warren buffett Archive
Wide Moat Investing: How Buffett Protects His Portfolio
by Alexander Green, Investment U Chief Investment Strategist
Monday, August 20, 2012: Issue #1842
In ancient and medieval times, castles and even entire towns often built a moat – a deep ditch filled with water – as a preliminary line of defense to deter the enemy.
The same technique is essential in the world of equity investing, too. In a capitalistic society likes ours, you can be sure that if someone has found a profitable niche, it isn’t long before others show up to exploit it. This is generally a positive development for consumers who quickly see prices plunge. But it’s a different matter for business owners who just as regularly see profit margins wither up and die.
Two prime examples are Circuit City and Borders. The first sold consumer electronics, the latter books, music and DVDs. Both had razor-thin operating margins and virtually nothing to protect them from competitors, either online or in the brick-and-mortar world. Selling commodity products available from anyone, both wound up in bankruptcy.
What provides an effective moat in our competitive marketplace? A few examples are patents, trademarks, brand names, regulatory complexity and huge economies of scale.
Take patents, for example. One of the reasons for Apple’s (Nasdaq: AAPL) extraordinary success is that most of its products are patent-protected. The Mac operating system is not licensed to other vendors. And iPods, iPhones and iPads have many patent protections, too. (Some of these are currently being disputed in court with Samsung.) Likewise, a former big winner in The Oxford Club’s Trading Portfolio was Intuitive Surgical (Nasdaq: ISRG), a company with a patented monopoly on the manufacture and sale of surgical robots.
Another effective moat is early adoption. This has been a huge benefit for Amazon (Nasdaq: AMZN) and Google (Nasdaq: GOOG). When I shop online, I don’t even bother checking other retailers. If I do a search, it’s always through Google. A service becomes increasingly valuable as more people adopt it.
Coca-Cola (NYSE: KO) is a company whose business is protected by brand names. Coke offers quality and reliability in all its products, something that isn’t generally established with upstart soda companies.
Altria (NYSE: MO) actively supports much federal government regulation of the tobacco industry. Why? Because it knows regulatory hurdles and liabilities deter potential competition. Tough regulatory oversight is itself a moat.
To continue reading, please click here...Is Warren Buffett’s Bet on Housing Finally Paying Off?
by Jason Jenkins, Investment U Research
Wednesday, July 18, 2012
Warren Buffett stated last Friday on Bloomberg Television’s In the Loop With Betty Liu that Wells Fargo & Co.’s (NYSE: WFC) dominance of the domestic mortgage market will reap huge rewards as the housing market rebounds.
Now he and his company have definitely put their money where their mouth is. Look at what he’s done over the last year and a half:
The world is pretty much enamored with the Oracle of Omaha and his track record speaks for itself. But a year ago he stated the housing market had already hit bottom. Following investment legends is a strategy some might use, but what do the numbers say?
Even though a good number of analysts from Wall Street see the current landscape as the bottom and a sign of a housing recovery to come, some believe that this environment is an entirely new animal. It’s different than the housing market we knew even just a decade ago. We now have to deal with:
These issues will weigh on the market for the foreseeable future.
But Beata Caranci, Deputy Chief Economist at TD Bank Group in Toronto, stated in a recent housing market report, “I don’t think it’s a head-fake, because when you look across all your price measures and construction measures on the starts side, you’re seeing broad-based indication of improvement… We have to be a little bit cautious… It’s the beginning of a recovery.”
A long those lines, a Reuter’s poll published on Friday showed most economists think the U.S. housing market has now bottomed and prices should rise nearly 2% in 2013 after a flat 2012.
If you believe in Warren Buffet and some of the other pro-recovery analysts out there, don’t expect a boom. This recovery will be slow and over the long haul. If you go in, this investment will be for the long term.
To continue reading, please click here...11 Investing Lessons From Peter Lynch
by Alexander Green, Investment U Chief Investment Strategist
: Issue #1817
Sometimes I almost feel sorry for the market timers.
There’s a reason famed money manager Ken Fisher calls the stock market “The Great Humiliator.”
