Buffett & Munger

Lessons from the Masters of Value Investing

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Warren Buffett and Charlie Munger

Phil Fisher's 15 Rules for Evaluating Companies

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Warren Buffett has said he is 85% Ben Graham and 15% Phil Fisher.  Phil Fisher, in his watershed book Common Stocks and Uncommon Profits and Other Writings (Wiley Investment Classics) laid out 15 rules for investing in companies:
  1. Does the company have products or services with sufficient market potential to make possible a sizeable increase in sales for at least several years?
  2. Does the management have a determination to continue to develop products or processes that will still further increase total sales potential when the growth potential of currently attractive product lines have largely been exploited?
  3. How effective are the company’s research and development efforts in relation to its size?
  4. Does the company have an above-average sales organization?
  5. Does the company have a worthwhile profit margin?
  6. What is the company doing to maintain or improve profit margins?
  7. Does the company have outstanding labor and personnel relations?
  8. Does the company have outstanding executive relations?
  9. Does the company have depth to its management?
  10. How good are the company’s cost analysis and accounting controls?
  11. Are there other aspects of the business somewhat peculiar to the industry involved that will give the investor important clues as to how the company will be in relation to its competition?
  12. Does the company have a short-range or long-range outlook in regard to profits?
  13. In the foreseeable future, will the growth of the company require sufficient financing so that the large number of shares then outstanding will largely cancel existing shareholders’ benefit from this anticipated growth?
  14. Does the management talk freely to investors about its affairs when things are going well and “clam up” when troubles or disappointments occur?
  15. Does the company have a management of unquestioned integrity?

More detail is available on an article on the Old School Value website.

 

Last Updated on Friday, 26 December 2008 10:33
 

Return on Equity

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Return on Equity (ROE) is net profit after tax and abnormal items divided by shareholders' funds (equity).  Shareholders' funds are derived from the money contributed by shareholders in the purchase of shares when initially issued plus any funds retained by the company from profits that are not paid to shareholders as dividends - called retained earnings. "ROE provides an assessment of how well a firm uses shareholders' money and is the most important business ratio of all. ROE is also a number that is devoid of share market hype".  

Last Updated on Wednesday, 19 November 2008 11:41 Read more...
 

Seth Klarman's Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor

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Seth Klarman is the President of the Baupost Group, a Boston area investment firm.  His 1991 book, Seth Klarman's Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor has taken on iconic status among value investors often selling for $700 for a used copy (ironic isn't it).  It is available at some libraries, but unfortunately it has been misplaced at many libraries.

Ronald Redfield has prepared notes on the book and kindly posted them at fool.com.  As he notes, "This book alone will not turn anyone into a successful value investor. Value investing requires a great deal of hard work, unusually strict discipline and a long-term investment horizon."  The article is worth a read and if you can find the book it is definitely worth the read. 

 

 

The Heilbrunn Center for Graham and Dodd Investing at Columbia Business School

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Value investing was developed in the 1920s at Columbia Business School by finance professors Benjamin Graham and David Dodd, MS ’21. The authors of the classic text Security Analysis, Graham and Dodd were the very pioneers of their field.  After being rejected by Harvard, Warren Buffett attended Columbia and became Ben Graham's star student.   The Heilbrunn Center for Graham & Dodd Investing was established in 2002, ensuring a permanent home for value investing at Columbia Business School.   The school's website offers resources for value investors including Public items from the Schloss Archives.

 

 

Shaping the Snowball - Episode 1 Kiewit Plaza

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Alice Schroeder, author of THE SNOWBALL: Warren Buffett and the Business of Life makes her first stop at Kiewit Plaza in Omaha, home to Buffett's Berkshire Hathaway and gets a phone call from the man, himself.  Alice discusses Buffett's history with this building located at 3555 Farnam Street in Omaha, NE.

 

Last Updated on Sunday, 02 November 2008 10:10
 
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" A story that was passed down from Ben Graham illustrates the lemminglike behavior of the crowd: "Let me tell you the story of the oil prospector who met St. Peter at the Pearly Gates. When told his occupation, St. Peter said, "Oh, I'm really sorry. You seem to meet all the tests to get into heaven. But we've got a terrible problem. See that pen over there? That's where we keep the oil prospectors waiting to get into heaven. And it's filled—we haven't got room for even one more." The oil prospector thought for a minute and said, "Would you mind if I just said four words to those folks?" "I can't see any harm in that," said St. Pete. So the old-timer cupped his hands and yelled out, "Oil discovered in hell!" Immediately, the oil prospectors wrenched the lock off the door of the pen and out they flew, flapping their wings as hard as they could for the lower regions. "You know, that's a pretty good trick," St. Pete said. "Move in. The place is yours. You've got plenty of room." The old fellow scratched his head and said, "No. If you don't mind, I think I'll go along with the rest of 'em. There may be some truth to that rumor after all "

Warren Buffett



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