Tom Gayner discusses some of the methodology behind investment picks at Markel Corp.
Advice from a Buffet-Style Invester (Morningstar)
Wally Weitz on discusses some of the recent subprime debt problems, as well as inherent value seen currently in the large-cap sector.
Mohnish Pabrai is interviewed by Morningstar and shares some of his investing strategies. Mohnish Pabrai runs the Pabrai Funds, which he has modeled after the Buffett Partnership, and he has done quite well with this model.
In addition to the video interview above, here is another interview with Pabrai on Bloomberg.
I have read Pabrai's two books on investing, and I highly recommend both of them. Mosaic: Perspectives on Investing is his first book, and is a compilation of articles on various topics he has written about related to value investing. The Dhandho Investor: The Low - Risk Value Method to High Returns is his latest book, and is a look into Pabrai's own unique perspective on value investing, as well as some great writing on philanthropy.
Still analyzing virtual portfolio performance utilizing the creative and fun (and free) Motley Fool CAPS, run by The Motley Fool. As of this post my virtual CAPS portfolio is above the 91st percentile rank (since October 2006), of course with a focus on undervalued stocks, all which happen to be from the healthcare sector.
Will keep y'all posted as more things develop...
All in all a very revealing video. It is clear that Buffett has left his footprint on the country of Israel - both as a statement of his faith in its long-term security prospects and as a boost to its overall economy.
His purchase of Iscar Metalworking was previously mentioned in the post: Case Study: Tiens Biotech. (By the way, since that post TBV has shot up 13%!)
Diageo (DEO) has appreciated considerably since my last Case Study: Liquor Stocks and Hair of the Dog, back in January 2006. As of January 9th 2006, the stock price was (adjusted) $57.97. As of market close on Friday, December 8th 2006, the adjusted close was $77.45, for a gain of 33.6% in under a year!
Back then, Warren Buffett had just picked up some shares, the price/earnings ratio was much lower than its current 19.61, and the dividend yield ratio was 4.50%, compared to today's 3.70%. The stock is also near the top of its 52-week range, and has a higher debt/equity ratio than I would normally like, at 1.059. So while I still will enjoy their products - and think they're a great company, I don't see myself dipping into the Diageo liquor stock anytime soon.
Berkshire Hathaway: Almost a screaming buy at more than $100,000 a share
Ask Matt - Matt Krantz - USA Today
For Value Investing, Bittersweet Success
Chet Currier - Bloomberg News
Value Hedge Fund Manager Starts Revolutionary Pay Structure
Blog - Controlled Greed
The Money's in the Scuttlebutt
Greg Guenther - The Sleuth
Buffett, Lynch And Graham Look At Debt
John Reese - Guru Screen - Forbes
Warren Buffett: The Billionaire Next Door
Airs Monday November 20, 2006
on CNBC, at 8 & 11pm ET
This is a segment of an interview by CNBC's Liz Claman with Warren Buffett, in which they discuss "his gut instincts, his feelings about Wall Street, how he feels when he does a deal, his surprising view about his own tax rate, the music he listens to, the TV he watches."
This particular clip above is brilliant:
"We do not sell good businesses at overvalued prices, we don't get rid of businesses that are mediocre. If they're destined to continuously lose money we get out of them...If they're gonna lose forever."
Buffett seems to be explaining here just how much he stands by his initial convictions: his original decision to buy the stock/company in the first place. And this is how it should be for the value investor. If your initial reasoning was sound, and you bought a good company with a sound business plan, strong financials, and little debt at an undervalued price - you should not be bothered if the price goes down further. In fact - in some instances this is exciting, for it may mean a potential acquisition and/or increased insider buying is in the cards.
Previous related posts:
Bought Buffett's Berkshire Because it's a Bargain
Case Study: Tiens Biotech
Time Travel Investing
End of Summer Reads
Summer Reading, and an MBA
The company has an extremely low debt/equity ratio of 0.094.
Price/earnings is also low at only 8.098.
The short interest as a percentage of public float is 4%, which is extremely high for a small company like TBV, which only has a market capitalization of 208 million.
Its 52-week range is 2.61 - 8.24, which gives this stock some significant potential.
Pre-tax return on capital greater than 50%.
