM is really fascinating because if you take Larry Hillenbrand, Eric Rosenfeld, John Meriwether and the two Nobel prize winners. If you take the 16 of them, they have about as high an IQ as any 16 people working together in one business in the country, including Microsoft. An incredible amount of intellect in one room. Now you combine that with the fact that those people had extensive experience in the field they were operating in. These were not a bunch of guys who had made their money selling mens clothing and all of a sudden went into the securities business. They had in aggregate, the 16, had 300 or 400 years of experience doing exactly what they were doing and then you throw in the third factor that most of them had most of their very substantial net worths in the businesses. Hundreds and hundreds of millions of their own money up (at risk), super high intellect and working in a field that they knew. Essentially they went broke. That to me is absolutely fascinating. If I ever write a book it will be called, Why Smart People Do Dumb Things. My partner says it should be autobiographical. But this might be an interesting illustration. They are perfectly decent guys. I respect them and they helped me out when I had problems at Salomon. They are not bad people at all. But to make money they didnt have and didnt need, they risked what they did have and what they did need. That is just plain foolish; it doesnt matter what your IQ is. If you risk something that is important to you for something that is unimportant to you it just doesnt make sense. I dont care if the odds you succeed are 99 to 1 or 1000 to 1 that you succeed. If you hand me a gun with a million chambers with one bullet in a chamber and put it up to your temple and I am paid to pull the trigger, it doesnt matter how much I would be paid. I would not pull the trigger. You can name any sum you want, but it doesnt do anything for me on the upside and I think the downside is fairly clear. Yet people do it financially very much without thinking. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 11/Nov/2006 at 9:20am
|
But to make money they didnt have and didnt need, they risked what they did have and what they did need. That is just plain foolish.If you risk something that is important to you for something that is unimportant to you it just doesnt make sense
_________________________________________________________
I have memorized this line from the time I heard it on the tape. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 12/Nov/2006 at 11:45am
|
And Buffet also mentions these golden words to end his lecture:
Then the way to do it is to play out the game and do something you enjoy all your life and be associated with people you like. I only work with people I like. If I could make $100 million dollars with a guy who causes my stomach to churn, I would say no because in way that is very much like marrying for money which is probably not a very good idea in any circumstances, but if you are already rich, it is crazy. I am not going to marry for money. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: monu_duggad
Date Posted: 13/Nov/2006 at 1:31pm
|
It was awesome..thanks a lot kulman bhai...i read the pdf article last night..and it was so enchanting...i put the tv set on mute .....i always multitask...read+tv...eat+tv etc etc...but when i was reading the article on buffet...was so entrenched...i forgot i was watching Sholay :)
Please do post more such articles...be it on buffet or anyone worth reading !! ------------- If you think you can,You Can |
Posted By: kulman
Date Posted: 13/Nov/2006 at 8:37am
|
You are right Monujee...that's why Buffet's thoughts are termed as 'sermon' or 'discourse'. Here is another simple but very important lesson he mentions during that lecture:
Everybody has got a different circle of competence. The important thing is not how big the circle is, the important thing is the size of the circle; the important thing is staying inside the circle. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 13/Nov/2006 at 9:54am
|
Good work Kulmanji. Please keep updating this at your leisure. You know somethings are so simple but yet it never crosses our mind. Most of the analysts always have an opinion on any stock/any sector. Things that they do not understand and feel uncomfortable about is mommentum and things that they are attracted to are termed as smart money buying. Seldom heard any one say "I do not understand this company". RD says that at times though. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: BubbleVision
Date Posted: 14/Nov/2006 at 12:46pm
|
BasantJi... i once heard a TA (without a U)... once saying that "i dont understand that chart".... U can guess it he who was.
My "Cricle of Competence" is Technical Analysis. i too dont undestand charts of illiquid stocks and very very small cap stocks. I dont see that many charts.
Kulman... Keep up the excellent work. ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 14/Nov/2006 at 6:26am
|
During that lecture when a student asked The current tenuous economic situation and interest rates? Where are we going? Buffett's response: I dont think about the macro stuff. What you really want to in investments is figure out what is important and knowable. If it is unimportant and unknowable, you forget about it. What you talk about is important but, in my view, it is not knowable.
