Tidbits & Snippets

July 29, 2022

5 Signs of Speculation

John Rekenthaler - Morningstar Vice President of Research

"A reader forwarded me an article bearing the indelicate title of “On Bullshit in Investing.” Its author was Benn Eifert, managing partner of a San Francisco-based hedge fund. Rarely do I agree with hedge-fund executives, especially those who run absolute return strategies, which I have deemed 'an aspiration, not a realistic investment objective.' However, that headline looked promising.

Happily, the book matched its cover. The article made excellent sense, albeit for the vainglorious reason that it overlaps so strongly with this column. Among the targets that Eifert and I have shared are Special Purpose Acquisition Companies, ARK Innovation ETF, Allianz Structured Alpha, and Infinity Q Diversified Alpha, the last of which, I mused, might the worst-ever public fund. (Bernie Madoff, of course, handily captured the private-fund honors.)

Eifert offers five red investment flags. I wholeheartedly agree with them all. However, there is room for additional discussion, as animal manure is such a fertile subject. In that spirit, here are my five signals for when an investment is really something else: a speculation in disguise." [No Track Record, Lack of Cash, A Secret Sauce, Ignoring History and Special Membership]

March 16, 2022

Jason Zweig opens his insightful piece,The Secret to Braving a Wild Market,with…

“In the fall of 1939, just after Adolf Hitler’s forces blasted into Poland and plunged the world into war, a young man from a small town in Tennessee instructed his broker to buy $100 worth of every stock trading on a major U.S. exchange for less than $1 per share.

His broker reported back that he’d bought a sliver of every company trading under $1 that wasn’t bankrupt. “No, no,” exclaimed the client, “I want them all. Every last one, bankrupt or not.” He ended up with 104 companies,34 of them in bankruptcy… In December 1989, I interviewed him at his home in the Caribbean. I asked how he had felt when he bought those stocks in 1939. ‘I regarded my own fear as a signal of how dire things were,’ said Mr. Templeton, a deeply religious man. ‘I wasn’t sure they wouldn’t get worse, and in fact they did. But I was quite sure we were close to the point of maximum pessimism. And if things got much worse, then civilization itself would not survive—which I didn’t think the Lord would allow to happen.’

The next year, France fell; in 1941 came Pearl Harbor; in 1942, the Nazis were rolling across Russia. Mr. Templeton held on. He finally sold in 1944, after five of the most frightening years in modern history. He made a profit on 100 out of the 104 stocks, more than quadrupling his money. 

Mr. Templeton went on to become one of the most successful money managers of all time. The way he positioned his portfolio for a world at war is a reminder that great investors possess seven cardinal virtues: curiosityskepticismdisciplineindependencehumilitypatience and—above all—courage.

Mr. Zweig concludes with…

“You can be pretty sure you’re manifesting courage as an investor when you listen to what your gut tells you—and then do the opposite.”

September 23, 2021

Liz Ann Sonders concludes her wonderful piece, Songs of Experience: Reminiscences of a Strategist | Schwab Funds (schwabassetmanagement.com)with...

“I’ve written a number of reports recently that detail a growing set of risks with which the market is facing. They include the aforementioned speculative froth at various points this year—concentrated in a rotating crop of non-traditional market segments, like meme stocks, SPACs, non-profitable ‘tech’ stocks, cryptocurrencies, IPOs, etc. Drawdowns this year in those areas have ranged from -30% to -80%. Perhaps because many of these “micro bubbles” sit outside traditional benchmark indexes like the S&P 500 helps explain the relative resiliency of the market.

Other risks include stretched valuations; monetary and fiscal policy concerns; slowing growth and not-yet-transitory inflation; and the recent/ongoing deterioration in the stock market’s “internals” (breadth). In fact, for all the cheering about the S&P 500 not having had even a 5% drawdown this year; it might surprise readers to know that 86% of the index’s constituents have had at least a 10% correction this year.

As highlighted above via the words of investment legends, investors should be cognizant of heightened risks. Heed the risk/reward benefits of diversification (across and within asset classes) and rebalancing. Try to divine whether there is a gap between your financial risk tolerance and your emotional risk tolerance. Those gaps can be surprisingly wide and often only discovered during tumultuous market periods.”

“Those who do not remember the past are condemned to repeat it.”

January 12, 2021

Latest memo from Howard Marks: Something of Value

Howard Marks, CFA

Co-Chairman, Oaktree Capital Group, LLC

The dichotomy of “value” and “growth” investing has become a sharp stylistic divide. Howard Marks writes in his latest memo how he views value investing in today's increasingly efficient and complex world. 

Key conclusions:

  • Value investing doesn’t have to be about low valuation metrics. Value can be found in many forms. The fact that a company grows rapidly, relies on intangibles such as technology for its success and/or has a high p/e ratio shouldn’t mean it can’t be invested in on the basis of intrinsic value.
  • Many sources of potential value can’t be reduced to a number. As Albert Einstein purportedly said, “Not everything that counts can be counted, and not everything that can be counted counts.”  The fact that something can’t be predicted with precision doesn’t mean it isn’t real.
  • Since quantitative information regarding the present is so readily available, success in the highly competitive field of investing is more likely to be the result of superior judgments about qualitative factors and future events.
  • The fact that a company is expected to grow rapidly doesn’t mean it’s unpredictable, and the fact that another has a history of steady growth doesn’t mean it can’t run into trouble.
  • The fact that a security carries high valuation metrics doesn’t mean it’s overpriced, and the fact that another has low valuation metrics doesn’t mean it’s a bargain.
  • Not all companies that are expected to grow rapidly will do so.  But it’s very hard to fully appreciate and fully value the ones that will.
  • If you find a company with the proverbial license to print money, don’t start selling its shares simply because they’ve shown some appreciation.  You won’t find many such winners in your lifetime, and you should get the most out of those you do find.


October 9, 2020

Your Cash Earns Zip, Zilch, Nada. Don't Make It Worse.

It’s never been more tempting to take extra risk with the money you want to keep ultrasafe. But knowing what not to do is vital.

A good yield is hard to find.

With interest rates so close to zero across the board, many investors are undoubtedly wondering whether they can afford to keep a portion of their portfolio safe.

In fact, you can’t afford not to.

Since the Federal Reserve is depressing interest rates, it seems only fair that I should depress you. So please allow me to point out that $100,000 in a savings account will earn, if you’re lucky, $220 in interest income in 2020. That’s $1,509 less than you would need to outpace inflation this year. Read more

August 28, 2020

Warren Buffett and the $300,000 Haircut
There’s a reason the Oracle of Omaha is an ultrabillionaire as he turns 90: He grasped the power of compounding at the age of 10. The sooner the rest of us fully understand it, the better off we’ll be.

This Sunday, Warren Buffett turns 90.

The chairman of Berkshire Hathaway Inc. BRK.B +0.79% is one of the most successful investors of all time, having amassed a net worth estimated at $82 billion. Yet he accrued nearly 90% of that sum after the age of 65. Investing well is important, but investing well for a long time matters even more.

July 15, 2020

Bill Miller 2Q 2020 Market Letter

For a long time, I used to read Reminiscences of a Stock Operator almost every year. I don’t do that anymore, not because I find its lessons dated, but because I had it almost memorized so could direct my attentions elsewhere. The market’s behavior since the March 23rd bottom of 2191 to the 43% gain by July 2nd to 3130 has confounded most observers, from the novice investor to the most experienced and savvy, such as Stan Druckenmiller and Lee Cooperman. It appears that even Warren Buffett, who took advantage of every big bear market to pick up stocks cheaply, and who has always counseled investors to “be greedy when others are fearful and fearful when others are greedy,” ignored his own advice and sat this one out. In the middle of May, when the S&P 500 was trading around 2900, The Economist magazine’s cover was headlined “A dangerous gap” and subtitled “The markets v the real economy.” They were reflecting what most people then, and now, appear to believe: The market and the real economy had become “disconnected.” We were in the worst and fastest decline in economic activity since the Great Depression – 40 million were out of work due to a government mandated economic shutdown, leading to an unemployment rate not seen since the 1930s, yet stocks were inexplicably soaring. Surely, as many were, and still are, predicting, this would end badly and those who were chasing stocks higher were in for a nasty surprise sooner rather than later. Well, maybe, but I doubt it...

...Let’s go back to this idea that stocks at current levels are “disconnected” from the real economy and that presents a problem that stands in need of correcting. In order to say stocks are “disconnected,” one needs to have some idea of what the connection is between the market and the economy. The belief appears to be that stocks go up when earnings and the economy are going up and they go down when the economy is doing the same. So, in short, stocks and the economy are positively correlated. The problem with that view is that there is no evidence at all to support it, as a few minutes research demonstrates. The correlation coefficient of stocks to annual economic growth from 1930 through 2019 is .09, that is, no meaningful correlation at all. For rolling 10-year periods over the same time span, it is slightly negative. I am reminded of the quote of the now mostly forgotten British poet and classicist A.E. Housman, who likewise was confronted with a belief that had no basis. Housman said, “Three minutes’ thought would suffice to find this out; but thought is irksome and three minutes is a long time.”

None of this means, of course, that stocks won’t correct or that they might not descend into a new bear market. That depends on what happens in the future. In Reminiscences, Mr. Partridge is a grizzled market veteran, known as Old Turkey. After a strong move upward in stocks, a young investor who had recommended a stock that Old Turkey had bought told him the market was too high and he should sell and wait for the inevitable correction. Old Turkey demurred and when asked why, kept repeating “Well, it’s a bull market, you know.” Or as George Soros explained to me when I was short oil in 2008 as it soared to record levels (he was long), “You have forgotten something very important. You want to be long stuff that is going up, and short stuff that is going down.”

Stocks have been going up since late March. They have been following a pattern very similar to 2009: bottom in March, rally for two months, consolidate. In 2009, they then continued to go higher. What do I think? “Well, it’s a bull market you know.”

March 16, 2020


As the table above shows, Mr. Market experienced March Madness last week with the Dow swinging wildly due to elevated volatility arising from a panic attack. The pandemic of fear in the market spread faster than the virus itself. The Dow is down about 20% from its recent record high on Feb. 19th, which is the typical definition of a bear market. On March 12th, the Dow suffered its worst one-day loss since the Crash of 1987, only to reverse itself sharply the next day on March 13th in one of the biggest point gains and percentage gains of all time.

So, what happened to cause this March Madness? Barron’s perhaps described it best:

“The coronavirus was declared a pandemic by the World Health Organization. Saudi Arabia announced a huge output increase, sending oil prices plunging. Forrest Gump contracted the coronavirus. There are no basketball scores to check. Baseball won’t start on time this spring. And President Donald Trump declared a national emergency on Friday after announcing a European travel ban on Wednesday.”

A global recession now appears likely, according to many economists.  Exuberance that drove stock prices to dizzying heights less than one month ago has been replaced by fear, a powerful emotion that feeds on itself.

