Super Stock Blog

Posts Tagged ‘investors’

Wall Street led investors on a wild ride in 2011.

Buffeted by concerns over the European debt crisis, erratic energy pricing and fears that the federal government was doing more harm than good for the U.S. economy, stocks were all over the map.

In the end – despite all of that volatility – Wall Street ended 2011 pretty much where it began. But as we ease further into 2012, there have been some positive signs.

On Thursday, a trio of reports brought good news – weekly unemployment benefit applications have fallen to levels last seen more than three years ago, holiday sales were solid and service companies grew a little faster in December.

Friday delivered more welcome news. Employers added 200,000 jobs in December and the nation’s unemployment rate fell to 8.5 percent, its lowest level in three years.

But an ominous undercurrent is lurking beneath those numbers. November’s job gains have been revised downward, and December’s decline in unemployment was fueled, in part, by the fact that the U.S. labor force shrank by 50,000.

So where does all of this leave investors and businesses for 2012?

“I’m highly uncertain about the results for 2012,” said Jim Hotvet, president of Jim Hotvet Financial Advisors in Pasadena. “It could be a good year, but two things concern me – the political campaign and the situation in Europe. If things go right we could have a nice year where earnings are up 10 percent because companies have good earnings and good balance sheets. And it looks good from a hiring perspective.”

But if economic factors conspire to turn the other way investors could just as easily see their investments decline by 10 percent, Hotvet said.

“If I had to guess, I’d say we’ll have another flat year,” he said. “And I think we’ll have another year of volatility.”

Alan Fluhrer, CEO of Fluhrer & Bridges, an executive search firm in Pasadena that specializes in technology and energy, also figures investors will weather some more erratic ups and downs.

“The thing is that our economy has become so global,” he said.

Few would disagree that Europe’s financial crisis has weighed heavily on investors. And it’s a known fact that the U.S. economy is increasingly global and therefore affected by economic events that happen throughout the world.

European leaders are scrambling again to stem the march of the crisis, which pushed the euro to a 16-month low against the U.S. dollar on Friday, drove Italy’s borrowing rates to unsustainable levels and is threatening France’s prized AAA credit rating.

With the debt jitters regarding core economies, economic indicators show that even powerhouse Germany hasn’t been spared. Economic sentiment and retail sales are falling across the region, according to new data released Friday, while unemployment in the 17-nation eurozone is stuck at 10.3 percent.

Many U.S. companies have taken a beating amid all of this uncertainty. But locally there have been some gains.

STAAR Surgical co., a Monrovia-based maker of implantable lenses for the correction of cataracts and other disorders of the eye, began 2011 with a stock price of $6.30. But it ended the year at $10.49 and has so far remained above $10 in 2012.

Edison International, the Rosemead-based parent of Southern California Edison, also saw its shares rise. Edison’s stock began last year at $37.40 and ended at $41.40.

But other companies, including La Canada Flintridge-based Sport Chalet inc., haven’t fared so well. Over the past 52 weeks the retail chain’s stock has ranged from a high of $4 to a low of $1.87. on Friday shares of Sport Chalet closed at $2.19.

In November, Chairman and CEO Craig Levra announced the company’s fiscal 2012 second quarter results.

Sport Chalet’s net income rose $1.1 million to $600,000 compared with a net loss of $500,000 in the second quarter of fiscal 2012.

“This quarter marked our second profitable quarter in the last three quarters and we continued to experience positive trends in comparable store sales and online sales,” Levra said in a statement. “Our data suggests our online business is helping drive customers into our stores, while establishing a national footprint online.”

Levra has also said that Sport Chalet will continue to “micro-merchandise” in fiscal 2012 using Action Pass data. the Action Pass is a kind of customer loyalty card that allows shoppers to get discounts on merchandise.

On Friday the Dow Jones industrials closed down 55.78 points, or 0.45 percent, to 12,360. the Nasdaq market managed a slight gain of 4 points to end the day at 2,674 and the S&P 500 lost 3.25 points to close at 1,277.

kevin.smith@sgvn.com

626-962-8811, ext. 2701

<a href="http://www.whittierdailynews.com/news/ci_19695382tag:news.google.com,2005:cluster=http://www.whittierdailynews.com/news/ci_19695382Sun, 08 Jan 2012 06:40:33 GMT”>Experts predict more market volatility for 2012

I have seen sites that track these great investors portfolios. are they able to see what their holdings, buys, sells are any more frequently than on a quarterly basis when it is reported? Is there another way to find this information? If there is, what is the original source of the data. Thanks.

The reason you can see the info at all is that it is a mandated disclosure. However, these investors tend to hide their positions as much as possible to prevent freeloading off their ideas.

couple of important factors.