But we have never not bought or bought a business because of any Macro feeling of any kind because it doesnt make any difference. We dont want to pass up the chance to do something intelligent because of some prediction about something we are no good on anyway. So we dont read or listen to in relation to macro factors at all. The typical investment counselor organization goes out and they bring out their economist and they trot him out and he gives you this big macro picture. And they start working from there on down. In our view that is nonsense. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 15/Nov/2006 at 10:41pm
|
Buffet speaks here very highly about Ben Graham's influence on him: I was very fortunate. I picked up his book (The Intelligent Investor) when I was nineteen; I got interested in stocks when I was 6 or 7. I bought my first stock when I was eleven. But I was playing around with all this stuffI had charts and volume and I was making all types of technical calculations & everything. Then I picked up a little book that said you are not just buying some little ticker symbol, that bounces around every day, you are buying part of a business. Soon as I started thinking about it that way, everything else followed. It is very simple*. So we buy businesses we think we can understand.
----------------------------------------------------
*so simple, yet so difficult!
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 16/Nov/2006 at 8:12pm
|
While responding to liquid/illiquid stocks (or rather why Berkshire's stock was not split all these years), Buffet replied this:
If I had a church and I was the preacher and half the congregation left every Sunday. I wouldnt say, It is marvelous to have all this liquidity among my members. Terrific turnover I would rather go to church where all the seats are filled every Sunday by the same people. Well that is the way we look at the businesses we buy. We want to buy something virtually forever.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: monu_duggad
Date Posted: 16/Nov/2006 at 8:54pm
|
Something on buffet which i read in some blog........
Buffett's coin-flipping contest
However one should note that the historical performance may not be the indicator of future performance. Even if the fund managers invest randomly you would find top 10 funds giving superb returns. Warren Buffett had explained this phenomenon in a characteristic humor. I'm putting this excerpts here(full text in files/articles section) **THE SUPERINVESTORS OF GRAHAM-AND-DODDSVILLE by Warren E. Buffett** "I would like you to imagine a national coin-flipping contest. Let's assume we get 225 million Americans up tomorrow morning and we ask them all to wager a dollar. They go out in the morning at sunrise, and they all call the flip of a coin. If they call correctly, they win a dollar from those who called wrong. Each day the losers drop out, and on the subsequent day the stakes build as all previous winnings are put on the line. After ten flips on ten mornings, there will be approximately 220,000 people in the United States who have correctly called ten flips in a row. They each will have won a little over $1,000. Now this group will probably start getting a little puffed up about this, human nature being what it is. They may try to be modest, but at cocktail parties they will occasionally admit to attractive members of the opposite sex what their technique is, and what marvelous insights they bring to the field of flipping. Assuming that the winners are getting the appropriate rewards from the losers, in another ten days we will have 215 people who have successfully called their coin flips 20 times in a row and who, by this exercise, each have turned one dollar into a little over $1 million. $225 million would have been lost, $225 million would have been won. By then, this group will really lose their heads. They will probably write books on "How I turned a Dollar into a Million in Twenty Days Working Thirty Seconds a Morning." Worse yet, they'll probably start jetting around the country attending seminars on efficient coin- flipping and tackling skeptical professors with, " If it can't be done, why are there 215 of us?" By then some business school professor will probably be rude enough to bring up the fact that if 225 million orangutans had engaged in a similar exercise, the results would be much the same - 215 egotistical orangutans with 20 straight winning flips" ------------- If you think you can,You Can |
Posted By: kulman
Date Posted: 16/Nov/2006 at 9:08pm
|
Excellent, Monu jee!
That was really interesting!
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: bebullish
Date Posted: 16/Nov/2006 at 9:59pm
|
Superb Monu Excellent read. Its not without reason WB is what he. Rock solid conviction in his decision abt the BUSNIESS. Thats what sets him apart. ------------- Success is nobody's monopoly. It requires action & imagination only. |
Posted By: kulman
Date Posted: 17/Nov/2006 at 1:26pm
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: tigershark
Date Posted: 17/Nov/2006 at 2:35pm
|
basant i like your boarding train analogy again very common sense at
play even a person with hazy vision can board a stationary train try
boarding a train hurtling at 60 miles per hr now thats siucidal.
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: kulman
Date Posted: 17/Nov/2006 at 5:42am
|
Here is another gem from that WB lecture:
We never look back. We just figure there is so much to look forward to that there is no sense thinking of what we might have done. It just doesnt make any difference. You can only live life forward.-Warren Buffet ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 18/Nov/2006 at 1:41pm
|
Excellent Kulman....Really really deep meaning....really a gem.
You can only live life Forward...
------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: reetesh
Date Posted: 18/Nov/2006 at 2:50pm
|
We never look back. We just figure there is so much to look forward to that there is no sense thinking of what we might have done. It just doesnt make any difference. You can only live life forward.-Warren Buffet.