So, what is an investor to do?  

March 11, 2020

Warren Buffett on the latest market swoon

Not as bad as 2008 or 1987.

That’s what Warren Buffett said about the current coronavirus oil shock market maelstrom.

“If you stick around long enough, you'll see everything in markets,” Buffett said. “And it may have taken me to 89 years of age to throw this one into the experience, but the markets, if you have to be open second by second, they react to news in a big time way.”

In an interview with the Berkshire Hathaway CEO in his Omaha headquarters on Tuesday, Buffett called the recent market shock “a one-two punch” with coronavirus and the plunge in oil prices, but indicated that the October crash of 1987 which he called a “financial panic” was worse.

What Benjamin Graham Would Tell You to Do Now: Look in the Mirror

The great investment analyst and Buffett mentor often counseled that investors must first know their own risk tolerance.

By Jason Zweig

Forget about what the stock market is going to do. Instead, focus on what you, as an investor, ought to do.

That advice from Benjamin Graham, the great investment analyst and Warren Buffett’s mentor, can help you navigate the market’s latest storm. Should you jettison some stock or stay the course? How should you act now to reduce the odds that you will kick yourself later for taking too much risk or too little? A few of Graham’s guidelines can help you know yourself and act accordingly.

In his writings, including the classic book after which this column is named, Graham laid out basic distinctions that should guide your behavior.

First, determine whether you are an investor or a speculator. “The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices,” Graham wrote. The speculator, on the other hand, cares mainly about “anticipating and profiting from market fluctuations.”

If you’re an investor, “price fluctuations have only one significant meaning,” according to Graham: “an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.”

March 6, 2020

T. Rowe Price Capital Appreciation Fund’s 12/31/2019 annual report includes the following statements:

"We love uncertainty. Uncertainty is the gift that provides us with the opportunity to buy great companies at attractive valuations."

"The more uncertainty, the more opportunity for long-term gains for our shareholders."

"There is almost no investor uncertainty anywhere today, and, as a result, stocks are expensive relative to history. History suggests this will not always be the case, and when uncertainty again rears its ugly head, we will look to be in a position to take advantage of it, just as we did in 2008.


March 4, 2020

Latest memo from Howard Marks: Nobody Knows II  (excerpts)

I wrote in On the Couch, (January 2016) that “in the real world, things generally fluctuate between ‘pretty good’ and ‘not so hot.’  But in the world of investing, perception often swings from ‘flawless’ to ‘hopeless.’ ”    What I can say is that a month ago, most people thought the macro outlook was uniformly favorable, and they had trouble thinking of a possible negative catalyst with a serious likelihood of materializing.  And now the unimaginable catalyst is here and terrifying…

Intelligent investing has to be based – as always – on the relationship between price and value.  In other words, not “will the collapse go further?”  But rather “has the collapse to date caused securities to be priced right; or are they overpriced given the fundamentals; or have they become cheap?”  I have no doubt that assessing price relative to value remains the most reliable way to invest for the long term…

I think the stock market was overvalued two weeks ago . . . somewhat.  That means I think that today, even with the short-term prospects of business somewhat diminished, it’s closer to fairly valued, but not necessarily a giveaway.  In the starkest numerical terms, before the rout, the p/e ratio on the S&P 500 was 19 or so, roughly 20% above the post-World War II average (and there are arguments on both sides regarding the current applicability of that average).  Thus, after a 13% decline, you’d have to say the p/e ratio is pretty close to fair (unless earnings for the year will be very different from what they previously had been expected to be)…

Buy, sell or hold?  I think it’s okay to do some buying, because things are cheaper.  But there’s no logical argument for spending all your cash, given that we have no idea how negative future events will be.  What I would do is figure out how much you’ll want to have invested by the time the bottom is reached – whenever that is – and spend part of it today.  Stocks may turn around and head north, and you’ll be glad you bought some.  Or they may continue down, in which case you’ll have money left (and hopefully the nerve) to buy more.  That’s life for people who accept that they don’t know what the future holds.

But no one can tell you this is the time to buy.  Nobody knows.

February 24, 2020

Warren Buffett was live on CNBC’s “Squawk Box” for three hours on February 24, 2020. Berkshire Hathaway’s chief and Becky Quick covered many topics, including his thoughts on Democratic presidential contenders Bernie Sanders and Michael Bloomberg, sub-zero interest rates, Bank of America vs. Wells Fargo, cryptocurrencies, his new smart phone and his reaction to Monday’s 3% market decline due to fears of a coronavirus pandemicClick to watch.

November 6, 2019

The IRS announced retirement plan contribution changes which are posted on IRS.gov. This announcement  provides cost‑of‑living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan is increased from $19,000 to $19,500.

The catch-up contribution limit for employees aged 50 and over who participate in these plans is increased from $6,000 to $6,500.

The limitation regarding SIMPLE retirement accounts for 2020 is increased to $13,500, up from $13,000 for 2019.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the Saver's Credit all increased for 2020. For more information click here.

February 25, 2019

Warren Buffett's three hours on CNBC 

Warren Buffett was live for all three hours of "Squawk Box" this morning. You can watch the entire interview here.

The highlights: 

"I was wrong in a couple of ways about Kraft Heinz," including paying too much, but he has no plans to sell.

Buffett said it would be a "real mistake" if former Starbucks CEO Howard Schultz ran for president as an independent because it would take votes away from the Democratic nominee. But Buffett said if former New York City Mayor Mike Bloomberg announced his candidacy as a Democrat, "I would say I'm for him."

  • Buffett hasn't changed his mind on cryptocurrencies like bitcoin, saying it has "no unique value at all" and is a "delusion" for buyers.

Buffett still favors stocks over bonds for the next 10 years


October 31, 2018

Former Federal Reserve Chair, Janet Yellen, shared what she worries about at the Schwab 2018 IMPACT conference in Washington, D.C. which we attended October 28 through October 31.

“The ratio of job openings to unemployed people is the highest level in recorded history. There are more job openings than people to fill them,” and the “unemployment rate is the lowest in 50 years.” Yellen expressed concern about potential overheating of the economy but also confidence in the ability of current Fed Chairman Jerome Powell and other Fed policymakers to slow and stabilize growth. Yellen doesn’t expect a recession until at least 2020 and even then one only a mild one that’s not “deep and terrible.” Read more

Sept. 4, 2018

The Stock Market Is at All-Time Highs -- What Does Warren Buffett Think About It?

…consider some of the other "expensive" times to buy stocks in recent history. If you had bought an S&P 500 index fund at the market's 2000 peak before the dot-com bust, you'd be sitting on a total return of about 180% today (about 6% annualized). And if you had invested at the market's 2007 highs before the financial crisis hit, you'd have a 142% total return now (8.4% annualized). While I wouldn't call these stellar returns, the point is that even if you invest at the worst possible times, stocks still outperform fixed-income investments over the long run. Read more.

July 11, 2018

"Charles W. (“Chuck”) Allmon (Feb 9, 1921 – Oct 17, 2015) published the Growth Stock Outlook (GSO) newsletter from 1965 to 2008. During those 46 years he wrote five different investment newsletters and later managed private portfolios for clients. Allmon was tied for second place among HFD-monitored services for risk-adjusted performance over the 28 year period he was tracked. During this 28 year period he never had a down year. He drew national attention on “Black Monday” in October 1987 when the Dow Jones average dropped 22 percent. Mr. Allmon’s equity fund was the only one in the country to gain ground that day. GSO’s managed accounts were up 30 out of 32 years, including the 2000-2003 downturn. When he retired in 2011 he transferred his accounts to two of his former employees who now run Hendershot Investments." Read more.

June 21, 2018

Interview with Charles Schwab

"When I think about risk in investing, there’s no question that stock markets go up and down—has done it all through my lifetime and prior lifetimes.  And so you have to be prepared emotionally to ride through the down markets. 

You never know when the bottom is going to happen, and you never know when it’s going to reverse. So you just—I have learned over and over again—you just have to hang in there with your investments, maybe add as the markets are down. 

But, you know, you begin to look around and say, 'Who are the richest people in the world?' You know, Warren Buffett would be considered one of those, and he says, 'I never sell.' "

The Cost Conundrum

What a Texas town can teach us about health care.

By Atul Gawande [Recently chosen to lead the employee health care overhaul for Berkshire Hathaway, Amazon and JPMorgan Chase.]

Most Americans would be delighted to have the quality of care found in places like Rochester, Minnesota, or Seattle, Washington, or Durham, North Carolina—all of which have world-class hospitals and costs that fall below the national average. If we brought the cost curve in the expensive places down to their level, Medicare’s problems (indeed, almost all the federal government’s budget problems for the next fifty years) would be solved. The difficulty is how to go about it. Physicians in places like McAllen behave differently from others. The $2.4-trillion question is why. Unless we figure it out, health reform will fail. Read more.

 June 18, 2018

Weekly insights from J.P. Morgan Asset Management

Rising Rates Not Restricting Growth

…while low rates have kept financial conditions loose for quite some time, and additional hikes may see financial conditions progress to more normal levels, we do not anticipate conditions are on the cusp of tightening in a way that is restrictive to economic growth. Read more.

May 30, 2018

Opinion: This investor rivals Warren Buffett — and you probably haven’t heard of him

By Glen Arnold

Geico is probably the best investment Warren Buffett ever made. Much is due to the terrific performance of the insurer’s underwriters. But what turbocharged his return is the investment record of GEICO’s chief investment officer.

Lou Simpson’s record at Geico from 1979 to 2010 rivals that of Buffett at Berkshire Hathaway but he remains little-known, except by true Buffett fans…

…Today, many people can crunch the company’s numbers and determine whether the share price looks cheap. But they need to be equally sharp in judging qualitative factors, he [Lou Simpson] told an audience at Northwestern University’s Kellogg School of Management in November 2017.

“As Warren used to tell me, “You’re better off being approximately right than exactly wrong.” For example, one thing you need to determine is: Are the company’s leaders honest? Do they have integrity? Do they have huge turnover? Do they treat their people poorly? Does the CEO believe in running the business for the long term, or is he or she focused on the next quarter’s consensus earnings?”

Buffett highlighted Simpson’s impressive performance data from 1980 through 2004 in his 2004 letter to shareholders. Most fund managers would consider themselves well ahead of the pack if they delivered an annual average outperformance of a mere 1 percentage point; Simpson outperformed by a stunning 6.8% percentage points over a 25-year span. Read more.    

April 2, 2018

Over the past two months, the nearly 122-year-old Dow Jones Industrial Average has been mired in quite the slump. Over a span of 13 days, the Dow fell just over 10% from its all-time high, marking its first correction in more than two years. It also registered four of the nine largest single-day point declines in its history: 666 points, 724 points, 1,033 points, and 1,175 points, the latter of which is good enough for its largest single-day drop, ever.

