Warren Buffett 02 (Feb 10 - May 15)

[winston]

Three Investment Lessons I’ve Learned From Warren Buffett by Dr. Mark Skousen

First, Buffett says you have to be a contrarian to be successful.

A few of his favorite quotes:

• “If you wait to see the Robins sing, spring may be over.”

• “You can’t buy what’s popular and do well.”

• “Be fearful when others are greedy and greedy when others are fearful.”


Second, Buffett acts quickly and aggressively when an investment looks right to him.

To quote him: “When we see something that makes sense, we act very fast and very big.”


Third, Buffett is always trying to look for the best prospects in the future.

To him future performance is more important than past performance.

To quote him: “The investor of today does not profit from yesterday’s growth.”

He adds: “If past history was all there is to the investment game, the richest people would be librarians.”

And: “In the business world, the rearview mirror is always clearer than the windshield.”

http://www.investmentu.com/2011/Novembe ... ffett.html

[winston]

On Europe

Warren Buffett also made bearish comments on Europe earlier this week…

"The system as presently designed has revealed a major flaw. And that flaw won't be corrected just by words," Buffett said on CNBC.

"Europe will either have to come closer together or there will have to be some other rearrangement because this system is not working." He said the survival of the European Union (EU) is "in doubt now."

Buffett understands how disastrous a European collapse would be for his business (and the entire world). He has direct exposure to the European credit markets through his $3 billion stake in reinsurance company Munich Re.

He's also sold puts against European equity indexes. It's in his best interest for the world governments to fire up the printing presses.

Source: Growth Stock Wire

[winston]

Warren Buffett: 2011 in Review By Don Dion

NEW YORK (TheStreet) -- 2011 was a busy year for billionaire investor, Warren Buffett.

Below are a few of the most closely-followed Buffett-related topics that have been in focus over the past 12 months.

http://www.thestreet.com/story/11355025 ... L_wal_html

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"Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks."

-- Warren Buffett

[winston]

Warren Buffett as a Gold-Hater

Bottom line:

The more of an oligarch Buffett becomes the more absurd his arguments become.

The man is now dishing full out monetary quackery, ignore the nonsense, buy gold

http://www.economicpolicyjournal.com/20 ... hater.html

[iam802]

Buffett: Bonds Are Among Most Dangerous Assets

http://www.bloomberg.com/news/2012-02-0 ... ation.html

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., said low interest rates and inflation should dissuade investors from buying bonds and other holdings tied to currencies.

“They are among the most dangerous of assets,” Buffett said in an adaptation of his annual letter to shareholders that appeared today on Fortune magazine’s website. “Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as these holders continued to receive timely payments of interest and principal.”

Buffett, 81, who built Omaha, Nebraska-based Berkshire from a failing textile maker into a firm selling insurance, energy and jewelry through acquisitions and stock picks, echoed Laurence D. Fink, chief executive officer of BlackRock Inc. Fink said this week that investors should be 100 percent in equities, because of depressed stock valuations and the Federal Reserve’s pledge to keep interest rates low.

“High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely,” Buffett wrote. “Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.”

The Fed has kept borrowing costs near zero, and said last month that economic conditions may warrant “exceptionally low levels” for rates through at least late 2014 to boost the economy and put more Americans back to work. Buffett said other currency-based investments that may pose a risk include money- market funds, mortgages and bank deposits.

IBM, Coca-Cola

Berkshire still holds bonds, primarily Treasuries, for liquidity, and has a preference to invest in companies by buying them outright or acquiring stock, Buffett said. The firm purchased Lubrizol Corp. for about $9 billion and took a more than $10 billion stake in International Business Machines Corp. last year.

Berkshire had more than $68 billion of equities as of Sept. 30 including the largest stakes in Coca-Cola Co. and Wells Fargo & Co., the biggest U.S. bank by market value. Fixed-maturity investments of about $34 billion included holdings of government debt, corporate bonds and mortgage-backed securities. Cash (BRK/A) and cash equivalents were about $34.8 billion.

The Standard & Poor’s 500 Index has climbed 7.3 percent this year through yesterday after being little changed in 2011. Yields (USGG10YR) on 10-year Treasuries rose above 2 percent for the first time in two weeks yesterday after touching a record low of 1.67 percent in September.

‘The Fearful’

Buffett said investors should avoid gold, because its uses are limited and it doesn’t have the potential of farmland or companies to produce new wealth. Achieving a long-term gain on the metal requires an “expanding pool of buyers” who believe the group will increase further, he said.