1: When Buffet buys he buys big, so can get in at better prices.

2: Timing. When they get in is not disclosed until after the fact.

That's why we don't all have their identical portfolios!

Grace
www.moneyrec.com

How do you keep up with the portfolio of warren buffet, george soros, etc?

Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business

List Price: $15.00

• ISBN13: 9780684811635
• Condition: New
• Notes: BRAND NEW FROM PUBLISHER! BUY WITH CONFIDENCE, over one million books sold! 98% Positive feedback. Compare our books, prices and service to the competition. 100% Satisfaction Guaranteed

List Price: $15.00Your Price: $1.95-

Mutual-fund superstar Peter Lynch and author John Rothchild explain the basic principles of investing and business in a primer that will enlighten and entertain anyone who is high-school age or older.

many investors, including some with substantial portfolios, have only the sketchiest idea of how the stock market works. the reason, say Lynch and Rothchild, is that the basics of investing — the fundamentals of our economic system and what they have to do with the stock market — aren’t taught in school. at a time when individuals have to make important decisions about saving for college and 401(k) retirement funds, this failure to provide a basic education in investing can have tragic consequences.

for those who know what to look for, investment opportunities are everywhere. the average high-school student is familiar with Nike, Reebok, McDonald’s, the Gap, and the Body Shop. Nearly every teenager in America drinks Coke or Pepsi, but only a very few own shares in either company or even understand how to buy them. Every student studies American history, but few realize that our country was settled by European colonists financed by public companies in England and Holland — and the basic principles behind public companies haven’t changed in more than 300 years.

in Learn to Earn, Lynch and Rothchild explain in a style accessible to anyone who is high-school age or older how to read a stock table in the daily newspaper, how to understand a company annual report, and why everyone should pay attention to the stock market. They explain not only how to invest, but also how to think like an investor.

To Peter Lynch, success in the stock market is pretty basic: if a company’s earnings rise, then the stock price goes up. “this simple point–that the price of a stock is directly related to a company’s earning power–is often overlooked, even by sophisticated investors,” the former Fidelity Magellan manager writes in Learn to Earn, his third book on investing. “this is the starting point for the successful stock picker: find companies that grow their earnings over many years to come.”

one of the best managers in the history of mutual funds, Lynch is certainly the person to help people choose the right stocks and understand the market. More so than One Up on Wall Street or Beating the Street, this Lynch book is for beginning investors of all ages. Lynch and coauthor John Rothchild are family men who are worried that teenagers aren’t learning enough about the importance of American companies in improving lives and creating wealth. Lynch questions why students are taught that Hamlet was a tragic hero and Napoleon was a great general, but they don’t know that Sam Walton founded Wal-Mart. in fact, Lynch’s grasp of the past is one of the strengths of the book. one of the best chapters is “A Short History of Capitalism,” a witty and homespun look at characters like Karl Marx, the Communist who believed capitalism was doomed, and the robber barons, the shrewd railroad magnates of the late 19th century who amassed huge fortunes by manipulating the markets.

Unlike the robber barons, beginning investors, Lynch says, should stick to the basics: get in the habit of saving and investing and putting aside a certain amount every month; develop a strong stomach because the stock market is going to fall and there’s no way to anticipate it; do a little homework so you can understand the reasons to own a particular stock; and buy shares in solid companies and don’t let go of them without a good reason.

this book marks Lynch’s coming out as a fan of “direct investment programs,” which are offered by many good companies. You purchase a couple of shares or so directly from the company and then you enroll in a plan and buy more shares each month, in some cases without paying a penny in fees and always without a broker–the way Lynch likes it. Lynch loves these plans because they’re a great vehicle for investing a little bit at a time over a long period. Grab onto a company and learn about it, Lynch writes. the more you learn, the more you’ll earn. –Dan Ring

Your Price: $1.95 –

Funds: Learn to Earn: A Beginner's Guide to the Basics of Investing and Business

He calls his 1964 decision to buy the textile company a $200 billion dollar blunder, sparked by a spiteful urge to retaliate against the CEO who tried to “chisel” Buffett out of an eighth of a point on a tender deal.

Buffett tells the story in response to a question from CNBC’s Becky Quick for a Squawk Box series on the biggest self-admitted mistakes by some of the world’s most successful investors.

COMPLETE CNBC INTERVIEW VIDEO AND TRANSCRIPT

Buffett tells Becky that his holding company (presumably with a different name) would be “worth twice as much as it is now” — another $200 billion — if he had bought a good insurance company instead of dumping so much money into the dying textile business.