This is an undervalued healthcare company that has relatively little downside due to its high earnings yield of 16% and low market capitalization. If the company becomes any more undervalued, it has the potential to be acquired by a larger healthcare company looking to gain a foothold in both China and wellness products at the same time. This would be something that I would look to hold for the long-term, expecting high volatility in the short-term but the potential for extremely high appreciation in the long-term.
Additional post from November 7, 2006. A stock-price prediction from Beacon Equity, and a news report that makes the case for a potential acquistion down the line.
Beacon Equity Research
Kris Goldcross, CFA gave an "outperform" rating and a price target of $12.30 when the current price of TBV was already $6.61, back on May 6, 2006! With the price now at $2.99, and a price/earnings below 8, TBV is really undervalued at the moment.
Report from November 3, 2006, by Xiao Wang. The most exciting part of this announcement is TBV's partnership with other strategic clients: "Multinationals such as L'Oreal, Pfizer Pharmaceuticals and Shiseido have hammered out long-term partnerships with Tiens, serving as high-end original equipment manufacturers (OEM) and original design manufacturers (ODM) for Tiens. "
This will raise the company's global standing and goodwill, and only increases the potential for acquisition and/or insider buying if the stock remains this undervalued.
Case Study: Tiens Biotech
The original case study on The Million Dollar Portfolio, a case for value.
Case Study: Aspreva Pharmaceuticals
Another related undervalued healthcare case study, on ASPV.
The company has virtually little to no debt.
Price/earnings is very low, at only 5.58.
The short interest as a percentage of public float is 8%, which is extremely high for ASPV, which only has a market capitalization of 642 million.
Its 52-week range is 11.18 - 34.89, which gives this stock some significant potential.
Pre-tax return on capital greater than 100%!!!
This is an extremely undervalued healthcare company that has relatively little downside due to its very low price earnings and low market capitalization. If the company becomes any more undervalued, it has the potential to be acquired by a larger healthcare company looking to gain snatch up ASPV's expertise in niche disease markets. For example, one could look to Merck's recent $1.1 Billion acquisition of Sirna Therapeutics, whose stock surged 98 percent in after hours trading after the announcement.
Some classic quotes from The Little Book of Value Investing :
Like Watching Grass Grow :
"Value investing also requires the mettle to buy those stocks that the majority of investors don't want to own. They have warts. They are out of favor. Of course, they are. Why else would they be cheap? Whey you go to cocktail parties and the talk turns to recent stock picks, one guy can say, "I bought Ionosphere Communications this morning at 10 and it closed at 12." Instantly, he is a genius. Forget that Ionosphere Communications has no sales and no earnings and is a disaster waiting to happen. You feel a bit foolish saying, "I bought ABC Ice Cream Corporation at half of book and 6 times earnings." You are greeted with a big yawn. Sex sells even in the stock market, and everyone wants to own the latest sexy issue. Value stocks are about as exciting as watching grass grow. But have you ever noticed just how much grass grows in a week?" p.149
A Style for the Long Run :
"Benjamin Graham laid out the basic concepts of the value approach to investing many decades ago. Like Graham, I have no faith in my ability, or in the ability of most others, to predict the direction of stock prices over the short term. I do not believe that many people can detect which technology stock will be the next Microsoft or which ones will bomb. What I do know is that owning a diversified portfolio of stocks that meets the standards of a margin of safety and are cheap, based on one or more valuation methods, has proven to be a sound way to invest my money. I have no reason to believe it will not continue to be so." p.163
The Little Book of Value Investing is definitely an undervalued investment.
This will help me remember and explain why I made certain trades when I did, and analyze my results at a later date.
During the last 10-week cycle that I analyzed my virtual portfolio performance (offline), this was my final result:
9/9/2005 - $1,000,000.00
11/18/2005 - $1,082,951.37
Over the previous 10-week period of time,
I had returned an approximate 8.3% return on my virtual investment.
If I had continued with this particular porfolio, at that rate of return,
I would have had a gain of about 43.13% by year's end.
In other words, I would have made $431,300.00,
for a total ending virtual portfolio value of $1,431,300.00.
I took all of the data for any Russell Index that had returns for 1994-2005 (that's as far back as this particular tabulation went on the Russell website), and compared the average annual returns for the various strategies over an 11-year period. You can view the results for yourself at :
Russell Index Comparison.
