Dec 9, 2009
Timeless and Time-Tested Warren Buffett Watch Predictions
As a new year approaches, it is customary for journalists to make predictions about the future.
In keeping with Buffett's long-term way of looking at things, Warren Buffett Watch offers eight predictions that are intentionally on the 'timeless' side of the prognostication spectrum.
In keeping with what's becoming a holiday tradition, they are the same set of predictions we've offered for the past two years. We still stand by them.
Warren Buffett became one of the wealthiest people in the world by making predictions and putting money behind those predictions. Every time he buys a stock or a business or some other investment, he's forecasting the future.
Judging by the incredible returns of his holding company Berkshire Hathaway, Buffett and his colleagues are very good at making those predictions.
Of course, it helps when you can give your predictions plenty of time to come true. That's one reason Buffett's favorite holding period for investments in "outstanding businesses with outstanding managements" is "forever." After all, "We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely."
With that in mind, here are Warren Buffett Watch's 'timeless' predictions.
1. Recessions can't be avoided forever. As 2007 was coming to a close, Buffett told our Becky Quick that if unemployment picks up significantly, the "dominoes" will fall and the U.S. economy will fall into recession in 2008. He was right, but not alarmed. "It is the nature of capitalism to periodically have recessions. People overshoot." (He told Becky she's young enough to expect to see 6 or 7 or them.)
2. We'll survive current and future recessions just as we've survived past problems. As Buffett told us in August, 2007, (and repeated throughout 2008 and 2009): "We've got a wonderful economy... There's never been anything like that in the history of the world. We live seven times better than the people did a century ago on average... We've had problems all along. If you look at the last century, we had that Great Depression and World War Two, we had the Cold War, we had the atomic bomb, but the country does well."
3. Recessions will create opportunities. "I made by far the best buys I've ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap."
4. All stocks won't be cheap. Like Ted Williams waiting for the right pitch, a successful investor waits for the right stock at the right price, and it doesn't happen every day. "What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out." You get in trouble, Buffett says, when you listen to the crowd chanting "Swing, batter, swing!"
5. The crowd will make mistakes. Buffett cites this piece of advice from his mentor Benjamin Graham: "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."
6. Investors will mistakenly think falling stock prices are bad. "If they reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today. Anything you're going to be buying in the future, you want to have get cheaper."
7. Good times will prompt bad decisions. In his 2000 Letter to Berkshire shareholders, Buffett compared the crowd that buys big when prices are high to Cinderella at the ball. "They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future - will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."
8. There will be more dancing at another wild party followed by another painful hangover. Looking back at the Internet bubble, Buffett is quoted as saying, "The world went mad. What we learn from history is that people don’t learn from history."
In keeping with Buffett's long-term way of looking at things, Warren Buffett Watch offers eight predictions that are intentionally on the 'timeless' side of the prognostication spectrum.
In keeping with what's becoming a holiday tradition, they are the same set of predictions we've offered for the past two years. We still stand by them.
Warren Buffett became one of the wealthiest people in the world by making predictions and putting money behind those predictions. Every time he buys a stock or a business or some other investment, he's forecasting the future.
Judging by the incredible returns of his holding company Berkshire Hathaway, Buffett and his colleagues are very good at making those predictions.
Of course, it helps when you can give your predictions plenty of time to come true. That's one reason Buffett's favorite holding period for investments in "outstanding businesses with outstanding managements" is "forever." After all, "We don't get paid for activity, just for being right. As to how long we'll wait, we'll wait indefinitely."
With that in mind, here are Warren Buffett Watch's 'timeless' predictions.
1. Recessions can't be avoided forever. As 2007 was coming to a close, Buffett told our Becky Quick that if unemployment picks up significantly, the "dominoes" will fall and the U.S. economy will fall into recession in 2008. He was right, but not alarmed. "It is the nature of capitalism to periodically have recessions. People overshoot." (He told Becky she's young enough to expect to see 6 or 7 or them.)
2. We'll survive current and future recessions just as we've survived past problems. As Buffett told us in August, 2007, (and repeated throughout 2008 and 2009): "We've got a wonderful economy... There's never been anything like that in the history of the world. We live seven times better than the people did a century ago on average... We've had problems all along. If you look at the last century, we had that Great Depression and World War Two, we had the Cold War, we had the atomic bomb, but the country does well."
3. Recessions will create opportunities. "I made by far the best buys I've ever made in my lifetime in 1974. And that was a time of great pessimism and the oil shock and stagflation and all those sort of things. But stocks were cheap."