While fear has abounded as volatility has picked up, investors often forget how good they've had it over the long run. Sure, the Dow may have dropped by more than 3,000 points for a brief period below its all-time high set in January, but it had also climbed by 88% from its closing high before the Great Recession, and quadrupled since hitting its low in March 2009. Comparatively, the 10% decline that investors have dealt with recently is hardly worth fretting over.  Read more

February 26, 2018


BECKY QUICK: Does that mean that-- market overall is overvalued, based on what you-- what you think is fair—
WARREN BUFFETT: Not necessarily. I mean, it--in fact, I-- the market-- the stock market relative to the long-term bond market-- people have free choices, pretty much, if they're going to be in marketable securities. They can own reasonably long-term bonds, they can own equities, or they can keep it in short-term cash equivalents. And--- if-you had to choose between buying long-term bonds or equities-- I would choose equities in a minute now.
BECKY QUICK: You would choose equities in a minute? They are—
WARREN BUFFETT: That doesn't mean I think the stock market is gonna go up or anything else. But if- I were going to own a 30-year government bond or own equity for 30 years, I think equities will considerably outperform that 30-year bond over the 30 years. I don't know what they're gonna do in any day or week or month, but I think that-- I've thought it for a long time, and- we can talk more about that later. But--
BECKY QUICK: Well, overall, is Berkshire a net buyer or a net seller of stocks right now?
WARREN BUFFETT: In-- so far this year we've been-- a net buyer

Read the full transcript

February 9, 2018

Schwab Market Perspective: Volatility…it’s Back!

Key Points

  • The long-awaited return of volatility has arrived, unnerving investors. But economic and earnings fundamentals remain strong and this is part of the process of returning to a more “normal” market environment.
  • The U.S. economy is showing improving growth, earnings season has been strong, and earnings expectations for 2018 have surged; but expectations are elevated and the rate of improvement in both is likely to slow.
  • Global stocks were not spared but the fundamental picture internationally also looks solid.

November 21, 2017

Jeremy Siegel: The S&P 500 is Fairly Valued


Robert Huebscher spoke with Jeremy on Monday, November 20th.

Our last interview was on November 21 of last year, when the S&P 500 was at 2,182. On Friday it closed at 2,579. That’s a gain of 18.2%, which is consistent with the optimistic outlook you had last year. What is the fair value of the S&P 500 now and what is your outlook for the coming year?

We’re just about at fair market value. Lower interest rates justify a higher than average price-earnings valuation. A PE ratio of 18 to 20 is reasonable, given that interest rates have remained even lower than I anticipated. From what I see with earnings right now, we are basically there.

The Republican tax plan and the corporate tax cut are important to the market, and they will be the driving force over the next month or so. I expect next year to be a tougher time for the market, but not necessarily a decline. We’ve had a huge gain since 2009, one of the biggest bull markets ever. It will be a year of digesting those gains.

October 5, 2017


Tidbit from CNBC interview with Warren Buffett, CEO of Berkshire Hathaway:

Question: With the Dow setting another record yesterday and with eight quarters in a row now of gains for the market. Is that-- a market that makes sense to you? Do valuations here make sense?

WARREN BUFFETT: Well, the valuations make sense-- with interest rates-- where they are. I mean,  in the end, you measure laying out money for an asset in relation to what you're going to get back. And the number one yardstick is U.S. government (interest rates). And when you get 2.3% on the 10 year-- I think stocks will do considerably better than that. So if I have a choice of the two, I'm gonna take stocks at that point. On the other hand, if interest rates were-- on the 10 year were five or six (percent), you would have a whole different valuation standard for stocks.


August 9. 2017

The latest wisdom from Davis Funds, an independent investment management firm specializing in equities since 196 with more than $25 billion in assets under management.  Davis Fund principals eat their own cooking with more than $2 billion invested alongside clients.

Wisdom of Great Investors

June 3, 2017

America’s Most Respected Companies
list of "America’s Most Respected Companies: included the following HI-quality investments in its top ten: Alphabet-GOOGL, Apple-AAPL, Berkshire Hathaway-BRKA, Microsoft-MSFT, Johnson & Johnson-JNJ, 3M-MMM and Disney-DIS. It also included this snippet in the article about Berkshire Hathaway: “As Ingrid Hendershot puts it, Buffett has created a business with no equal in terms of management, financial strength, and shareholder returns.”

March 20, 2017

Tweedy, Browne Investing Guidelines Snippet from the Tweedy, Browne Semi-Annual 2016 report: "From time to time people ask us what they should do (we are flattered they should ask) and our general response is not unique. First, you are in a 10,000-meter race; don’t measure your progress by each 100-meter lap. Second, remember what you are investing for – it should extend your time horizon, which is a good thing to do. Third, don’t carry too much debt – if you don’t owe anybody anything, they can’t tell you what to do. Fourth, keep several years of living expenses in the bank. While it won’t earn much today, it will help keep you calm if there is a financial storm. Fifth, as Stuart Alsop once said in so many words, when you open the paper, turn to the sports page first; then, go to the news – it will help you emotionally, and controlling your emotions is an important part of this game. And finally, and perhaps somewhat selfserving, try to understand how the person you have entrusted some of your money to makes decisions. It should help you make sense of the world when it is seemingly making no sense and help you make an informed decision. " http://www.tweedy.com/resources/library_docs/reports/TBFundsSemiAnnualReportSept2016.pdf

Feb. 27, 2017

Not In Bubble Territory In a recent CNBC interview, Warren Buffett, CEO of Berkshire Hathaway-BRKB, was asked about the current market valuation after the Dow’s rapid run to 20,000. Here is a tidbit from the interview with the full transcript linked below:

"We are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high.  But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year [Treasury] stays at 2.3%, and they would stay there for ten years, you would regret very much not having bought stocks now. If you buy a 10-year bond now, you're paying over 40 times earnings for something whose earnings can't grow. And you know, you compare that to buying equities, good businesses, I don't think there's any comparison. But that doesn't mean the stock market can't go down 20 percent tomorrow. I mean, you never know what it's going to do tomorrow, but you do know what it's going to do over ten or 20 years. And people talk about 20,000 being high. Well, I remember when it hit 200 and that was supposedly high.  You know, you're going to see a Dow that certainly approaches 100,000 and that doesn't require any miracles, that just requires the American system continuing to function pretty much as it has. http://www.cnbc.com/2017/02/27/billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box.html

Feb. 25, 2017

Fear Is Your Friend

Snippet from the Berkshire Hathaway-BRKB annual report:

"American business--and consequently a basket of stocks--is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Moreover, the years ahead will occasionally deliver major market declines--even panics--that will affect virtually all stocks. No one can tell you when these traumas will occur. During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."

Feb. 14, 2017

A Love Letter to Warren Buffett Tidbit from Fortune: Please read the entire heartwarming letter from Bill and Melinda Gates.  It tells a story in numbers. The big one is 122 million, the number of children’s lives that have been saved since 1990 by fighting infant mortality. The Gates letter says 86% of children now receive the most important vaccines they need to live healthy lives, the highest number ever. https://www.gatesnotes.com/2017-Annual-Letter?WT.mc_id=02_14_2017_02_AL2017_MED-TLK_&WT.tsrc=MEDTLK

Feb. 3, 2017

Invest For the Long Term In a recent speech at Columbia University, Warren Buffett, CEO of Berkshire Hathaway-BRKB, repeated his basic investment philosophy:

"It's much easier to invest for the long term because you know what is going to happen. You know, in my view, with a very high probability you know what is going to happen 10 and 20 years from now in a major way, and I don't have the faintest idea what is going to happen tomorrow or next week."

When selecting investments, he looks for: 1. A business with a moat "I am looking for durable competitive advantage," says Buffett. "I am looking for something that has a moat around it for a considerable period of time."

  1. Strong leadership "I am looking for an honest and able management to run [the company] because I don't know how to run it myself," says Buffett.
  2. A good price for a good company "I am looking for a purchase price that is not excessive," says Buffett. "It is better to pay a little too much for something that is a very good business than it is to buy some bargain but really a company without much of a future," says Buffett. http://www.cnbc.com/2017/02/03/3-things-warren-buffett-looks-for-when-deciding-to-invest-in-a-company.html

Jan. 12, 2017

Expert Opinion The latest memo from Howard Marks expounds on his opinion on opinions. Here is a tidbit: Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly: • There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty. • Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable.As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!” • It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them). • Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.” http://www.advisorperspectives.com/commentaries/2017/01/12/expert-opinion

Nov. 23, 2016

Six Keys to Investment Success Brian Rogers, Chairman of T. Rowe Price-TROW, shared these six keys to investment success: 1) Be An Optimist 2 )View Crises as Opportunities 3) Price Determines Success 4) Be Humble 5) Avoid Complexity 6) Avoid Investment Cults http://www.thinkadvisor.com/2016/11/23/6-keys-to-investment-success-t-rowes-brian-rogers?eNL=5835d78b160ba0e97abf1f83&utm_source=TA_DailyWire&utm_medium=EMC-Email_editorial&utm_campaign=11232016&page=3

Stocks Are Cheap, If... Snippet from Warren Buffett as he addressed questions from university students at the University of Maryland:

"Interest rates are to asset valuation as gravity is to matter.  It will take a lot of movement in interest rates (similar to Paul Volcker in 1981-2) before stocks are too high.  The interest rates on 30 year Treasury bonds have declined from 14 ½ % to 2 ½ % from 1982 to 2016.  Recently, the 30 year Treasury moved from 2.6% – 2.8%.  Stocks are cheap if long term rates are at 4%, four to five years from now.  “We are buying more shares than selling everyday unless interest rates move appreciably higher”.  A profitable trade would be to short the 30 year bond and go long the S&P 500 (assuming no margin calls).  But this is difficult to do on a big scale.  Borrowed money causes more people to go broke than anything else. Charlie Munger has said, smart people “go broke from liquor, ladies and leverage”.


Nov. 12, 2016

Buffett on the Stock Market and the Election Investor Warren Buffett, CEO of Berkshire Hathaway, said "The stock market will be higher 10,20 and 30 years from now and it would have been with Hillary and it will be with Trump." Buffett added that he had been buying stocks in the weeks prior to the election and he continued to buy stocks after the election. http://money.cnn.com/2016/11/11/investing/warren-buffett-donald-trump-stock/ 

Oct. 27, 2016
Robert Reich
, Alan Simpson Take on Social Security, Debt Problems as the closing act at the 2016 Schwab IMPACT Conference. During the session dubbed, “The Long and Short of It”, referring to Reich’s diminutiveness and Simpson’s lanky 6’ 7” frame, the two men from different political parties exhibited levity and erudition as they discussed the biggest problems facing the country. Reich joked that since the current Presidential campaign has been “so polite and positive, it would be good to address all the issues” that haven’t been addressed by the major candidates, prompting Simpson to quip, “which is everything.” Turning serious, Simpson said the current political atmosphere constitutes “a heartbreaking time for anyone who learned the exquisite art of compromise. If you don’t know how to compromise on the issues without sacrificing yourself, you’re not worthy of running for councilman,” much less President of the United States, “or getting married.”