-------------------------------------------------------------------
Beauty of this quote is not only for stocks, but can be used in personal life as well.. I am learning... ------------- When going gets tough, thats when tough (people) gets going. |
Posted By: reetesh
Date Posted: 18/Nov/2006 at 2:55pm
|
Sir,Kulman ji or Bubblevision,
Can you guys explain me what is and difference between "Class-A" & "Class-B" grade stock of Berkshire Hathaway . ------------- When going gets tough, thats when tough (people) gets going. |
Posted By: basant
Date Posted: 18/Nov/2006 at 5:21pm
|
Guess it deals with voting rights etc something like preferred stock and equity - have a lot of that in Brazil markets. Some one else might be able to provide a better answer. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: BubbleVision
Date Posted: 18/Nov/2006 at 8:47am
|
reetesh - actually we all are learning...through the excellent forum and through Kulman
I have no knowledge of the difference between various classes of stocks of Berkshire Hathway ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 18/Nov/2006 at 11:36am
|
Our Manish jee from US would be able to throw more light on the same (Class A/B).
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: deepinsight
Date Posted: 18/Nov/2006 at 11:49am
|
From memory: class B shares were created at a ratio of 1:30 (not sure of the exact ratio) for smaller investors to be able to buy shares at a more nominal price. Think at that time class A was at USD 30,000 (now close to USD 100,000) and class B was created at USD 1,000.
The move came from Mr. Buffett to counter "fund/marketing guys" who wanted to create a fund which would buy Class A shares whcih was out of reach of the average investor (becasue of its price) charge fees and offer a "product" to the average investors. Mr. Buffett was worried that they would add layers of costs, change the nature of the investors in his stock and simply allow marketeers to mis-create a market in his stock promising things based on his past record.
He sucked the air out of this venture by creating class B shares with similar economical value but smaller rights on the voting ability for charity etc. ------------- "Investing is simple, but not easy." - Warren Buffet |
Posted By: basant
Date Posted: 19/Nov/2006 at 12:25pm
|
That was an interesting post - "Buffet vs. the fund Managers". ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 19/Nov/2006 at 12:29pm
|
During that lecture when asked about diversification of portfolio, here is what Buffet answered:
If you can identify six wonderful businesses, that is all the diversification you need. And you will make a lot of money. And I can guarantee that going into a seventh one instead of putting more money into your first one is gotta be a terrible mistake. Very few people have gotten rich on their seventh best idea. But a lot of people have gotten rich with their best idea. So I would say for anyone working with normal capital who really knows the businesses they have gone into, six is plenty.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 19/Nov/2006 at 12:31pm
|
I love reading this over and over and over..... ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 19/Nov/2006 at 4:25pm
|
Here is an http://www.usatoday.com/money/perfi/columnist/krantz/2006-07-27-berkshire-shares_x.htm - interesting link to understand the difference between the classes A & B:
Don't think that the B shares is a "better deal" because the per share price is lower. It's a separate class of stock that cuts an A share into smaller slices to make it more economical for more investors.
To be precise, a class B shares have 1/30th the rights of a class A share. So, theoretically, the price of class B shares should be 1/30th the price of a class A share. There are two drawbacks of the class B shares. For whatever reason, while they represent 1/30th the rights of a class A share, they only have 1/200th of the voting rights of a class A share. Also, class B shares cannot be converted into class A shares. ------------------------------------------------------------- While on the subject, also read this: http://www.usatoday.com/money/perfi/columnist/krantz/2006-11-17-berkshire_x.htm - Berkshire Hathaway--Almost a screaming buy at more than $100,000 a share------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 20/Nov/2006 at 2:03pm
|
Buffet on CNBC Today in US..... At 2000 EST (NY Time - 20-Nov)... (that is 0100 GMT and 0630 IST (21-Nov)) ....... http://nbcumv.com/cnbc/release_detail.nbc/cnbc-20061109000000-cnbc039slizclam.html - Link and preview ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: India_Bull
Date Posted: 20/Nov/2006 at 8:04pm
|
'Rakeshs Latest views.. Source Money Control Trading is against human nature,' says Rakesh Jhunjhunwala, while talking about his investment approach in the stock markets. He says:
All risk taking is associated with two human conditions, viz the greed for profits and the fear of losses. The ability to strike the right balance between fear and greed is the most vital determinant of profitable risk taking. Human nature operates on the chance of a gain rather than maximizing gains.
