The sheer scale of the 2008 market plunge has outperformed all expectation. How much lower can things go ? When are we going to get to the bottom and over with the current crisis ? Re-wind back to the summer of 2007. All we heard of then was the US subprime mortgage crisis. Later in 2007 - early 2008 the credit crunch became the buzzword. Now we have a full-blown global financial crisis leaving major casualties of Lehman Bros, Wachovia, Bear Stearns and numerous others in its wake.
As of today the US and Britain both have now committed close to $2 trillion of public funds to rescue their banking sectors. In a historical context, we are probably seeing the most serious, co-ordinated financial commitments made in reaction to peacetime events by both Washington and London since the second world war.
Despite these laudable interventions by governments and Central Banks' rate cuts some I can see further inevitable bank failures in the coming months across both sides of the Atlantic. Without much randomness, many more billions shall be lost.
Fast forward to 2009.
- BRIC economic crisis as the OECD and G8 economies slows.
- More notably, China's overheating economy slows down. Oil price dips concretely below $75
....Then follows the definitive crash in oil and commodity stocks...
- Further Russian stocks slide and possible political instability in Russia due to huge resource revenue losses.
Which industry will break down and be nationalised next in the US ? We will know in 5 weeks the person (Obama or McCain ?) to handle the ensuing political fallout of the mess and its global ramifications ?
Overall, the overbearing feeling of bearishness still persists.
So what should a value investor do ? My advice :
1. Take time out of the equation. This simply means taking the long-term view.
2. Hold on to quality. Look for those companies that have existed for over a 100years and outlived the major crisis (the Great Depression, WWII and the post-war recessions of the past 50yrs). In fact they have consistently paid dividends over these periods. Because they are run by smart and honest managers who recognise the need to manage risk, they remain competitive, keep debt levels low and maintain loads of cash on their balance sheets. In fact they are looking at making acquisitions right now and are still able to pay dividends. They continue to attract many generations of shareholders.
3. Re-invest your dividends (even if it's been cut in half). This is the secret of long-term compounding of investment value.
4. Do not log on to view your portfolio everyday.
5. Be calm and bold about any losses. Write down the assets that need to be WRITTEN DOWN. Tell your brain that they are written down for now, but not WRITTEN-OFF.
Be at peace and Sleep well at night. This one too shall pass...
Wednesday, October 8, 2008
Thursday, July 17, 2008
Interesting interview with value/hedge-fund manager Seth Klarman
Seth Klarman-->
"We're not the stereotypical hedge fund in terms of an idea a minute. We come in with a view that a security is trading for less than it’s worth, and we buy it."
http://www.iimagazine.com/Article.aspx?ArticleID=1962261
"We're not the stereotypical hedge fund in terms of an idea a minute. We come in with a view that a security is trading for less than it’s worth, and we buy it."
http://www.iimagazine.com/Article.aspx?ArticleID=1962261
Friday, July 11, 2008
it's good to talk
Let's talk about world population: Of the 16 countries in the world that have a populations of 75 million or more, 3 qualify for the title of developed countries. The other 13 are still "developing" basic infrastructure like telecoms
Let's talk about growth: Of the big developed 3, the US has the highest population growth rate of just under 1%. Japan is flat and Germany has a negative population growth number*.
Let's talk about "the other 13": The other 13 countries account for 59% of the world population and all with the exception of Russia have population growth rates higher than 1% per annum*. Nigeria leads this pack with a growth 2.38% per annum* and the 8th largest population in the world.
Let's talk Nigeria: I am a Nigerian and a student of the Peter Lynch school of investing: "Buy what you know". 6 years ago that was really hard as very few of the fortune 500 companies had a substantial presence in Nigeria that tapped into the population's buying power. The only visible foreign consumer-oriented companies were the mobile phone operators
Let's talk mobile phones: GSM technology came to Nigeria in 2001 and MTN was one of the pioneer providers. In the first year of operation, 10% of MTN's ZAR12M revenue came from its Nigerian operations and ZAR7.5 got you US$1. Today, MTN has a presence in over 20 developing countries, the revenue has grown to ZAR58M with 34% of that coming from Nigeria and the currency has stayed fairly steady with ZAR7.7 getting you US$1 at today's rates. Fact is over 100 million Nigerias appreciate the chance to talk & MTN has the money in the bank to prove it.
Let's talk hedging: The uncertainties of the 1st world markets in the last one year has left many an investor weeping. House prices are crashing and consumer confidence is falling... but not in the third world. In China over 1,000M people are talking and China Mobile is helping them. In India over 1,000M people are talking and Reliance Communications is helping them. Over 100M people in Mexico & Nigeria are talking thanks to American Movil & MTN. Fact is the finances of a telecommunications company that is willing to provide services to any of the over $4 billion consumers in the third world is insulated from the global crisis today. It a great hedge against the emotions of the US consumer & the strength of the dollar.
Let's talk diversification: Buying the shares of the different telecoms companies listed above is contrary to Mr Lynch's common sense. Buying into a fund that's invested in these companies, trading at 12% discount to asset value and up 50% from its July 2006 value where the S & P is flat? That's a move Mr Lynch may be proud of. The Emerging Markets Telecommunications Fund (ETF) has done all these. Just as the name says, its a fund that invests in the stock of emerging markets telecoms companies.