As for the biggest issue not addressed during campaign 2016, Simpson said it was the nation’s debt and deficit. You “can’t get anywhere … without addressing two-thirds” of the nation’s budget: the cost of health care, which he said is on “automatic pilot” and will result in a national debt of 20 trillion bucks” by the end of the decade. 

Oct. 26, 2016
The world will enter a geo-political “recession,” according to Ian Bremmer, resulting in a large list of failed states. The U.S. will be relatively insulated from that crisis, but faces its own challenges driven by globalization and wealth inequality. Bremmer is the president and founder of Eurasia Group, a leading global political risk research and consulting firm. He delivered a keynote address yesterday at the Schwab IMPACT conference in San Diego. It is the industry’s largest conference, with approximately 2,000 advisor attendees, including Ingrid Hendershot, CFA.

“We are used to boom-and-bust cycles,” he said, “like recessions every seven to eight years. But we don’t talk about geopolitical recessions, because the cycles are much longer.” Bremmer said the last time the world fell apart was after World War II. When it did, we rebuilt the world with U.S.-based values and standards – indeed, he said, globalization became Americanization.

Oct. 25, 2016
"The bull market is still maturing and the prospects for capital growth are intact."

A recession is not imminent and investors should be skeptical of those who claim the market is vastly overvalued, according to Liz Ann Sonders, senior vice president and chief investment strategist for Charles Schwab & Co., Inc. She was one of the opening night keynote speakers at this year’s Schwab IMPACT Conference, held in San Diego. Approximately 2,000 advisors, including Ingrid Hendershot, CFA, were registered to attend the conference, the largest in the industry.

Sonders cited a famous quote by Sir John Templeton, “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” She offered her own version: “This bull market was born on despair, grew on disbelief, is maturing on skepticism and may die on acceptance.” According to Sonders, the bull market is still maturing and the prospects for capital growth are intact. 

Sept. 27, 2016
Artificial Intelligence
Research released  from Accenture-ACN reveals that artificial intelligence (AI) could double annual economic growth rates by 2035 by changing the nature of work and spawning a new relationship between man and machine. The impact of AI technologies on business is projected to boost labor productivity by up to 40 percent by fundamentally changing the way work is done and reinforcing the role of people to drive growth in business. “AI is poised to transform business in ways we’ve not seen since the impact of computer technology in the late 20th century,” said Paul Daugherty, chief technology officer, Accenture. “The combinatorial effect of AI, cloud, sophisticated analytics and other technologies is already starting to change how work is done by humans and computers, and how organizations interact with consumers in startling ways. Our research demonstrates that as AI matures, it can propel economic growth and potentially serve as a powerful remedy for stagnant productivity and labor shortages of recent decades.” AI was found to yield the highest economic benefits for the United States, increasing its annual growth rate from 2.6 percent to 4.6 percent by 2035, translating to an additional USD $8.3 trillion in gross value added (GVA). https://finance.yahoo.com/news/artificial-intelligence-poised-double-annual-070100018.html

Sept. 14, 2016
Priceline's Top 100 Restaurants for 2016
As locals and travelers continue to explore cities through their dining cultures this fall, OpenTable, the world's leading provider of online restaurant reservations and part of The Priceline Group-PCLN unveiled the 100 Best Restaurants for Foodies in America for 2016. These awards reflect the combined opinions of more than 5 million restaurant reviews submitted by verified OpenTable diners for more than 20,000 restaurants in all 50 states and the District of Columbia. Local restaurants that were among the Top 100 include:
Bistro L'Hermitage – Woodbridge, Virginia
Charleston – Baltimore, Maryland
Fat Canary – Williamsburg, Virginia
The Goodstone Inn & Estate Restaurant – Middleburg, Virginia
Jacques' Brasserie at L'Auberge Chez Francois – Great Falls, Virginia
L'Auberge Chez François – Great Falls, Virginia
L'Opossum – Richmond, Virginia
Linwoods – Owings Mill, Maryland
Marcel's by Robert Wiedmaier – Washington, D.C.
Plume at the Jefferson Hotel – Washington, D.C.
Rasika – Washington, D.C.

June 24, 2016
Given the global stock market sell-off following the British voters’ decision to leave the European Union, we are monitoring the situation closely and remaining disciplined in our investment process.  Here are some additional tidbits and snippets on BREXIT:

Nick Mustoe, Chief Investment Officer of Invesco Perpetual: After months of anticipation, UK voters have decided — in an historic move — to leave the European Union some 43 years after joining its predecessor, the European Economic Community, in 1973. The UK government, institutions and wider business community now have the task of addressing a multitude of financial, economic, fiscal and political implications and consequences. In our view, the decision to leave will likely increase existing market volatility in the immediate aftermath, which was driven by investor uncertainty over the potential consequences of the outcome, and may see investors moving further into defensive assets. This type of market volatility often leads to price adjustments that are indiscriminate, and can therefore present attractive buying opportunities for fundamental, long-term investors. Market consensus appears to be clear that, over the short term, the decision to forego EU membership will likely lead to weakening of sterling and impact UK economic growth. The extent of such an impact and how long it will last can only be speculated on at this time. The more immediate impact on the UK economy and growth will likely be determined by several domestic and global factors, from trade, productivity and capital investments (domestic and direct foreign) to the direction of central bank monetary policy. Longer term, we believe the UK economy will not only be able to handle the decision to leave the EU, but continue to thrive as we remain optimistic about the UK’s growth outlook. Having experienced some of the strongest growth among the G7 nations over the past four years, we believe the economy is well positioned to handle what lies ahead.

The UK’s departure from the European Union (EU) will not occur overnight. A prior treaty between the U.K. and EU requires the exit take at least two years. Both sides will also need to work out agreements for immigration, trade and financial institutions based in London that provide services across the EU. Since the exit process will take a while, Chris Alderson, head of international equity for T. Rowe Price-TROW said there is no need for investors to panic. “Companies will have ample time to react," Alderson said. “We are likely to have a knee-jerk reaction in the short term, but this will create opportunities to buy stocks that have been sold off and are now undervalued in our opinion. It is more important to identify long-term trends like how successful a company like Apple-AAPL or Amazon can be than on large events like this.”

UPS-UPS said it could take years before the U.K. is able to negotiate its new trading relationship with Europe. “Nothing is changing in the short term. The way that we do business to and from the U.K. isn’t going to change in the short term,” said Richard Currie, UPS’s U.K. senior government relations director. “We do believe in free trade. We believe that open borders are a good thing. We don’t like to see trade slow down. So as far as we’re concerned, everything that speeds that up is a good thing. For the moment, there’s no stopping or slow down,” Mr. Currie added.

United Technologies-UTX reaffirmed its commitment to doing business in the U.K. and the European Union following this week's referendum vote. "The process of the U.K.'s withdrawal from the EU will take time and we do not believe it will impact our businesses in the near term, said UTC President and Chief Executive Officer Gregory Hayes.  "UTC remains committed to our businesses and their more than 8,000 employees in the U.K."  "We are hopeful that the separation process will be carried out in a manner that minimizes disruption and economic impact, Hayes said. ”We believe that the current benefits of a free and open trading zone will largely remain at the conclusion of this process. As a globally diversified company, we are well equipped to manage these types of uncertainties." The company, whose 2015 sales in the U.K. were approximately $2 billion and represented less than 4 percent of overall sales, also reaffirmed its 2016 outlook for adjusted EPS of $6.30 to $6.60 on sales of $56 billion to $58 billion and organic sales growth of 1 percent to 3 percent.

Following the referendum by British voters to exit the European Union (EU), the global economic and market environments have grown far more volatile and uncertain. Chuck Royce commented, "Seismic events invariably produce significant disconnects between companies' market values and their underlying business values—that is always a consequence of major market disruptions. As active, risk-oriented managers, we seek to use these periods of heightened volatility to capitalize on the mispricings that regularly occur." His thoughts were echoed by David Nadel, Lead Portfolio Manager for Royce International Premier Fund: "The extreme volatility in global equities looks like an overreaction. We'll be diligent in our efforts to ignore the noise and invest intelligently for the long term."

May 18-20, 2016
Barron’s held its inaugural Top Independent Women Advisors Summit in New Orleans on May 18-20. The purpose of the summit was to bring together the very best independent women advisors in the industry to share unique ideas and perspectives. The summit goal was to help women independent advisors drive the wealth management industry to greater heights for the benefit of clients. 

Click for our notes from the session on .

January 20, 2015
Psychological Contagion
With global markets all down sharply, Howard Marks wrote in the excellent article linked below:

"I consider it highly unlikely that such uniform declines were the result of independent, objective analysis of he impact of events on each economy and company. Rather, I think they show the extent to which markets are linked by their investors’ shared psychology. So what about the likelihood of another 2008-style crash? The bottom line for me is that a rerun of the Global Financial Crisis isn’t in the cards."


January 15, 2016
Dr. David Kelly, JP Morgan Asset Management’s Chief Market Strategist, presents key slides from this quarter's Guide to the Markets. Dr. Kelly likens long-term investing to climatology rather than meteorology. A climatologist predicts long-term trends while a meteorologist attempts to predict short-term conditions. While Dr. Kelley can’t predict what the market will do in the near term, given current reasonable market valuations and a domestic economy that is growing steadily, he believes the general market trend over the next year or two is up. In this talk, Dr. Kelley explains why his is optimistic about the direction of the US stock market.

  • China –Slowing growth in China, while not desirable, is not a death knell for the US or global economy
  • Oil – The decline in oil prices reflects an increase in supply rather than weak demand. Plummeting oil prices hurts energy companies but helps consumers. Energy consumers should just enjoy the low prices until suppliers reduce production, which may take a long time. 
  • US Economy – The domestic economy is very likely not on the brink of recession. Conditions that cause recessions—financial crisis/collapse, an overextended sector (tech in 2000 and housing in 2007), excess inventories, aggressive tightening by the Fed—are absent from the current economic landscape.
  • Valuation – The market is cheap in absolute terms. 


January 7, 2016
Understanding Valuations ‘Cardinal Rule’ of Investing: JPMorgan’s Kelly 
Chief global strategist at JPMorgan talks about energy, China, the dollar and what to expect from the Fed in 2016

November 18, 2015
Berkshire Hathaway 50th Anniversary Symposium
The Berkshire Hathaway 50th Anniversary Symposium was presented by the Museum of American Finance and the New York Society of Security Analysts to commemorate the 50th anniversary of Warren Buffett’s leadership of Berkshire Hathaway. My notes from attending the symposium may be read here.