There is lack of focus on the magnitude of gains and losses, which is why I maintain that successful trading and investing requires you to go against the basic tenets of human nature. We are programmed to learn, and we learn to a pain. But in trading and investing, you have to learn to take a loss. In trading, the first and the last principle is that trading is trend and price based, and not opinion based. This requires you to square an unfavorable trade regardless of your opinion. This means that if I buy a stock at Rs 100, and then the price falls to Rs 95, I take my loss and square off my trade. This is counter-intuitive to most people. This is the one common quality of all successful traders.
Great fortunes are made by the occurrence of the unknown, and the first portend of the unknown is price, price and only price. Good trading requires three qualities: broad idea of direction, knowing what and how much to risk, and knowing when and how to take a loss. To be successful in investing, many elements have to fall into place. But four things are critical. There has to be an attractive, addressable, external opportunity; a sustainable competitive advantage; scalability and operating leverage; and the management should be of high quality and integrity. All have to be present but they still constitute only 50% of our necessary requirement. It is important what one buys, but it is more important at what price one buys. In The Smart Manager, I have talked about my ten commandments of investing. The top three are: Be an optimist. It's a necessary quality for investing success Expect a realistic return. Balance fear and greed Invest on broad parameters and the larger picture. Make it an act of wisdom, not intelligence I am happy to say that a loss in investing has been a rare occurrence in my career, and the key to it is that I am an investor who focuses obsessively on value. Therefore, I may have made a mistake in buying NIIT in 2001, but I still made a profit. ------------- India_Bull forever Bull ! www.kapilcomedynights.com |
I have tried to rationalize this many times, and am always reminded of Winston Churchill, the British prime minister who led the country into WWII, who said, "You have to lose many a battle to win the war". I think anybody who wants to trade should not only remember what Churchill said, but also what George Soros says, "It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right". Posted By: Equity Buff
Date Posted: 20/Nov/2006 at 7:47am
Bubblevison,
Thanks for letting us know about the Buffet special on CNBC. I was watching CNBC form 6.30 A.M. to 7.30 A.M. today but did not see the special. They showed that it is coming up on American CNBC but on our CNBC "Power Breakfast" and then "Your Stocks" programme came up.
Rgds. ------------- "Time is on your side when you own shares of superior companies". Peter Lynch. |
Posted By: BubbleVision
Date Posted: 20/Nov/2006 at 9:34am
|
Equity Buff --- The show was brodcasted on CNBC (US) and NOT on CNBC TV18 (India).
If there was any Buffet special on CNBC TV18, they would have heavily advertised. .....
I posted the link as that has a "preview" of the interview.
------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: BubbleVision
Date Posted: 20/Nov/2006 at 9:45am
|
Sandeep -- thanks for a excellent interview of Rakesh -- that has many vital points... the ones which i can point out are ...
1) I maintain that successful trading and investing requires you to go against the basic tenets of human nature. We are programmed to learn, and we learn to a pain. But in trading and investing, you have to learn to take a loss.
2) I take my loss and square off my trade. This is counter-intuitive to most people. This is the one common quality of all successful traders.
3) "You have to lose many a battle to win the war". -- Churhchill
4) "It's not important whether you are right or wrong, it more important how much you lose when you are wrong and how much money you make when you are right". -- Soros
5) Great fortunes are made by the occurrence of the unknown, and the first portend of the unknown is price, price and only price.
6) Good trading requires three qualities: broad idea of direction, knowing what and how much to risk, and knowing when and how to take a loss.
Not to mention according to ED Seykota says three rules for trading are
1) Cutting Losses
2) Cutting Losses
3) Cutting Losses
Thanks indeeed for this excellent read ... first thing in the morning.... ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 20/Nov/2006 at 10:07am
|
Bubblevision
Great to read your comments on Sandeepjee's great post.
Nice to see your new tag line too! Tell us more about the guy whose quote you've put in. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: Equity Buff
Date Posted: 20/Nov/2006 at 11:47am
|
Bublevision thanks. Since your post said IST 6.30 (Nov 21st) I thought you were suggesting it will also be shown on CNBC India.
Rgds.
------------- "Time is on your side when you own shares of superior companies". Peter Lynch. |
Posted By: BubbleVision
Date Posted: 21/Nov/2006 at 12:16pm
|
Kulman ... Martin Pring is a TA (without a U) and has written many books on TA ...
Infact one of is book is the recommended as a "Course material" for the CTA exams. He is the one who has developed an indicator "know sure thing"...."KST" in short. I personally dont use that indicator.
Note that CTA for a technnician is equal to CFA for a Funda guy.
His website is located at http://www.pring.com - www.pring.com and he is based in US...