Recent conventional wisdom advocates investing in the emerging markets by buying funds that track the MSCI Emerging Market Index. Being from an "emerging market" country, I think differently. A lot of the companies listed on the index are in the natural resources industry and cannot fully tap into the power of a large population, but the telecomms companies can and the ETF is a painless (more volatile, more familiar & more rewarding) alternative for the long-term value investor in me.
Let's talk about me: This is my first post on this blog and I wanted to do a SHORT writeup on why I think investing in the Emerging Markets Telecommunications Fund (ETF) has been a good thing for my portfolio. I've tried to be brief but I have the feeling that this is one of the longer posts on this blog & I apologise. It must be the Nigerian in me. Now you see why MTN Nigeria will always turn a profit. We love to talk!
* CIA world fact book
Let's talk about growth: Of the big developed 3, the US has the highest population growth rate of just under 1%. Japan is flat and Germany has a negative population growth number*.
Let's talk about "the other 13": The other 13 countries account for 59% of the world population and all with the exception of Russia have population growth rates higher than 1% per annum*. Nigeria leads this pack with a growth 2.38% per annum* and the 8th largest population in the world.
Let's talk Nigeria: I am a Nigerian and a student of the Peter Lynch school of investing: "Buy what you know". 6 years ago that was really hard as very few of the fortune 500 companies had a substantial presence in Nigeria that tapped into the population's buying power. The only visible foreign consumer-oriented companies were the mobile phone operators
Let's talk mobile phones: GSM technology came to Nigeria in 2001 and MTN was one of the pioneer providers. In the first year of operation, 10% of MTN's ZAR12M revenue came from its Nigerian operations and ZAR7.5 got you US$1. Today, MTN has a presence in over 20 developing countries, the revenue has grown to ZAR58M with 34% of that coming from Nigeria and the currency has stayed fairly steady with ZAR7.7 getting you US$1 at today's rates. Fact is over 100 million Nigerias appreciate the chance to talk & MTN has the money in the bank to prove it.
Let's talk hedging: The uncertainties of the 1st world markets in the last one year has left many an investor weeping. House prices are crashing and consumer confidence is falling... but not in the third world. In China over 1,000M people are talking and China Mobile is helping them. In India over 1,000M people are talking and Reliance Communications is helping them. Over 100M people in Mexico & Nigeria are talking thanks to American Movil & MTN. Fact is the finances of a telecommunications company that is willing to provide services to any of the over $4 billion consumers in the third world is insulated from the global crisis today. It a great hedge against the emotions of the US consumer & the strength of the dollar.
Let's talk diversification: Buying the shares of the different telecoms companies listed above is contrary to Mr Lynch's common sense. Buying into a fund that's invested in these companies, trading at 12% discount to asset value and up 50% from its July 2006 value where the S & P is flat? That's a move Mr Lynch may be proud of. The Emerging Markets Telecommunications Fund (ETF) has done all these. Just as the name says, its a fund that invests in the stock of emerging markets telecoms companies.
Recent conventional wisdom advocates investing in the emerging markets by buying funds that track the MSCI Emerging Market Index. Being from an "emerging market" country, I think differently. A lot of the companies listed on the index are in the natural resources industry and cannot fully tap into the power of a large population, but the telecomms companies can and the ETF is a painless (more volatile, more familiar & more rewarding) alternative for the long-term value investor in me.
Let's talk about me: This is my first post on this blog and I wanted to do a SHORT writeup on why I think investing in the Emerging Markets Telecommunications Fund (ETF) has been a good thing for my portfolio. I've tried to be brief but I have the feeling that this is one of the longer posts on this blog & I apologise. It must be the Nigerian in me. Now you see why MTN Nigeria will always turn a profit. We love to talk!
* CIA world fact book
Tuesday, July 8, 2008
Coke… & Beer
As I go back to our records, we intended to buy Anheuser-Busch (BUD) in July 21st 2006, at $ 46.81. We did not do so and we expect the situation to get much different now, if InBev’s bid will be accepted. InBev stock is traded at approx $41 now, so we might have a second chance.
The merger will open chances for the future of both businesses, creating a huge synergy (for example through A-B’s 24% market share on China market).
InBev will make a good buy, considered the strength of EU-market, compared to US-market. However the cultural differences will make the deal difficult and can be seen as a risk factor – family traditions, US-habits, Icon status of Budweiser, employees who do not accept cost cuttings.
Whatever the price of a beer will be in the following years – considered higher price of fuel, transportation, shipping costs, electricity, water - it will be still affordable, compared to the other alcoholic drinks.
So, we maybe concentrate on Coke and beer?
Summary from:
BRUSSELS, July 8 (From: Reuters)
As per: http://www.guardian.co.uk/business/feedarticle/7637222
InBev:
- Cost Cutting: to squeeze out up to $1.4 billion of costs if it succeeds in taking over U.S. peer Anheuser-Busch.
- Budgeting: "Zero-based budgeting" is central to InBev's business model (= to justify all spending, rather than just changes in their budgets)
- Regions: Brazil, North America, Western Europe, Eastern Europe, Asia
- Employees: the tightest of budget controls: mobile phones taken back and returned only to employees who justified a need for one; new pens given out only in return for used ones; and an elevator at the global headquarters closed for several months.