Nobody can know with any certainty what the stock market will do next week, next month, or next year. The sooner you recognize that, the sooner you can start making money in stocks…
I learned this lesson from three world-beaters: Warren Buffett, John Templeton and Peter Lynch.
As a young man starting out in a stock brokerage 27 years ago, I made a startling discovery. The “analysts” at my firm picking stocks for clients weren’t just bad… they were awful. I soon found myself looking for ideas outside my “research department.”
After six months of sheer frustration, I had an epiphany…
If I were going to learn from someone else, why not the best?
Instead of listening to the talking heads at my firm, why shouldn’t I listen to the greatest investors in the world?
To continue reading, please click here...Wells Fargo: A Warren Buffett-Approved Buy
by Jeannette Di Louie, Investment U Research
Monday, July 9, 2012
When the U.S. markets crashed in 2008, banks bore the brunt of the blame. Easy scapegoats, they were accused of over-inflating the housing bubble, a perception – both legitimate and unjustified at the same time – that earned them lasting grief.
Financial companies like American International Group (NYSE: AIG) and Bank of America (NYSE: BAC) had their names smeared in newspapers all across the country and even the world. Certain activist groups even went so far as to camp outside of bank executives’ private homes, intimidating their families and even issuing death threats.
Meanwhile, those businesses suffered in the markets as investors learned just how foolish many of their decisions over the years had really been. Stock prices plunged and some – like Fannie Mae – never recovered at all.
Even when the larger U.S. markets rebounded promisingly in 2009, the banking sector continued to perform poorly. According to CNBC, out of the S&P 500’s 10 distinct sectors, financials performed the worst in 2011, “with banks in particular tumbling nearly 25% as measured by the KBW Bank Index.”
Admittedly, so far this year, the sector is running in second. Yet that hardly makes now the time to be picking up just any old financial stock.
Those companies are still fragile, as evidenced by German regulator BaFin’s new probe into Deutsche Bank (NYSE: DB), a significantly sized player in the international scene.
And earlier this month, in an effort to inspire public trust, some of its American competitors were busy marketing themselves as easily dismantled. In essence, they were saying that, should something bad happen later down the road, they could be downsized with minimal hassle – hardly a grand note of confidence.
Still, there is one company out there that’s worth a second look, at least according to legendary trader Warren Buffett. He’s given big U.S. bank Wells Fargo (NYSE: WFC) a second, third and fourth look over the years.
To continue reading, please click here...Jim Cramer says, “Contrarian Investing? Forget About It”
by Jason Jenkins, Investment U Research
Wednesday, June 27, 2012
A couple of weeks ago Mad Money host Jim Cramer made the above declaration regarding contrarian investing. He went on to say, “I think it’s wrong. I think it doesn’t matter… I think it’s really a treacherous way to invest.”
I was a little baffled when I saw excerpt. Then I saw the editorial written by Producer Drew Sandholm where he gave the following definition of a “contrarian investor:”
“In the investment world, a contrarian is someone who takes a position that differs from the majority. If a particular sector is ‘hated’ by most investors, a contrarian might want to buy in. After all, if few investors like the sector, a contrarian thinks there are few people left to sell, making it immune to big declines.”
Sandholm went on to write that Cramer feels the strategy to be “too hazardous” to recommend. It infers that contrarian investing is based purely on sentiment and that investors should be using fundamentals and research to decide which companies to invest in.
However, here at Investment U, we don’t feel these two things are mutually exclusive. You can still look for solid fundamentals in regions and sectors that were abandoned by “the herd.”
For instance, Alexander Green recently wrote about finding fundamentally sound companies in the beaten-down natural gas sector.
Contrarians aren’t rebellious teens, rejecting their parents’ way of investing. What the piece misses is that contrarian investing is based on fundamentals. Many times popular investment sentiment is not. Do we need to remind you of the dot com and housing bubbles?