4. All stocks won't be cheap. Like Ted Williams waiting for the right pitch, a successful investor waits for the right stock at the right price, and it doesn't happen every day. "What’s nice about investing is you don’t have to swing at pitches. You can watch pitches come in one inch above or one inch below your navel, and you don’t have to swing. No umpire is going to call you out." You get in trouble, Buffett says, when you listen to the crowd chanting "Swing, batter, swing!"
5. The crowd will make mistakes. Buffett cites this piece of advice from his mentor Benjamin Graham: "You’re neither right nor wrong because other people agree with you. You’re right because your facts are right and your reasoning is right—and that’s the only thing that makes you right. And if your facts and reasoning are right, you don’t have to worry about anybody else."
6. Investors will mistakenly think falling stock prices are bad. "If they reduce the price of hamburgers at McDonald's today I feel terrific. Now I don't go back and think, gee, I paid a little more yesterday. I think I'm going to be buying them cheaper today. Anything you're going to be buying in the future, you want to have get cheaper."
7. Good times will prompt bad decisions. In his 2000 Letter to Berkshire shareholders, Buffett compared the crowd that buys big when prices are high to Cinderella at the ball. "They know that overstaying the festivities - that is, continuing to speculate in companies that have gigantic valuations relative to the cash they are likely to generate in the future - will eventually bring on pumpkins and mice. But they nevertheless hate to miss a single minute of what is one helluva party. Therefore, the giddy participants all plan to leave just seconds before midnight. There’s a problem, though: They are dancing in a room in which the clocks have no hands."
8. There will be more dancing at another wild party followed by another painful hangover. Looking back at the Internet bubble, Buffett is quoted as saying, "The world went mad. What we learn from history is that people don’t learn from history."
Nov 3, 2009
Importance of Break during my schooldays....
"In Schooldays, i remember the Break, that we used to get to eat snacks or lunch, and we all used to wait for it. The moment the bell rings and everyone is waiting to leave their seats, meet their friends, play on the ground, run around in the floor lobby, shout, scream, laugh etc. I could see some teachers moving in their rooms, children running away from them. Big Boys use to gather down and play with Football, or rush towards canteen for some spicy snack. My School was located at the beach front and had a beautiful sea view from all its window and we could always feel the great breeze coming from the Arabian Sea. It was a calm, peaceful, innocent and effortless days, where morning we use to rush to schools and evening wait to play and nights study with mom & dad and go off to Good night sleep..., there was no one to ask what is market today, what is happening in US, whats around Dollar, why are markets falling...etc. At times i Feel that y is there no such Breaks in Markets. Why dont for few days we go off from the market mood and leave the way the life is. In school we lived the way life is."
Buffett always says that he would love if the markets close after the day he Buys something and reopens after 5 years or so....Indirectly a Break from regular routine effort of analysing stock prices and market movements would have made him a trader than Investor, so a Break actually can help you become a Investor.( thats just a point to take a break)
Break in the school use to energise us to come back in the class room and attend lectures more attentively. Today Mr.Market is an never ending Class, where knowledge is thrown everyday with lot of unwanted information, news, comments which are actaully of no use. If Mr. Market would have been close this infomarions, news, comments wouldnt have been there. Break is reuqired in your work, in your life, in your thoughts, in your everything that you just do it in regular routine. I think it energises your thoughts, you have more energy to come back to do something new, different, with more energy and zeel.
Our Life in the the Corporate Culture has become monotonous, We get up in the morning, rush to read each and everyline of the paper, to know before others do. We rush to Mr. Market and try to know everything which is available under the sun(irony is that we dont even know nor cant we know even 1% of it), we reproduce the same with our logics and comments from some great gurus coming on the TV sets, and finally we end the day with meetings and partys again discussing the same old Mr. Market and still we never find the answer to why is the market up , down, sideways etc to it. The quest for knowing Mr. Market has made us Robot which acts without thinking....
I feel that I require a break from Mr. Market, and i suggest to all that a Break is must from anything that u love doing it, because that would give you more energy and different thought process...
I am on for a vacation and see my self posting after a Month....
Happy Investing.....
Oct 30, 2009
Oct 23, 2009
Oct 20, 2009
Interview of Seth Klarman - Absolute Return+Alpha
Seth Klarman Interviewed by Absolute Return+Alpha. Its an old article but a pretty interesting one.
25 June 2008
"We're not the stereotypical hedge fund in terms of an idea a minute. We come in with a view that a security is trading for less than it’s worth, and we buy it."
How did you decide value investing was for you?