Here’s his story, as it appeared this morning in edited form on Squawk Box:

BUFFETT: The— the dumbest stock I ever bought— was— drum roll here— Berkshire Hathaway. And— that may require a bit of explanation. It was early in— 1962, and I was running a small partnership, about seven million. they call it a hedge fund now.

And here was this cheap stock, cheap by working capital standards or so. but it was a stock in a— in a textile company that had been going downhill for years. So it was a huge company originally, and they kept closing one mill after another. and every time they would close a mill, they would— take the proceeds and they would buy in their stock. and I figured they were gonna close, they only had a few mills left, but that they would close another one. I’d buy the stock. I’d tender it to them and make a small profit.

So I started buying the stock. and in 1964, we had quite a bit of stock. and I went back and visited the management, mr. (Seabury) Stanton. and he looked at me and he said, ‘Mr. Buffett. We’ve just sold some mills. We got some excess money. We’re gonna have a tender offer. and at what price will you tender your stock?’

And I said, ‘11.50.’ and he said, ‘Do you promise me that you’ll tender it 11.50?’ and I said, ‘Mr. Stanton, you have my word that if you do it here in the near future, that I will sell my stock to— at 11.50.’ I went back to Omaha. and a few weeks later, I opened the mail—

BECKY: oh, you have this?

BUFFETT: and here it is: a tender offer from Berkshire Hathaway— that’s from 1964. and if you look carefully, you’ll see the price is—

BUFFETT: —11 and three-eighths. He chiseled me for an eighth. and if that letter had come through with 11 and a half, I would have tendered my stock. but this made me mad. So I went out and started buying the stock, and I bought control of the company, and fired mr. Stanton. (LAUGHTER)

Now, that sounds like a great little morality table— tale at this point. but the truth is I had now committed a major amount of money to a terrible business. and Berkshire Hathaway became the base for everything pretty much that I’ve done since. So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway. I really should— should have bought it for a new entity.

Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren’t any good. and then, gradually, we built more things on to it. but always, we were carrying this anchor. and for 20 years, I fought the textile business before I gave up. as instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now. So—

BECKY: Twice as much?

BUFFETT: Yeah. this is $200 billion. you can— you can figure that— comes about. Because the genius here thought he could run a textile business. (LAUGHTER)

BECKY: Why $200 billion?

Continue reading this article »

Warren Buffett: Buying Berkshire Hathaway Was $200 Billion Blunder-Video

I am 20 years old, currently i am attending college for a bachelors degree in finance.
I research and read alot online about investing. I just ordered one Up on Wall Street by Peter Lynch and will read that as well. I guess im asking for advice here from any experienced investors. any bit of information is apreciated.
thank you all

The best way to be successful in regards to anything in life is to read everything you can get your hands on. it looks like you're on the right track.

Becoming a successful investor education?

It is possible to find the stock holdings of investors like Warren Buffet, but is it possible to find any listings of the stock holdings of common investors? Rather than picking stocks to invest in, it seems a good idea to simply pick good investors and invest in the stocks that they do. Alternatively, is there a listing of all stock transactions (buys/sells) which take place every day, including the buyer and the seller?

it is private……………
watch cnn and cnbc..or read the little book that beats the market……..

stock holdings of common investors… no, people have a right to privacy. I have no desire to know your net worth, social security number and bank account numbers, but many bad guys do.
Plus, how can you tell in the "common investor" you pick is a "good investor?" you would have to follow their picks for 10 years or more.
But there is a way to find "good investors" and see how they have done over the years and what they almost currently hold (holdings can be up to 7 months old). Check morningstar, or investment magazines, msn money or yahoo finance or many other sites for actively managed mutual funds that have beaten the total returns of a index fund of that same benchmark. It doesn't have to beat the index every year, just enough to have a better 10 year return. The investment sites also give the top 10 to 25 holdings of the fund. If you want to see all the holdings, ask the fund company to send you the latest annual or semi-annual report.

Only for investors who own more than 5 percent of a company. you can see those in 13-D filings on the sec.gov website. or institutional investors like mutual funds. Yahoo usually lists the top holders for each stock.

Hey Matthew,

I can understand your approach about wanting to follow the best investors.

However, I think that you can do better (yes, better) than these big investors by learning what they do, and applying the strategies yourself as opposed to following other investors.

I'm a big advocate of value investing (the same as Warren Buffett's approach to investing — find great companies to invest in, buy them at the right price, and then sell only when they become overvalued…)

However, one of the most important part of value investing (and why it works) is that it goes COUNTER to the "follow the herd" mentality of what other people do when investing in stocks.

