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  1. #1

    Default Warren Buffett

    I am starting a new thread on Warren Buffett, who is widely regarded as the best investor the world has ever seen. I will add to the posts here gradually.

    Ladies and Gentlemen, I present to you "The Oracle from Omaha".

    As a start, from the internet, I gathered the following:

    "THE CROWD began gathering at 6am last Saturday outside the Qwest Centre arena in Omaha, Nebraska. Billboards advertised gigs by U2 and Paul McCartney. Motley Crue had just played Qwest, accompanied by leashed dwarves and PVC-clad trapeze artistes. This crowd was more soberly attired. Shivering on an unseasonably cold morning, they were here to see Warren Buffett, the world’s most successful investor. But he, too, would sing.
    After the 17,000 Buffett fans had taken their seats, giant video screens came to life above a small stage. Buffett appeared wearing dungarees, a wooden shack in the background. “Somewhere over the rainbow. Way up high. There’s a land that I heard of. Once in a lullaby...” Buffett loves to sing. He does it every year, sometimes accompanying himself on a ukulele.

    Before he can get to the song’s tricky bit a tornado destroys the house and whisks Buffett off to Oz on a cartoon adventure, accompanied by his caustic sidekick Charlie Munger as the Tin Man and friends Bill Gates, Microsoft’s co-founder, as the Scarecrow and Arnold Schwarzenegger as the cowardly Lion.

    It’s the start of the Berkshire Hathaway annual shareholder meeting. It is a strange amalgam of shopping trip, county fair, weekend MBA, history lecture and social club. The meeting always starts with a film, made by Buffett’s daughter, Susie.

    Shareholders give the film rapturous applause, but there is trouble in Oz. Buffett is now 74, Munger 81. Both have sharper minds than most men half their age but neither is immortal. Buffett’s wife, Susie, died this year and mortality and succession seem to be much on his mind.

    Like many conglomerates, Berkshire is a bizarre collection of businesses. Among other assets, it owns 8% of Coca-Cola, 12.1% of American Express, 18.1% of The Washington Post, Fruit of the Loom leisurewear, Acme building products and the insurers General Re and Geico.

    What these investments have in common is Buffett. For the long-term investor there have been few opportunities as rich as Berkshire. Since 1965, its Class A stock has returned an average of 26% a year. It now sells for $84,950 (£44,767) a share, valuing Buffett’s 29% stake at $42 billion.

    Buffett has become a hero to the wider business community. Valuing his integrity above all, he has survived the wave of corporate scandals unscathed. Malpractice in the insurance industry has led to regulators in Australia and America probing his companies, and late on Friday Berkshire disclosed that the Securities and Exchange Commission planned to file a fraud complaint against an unnamed executive at General Re, one of its largest insurance businesses. But not even Eliot Spitzer, New York ’s crusading attorney- general, believes Buffett has sinned. He is almost untouchable — the patron saint of American capitalism.

    Buffett invited Gates on to Berkshire’s board this year. He described Gates, the only man who is richer than him, as “a trustee of the will”, who can ensure the company is run as Buffett would want it to be.

    But not even Gates and Buffett’s combined wealth and brainpower can halt Buffett’s slide to the high-risk end of the actuarial tables. Investors are worrying about the future. Fitch, a credit-rating agency, recently downgraded its outlook on Berkshire from “stable” to “negative”, noting in its report that Fitch “does not believe Mr Buffett’s talents can be easily replaced, or that Berkshire’s strategies would be sustainable in his absence”.

    BUFFETT and Munger are quite a double act. The two have worked together since the 1960s. Buffett is chatty, cordial, a joker. Munger is patrician and severe — Buffett calls him “the abominable no man”. Buffett is a liberal Democrat, Munger a right-wing Republican. They adore each other — rarely does one miss an opportunity to praise the other.

    Asked about his best investment, Buffett named Munger, adding “he works cheap, too”.

    The pair spent nine hours last weekend answering questions from shareholders and the press. The topics included Adam Smith; rap music; hedge funds; marriage; the future of newspapers; Coca-Cola; envy; integrity; temperament versus intelligence; social security; hurricanes and Schwarzenegger.