Ingrid Hendershot’s recent interview with the MoneyShow is featured on their home page. http://moneyshow.com/articles.asp?aid=DailyGuru-43060

Money Show Las Vegas 2015 Presentation

In an interview with MoneyShow’s Steven Halpern, value investor Ingrid Hendershot explains her long-term investing philosophy and highlights a trio of favorite stocks, a luxury retailer, an asset manager and a leading biotechnology firm. 

Ingrid appeared on the Saturday, March 14, 2015 Value Investor Show with Chris Swatta on SportsTalk 570. Listen to the archive. 

September 8, 2015
Buffett on Stock Market Volatility
Snippet from CNBC interview with Warren Buffett, CEO of Berkshire Hathaway:

“I’m no good on what’s going on in markets. I have no idea what will happen tomorrow or next week. Sometimes they get very volatile like this and other times they put you to sleep, but the important thing is where they’re going to be in 5 to 10 years. And I’m confident that they’ll be considerably higher in 10 years, and I really have no idea where they’ll be in 10 days or 10 months.”

August 27, 2015
Tidbit from the  Sequoia Fund Investor Meeting transcript with comments on Berkshire Hathaway, Fastenal, and TJX. Here is a tidbit:

Bob Goldfarb:
I think he [Warren Buffett] has done an excellent job of transforming the company or institutionalizing it with long duration assets, mainly the railroad and the utilities. I think the transaction with 3G is really driven by the operational management expertise of 3G, and that is a relationship that is going to continue for a long time. All three of these, the railroads, the utilities, and the alliance with 3G will likely consume very substantial commitments of capital. Consequently, the deployment of capital will be less of a burden for his successor than it would otherwise be. So I think there is less concern about Berkshire after Warren because of these measures that he has taken.


August 10, 2015
Investing For the Long Term

Snippet from the CNBC interview with Warren Buffett on the Precision Castparts’ acquisition, which also covered many other topics, including a potential market correction:

Buffett: Stocks are going to be higher and perhaps a lot higher 10 years from now, 20 years from now.  I am not smart enough to pick times to get in and get out.  If you thought your house was going to go down 5% in price, you wouldn't sell your house and hope to buy it back 5% cheaper. That's not my game. My game is to own decent businesses and own them at decent prices, and you are going to make a lot of money over time if you do it, but I think the ability of people to dance in and out of markets is quite limited and in my case it is zero.


July 27, 2015
Berkshire Hathaway’s Bright Future
Snippet from Barron’s: Buffett’s Berkshire Hathaway invested $4.25 billion for a 50% equity stake in the $23 billion leveraged buyout of Heinz two years ago, along with a partner, Brazil’s 3G Capital. Berkshire made a second $5 billion equity investment with 3G when Kraft unveiled its deal for the ketchup maker in March. Berkshire (ticker: BRKA) now is sitting on a 25% stake in the new Kraft Heinz (KHC) -- some 326 million shares -- worth $25 billion based on Kraft’s recent share price of $77, resulting in a gain of almost $16 billion. That’s a stunning profit in just two years. (3G has a similar gain.) The Heinz score rivals anything ever achieved in the private-equity industry. It also demonstrates that Buffett, who is celebrating his 50th year at the helm of Berkshire this year, is still going strong ahead of his 85th birthday in August.


July 16, 2015
Enduring Principles of Value Investing

Tidbit from interview with Charles H.  Brandes, CFA:
Two of the important advantages of value investors over “normal” investors are patience and long-term thinking. Those traits go against our human nature. But human beings are herd animals, too. We like to be part of a group and to think that we are accepted because we are doing what everyone else thinks is right. So, value investors have to have a non-herd personality.


April 2, 2015
Very Few Bargains
Warren Buffett, CEO of Berkshire Hathaway-BRKB,  said stocks "might be a little on the high side now, but they've not gone into bubble territory." Buffett, who has shunned many high-growth tech stocks, also said he was not worried about the Nasdaq getting back near the all-time highs it hit in 2000. He noted that the valuations of Apple-AAPL and many other tech companies are based on actual earnings instead of hype. "They were eyeballs then, and they're profits now in many cases," he said. Still, Buffett isn't loading up the truck to make new investments. "I don't find cheap stocks to buy either," he said, adding to follow-up questions that there were "very little" and "very few" bargains out there right now.


April 1, 2015
Ingrid Hendershot recently attended Barron’s annual “Top 100 Independent Financial Advisors” conference. During the conference, Will Danoff, manager of the Fidelity Contrafund who has outperformed the market over his 25-year tenure, told the  audience that he was still bullish on stocks of fast-growing U.S. companies.

According to a recent Barron's report, "Danoff advised investors to favor companies with strong earnings, and said he was willing to pay a steep price if the bottom line was growing fast enough. As an example, he compared 20-year charts of Verizon Communications ( VZ ) and Starbucks ( SBUX ). Verizon has seen only modest earnings growth, and the shares are up about 80% before inflation over 20 years. 'Investors buy it for the dividend,' he said. Starbucks, with 32% compound annual growth, is up nearly 6,000% over the same period."

"Danoff is also a fan of two market darlings that have been flat recently — Apple ( AAPL ) and Gilead Sciences ( GILD ). Both stocks are trading around 12 times earnings, far less than the broader market."

March 25, 2015
Read the unofficial transcript of a CNBC interview with Berkshire Hathaway Chairman & CEO Warren Buffett on CNBC's "Squawk Box" regarding the Kraft/Heinz deal.

Feb. 11, 2015
We Are Not Hoarders

Tidbit from Wall Street Journal: Apple-AAPL became the first U.S. company to close with a market capitalization above $700 billion. The company’s current market capitalization is nearly double each of the next three largest companies in the S&P 500 index. Exxon Mobil-XOM is second to Apple with a market cap of about $382 billion; Berkshire Hathaway-BRKA. is third at $370 billion; and Google-GOOG is fourth at $363 billion, according to FactSet-FDS.  Tim Cook, the company’s CEO, said at a recent investment conference that Apple has grown rapidly in China by disregarding conventional wisdom that Chinese consumers were too price-sensitive for Apple’s high-end products. Mr. Cook said rapid economic growth in China and the rise of a large middle class there gave Apple a major opportunity. The company’s sales in greater China, which includes the mainland, Hong Kong and Taiwan, grew 70% in the three months ended Dec. 27. Mr. Cook said Apple’s annual sales in that market grew to $38 billion last year from $1 billion five years earlier. Apple has said it would return more than $130 billion to shareholders by the end of 2015, and it already has returned $103 billion in dividends and share buybacks under that plan. Mr. Cook said Apple also acquired 17 companies in 2014. “By and large, my view is for cash that we don’t need, we want to give it back,” Mr. Cook said. “We are not hoarders.”


Feb. 5, 2015
Seth Klarman on Warren Buffett

Snippet from Financial Times as reported on CNBC: As Warren Buffett was a student of Benjamin Graham, today we are all students of Warren Buffett. He has provided generations of investors with a great gift. Many, including me, have had our horizons expanded, our assumptions challenged, and our decision-making improved through an understanding of the lessons of Warren Buffett.

  1. Value investing works. Buy bargains. 
  2. Quality matters, in businesses and in people. Better quality businesses are more likely to grow and compound cash flow; low quality businesses often erode and even superior managers, who are difficult to identify, attract, and retain, may not be enough to save them. Always partner with highly capable managers whose interests are aligned with yours. 
  3. There is no need to overly diversify. Invest like you have a single, lifetime "punch card" with only 20 punches, so make each one count. Look broadly for opportunity, which can be found globally and in unexpected industries and structures. 
  4. Consistency and patience are crucial. Most investors are their own worst enemies. Endurance enables compounding. 
  5. Risk is not the same as volatility; risk results from overpaying or overestimating a company's prospects. Prices fluctuate more than value; price volatility can drive opportunity. Sacrifice some upside as necessary to protect on the downside.
  6. Unprecedented events occur with some regularity, so be prepared
  7. You can make some investment mistakes and still thrive
  8. Holding cash in the absence of opportunity makes sense. 
  9. Favour substance over form. It doesn't matter if an investment is public or private, fractional or full ownership, or in debt, preferred shares, or common equity 
  10. Candour is essential. It's important to acknowledge mistakes, act decisively, and learn from them. Good writing clarifies your own thinking and that of your fellow shareholders. 
  11. To the extent possible, find and retain like-minded shareholders (and for investment managers, investors) to liberate yourself from short-term performance pressures
  12. Do what you love, and you'll never work a day in your life.


Jan. 24, 2015
Morningstar CEO of the Year
John Martin, CEO of Gilead Sciences-GILD,  is the 2014 Morningstar CEO of the Year. Here is a tidbit from the article linked below:

Under his leadership, Gilead Sciences' focus on infectious disease has paid off tremendously. With a small salesforce, inexpensive manufacturing, and selective research and development, the company generates stellar profit margins and is extending its reach from HIV into other high-margin markets such as hepatitis C and hematological oncology. Martin, who is also Gilead’s chairman, has shown exemplary stewardship in the company's moat-building investment strategies, good allocation of capital, and superior board independence and qualifications.


Nov. 13, 2014
Ben Bernanke Interview
Liz Ann Sonders interviewed Ben Bernanke at the Schwab Impact conference on November  4, 2014. Here are tidbits and snippets from the interview:

While QE was highly criticized by economists and Congress who were worried that it would result in inflation that would crash the system, Bernanke confidently stated that we will not have inflation due to QE.  Bernanke added that the inflation concerns “made no sense; there was slack in the economy.” He continued, “We were never concerned about inflation; that was just bad economics; inflation was never a risk and is not a risk now.” He said the Fed has all the tools to maintain low inflation. He added that QE was an important factor that kept the U.S. out of deflation, which was the major concern. The economy is now recovering and creating 200,000 jobs a month with modest inflation moving towards the Fed’s 2% inflation target. (Read more here).

Berkshire Beyond Buffett
On November 4, 2014, we attended the book tour for Larry Cunningham’s latest book, Berkshire Beyond Buffett—The Enduring Value of Values at the George Washington University in Washington, DC.  For Tidbits and snippets from the evening led by Larry Cunningham and Donald E. Graham, Chairman of Graham Holdings and former publisher of The Washington Post, click here.  

Nov. 7, 2014
Tidbits and Snippets from J.P. Morgan Asset Management's 2014 Investment Forum
Katherine Roy, Chief Retirement Strategist & Head of Individual Retirement, spoke about factors to consider when planning for retirement including:

  • Focus on factors you can control
  • Count on longevity
  • Count on working past age 65
  • Likely spending profile during retirement
  • Expect annual health care expenditures to rise 7% annually during retirement to account for both inflation and increased consumption
  • Long-Term Care Costs
  • This common misconception about investing during retirement may harm your standard of living

read more

Nov. 5, 2014
Expect More Volatility

Tidbit from interview with Liz Ann Sonders, chief investment strategist with Charles Schwab. She repeated the same comments at Schwab’s Impact 2014 conference:

Right now I still think we're in a secular bull market that has a ways to go. But we're in a phase that will probably have more volatility. In this era of a highly transparent Fed, that is giving us a heads-up; we should expect a pickup in volatility and greater frequency of pullbacks. But I don't think a bear market is imminent.