The conclusions are quite obvious. Out of the 6 total growth indices, 5 sit right near the bottom of the performance tabulation, and only one beat out any other value index! 6 out of the top 9 performing indices over the 11-year period analyzed were value indices.
Kind of makes those of us who still pay financial advisors want to sit back and scratch our heads and wonder, why pay someone like that over 1.0% or more in fees per year, when exchange traded funds like :
(DSV), (IJS), (IWD), (IWN), (IWS), (IWW), (JKL), (VBR), and (VTV), (in no particular order) can easiliy replicate the performance of the value indices mentioned above, and for fees that usually hover around only 0.3%!
On a side note, I just found out that The Million Dollar Portfolio was mentioned at The Daily Blog Watch with James Altucher at TheStreet.com, for the post The Davis Strategy, on the Davis Family investing book
The Davis Dynasty: 50 Years of Successful Investing on Wall Street
Thank you James Altucher!
Apologies for the large break in postings, but I had been focusing on finishing up studies for my MBA. Received the degree about a month ago, and then took a break for a bit.
I've recently finished two finance books which have been added to the section at the bottom right. Previously, finance books I've completed have been discussed in posts:
The Davis Strategy
Time Travel Investing
21 Trading Rules
Speculation Will Never Disappear
Buying Value and Selling Hysteria
Latest Read: The New Market Wizards
Some Great Financial Reads
I suppose it appears that many posts have been about finance books and not exactly specific pointers on what I've been doing with the virtual million dollar portfolio, but much of the discussion within these books has influenced my investing style.
- Very interesting and quick read. This book reads almost like a Tom Clancy spy thriller, and yet is a seemingly true story as told first person by the author: a man who manipulated foreign governments in order to bend their will to that of the United States.
by Janet Lowe
- Though interested investors of all skill levels should first read
The Intelligent Investor Rev Ed. (Collins Business Essentials),
Janet Lowe's biography/compilation of Graham value nuggets provides another slice of this investing giant's life. It also profiles the interactions of other investing greats such as Warren Buffett and Walter Schloss, as they interacted with Graham throughout his financial career.
The Little Book of Value Investing
Christopher H. Browne
Turning into an interesting addition to my building trove of value investing books.
You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits
After finishing The Little Book That Beats The Market, I simply had to pick up Greenblatt's first work.
The Standard & Poor's Guide to Selecting Stocks
This one was a gift. It's in a simple chapter format so it's a pretty easy read. I am enjoying the chapters on ways to screen for value investing, as well as ways to look at different industry sectors.
I have updated the Historical Portfolio Performance data in the toolbar to your immediate right, to show the new data. This now includes data for the Fall 2005 Performance, Winter 2006 Performance, and new Summer 2006 Performance, as well as a new comparison of the Summarized Total Performance for the three competitions.
Just in case you're a little suspicious, here is a look at the actual ending graph generated by Stock-Trak: 2006 Summer Stock-Trak Challenge.
I know some of you are just dying to see which undervalued healthcare securities I invested in, so without further ado, the ending portfolio allocation, for the Summer 2006 challenge.
You too can get performance like this, and the best way to start would be to rifle through some of the recommended books in the previous post. However, the quickest path to success would be to start with The Little Book That Beats the Market, then head over to The Magic Formula , try out some screens, and utilize Benjamin Graham's good ol' The Intelligent Investor to investigate your newfound companies some more...
Here are the last of the summer financial reading books I told myself I would finish and finally did. I don't believe I'd mentioned any of these on this blog yet:
The Little Book That Beats the Market - Joel Greenblatt
The Magic Formula really seems like a great way to strategize for value, if not at the very least serve as one of the best screens for value out there.
Predicting the Markets of Tomorrow - James P. O'Shaughnessy
O'Shaugnessy has some good tips for Portfolio Allocation in this book, but leans a little bit too far towards the growth sector. I did like his idea of having growth simply as an emotional hedge for the average investor who would get upset during those few unlikely short-term periods where growth may well outperform value briefly.
What Works On Wall Street - James P. O'Shaughnessy
This book is simply a huge tome of back-tested data. O'Shaughnessy utilizes Compustat to confirm most of what we already knew statistically: Go with low price/book, low price/earnings, etc. Small companies outperform large companies over the long run, but with greater standard deviations along the way... However the book is a good reference tool to have on the financial bookshelf.