    Buffett opened the meeting: “Good morning. I’m Warren, he’s Charlie. We work together. We really don’t have any choice because he can hear and I can see.”

    Some questions, like how he started investing, Buffett must have been asked a thousand times but are still answered in good cheer. “I got interested when I was seven. I wasted my time before that,” he joked. Buffett and Munger believe you don’t have to be smart — well not too smart — to be a successful investor: “If you have an IQ of more than 130, you can give the rest of the points away,” said Munger. But for all Buffett’s cheery demeanour, Munger’s mood is a better guide to Buffett’s thinking. Both believe the economy is at a turning point. Berkshire has more than $40 billion it would like to spend. But, because of what they see as the inflated prices businesses are attracting, there are no bargains to be had. “For the first 30 years my ideas outran my capital,” said Buffett. “Now my capital outruns my ideas.”

    We are at a peak, warn the Berkshire boys, and they are looking down into the trough.

    A number of shareholders ask the “Sage of Omaha” about house prices — clearly overvalued in some areas, he said. Buffett recently sold a house in Laguna, California, for $3.5m. “It was on 2,000 sq ft of land, maybe one twentieth of an acre, and the house might cost about $500,000 if you wanted to replace it. So the land sold for something like $60m an acre.”

    The housing market is not the worst excess Berkshire’s bosses see. They are also concerned about America’s trade deficit.

    Buffett compared America to “an incredibly rich family” that was “consuming more than we bring in. So we sell off a piece of the farm, or mortgage it. We can’t see what’s being sold. We trade away a bit of the farm every day and the rest of the world is happy to buy it. That can go on for a long time but our children will be paying for it one way or another.”

    Munger is more blunt. He said America had reached the apex of western civilisation and that today society reminded him of “Sodom and Gomorrah”.

    Excesses in the market could trigger a catastrophe at any time, said Buffett. The speed with which money could now be moved by what Munger called “the electronic herd” of hedge-fund managers meant a financial crisis could spiral out of control very quickly.

    “The last 60 years have been the best years for western civilisation. My generation has been very favoured. It is unlikely that the next 60 years will be so favourable,” said Munger.

    Both men said China was bound to be the next great world power. “It’s quite conceivable that China will end up being the most important nation in the world,” said Munger. The scale of the country plus the Chinese work ethic and enthusiasm would make them hard to beat, said Munger. “When I look at a modern symphony orchestra, every instrument that is difficult to play has an oriental face over it,” he said. The West, by contrast, was lazy and decadent “ living in extreme affluence with all these people running hedge funds,” he said.

    PERHAPS it was the warnings of doom, perhaps it was the discount — either way at the Berkshire-owned Borsheim’s jewellery store the next day shareholders were shopping like there was no tomorrow. Buffett’s magic was still paying off.

    Jack Fitzpatrick, 26, had come from Reno, Nevada, with his father, Frank, 61. It was junior’s first visit; his father had been coming for 10 years and met his wife in Omaha.

    “When we were kids we never got sports stories, we got Warren’s investment stories. It’s like seeing a part of history,” said Frank. Would he come if Buffett wasn’t here? “No.” What if Gates was speaking? “He’s no Warren Buffett.”

  2. #2

    Default Re: An Introduction to Warren Buffett

    Warren Edward Buffett was born on 30 August 1930. He jokingly says that he was conceived during the fall of the 1929 stock market crash because his stockbroker father had so little to do then.

    At the age of six, he purchased a six-pack of Coke bottles for 25 cents and sold them for a nickel each, setting a lifelong benchmark of a 20% investment return. Fifty years later, his company became the largest shareholder of Coca Cola.

    By age eight, he read books about business. By age ten, he checked out every book from the local Omaha library about investing, finance and the stock market.

    At eleven years old, he bought his first 3 shares in a company at $38 per share. The price soon fell to $27, but not long after, went to $40. Warren sold but learned an important and early lesson when the price of that share rose to over $200 each. This first experience of selling based on price instead of value would form a cornerstone in his investment philosophy.

    At fourteen, Warren was making $175 a month delivering the Washington Post. Later, his company became the largest shareholder of Washington Post.