- CEO Carlos Brito: plans to cut costs by 10-15 percent in year one, 5-10 percent in the second year and enough to offset inflation in the third. In the first year in key home market western Europe, InBev laid out restrictions on 15 areas from travel to utilities that reaped 118 million euros ($186.3 million) of savings.
- Offer: $46.3 billion takeover offer
- Vision: boosting revenues by making Anheuser's Budweiser a flagship global brand beside its stable of Beck's, Stella Artois and Brahma - by adding Anheuser's near 50 percent share of the profitable U.S. market to InBev's global empire.
- More savings: downgrading Anheuser's corporate HQ to a North American head office, shifting Budweiser production in Britain to InBev plants, rationalising Chinese operations and boosting U.S. sales of AmBev brands and Bud volumes in Canada
- Marketing: $100 million cost of sponsoring soccer's World Cup tournament – it is in South Africa in 2010 (where Budweiser is not present).
- Distributors: to lean on them to consolidate and become more efficient.
- Bid: potential risk for the take-over to become hostile (massive culture clash & ZBB cost philosophy is difficult to implement without willingness from the workforce)
A-B’s future after take-over:
- Cost cutting: $1 billion of cost cuts, principally the result of reducing the workforce by between 10 and 15 percent by 2010 and speeding up price hikes.
- Core competence: Anheuser's packaging business and SeaWorld and Busch Gardens theme parks would also almost certainly go.
- Image of US Icon: all Anheuser's U.S. breweries will be kept open (said InBev), but it could be eyeing more job cuts than Anheuser now plans.
-
Trevor Stirling, analyst at Sanford Bernstein, believes such changes could yield $380 million in annual synergies.
As I go back to our records, we intended to buy Anheuser-Busch (BUD) in July 21st 2006, at $ 46.81. We did not do so and we expect the situation to get much different now, if InBev’s bid will be accepted. InBev stock is traded at approx $41 now, so we might have a second chance.
The merger will open chances for the future of both businesses, creating a huge synergy (for example through A-B’s 24% market share on China market).
InBev will make a good buy, considered the strength of EU-market, compared to US-market. However the cultural differences will make the deal difficult and can be seen as a risk factor – family traditions, US-habits, Icon status of Budweiser, employees who do not accept cost cuttings.
Whatever the price of a beer will be in the following years – considered higher price of fuel, transportation, shipping costs, electricity, water - it will be still affordable, compared to the other alcoholic drinks.
So, we maybe concentrate on Coke and beer?
Summary from:
BRUSSELS, July 8 (From: Reuters)
As per: http://www.guardian.co.uk/business/feedarticle/7637222
InBev:
- Cost Cutting: to squeeze out up to $1.4 billion of costs if it succeeds in taking over U.S. peer Anheuser-Busch.
- Budgeting: "Zero-based budgeting" is central to InBev's business model (= to justify all spending, rather than just changes in their budgets)
- Regions: Brazil, North America, Western Europe, Eastern Europe, Asia
- Employees: the tightest of budget controls: mobile phones taken back and returned only to employees who justified a need for one; new pens given out only in return for used ones; and an elevator at the global headquarters closed for several months.
- CEO Carlos Brito: plans to cut costs by 10-15 percent in year one, 5-10 percent in the second year and enough to offset inflation in the third. In the first year in key home market western Europe, InBev laid out restrictions on 15 areas from travel to utilities that reaped 118 million euros ($186.3 million) of savings.
- Offer: $46.3 billion takeover offer
- Vision: boosting revenues by making Anheuser's Budweiser a flagship global brand beside its stable of Beck's, Stella Artois and Brahma - by adding Anheuser's near 50 percent share of the profitable U.S. market to InBev's global empire.
- More savings: downgrading Anheuser's corporate HQ to a North American head office, shifting Budweiser production in Britain to InBev plants, rationalising Chinese operations and boosting U.S. sales of AmBev brands and Bud volumes in Canada
- Marketing: $100 million cost of sponsoring soccer's World Cup tournament – it is in South Africa in 2010 (where Budweiser is not present).
- Distributors: to lean on them to consolidate and become more efficient.
- Bid: potential risk for the take-over to become hostile (massive culture clash & ZBB cost philosophy is difficult to implement without willingness from the workforce)
A-B’s future after take-over:
- Cost cutting: $1 billion of cost cuts, principally the result of reducing the workforce by between 10 and 15 percent by 2010 and speeding up price hikes.
- Core competence: Anheuser's packaging business and SeaWorld and Busch Gardens theme parks would also almost certainly go.
- Image of US Icon: all Anheuser's U.S. breweries will be kept open (said InBev), but it could be eyeing more job cuts than Anheuser now plans.
-
Trevor Stirling, analyst at Sanford Bernstein, believes such changes could yield $380 million in annual synergies.
Thursday, July 3, 2008
Welcome to the 2008 - ? Bear Market !
The Dow has now retraced a full 20% since October 2007 highs signalling officially that we are in a bear market.
Oil prices at $140 do not help matters. The credit crunch is not over yet and the housing crisis has now spread fully from the US to the UK. Consumer confidence at an all-time low. Equities will be further buffetted in coming months by the real risk of increasing interest rates and inflation worries which raises serious concerns about corporate earnings outlook. So we can forget about any appreciable GDP growth, especially in the OECD economies.