When many investors (especially the big Wall Street firms) are buying and selling to move the market one way or another, sometimes great companies get beaten down unjustly — giving you the opportunity to buy this company at a great discount. The reason you can is because while many people are selling (which is why the stock price is down…), you'll have the opportunity to buy — going counter to the market trend.

Now, many of the best value investors do what I've just described, so it might sound good to just follow their lead. however, there are a LOT of great smaller companies that can yield huge returns through a value investing approach that these big investors will never buy…

Why? because they are small to mid-cap stocks (their total worth is less than $1 billion, some even as low as $100 million…), and if any one of these huge investors came in to buy any portion of the stock, they'd be forced to file a 13-D to disclose that they've acquired 5% or more of the company, and price would shoot to the moon before they'd be able to take advantage of these values…

Even Warren Buffett thinks that the individual investor has a better chance of making huge returns through value investing for just this reason — the independent investor can get into lower valued companies without being noticed and ride the wave when the market corrects itself.

The big name investors can't do this (because they're too big!), and following them would only reduce your ability to really take advantage of what value investing can offer.

Again, following the big dogs isn't a bad idea, but I think a better idea is to learn their approaches and become a truly independent investor (making your own decisions and not following the decisions of other investors).

Hope this helps, and good luck!!

Investors such as Buffet have to disclose most of their holdings due to the huge positions he takes, but the information will usually do you little good as it is not published until well after the fact.

How to find other investors stock holdings?

Price is what you pay. value is what you get.

– Warren Buffett

Every investor dreams of becoming as successful as Warren Buffett, to be the richest person in the world. But rarely do these investors follow their icon’s mantras conversed through television interviews, books, periodic journals, etc. It is worthwhile to pay heed to Buffett’s stock investing tips. this knowledge on value investing will help drive investors to make sound investment decisions.

1: Invest in quality businesses, not in stock symbols

If a business does well, the stock eventually follows.

Most investors don’t analyse the businesses they invest in. they simply follow the symbols or brands of successful corporate houses. the best example is the Reliance Power IPO. when the IPO of Reliance Power was announced, many investors rushed to subscribe to it with the reason that it had the brand name ‘Reliance’. However, the stock was overvalued at the time of IPO and investors made a considerable loss after the stock was listed on the stock exchange.

When considering IPOs, one needs to do considerable research about the concerned company, it’s past performance, how the IPO money will be utilised, details about the company management, and when the operations will commence so that company starts generating profits.
As, Buffett states, ‘An investor needs to buy the stock as if he is buying the whole company down the road’. Investors are also expected to be acquainted with the following before buying the company stock:

• what are the company’s products?

• How consistent is its products’ sales?

• How receptive is the company to change in consumer trends?

• Who are its competitors? what distinguishes it from them? what is the company’s USP?

• what would be the most worrying thing (risk) about owning such a company’s stock?

2: Don’t invest for 10 minutes if you’re not prepared to invest for 10 years

Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.

Investors get panicky when they track share prices continuously. Share prices are quite volatile in the short-term. However staying invested in a value company will pay you rich rewards over a long-term period, unlike short-term investments that are prone to constant price fluctuations.
Note: A smart investor needs to also think before selling an investment that may be in a loss due to certain economic factors but has tremendous potential to rise in future.

3: Scan thousands of stocks and look for screaming bargains

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

A smart investor needs to identify stocks of a company that have great potential to grow in years to come. Most investors buy a stock when it is extremely high because it’s in demand. the key is to identify stocks which have potential to grow and are available at a cheap or reasonable price.
Such acumen can be achieved by scanning the company’s annual financial reports, understanding its vision and mission statements, its business cycle and business process, long term plans, etc.

Essentially, it means taking some time out to carefully understand and analyse the company and its business. Investors also need to keep updates of their selected companies and sector news on a regular basis. Information about a company is readily available through secondary sources such as journals, economic newspapers, television, etc. Many a time such secondary sources are sufficient for analysing and arriving at a decision for investment.

4: Interpret how well money is being utilised by the company’s management

Beware of geeks bearing formulas.

The money available to the company’s management is called capital. the capital comprises the equity and long-term debt of the company. the success of any business depends on how well its management uses its capital. such an analysis can be made with the help of 2 ratios: Return on
Equity (ROE) and Return on Capital Employed (ROCE).

ROE: It measures a company’s profitability by revealing how much net profit a company generates through shareholders’ equity.
Return on Equity = Net profit / Shareholder’s equity

ROCE: It indicates the efficiency and profitability of a company’s invested capital; calculated as:

ROCE = EBIT/ Total assets – Current liabilities

EBIT = Earnings before interest and tax deductions

A smart investor must interpret the company’s financial statements and understand the quality of return on his investment.