For CTA one has to visit http://www.mta.org - www.mta.org
------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 21/Nov/2006 at 2:20pm
|
Here is another one from WB from that lecture:
If you look at it like you are going to the races--that is a different thing--but if you are investing.Investing is putting out money to be sure of getting more back later at an appropriate rate. And to do that you have to understand what you are doing at any time. You have to
understand the business. You can understand some businesses but not all businesses. --Warren Buffet ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 25/Nov/2006 at 3:36pm
|
This is a MUST READ.
Here is how Buffet explains very nicely "How to Minimize investment Returns?" in his 2005 annual letter to B-H's shareholders.
How to Minimize Investment Returns
Its been an easy matter for This huge rise came about for a simple reason: Over the century American businesses did extraordinarily well and investors rode the wave of their prosperity. Businesses continue to do well. But now shareholders, through a series of self-inflicted wounds, are in a major way cutting the returns they will realize from their investments.
The explanation of how this is happening begins with a fundamental truth: With unimportant exceptions, such as bankruptcies in which some of a companys losses are borne by creditors, the most that owners in aggregate can earn between now and Judgment Day is what their businesses in aggregate earn. True, by buying and selling that is clever or lucky, investor A may take more than his share of the pie at the expense of investor B. And, yes, all investors feel richer when stocks soar. But an owner can exit only by having someone take his place. If one investor sells high, another must buy high. For owners as a whole, there is simply no magic no shower of money from outer space that will enable them to extract wealth from their companies beyond that created by the companies themselves.
Indeed, owners must earn less than their businesses earn because of frictional costs. And thats my point: These costs are now being incurred in amounts that will cause shareholders to earn far less than they historically have. To understand how this toll has ballooned, imagine for a moment that all American corporations are, and always will be, owned by a single family. Well call them the Gotrocks. After paying taxes on dividends, this family generation after generation becomes richer by the aggregate amount earned by its companies. Today that amount is about $700 billion annually. Naturally, the family spends some of these dollars. But the portion it saves steadily compounds for its benefit. In the Gotrocks household everyone grows wealthier at the same pace, and all is harmonious.
But lets now assume that a few fast-talking Helpers approach the family and persuade each of its members to try to outsmart his relatives by buying certain of their holdings and selling them certain others. The Helpers for a fee, of course obligingly agree to handle these transactions. The Gotrocks still own all of corporate After a while, most of the family members realize that they are not doing so well at this new beat-my-brother game. Enter another set of Helpers. These newcomers explain to each member of the Gotrocks clan that by himself hell never outsmart the rest of the family. The suggested cure: Hire a manager yes, us and get the job done professionally. These manager-Helpers continue to use the broker-Helpers to execute trades; the managers may even increase their activity so as to permit the brokers to prosper still more.
Overall, a bigger slice of the pie now goes to the two classes of Helpers. The familys disappointment grows. Each of its members is now employing professionals. Yet overall, the groups finances have taken a turn for the worse.
The solution? More help, of course. It arrives in the form of financial planners and institutional consultants, who weigh in to advise the Gotrocks on selecting manager-Helpers. The befuddled family welcomes this assistance. By now its members know they can pick neither the right stocks nor the right stock-pickers. Why, one might ask, should they expect success in picking the right consultant? But this question does not occur to the Gotrocks, and the consultant-Helpers certainly dont suggest it to them.
The Gotrocks, now supporting three classes of expensive Helpers, find that their results get worse, and they sink into despair. But just as hope seems lost, a fourth group well call them the hyper-Helpers appears. These friendly folk explain to the Gotrocks that their unsatisfactory results are occurring because the existing Helpers brokers, managers, consultants are not sufficiently motivated and are simply going through the motions. What, the new Helpers ask, can you expect from such a bunch of zombies?" The new arrivals offer a breathtakingly simple solution: Pay more money. Brimming with selfconfidence, the hyper-Helpers assert that huge contingent payments in addition to stiff fixed fees are what each family member must fork over in order to really outmaneuver his relatives.
The more observant members of the family see that some of the hyper-Helpers are really just manager-Helpers wearing new uniforms, bearing sewn-on sexy names like HEDGE FUND or PRIVATE EQUITY. The new Helpers, however, assure the Gotrocks that this change of clothing is all-important, bestowing on its wearers magical powers similar to those acquired by mild-mannered Clark Kent when he changed into his Superman costume. Calmed by this explanation, the family decides to pay up. And thats where we are today: A record portion of the earnings that would go in their entirety to owners if they all just stayed in their rocking chairs is now going to a swelling army of Helpers. Particularly expensive is the recent pandemic of profit arrangements under which Helpers receive large portions of the winnings when they are smart or lucky, and leave family members with all of the losses and large fixed fees to boot when the Helpers are dumb or unlucky (or occasionally crooked).
