Few links from the article titled "top posts of 2008" at nurseb911.com.
To read the complete post: http://www.nurseb911.com/2008/12/top-posts-of-2008.html
I found the following two links from the posts good:
The Art of Discipline was featured in a BusinessWeek article and spoke to my belief that discipline is an important aspect of any individual investors’ long-term strategy.
Cashflow is King provided useful insights into why cashflow is an important factor to examine when analyzing a company and what cash is used for by businesses to pay their bills.
Sunday, December 28, 2008
Top posts of 2008
Saturday, December 27, 2008
Most Common Investment Mental Pitfalls
The Top Ten Mental Errors Are:
1. You Know Less Than You Think You Do
2. Be less certain in your views, aim for timid forecasts and bold choices
3. Don’t get hung up on one technique, tool, approach or view – flexibility and pragmatism are the order of the day
4. Listen to those who don’t agree with you
5. You didn’t know it all along, you just think you did
6. Forget relative valuation, forget market price, work out what the stock is worth (use reverse DCFs)
7. Don’’t take information at face value, think carefully about how it was presented to you.
8. Don’’t confuse good firms with good investments, or good earnings growth with good returns
9. Vivid, easy to recall events are less likely than you think they are, subtle causes are underestimated
10. Sell your losers and ride your winners
Link found at: http://www.simoleonsense.com/james-montier-on-most-common-investment-mental-pitfalls/
Complete article: http://illusion-of-knowledge.behaviouralfinance.net/Mont02.pdf
Monday, December 22, 2008
How India Avoided a Crisis - New York Times Article
“All lending to individuals is based on their income. That is a big difference between your banking system and ours.” She continued: “Indian banks are not levered like American banks. Capital ratios are 12 and 13 percent, instead of 7 or 8 percent. All those exotic structures like C.D.O. and securitizations are a very tiny part of our banking system. So a lot of the temptations didn’t exist.” - Ms. Kochhar ,ICICI Bank.
There was also another factor, perhaps the most important of all. India had a bank regulator who was the anti-Greenspan. His name was Dr. Y. V. Reddy, and he was the governor of the Reserve Bank of India. Seventy percent of the banking system in India is nationalized, so a strong regulator is critical, since any banking scandal amounts to a national political scandal as well. And in the irascible Mr. Reddy, who took office in 2003 and stepped down this past September, it had exactly the right man in the right job at the right time.
Complete Article: http://www.nytimes.com/2008/12/20/business/20nocera.html?_r=3&scp=4&sq=Nocera&st=cse
Wednesday, December 10, 2008
Buffett on 0% interest rates
Buffet's note about US Treasury selling $32 billion in 4 week bills at yield of 0%:
"This should be bullish for Berkshire. With great foresight, I long ago entered the mattress business in a big way through our furniture operation. Now mattresses have become fully competitive as a place to put your money, and sales will soon take off."
Source: http://postcards.blogs.fortune.cnn.com/2008/12/09/power-point-buffett-bets-on-mattresses/
Monday, December 8, 2008
Video Collection: Value Investor Conference @ Darden Business School
A must watch collection of videos about value investing!! Its from value investor conference at Darden Business School.
All the presentations discussed in the videos are available: here
Whitney Tilson, T2 Partners
Panel Discussion
Part 6
Part 7
Part 8
Part 9
Part 10
Part 11
Source: http://www.simoleonsense.com/video-collection-value-investor-conference-darden-business-school/
Saturday, December 6, 2008
Wisdom Of Great Investors (PDF)
“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”
Benjamin Graham. Father of Value Investing
“History provides a crucial insight regarding market crises: They are inevitable, painful, and ultimately surmountable.”
Shelby M.C. Davis. Advisor and Founder, Davis Advisors
“Far more money has been lost by investors preparing for corrections or trying to anticipate corrections than has been lost in the corrections themselves.”Peter Lynch. Legendary Investor and Author
“Despite inevitable periods of uncertainty, stocks have rewarded patient,
long-term investors.”