Sept. 11, 2014
Berkshire Hathaway To Be Biggest Utility Business in U.S.?
Tidbit from WSJ on comments from Charlie Munger, Berkshire Hathaway’s vice chairman:
Addressing other issues, Mr. Munger predicted Berkshire will greatly expand its utilities business over coming years.
"The chance that we won't have a good return in that investment is practically zero," he said. In a few years, he said, he expects Berkshire "will be the biggest utilities business in the United States." He expects Berkshire will earn 8% to 9% on those businesses, rather than 12% as in the past, but "we are very favored" to be able to earn those returns, he said.


Sept. 2, 2014
Margin of Safety

Tidbit from The Telegraph interview with 108-year old investment veteran, Irving Kahn:
As a value investor Ben Graham believed in trying to calculate the true value of a company and then buying the shares only if the price was substantially lower. Irving Kahn said: “During the Great Depression, I could find stocks trading at tremendous discounts. I learnt from Ben Graham that one could study financial statements to find stocks that were a 'dollar selling for 50 cents’. He called this the 'margin of safety’ and it’s still the most important concept related to risk.”


August 26, 2014
Dream Big

I recently read a terrific book, “Dream Big” by Cristiane Correa which describes how the Brazilians Jorge Paulo Lemann, Marcel Telles and Beto Sicupira acquired Anheuser-Busch, Burger King and Heinz. Author Jim Collins provides the foreword to the book and serves as a mentor to 3G Capital. He provides the top 10 lessons he has gleaned from watching, teaching and learning from their journey:

  1. Invest Always-And Above All-in People
  2. Sustain Momentum with a Big Dream
  3. Create a Meritocratic Ownership Culture with Aligned Incentives
  4. You Can Export a Great Culture Across Widely Divergent Industries and Geographies
  5. Focus on Creating Something Great, Not on Managing Money
  6. Simplicity Has Genius and Magic In It
  7. It’s OK to be a Fanatic
  8. Discipline and Calm, Not Speed, Is the Key to Success in a Time of Potential Crisis
  9. A Strong and Disciplined Board of Directors Can Be a Powerful Strategic Asset
  10. Seek Mentors and Teachers, and Connect Them Together

August 12, 2014
Snippet from "Misunderstanding Buffett" by John Alberg and Michael Seckler: 
"Buffett has provided an incredible body of work in his letters to investors regarding how he invests. The concepts at the core of his approach include owner-earnings, margin-of-safety, Mr. Market, return on capital and low-risk approaches to leverage. These concepts have enabled him to find good companies offered at good prices and deliver strong long-term investment returns."


July 3, 2014
DOW 17,000
Tidbits and Snippets from various news sources:
U.S.  stocks rose above 17,000, after the government reported the economy created a better-than-expected 288,000 jobs in June and the unemployment rate fell to 6.1 percent.  It took the Dow 153 trading days to go from 16,000 to 17,000, according to S&P Dow Jones Indices. Compare that to the 21,652 sessions (or more than 75 years) it took to get to Dow 1,000.  Many see the 17,000 milestone as just a psychological threshold, but it's a level U.S. stocks have never seen before and it comes a mere six months after the Dow crossed 16,000. Richard Geist, head of the Congress on the Psychology of Investing, suggests big numbers like 17,000 should be meaningless, but the fact is they help us make sense of the financial world, so they end up having importance. “These emotional convictions ... tend to be contagious, leading to herd mentality,” he said. “So in reality, the numbers are meaningless, but will always remain emotionally significant except for investors like Warren Buffett who have found ways to recognize and put these emotional convictions aside.”  Snippet from Barron’s: Wells Fargo’s Scott Wren reminds investors that 17,000 is just a number: “This is not a technical trading level that looks important on the price charts. It is more of a psychological level…And by year-end, based on our analysis and the Dow’s relationship to the S&P 500, the Dow should close several percentage points above this level.” This strategist is focused on the fundamentals, valuations and where the economy is headed over the next nine to 12 months.  That said investors should be feeling good about Dow 17,000. The stock market has more than recovered from levels seen during the depths of the financial crisis more than five years ago. This rebound and the subsequent climb to record levels has occurred in an environment highlighted by modest economic growth and low inflation. Stocks can obviously do well under those kinds of conditions. Slow and steady can win the race.

But the wall of worry persists. Yale professor Robert Shiller, of the Case-Shiller home price index, said last week that his cyclically adjusted price-to-earnings ratio (CAPE) is running at 26, far above the long-term average of 17. In fact, the CAPE has only been higher three times, 1929, 2000 and 2007. “It looks to me like a peak,” Shiller said. However, Shiller’s friend, and critic, Professor Jeremy Siegel of Wharton, said as recently as June 23 that he’s sticking with his prediction of Dow 18,000 by the end of the year, telling CNBC that Fed Chairman Janet Yellen has given investors a “green light.”  Terrance Odean, a finance professor at the University of California at Berkeley, is expecting the Dow reaching 17,000 will spur more buying. “I expect that the biggest effect of hitting 17,000 is that the event gets news coverage and, in the process, reminds (or informs) investors that the market has been going up,” Odean told MarketWatch in an email. “While this could prompt some people to sell, I’d expect it to trigger more buying than selling.” Michael Farr, president of money-management firm Farr Miller and Washington, says Dow 17,000 has a tinge of both good and bad news. "17,000 is a wow and a worry," Farr adds. "If the rule is to 'buy low,' this isn't low. New highs are the rewards for disciplined, patient investors. New highs also mean it's more important than ever to be disciplined. This is no time to swing for the fences. But, by all means celebrate. We have all endured a lot to get here." A market dip will eventually come. Says Farr: "Investors should always be careful. And now more than ever with the Dow making new highs, investors should remember that markets go down. This market will correct someday, but this should not be a cause for panic."

April 30, 2014
Tidbit from Research Magazine, “Can Boring Stocks Bring Investment Bliss?”
The most appealing feature of low volatility investing is not necessarily that you are able to find undervalued securities—it is that you avoid the ones that tend to be overvalued. Research on market sentiment shows how stocks that win the popularity contest don't perform well in the long run. Baker notes that less volatile stocks tend to be companies that “have been around for a while, that tend to throw off good dividends, that have stable or predictable sales and earnings. And these stocks give investors a good return for the risk that they’re taking.” Warren Buffett has long championed the appeal of these less risky companies with stable cash flows.

April 28, 2014
As the Berkshire Hathaway-BRKB annual meeting approaches (which we will once again be attending, so stay tuned for our notes), a number of articles are being written on Berkshire along with interviews with Warren Buffett.

Snippet from “Playing Out the Last Hand” from The Economist:
Mr.  Buffett has consistently beaten the market by buying good-quality firms that he is confident he understands, typically outfits operating in a relatively stable industry. His preferred acquisitions have a hard-to-replicate advantage over their competitors—a popular brand, say, or a degree of monopoly power—that he likes to describe as a protective “moat”. He also favours firms with a strong ethical culture, and management that is interested in doing a good job, not just making money. If he gets the shares when they are cheap (just after Coca-Cola’s “new Coke” debacle, for example), all the better: but “it is far better to buy a wonderful company at a fair price than a fair company at a wonderful price,” he says.


Tidbit from Fortune interview: “Warren Buffett: We Took a Stand on Coke’s Pay Package”:
At last year's annual meeting, you said you were concerned about the Federal Reserve's exit from quantitative easing and their monetary stimulus. How do you think the Fed has done exiting it, and are you still concerned about what might happen?

Well, I said it's a really interesting movie because the stakes are high and we don't know the ending. But I would say that's still the situation. But so far we haven't seen any big problems associated with it.

So are you less concerned about the end of QE?

No. It's still an interesting movie. I don't know how it comes out. That's why I find it so interesting. http://finance.fortune.cnn.com/2014/04/28/warren-buffett-coke-interview/?source=yahoo_quote

March 28, 2014
Value Investing, The Sanjay Bakshi Way 2.0, published by Safal Niveshak
This snippet, which perfectly summarizes our investment approach, is from a terrific interview with a professor from India:

"I'd argue that if you pick 100 successful value investors who have compounded their capital over the long term (a decade or more) at a very healthy rate, then the vast majority of them would have accomplished that by first investing in high-quality businesses run by great managers at attractive prices, and then by just sitting on them for a long-long time. http://www.safalniveshak.com/wp-content/uploads/2014/03/Prof.-Sanjay-Bakshi-Interview-2014-Safal-Niveshak.pdf

Barron's latest listing of the World's Best CEO's includes the CEO's of several of our HI-quality companies. Here are a few tidbits:

Miles White, CEO of Abbott-ABT 
In 15 years as CEO, White has become one of the most effective leaders in the health-care industry. Helped by smart acquisitions, Abbott developed a leading position in drug-coated cardiac stents -- and one of the industry's top-selling drugs, Humira, for rheumatoid arthritis. White wisely split the company in 2012; the newly created AbbVie holds branded drugs like Humira, while Abbott's broad portfolio includes nutritional products, diagnostic tests, medical devices, and branded generic drugs sold mainly in the developing world. The separation has played well on Wall Street, with the companies returning a combined 84% since the deal was announced in October 2011.

Warren Buffett, CEO of Berkshire Hathaway-BRKB
 At 83, the legendary investor remains at the top of his game. Berkshire Hathaway looks stronger than ever, with shares near a record high, capping a 9,000-fold increase during his tenure. Buffett continues to fortify Berkshire for the future -- and for his as-yet-unnamed successor. The company invested $10 billion last year in the Heinz buyout and keeps searching for an "elephant"-size deal to deploy a chunk of its $42 billion in cash.

John Martin, CEO of Gilead Sciences-GILD
Martin has transformed Gilead into one of the world's biggest biotech companies, with sales up 332 times since 1996, to $11 billion. He put the focus squarely on antivirals, in particular HIV/AIDS treatments. A skilled deal maker as well as a scientist, Martin outbid larger rivals for Triangle Pharmaceuticals, which gave Gilead the ingredients to make Atripla, a once-a-day, three-in-one pill that became its biggest seller and revolutionized the treatment of HIV, turning it into a chronic disease.  Martin has pushed into areas such as hepatitis C, striking another gutsy deal for the early-stage biotech Pharmasset. That led to the recent launch of Sovaldi, a breakthrough drug that can cure many patients. The next challenge: bringing down the price of this $1,000 pill.

Larry Page, CEO of Google-GOOG
Even as he has nurtured pursuits such as driverless cars and seeded new businesses like Google Glass interactive eyewear, Page has kept Google the undisputed leader in search. With ad revenue and profit growing by double digits, the stock hurdled $1,000 last fall, and has kept going. Now, Page has hit upon what could be the company's next giant business: cloud computing for a fee.

