Superinvestors or super value investors

1. Think of yourself as owning a business and not buying something that wiggles around in price.
2. Your attitude toward the market.
3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”

Graham and Dodd’s approach: look for values with a significant margin of safety


The common intellectual theme of the investors who use Graham and Dodd’s approach is: they search for discrepancies between the value of a business and the price of small pieces of that business in the market.Those investors don’t use beta, capm, covariances in returns, volume, price movement, charts… They even have difficulty in defining them. They simply focus on two variables: price and value.


Walter Schloss with no college education working for Graham’s firm knows how to identify securities that sell at a conceivably less than their value to a private owner. He compounded money from 1956 to 1984 at 21.3%.


Tom Knapp working for Graham compounded at 20% from 1968 to 1983. 
Warren Buffett compounded at 29.5% from 1957 to 1969.


Bill Ruane who took Graham’s course at Columbia compounded with at 18.2% from 1970 to 1984.


Charlie Munger, who was a lawyer and changed to investing career after talking to Warren, compounded at 19.8% from 1962 to 1975.


Rich Guerin, who was an IBM salesman and turned into investing after talking to Munger, compounded at 32.9% from 1965 to 1983.The idea of value investing, buying a dollar for 40 cents, either grabs you instantly or never. Rich Guerin immediately understood the value approach.


Stan Perlmeter, who was in advertising and in the same building as Warren Buffett in Omaha, understood the value approach instantly, left his advertising career, compounded money at 23% from 1965 to 1983.


The above investors worked independently and didn’t own the same thing as others. They bought a stock because they would get more for their money that what they paid for. They didn’t look at quarterly earnings, projections, next year’s earnings, investment researches, price momentum, volume, or which day of the week was. They simply asked: “What is the business worth?”


They follow Graham’s principles:

  1. Think of yourself as owning a business and not buying something that wiggles around in price.
  2. Your attitude toward the market.
  3. The margin of safety. Don’t try to drive a 9800 pound truck over a bridge that says “Capacity: 10000 pounds.” Go down the road and find one that says “Capacity: 15000 pounds.”

What I learned from Warren Buffett’s 2019 Annual Letter

If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1.

I first learned about Warren Buffett in 2006 when I picked up the Intelligent Investor. My immature mind discarded him completely as I loved getting rich quick schemes of speculators more. In 2013, after being hit for many years with heavy punches to the gut and receiving the final blow to my head, I decided to study the Oracle of Omaha to understand why he’s been so successful for such a long time while my idol speculators either killed themselves or died poor. The study took months as I poured into his writings and his talks.

The results:

  1. I stopped losing money feeling like a fool and a gambler.
  2. I founded a value investing fund to invest in Vietnamese companies. After 5 years of investing, what I learned from Warren Buffettt and practiced is working wonderfully.
  3. I became more at ease with being myself. The most notable is that I happily live a frugal lifestyle and pay almost no attention to what others say.

Every year at this time, I am eagerly waiting to receive the annual letter from Warren Buffett. Today is no difference. It’s the first thing I looked for when I woke up.

After many tries, I finally could download the letter. There must have been too many people trying to get his letter at the same time since Berkshire Hathaway’s website was extremely slow.

In this letter, Warren Buffett again showed his love for America and his belief in the long-term prospect of America.

Buffett’s buying criteria: “to buy ably-managed businesses, in whole or part, that possess favorable and durable economic characteristics. We also need to make these purchases at sensible prices.

Buffett has written many times that he paid little attention to daily fluctuation of stock prices, quarterly earning, and even one year earning. What he focuses on is the business and its prospect: “Focus on operating earnings, paying little attention to gains or losses of any variety.

Next, Buffett gave an outstanding lesson on “Focus on the Forest, Forget the Tree“. Berkshire Hathaway has many different businesses. If taken out to analyze each business, one might be very concerned as there are undoubtedly bad businesses or diseased trees in the forest. And there also are many healthy businesses/trees which will continue to grow in size. Taken as a whole, the forest is booming. “At Berkshire, the whole is greater – considerably greater – than the sum of the parts.

Will Buffett make more purchases in 2019?
My expectation of more stock purchases is not a market call. Charlie and I have no idea as to how stocks will behave next week or next year. Predictions of that sort have never been a part of our activities. Our thinking, rather, is focused on calculating whether a portion of an attractive business is worth more than its market price.

