Warren Buffett 01 (May 08 - Jan 10)

[LenaHuat]

Hi K
Don't really know But LHL has many cousins.

[winston]

Buffett's MidAmerican reduces Constellation stake

NEW YORK - Warren Buffett's Berkshire Hathaway has further slashed its stake in Constellation Energy Group after backing away from a possible bidding war for the company.

[winston]

Buffett, Who Invests ‘Forever,’ Finds Shorter Span Unprofitable By Erik Holm

Feb. 11 (Bloomberg) -- Billionaire Warren Buffett likes to say his favorite length of time to hold a stock is “forever.” That’s a good thing, because some of his more recent investments aren’t making him money in the short run.

Buffett, 78, ranked the richest man in the U.S. by Forbes magazine, placed bets over the past two years on firms including Kraft Foods Inc., Johnson & Johnson and oil producer ConocoPhillips. After last year’s 38 percent drop in the benchmark Standard & Poor’s 500 Index, they are among the stocks trading at less than what he paid when he last added their shares to the portfolio of his Berkshire Hathaway Inc.

The man heralded as the “Oracle of Omaha” tells acolytes he evaluates companies based on their stability, their competitive advantage and what he thinks they’ll be worth years into the future, instead of trying to find the moment when their stocks are at their lowest. The declines in his recent equity purchases suggest he could have waited before taking the plunge.

“People like to second guess Warren Buffett, but it’s not just a flip question to ask if he should have kept his powder dry a bit longer,” said Jeff Matthews, author of “Pilgrimage to Warren Buffett’s Omaha” and founder of Ram Partners LP, a hedge fund in Greenwich, Connecticut. “He’s paid dramatically higher prices than where some of them are now trading at, so you have to wonder if he was too quick on the trigger.”

Buffett, who makes most of the investment decisions at Omaha, Nebraska-based Berkshire, is required to tell regulators about changes to the firm’s equity portfolio every three months. The latest report, covering the period ending Dec. 31, may be filed by the end of this week and will include purchases and sales made during the worst quarter for the S&P 500 in more than two decades.

‘Buying Too Soon’

In separate filings, Berkshire said it spent $9.45 billion on equity securities in the first nine months of last year, buying shares in companies including Eaton Corp., a Cleveland- based maker of circuit breakers and fuel pumps; Ingersoll-Rand Co., a refrigeration-equipment manufacturer incorporated in Bermuda; and U.S. Bancorp in Minneapolis. All of those purchases are now underwater.

“In hindsight, it’s easy to see that he was buying too soon,” said Michael Yoshikami, president of YCMNet Advisors in Walnut Creek, California, who manages $800 million and owns Berkshire shares. “He’d probably be the first to tell you that. But he and pretty much everybody else had no idea how bad things were going to get.”

U.S. Bancorp Stake

Berkshire became U.S. Bancorp’s biggest shareholder as Buffett bought the majority of his stake in a period when the stock never fell below $29.09. He added shares in the third quarter of 2008, during a three-month span when the stock’s minimum price was $20.57, according to Bloomberg data. The bank reported profit declines for eight straight quarters. Its stock closed at $14.40 on the New York Stock Exchange yesterday.

Berkshire increased its Ingersoll-Rand stake sixfold in last year’s second quarter, when the shares never fell below $36.54. Since acquiring the stock, which gives Buffett about 1.8 percent of the firm, the price has fallen more than 50 percent. Profit at Ingersoll, which makes Thermo King and Hussman refrigeration equipment, has fallen in three straight quarters.

Buffett first bought Eaton shares between July and September of last year, a period in which the stock never fell below $52.32. The company said in January that it was cutting 5,200 jobs and forecast that it would “break even” in the first quarter. The shares closed at $43.02 yesterday.

Berkshire’s Decline

“He’s not the kind of guy who goes around kicking himself, but it’s pretty clear that some of these are much, much cheaper than when he thought they were a good deal in the first place,” said Gerald Martin, a professor at American University in Washington who has studied Buffett’s investment history. “He knows better than anyone that the economy goes in cycles, so when he buys into something he’s not too worried about trying to figure out where the bottom is.”

Berkshire’s stock has declined 36 percent in the past year, through yesterday, and profit has fallen in four straight quarters.

Buffett has said he’s also spending his own money to buy U.S. stocks as prices decline amid the worst financial crisis in 75 years, switching holdings from government bonds.

“Most major companies will be setting new profit records 5, 10 and 20 years from now,” Buffett said in a column in the New York Times in October, warning that investors who sat on the sidelines were ignoring advice from hockey great Wayne Gretzky, who said: “I skate to where the puck is going to be, not where it has been.”