I do not expect any meaningful recovery until next summer. The result of the US presidential election will have an impact - will the new president support Israel attacking Iran ? Will the White House become more constructive in relations with the rest of the world and especially OPEC countries Iran, Venezuela so that more oil can be pumped into the market to ease supply worries ?
So What should the value investor do ?
My answer is this : We should hold on to our stocks.
Go to "sleep" mode and assume that the market is closed for the next 5 years.
If you have some cash pick up some Starbucks, Bank of America, General Electric, Cisco, Microsoft, Coca-Cola, Gannettt, JP Morgan, Berkshire Hathaway, GlaxoSmithKline - all trading in bargain territory.
Also Look at exchange-traded funds SPY, QQQQ, SMH for some diversification etc
Look for clean and healthy, cash-rich balance sheets. Beware of falling knives like Citigroup unless it drops to $10 :))
Oil prices at $140 do not help matters. The credit crunch is not over yet and the housing crisis has now spread fully from the US to the UK. Consumer confidence at an all-time low. Equities will be further buffetted in coming months by the real risk of increasing interest rates and inflation worries which raises serious concerns about corporate earnings outlook. So we can forget about any appreciable GDP growth, especially in the OECD economies.
I do not expect any meaningful recovery until next summer. The result of the US presidential election will have an impact - will the new president support Israel attacking Iran ? Will the White House become more constructive in relations with the rest of the world and especially OPEC countries Iran, Venezuela so that more oil can be pumped into the market to ease supply worries ?
So What should the value investor do ?
My answer is this : We should hold on to our stocks.
Go to "sleep" mode and assume that the market is closed for the next 5 years.
If you have some cash pick up some Starbucks, Bank of America, General Electric, Cisco, Microsoft, Coca-Cola, Gannettt, JP Morgan, Berkshire Hathaway, GlaxoSmithKline - all trading in bargain territory.
Also Look at exchange-traded funds SPY, QQQQ, SMH for some diversification etc
Look for clean and healthy, cash-rich balance sheets. Beware of falling knives like Citigroup unless it drops to $10 :))
Wednesday, July 2, 2008
What do you think about investing in China?
We might get too concentrated on US and EU companies and underestimate China’s growth, giving some good possibilities for our long-term investment strategy.
Recently I checked China Petroleum & Chemicals Corp. ADR (NYSE:SNP). It sounds interesting, however what concerns me is, that it is traded in its own country lower, than on NYSE. Is it influenced by lower demand in China, compared to demand SNP shares in the US?
After a 52W-low of $78, analysts expect SNP to recover next weeks to $112 or $119.
The negative Cash from Investing Activities and Cash from Financing Activities are giving me some concern.
From:
http://www.bloomberg.com/apps/news?pid=20601080&sid=a.TPeBij1c1U&refer=asia
June 20th 2008
Brief info:
China is expected to raise energy prices and fuel prices, as they are now approximately 30 % under the international import parity prices.
This way China expects to reduce oil consumption and improve energy – if the fuel prices are under control, they will have also less influence on the inflation.
In 2010 each unit of GDP shall use 20% less energy, compared with 2005 levels.
More details:
``The price hike is sooner and bigger than what we had assumed -- a 10 percent hike from Sept. 1,'' Goldman Sachs Group Inc. analysts including Kelvin Koh wrote in a report. ``The fuel price hikes are unlikely to crush demand.''
Refiners will ``get a big boost because they'll be able to raise their prices,'' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. ``Analysts will have to go back and rework their models.''
“China should raise fuel prices by 50 percent to boost energy efficiency and cut consumption, China International Capital Corp.”, the nation's largest investment bank, said on June 17.
**************
Reading about China, I got to the link of Pure Heart China Growth Investment Fund:
http://www.pureheartchina.com/english/investment.asp
Their investment ideology is guided by “intrinsic value” and “margin of safety” and promises an above average return over 30 years period, based on market conditions of growth in China.
We might get too concentrated on US and EU companies and underestimate China’s growth, giving some good possibilities for our long-term investment strategy.
Recently I checked China Petroleum & Chemicals Corp. ADR (NYSE:SNP). It sounds interesting, however what concerns me is, that it is traded in its own country lower, than on NYSE. Is it influenced by lower demand in China, compared to demand SNP shares in the US?
After a 52W-low of $78, analysts expect SNP to recover next weeks to $112 or $119.
The negative Cash from Investing Activities and Cash from Financing Activities are giving me some concern.
From:
http://www.bloomberg.com/apps/news?pid=20601080&sid=a.TPeBij1c1U&refer=asia
June 20th 2008
Brief info:
China is expected to raise energy prices and fuel prices, as they are now approximately 30 % under the international import parity prices.
This way China expects to reduce oil consumption and improve energy – if the fuel prices are under control, they will have also less influence on the inflation.
In 2010 each unit of GDP shall use 20% less energy, compared with 2005 levels.
More details:
``The price hike is sooner and bigger than what we had assumed -- a 10 percent hike from Sept. 1,'' Goldman Sachs Group Inc. analysts including Kelvin Koh wrote in a report. ``The fuel price hikes are unlikely to crush demand.''
Refiners will ``get a big boost because they'll be able to raise their prices,'' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. ``Analysts will have to go back and rework their models.''