Christopher C. Davis. Portfolio Manager, Davis Advisors
“Be fearful when others are greedy.Be greedy when others are fearful.”Warren Buffett. Chairman, Berkshire Hathaway
"The basic question facing us is whether it’s possible for a superior investment manager to underperform....The assumption widely held is ’no.’ And yet if you look at the records, it’s not only possible, it’s inevitable.”Robert Kirby. Founder, Capital Guardian Trust Company
“The function of economic forecasting is to make astrology look respectable.”John Kenneth Galbraith. Economist and Author
“You make most of your money in a bear market, you just don’t realize it at the time.”
Shelby Cullom Davis. Diplomat, Legendary Investor and
Founder of the Davis Investment Discipline
-----------------------------------
"We hope this collection of wisdom serves as a valuable guide as you navigate an ever-changing market environment and build long-term wealth." - Davis ADVISORS
Click on the link to read the "The Wisdom of Great Investors" - Insight from some of History's Greatest Investment Minds.
http://manualofideas.com/files/wisdom_of_great_investors.pdf
Wednesday, November 26, 2008
History of U.S. Gov't Bailouts & Effects
History of U.S. Gov't Bailouts
With the flurry of recent government bailouts, we decided to try to put them in perspective. The circles below represent the size of U.S. government bailout, calculated in 2008 dollars. They are also in chronological order. Our chart focuses on U.S. government bailouts of U.S. corporations (and one city). We have not included instances where the U.S. government aided other nations.
Details: http://www.propublica.org/special/government-bailouts
What Happens After a U.S. Gov't Bailout?
With the flurry of recent bailouts, we decided to look beyond initial government outlays to see how the Treasury did in the end. The summaries that follow leave final judgment to you, in part because it's difficult to nail down exact profit or loss. Moreover, no one can say what might have happened without government intervention. Our chart focuses on U.S. government bailouts of U.S. corporations. We have not included United States government aiding other nations. Figures reflect 2008 constant dollars.
Details: http://www.propublica.org/special/bailout-aftermaths
Thursday, November 20, 2008
A Brief History Of The Crash Of 1929
Originally produced in the mid-1990s, this film remains the most authoritative account of the Crash of 1929, and includes rare testimony from the people who worked on Wall Street at the time.
Source: http://www.simoleonsense.com/a-brief-history-of-the-crash-of-1929/
Monday, November 3, 2008
Intelligent Investing with Steve Forbes
Steve Forbes, CEO of Forbes's weekly interviews with world's well known investors and business personalities.
URL: http://www.forbes.com/intelligentinvesting/
About The Show
Intelligent Investing with Steve Forbes brings you wisdom and insights from the investment world's most influential strategists, forecasters and money managers. From the Forbes townhouse in Manhattan to seats of power throughout the world, Steve Forbes brings you face-to-face with the rare men and women who can inspire your thoughts and investments. Nowhere else will you find such calm wisdom that cuts through the shouting, noise, fear and uncertainty you see in business today.
Saturday, October 18, 2008
"Buy American. I Am" - Buffet's article on NY Times
By WARREN E. BUFFETT
Published: October 16, 2008
Source : http://www.nytimes.com/2008/10/17/opinion/17buffett.html
THE financial world is a mess, both in the United States and abroad. 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.
So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.
Why?
A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.
Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.
A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.
Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.
You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.
Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.
Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”
I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.
Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.
Related article on CNBC and interview. http://www.cnbc.com/id/27230391?__source=RSS*blog*&par=RSS
Click here to read the complete article....Tuesday, May 20, 2008
8 Quotes That Will Make You a Better Investor
"Not everything that can be counted counts, and not everything that counts can be counted."
-- Albert Einstein
When Warren Buffett scooped up gobs of Coca-Cola (NYSE: KO) stock in the late 1980s, much of his analysis was likely from something you wouldn't find in any financial statement: the effect Coke had on consumers' minds. On the flip side, if you took the run-up in homebuilders' earnings over the past few years as a normal state of affairs without considering how irrational buyers had become, you'd be eating crow today.
