Warren Buffett

[Mr J]

Warren Buffets methodology is now fairly widely known but why has any other fund manager or investor been able to match him??

I'm sure many do, they just relatively unknown. Buffet is known because he's huge, not because he's the best. Of course, some will argue that he became huge by being the best, but I think that's a little naive. A large reason for his success is that he's been around for so long. I'm sure better investors have come and gone during that time. There's also a lot of hype surrounding him, shown by this thread.

He has a photographic memory... apparently he has memorized the balance sheet of every listed company in the US plus many non-listed companies. They guy is just plain brilliant!

Did you hear that from someone down at the pub?

 

[jono1887]

Did you hear that from someone down at the pub?

No, its in his biography. But he does have a photographic memory.. theres some quote from his saying how he was able to get though highschool and first yr uni getting 100% all through his exams by reading the text book the night before.

 

[jono1887]

Here is a quote of the back of Frank lowy's book "Pushing the limits"

An investment of $1000 in westfield shares in 1960 was worth $133,200,000 at the end of 2000 (assuming all dividends were reinvested). This performance is unrivalled in Australia and out strips the growth offered by internationally renowned investors sauch as george soros and warren buffet.

But yes to answer your question berkshire has had negative years, Last year being an example. I think berkshire has averaged growth of 23%p/a

Warren Buffet is richer than Frank Lowy, But frank has achieved faster growth.

Warren has just had more years of compounding due to franks later start, Franks early years were spent trying to survive the Holocaust and later moving to israel where he fought in the Israel war of independence, before moving to Australia and starting a deli in his late 20's.

frank lowry didnt gain from pure investing did he? but berkshire hathaway has had negative years (stock price fallen) but never had a year of actually balance sheet loss.

 

[Tysonboss1]

frank lowry didnt gain from pure investing did he? but berkshire hathaway has had negative years (stock price fallen) but never had a year of actually balance sheet loss.

Until last year westfield had a better claim.

For 47 years straight, westfields profits grew every year. not a single year went by where their profits fell or stagnated for 47 years. last year was WDC first year where they reported a profit smaller than the year before.

I don't really no what you mean by he didn't gain from pure investing.

Westfields is a company that invests in and operates shoppong centres.

Berkshire is a company that invests in and operates many types of businesses.

Berkshire is not strictly an investment company, they own and operate many businesses.

 

[Tysonboss1]

By the way I am not trying to detract from warren's achievements. I am just trying to give credit where credit is due, and point out that we have a home grown figure who has out performed most of the "gurus".

 

[jono1887]

How exactly did Frank Lowry do it?

 

[drsmith]

How exactly did Frank Lowry do it?

Westfield's model for much of it's history has been for the development company (Westfield Holdings) to build and/or redevelop shopping malls and sell them into the trusts (first Westfield Trust and later Westfield America Trust) for a profit. The three entities were then merged into Westfield Holdings in 2003.

 

[Tysonboss1]

How exactly did Frank Lowry do it?

In his late twenties Frank and his friend John saunders were running a deli together. They realised that with the Post WW2 immigration they was a shortage of land being subdivided, so the bought a farm and subdivided it into house lots,... their company name was "westfield" West from being in western sydney and fields because they were subdividing farm fields.

After a while they learned that commercial property was more profitable, So they started with a few small shopping centres.

Westfields has built it's fortune by three main ways,

1, Building and redeveloping shopping centres, some of which are onsold in full or a % to instutional investors to free up capital, but then managed by westfield.

2, Owning shopping centres in full or a certain % as an investment.

3, Managing shopping centres ( not all westfield shopping centres are owned by the group, some are managed under longterm head leases ).

As Dr smith said, Frank Created two trusts (westfield trust and westfield america trust), He then listed the trusts and sold the bulk of the westfield properies into the trust. this freed up westfields capital to allow them to contiune growing while also producing a predictable rental return to investors of the trust.

The Trusts have since been merged together with the management and development company to form westfield group.

(westfield holdings + Westfield trust + westfield america Trust = westfield group. )

 

[Tysonboss1]

How exactly did Frank Lowry do it?