    He finished high school at age sixteen and had a self made net worth of $6,000. He had already read 100 business books.

    Warren graduated with a Bachelor of Science in Economics from the University of Nebraska at the age of nineteen.

    At 21, he graduated with a Masters in Economics from Columbia University where he was taught by Benjamin Graham, an important mentor for the young Buffett.

    To be continued.......

  3. #3

    Default Re: An Introduction to Warren Buffett

    At the age of 21, Buffett discovered that his mentor, Graham, was Chairman of GEICO insurance. Buffett instinctively knew he had to learn more about it.

    He took the train to Washington to learn from a GEICO executive working on a Saturday and repeated the visits for some time. Buffett invested all of his net worth $10,282 at the time, into GEICO. This experience would also help him understand the company that he would one day own in its entirety.

    Upon graduation, Buffett worked with his father as a stockbroker and taught a night class (called Investment Principles) at the University of Omaha.

    At 24, he was offered employment by Graham in New York. Two years later, Graham retired and Buffett returned to Omaha to launch a home based investment partnership. His net worth was now $140,000.

    At 27, he bought his 5 bedroom house in Omaha, for $31,500. This was 10% of his net worth. He still lives in the same house today.

    By age 30, he became a millionaire. During the 13 years that he managed the partnership, the average annual return was 29.5% p.a.

    To be continued.....

  4. #4

    Default Re: An Introduction to Warren Buffett

    In 1962, Buffett began buying shares in a textile manufacturing firm called Berkshire Hathaway, based in New Bedford, Massachusetts, for $7 a share, which was a substantial discount to its $17 book value. A year later, the Buffett partnership was its largest shareholder.

    Apparently, Buffett later calls this investment to be a mistake. He took control of the company in 1965 and closed it some 20 years later because he was unable to sustain the textile business against cheaper foreign companies.

    In 1969, following his most successful year, Buffett closed the partnership and liquidated the $900 million portfolio to its partners because he felt that he could no longer find excellent value investments in a runaway bull market.

    At 39, his net worth was $25 million and he owned almost 50% of Berkshire. He then became Chairman of Berkshire and began operating within a publicly traded corporation.

    Under a partnership, he selected the partners he wanted. With a public company, other shareholders selected him and he wanted to have the right ones select and the right ones to stay. He does this by communications through his annual letter to shareholders.

    Buffett became a billionaire at 56.

    With a 29.55% average annual return for 13 years with the previous Buffett partnership and a 22.6% average annual return with Berkshire over 38 years compared to 11% p.a. for the S & P 500, there is no close second place to Buffett's investment record.

    To be continued ........

  5. #5

    Default Re: An Introduction to Warren Buffett

    Meet Mr Market

    The foundation of both Benjamin Graham's and Warren Buffett's investment philosophies is a view of the nature of investment markets that Graham personified in "Mr Market".

    In one of his letters to his shareholders, Buffett stated:

    "Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr Market who is your partner in a private business.

    Without fail, Mr Market appears daily and names a price at which he will either buy your interest or sell you his.

    Even though the business that the two of you own may have economic characteristics that are stable, Mr Market's quotations will be anything but.

    For, sad to say, the poor fellow has incurable emotional problems. At times, he falls euphoric and can see only the favourable factors affecting the business. When in that mood, he names a very high price because he fears you will snap up his interest and rob him of imminent gains.

    At other times, he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions, he will name a very low price, since he is terrified that you will unload your interest to him.

    Mr Market has another endearing characteristic: He does not mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic depressive his behaviour, the better for you.

    But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful.

    If he shows up someday in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence.

    Indeed, if you aren't certain that you understand and can value your business far better than Mr Market, you don't belong in the game. As they say in poker, "if you've been in the game 30 minutes and you don't know who the patsy is, you are the patsy."

    Graham's and Buffett's answer is to use their own, independently derived standard of value for determining when a stock is cheap or expensive.

    Graham and Buffett accept market fluctuations as a given. The focus of their investment philosophies is on determining value and the characteristics of a sound investment.

    Coming up next .... the margin of safety approach.