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow,” he wrote. “During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As ‘bandwagon’ investors join any party, they create their own truth -- for a while.”

Gold prices have climbed to more than $1,700 an ounce from less than $300 in the last decade, as investors sought safety in bullion.

Buffett uses his annual letter to Berkshire shareholders to opine on the economy, the firm’s operating units, corporate governance and other issues. The full document accompanies financial statements and will probably be released later this month.

[winston]

The Only Sure Way to Get Rich in Stocks By Porter Stansberry

Most people think Warren Buffett became the richest investor in history – and one of the richest men in the world – because he bought the right "cheap" stocks.

Legions of professional investors tell their clients they're "Dodd and Graham value investors… just like Warren Buffett."

The truth of the matter is entirely different. And if you want to prosper during the inflationary crisis I see coming, it's critical you understand that difference…

Until 1969, Buffett was a value investor, in the style of David Dodd and Benjamin Graham. That is, he bought stocks whose stock market capitalization was a fraction of their net assets. Buffett figured buying $1 bills for a quarter wasn't a bad business. And it's not.

But it's not nearly as great of a business as investing in safe stocks that can compound their earnings for decades. Take shares of Coca-Cola, for example – they're the best example of Buffett's approach.

Buffett bought his Coke stake between 1987 and 1989. It was a huge investment for him at the time, taking up about 60% of his portfolio.

Later, other investors would bid up the shares to stupid levels. Coke was trading for more than 50 times earnings by 1998, for example. But Buffett never sold. It didn't matter to him how overvalued the shares were, as long as the company kept raising the dividend. In 2011, Coke paid out $1.88 in dividends per share. Adjusted for splits and dividends already paid, Buffett paid $3.75 per share for his stock in 1988.

Thus, Coke's annual dividend, 24 years later, now equals 50% of his total purchase price. Each year, he's earning 50% of that investment – whether the stock goes up or down.

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How could Buffett have known Coke would be a safe stock… and that it would turn into a great investment? Well, like Einstein said famously about God, Buffett doesn't roll dice. He only buys "sure things."

In his 1993 shareholder letter, Buffett wrote about his Coke investment and his approach – buying stable companies with the intention of holding them forever, so their compounding returns would make a fortune.

At Berkshire, we have no view of the future that dictates what businesses or industries we will enter. Indeed, we think it's usually poison for a corporate giant's shareholders if it embarks upon new ventures pursuant to some grand vision. We prefer instead to focus on the economic characteristics of businesses that we wish to own…

Is it really so difficult to conclude that Coca-Cola and Gillette possess far less business risk over the long term than, say, any computer company or retailer? Worldwide, Coke sells about 44% of all soft drinks, and Gillette has more than a 60% share (in value) of the blade market.

Leaving aside chewing gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading company has long enjoyed such global power… The might of their brand names, the attributes of their products, and the strength of their distribution systems give them an enormous competitive advantage, setting up a protective moat around their economic castles.

Buffett is looking for companies that produce high annual returns when measured against the company's asset base and that require little additional capital. He is looking for a kind of financial magic – companies that can earn excess returns without requiring excess capital. He's looking for companies that seem to grow richer every year, without demanding continuing investment.

[winston]

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In short, the secret to Buffett's approach is buying companies that produce huge returns on tangible assets without large annual capital expenditures. He calls this attribute "economic goodwill." I call it "capital efficiency."

These kinds of returns shouldn't be possible in a rational, free market. Fortunately, people are not rational. They frequently pay absurdly high retail prices for products and services they love.

Buffett explained how another of his holdings, See's Candy, earned such high rates of return on its capital in his 1983 annual letter, which I urge everyone to read. In explaining See's ability to consistently earn a high return on its assets (25% annually, without any leverage), Buffett wrote…

It was a combination of intangible assets, particularly a pervasive favorable reputation with consumers based upon countless pleasant experiences they have had with both product and personnel.

Such a reputation creates a consumer franchise that allows the value of the product to the purchaser, rather than its production cost, to be the major determinant of selling price…

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That's the whole magic. When a company can maintain its prices and profit margins because of the value placed on its product by the purchaser rather than its production cost… that business can produce excess returns – returns that aren't explainable by rational economics.

Those, my friend, are exactly the kind of companies you want to own.

And… you especially want to own these stocks during inflationary periods. As things get more and more expensive in the coming years, capital-efficient companies will have to buy less than other companies, on average.

The result will be that inflation tends to lift their profits, rather than reduce them. In the inflationary crisis I see ahead, this is single-best way for stock investors to grow wealth, rather than lose it.


Source: Daily Wealth