If you like reading, His book is called "pushing the limits". It's a good read.

follows him growing up as a jewish boy during nazi occupation, where his dad and brothers were taken to concentration camps. It tells of his role during the israel war of independance where he was in combat. and it tells how through sheer determination and hard work he became one of australias richest men.

Frank until very recently worked 6 and a 1/2 days a week, and when ask what it was like to work for westfield he said,

" I drive myself and spare no effort, It's a sheer slog that allows for no laziness of mind or body. I allow myself no latitude and give up all comforts day and night until I achieve my goal. "

 

[GumbyLearner]

Buffett to takeover US Rail Corp Burlington Northern. Saying "I love these bets."

http://www.businesswire.com/portal/...d=news_view&newsId=20091103005847&newsLang=en

“Our country’s future prosperity depends on its having an efficient and well-maintained rail system,” said Warren E. Buffett, Berkshire Hathaway chairman and chief executive officer. “Conversely, America must grow and prosper for railroads to do well. Berkshire’s $34 billion investment in BNSF is a huge bet on that company, CEO Matt Rose and his team, and the railroad industry.

“Most important of all, however, it’s an all-in wager on the economic future of the United States,” said Mr. Buffett. “I love these bets.€

 

[Temjin]

But is he always right? This recent action has contradict what he used to say from the past.

http://market-ticker.denninger.net/archives/1572-Berkshires-Big-Bet.html

Berkshire's Big Bet.

The amusing part of Berkshire buying BNI (Burlington Northern) isn't that he's doing it at what looks to be a ridiculous premium to the current stock price (although below the historic high) - it is that he's splitting Berkshire's "B" shares in doing it.

Remember, this is the guy who has maintained forever that stock splits are inherently wrong, in that they're nothing other than a game.

Well, yes. But under the cover of the claim that he wants BNI shareholders to "enjoy" a tax-free exchange, suddenly Berkshire "gets religion" and splits the "B" shares 50:1?

Uh, Warren. This is a stock and cash deal, right? What prevented you from issuing a "C" share? Nothing, other than dilution, which you could handle with an immediate buyback of the outstanding amount necessary to balance it.

Here's my view, for what it's worth - BNI at yesterday's closing price was reasonably valued at a P/E of 14. At the deal price it's about 20. That's too high, unless you believe that manufacturing is coming home in massive numbers, and that "indefinite growth" is coming back.

I think Warren's wrong on valuation. I also think he should have bought BNI back in March, when the stock price was under $51, and paid $70, which would have been an even bigger premium in percentage terms and been a better deal for Berkshire shareholders:

If you're a BNI shareholder, I'd be taking the money - this morning. You're no longer the owner of a big industrial mover; you're now the owner of stock in what amounts to a financial conglomerate trading with a P/E of 52 (as of this morning), where you had a P/E of 14 last night. Worse, Berkshire's market cap is being "invaded" tremendously by this acquisition, turning Berkshire from a financial company (in the main; banking and insurance) into a multi-line conglomerate with a HUGE transportation component.

Mean reversion is going to suck WHEN it occurs, and this much is certain - you didn't own BNI expecting it to have a P/E of 52, but suddenly it does, and anyone who believes that a conglomerate with 25% of it's total market cap comprised of "railroad" should trade at anywhere near a P/E of 52 has rocks in their head.

Buffett's comment: "This is a bet on the future of the country, 5, 10, 20 years from now."

That's Berkshire's and Buffett's mantra, and in addition this is a bet that rails will be the big winner over time in terms of moving products in a world that is increasingly hamstrung by both energy constraints and (in my view insane) "global warming" nonsense.

I think Warren is right on who wins in the transportation matrix in the future, but he doesn't care about multiples.

I, as an investor, do.

If I owned either of these firms (I don't) I'd be a seller this morning into the ramp job, especially if I held BNI. Nobody in their right mind trades a P/E of 14 for a P/E of 52.

There have been a number of other commentators who are wondering why Buffet is making this move.