“China should raise fuel prices by 50 percent to boost energy efficiency and cut consumption, China International Capital Corp.”, the nation's largest investment bank, said on June 17.
**************
Reading about China, I got to the link of Pure Heart China Growth Investment Fund:
http://www.pureheartchina.com/english/investment.asp
Their investment ideology is guided by “intrinsic value” and “margin of safety” and promises an above average return over 30 years period, based on market conditions of growth in China.
Sunday, April 27, 2008
Video of Annual Whitman Day: Breakfast Panel with Martin J. Whitman
http://whitman.syr.edu/Videoarchive/video.aspx?vid=e01174f2-0ae7-4fde-9869-082ff068e6f7
Title: 5th Annual Whitman Day: Breakfast Panel with Martin J. Whitman and Richard Haydon
Duration: 0 hours, 51 minutes, 41 seconds
Description: Collectively, Martin J. Whitman ’49 BS and Richard Haydon ’66 BA (A&S) have a century of Wall Street experience—and that fact is evident in the wisdom and insight revealed in this wide-ranging panel discussion. Whitman, founder and co-chief investment officer of Third Avenue Management, and Haydon, a managing director with Neuberger Berman, treat members of the Central New York financial community to a no-holds-barred conversation on investing and current economic developments, including the housing/mortgage crisis, the concerted raid on Bear Stearns, and green investments. The discussion was moderated by J. Daniel Pluff, host of WCNY’s “Financial Fitness." The breakfast panel was part of the 5th annual Whitman Day celebration in the Whitman School of Management.Date Produced: 4/2/2008
Genre: Panel discussion
Keywords: Martin J. Whitman, Richard Haydon, Whitman Day, Financial Fitness, Third Avenue Management, Neuberger Berman, Wall Street
Copyright: Syracuse University Whitman School of Management
Title: 5th Annual Whitman Day: Breakfast Panel with Martin J. Whitman and Richard Haydon
Duration: 0 hours, 51 minutes, 41 seconds
Description: Collectively, Martin J. Whitman ’49 BS and Richard Haydon ’66 BA (A&S) have a century of Wall Street experience—and that fact is evident in the wisdom and insight revealed in this wide-ranging panel discussion. Whitman, founder and co-chief investment officer of Third Avenue Management, and Haydon, a managing director with Neuberger Berman, treat members of the Central New York financial community to a no-holds-barred conversation on investing and current economic developments, including the housing/mortgage crisis, the concerted raid on Bear Stearns, and green investments. The discussion was moderated by J. Daniel Pluff, host of WCNY’s “Financial Fitness." The breakfast panel was part of the 5th annual Whitman Day celebration in the Whitman School of Management.Date Produced: 4/2/2008
Genre: Panel discussion
Keywords: Martin J. Whitman, Richard Haydon, Whitman Day, Financial Fitness, Third Avenue Management, Neuberger Berman, Wall Street
Copyright: Syracuse University Whitman School of Management
Thursday, April 17, 2008
Canadian Natural Resources
I want to recommend CNQ.
A Canadian based senior independent energy company engaged in the acquisition, exploration, development, production, marketing and sale of crude oil, NGLs, natural gas and bitumen production.
One of Canada's largest natural-gas producers, the company also produces conventional crude oil in Canada, the U.K. North Sea, and West Africa. These assets have the potential to expand from today's production levels of approximately 1,650 mmcf/day of natural gas and 330 mbbl/day of conventional crude oil and natural gas liquids (NGL).Growth on the HorizonPhase 1 of the Horizon project is set to start producing synthetic crude oil (SCO) from the tar sands in Northern Alberta. Once fully up to speed, phase 1 is expected to produce around 230,000 barrels/day. Initially, the cost of production will be close to $30/barrel, but over the lifetime of the Horizon project, the company estimates that the costs will fall closer to $20/barrel. Over the years, the company intends to expand its production to 500,000 barrels/day. At today's oil price of over $90 per barrel, the economic opportunity is simply staggering.
Tuesday, March 18, 2008
Lessons from Bear Stearns
We should take a careful look at story of 85-yr old investment firm Bear Stearns (BSC) to learn great portfolio management lesson.
BSC 1-year share price history:
04/25/07 - $159.36 per share
03/17/08 - $2.00 per share (sold off to competitor)
In particular, for us in Tyumen value investors group, we need to better understand bank stock valuations, allocation and securitizations of balance sheet assets before adding positions in financials. We also need to take second look at capital ratios, derivatives trading activity, off-balance sheet deals and corporate greed aspects all of which accentuate the need to adopt down-to-earth attitude towards downside risk management.
Quotable Quotes:
i. Buffett commenting on derivatives trading in 2003
1." complex financial instruments are time bombs and "financial weapons of mass destruction" that
could harm not only their buyers and sellers, but the whole economic system" ///2.."The derivatives business is like hell - easy to enter and almost impossible to exit"
ii. Alan Greenspan writing in Financial Times, 2008:
1. "Comtemporary risk management models are inadequate and cannot be relied upon to predict the systemic risk"///2.. "The full extent of hidden bank losses remain unclear as long as the US housing sector continues to deteriorate, further erosion of the valuation of asset-backed securities are possible"
BSC 1-year share price history:
04/25/07 - $159.36 per share
03/17/08 - $2.00 per share (sold off to competitor)
In particular, for us in Tyumen value investors group, we need to better understand bank stock valuations, allocation and securitizations of balance sheet assets before adding positions in financials. We also need to take second look at capital ratios, derivatives trading activity, off-balance sheet deals and corporate greed aspects all of which accentuate the need to adopt down-to-earth attitude towards downside risk management.