"If you hold a cat by the tail, you learn things you cannot learn any other way."
-- Mark Twain
And if you own a stock that tanks beyond recovery, you'll learn something that no collection of financial horror stories will teach you. Rather than kicking yourself when you make an occasional blunder, take it as an opportunity to learn an important lesson. Years of classroom study or outside reading can't teach you what the experience of actual investing will.
"It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
-- Mark Twain
Those who convinced themselves home prices were guaranteed to march higher for eternity played a painful joke on themselves. It wasn't a lack of information about an impending pullback, it was that they had convinced themselves a pullback would never happen. If you ever find yourself holding a stock that's "certain" to do well, it's time for a reality check. As Ben Franklin said, "Certainty? In this world nothing is certain but death and taxes."
"All men's miseries derive from not being able to sit in a quiet room alone."
-- Blaise Pascal
With so much information pumped throughout the Internet, you could find a dozen investment ideas promising triumph before daybreak. Odds are, many of them will turn out to be rubbish. Investing success comes to those patient enough to wait for the fat pitch, not those who anxiously jump willy-nilly into anything and everything thrown their way.
"Those that fail to learn from history are doomed to repeat it."
-- Winston Churchill
Surprise, surprise, real estate isn't the first absurd bubble we've seen. Just eight years ago dot-com darlings like Yahoo! (Nasdaq: YHOO) and Amazon (Nasdaq: AMZN) taught us an important lesson in bubble mania.
"I've made up my mind ... don't confuse me with the facts!"
-- Chris Axon
This one ties in perfectly with Churchill's quote above. Last year, few cared that stocks like Crocs (Nasdaq: CROX) and Chipotle (NYSE: CMG-B) traded at insane valuations. As long as shares kept soaring, nothing would change their minds. Until the stocks tanked ... then they learned quickly. It's essential to be open-minded about your investments -- even if you love 'em to death -- when the facts change.
"A jug fills drop by drop."
-- Buddha
While many chase runaway investments that will make them spectacularly rich in short order, it's telling that one of the best companies to own over the last several decades -- Berkshire Hathaway (NYSE: BRK-B) -- has compounded its book value per-share at 21.1% per year since 1965. That's an astonishing performance, of course, but it happened slowly enough to cause those looking for instant success to dig elsewhere. While quick multibaggers can be appealing, massive fortunes are more often awarded to those patient enough to let the magic compounding strut its stuff over time.
"This time, like all times, is a very good one, if we but know what to do with it."
-- Ralph Waldo Emerson
There's more than enough negativity right now to make you think the Four Horsemen are galloping toward Wall Street. Regardless of how nasty it gets, panicking will get you nowhere fast. By swimming against the current and digging through the carnage of stocks unfairly brutalized by the credit crunch, you can capitalize on investing situations that others were dumb enough to create.
Source & complete article: http://www.fool.com/investing/general/2008/05/14/8-quotes-that-will-make-you-a-better-investor.aspx?source=ihpdspmra0000001
Thursday, May 15, 2008
Fooled by Percentages!!
Following is a good article about Mental anchors found in Sanjay Bakshi's blog.
Source: http://fundooprofessor.blogspot.com/2008/04/folled-by-percentage-into-catching.html
One of my favorite experiments in class involves asking my students the following question:
“Suppose that you visit a furniture store in a mall to buy a lamp for your bedroom. You find a lamp you like and it has a list price of Rs. 5,000. Happy with this deal, when you approach the sales representative ready to buy the lamp you picked, she informs you that one of their stores which is just a ten-minute walk from there is closing down and you can buy the same lamp over there for Rs 1,000 less. Please raise your hand if the 20% discount is sufficient incentive for you to walk ten minutes to the other store to buy your lamp.”