Investment U defines a contrarian investor as someone who believes in independent wealth building and profits rather than the actions of the herd. The key isn’t to go against the grain for the sake of being different, but to find opportunities based on solid fundamentals that are ignored or shunned by everyone else. And if this is done successfully, then you get in on the ground floor and watch profits rise as the rest of the investment world gets a clue.
To continue reading, please click here...The Buffett Rule: Do As Warren Buffett Says, Not As He Does
by Jeannette Di Louie, Investment U Research
Wednesday, April 18, 2012
Just about everybody has heard of the “Buffett Tax” by now. Also known as the “Billionaire’s Tax” or the “Buffett Rule,” it seeks to establish a minimum 30% tax rate on Americans whose household income equals $1 million or more.
On Monday evening, the Democrat-controlled Senate struck the proposition down 51-45. Despite the majority in favor, the “Buffett Rule” failed to gain the 60 votes it needed to pass, and that was even with Maine’s Susan Collins, a Republican, approving it.
According to a recent Gallup poll, approximately 60% of Americans supported the added tax against “the rich,” which means that a majority of Americans are disappointed with Tuesday morning’s news. That includes The Christian Science Monitor’s Brad Knickerbocker, who recently praised the Buffet Rule as:
“… a wonderful political device – a call to even out the tax burden in a way that picks the pockets of those ‘millionaires and billionaires’ President Obama keeps talking about while evening things out for the vast American middle class. It’s very easy to understand, especially in contrast to a tax code requiring battalions of lawyers to navigate. And it has this wonderfully avuncular fellow for whom it’s named.”
That “avuncular fellow” is of course the legendary investor Warren Buffett. Nicknamed the “Oracle of Omaha,” Buffett runs a supremely successful business buying up undervalued companies and turning them into real moneymakers.
If his accumulated billions don’t testify to his accomplishments enough, his Berkshire Hathaway stock – which is valued at over $119,000 – certainly does. Over the last few decades, that holding company has returned more than 1,000%, and Buffett’s personal $105,000 investment is now worth tens of billions.
Naturally, when Warren Buffett speaks, the rest of us listen. Unfortunately in this case, his words don’t appear to be matching his actions…
Last year, Warren Buffett did a lot of speechmaking, mainly about the tax proposal that quickly came to bear his name.
To continue reading, please click here...The U.S. and Asia Use Europe to Get to Emerging Markets: Part II
by Jason Jenkins, Investment U Research
Friday, December 30, 2011
Last week I wrote about how U.S. and Asian companies are looking at battered down European companies to gain access to emerging markets. In case you missed it, here are the main points I covered:
The Causes for Opportunity are Also the Reasons for Concern
Just this week you have the new European Central Bank (ECB) President Mario Draghi actually discussing the costs of a eurozone break-up. This is blasphemy for the head of the ECB. But it tells us of the severity of Europe’s situation. Mr. Draghi said struggling eurozone countries that leave the eurozone would face still greater economic pain.
Countries that left and devalued their currency would create “a big inflation” and fail to escape from structural reforms that would still have to be implemented “but in a much weaker position,” Mr. Draghi told the Financial Times.
Bloomberg data shows that acquisitions in Europe declined in the second half of 2011 to its slowest pace in 3 years. Foreign buyers announced $86 billion of acquisitions which is 48 percent less than in the first half of this year.
Companies See The Long-Term
“The U.S. went into recession earlier than Europe and came out of it faster,” said David Silver, head of European investment banking at Milwaukee-based Robert W. Baird, which typically focuses on deals valued at as much as $1 billion. “American companies are armed with stronger balance sheets and want to deploy capital.”
A study of 258 U.S. corporations by JPMorgan Chase & Co., published in September, found they held $368 billion abroad, roughly half of their total cash, cash equivalents or investments. Microsoft and Hewlett-Packard both cited a need to find a healthy return on their cash held overseas when announcing their takeovers of Skype and Autonomy.
To continue reading, please click here...Three Investment Lessons I’ve Learned From Warren Buffett
by Mark Skousen, Investment U Research
Friday, November 18, 2011
“Great little book. I plan to shamelessly steal some of the lines.”