I was fortunate enough when I was a junior in college — and then when I graduated from college — to work for Max Heine and Michael Price at Mutual Shares [a mutual fund founded in 1949]. Their value philosophy is very similar to the value philosophy we follow at Baupost. So I learned the business from two of the best, which was better than anything you could ever get from a textbook or a classroom. Warren Buffett once wrote that the concept of value investing is like an inoculation- — it either takes or it doesn’t — and when you explain to somebody what it is and how it works and why it works and show them the returns, either they get it or they don’t. Ultimately, it needs to fit your character. If you have a need for action, if you want to be involved in the new and exciting technological breakthroughs of our time, that’s great, but you’re not a value investor and you shouldn’t be one. If you are predisposed to be patient and disciplined, and you psychologically like the idea of buying bargains, then you’re likely to be good at it.
What traits in Heine and Price influenced you?
Max Heine was great at not looking at what something was called, what its label was. He looked at what it actually was. For example, back in the late ’70s, Mutual Shares was buying the bonds of bankrupt railroads, and I think a lot of people would have said, “They’re bankrupt,” and “Who needs railroads?” Max and one of his partners knew how many miles of track the railroad had, what the scrap steel on the track could have been sold for and which railroads might have wanted pieces of those networks. They also knew what the real estate rights above the terminals were worth.
Michael Price was fabulous at pulling threads. He would notice something, and then he would get curious and ask questions. And one thing would lead to another thing, and that would lead to another thing. I remember a chart that Michael made of interlocking ownership of mining companies that was an extension of a thought where one good idea led to another and had the potential to lead to many more if the threads kept being pulled. That was a great lesson — to never be satisfied. Always be curious.
Value is your mantra.
We don’t even think of ourselves as a hedge fund. We see ourselves as basically long-only investors. Unlike hedge funds, we don’t leverage the portfolio — never a nickel of portfolio leverage. We have a minimal amount of shorts, currently less than 1 percent of the total assets. We’re not the stereotypical hedge fund in terms of an idea a minute. We’re very bottom up, not top down. We don’t come into the office with a view that interest rates, the dollar or the economy are going to do this or that. We come in with a view that this particular asset or security is trading for less than it’s worth and we want to buy it. We have a different approach than a lot of, quote, “hedge funds.”
What were some of your best value investments?
Distressed-debt investments where we owned the senior debt. That is a favorable place for a value investor. You have a margin of safety since, as things go bad, people who are junior to you are the ones who lose value before you do. Second, the bankruptcy process itself is a catalyst. A cheap stock can stay cheap forever, but if you own a bankrupt bond, the process of emerging from bankruptcy and distributing new securities offers a practical catalyst to realize the value. Back in 2001, 2002, we successfully invested in the debt of funeral home companies like Service Corp. International and Stewart Enterprises. We were investors in Xerox Credit Corp. debt.
Biggest mistakes?
There are too many examples that we could say, “Ah, that was right in our sweet spot, and we should have had it.” All investors need to learn how to be at peace with their decisions. We as a firm are always going to buy too soon and sell too soon. And I’m very at peace with that. If we wait for the absolute bottom, we won’t buy very much. And when everybody’s selling, there tends to be tremendous dislocation in the markets.
What’s the secret to success?
Every manager should be able to answer the question, “What’s your edge?” This isn’t the 1950s, when all you had to do was buy a corner lot and build a small drugstore and it gradually became incredibly valuable land or you owned a skyscraper or you built a small shopping center and it became the big regional mall. The market’s very competitive; there are a lot of smart, talented people, a lot of money chasing opportunity. If you don’t have an edge and can’t articulate it, you probably aren’t going to outperform.
Why do some hedge fund managers fail?
Their clients are pressuring them for short-term results, or they think their clients want short-term results. That’s probably the biggest problem for professional money managers. It makes it very, very hard for an investor to hold a stock that’s going down, to take a contrary viewpoint. I also think leverage is a great risk. If you look at hedge fund failures, virtually all of them were on the back of excess leverage.
Are you worried about the hedge fund industry becoming too crowded?
If you took some of the people in your [Hall of Fame] group and compare what they do with what we do, there would be no overlap of positions. Probably ever. So are there too many? No. It’s not competition for us, but yes, more and more money has gone into the kinds of strategies many hedge funds follow. On the other hand, there are also some bad hedge funds — overleveraged hedge funds — and those are the causes of tremendous selling opportunities. When they get in trouble, they may be forced to sell at bargain prices.
Is it getting more difficult to find value?