Mosaic: Perspectives on Investing - Mohnish Pabrai
Succinct, beautifully written chapters on the essence of value investing. I especially liked his chapter on "Buffett Succeeds at Nothing", for the thesis is truly a great lesson for investors of any background.
Fortune's Formula - William Poundstone
Hysterical. If you have any friends who are debating going into investment banking, or indeed any field related to high-finance, get them this book.
More Books reviewed at the following posts:
10 Basic Tenets of The Davis Strategy:
1. Avoid cheap stocks.
2. Avoid expensive stocks.
3. Buy moderately priced stocks in companies that grow moderately fast.
4. Wait until the price is right.
5. Don’t fight progress.
6. Invest in a theme.
7. Let your winners ride.
8. Bet on superior management.
9. Ignore the rear-view mirror.
10. Stay the course.
The Davis Checklist (pg. 153)
"As Shelby and Chris noted in a memo written on May 22, 1997, every company they installed in the New York Venture Fund's portfolio exhibited most, if not all, of the following characteristics" :
1. First-class management with a proven record of keeping its word.
2. Does innovative research and uses technology to maximum advantage.
3. Operates abroad as well as at home.
4. Sells products or services that don’t become obsolete.
5. Insiders own a large chunk of shares and have a personal stake in the company’s success.
6. Company deliver strong returns on investors’ capital, and managers are committed to rewarding investors.
7. Expenses are kept to a minimum, which makes the company a low-cost provider.
8. Company enjoys a dominant or a growing share in a growing market.
9. Company is adept at acquiring competitors and making them more profitable.
10. Company has a strong balance sheet.
"But getting back to the stock market: It can be a good way to make money, but only if you know what you're doing. You do NOT buy stocks based on the latest fad, or some "hot tip" from your uncle Herb. For one thing, you don't ahve an uncle Herb. For another thing, the only way to make money in the stock market is to use a rational system, based on solid information, not guesswork. The only proven way to make money in the market is to follow this three-step procedure:
Step 1: Gather all available financial data on the top one thousand stocks for the past twenty-five years.
Step 2: By conducting a thorough analysis of each stock - taking into consideration its performance against the overall market, splits, price/earnings ratio, earned-run average, etc. - select the ten stocks that have performed best in this time period.
Step 3: Using a time machine, go back twenty-five years and buy these stocks.
This system is pretty much foolproof except for one teensy flaw, which you may have already detected: You are way too lazy to do the research. Most people are. This is why most people use stockbrokers."
Though this is a funny take on how to find the best 10 stocks over a twenty-five year period, there are some lessons to be learned here. Many of the best investors really do find investments that they feel will outperform the market not over a short period but over a long period. Sometimes with these individuals, their best skill is the ability and patience to wait it out and do nothing.
Mohnish Pabrai discusses this principle in detail in his article Buffett Succeeds at Nothing. Though it's a few years old, it's message is still worth paying heed to.
Stuart Walton's 21 Trading Rules
Here is a response to an interesting question posted by Schwager near the end of the Walton interview (page 27):
What are the trading rules you have posted on your computer?
- Be patient - wait for the opportunity.
- Trade on your own ideas and style.
- Never trade impulsively, especially on other people's advice.
- Don’t risk too much on one event or company.
- Stay focused, especially when the markets are moving.
- Anticipate, don’t react.
- Listen to the market, not outside opinions.
- Think trades through, including profit/loss exit points, before you put them on.
- If you are unsure about a position, just get out.
- Force yourself to trade against the consensus.
- Trade pattern recognition.
- Look past tomorrow; develop a six-month and one-year outlook.
- Prices move before fundamentals.
- It is a warning flag if the market is not responding to data correctly.
- Be totally flexible; be able to admit when you are wrong.
- You will be wrong often; recognize winners and losers fast.
- Start each day from last night’s close, not your original cost.
- Adding to losers is easy but usually wrong.
- Force yourself to buy on extreme weakness and sell on extreme strength.
- Get rid of all distractions.
- Remain confident – the opportunities never stop.
What about you? What are your essential "trading rules" ?