A sufficient number of arrangements like this heads, the Helper takes much of the winnings; tails, the Gotrocks lose and pay dearly for the privilege of doing so may make it more accurate to call the family the Hadrocks. Today, in fact, the familys frictional costs of all sorts may well amount to 20% of the earnings of American business. In other words, the burden of paying Helpers may cause American equity investors, overall, to earn only 80% or so of what they would earn if they just sat still and listened to no one. Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaacs talents didnt extend to investing: He lost a bundle in the South Sea Bubble, explaining later, I can calculate the movement of the stars, but not the madness of men. If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole,returns decrease as motion increases.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: catcall
Date Posted: 25/Nov/2006 at 9:17pm
| that was a great post kulman, keep it up and happy investing!! |
Posted By: kulman
Date Posted: 26/Nov/2006 at 12:07pm
|
We all hear from legendary investors that the decision to invest needs to be a lonely one blocking all the 'noise'. Buffet puts it very simply & nicely:
My idea of a group decision is to look in the mirror. - Warren Buffett
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: India_Bull
Date Posted: 27/Nov/2006 at 8:07pm
|
I have found this link on internet.I find it quite intersting and has lot of Warren literarature available to read for free...
http://www.4shared.com/dir/1044489/76848ad0/sharing.html - http://www.4shared.com/dir/1044489/76848ad0/sharing.html ------------- India_Bull forever Bull ! www.kapilcomedynights.com |
Posted By: kulman
Date Posted: 27/Nov/2006 at 11:03pm
|
Thanks Sandeep jee....for that link. It has some very useful reading material.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 27/Nov/2006 at 11:09pm
|
During that lecture, Buffet is at his best while harping on circle of competence:
You can learn something perhaps from the mistakes, but the big thing to do is to stick with the businesses you understand. So if there is a generic mistake outside your circle of competence like buying something that somebody tips you on or something of the sort. In an area you know nothing about, you should learn something from that which is to stay with what you can figure out yourself. You really want your decision making to be by looking in the mirror. Saying to yourself, I am buying 100 shares of General Motors at $55 because.. It is your responsibility if you are buying it. Theres gotta be a reason and if you cant state the reason, you shouldnt buy it. If it is because someone told you about it at a cocktail party, not good enough. It cant be because of the volume or a reason like the chart looks good. It has to be a reason to buy the business. That we stick to pretty carefully. That is one of the things Ben Graham taught me.-Warren Buffet
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: reetesh
Date Posted: 27/Nov/2006 at 12:37pm
|
Kulman ji, you know if there is any new post on this thread, I always come to this first then look at other thread(s), I will be foolish to tell this but as long as I know I am on right track it makes no difference, now to the point I was maknig.
After reading all these posts I came to know that,I most of the time do thing(s) correctly or I am on right track as far as "THOUGHT PROCESS" is concern (may be to early to say).. and you know just to make sure and have faith in me(myself) I keep reading these "Buffetism".. Thanks for posting these lectures..
Its just that certains thing does`nt go the way you want them to be people like me start doubting everything I have.. This is for me... Thats why I need these lecture doses to prove myself that I am on right path no matter what the result. Notwithstanding your last post has hardly anything on people`s day to day life (practical life), but most of Mr.Buffet thought`s can be used is one`s personal life as well, this is the way I see them anyway..
Long and boring feeling... ------------- When going gets tough, thats when tough (people) gets going. |
Posted By: kulman
Date Posted: 27/Nov/2006 at 9:01am
|
Reetesh jee
I also try to learn everyday from life...in my opinion markets are just a part of life.
-----------------------------------
Now, here is how Buffet responds during that lecture while replying a question: What is the benefit of being an out-of-towner as opposed to being on Wall Street?