  6. #6

    Default Re: An Introduction to Warren Buffett

    The Margin-of-safety principle

    Another leading prudential legacy from Graham is his margin of safety principle. This principle holds that one should not make an investment in a security unless there is a sufficient basis for believing that the price being paid is substantially lower than the value being delivered.

    Buffett follows this principle devotedly, noting that Graham had said that if forced to distill the secret of sound investment into three words, they would be "margin of safety".

    Over 40 years after first reading that, Buffett still thinks those are the right words. While modern finance theory enthusiasts cite market efficiency to deny there is a difference between price (what you pay) and value (what you get), Buffett and Graham regard it as all the difference in the world.

    Coming up next .... the application of this principle by Buffett and an example of what can go wrong when the principle is ignored.

  7. #7
    noirua's Avatar
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    Default Re: An Introduction to Warren Buffett

    A special announcement will be made by Mr Warren Buffet in about an hours time. Before the market opens, no worries. Will be back.

  8. #8
    noirua's Avatar
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    Default Re: An Introduction to Warren Buffett

    Billionaire investor Warren Buffett, the so-called Sage of Omaha, has signalled he is waiting in the wings to see what buying opportunities emerge from the stock market turmoil.
    "Generally speaking, when there's a certain amount of chaos in certain sections, it is unpredictable where the fallout will be, but the fallout offers some real opportunity," the Chairman of Berkshire Hathaway said in an interview with CNBC. "When dislocations occur, things get more mispriced." Earlier this year, he complained it was getting harder to find companies to acquire at suitable valuations.

  9. #9

    Default Re: An Introduction to Warren Buffett

    I had found this spreadsheet on my troll through the net. Hope you find it useful.
    (its from Buffett Valuation Worksheet ,January/February 1998, Computerized Investing, www.aaii.com)
    Attached Files

  10. #10

    Default Re: An Introduction to Warren Buffett


    I too am a Warren Buffet fan, though I do invest in smaller companies using the all the same principles, bar the International brand name, since smaller companies are often more obscure.

    How long have you been investing?. Wouldn't you be better off just reccommending a few Buffet books rather then writing about his strategies.

    I find buying in the USA both expensive and a pain in the butt, what with the exchange rate and everything, I have been holding Mcdonalds for about 2.5 yrs, it has doubled since I bought it, I also have Microsoft, I bought it just before they announced their $3 special dividend, the capital price is only up 7% since I bought it, I think I should sell it now.

    Over here I have done well with Cochlear Corporate Express, HHG, Westfeilds and some others, my current investments include IDT, COH and CXP, AEC is going to have a bumper year too, but I am fully invested, so can't buy anymore. I use the Consciousinvestor software to screen my stocks both for the US and Australia, it is the best investment I have ever made, do you use it?

  11. #11

    Default Re: An Introduction to Warren Buffett

    Quote Originally Posted by wbooo View Post
    I use the Consciousinvestor software to screen my stocks both for the US and Australia, it is the best investment I have ever made, do you use it?
    I dont, but it sounds interesting. Can you give more info? thanx.

  12. #12
    noirua's Avatar
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    Default Re: An Introduction to Warren Buffett

    "Warren Buffett Watch" at CNBC. Has revealed an 8.6% stake, by Berkshire Hathaway, in Kraft Foods and outlines recent increases and reductions in stakes: http://www.cnbc.com/id/23172142

  13. #13

    Default Re: An Introduction to Warren Buffett

    for any buffett fans,
    the man behind the investor

  14. #14
    hoarding tinned food kennas's Avatar
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    Default Warren Buffett watch

    Well, he's the richest man in the world for the minute.

    He must know something and is worth following.

    Please add any soundbites, or updates here as they come through.

    Warren Buffett's Berkshire Hathaway profits tumble
    Tom Bawden | November 08, 2008

    BERKSHIRE Hathaway, the investment firm run by Warren Buffett, the world's richest man reported a 77 per cent drop in third-quarter profits, as a $US1.01 billion loss on derivatives and other investments combined with sharply reduced results from its operations across the board.

    The group announced net earnings of $US1.06 billion ($1.6 billion), it’s fourth straight quarterly decline, down from $US4.55 billion the year earlier as so-called operating earnings on its insurance underwriting business plummeted by 83 per cent.