About 70% of the students raise their hands.My next question is then addressed to only those who raised their hands.
I ask them:“Suppose that you visit a car showroom to buy a car and after checking out many models, you find one you like. It costs Rs. 500,000, you are told by the sales representative. However, she also informs you that one of their showrooms which was just a ten-minute walk from there is closing down and you can buy the same car over there for Rs. 499,000 or Rs. 1,000 less. How many of you would like to walk ten minutes to go over to the other showroom to save Rs. 1,000?”
I hardly see a hand raised. Somehow, students who were happy to walk ten minutes to save Rs 1,000 on a lamp are reluctant to walk ten minutes to save Rs. 1,000 on a car!What is going on here?Indeed, when I reframe both questions again, in a different form, students appeared puzzled:“Would you walk ten minutes to increase your net worth by Rs. 1,000?”Why would a man decline to save Rs 1,000 in one situation, and gladly accept it in another, with the same effort required in both situations?
Isn’t a penny saved a penny earned? To most people, apparently not, suggests research in behavioral economics. Part of the reason is a bias arising out of a phenomenon called the “contrast effect” which deals with how we treat multiple pieces of information presented to us one after the other.If you put something sweet in your mouth immediately after tasting a lemon, it will taste much sweeter than it really is. The contrast between sweet and sour gets accentuated if one experiences one taste immediately after the other. If you meet someone very attractive at a party, and immediately after that you are introduced to someone who, in contrast, is merely average looking, then the average person would appear to be more unattractive to you than would have been the case had you not met the very attractive person beforehand.Similarly, a saving of Rs. 1,000 looks much bigger than it really is when it is contrasted with a purchase price of Rs 5,000 for a lamp, (a 20 percent saving!) but looks much smaller than it really is when it is contrasted with a purchase price of Rs 500,000 for a car (only 0.2 percent saving).It does not matter to a man that a Rs 1,000 saving will have the same effect on his net worth whether he saves it on a lamp or a car. Somehow the presence of a 20 percent reduction triggers an irrational response in his brain. The brain, operating at the subconscious level, is often influenced by the presence of false “anchors”. Anchors are pieces of information to which a mind tends to latch on to while making a decision. And the human mind will often latch on to false anchors created by various influences like availability or contrast.In a classic experiment, researchers asked a group of people if the Mississippi River in the US is longer or shorter than 500 miles (the anchor). Most people responded that it was longer than 500 miles. They were then asked to estimate the length of that river. The average answer was about 1,000 miles.A second group, in contrast, was asked if the Mississippi River is longer or shorter than 5,000 miles and were then asked to estimate its length. Most people responded that it was shorter than 5,000 miles but the average length of the River in this group was about 2,000 miles!The actual length of the Mississippi River is 2,348 miles but false anchors of 500 miles or 5,000 miles tend to pull the average answers towards them!In the lamp vs. car experiment, students who chose to walk ten minutes to save Rs 1,000 while buying a lamp but who refused to walk ten minutes to save the same amount of money while buying a car, were suffering from “anchoring bias”. Their minds were latching on to the wrong anchor of a large percentage savings on a list price, instead of latching on to the right anchor of their personal net worth.Anchors are important, of course, but one has to be careful when deciding if an anchor is valid or not. A man who feels miserable because he dropped Rs. 500 from his pocket which had only Rs. 1,000 in it even though his personal net worth is Rs. fifty lacs is suffering from an anchoring bias. He incorrectly identifies the money in his pocket as a valid anchor as opposed to his net worth. He is also suffering from bias arising out of contrast effect because Rs 500 lost out of Rs 1,000 in his pocket looks very big to him in percentage terms.In contrast, a rational investor who practices wide diversification, knows that its inevitable that some of his picks will turn out to be duds. He does, not, however, let such outcomes make him miserable because he has trained himself to latch on to the right anchors such as the size of his portfolio, and not the percentage lost in a single position.A stock may have fallen 50 percent from its all-time peak in a market crash, may have gone below its 52-week low price, may have fallen below the price at which its shares were offered in a hot IPO, or may have fallen below par value. None of these things mean that the stock is cheap. A stock is cheap only if its price has fallen well below than what the company is rationally worth on a per-share basis.In contrast with underlying value which is the right anchor to latch on to, all time peak prices, 52-week low price, IPO price, and par value are all false anchors. If you blindly buy stocks merely because they have fallen well below some false anchors, thereby allowing contrast effect to make you feel that they are much cheaper than they really might be, then you are functionally equivalent to the man who is trying to catch a falling knife.And that, you will agree, can hurt.