Sure, but I can’t worry too much about things I can’t control. If suddenly tomorrow I got the conviction that all securities were efficiently priced, that nothing was dropping to levels where I cared about it, I would be happy to close up shop. But human nature makes it hard for the markets to be efficient. As recently as earlier this year, there were days when it felt to a lot of people like the world was ending, that we were staring into some kind of abyss of financial distress, and a lot of buyers weren’t buying. Those were interesting days. We were looking for bargains, and the Fed massively intervened, and people decided it was safe to invest again, and the markets worked out. So the question is not, Are people smart, are people sophisticated, do they have clever ways of looking at things, are they looking in the right areas? The question is, Are there periods when none of that matters because their human natures get the best of them?
What’s your opinion on hedge funds going public?
It’s a terrible mistake. One of the worst days for the hedge fund industry was the day the first one became public. As an investor, you do best when you think about what’s in your client’s interest, which is managing a reasonable amount of money that will earn a good return with limited risk. When you go public, you change that risk-return equation and start thinking about how much money you can make. It becomes a business where the client relationships don’t have to be longer than the next quarter and the talent can leave and the clients can leave.
Name one of the most pressing issues the world faces today.
It would be great if we got a long-term energy policy in this country, because if we could put a floor under the price of oil, we could enable alternatives to spring up. We can’t risk oil going back to $40, and we’re just so shortsighted and stupid about that. We could have a global war over energy if we’re not careful.
What’s your philosophy when it comes to philanthropy?
I’m not a big fan of giving to endowments, because people in endowment situations tend to give away the minimum. I believe problems are compounding faster than the money, so spending more money sooner rather than later is more likely
to address a problem. I’m interested in situations where you get a sizable bang for the buck, where it’s proven that intervention is effective and where even a relatively small amount of money or a relatively targeted amount of money can change the game.
Oct 15, 2009
Thouhgts Before Diwali...
Wish you all HAPPY DIWALI AND A PROSPEROUS NEW YEAR!!!
In last 10 months, Mr.Markets have tought me lot of things. I have been in this field investing my own money for last 4 years, but the most i have learned is in this Bear phase. It has been a great learning curve for me and i feel that without such days and months, it would have been difficult for me to understand and differentiate between "what is quality" and "what is junk". Period between Jun 07 and Dec 07, everything in the market was looking Quality. But its only in the tough times the difference between the two is realised.
The story so far...
In last 10 months i saw the best of companies available at mouth watering prices. Though could not grab on to all of it, but yes, could take the opportunity to invest in couple of good businesses. What i saw in last 4 months was that my money doubled and in few cases easily went 3- 4 times. Mind blowing money in short span!! But if it was so easy to make money so fast, i would not have been in the business of Investment. Before Diwali we have seen Indian markets giving great returns to Investors and has revived the lost confidence among the Domestic and International investors. Lot of ideas(businesses) were floating at their bottom 8-9 months back, and Mr. Market was offering it at dirt cheap levels, but perception of the people investing was different. Nothing dynamic has happened except the Goverment coming with full majority. But that has just changed the perception not the real Business fundamentals from day 1.
What i am trying to draw the point is that we were not at such bad condition at that point of time than what we had perceived and the same is again at current situation. People perception has changed and PE's are at times driven by perception.
The returns that I have capped right now are just "reversion to the mean". But now the real battle begins when the difference between " Man and Boys" will be realised and will see few Boys getting matured to become Man, and real Mans taking up further to next leap.
I am not smart enough to predict the market, but what i have learned in Value Investing is that 'buy' when you find it at a discount to its real value or what we call intrinsic value and the Indian markets in my view are not available at a discounted value at current point of time. I dont call it a 'Sell' just because there is no value, but avoid buying at this point of time. We have to be alert to spot the Right Boys and Hold onto the Mans for our Portoflios to excel on 3 year period.
I am confident that we will be able to spot the Right Mans and the Right boys, in this market. The key to be succesful in it, would be to focus what "Graham tought years back, Buy it when the price we find is at a discount to its value" We will need to have patience for buying,holding it would be a second stage.
Happy Investing in the New year!!!
Oct 13, 2009
Book Review - "Margin of Safety" - by Seth Klarman - Chapter 1
In Coming few months I shall cover important highlights from every chapter of "Margin of Safety" - by Seth Klarman. The book is a master piece written by Seth Klarman. His words are full of wisdom. His thoughts should definitely have an impact on real investors. I in my own way shall try to cover the key highlights from Chapter to Chapter and from topics to topics. I hope that this shall be useful to all those who don't posses the book. This book is not available in the market and is auctioned at Sky high prices on Amazon. I wish my effort will help all the readers who plan to read this book.
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