Where have fundings come from?

  1. Debt. Berkshire uses little or no debt though some of its subsidiaries might leverage debt when it makes sense.
  2. Equity. Buffett retained all the earning to invest and compounded it.
  3. Insurance float. Using float to invest has been a cornerstone in Buffett’s compounding machine.
  4. Deferred tax income.

Finally, as usual, Buffett dedicated the last portion of writings to teach. This year, he taught about American Tailwind or his belief in the long-term economic growth of America. This is worth reading several times.

Buffett made his first investment in the stock market with his $114.75 saving at the age of 11. “If my $114.75 had been invested in a no-fee S&P 500 index fund, and all dividends had been reinvested, my stake would have grown to be worth (pre-taxes) $606,811 on January 31, 2019 (the latest data available before the printing of this letter). That is a gain of 5,288 for 1. 

Is Gold safer than stock? If I ask people, the answer is mostly YES. However, history proved that most people are often more wrong than right.
If the same amount of $114.75 was to put in gold, by now it would be worth $4,200. “The magical metal was no match for the American mettle.

And it’s a dream to say the same: “For 54 years, Charlie and I have loved our jobs. Daily, we do what we find interesting, working with people we like and trust.

The full letter: http://www.berkshirehathaway.com/letters/2018ltr.pdf

Warren Buffett – Educational videos

The following is a collection of videos of Warren Buffett. There are few videos of him that I watched and listened to for the entire year repeatedly everyday when I was learning value investing. I hope it will helps you as well.

P/S: if you find a new video of his, I’d appreciate you to leave the link in the comment

HBO documentary of Warren Buffett in 2017 (#mustwatch):

Warren Buffett shared great lessons for small businesses and entrepreneurs :

Warren Buffett at University of Nebraska 2003:

Warren Buffett speaks to University of Georgia students in 2001:

Warren Buffett on how to stay out of debt (#mustwatch)

Warren Buffett & Bill Gates talk to students

Warren Buffett in India (#mustwatch)

Berkshire Hathaway Annual Meeting playlist

Enter your email to subscribe to notifications from this site

Join 4,661 other followers

Other popular articles:

  1. Making 6 figures? How to avoid being one of 69% of Americans who have less than $1000 in the bank.
  2. 20 minutes that can change your life
  3. Life lessons from a Uber driver who was laid off
  4. How to guard yourself against negative influences
  5. How to get your dream job with no experience – Lessons from Bill McDermott
  6. Making 6 figures #2? How to avoid being one of 29% of American households with no retirement savings
  7. Leaders are readers
  8. A SPECIAL GIFT FOR YOU – WHY SHOULD I HIRE A COACH?
  9. This simple skill is worth millions, helped many become millionaires, billionaires

About the author: Hoan Do is a certified leadership coach. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups to share with other leaders about transformational leadership and coaching. He has trained many leaders via mastermind groups, workshops, and one-on-one coaching.

How to become the best and most successful investor by the billionaire value investor Charlie Munger