Carol Meyrowitz, CEO of The TJX Companies-TJX
Meyrowitz  runs the nation's largest off-price retailer, with more than 3,200 apparel and home-goods stores operating under T.J.Maxx, HomeGoods, Marshalls, and other names in the U.S., Canada, and Europe. Sales have risen nearly 60%, to $27 billion, during her tenure. She sees TJX becoming at least a $40 billion company. TJX has an active share-buyback program and intends to raise its dividend, now 58 cents, which would make it 18 years in a row.


March 14, 2014
In an interview with CNBC, Warren Buffett was asked if he was surprised by the lack of capital expenditures by corporate America given the record amount of cash on corporate balance sheets and historic low interest rates.  "Well, we have invested record amounts, replied Mr. Buffett. But the most interesting thing is the biggest amount of cash is on balance sheets of companies that don't need cash. If you have an extraordinarily profitable business, you know, whether it's Apple or whether it's Microsoft or whatever, the cash just rolls in. You don't have things to put it in. You can put a lot in R&D, but that gets expensed. So, retained earnings really don't have a place to go in most of those companies.  That's the reason they are wonderful businesses.  Now Google is trying to use it in a few different ways. But, really highly profitable businesses generates  cash, and they don't need the cash.  When asked if they should return it to shareholders.  Mr. Buffett replied, "Well probably."   

Feb. 24, 2014
Warren Buffett's Fundamentals of Investing

Fortune magazine published an excerpt from the Berkshire Hathaway-BRKB letter to shareholders which will be published on Saturday. Here is a tidbit on the fundamentals of investing:

  • You don't need to be an expert in order to achieve satisfactory investment returns. But if you aren't, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don't swing for the fences. When promised quick profits, respond with a quick "no."

  • Focus on the future productivity of the asset you are considering. If you don't feel comfortable making a rough estimate of the asset's future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn't necessary; you only need to understand the actions you undertake.

  • If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

  • With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field -- not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

  • Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle's scathing comment: "You don't know how easy this game is until you get into that broadcasting booth.") 


Feb. 14, 2014
It's Going to Happen!
Snippet from L.A. Times: Google-GOOG  wants to create Internet connections of 10 gigabits per second, 10 times faster than what it already delivers to customers of its Fiber service in the Kansas City area.  Patrick Pichette, chief financial officer of the tech giant, said it could take as long as 10 years to create the technology, but Google hopes to deliver it as early as three years from now. "That's what we're working on. There's no need to wait," Pichette said at the Goldman Sachs Technology and Internet conference. "That's where the world is going," he said. "It's going to happen."

Feb. 12, 2014
Who's at the Helm? 10 Steps for Evaluating Management
Tidbit from Todd Winning, an equity analyst at Morningstar, quoting Warren Buffett on the importance of evaluating the people who run the businesses he owns. "Over time, the skill with which a company's managers allocate capital has an enormous impact on the enterprise's value." "It's hard to overemphasize the importance of who is CEO of a company." "Charlie and I look for companies that have ... able and trustworthy management." "You need two things--a moat around the castle, and you need a knight in the castle who is trying to widen the moat around the castle."

While management itself cannot constitute an economic moat, at Morningstar [and at Hendershot Investments] we believe management’s capital-allocation decisions can lead to the establishment, enhancement, or erosion of an economic moat. Put another way, we want to better understand the intersection of management and moat with each company we research.

Feb. 11, 2014
Seek Durable Businesses to Hold for the Long Term
Snippet from Motley Fool interview with Chris Davis, Davis Investors: 
It is important that investors remain grounded not in optimism or pessimism, but in realism and take into account the key “important and knowable” realities, both positive and negative, that will impact their returns over time. In our view, durable businesses run by able and honest managers with strong competitive moats, reasonably sure growth prospects and high returns on capital can be the best vehicles for compounding wealth, provided they are purchased in a disciplined fashion and held for the long term.


All Oiled Up
A client gave me his March  "Trains" magazine to chug through. Here is a tidbit from their special report: "All Oiled Up-How Railroads Got Back in the Oil Business and Why They Aren't Going Away Ever:"
Today, BNSF [the railroad owned by Berkshire Hathaway-BRKB] claims a 65% market share of oil leaving North Dakota. "We see a pathway to handle as much as 1.3 million barrels a day," says BNSF's John Miller, which translates to a market share of Bakken oil delivery of as much as (sit down before you read this) 75%. Moreover, the Bakken shale is looking more and more like a long-term play. Miller is thinking 50 years. Beneath the Bakken rock is another oil-soaked formation called Three Forks, which has hardly been explored. And below the Three Forks lies a possible third bench. Pipelines are largely irrelevant to BNSF. If they can persuade refiners on the Atlantic and Pacific coasts to buy Bakken oil (not hard to do, because it's cheaper than imported oil), the only way to get it there is by train. "All the exploration guys are finding ways to lower costs," Miller says. "So are we. We want to drive our costs down. We want to create a system for the long term. It has all the characteristics to be that way." Choo-choo!

Feb. 7, 2014
Value Investors Tend to Outperform
Tidbit from article by Francois Sicart on “Investment Principals and Habits: Contrarian Investing in a Liquidity-Driven Environment”:  Like most value investors, Tocqueville’s approach is primarily “bottom-up”:  Individual stock selection prevails over macro opinions, be they about the economy or the markets. This approach generally has been vindicated in the past, as value investors tended to outperform a majority of money managers over full market cycles; and this outperformance has been achieved principally during bear markets, by losing less than most.  The reason, I believe, is so obvious as to sound simplistic:  When a stock is selling close to the “intrinsic” value of its underlying company’s shares, it does not have to travel down very much to find a floor.


Snippet from Wall Street Journal interview with Tim Cook, CEO of Apple-AAPL:
WSJ: There is a perception that Apple’s no longer a growth company. How do you respond to that?
Cook: Last year, we grew (revenue) by $14 billion to $15 billion. Yes, those percentages are smaller compared to a year earlier and two years earlier and so forth. But that doesn’t mean that you’re not a growth company. We were in hyper-growth, or whatever is above growth. We went from $65 billion to over $100 billion to $150 billion to $170 billion. These are historic, unprecedented numbers. I don’t know any companies adding growth at that level. So when you say $14 billion to $15 billion compared to those numbers, it’s clearly smaller and a smaller percentage, but, to put it in some context, that’s like adding three Fortune 500 companies in a year. I think that’s hard to say that’s not a growth company.


Jan. 17, 2014
Women Investment Managers Outperform Men
Tidbit from Investment News:
It might not be easy to find a woman to manage your assets, but it might be worth the effort to start looking. The idea that women generally manage money and invest differently than their male counterparts is not a new finding, but a growing body of evidence suggests that those differences can add up to better performance. “When you look at the way women tend to behave when managing money, it has a pretty profound impact on portfolio management,” said Meredith Jones, a director at consulting firm Rothstein Kass, which has been studying the influences of women portfolio managers for several years. While there seems to be endless studies and research distinguishing men from women when it comes to investing and asset management, Ms. Jones admits most of the research is far from scientific. But the performance is what it is, and for that Ms. Jones relies on known and assumed gender characteristics for an explanation. “We call it the alpha component because we know there are differences in the way men and women think, and that can't exist only in social interactions,” she said. “For example, there are testosterone influences, which means that women are less likely to try and time the market, and they are also less likely to sell at the bottom.”


Never Pay Up
Snippet from interview with Jerry Getsos by Oliver Mihaljevic:
What are the key principles underlying your investment philosophy?
The key tenants of our investment philosophy are:  Look at what others have left, analyze not just the company’s current financial position, but the one that should most likely exist in a normalized environment and never pay-up, regardless of how compelling the situation is.  Therefore, we are looking at good companies (cash generating machines), which are currently out of favor and that we are able to purchase at significant discounts (40-50%) to intrinsic value with 50-100% appreciation potential over a period of 3-5 years.


Jan. 10, 2014
Outlook for Economy/Stocks in 2014
Tidbit from Charles Schwab’s Liz Ann Sonders:
I believe the secular bull market in US stocks is intact, but that there remains a risk of a correction in the near-term; especially if the market moves into melt-up mode (they don't end well). Other risks are the four-year presidential cycle and the possibility that the Fed has to become more aggressive if economic growth, inflation or employment surprise on the upside. A correction, which would be increasingly likely—especially if sentiment becomes overly frothy—could be nasty. But it would likely be a nice buying opportunity in the context of this ongoing secular bull market. Read more here.

Dec. 2, 2013
Better and Better
During the CFA Equity Research and Valuation 2013 Conference, Richard Bernstein, founder of Richard Bernstein Advisors, discussed profit cycles. Despite a sea change in the global economy, many investors are missing the biggest bull market of our generation. While the economy is not yet “good,” it is getting better and better, which the stock market rally is reflecting.

Dow 18,000?
Jeremy Siegel, professor of finance at The Wharton School, University of Pennsylvania, and author of Stocks for the Long Run and The Future for Investors, spoke on the “Outlook for Stock and Bond Returns” at the CFA Equity Research and Valuation 2013 conference. In a subsequent interview, Professor Siegel said, “The current projections for future earnings put the fair market value at 18,000 for the Dow Jones Industrial Average. It doesn't mean that we're going to get there right away or we're going to get there in a straight line. We've had a long time without even a 10% correction.” But he added: "I don't think this bull market is over yet. I still think there are good gains to come." 

Nov. 19, 2013
Seek Compounding Machines
Snippet from Bill Miller,  Legg Mason, presentation at  Schwab Impact:
He sees the market as fairly valued, which investors rarely find at points along the journey from undervaluation to overvaluation. The market rarely sells at the average valuation of 15 times earnings.  In 2009, stocks were extremely undervalued. He expects stocks to be trading above the historical average valuation twelve months from now, and they will probably head to overvaluation in the next couple of years.  He cautioned, “My ability to predict markets is fruitless and rounds to zero.” The market isn't as cheap as it was, and we’re holding 10% cash now, the highest level in five years. We’re looking for values to present themselves. We own Apple. Investors should look for compounding machines with high returns on equity as far as the eye can see and which are reasonably valued. We can't find many things that are reasonably valued right now.