Buffett: I worked on Wall Street for a couple of years and I have my best friends on both coasts. I like seeing them. I get ideas when I go there. But the best way to think about investments is to be in a room with no one else and just think. And if that doesnt work, nothing else is going to work. The disadvantage of being in any type of market environment like Wall Street in the extreme is that you get over-stimulated. You think you have to do something every day. Wall Street makes its money on activity. You make your money on inactivity. If everyone in this room trades their portfolio around every day with every other person, you will all end up broke. And the intermediary will end up with all the money. If you all own stock in a group of average businesses and just sit here for the next 50 years, you will end up with a fair amount of money and your broker will be broke. He is like the Doctor who gets paid on how often to get you to change pills. If he gave you one pill that cures you the rest of your life, he would make one sale, one transaction and that is it. But if he can convince you that changing pills every day is the way to great health, it will be great for him and the prescriptionists. You wont be any healthier and you will be a lot worse off financially. You want to stay away from any environment that stimulates activity. And Wall Street would have the effective of doing that. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 28/Nov/2006 at 2:06pm
|
Here is an interesting link on Why Warren Buffett Plays Bridge http://www.hussmanfunds.com/wmc/wmc061127.htm - http://www.hussmanfunds.com/wmc/wmc061127.htm ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: kulman
Date Posted: 28/Nov/2006 at 10:32pm
|
Buffet, while addressing faculty & students of Notre-Dame is at his best:
One of the things you will find, which is interesting and people dont think of it enough, with most businesses and with most individuals, life tends to snap you at your weakest link. So it isnt the strongest link youre looking for among the individuals in the room. It isnt even the average strength of the chain. Its the weakest link that causes the problem.
It may be alcohol, it may be gambling, it may be a lot of things, it may be nothing, which is terrific. But it is a real weakest link problem. When I look at our managers, Im not trying to look at the guy who wakes up at night and says "E = MC 2" or something. I am looking for people that function very, very well. And that means not having any weak links. The two biggest weak links in my experience: Ive seen more people fail because of liquor and leverage leverage being borrowed money. Donald Trump failed because of leverage. He simply got infatuated with how much money he could borrow, and he did not give enough thought to how much money he could pay back. You really dont need leverage in this world much. If youre smart, youre going to make a lot of money without borrowing. Ive never borrowed a significant amount of money in my life. Never. Never will. Ive got no interest in it. The other reason is I never thought I would be way happier when I had 2X instead of X. You ought to have a good time all the time as you go along. If you say "Im taking this job I dont really like this job but in three years it will lead to this," forget it. Find one you like right now. ------------------------------ As investors we shall sing: Paan, Bidi, Cigarette, Leveraging, naa Sharaab Hum ko toh nasha hain EQUTIYDESK kaa janaab!------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 29/Nov/2006 at 7:21pm
|
Read this interesting Q&A, this was during Buffet's address to students of Wharton Mgmt School couple of years ago, : Question: Is it more difficult to find predictable businesses today than it has been historically because the rate of change has increased within most industries? Has the accelerating rate of change within most industries caused you to reassess your buy and hold investment thesis, particularly given the inability for many consumer brands like Coke and Gillette to grow?
Buffet's answer: There are basically two ways to look at change. We see change as the enemy of investments, if it wasnt the richest people would be librarians. Some businesses will change very quickly. We are looking for ones that dont. If you can predict the change then you can become very rich, but the net investment (e.g. from what went on at Kitty Hawk air flight) to equity investors is a huge negative. For example, I have a list of over 2000 companies that made automobiles, now the last two, GM and Ford, are in trouble. Hundreds are out of business many people didnt know that Maytag and Du Pont made automobiles. The net investment for investors has not been a great deal. We look for certainty of what wont change. You mentioned Gillette. After 100 years, Gillette still has 70% market share, and yet the distribution, product and raw materials are not mysterious. It has survived within our capitalist system and you know its products will be used regularly.
Coke sells 50% of the carbonated beverages worldwide: about 1.3 billion 8 ounce servings, higher than last year and the year before. I guarantee Coke, Wrigleys and Gillette will dominate. The internet wont change what brands people like. We are looking for the absence of change. Fruit of the Loom and Haynes together have 80% of boys underwear in the US. I guess we will keep wearing underwear. Bill Gates welcomes the absence of change, he just doesnt get it in his business. Microsoft and E-Bay have some moat. If you can identify change, that is great, but it is a lot riskier and so is the chance of our strategy not working. So we look for absence of change. We dont like to lose money. Capitalism is pretty brutal. We look for mundane products that everyone needs. Patents are the worst way to ensure demand. There is still plenty of opportunity to find predictable demand. The problem isnt the lack of opportunities, its the prices. ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: basant
Date Posted: 29/Nov/2006 at 8:08pm
|
This is an extraordinary sermon. We all make big money in a change but as the master says predicting when that change will end (change again) is difficult. Successfully predicting that change requires all the three- skill, experience and luck. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 29/Nov/2006 at 8:13pm
|
Very true.....things do change....one needs to be alert.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 30/Nov/2006 at 9:09pm
|
During '99-'00 Tech boom, Buffet was criticized brutally for being 'out-of-date' & what not by the media/wall-street.