Sanjay Bakshi is a Visiting Professor at Management Development Institute, Gurgaon.
Wednesday, May 7, 2008
Berkshire Annual Shareholder Meeting Update
This post is an update on my visit to Omaha to attend Berkshire Hathaway Annual Shareholder meeting. Read more about Warren Buffet & Berkshire Hathaway. Click Here
Friday:
I travelled to Kansas City as the flights to Omaha was very costly during this weekend. From there it was around 3 hrs drive to Omaha. Reached Omaha around 6:30 PM. Omaha is a small and sleepy city, but during this time of the year, they attract world investment community's attention with over 30,000 decent to town from all over the world. Went straight to the Borsheim Jewellery for the Friday's cocktail party. Party was in the tent in front of the Borsheim's. . fully packed with live music, food, drinks...
Borsheim's Jewellery was open for shareholders and it was also packed, shareholders getting a chance to look/buy from one of the best collection of Jewellery (Borsheim is the one of the largest Jewellery stores in US) at special discount rate.
I met many shareholders from all over the world. Many of the shareholders I met were holding their Berkshire share for as long as 20 years. Back at the tent there were long lines for food and drinks.. I joined the queue. Headed back to my hotel room at around 10PM.
Saturday:
It was informed that the gate to the "Quest Convention Center" (largest convention center in Omaha) will open by 7:00 AM. I reached there by 6:45AM, while walking towards the convention center, I could see the very long queues leading to the different doors. I was pretty sure of one thing, i will be lucky to actually get a seat in the convention center, let alone hopes of getting a good seat. At 7:00 AM they opened the doors and there were a mad rush with people running like crazy. By the time I was able to get it and the huge auditorium was getting filled quickly. I walked towards the front and all the seats where occupied. Saw an empty seat in front very next to the ones reserved for manager. I asked around what time others came in and looks like the line started forming around 2:00AM!!! I was very luck to get that seat which is very close to the podium.
Bill Gates, Susan Decker (Yahoo) were in front enclosed row along with other Directors.
At 8:30AM Berkshire movie started which starred Warren Buffet, Charlie Munger and few others. It was quite funny. Also, some compilation of behind the scenes from annual meeting and last years meeting. At around 10:00 AM the movie ended.
10:30 AM Buffet and Charlie came to the stage. Table were packed with their favourite foods - See's Candy & Coke. Buffet went straight to business. There were 14 Microphone stands all over the stadium and outside room from where people could ask questions. Buffet started taking questions from all the locations one after another. It was a pleasant surprise that he didn't take up any time and went straight to it. People asked all kinds of questions, it was not limited to any one topic: Investments, Berkshire, Politics, Environment, Oil, Dollar, Education, Ethics, Business.. anything.. And pattern was Buffet will give a long and clear answer to it and ask Charlie who was sitting next to him if he wants to add anything. By seeing Charie, i expected a quite person who doesn't seems to be funny. I was wrong. After the long answer from Buffet, Charlie would add 1-2 line quotes and it was both funny and truth to the core. I can say that Charie received more applaud.
Last year there were protest from the Klamath River tribes outside of the Convention center. This year there were questions related to Klamath River issue. Buffet asked Mid American CEO David Sokol who answered those questions. I think this was the most important 'issue' in the meeting. After 3 questions, Buffet said this issue have already got more number of questions than normally allowed (1 question per issue/person is normal). Protesters displayed banners for few minutes during the meeting.