    Profits on investments made by Berkshire’s insurance unit fell by 12 per cent to $US809 million in the third quarter, while the non-insurance businesses it owns contributed a collective profit of $US1.08 billion, 7.8 per cent down.

    Berkshire’s operating profit fell 18 per cent to $US2.07 billion, or $US1335 per share, from $US2.56 billion, or $US1655. It fell short of analysts' average expectation of $US1429 per share. Revenue fell 7 percent to $US27.93 billion.

    Last month, Mr Buffett threw his weight behind US stocks as the man who has always invested his own money in government bonds revealed that he had recently switched most of his personal account into American shares.

    In an editorial published in yesterday's editions of The New York Times, Mr Buffett, the head of the Berkshire Hathaway investment group and the world's richest man, acknowledged that the economic outlook was dire and described the financial world as being in a mess.

    The man known as the Sage of Omaha, wrote: "Its problems, moreover, have been leaking into the general economy and the leaks are now turning into a gusher. In the near-term, unemployment will rise, business activity will falter and headlines will continue to be scary."

    Mr Buffett's conclusion is to buy shares in US companies. "I have been buying American stocks. This is my personal account I am talking about, in which previously I owned nothing but US government bonds. If prices keep looking attractive, my non-Berkshire net worth will soon be 100 per cent in US equities."

    The Times

  15. #15

    Default Re: Warren Buffett watch

    Oh sorry , wrong type of thread , i thought he was selling assets to cover costs ..."Warren Buffett watch " was gunna make a bid and stick it with the brolex

  16. #16
    hoarding tinned food kennas's Avatar
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    Default Re: Warren Buffett watch

    Quote Originally Posted by nunthewiser View Post
    Oh sorry , wrong type of thread , i thought he was selling assets to cover costs ..."Warren Buffett watch " was gunna make a bid and stick it with the brolex

    A lot of 'traders' who post here will scoff at this thread because Buffett is an investor who buys and holds for some time and probably doesn't use fib numbers or count 12345 ABC to make an investment decision.

    That's fine, but you can't discount that he's done ok by doing what he does, and that has been investing.

    Perhaps the time of Buffett is over, or perhaps this particular time is not his? Or, he's mismanaged his investments the past year and has lost his mojo?

    Whatever the case, he's probably got some interesting things to say on the economy and/or investing so I'll add them here for my own interest...

    Initial bid on the watch is $1000.

  17. #17
    hoarding tinned food kennas's Avatar
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    Default Re: Warren Buffett

    Ooops, just found that there was already a thread on Buffett.

    Have merged them.

  18. #18

    Default One for the Buffett fans...

    Just spotted this:

    November 19 - Bloomberg (Erik Holm and Shannon D. Harrington): "The cost of protecting against default by Warren Buffett's AAA rated Berkshire Hathaway Inc. has almost tripled in two months... The cost to protect against Berkshire being unable to meet its debt payments, based on credit-default swaps, is more than four times that of rival insurer Travelers Cos. At those levels, the swaps are typical of companies rated Baa3 by Moody's.... one level above junk. The price may have risen on concern that the billionaire's firm could lose a $37 billion bet on world stock market values..."

    Anyone know when the "bet" will be called? One to keep an eye on surely...

    Apologies if this is too frivolous to start a thread over!
    Disclosure: Long cash, gold, stocks.

  19. #19
    Printing My Own Money chops_a_must's Avatar
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    Default Re: One for the Buffett fans...

    Bit of a crack up when you look at his opinions on derivatives.
    Up the Rats!!!!

  20. #20

    Default Re: One for the Buffett fans...

    Anyone know when the "bet" will be called? One to keep an eye on surely...

    A very long wait if you are patient ... doesn't seem like such a big risk over this time frame.
    About a month ago Buffett was sold about $40 billion worth of insurance against the four major indices in the world. The European-style options (which can only be exercised on their expiration dates) were written (sold) are against four major international indices including the S&P 500. The options will expire between 2019 and 2027.

    It’s reported Berkshire received $4.5 billion cash for writing these contracts. Considering the contracts don’t start expiring until 2019, Berkshire is free to do with what it sees fit with the cash.

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