One needs to search and invest in companies with good returns on capital invested while employing little or no debt. this means that ROE and ROCE should essentially be the same.

5: Stay away from so-called ‘glitter’ stocks

Rule no 1: Never lose money. Rule no 2: Never forget rule no.1.

There are thousands of stocks traded each day on Sensex and Nifty. A smart investor has to find the best out of the available investment options. there are stocks that have high trading volume, extreme movements in their price (either up or down), or are constantly in news.
A smart investor should examine whether the stock-in-news has some real value or is just glittering at the moment.

For example, remember the Satyam fiasco? the stock was glittering for many years and was a hot pick among investors and analysts alike until its accounting fraud surfaced in 2008 when Ramalinga Raju (the company’s mentor) confessed to the crime. the company tampered its annual reports and fooled investors for years, all the time being ‘A-listed’ on national stock exchanges.

Although the episode is behind us now, it is wise to do your homework before investing in each and every company. you would also be wise to diversify your investments across sectors and asset classes, which will give you the needed cushion from loss from any one investment.

6: Wait for a fat pitch then decide what to do with it

Value is what you get.

Wait…wait…wait until everything is in your favour while buying a stock. these are the stocks with the highest chance of being successful and making you money year after year. To be able to do this effectively, one needs to master the below steps as suggested by Buffett.
As mentioned earlier, invest in stocks that are not glittering on investment magazines or recommended by stock analysts/editors on popular television channels. Perform your own research then make vital investment decisions.

After identifying great businesses to invest in at a fair price, buy a “meaningful amount of stocks in them”. That means hold only a limited number of companies in your portfolio; holding excess stocks results in lower returns on your overall portfolio and spending more time to keep track of the same. this may also add considerable risk as it is not feasible for an individual to diligently observe all companies in his/her portfolio.

Ideally, one should limit the number of stocks in his/her portfolio to 10-15. this way, there is an advantage of your portfolio not being cluttered.

Buffett elaborates about knowledge and confidence. according to him, one must require the knowledge of selecting the right stocks by careful research and also build confidence in one’s decisions. Market will test your patience to reach the expected returns. So, you need to stay firm with your investment decisions during volatile trading sessions. Do a good amount of homework and keep faith in your research and decisions.

7: Calculate how much money you will make…

…not whether the stock is undervalued or overvalued, according to some academic model such as the discounted cash flow.

Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.

A smart investor needs to keep an eye on expected returns from particular stocks in the long term and calculate the entry and exit prices of invested companies. this requires thorough research and analysis of the company’s available data. Buffett recommends being one’s own analyst to profit from investing in stocks.

8: Remove the weeds and water the flowers — not the other way around

Someone’s sitting in the shade today because someone planted a tree a long time ago.
One of the best practices according to Buffett is to sell loss-making stocks during a bull run and buy the winner stocks during a bear hug.

The amount realised by discarding loss-making stocks can be utilised to invest in stocks with future growth potential and there by achieving better returns.

9: become a conscious investor

It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.

Most of the time investors make little progress due to insensible investment decisions. Their decisions are based on emotion, hope and wishful thinking without carrying out proper research and analysis.

It’s necessary for a smart investor to think logically while investing and performing research. you need to keep on asking yourself why you want to invest in a particular company and eliminate decision-making based purely on intuition, emotion and herd mentality.

Due diligence before investing in a particular company saves you from the worry of your money being tied-up in companies and businesses that you have little or no knowledge about.
So follow the sound advice provided by Warren Buffett — avoid the noise and glitter, do your own research, and constantly update your knowledge and stock-picking skills.

In short, be a smart investor!

~*~ HeRe I aM ~*~: 9 investment lessons to learn from Warren Buffett

By SCOTT PATTERSON

The man considered by many to be the greatest investor of all time just had his worst year ever.

But the results released Saturday for Warren Buffett’s company, Berkshire Hathaway Inc., also demonstrate how recently, and over time, the investor has positioned his far-flung empire to weather the financial storm.

Associated Press

Mr. Buffett, in his annual letter, read closely by shareholders and nonshareholders alike, reported Berkshire in 2008 lost 9.6% in book value per share, a common metric Berkshire uses to track performance. that marks the biggest decline since mr. Buffett took over in 1965, when it was a family-run East Coast textile maker.

Mr. Buffett conceded he “did some dumb things.” among them: scooping up shares of oil giant ConocoPhillips when oil prices were near a high and investing $244 million in a pair of Irish banks that hit trouble, resulting in an 89% loss.