Certain ppls would obviously say Warren Buffet can never be wrong as he is promoted as an oracle after all. He must know something we don't. But in my opinion, he has been far too optimistic about the US economy given his traditional background and love for his own country. (nothing wrong with that)

At the end, a bet is a bet. Nothing is guaranteed.

 

[alphaman]

Interesting how WB is buying now rather than waiting for a better price. Obviously he thinks the US economy will not just recover, but will do so soon.

BRK's P/E should be high, because short-term earnings are abnormally low. P/E of 52 will easily halve when BRK's earnings go back to historical levels.

 

[GumbyLearner]

But is he always right? This recent action has contradict what he used to say from the past.

http://market-ticker.denninger.net/archives/1572-Berkshires-Big-Bet.html



There have been a number of other commentators who are wondering why Buffet is making this move.

Certain ppls would obviously say Warren Buffet can never be wrong as he is promoted as an oracle after all. He must know something we don't. But in my opinion, he has been far too optimistic about the US economy given his traditional background and love for his own country. (nothing wrong with that)

At the end, a bet is a bet. Nothing is guaranteed.

Mmmm Copenhagen

http://www.moneymorning.com/2009/11/03/berkshire-hathaway/

The deal also represents a complete reversal of the stance Berkshire took on railroads just a few years ago.

“Warren and I have hated railroads our entire life,” Charles T. Munger, the vice chairman of Berkshire Hathaway, said in 2007, the year his company first started investing in Burlington. “They’re capital-intensive, heavily unionized, with some make-work rules, heavily regulated, and long competed with a comparative disadvantage versus the trucking industry, which has a very efficient method of propulsion (diesel engines) and uses free public roads. Railroads have long been a terrible business and have been lousy for investors.”

But rising prices for diesel fuel, growing highway congestion and growing environmental concerns helped change Berkshire’s position.

“As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors, truckers, roughly by a factor of four,” Buffett told shareholders in 2007 at his company’s annual meeting. “There could be a lot more business there than there was in the past.”

Unlike trucks, trains don’t get stuck in traffic and when trains carry 100 tons over 1,000 miles, they produce 45% less pollution than a long-haul truck does, according to Burlington.

 

[AlterEgo]

hasnt berkshire hathaway averaged 20+% over the last 40 years straight with not a single negative year.

It hasn't averaged those sort of returns for a long time though. Here's a graph of Berkshire Hathaway shares off Yahoo Finance. Note the flattening of the graph since '98/'99. If we drew a trend line from the peak in '98 through to the peak in '07 before the crash, that works out to an compounded annualised return of around 6.5%. Also note that the low this year is equal to the high back in '98, so no gains made in 11 years to that point. In fact, practically no gains were made in the period from '98 through to '05 either. Peak in 1998 - current works out to a compounded annualised return of approx. 2%.

 

[condog]

Prior to last years correction BH had achieved 25%+ compound annual growth.

Not sure what it is now.... WDC may have got that in the past, but it certainly is not set to achieve anything like that any time soon..... with 62% debt and ROE at 23% 28% 13% -4% and 1.2% for the last 5 years its in a different league now...

Irrespective of what BH is doing this year Buffets methods are the benchmark .... he is insperational and his methods for intrinsic valuation are fantastic.

 

[Julia]

Irrespective of what BH is doing this year Buffets methods are the benchmark .... he is insperational and his methods for intrinsic valuation are fantastic.

If you find him inspirational, would you say you can apply his methods for intrinsic valuation to stocks you are considering buying yourself, and if so, how confident would you then feel that those stocks are going to make you money?
In what period of time?

Do you think any factors other than intrinsic valuation need to be considered before buying a stock?

 

[bunyip]

Buffet's so called 'buy and hold forever' strategy is a poor description of his methodology. I can recall a number of times over the last 15 or 20 years when he was said to have retreated to 70 - 80% cash.
Also, he apparently invests staggering amounts of money into markets other than stocks....metals, currencies, commodity futures etc.

I think most of us will be disappointed in our results if we think we can emulate Buffet by buying stocks in good companies because we think they're cheap and have great future prospects.
Below is some info I pulled off the net.....it may give some better insights into what he actually does.