Other Opportunities

Buffett is finding other opportunities for Berkshire amid the economic turmoil, funding buyouts, buying preferred shares in private deals and acquiring whole companies. In April, he committed $6.5 billion to help McLean, Virginia-based candy manufacturer Mars buy chewing gum maker Wm. Wrigley Jr. Co. In September and October, he agreed to spend $8 billion on preferred shares of General Electric Co. and Goldman Sachs Group Inc. that pay 10 percent annual interest.

Later deals have yielded even more favorable terms. In the past week, Buffett agreed to buy preferred shares in Milwaukee- based motorcycle maker Harley-Davidson Inc. that pay 15 percent and Sealed Air Corp., an Elmwood Park, New Jersey, packaging company, paying 12 percent.

“I wouldn’t be surprised if there’s not much news from the fourth quarter,” Yoshikami said, referring to Berkshire’s next stock-purchase disclosure. “When you can get a 10 percent return that’s virtually guaranteed on preferred shares, why buy stock? People complain that Buffett is less adaptable than he used to be, but that’s not true. I bet he has learned from some of these recent mistakes.”

[financecaptain]

Here's a special message from the one of the wealthiest man on earth and is worth your time reading and taking notes....It's simple yet powerful and meaningful.

"We begin this New Year with dampened enthusiasm and dented optimism. Our happiness is diluted and our peace is threatened by the financial illness that has infected our families, organisations and nations. Everyone is desperate to find a remedy that will cure their financial illness and help them recover their financial health.

They expect the financial experts to provide them with remedies, forgetting the fact that it is these experts who created this financial mess.

Every new year, I adopt a couple of old maxims as my beacons to guide my future. This self-prescribed therapy has ensured that with each passing year, I grow wiser and not older. This year, I invite you to tap into the financial wisdom of our elders along with me, and become financially wiser.

Spending: If you buy things you don't need, you'll soon sell things you need.

Savings: Don't save what is left after spending; spend what is left after saving.

Hard work: All hard work brings profit; but mere talk leads only to poverty.

Laziness: A sleeping lobster is carried away by the water current.

Earnings: Never depend on a single source of income.

Borrowings: The borrower becomes the lender's slave.

Accounting: It's no use carrying an umbrella, if your shoes are leaking.

Auditing: Beware of little expenses; a small leak can sink a large ship.

Risk-taking: Never test the depth of the river with both feet.

Investment: Don't put all your eggs in one basket.

I'm certain that those who have already been practicing these principles remain financially healthy.

I'm equally confident that those who resolve to start practicing these principles will quickly regain their financial health.

Let us become wiser and lead a happy, healthy, prosperous and peaceful life."

- Warren Buffet

[winston]

Why Buffett Does What He Does By Dan Ferris

Several headlines have noted Berkshire Hathaway shares are hitting five-year lows. Some think Warren Buffett, Berkshire's billionaire CEO, has lost it.

Short seller Doug Kass, for example, says Buffett is guilty of style-drift, i.e., getting outside his "core competencies" as an investor.

Recently, Buffett has spent reams of Berkshire's cash, and now he's selling iconic favorites like U.S. Bancorp, Johnson & Johnson, Procter & Gamble, and ConocoPhillips to raise more cash... which he's using to buy bonds of companies like Harley-Davidson and Tiffany's.

That might look un-Buffett to you. And Doug Kass may have been right so far. But I don't buy it. Buffett's style is simply to take as little risk as possible in exchange for an adequate return. That's why he's doing what he's doing.

Buffett's recent purchases of $300 million of 15% bonds from Harley-Davidson and $250 million of 10% bonds from Tiffany's aren't style drift. They're typical Buffett moves. Let me explain...

Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life, tells the story of a private business Buffett once invested in, which made computer punch cards. The way Buffett decided how much to invest took a few minutes. He looked at how much profit the company made and divided that by 15%, and that was the intrinsic value of the business. He bought a stake in the company based on that number.

That's it. That's the core of why Buffett does what he does. He's looking for safety of principal and a satisfactory return, the two conditions Buffett's mentor, Ben Graham, sets out for investments.

In addition to the Harley Davidson and Tiffany deals, Buffet bought $5 billion of Goldman Sachs preferred stock paying 10%, $3 billion of GE preferred paying 10%, $2.6 billion of Swiss Re convertible preferred shares paying 12%, and $150 million of Sealed Air bonds paying 12%.

With the market crashing last year, and remaining highly depressed this year, Buffett once again has opportunities to make 10%-15%. And that's in bonds and preferred stock.

Like bonds, preferred stock is senior to common stock. Bond coupons and preferred dividends are paid out, even if the common shareholder gets no dividend at all. Buffet's a low-risk compounder. That hasn't changed. No style drift here.

Mind you, I'm not a Buffett worshipper. His daffy political views annoy me. For example, he thinks if you steal a certain amount of my wealth before I have a chance to pass it on to my children, they'll be better human beings and the world will be more "fair."