Berkshire shares fell nearly as much as the rest of the market last year, indicating that investors are worried about the company’s ability to keep growing. in 2008, Berkshire’s Class A stock fell 32%. This year, the shares are down nearly 19%, slightly better than the Dow Jones Industrial Average.

Yet many analysts were pleased that the decline in book value per share wasn’t steeper. and mr. Buffett’s results also show he has made moves that have paid off and should continue to do so even if economic woes persist, as he predicts.

He limited his exposure to complex and potentially costly derivatives in his reinsurance unit, General Re Corp. he has $24.3 billion in cash that can be used to find bargains in a distressed market. and he’s made several investments in preferred stock of firms such as Goldman Sachs Group Inc. that pay out steady income of 10% or more.

“He’s done a great job to prepare for this,” said Paul Howard, an analyst at Langen McAlenney, a Hartford, Conn., research group, who rates Berkshire a “buy.” “He’s got good businesses that are generating a lot of cash, and he’s going to continue to put that money to work.”

Berkshire’s substantial insurance holdings haven’t needed to take the massive write-downs on toxic subprime securities that have plagued much of the financial industry in the past two years. One reason is mr. Buffett’s longstanding dislike of complex derivatives, which he famously called “financial weapons of mass destruction” in his 2002 shareholder letter and which he railed on again in his latest letter. he pushed General Re, the large reinsurance company Berkshire acquired in 1998, to disentangle itself from a vast web of derivatives — financial instruments tied to the value of other securities, such as stocks or bonds — over the course of five years, winding down its book of 23,218 derivatives contracts at a loss of about $400 million, he said in the letter. the losses may have been far more substantial if General Re had held onto to the contracts, mr. Howard said.

“Upon leaving, our feelings about the business mirrored a line in a country song: ‘I liked you better before I got to know you so well,’” mr. Buffett wrote, referring to General Re’s derivatives book.

Separately, Berkshire took a loss of $5.1 billion in the fourth quarter on several derivatives contracts entered into in recent years. the contracts, essentially insurance policies against long-term declines in U.S. and foreign stocks, expire in 15 or 20 years. Berkshire will have to pay out if the indexes are below where they stood when the deals were struck. the derivatives, whose current estimated value has to be reflected on Berkshire’s books, are one reason the company reported a grim fourth quarter on Saturday — its fifth year-over-year quarterly decline.

The $117 million quarterly gain it eked out in the quarter marked a 96% drop from last year’s $2.95 billion in fourth-quarter net income.

Beyond commenting on Berkshire, mr. Buffett shared his views on the broader economy and financial systems. he doesn’t expect the economy to improve soon but did expect better times, eventually.

“Our country has faced far worse travails in the past,” he said. “Without fail, however, we’ve overcome them.” he declined to draw a correlation between stocks and economics, saying that while he was certain the economy would be “in shambles for 2009,” that “does not tell us whether the stock market will rise or fall.” he credited the government for stepping in with massive assistance last year, saying the intervention was “essential” to avoiding a total breakdown. But he cautioned there could be “unwelcome aftereffects,” such as inflation.

He contended the “investment world has gone from underpricing risk to overpricing it,” which he said is reflected by investor appetite for Treasury bonds. Future historians will comment on the Internet bubble of the 1990s and the housing bubble of the early 2000s, he said, but “the U.S. Treasury-bond bubble of late 2008 may be regarded as almost equally extraordinary.”

Write to Scott Patterson at scott.patterson@wsj.com

Printed in the Wall Street Journal, page C3

Warren Buffett's Berkshire Reports Worst Year Ever

2

• Email
• Share
• Print

Short-sellers and hedge funds may be shadowy, but sometimes they are the smartest ones in the room. They’ve done their homework, and they’re willing to bet their capital against the crowd — an investing strategy that can be as lucrative as it is contrarian.

On Motley Fool CAPS, we also have investors who find the chinks in a company’s armor and correctly call its fall. our “Underdogs” have earned 100 or more CAPS points by correctly predicting that one or more stocks would underperform the market. However, we’re going to focus on the stocks these members expect will outperform the market. If these CAPS investors have scored big by correctly predicting which stocks will fall, it may be worth our while to see what they think will succeed.

Underdog

Member Rating

Company

CAPS Rating
(out of 5)

anthrobabble

Boeing (NYSE: BA)

wstimson

InterOil (NYSE: IOC)

GoodOleRebel

Wal-Mart (NYSE: WMT)

Not every short sale goes as planned, making shorting a risky proposition. Stock prices can be irrational longer than you have money to stay in the game. so don’t use this as a list of stocks to sell or buy — just the launching pad for further research.