Charlie Munger and Li Lu interviewing with Weekly in Stock August 2018
Charlie Munger is 95 year old.
Long-term value investing instead of gambling
Philosophy: Find a good investment and stay with it for a long time.
The saying in Chinese: it takes 10 years to sharpen one’s sword.
If you invest the way people gamble in casinos, you are not going to do very well. It’s the long term investment that works best.
If you like the actions of investing (sometimes winning, sometimes losing) just like the actions when they gamble in a casino, they are not suited to be value investors.
It’s the long-term investors who figure out something’s going to work over the long term and and buy that.
Ben Graham said that in a short run, the market is a voting/gambling machine, in the long run, the market is the weighing machine.
How Charlie invests:
A lot of people believe that there’s truth in the market and that the market is going to tell you something just by bouncing around. It’s not the way Charlie or Berkshire invest the money.
Charlie and Warren have a view to what the intrinsic value is and what is being traded. They only buy it when they think the stock is worth more than what they are paying.
They are trying to make a long term investment by waiting for something to be underpriced and then buying.
They don’t care nor pay any attention to those gamblers on the market.
Speculating or gambling is a foolish way if you want to get rich.
Li Lu: the truth that Charlie mentioned above is the value of the company itself.
For those who care about price fluctuations and making relevant investments based on such fluctuations are very foolish.
How many companies to invest in?
Over the last 50 years, Hong Kong’s successful investors are not short-term traders and gamblers, they are long-term investors who sought out good long-term investments and stubbornly held for long periods of time.
Charlie bought Berkshire at $16 a share. It’s not selling for $300,000 a share. It takes 50 years and it’s a very good investment. Charlie just sat there for over 50 years.
Li Lu and Charlie have been investing together in China for over 13 years. They bought many companies and sold very few.
Charlie doesn’t have many bad investments.
Charlie has 3 stocks: Berkshire, Li Lu’s partnership, and Costco.
How books does Charlie read?
He skims or reads 20 books per week.
He reads a lot of biography, almost no fiction.
Why Berkshire invested in Apple?
Warren said he could understand consumer electronics better than computer. And they only found few opportunities in American market which exist in consumer electronics and computer. They decided to invest in Apple.
Another thing is that Charlie and Warren keeps learning. As they keep learning and as conditions change, their investment changes.
Warren and Charlie hated airline investments for many years. As the condition changed, they found that airlines were selling very cheap and bought as many as they could.
Charlie: We changed because the world changed.
   If reality changes, we will change as well.
Warren and Charlie hated railroad stocks for decades. However, as it got down to only four big railroads, technology changed, they bought railroad stocks and then bought the whole railroad.
They changed their mind because the fact changed.
Li Lu: we are not going to make a large and complete predictions about general market or an industry. That’s not our investment style. That’s not going to do anything for real investment returns. Instead they often play a negative role. It puts you in a pre-conceived state. Therefore, keep your foot on the ground. Analyze each company on specific basis.
How to live your life?
Live one day at a time and do the best you can every day and pretty soon you have a good life.
If you want to be a good person, you want to get one more day being a better person. You do for enough days and pretty soon you become a better person.
Why do masters of value investment enjoy longevity?
If you analyze who live long life, they are: professors, judge, and value investors
Who live short life: journalists, hard drinkers, hard smokers. When you are under a lot of stress, you die young. Traders are the worst of all. Short-term stock traders die the quickest.
The judge just sits there. Court rules go his pace not somebody else’s. There’s nobody over him telling him to do something. Judge lives forever.
How often do you talk to Buffett and what do you discuss?
Buffett and Charlie used to talk a lot.
Berkshire has 30 people at its headquarter. Berkshire added $65 billion dollars to its net worth in 2017 and 0 head count was added.
Why rationality is important?
Rationality is seeing the world the way it is, instead of the way you hope it is.
When you don’t see the world the way it is, it’s like judging something through distorted lens. You think the world is one way and it’s different. That leads to terrible mistakes.
So most people are irrational.
How can we be rational?
You’ve got to work at it and care about it.
If you don’t care whether you are rational or not, you don’t work on it. Then just stay as irrational as you want all your life and take the lousy results you surely get.
You have a moral duty to be as rational as you can.
Human nature in a big bureaucracy makes bad decisions. If you don’t know that, you will give more respect to those decisions than they deserve. So it helps to understand where the human nature is automatically causing bad results, so that you can avoid them.
The reality is that if you deal with a big dumb bureaucracy, it’s very difficult and unpleasant. The sooner you learn that and how to handle that, the better off you are.
The main idea is to understand the world the way it is, instead of the way you hope it is.
This is important than doing researches over the company’s fundamentals.
Rationality is more important than knowledge intelligence and patience.
People will recognize value in time
Crazy traders may do crazy things on the short term basis but over time value will tend to win.
It’s natural for the stock to eventually go to its value.
Ben Graham: in a short-term, the stock market is a gambling machine, in the long term, it is the weighing machine.
In the long-term, the market will figure out what’s really worth.
So the most important thing in the market is time. When there’s enough time, more and more people will see the value. Especially when the value itself is increasing more and more.
This is quite natural. There’s nothing magical about it.
Why buying a great company is better than buying a cigarbutt?
A great company keeps working when you are not. A great company will eventually earn more and more and more while you just sit there and do nothing.
A mediocre company won’t do that.  These mediocre companies will cause a lot of agonies and very modest profit. When it goes up a little, you have to sell it and then find another until it works. That’s a lot of work.
Instead, you can just buy one great company at the right price. You can just sit there and do nothing and wait.
A great company will constantly create new value. The value itself grows by accumulating returns.