First session was from 10:30AM to 12:00AM then a break for lunch. Started again at 12:30PM and Q & A ended at 3:00PM. And 3:15PM to 3:30PM was the Formal Business Meeting where the Board of Directors were elected. It was over in few minutes.
Except the Klamath River questions, the mood was light. I could see that Buffet, Munger and the crowd were enjoying every moment of it. I know I enjoyed it !!
Next was Nebraska Furniture Mart Baja Bash at 5:30PM, it is a huge store covering over 72 acres. Buffet brought the store from Ms. B.
Sunday:
Shopping at Borsheirms started at around 9:00 AM, but I reached there around 12:00PM, Borsheirms was packed and had food at the Berkshire tent outside. Met couple of other shareholders, one person I spoke to brought his shares 20 years back and is still holding it. He brought it at around $3000, (current price is around $135,000) and he was very happy with the company and Buffet. I have added a picute with him in the album.
At around 2:PM I headed back to Kansas City from where I had to catch my flight back home.... wow!! what a weekend!!
I bought two books at 15% discount for shareholder.
1. The Essays of Warren Buffett : Lessons for Corporate America by Lawrence A. Cunningham which is the one book Buffet recommends.
2. Warren Buffett Speaks: Wit and Wisdom from the World's Greatest Investor by Janet Lowe. I read it, sections are arranged based on themes and it contains many of his quotes. Most of the it I had already read it from different articles and books. Good for casual reading.
Annual Meeting Photos: Click Here
CNBC Live Blog (minute by minute update with Q & A):
Morning Session: http://www.cnbc.com/id/24441379
Afternoon Session: http://www.cnbc.com/id/24443106
Q & A: http://valueinvestingresource.blogspot.com/2008/05/2008-berkshire-hathaway-shareholder.html
Click here to read the complete article....Friday, April 11, 2008
Berkshire Hathaway Annual Meeting
I am planning to attend Berkshire Hathaway Annual Meeting 2008 on May 03 at Omaha, Nebraska. Already received the meeting passes, booked tickets and all set to go. I am excited and looking forward to spend the weekend with Mr. Warren Buffet at Oracle of Omaha's home town.
Weekend Schedule:
Friday, May 2
Borsheims
6:00 – 10:00pm Shareholder Cocktail Reception
Saturday, May 3
Qwest Center Omaha
Annual Meeting
Doors open 7:00am
Company Movie 8:30am
Question & Answer 9:30 – 3:00pm
Shareholder Business Meeting 3:15 – 3:30pm (times are approximate)
4:00 – 5:30pm International Meet & Greet
Nebraska Furniture Mart
5:30 – 8:00pm: Baja Beach Bash
Sunday, May 4
Borsheims
9:00am – 4:00pm Exclusive Shareholder Shopping Day
Gorat’s Steakhouse
4:00 – 10:00pm Berkshire Shareholder Night
Thursday, March 20, 2008
How is portfolio performance calculated?
It is important that we calculate the portfolio performance in a standard and consistent way. Looking at the gains or loss in just few investments will not provide a complete picture of how the portfolio as a whole performed over a long period of time and it certainly does not provide accurate numbers since the investment amount keeps changing and also involves different types of costs.
From last August I have adopted the calculation method based on the following article on fool.com. http://www.fool.com/FoolFAQ/FoolFAQ0056.htm
It is providing a way to accurately calculate the performance. All calculations are based on Total portfolio value, the individual trades are NOT taken into consideration as the value will be part of either Total cash holding or Total Current Holdings value.
Details of the calculations:
1. Calculate current total portfolio value which includes securities holding and cash holdings e.g: Rs. 1,00,000/-.
2. Pick a per unit value e.g: Rs. 100/-
3. Calculate the number of units. e.g: 1,00,000 /100 = 10,000 units.
That is all we need!!
All rows are marked with one of the following: 'Status' - means just recording the values. 'Purchase' - fresh infusion of cash & 'Sale' - means cash was taken out of the portfolio.
Status: Status is added once a week, mostly done on Friday evening. You will need current holdings value, total cash holding & Sensex. Remaining columns like 'performance %s' will be calculated automatically.
Addition of new fund: An infusion of fresh cash to portfolio is considered to be purchase of n units at current price. i.e: Total fresh infusion amount/Current unit price. This will increase the number of units, but leave the current unit price unchanged.
Taking cash out of Portfolio: Taking fund out of the portfolio is considered to be reducing the number of outstanding units.
I typically do the calculation on every weekend. And all the values in the spread sheet except the portfolio value and cash are calculated by the spread sheet itself based on the formula already entered. I also record the index values so that we can see how our portfolio performed compared to broader indexes. Since we are working off of the per unit value, any addition of Added advantage is that since we are taking the total portfolio value (holdings + cash), all the trading costs will be included in it without need for any special calculations. It may looks like lot of work, but in fact it is very easy. Believe me, I have been doing it for couple of months now!! Takes only around 10 mins each week!!
Spread sheet with sample performance calculations:
http://spreadsheets.google.com/pub?key=pn2af8IJJznP5vHgVvpv6UA
Friday, February 22, 2008
Charlie Munger's 10 Rules for Investment Success
Munger is almost as forthcoming with his investment thoughts as his pal Warren Buffett. In his must-read book, Poor Charlie's Almanac, Munger puts forth a 10-step checklist that even the most inexperienced investors could benefit from.
1. Measure risk: All investment evaluations should begin by measuring risk, especially reputational.
2. Be independent: Only in fairy tales are emperors told they're naked.
3. Prepare ahead: The only way to win is to work, work, work, and hope to have a few insights.
4. Have intellectual humility: Acknowledging what you don't know is the dawning of wisdom.
5. Analyze rigorously: Use effective checklists to minimize errors and omissions.
6. Allocate assets wisely: Proper allocation of capital is an investor's No. 1 job.
7. Have patience: Resist the natural human bias to act.
8. Be decisive: When proper circumstances present themselves, act with decisiveness and conviction.
9. Be ready for change: Accept unremovable complexity.
10. Stay focused: Keep it simple and remember what you set out to do.
Source & complete article: http://www.fool.com/investing/general/2007/12/13/charlie-mungers-10-rules-for-investment-success.aspx
Thursday, January 10, 2008
A CEO Sets Compensation Standard
Following are the highlights of American Express CEO Ken Chenault's new compensation package. For once, it seems, a CEO of one of America's largest and most respected companies has his compensation squarely lined up with that of shareholders' interests.
By month's end, Chenault will have amassed options controlling 2.75 million shares of AmEx stock. To take advantage of these options, however, he must meet some hefty performance goals over the next six years. You heard it right, six years. In a world where performance is often measured on a quarterly basis, the distant time horizon enforces Chenault to focus on the big picture, rather than having a relentless short-term focus on "making the numbers."
For the option grant to kick in and be worth anything, here's what Chenault must accomplish:
- Earnings must grow no less than 15% per year on average.
- Revenue must grow at least 10% per year.
- Return on equity must equal 36% on average.
- Total return to shareholders must outperform the S&P 500 by 2.5% per year, on average.
Hats off to AmEx for taking the lead in promoting a truly responsible and shareholder-aligned compensation package.
Source & complete article: http://www.fool.com/investing/value/2008/01/10/american-express-sets-ceo-compensation-standard.aspx
Click here to read the complete article....Wednesday, January 9, 2008
Building a Better Portfolio
Building a Better Portfolio - by Pat Dorsey, Director of Stock Analysis, Morningstar.
1. Hold fewer stocks that you know well.
2. Tie weightings to confidence levels.
3. Diversify by company-specific issues.
4. Consider your circle of competence.
5. Be patient.
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