Underdogs still wag their tails
We might be on the brink of a double-dip recession, under the weight of government debt, and dealing with high unemployment, high oil prices, and consumers afraid to spend. Who’d have thought the one industry expected to be profitable this year is airlines? Yes, the industry Warren Buffett has advised us to avoid like the plague.

According to the International Air Transportation Association, the airline industry is looking at a $2.5 billion profit in 2010 — a 180-degree turn from the $2.8 billion loss the trade group predicted just two months ago.

Obviously, this is a very fluid situation, but American Airlines parent AMR (NYSE: AMR), Delta (NYSE: DAL), and Southwest all reported surprising revenue gains in their latest quarter. the anticipation level is high enough that Boeing saw fit to boost its production calendar above and beyond the orders from its list of international clients.

CAPS member surfnskate isn’t so sure the buildup is worthwhile because there are just too many factors, domestic and international, that could change the situation dramatically.

So I know I’m going against the crowd…but hear me out. Dollar is getting stronger and this has a negative effect on their exports. Increased competition from Europe and weaker euro will also take away from their sales. Reduced defense spending. the outsourcing problems for the dreamliner aren’t done…perhaps they are done in the development stage but not production stage…meaning more M&a they didn’t really want or need in order to control the supply line. Management keeps changing timelines…and they aren’t done.

A dose of reality
They say the best revenge is living well, and InterOil and its investors have been doing just that. even though shares are down 34% year to date, they’re up more than 95% over the past year. the company reported hitting the top of its Papua New Guinea reservoir at a level higher than anticipated, causing it to increase its estimates of just how large the pocket is. It’s also planning to build a major liquefied natural gas (LNG) export facility in Papua New Guinea, fortuitous because ExxonMobil (NYSE: XOM) is also building a LNG plant there. And Japanese conglomerate Mitsui has agreed to fund and operate InterOil’s Elk and Antelope fields.

Yet some maintain that things still aren’t going as well as they say: the Mitsui partnership is really one more akin to banker and borrower, and drilling beyond the initial objectives, as recently announced, suggests they didn’t really find what they were after.

CAPS member maestro43 hasn’t been swayed by the critics, believing InterOil’s assets will ultimately pay off.

Regardless of what the detractors and shortsellers say, [InterOil] has tremendous assets and strategic positioning to market them. Within 4 years market cap should be in the neighborhood of 25 Billion.

A golden opportunity
Continuing its quest to be where America shops for all of its needs, Wal-Mart reached an agreement with Eli Lilly to sell its insulin brand Humulin, with free rein to set pricing on it. It’s yet another shot at pharmacy chains like CVS Caremark (NYSE: CVS) as Wal-Mart tries to draw consumers who may otherwise shop at CVS.

Highly rated CAPS All-Star nibs61 says Wal-Mart’s commitment to rolling back prices makes the business undervalued.

The CEO is going after business with pricing and this will be just what they need as to get their loyal customers coming back again and again in these tough economic times. they also said they will be hiring over 500,000 people in the coming few years and this sounds like a growing company to me.

There’s no need to fear …
Underdogs often shine brightest with their backs against the wall. Still, it takes more than a few All-Star picks and a quick paragraph to make buy or sell decisions. start your own research on these stocks on Motley Fool CAPS, where your opinion can still save the day. while there, you can read a company’s financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made, all from a stock’s CAPS page.

These Underdogs Are No Dogs

175

• Email
• Share
• Print

Peter Lynch didn’t just beat the Street … he absolutely destroyed it.

Reflect on his record for a second. Lynch ran Fidelity’s Magellan Fund from 1977 to 1990, beating the S&P 500 in all but two of those years. He averaged annual returns of 29%. That’s a mind-blowing figure. it means that $1 grew to more than $27; if you invested as little as $37,000 with him in 1977, you were a millionaire in 1990.

Fortunately for us, he’s willing to share his secrets. To achieve his stunning track record, he clung to eight simple principles. Here they are.

1. Know what you own
Seems elementary, right? but as someone who talks to lots of investors, I can report that you’d be shocked at how few investors actually do their research. Scroll down to No. 7 for a good first step in getting ahead of the game.

2. It’s futile to predict the economy and interest rates (so don’t waste time trying)
After 2008’s crash, I noticed a distinct increase in armchair economists. we financial types do enjoy water cooler talk about interest rates, trade deficits, debt levels, etc. but there’s a danger in converting thought into action.

The U.S. economy is an extraordinarily complex system, with 300 million people acting in their own self-interest and responding to each others’ actions, government incentives, and external shocks. and that’s before we factor in our increasingly frequent interactions with the rest of the world.

Trying to time the market is futile. Set up a financial plan that allocates your assets based on your risk tolerance, so that you can sleep at night.

3. you have plenty of time to identify and recognize exceptional companies
Lynch mentions that Wal-Mart (NYSE: WMT) was a 10-bagger — i.e. its stock rose to 10 times its initial price — 10 years after it went public. even if you had gotten in after waiting a decade, though, you’d be sitting on a 100-bagger.

Some would argue that it’s still not too late to get in on Wal-Mart, decades after going public. While the company’s no longer a monster growth story, it continues to crank out 20% returns on equity year after year. that type of consistent ROE is a huge positive indicator of management’s ability to effectively allocate capital.

I could tell a similar tale about Microsoft’s early growth years, right on down to its still-impressive current return on equity (42%).

And Amazon.com (Nasdaq: AMZN), though only 13 years old as a public company, has seen its stock double since its 10th birthday. of these three, it’s the only company still trading at growth-stock valuations. Bulls are hitching their wagon to Amazon.com’s ability to expand its role as the premier online retailer, and its upside in the cloud-computing space.

The lesson of Wal-Mart, Microsoft, and Amazon.com? you don’t need to immediately jump into the hot stock you just heard about. There’s plenty of time to do your research first. See No. 1.

4. Avoid long shots
Lynch claims he was 0-for-25 in investing in companies that had no revenue but a great story. Remember, the guy who averaged 29% returns went oh-fer on long shots. you and I are unlikely to do much better.

I’ve said it before, and I’ll say it again. Use companies with proven track records as your baseline. ExxonMobil (NYSE: XOM), IBM (NYSE: IBM), and Procter & Gamble (NYSE: PG) are selling for 9, 11, and 16 times forward earnings, respectively. this is what the market is charging for solid, low-to-moderate-growth companies that dominate (or at least co-dominate) their spaces. Expect to pay more for higher-growth prospects, but make sure the risk-reward trade-off on an unproven company is worth it.

5. good management is very important; good businesses matter more
The pithier Lynchism is: “Go for a business that any idiot can run – because sooner or later, any idiot is probably going to run it.”

For a prototypical example of a so-easy-a-caveman-could-run-it company, think the aforementioned Procter & Gamble.

6. be flexible and humble, and learn from mistakes
Lynch has said: “In this business, if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.”

You’re going to be wrong. Diversification and the ability to honestly analyze your mistakes are your best tools to minimize the damage.

7. before you make a purchase, you should be able to explain why you’re buying
Specifically, you should be able to explain your thesis in three sentences or less. and in terms an 11-year-old could understand. once this simply stated thesis starts breaking down, it’s time to sell.

8. There’s always something to worry about.
Lynch noted that investors made a killing in the 1950s despite the very new threat of nuclear war. There are plenty of fears to choose from right now, but we’ve survived a great Depression, two world wars, an oil crisis, and double-digit inflation.

Always remember, if our worst fears come true, there’ll be a heck of a lot more to worry about than some stock market losses. Lynch’s parting shot is that investing is more about stomach than brains.

Peter’s principles in action
So there you have it. these are the eight principles Peter Lynch used to bring the market to its knees. They seem simple, but trust me, sticking to them is harder than it sounds.

Our founders, Tom and David Gardner, seek to apply the lessons of the masters — Lynch, Warren Buffett, et al. in their Stock Advisor newsletter. They take their time and look to identify those truly exceptional companies Peter Lynch talked about.

Tom’s recommended Buffett’s investment vehicle — Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). If you like Lynch’s philosophy, you’ll like Buffett’s as well. In fact, I could have snagged a Buffett quote to support each of the eight principles above.

Meanwhile, David recommended the aforementioned Amazon.com back in 2002 — in time for a 700% run-up. both Berkshire and Amazon.com remain core recommendations, and David rates Amazon.com a “Best buy Now.”

If this kind of investing agrees with you, I invite you to join us and see all of David and Tom’s recommendations. a 30-day trial is on us. Click here to start.

Anand Chokkavelu owns shares of Microsoft, Exxon, and Berkshire Hathaway. He tips his hat to Kaushal “Ken” Majmudar, JD, CFA of the Ridgewood Group. Amazon.com and Berkshire Hathaway are Motley Fool Stock Advisor selections. Berkshire Hathaway, Microsoft, and Wal-Mart Stores are Motley Fool inside Value choices. Procter & Gamble is a Motley Fool Income Investor recommendation. Motley Fool Options has recommended a diagonal call position on Microsoft. the Fool owns shares of Berkshire Hathaway and Procter & Gamble. the Fool has a disclosure policy.

How Peter Lynch Destroyed the Market