Despite his desire to hold "forever" when first buying a stock, Buffet doesn't actually do it all that often. Contrary to popular belief, Buffet buys and sells stocks all the time. His approach is better described as "Buy with a long-term perspective, hold while ignoring intermediate business and market fluctuations, and sell when long-term business prospects are no longer attractive." Or in short: "Buy and hold until the facts change."

The primary reason Buffet has held stocks like Washington Post and Coca-Cola for so long is that they have retained the attributes he originally found attractive. But over the last decade, Buffet has sold holdings such as McDonald's, Disney and Freddie Mac when he felt they were no longer worthy of his capital.

 

[condog]

If you find him inspirational, would you say you can apply his methods for intrinsic valuation to stocks you are considering buying yourself, and if so, how confident would you then feel that those stocks are going to make you money?
In what period of time?

Do you think any factors other than intrinsic valuation need to be considered before buying a stock?

I do apply his methods to almost every stock I buy and own on a regular basis. I used to do all the calculations myself but have since becoming far more time poor and money rich found it significantly better to use my time earning money, investing and using stockval for my fundamental analysis.....

In terms of time frame it varies...... The last month its been hard to find great fundamental buys for the short term, because almost all the high ROE, low debt, stocks have been very expensive relative to current and projected earnings.... However with the correction of last week several opportunities have poked their heads up with good fundamental stocks under value or around value...

If im looking for long term buys I will generally try to buy between 20% undervalued and 5% over value sometimes up to 10%.... They are my long term yielding stock....

With some short term plays I might see a safe stock with good or average ROE at say 30-50% undervalue..... I then do some research and buy it if everything looks OK and there is no apparent reason for its price drop.... I look to sell these anywhere between 10% under and 20% over value ASAP. Some have been a matter of days while others have been weeks....

Relative strenght index often helps time a short term play - below or around 20 in a stock that is just oversold for some wierd reason, but has excellent fundamentals is usually an easy 10-20% profit within days.

Im not inclined to quote stocks as this might be taken as advice.

In terms of how confident I am..... Thats why I predominantly stick to yielding stocks , because during downturns in sentiment, I still get dividends and keep buying.... So im supremely confident....I never hold or buy a stock that I think will not make good money......

Sounds arrogant I know....but it has not let me down...

In terms of other factors to consider....yes other factors need considering.....

The trend of the market and sector is important.... The outlook for the economies your company earns from is crucial, the managment and their track record for (the hated) capital raisings, and destructions of share value....

Also some stocks can come out with great intrinsic value relative to price because everyone hates the stock for good reason....

So look for amongst other things...
Good outlook of economy, sector, companies markets
HIgh ROE
Low debt to equity - definitely below 50% and preferably 0%-30% for me
A history of no or extremely productive capital raisings
High ROFE
Stable or increasing ROE (take into account last year smacked most companies, although several sailed through with improved ROE)
Low liabilities - pref less then 50% of price but some companies like DTL have high liabilities and still perform with excellence.

A few of the stock I hold that I think have excellent fundamentals
DTL, LYL, BHP, JBH, Count (expensive ), MND, MMS,


This is not advice, nor recommendations. It is offered as opinion only and in no way should be relied on for decisions. Seek your own expert advice.

 

[condog]

I think most of us will be disappointed in our results if we think we can emulate Buffet by buying stocks in good companies because we think they're cheap and have great future prospects.

Ive copied a lot and could not be happier, before during and after the biggest correction in recent history.

Secondly Id always rather buy a great company at an expensive price then a rubbish company at a cheap price. But using buffets methods allows me and many others to buy good companies at fair prices.

Chin up, have a go...

 

[Julia]

Thank you for your explanation, condog. Good that you're so happy. I gather you don't engage with charting at all?

Ive copied a lot and could not be happier, before during and after the biggest correction in recent history.

Secondly Id always rather buy a great company at an expensive price then a rubbish company at a cheap price. But using buffets methods allows me and many others to buy good companies at fair prices.

Chin up, have a go...

Well, Bunyip, there ya go! You've just got the good oil from condog!
Now you might be able to make a buck, huh!