Enter your email to subscribe to notifications from this site

Join 4,661 other followers

Other popular articles:

  1. Making 6 figures? How to avoid being one of 69% of Americans who have less than $1000 in the bank.
  2. 20 minutes that can change your life
  3. Life lessons from a Uber driver who was laid off
  4. How to guard yourself against negative influences
  5. How to get your dream job with no experience – Lessons from Bill McDermott
  6. Making 6 figures #2? How to avoid being one of 29% of American households with no retirement savings
  7. Leaders are readers
  8. A SPECIAL GIFT FOR YOU – WHY SHOULD I HIRE A COACH?
  9. This simple skill is worth millions, helped many become millionaires, billionaires

About the author: Hoan Do is a certified leadership coach. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups to share with other leaders about transformational leadership and coaching. He has trained many leaders via mastermind groups, workshops, and one-on-one coaching.

If you are curious about the above method and how you can apply it to your life successfully, open your email and send me an inquiry at coach@hoanmdo.com

Warren Buffett – Timeless and Fool-Proof Advice for Entrepreneurs

Warren Buffett – Advice for Entrepreneurs: simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

Warren Buffett – Advice for Entrepreneurs: simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

 

[Edited transcript by Hoan Do]

I would like to just tell you a couple of short stories and we’ll draw maybe a couple of lessons from them.  I would like to tell you of two women that each sold the business to Berkshire Hathaway for many many many millions of dollars. Both of them started with twenty-five hundred dollars by a coincidence was the exact same amount. It was everything they had in the world.

One of them was a woman who landed in Seattle in 1917. She couldn’t speak a word of English. The Red Cross got her to Ford dodge where she was reunited with her husband who had come to the country a couple of years earlier. She lived in Fort Dodge for two years. As she put it, she felt like a dummy. She couldn’t pick up the language. She couldn’t learn a word.

So she and her husband decided to move to Omaha in 1919. There she found a small colony of Russian Jews. She started feeling more at home. As her oldest daughter went to school, she would come home and teach her mother the words she learned in school that day.

This woman, Rose Blumpkin, spent 20 years saving money bringing first her siblings over, her mother and father fifty dollars at a time. She sold used clothing to do it.

She had four children during this period. By 1937, after 20 years, she saved $2,500. She went to Chicago and she bought what she could have furnished her dream, which had always been to open a furniture store. This woman would never gone to school one day in her life. With $2,500 but with the same spirit that the people in this room had about having a dream and working to accomplish that dream,  she built a business which she sold to me in 1983 for 60 million dollars approximately. The fourth generation is working in that business. This woman Rose Blumpkin lived well. She worked for me until she was 103. Then she retired and she died the next year. Mrs. B with her $2,500, could not read or write, and she went into a furniture business, and she didn’t bring anything in unique in furniture but she brought a determination to succeed. She knew she could outwork anyone else. She knew she cared about her customers. She worked at very low gross margins. She built this incredible business.

I saw one other woman who did a similar thing with $2,500. I paid her hundreds of millions for her business.

Today I’d like to tell you about one other small business person. I went to buy his business from him and he turned me down, which was very wise. This was a fellow who was born about eight years before I was he was born in 1922. He was a pretty good athlete, didn’t like school much. His company hires more college graduates each year than any other company in the United States. He went to college for a year and then dropped out. He really wasn’t that interested in the school and the year he dropped out was 1941. When the United States was under attack, he went down to the Army Air Force recruiting station to volunteer. They turned him down because he had hay fever. He went over to the Navy and again volunteered and they took him. They put him on an aircraft carrier. He flew small fighter planes during World War II. Then he came back to the Midwest.

By this time, he would be 23 or 24 years old. He actually kind of went from one job to another for a short period of time. He finally became a used car salesman at a Cadillac dealership in st. Louis Missouri. At age 35 having moved up in the sales organization, he said to his boss: “could I go into car leasing business with you,” The boss said: “well if you’ll cut your salary in half and you’ll come up with $25,000 ( which he borrowed), we can become partners in a car leasing company.” 