Quotable Quotes:
i. Buffett commenting on derivatives trading in 2003
1." complex financial instruments are time bombs and "financial weapons of mass destruction" that
could harm not only their buyers and sellers, but the whole economic system" ///2.."The derivatives business is like hell - easy to enter and almost impossible to exit"
ii. Alan Greenspan writing in Financial Times, 2008:
1. "Comtemporary risk management models are inadequate and cannot be relied upon to predict the systemic risk"///2.. "The full extent of hidden bank losses remain unclear as long as the US housing sector continues to deteriorate, further erosion of the valuation of asset-backed securities are possible"
Tuesday, March 11, 2008
GE CEO Jeff Immelt buys $2million of stock with own money
GE's Immelt buys $2 mln in shares on open market
Reuters - March 11, 2008 2:51 PM ET
NEW YORK, March 11 (Reuters) - The chairman and chief executive of General Electric Co (GE) reported on Tuesday that he bought about $2 million worth of the conglomerate's common stock on the open market.
The CEO, Jeffrey Immelt, bought the 62,000 shares earlier Tuesday at prices between $32.74 and $33, according to a filing with the U.S. Securities and Exchange Commission.
The transactions increased Immelt's direct holdings by 4.5 percent to 1.36 million shares. Last month, Immelt bought 90,000 shares at about $33.42 each.
GE shares set a 52-week low of $31.65 on Monday. They were up $1.46 to $33.16 Tuesday on the New York Stock Exchange. (Reporting by Nick Zieminski; editing by Jeffrey Benkoe)
Reuters - March 11, 2008 2:51 PM ET
NEW YORK, March 11 (Reuters) - The chairman and chief executive of General Electric Co (GE) reported on Tuesday that he bought about $2 million worth of the conglomerate's common stock on the open market.
The CEO, Jeffrey Immelt, bought the 62,000 shares earlier Tuesday at prices between $32.74 and $33, according to a filing with the U.S. Securities and Exchange Commission.
The transactions increased Immelt's direct holdings by 4.5 percent to 1.36 million shares. Last month, Immelt bought 90,000 shares at about $33.42 each.
GE shares set a 52-week low of $31.65 on Monday. They were up $1.46 to $33.16 Tuesday on the New York Stock Exchange. (Reporting by Nick Zieminski; editing by Jeffrey Benkoe)
Monday, February 18, 2008
Investors must remain patient and calm
I want to remind our members again that we have to remain steadfast, calm and patient.
Patience in the face of risk, volatitilty and temporary impairment to portfolio values.
In fact we have just seen some screaming buys in the last 3 weeks. For example GE selling at around $33.00, SLB briefly below $75. These are companies with very wide competitive moats in their respective fields, and are poised to give long-term investors very exciting returns.
In investing, the physchology quotient is as important as the intelligence quotient and patience is a key attribute of the physchology for successful investing.
I deliberately have not written for a while on this blog. Sometimes we just have to relax and let time do its part of the work - Kunle
Patience in the face of risk, volatitilty and temporary impairment to portfolio values.
In fact we have just seen some screaming buys in the last 3 weeks. For example GE selling at around $33.00, SLB briefly below $75. These are companies with very wide competitive moats in their respective fields, and are poised to give long-term investors very exciting returns.
In investing, the physchology quotient is as important as the intelligence quotient and patience is a key attribute of the physchology for successful investing.
I deliberately have not written for a while on this blog. Sometimes we just have to relax and let time do its part of the work - Kunle
Wednesday, January 30, 2008
The Market Falls – So What “The Essays of Warren Buffett”
Dear Fellows Value Investors,
All of us are looking how the finance stocks continue falling and everyone is wondering how deep the dust might be… Reading “The Essays of Warren Buffett” (Chapter II, Corporate Finance and Investing), you will feel free to overview the falling rates, but recover fast when panicking.
As you already know, Buffett learned a lot about Mr. Market from Ben Graham. His definitions are full of humors and that makes it easier for us to keep in our mind the main moods of the stock market (I cannot say it better J):…“the poor fellow has incurable emotional problems” (as per “The Essays of Warren Buffett”, by Lawrence Cunningham, p.68).
It feels:
- EUPHORIC = getting too optimistic and sees just those changes, possibilities, etc. of business and environment, which are suitable to his strategy => very high price
- DEPRESSED = getting too pessimistic, percepts just risks and problems of the environment => very low price)
- DOES NOT MIND BEING IGNORED: more balanced mood, waiting of you to accept his conditions (prices), as there is a seller and buyer at any rate, and both live on this kind of cooperation.
-
The rates, that Mr Market is offering us are challenging, but our perception shall be as of “interesting information”. We shall stay focused on analyzing first, so that we recognize the good business and good margin of safety, whenever Mr Market is offering us a “good price”.
“So smile when you read a headline that says, “investors lose as market falls”. Edit it in your mind to, “Disinfectors lose as market falls – but investors gain.” (p.71).