These were his famous words post the tech-bubble:
We have embraced the 21st century by entering such cutting-edge industries as brick, carpet, insulation and paint. Try to control your excitement. - Warren Buffett
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: catcall
Date Posted: 01/Dec/2006 at 9:14pm
|
An excellent post, and this is why in on of my earlier posts,I had said that the most important thing that , in my opinion differntiated WB from the crowd is his astounding cconviction in his own ideas. It is easy for most people to sway with the crowd (see todays' analyst, you hear a few , you 've heard them all!).WB on the other hand withstood all the criticism on him (sometims even from his own clients) and that is why there is only one WB!!! ------------- There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing! |
Posted By: omshivaya
Date Posted: 01/Dec/2006 at 9:37pm
|
I second that 100% ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: kulman
Date Posted: 01/Dec/2006 at 11:55pm
|
Here is another gem from Buffet:
Investing is not that complicated. You need to know accounting, the language of business. You should read The Intelligent Investor. You need the right mind-set, the right temperament. You should be interested in the process and be in your circle of competence.
Read Ben Graham & Phil Fisher, read annual reports and trade reports, but dont do equations with Greek letters in them.- Warren Buffet
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 03/Dec/2006 at 10:31pm
|
After reading this & practising the same, one can sleep pretty well:
Its bad to go to bed at night thinking about the price of a stock. We think about the value and company results; The stock market is there to serve you, not instruct you.-Warren Buffet ------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: kulman
Date Posted: 04/Dec/2006 at 6:10pm
|
This is what WB replied when asked by a student: What to look for in a wife/spouse? Its a tremendously important decision. Look for someone who will love you unconditionally and will subtly encourage you to be better than you thought you can be.
There is a story of a man who spent 20 years looking for the perfect woman. When he finally found her, she unfortunately was looking for the perfect man.
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: BubbleVision
Date Posted: 04/Dec/2006 at 6:30pm
|
Its bad to go to bed at night thinking about the price of a stock.
----------------
Excellent Kulman. That is why I dont try to predict what the market will do tomorrow (I know that I will not be able to do that with consistency). I only try to find out what will be my reaction in response to those prices. And its only my (re)action will give me my profits. ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: catcall
Date Posted: 04/Dec/2006 at 8:11pm
excellent quotes, bubblevision and kulman, I think at some point we'll have enough WB quotes to make a book and what a guide that would be for all investors!! ------------- There are two times in a man's life when he should not speculate-when he can't afford it and when he can-Happy investing! |
Posted By: kulman
Date Posted: 04/Dec/2006 at 9:13pm
|
CatCall
There are already many books/articles written on WB & his quotes. So, after Oracle from Omaha, we need to focus on Kautilya from Kolkata.
I urge younger members to start compiling all the good quotes for that book: "The Basant Way"
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: tigershark
Date Posted: 04/Dec/2006 at 9:41pm
|
one small doubt WB for west bengal or warren buffet?
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: kulman
Date Posted: 04/Dec/2006 at 10:03pm
|
one small doubt WB for west bengal or warren buffet?
----------------------------------------------------
 that was a good one, Tigershark....------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: tigershark
Date Posted: 04/Dec/2006 at 7:56am
|
thks kulman yu know such things just come at the spur of the moment but to be thrutful i did have a bottle of beer!
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: tigershark
Date Posted: 04/Dec/2006 at 7:57am
|
warren buffet is on cnbc this sat 9.30pm check exact timings hope all boarders see this interview
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: kulman
Date Posted: 04/Dec/2006 at 10:01am
|
Thanks Tigershark, for that information on Buffet's interview. If any of the forum membrs have TV Tuner card & could record the same for the benefit of all, it will be great. Because it would be a collector's delight.
By the way, it may be of interest to the concerned shareholders to know, which Beer is your favourite one?
------------- Life can only be understood backwardsbut it must be lived forwards |
Posted By: prosperity
Date Posted: 05/Dec/2006 at 1:54pm
|
Did Buffet ever had 2 companies in the same sector ?
------------- |
Posted By: tigershark
Date Posted: 05/Dec/2006 at 2:13pm
|
well which beer do i like,tough one this one but i will go for
CHANG its a local beer made of fermented warm barley which is
served in a wooden bamboo container and is sipped thru a straw
and yu keep topping it up with warm water it tastes great especially in
a cold sikkim winter.a GUINESS could come a close second and an
ALE third.kingfisher is drank out of nesecity yu see beggars cant be
choosers.in short i prefer my beers fresh and directly from the tap.
------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |