One reads of Value Investors aligning themselves with their understanding or interpretation of the Investment Strategies and Modus Operandi of Benjamin Graham and Warren Buffett, ... two of the most renowned and successful of their craft.
From the literature of Warren Buffett’s approach to company analysis and stock market investment, we read that, amongst other considerations, he advocates the following.
These may come as a surprise to some who frequent these Value Boards ....
A) Diversification, the practice of owning shares in many different companies, is not necessarily the right way to invest. He asks, "Why put your money into your 20th. best choice, rather than putting more into your top 5 or 10 ?" He recommends Portfolios of no more than about 10 stocks. Needless to say, one needs to have the confidence in, and the courage of, one’s "Fundamental Analysis Convictions".
B) Ignore the Macro events, and rather concentrate on the business specific Micro events. Concern yourself with the long term prospects of a business rather than attempting to predict the short term fate of the stock market. He says, "Ask yourself, are you an analyst of the National Economy, or are you a Business Analyst ?"
C) Ignore Stock Market forecasts. Stay at the Company level, rather than the Market level. He prefers to focus on the performance of a Business, and not to be distracted by larger trends that are often impossible to forecast with any degree of accuracy. Stay with what's "Understandable and Knowable". If either of the two are missing, pass it up.
D) Be Fearful when others are Greedy, and Greedy when others are Fearful. Be wary of investing when prices are rising irrationally, and they bear little relationship to the actual value of the underlying business. The IT bubble of the 90’s was a good example. However, being mindful that stocks must always meet your selection criteria, Buy when people are selling, and Sell when people are buying.
E) Some investors believe that a Contrarian Investing Strategy is superior to following the crowd. Buffett disagrees, because if the crowd is doing the wrong thing, going 180 degrees in the opposite direction may be no better. This is investing based on Polling rather than Thinking. He states, "Never substitute Popular Wisdom for Independent Thinking".
F) Buffett scorns the Efficient Market Theory (EMT) which holds the premise that every share is exactly where it should be, because all the pushes and pulls of the Marketplace have led to that conclusion, so there’s no need to dig deeper !!!
In 1973 the Marketplace valued the Washington Post at $100mil. Buffett saw $400mil. to $500mil. History has shown who was correct.
Technical Analysis relies heavily on EMT. Warren Buffett sees very little value in this form of analysis. He stated, "If history revealed the path to riches, librarians would be rich", and "I'd be a bum on the street with a tin cup if the markets were always efficient". Anyone know of a Technical Analysis practitioner who is worth over $40 Billion ?
....... ALL OF THE ABOVE, plus much more, can be found in the book "How Buffett Does It" written by James Pardoe.
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Feel free to enter into constructive debate and discussion on this Board regarding any aspect of the stock market, especially if you can align yourself with what’s written above.
Because I find it of interest to look into the stock choices of others, I will make my own comments about those companies without reference to the author. Once again, feel free to have your own say in this regard. It could be that we may well discover something we previously missed, or didn’t consider.
I also intend, now and again, posting a few stock suggestions of my own.
My own approach to individual company analysis tends to rely on the K.I.S.S. principle, and my "first pass" tends to target the following specific areas of the Income Statement and Balance Sheet. These are combined into target percentages which a company MUST SIMULTANEOUSLY meet or exceed for further consideration.
If I comment on an Industrial type stock it will, in general, be on the basis of the following specifics.......
• Turnover
• EBITDA
• Interest Expense
• Profit Before Tax
• Net Income
• L.T.Debt
• Capital Employed = Employment of Capital (viz. Total Assets - Total Current Liabilities)
• Share Capital & Reserves
• EPS
• DPS (If any)
• P/E
Benjamin Graham stated, in the Preface to his book 'The Interpretation of Financial Statements' ... "if you have precise information as to a company's present financial position and its past earnings record, you are better equipped to gauge its future possibilities. And this is the essential function and value of Security Analysis."
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• STOCK PORTFOLIO.
I believe I’ve recently achieved, WITHIN THE LAST YEAR, viz. 2007, and with
a portfolio of LESS THAN 10 stocks, the 40% per annum Capital Gain
target I referred to between Messages #24195 and #24225 at "Value Investing".
(dd 3 Jan. 2008).
For details, go to :-
Message 24464636
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• FUNDAMENTAL VALUE ANALYSIS.
A respected contributor to this Board, The Ox, suggested, in Message #470 below, that I add a link to this
Header regarding "EBITDA Margin".
Here it is, followed by several others added over the course of time ....
EBITDA Margin :-
Message 24331039
Pretax Profit/Capital Employed :-
Message 24373885
Pretax Profit/Capital Employed revised ratio :-
Message 25640736
Interest Expense/EBITDA :-
Message 25749100
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• ---- WARREN BUFFETT'S INTERPRETATION OF FINANCIAL STATEMENTS ----
Message 26211740
• WHAT BUFFETT LOOKS FOR :-
(a) ... in the INCOME STATEMENT
Message 27443100
(b) ... in the BALANCE SHEET
Message 26351814
(c) ... in the CASH FLOW STATEMENT
Message 26356792
• HOW BUFFETT VALUES A COMPANY :-
... BUFFETT'S 'EQUITY BOND' THEORY
Message 26421355
• BUFFETT'S COMPANY ANALYSIS TEMPLATE
Message 26423391
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• ---- WHY BUFFETT BELIEVES STOCKS BEAT GOLD and BONDS ----
Message 27968924
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From great work done by E_K_S :-
Here are some recent Value investing books that others have recommended and discussed ....
spreadsheets.google.com
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SI Member's Portfolio vs. Buffett Portfolio
(A) Invitation :-
Message 28266359
(B) Rules :-
Message 28451626
(C) FINAL Combined Votes Received :-
34 Votes :- APA
31 Votes :- GLW, PH
28 Votes :- UNP
26 Votes :- ROC
25 Votes :- CMI, JOY
24 Votes :- AAPL, DIS
23 Votes :- SLW
22 Votes :-
21 Votes :-
20 Votes :- AMAT
18 Votes :- F
16 Votes :- CL, VZ
14 Votes :- PM
12 Votes :- SPLS
(D) Comments :-
(a)To find out WHY a stock has been RECOMMENDED I suggest putting the stock code into the "Search this Subject" box at the top of the page and hit the button alongside.
Alternatively you can go to the following Board to see a summarised list of stock recommendations ...
Subject 58786
(E) FINAL PORTFOLIOS
SI PORTFOLIO - TOP 10 :- AAPL, APA, CMI, DIS, GLW, JOY, PH, ROC, SLW, UNP
BUFFETT PORTFOLIO :- AXP, COP, IBM, JNJ, KFT, KO, PG, USB, WFC, WMT
SI PORTFOLIO - 8 LOSERS :- ADM, AMAT, CL, CSX, F, PM, SPLS, VZ
(F) SI PORTFOLIO CHALLENGE (17 August 2012) in Google Docs.
To view the latest UPDATE for the PORTFOLIO, visit :-
docs.google.com
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(G) SI TOP 10 PORTFOLIO & EXTRAS - BUFFETT & GRAHAM PARAMETERS
docs.google.com
(H) GRAHAM NUMBER SPREADSHEET by E_K_S
docs.google.com
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(J) POTENTIAL FUTURE CANDIDATES FOR SI TOP 10 PORTFOLIO
Anyone who wishes to put forward a stock as a potential future candidate for our SI Top 10 Portfolio, just post it and I'll add it to the page I've installed in the Google Docs spreadsheet in (F) above.
So far we have :- TGI, MOG-A.
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An hour long Interview with BENJAMIN GRAHAM, held back in 1976.
The more some things change, the more they can also stay the same.
Of interest could be his use of the AAA Bond Rate, his view on the 'Random Walk' theory and "Efficient" Markets, and what he thought of "Wall Street people" .....
Message 28956229
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According to Warren Buffett's statements in a Bloomberg interview, ...
"INVEST ....... DON'T SPECULATE."
" 'Mr. MARKET' IS THERE TO SERVE YOU .... NOT TO INSTRUCT YOU."
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Folks, our SI Portfolios will be 1 year old on the 17th. August.
According to Rule #6 we have until then to change 2 stocks in any of the Portfolios.
Your inputs and votes are required .....
STOCKS TO BE VOTED FOR :-
Use the "Recommend" button to record your vote.
AAPL :- Message 29041551 Current Votes = 5
DIS :- Message 29042255 Current Votes = 2 |