“When we own portions of outstanding businesses with outstanding managements, out favorite holding period is forever. We are just the opposite of those who hurry to sell and book profits when companies perform well but who tenaciously hand on to businesses that disappoint. Peter Lynch aptly likens such behavior to cutting the flowers and watering the weeds” (as per “The Essays of Warren Buffett”, by Lawrence Cunningham, p.80).
* All citations are from the book “The Essays of Warren Buffett”, by Lawrence Cunningham
Wednesday, January 23, 2008
Recommendations
Here are some bargains from the current market situation:
QQQQ - Nasdaq ETF
TS - Tenaris (steel tubulars maker for oil industry, trading at excellent discount)
JPM - JP Morgan managed to escaped the sub-prime mess
GE - General Electric trading off bottoms, global growth player with huge order book for jet engines and infrastruture projects. More than half of revenues coming from outside the US
QQQQ - Nasdaq ETF
TS - Tenaris (steel tubulars maker for oil industry, trading at excellent discount)
JPM - JP Morgan managed to escaped the sub-prime mess
GE - General Electric trading off bottoms, global growth player with huge order book for jet engines and infrastruture projects. More than half of revenues coming from outside the US
SMH - Semiconductors holders trust ETF, trading at good discount to asset values
Also seeing bargins in the Oilfield service sectors but I refrain from recommeding individual stocks in this sector for obvious reasons. The OIH ETF looks good though
BAC Recovery above $40
Check out how BAC's recovered above $40 from $35 within few days.
The is a technical indicator of the crazy volatility which confirms that BAC is a strong value play trading temporarily at huge discount.
Mr Market is clearly not efficient as a weighing machine however it is a near-perfect short-term discounting machine. Here we see the shorters who timed the US govt and Fed interventions quickly covering up their positions in order not to get caught out knowing that BAC is poised to return back to fair value.
This stock will be back at $50 by end of the year. That's a nice 25% gain from current level plus 6% from the dividend. Total gain = 31%
Buy this stock now if it double-tests support again between $35 - $37. It won't trade this low for too long.
Note: The value investor should not use technical analysis without sound understanding of fundamental analysis
The is a technical indicator of the crazy volatility which confirms that BAC is a strong value play trading temporarily at huge discount.
Mr Market is clearly not efficient as a weighing machine however it is a near-perfect short-term discounting machine. Here we see the shorters who timed the US govt and Fed interventions quickly covering up their positions in order not to get caught out knowing that BAC is poised to return back to fair value.
This stock will be back at $50 by end of the year. That's a nice 25% gain from current level plus 6% from the dividend. Total gain = 31%
Buy this stock now if it double-tests support again between $35 - $37. It won't trade this low for too long.
Note: The value investor should not use technical analysis without sound understanding of fundamental analysis
Tuesday, January 22, 2008
Thursday, January 17, 2008
View on current market situation
Guys,
Do not be scared by the current market volatility.
The US recession seems now fully priced in. According to Goldman Sachs economists the US is now fully in recession.
After January ending I think we should start seeing some reversal after the Fed cuts the rates and the oil price starts to recede. Do not sell or buy any oil stock
The Dow will be back at 14,000 by year end.
Do not be scared by the current market volatility.
The US recession seems now fully priced in. According to Goldman Sachs economists the US is now fully in recession.
After January ending I think we should start seeing some reversal after the Fed cuts the rates and the oil price starts to recede. Do not sell or buy any oil stock
The Dow will be back at 14,000 by year end.
PFE showing relative strength despite volatility
Despite the Dow losing 1500 pts since August Pfizer seems to be showing relatively good strength. It's held up quite well in the recent turbulence. While I stopped charting and technical analysis long ago, I think it's worth looking at the fundamentals of this company again.
Despite the patent expiry issues the balance sheet is still strong and big pharma normally should not suffer heavily in a US recession as people will still buy drugs whether the economy is good or bad, plus they have a strong global presence. Healthcare is a major issue in current US presidential election debates and the Democrats look set at instituting some serious reforms in that sector once they start to progressively curtail spending in Iraq
This is a good defensive play currently yielding over 5%. Dividends have been paid since 1901.
Despite the patent expiry issues the balance sheet is still strong and big pharma normally should not suffer heavily in a US recession as people will still buy drugs whether the economy is good or bad, plus they have a strong global presence. Healthcare is a major issue in current US presidential election debates and the Democrats look set at instituting some serious reforms in that sector once they start to progressively curtail spending in Iraq
This is a good defensive play currently yielding over 5%. Dividends have been paid since 1901.
Wednesday, January 16, 2008
Citigroup dividend cut
Finally the much-awaited cut will be done !
Now investors need to check their holding to see that Citigroup remains a value play.
From the earnings press release :
"The company, the largest banking group in the US, said revenues during the fourth quarter fell 70% from a year earlier to $7.2bn.....The firm also said that it would be cutting its dividend for the quarter by 41%, from 54 cents to 32 per share, as well as raising $14.5bn by selling securities, which includes the investment from GIC. "
I bought C at $44/shr and I am holding on to it no matter how low it goes.
Now investors need to check their holding to see that Citigroup remains a value play.
From the earnings press release :
"The company, the largest banking group in the US, said revenues during the fourth quarter fell 70% from a year earlier to $7.2bn.....The firm also said that it would be cutting its dividend for the quarter by 41%, from 54 cents to 32 per share, as well as raising $14.5bn by selling securities, which includes the investment from GIC. "
I bought C at $44/shr and I am holding on to it no matter how low it goes.
Monday, January 7, 2008
Bank of America @ over 6% yield !!!
Guys did you see BAC trading below $40/share ?
Forget about the credit crunch and US recession, watch out it's starting to become a serious value play at 6.4% dividend yield as I predicted in my post on Dec 17th. No analyst has said anything to suggest a divident cut anytime soon. The Gordon-Shapiro basic DDM tells me this stock is worth over $54.
The company has a dominant position in U.S. retail banking, has a long and consistent history of paying dividends since 1903 (http://www.dividendinvestor.com/) and they already sold off their sub-prime mortgage unit.
Even during a recession people will still need banking services so anyhow BAC will make money
Warren Buffett added to his position when it traded in the $40's couple of months ago. If I had some extra cash I would certainly be buying if it falls below $39
Forget about the credit crunch and US recession, watch out it's starting to become a serious value play at 6.4% dividend yield as I predicted in my post on Dec 17th. No analyst has said anything to suggest a divident cut anytime soon. The Gordon-Shapiro basic DDM tells me this stock is worth over $54.
The company has a dominant position in U.S. retail banking, has a long and consistent history of paying dividends since 1903 (http://www.dividendinvestor.com/) and they already sold off their sub-prime mortgage unit.
Even during a recession people will still need banking services so anyhow BAC will make money
Warren Buffett added to his position when it traded in the $40's couple of months ago. If I had some extra cash I would certainly be buying if it falls below $39
Wednesday, January 2, 2008
Turbulent time, researche and education
Dear Tyumen Value Investors Fellows,
Happy New and prosperous 2008,
Looking into the turbulent start of the year and the uncertain times ahead we should invest time in researches and self development. Below are listed some of the books I think are useful as for the less experienced fellows and for the more advanced among us. I was reading some of the books and highly recommend them. Starting with the 3 mentors of Warren Buffett - Benjamin Graham, John Burr Williams, and Philip Fisher and ending up with Buffett himself, Peter Lynch and Joel Greenblatt:
1.) The Intelligent Investor, Benjamin Graham
2.) Security Analysis, Benjamin Graham
3.) The Interpretation of Financial Statements, Benjamin Graham
4.) The Theory of Investment Value, John Burr Williams
5.) Interests, Growth & Inflation, John Burr Williams
6.) Common Stocks and Uncommon Profits, Philip Fisher
7.) Essays of Warren Buffett, Lawrence Cunningham
8.) The Little Book that Beats the Market, Joel Greenblatt
9.) Beating the Street, Peter Lynch
10.) One Up On Wall Street, Peter Lynch
11.) The Warren Buffett Way, Robert Hagstrom
Any person seriously interested in value investing should start with "The Intelligent Investor" ( by far the best 15 USD you could ever invest in self development) and read it a few times. All other books are highly recommended and help to round up one's understanding of Value Investing.
Wish you lot of pleasure,
KE
Happy New and prosperous 2008,
Looking into the turbulent start of the year and the uncertain times ahead we should invest time in researches and self development. Below are listed some of the books I think are useful as for the less experienced fellows and for the more advanced among us. I was reading some of the books and highly recommend them. Starting with the 3 mentors of Warren Buffett - Benjamin Graham, John Burr Williams, and Philip Fisher and ending up with Buffett himself, Peter Lynch and Joel Greenblatt:
1.) The Intelligent Investor, Benjamin Graham
2.) Security Analysis, Benjamin Graham
3.) The Interpretation of Financial Statements, Benjamin Graham
4.) The Theory of Investment Value, John Burr Williams
5.) Interests, Growth & Inflation, John Burr Williams
6.) Common Stocks and Uncommon Profits, Philip Fisher
7.) Essays of Warren Buffett, Lawrence Cunningham
8.) The Little Book that Beats the Market, Joel Greenblatt
9.) Beating the Street, Peter Lynch
10.) One Up On Wall Street, Peter Lynch
11.) The Warren Buffett Way, Robert Hagstrom
Any person seriously interested in value investing should start with "The Intelligent Investor" ( by far the best 15 USD you could ever invest in self development) and read it a few times. All other books are highly recommended and help to round up one's understanding of Value Investing.
Wish you lot of pleasure,
KE
Tuesday, January 1, 2008
Happy New Year 2008 !
This is wishing all our members and blog visitors a happy and prosperous 2008 !
Let's remember that there will be market turbulence ahead this year, the forecast for the US economy is still unclear but the value investor should not worry. Rather we should focus on
1. risk management, emphasis on preservation of principal
2. quality stock-picking. Focus on defensive plays, especially cash cows with little or no debt
3. portfolio balancing through diversification and position sizing.
I do not feel it's time to sell off, however I won't be adding to positions until there is some signs of stability and screaming bargains with good margins of safety.
Let's remember that there will be market turbulence ahead this year, the forecast for the US economy is still unclear but the value investor should not worry. Rather we should focus on
1. risk management, emphasis on preservation of principal
2. quality stock-picking. Focus on defensive plays, especially cash cows with little or no debt
3. portfolio balancing through diversification and position sizing.
I do not feel it's time to sell off, however I won't be adding to positions until there is some signs of stability and screaming bargains with good margins of safety.
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