But like many, I admire Buffett's ability to find fantastic long-term investments. I admire his ability to be a relentless compounder of wealth. And I think his recent moves will turn out to be typical Buffett winners.

That's why I'm encouraging all of my readers to buy Berkshire Hathaway right now. If Berkshire Hathaway isn't a great deal at this price, then there's no such thing as a great deal.

Berkshire's book value, which Buffett has said roughly tracks Berkshire's intrinsic value, has risen from about $30,000 per share in the middle of 2003 to around $77,500 per share today, a 158% increase.

Yet the stock is selling for approximately the same price it sold for then. Absurd.

Berkshire's annual report comes out soon. We'll find out more about Buffett's thinking. In the meantime, I believe Berkshire Hathaway is one of the great long-term investment opportunities of your life. Don't pass it up.

[LenaHuat]

He will be releasing his annual letter to shareholders this Sat.

[winston]

When the market is slow, it's time to sharpen the weapons and wait. Hence, I'm been spending some time reading about several legendary investors..

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Warren Buffett: Business Buyer by John Dobosz

Take a young business genius, apply a liberal dose of Ben Graham's tutelage and you have the richest man on Earth.

Who is Warren Buffett?

Arguably the best and the best-known investor of our time, Warren Buffett is also the world's wealthiest individual, earning the top spot last year on Forbes' 2008 ranking of the world's billionaires. He is also a celebrated philanthropist who has committed the bulk of his vast wealth to the Bill and Melinda Gates Foundation.

Buffett's net worth as of last March stood at $62 billion, composed mainly of his holdings of Berkshire-Hathaway, a struggling textile company he acquired in 1965. Back then, shares traded for $18, and today the stock, which never split, will run you about $80,000. It did trade as high as $151,650 in December of 2007, but even Buffett's value-based strategy could not escape the gravity of a ferocious bear market.

Born in 1930 the son of a United States Congressman and stockbroker, Buffett comes from a comfortable but hardly extravagant background in Omaha, Neb. He graduated from the University of Nebraska in 1950 and then, inspired by reading "The Intelligent Investor" by Benjamin Graham, he studied under Graham at Columbia University where he received a graduate business degree in 1951. After Columbia, Buffett got started in the investment business, selling securities for Buffett-Falk & Company until 1954.

Buffett stayed in close touch with Graham, and his former professor gave him a job with his firm, Graham-Newman Corp., where Buffett worked as an analyst from 1954 to 1956. Here, working alongside Graham, Buffett sharpened his skills as a value investor. He went back to Omaha in 1956 to form a family investment partnership, which he dissolved in 1969.

For most of the past 40 years, Buffett has channeled his investment efforts through Berkshire (nyse: BRK - news - people ), which he uses as a holding company. The severe bear market of 1973 to 1974 produced a bumper crop of bargains upon which Buffett and Berkshire were able to seize, picking up big interests in The Washington Post (nyse: WPO - news - people ). The pattern has precedent: Buffet began aggressively buying American Express (nyse: AXP - news - people ) in 1964 when scandal sent shares into a nosedive, and he eventually became the largest AmEx shareholder. Similarly, during the Crash of 1987, Buffett and Berkshire snapped up shares of Coca-Cola (nyse: KO - news - people ) on the cheap.

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Stock Picking Strategy:

Buffett does not buy stocks as much as he buys businesses. His style of value investing obviously encompasses many of the principles handed down to him by his mentor, Graham. At the heart of Buffett's simple but highly effective strategy is having the discipline to recognize when the market is not properly reflecting the true long-term value of a particular business, which can be calculated by discounting its likely future cash flows at an appropriate discount rate.

In a nutshell, Buffett looks for companies that have strong brands (which promotes premium pricing) that run understandable businesses with a good return on capital without a lot of debt. Profits should show up in cash flow, earnings should be predictable, and management needs to be owner-oriented.

Robert Hagstrom, author of The Essential Buffett: Timeless Principles For The New Economy, summarizes Buffett's approach:

--Analyze a stock as a business

--Demand a margin of safety

--Manage a focused portfolio

--Guard against speculation and emotion

One of Buffett's famous aphorisms is to "buy when others are fearful and sell when others are greedy." John Train author of The Money Masters, helps to summarize Buffett's outlook in his 1980 book: "Most of the time, most businesses are not worth what they are selling for, but on rare occasions the wonderful businesses are almost given away. When that happens, buy boldly, paying no attention to current gloomy economic and stock market forecasts."

Even though Berkshire-Hathaway's stock price has fallen nearly 50% in the current bear market, keep in mind that Buffett has been here before. Berkshire lost nearly half of its value in the bear market of 1973 to 1974.

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Of course, Buffett's success owes just as much, if not more, to his patience and ability to control emotions as it does to any magic formula.