My friend Jack started at age 35 at the car leasing business. He had seven cars. It was pretty slow.  In fact one of the things he did was whenever the phone rang, he let it ring three or four times so people would think that he was very busy answering other phones. And of course it was the only call he was gonna get all day. So his first venture was okay but it wasn’t really going to go anyplace. And there’s a lesson in this for all of us. At age 40 he decided with 17 vehicles, he was going to go into competition in the rent-a-car business. So now he’s taking on Hertz and Avis and national and people like that who have hundreds and hundreds of thousands of cars and he’s got 17 cars. And his cars aren’t any different from theirs. He’s buying them from General Motors or Ford or Chrysler and he can’t get the airport locations which those companies have. But he was determined that he would basically offer the customer the friendlier service than they’ve ever seen. And so he started the company and named it after the battleship that he’d flown from in the Pacific, which was the USS Enterprise. When he died about the year and a half ago, his rent-a-car company starting with those seventeen cars was worth more than Hertz and Avis and all the rest of the rental cars put together. The man’s name was Jack Taylor. His son Andy Taylor, the friend of mine, runs the business now.

So this man didn’t invent artificial intelligence. He didn’t do anything that just like Mrs. B selling furniture. Any one of us could have entered those businesses. He lived by the creed basically of delighting his customers and working with people and establishing the relationship with them so that they in turn would want to delight the customers. He learned how to project himself and his attitude toward his fellow man. He desired to make a friend out of every customer. He managed to take very ordinary cars and turn them into this extraordinary business from virtually nothing.

It illustrates several points. You don’t necessarily get it right the first time. In the car leasing business, basically we’re competing on the cost of money to finance cars and it’s very hard to delight a customer. At the age of 40 with all of that experience behind him, he found the golden key. He took a very ordinary business and turned it into an absolutely extraordinary operation just like Mrs. B did with furniture. He didn’t worry about whether the Federal Reserve was going to tighten or ease. He didn’t worry about whether the stock market was up or down yesterday. He didn’t worry about the things he couldn’t change. He did focus on the one thing he could change. That was the customers experience.

He was smart enough to see that he would find that business. Henry Ford as you may know failed twice before he started the Ford Motor Company in 1903. The the test isn’t whether you get the greatest business idea in the world the first time out. The test is whether you keep learning as you go along.What your strengths are and what you can do for your customers. What you can bring especially to the party. To do that you need a genuine desire day-in day-out to delight the customer. I’ve never seen a business that delight the customer and doesn’t succeed. What you want is that customer the next day when they want to rent a car or buy some furniture, what goes through their mind is that it’s the place where they’ve had a great experience. I don’t know the tie and the shirts I am wearing now but  I do know I will remember how I was treated what I bought it. 

You long forget about the price but you never forget whether you had a good experience or a poor experience with the purchase experience.If the memory is of rudeness, indifference, they’re never going to come back. 

As a small business owner and as you grow, you have to not only be able to project that interest in people’s well-being in delighting them yourself, but you have to do it through other people. And you won’t be able to do it through people who themselves do not feel they’re being fairly treated and that their views aren’t appropriately considered. So you really do have to learn to multiply yourself through other people. 

I advise the young people to come to Omaha that the most important decision you make is the spouse that most of you will likely have and it’s very important to surround your people yourself with people are the better than you are. You are going to move in the direction of the people you associate with. I advise you to seek out your partner in business, your partner life who actually are examples to you rather than somebody that you need to straighten out yourself. And simple rules like that delighting customers, working through other people, associating with people better than you are will cause you to move in a better path.

Enter your email to subscribe to notifications from this site

Join 4,661 other followers

 

About the author: Hoan Do is a certified leadership coach with John Maxwell Team. Hoan have led multiple teams at Symantec Inc. across the globe delivering world-class solutions to protect consumers and businesses. Hoan is an expert in building highly performing teams. He believes that the best leader is the leader that could grow his followers to be leaders. Hoan has been organizing mastermind groups at work to share with other leaders about transformational leadership and coaching. He has trained many leaders both inside and outside Symantec via mastermind groups, workshops, and one-on-one coaching.
Coaching inquiry: coach@hoanmdo.com