- Warren Buffett
For the past 30 years, I’ve been collecting old adages, clever lines and poems about Wall Street, which I’ve now published in a new book called The Maxims of Wall Street. Old canards like, “Sell in May and go away,” and, “Bears make headlines, bulls make money.”
It’s a unique book – surprisingly, nobody in the two hundred years of Wall Street had collected all the financial sayings in one book.
After completing the compilation, I made a discovery: Of the dozens of financial gurus quoted, I ended up cited Warren Buffett the most – 27 times to be exact. More than J. P. Morgan, John Templeton, Ben Franklin, Jim Dines, Jesse Livermore, John Maynard Keynes, Gerald Loeb, Humphrey Neill and a host of others.
Now that I think about it, that makes perfect sense. Warren Buffett is, after all, the world’s wealthiest investor, and a shareholder investing $1,000 in his Berkshire Hathaway at the beginning would be a multi-millionaire today. He has a lot to teach us about how to be a successful investor, and what not to do.
I decided to send a copy to Mr. Buffett. I had met Mr. Buffett last year at the graduation ceremony for Sing Sing inmates who had earned a college degree (my wife and I teach at this incredibly successful program).
Still, I was surprised to get a personal email from him a few days later on 11-11-11 with an unqualified endorsement of the book. He has given permission to publish this letter:
To continue reading, please click here...Seven Investing Rules From Winston Churchill’s Life
by Carl Delfeld, Investment U Senior Analyst
Thursday, September 29, 2011
I staggered into the house last week with a huge pile of books.
Compliments of Border’s going-out-of-business sale. My wife glanced at the first few books, arched her eyebrows and deadpanned: “More Churchill books?”
“It’s sort of like your shoe collection,” was my riposte as I headed to my study. Once there, I smiled and organized my expansive Churchill library.
I’m a Churchill nut. Need more proof? I have read Churchill’s six-volume, two-million-word epic, The Second World War, three times.
The best biography of the former British Prime Minister is actually one of the shortest: Churchill by Paul Johnson. At the end of the book, Johnson lays out lessons from Churchill’s life that can also be applied to investing. Below is my take on them with two more thrown in for good measure…
Lesson # 1 – Aim High
When you put your hard-earned money at risk, you should aim high for big returns.
Churchill always aimed high no matter what obstacles lay in his way. This always meant taking risks that led to his greatest victories, as well as his most painful defeats.
To continue reading, please click here...Warren Buffett and the Berkshire Stock Buyback
by Jason Jenkins, Investment U Research
Wednesday, September 28, 2011
On Monday morning, Berkshire Hathaway announced the company would pursue an open-ended share repurchase program.
For the first time ever in the company’s history, they’re initiating a big share buyback.
What’s interesting here is that Warren Buffett has a history of souring on the idea of stock buybacks. He reasons that, many times, Wall Street initiates buybacks at the wrong time – usually at the top of cycles, killing the value for shareholders. But in certain cases, he has stated that for certain companies a repurchase can be a good use of capital. Specifically, it’s those companies with great business models and a firm financial base that still find their shares completely undervalued in the market.
What Warren Buffett’s Berkshire Announcement Says and Doesn’t Say
To get what’s really going on, you have to look at the specifics.
To paraphrase, Berkshire’s Board of Directors has authorized a repurchase of Class A and Class B shares at prices no higher than a 10-percent premium over the then-current book value of shares. Buffett thinks his stock is undervalued. How much? A company press release says, “The underlying businesses of Berkshire are worth considerably more than this amount.”
Don’t think for one minute that every word of this release wasn’t painstakingly thought out. When he uses the word “considerably,” he thinks it’s selling dirt cheap.
Also, the statement says that Berkshire plans to use cash on hand to fund repurchases, and repurchases won’t be made if they would reduce Berkshire’s consolidated cash equivalent holdings below $20 billion. Their second-quarter statement says they have about $77 billion in a mixture of cash and short-term bonds. That could be a possible $57 billion used to repurchase shares.
To continue reading, please click here...