Here is what we look for when searching for stocks that appeal to Buffett:

--Market capitalization greater or equal to $1 billion

--Positive operating income for trailing 12 months and each of the past seven years

--Return on equity greater than 15% for current and three prior years

--Debt-equity ratio better than industry media

--Operating margin greater than industry median

--Net profit margin greater than industry median

--Price change greater than book value change over past five years

--Low price-to-free-cash-flow ratio

[winston]

Warren Buffett's Unusual 'Commodity' Investment
By Chris Mayer, editor, Mayer's Special Situations

This week, Warren Buffett's Berkshire Hathaway revealed a new position in Nalco Holding, a stock I've liked (and recommended) for a long time.

With a $1.6 billion market cap, Nalco is a small-cap stock... but it's actually one of the world's largest water-treatment companies. It's my favorite pure play on water filtration. Customers use Nalco's products and services to prevent corrosion, contamination, and the buildup of harmful deposits.

Buffett picked up 8.7 million shares. That makes Berkshire the second-largest shareholder in the company, with a little more than 6% of the shares.

It's easy to see what Buffett likes. Nalco generates a steady stream of free cash flow – $142 million in its fiscal year ended September 30. Today, the market cap is about $1.6 billion. So you're getting nearly a 10% free cash flow yield. Put another way, you're only paying about 10 times free cash flow. Not earnings, but cash flow.

On the downside, Nalco has a leveraged balance sheet with $3.1 billion in net debt. However, its business model ensures steady cash inflows from service contracts, which is less of a risk than it might seem. Also, the first significant maturities don't come until November of 2010 – plenty of time for the credit markets to return to some friendlier state. In any event, the debt was not enough of a risk to put Buffett off the scent.

There is also a nice backdrop to the Nalco thesis. Water is a scarce commodity... and we live in an age in which, for better or worse, people of all kinds are obsessed with reducing their "carbon footprint." Now there are more footprints to worry about: water footprints.

The Wall Street Journal recently gave some examples of this sort of thing:

It takes roughly 20 gallons of water to make a pint of beer, as much as 132 gallons of water to make a 2-liter bottle of soda and about 500 gallons of water, including water used to grow, dye and process cotton, to make a pair of Levi's stonewashed jeans.
Other examples include the nearly 35 gallons of water behind every cup of coffee, the 700 gallons behind the typical dyed T-shirt, and the 630 gallons to produce a single hamburger.

So a water footprint is basically how much water you use to produce a given consumer good. There is a lot more attention focused on reducing this water footprint, especially since water-scarcity issues are cropping up a lot more these days.

You may be familiar with these numbers: Two-thirds of the world's population face water shortages by 2025, according to the United Nations. And according to the U.S. Government Accountability Office, about 36 states face water shortages by 2013.

These issues may not seem so pressing to you, since every time you turn on the tap, the water flows. And you can get all the bottled water you can buy at any grocery store. Unless you live in the Western states, where water rights are more of a concern, you may not appreciate water-scarcity issues.

But it is an important issue for industrial users of water all over the world. Nike, Pepsi, Starbucks, Levi's, and about 100 other companies recently held a conference in Miami on reducing water footprints. So this is serious business.

It's not just an attempt to be eco-friendly, either. It's nothing but good old-fashioned greed that compels companies to think about their water usage. If you are Coca-Cola, you need a good water supply. And you can't have locals railing at you for depleting their already low water supply to make fizzy sugar water. Coca-Cola either finds ways to use water more efficiently or the locals will shut production down.

The Journal notes in passing SABMiller's experience in Tanzania. SABMiller makes Miller Lite, Peroni, and Pilsner Urquell. Its factory in Dar es Salaam depleted local aquifers, causing them to grow increasingly salty. Meanwhile, the city has water shortages already. SABMiller has to find a way use water more efficiently or it will go out of business in Tanzania.

These kinds of stories repeat themselves in different settings all over the world. As one manager for the Freshwater Footprint Project for the World Wildlife Fund said, "Three billion more people are going to be on this planet" by 2050. "Somehow, we're going to have to use the same amount of water we use today."

Nalco is right in the heart of this issue. Nalco's customers are industrial users. Nalco's services improve water efficiency. The company also offers services to reduce air pollution, treat industrial wastewater, and more. In this, Nalco is the global leader, with a 17% global market share. It's bigger than GE in water.

As a long-term investment, Nalco is among the more compelling ideas out there. Certainly, it's more compelling than trying to figure out Citigroup's balance sheet... or guessing whether or not – and when – Tiffany's sales will come back.

In fact, the entire water spectrum looks attractive as a long-term investment theme. It's going to be an issue we're going to deal with for years yet... and Warren Buffett's purchase of Nalco is further confirmation of the idea.