Zone of Reasonableness

In an interview with CBS news, Warren Buffett, CEO of Berkshire Hathaway-BRKB, provided these comments on the stock market valuation:

“I would say that they’re in a zone of reasonableness. Five years ago, I wrote an article for The New York Times that said they were very cheap. And every now and then, you can see that that they’re very overpriced or very underpriced. Most of the time, they’re in an area where maybe they’re a little high, a little low, and nobody really knows exactly. They’re definitely not way overpriced. They’re definitely not underpriced.” Buffett’s other words of advice about Dow 16,000: “If you live long enough, you’ll see a lot higher prices. I don’t know what stocks will do next week or next month or next year, but five or 10 years from now, I would say they are very likely to be higher.” http://blogs.marketwatch.com/thetell/2013/11/19/warren-buffett-says-stocks-are-in-a-zone-of-reasonableness/

Nov. 15, 2013
Focus on Dividend-Paying Stocks

Tidbit from Greg Thomas, ThomasPartners, in his Schwab Impact talk on “Dividends and Demographics: Where is the Puck Going?”:

There will be 10,000 Baby Boomers turning 65 every day for the next 16 years. With a massive number of folks trying to protect their portfolio as they retire, they will seek risk mitigation over reward in their investment choices. Dividends have historically provided 44% of the total return of stocks. It, therefore, pays to focus on dividend-paying stocks when seeking to mitigate risk. Investors should focus on companies generating positive and growing cash flows, as these will be the companies that will generate growing dividend streams. Investors can then channel those cash flows to meet their retirement income needs over the next 30 years. Aging Baby boomers should focus on dividend income first with capital gains on the side. While many stocks pay dividends, the emphasis should be on companies that provide income growth every year. There are plenty of stocks that have paid dividends for 100 or more years, such as Procter & Gamble-PG, which has paid a dividend for 109 years and increased the dividend for 58 consecutive years. Emerson-EMR is another company that has increased its dividend for 58 straight years. There are 300 companies that have increased their dividends for 10 consecutive years.  It is, therefore, relatively easy to predict dividend payments, but not stock prices.

Top Ten Reasons to Buy Stocks in 2014
Howard Ward – CIO of Growth Equities at Gabelli – gave a presentation at the Schwab Impact conference on the power of equities and why they are the asset class of choice for long term wealth creation. A snippet from his Top Ten Reasons to Buy Stocks in 2014:

Stock prices are a function of earnings and price to earnings multiples. While inflation has bottomed, it is expected to be around 2% in 2014, possibly supporting an expansion in P/E multiples from the current 15 times forward earnings to 16 or 17 times, which is more typical in an environment of 2% inflation.

In The Middle Innings of a Secular Bull Market
Liz Ann Sonders, Charles Schwab’s Chief Investment Strategist, provided this tidbit on market valuation at the Schwab Impact conference:

The stock market currently looks reasonably priced as measured by the average P/E ratio. Given the number of underinvested bulls (hedge funds, endowment funds, pension funds), Liz Ann thinks we are no worse than in the middle innings of a secular bull market. Markets typically move from the despair experienced at bear market bottoms, to hope, relief and then optimism before taking off into bull market territory with enthusiasm, exhilaration and  euphoria at market tops. Market sentiment has recently been between relief and optimism. A near-term market pullback of 3% to 5% would be healthy as it would elongate the bull market.

Read more of Liz Ann’s comments as well as Greg Valliere’s, Chief Political Strategist of Potomac Research Group, optimism on positive big themes coming out of Washington, including an accommodative Fed and fiscal restraint.

Nov. 8, 2013
Price Dwarfs Everything
Tidbits from CFAW talk with Charles de Vaulx, portfolio manager and partner of International Value Advisors. Mr. de Vaulx is cautious and holding 30% of his portfolio in cash as he believes most investments are currently fairly priced and "price dwarfs everything" when it comes to making successful investments.

He looks for businesses that are  both safe and cheap. Safe companies have:
• pricing power
• are not capital intensive
• high insider ownership
Returns from investments in companies with pricing power have provided inflation protection. Companies with low capital investment requirements can return more of their profits to shareholders. Historically, companies with high insider ownership, including family-owned businesses, tend to do much better than others. If a family-owned business is a good business, families don’t need a takeover to monetize their investment, for, as the intrinsic value grows, dividends also grow. Read More

Nov. 2, 2013
Which Would You Rather Own?
Snippet from Barron’s interview with veteran investor Donald A. Yacktman:

What kind of annual returns do you expect from Coke-KO, Procter & Gamble-PG and Pepsi-PEP?

There are several components to look at. One is how much cash a company is throwing off. For most businesses, the cash flow is divided into two forks. One fork goes to the shareholder in the form of a dividend—that is, what the dividend is when you are buying a stock, and you ought to have a pretty good idea of what your rate of return compounding will be. So that's the cash. The other fork, which is the wild card in investing, is what is going to happen, long-term, to the money that's reinvested in the business. Now, with the money reinvested, there's unit growth, and you have potential changes because of things like acquisitions. It boils down to management's ability to allocate capital effectively, and it relates to reinvesting the cash flow. And then there's inflation, which affects every asset across the board. At these prices, these companies are capable of putting up inflation plus more than 6%, maybe 7% returns per annum, on average, over the long term. Those are pretty good numbers. If you figure inflation today is 2%, you are looking at returns slightly below 10% for these stocks. Again, with the long-term Treasury at 3.6%, which would you rather own?


Oct.  31, 2013
Temperament Is More Important Than IQ
Tidbit from Fortune  interview with Warren Buffett and Charlie Munger, chairman and vice chairman of Berkshire Hathaway-BRKB:

Buffett: Temperament is more important than IQ. You need reasonable intelligence, but you absolutely have to have the right temperament. Otherwise, something will snap you.

Munger: The other big secret is that we're good at lifelong learning. Warren is better in his 70s and 80s, in many ways, that he was when he was younger. If you keep learning all the time, you have a wonderful advantage.


October 16, 2013
No Bull Market Bubble
Tidibits from CNBC interview with Warren Buffett, CEO of Berkshire Hathaway-BRKB:

Buffett said he doesn't expect the U.S. will do anything to damage its 237-year reputation of paying its bills on time, but if it does it would be a "pure act of idiocy" and "asinine." "Credit worthiness is like virginity, it can be preserved but not restored very easily, so it is crazy to play around with it," he said. Buffett said Berkshire owns short-term Treasury securities but he isn't worried about getting paid.

Buffett rejected the idea that investors should be worried about a bull market "bubble" for stocks. He said, "We could at some point, but no, stocks are not selling at bubble levels. What do you diversify in? You want to diversify into cash? I think it's a terrible investment compared to equities. You want to diversify into long-term bonds? I think it's a terrible investment compared to equities."

Buffett also said Berkshire's spending rate on acquisitions this year is as "high as ever." He said he had been working on a big acquisition, a $12 billion "elephant," but the deal didn't come together.


October 7, 2013

The  Eight Principles of Value Investing
Snippet from Advisor Perspective article by Scott Clemons and Michael Kim:

  1. Risk is Not Volatility
  2. Price and Value Are Different Things
  3. Investors Must Know What They Own
  4. There is No Such Thing As Passive Investing
  5. Preserving Wealth is the First Step Towards Growing It
  6. There is a Difference Between Wealth and Money
  7. Cash Provides Option Value to An Investor
  8. Diversification Is An Inadequate Tool for Managing Risk

October 2, 2013
Cash Stash
Snippet from Wall Street Journal:
Apple-AAPL holds nearly 10% of all corporate cash. Apple's $147 billion cash hoard now counts for nearly 10% of all corporate cash held by nonfinancial companies, Emily Chasan reports. U.S. nonfinancial companies held $1.48 trillion in cash as of June 30, according to Moody's review of the more than 1,000 companies it rates. Cash stockpiles have grown by about 2% from $1.45 trillion at the end of last year, and up 81% from $820 billion at the end of 2006. Corporate cash is still concentrated in just a few hands, with the top 50 holders accounting for 62% of the total. The companies with the five largest cash holdings: Apple, Microsoft-MSFT, Google-GOOG, Cisco Systems-CSCO and Pfizer. 

 Monday, Sept. 30, 2013
Apple Passes Coca-Cola As Most Valuable Brand
Tidbit from New York Times:
The 2013 report begins: “Every so often, a company changes our lives, not just with its products, but with its ethos. This is why, following Coca-Cola’s 13-year run at the top of Best Global Brands, Interbrand has a new No. 1 — Apple.” The report estimates the value of the Apple brand at $98.3 billion, up 28 percent from the 2012 report. The value of the Coca-Cola brand also rose, by 2 percent to $79.2 billion, but that was not sufficient to give Coca-Cola a 14th year as Interbrand’s most valuable brand. Although “Coca-Cola is an efficient, outstanding brand marketer, no doubt about it,” Mr. Frampton said, Apple and other leading technology brands have become “very much the poster child of the marketing community.” That is underscored by the brand in second place in the new report: Google, which rose from fourth place last year. In fact, of the top 10 Best Global Brands for 2013, five are in technology: Apple; Google; Microsoft, No. 5, unchanged from last year; Samsung, 8, compared with 9 last year; and Intel, 9, compared with 8 last year.


Sept. 20, 2013
Warren Buffett, chairman and chief executive officer of Berkshire Hathaway-BRK.A, shares with students his perspective on charity, the financial crisis, income inequality, investing, human nature, federal reserve policy and optimism in America during an interviews with Brian Moynihan, chief executive officer of Bank of America Corp., at Georgetown University in Washington. Watch the interview.

Sept. 17, 2013
Berkshire Billionaires
Snippet from Bloomberg Businessweek:
In addition to Warren Buffett, the world’s fourth-richest person, at least six current or former billionaires derive their fortunes from Berkshire Hathaway-BRKB. They include Charles Munger, 89, the company’s vice chairman and David Gottesman, 86, a Berkshire board member and founder of asset management firm First Manhattan Co. Buffett’s late wife, Susan, died in 2004 with a 2.2 percent economic interest in Berkshire. Albert Ueltschi, founder of FlightSafety International Inc., which Berkshire acquired in 1996 for about $1.5 billion in stock and cash, sold his 31.8 percent stake for Berkshire shares, a holding that would have been valued at $2.4 billion when he died 16 years later. Harold Alfond, founder of the Dexter Shoe Co., died in 2007 with $3 billion in Berkshire stock. There are probably other Berkshire billionaires to be uncovered. In a June 2010 Fortune magazine article, Buffett said that he knew of two Berkshire shareholders who qualify for the Forbes 400 list of wealthiest Americans, and weren’t on it.


Invest with a Long Time Horizon and Avoid Permanent Loss of Capital
Tidbit from Barron’s interview with Abhay Deshpande and the team at First Eagle Global:

We have two factors that differentiate us from other investors. The first is our time horizon, which is quite long in nature. We invest for periods of up to five to 10 years. The second thing that differentiates us is that our primary definition of risk is that of permanent loss of capital, not volatility or relative underperformance. We are trying to avoid a permanent loss of capital and thereby secure a reasonable absolute rate of return over a long period of time.


Sept. 13, 2013
Margin of Safety

Snippet from Seeking Alpha article by Chuck Carnevale, which includes 3M-MMM and Cognizant Technology Solutions-CTSH in the examples:

Of all of the many sound investing principles that legendary teacher and investor Ben Graham put forward, he believed that his concept of "margin of safety" was the most important of all. This investment lesson was so deeply ingrained into the mind of Ben Graham's most famous student, Warren Buffett, that he created his two most important rules of sound investing. Rule number one: Never lose money. Rule number two: Never forget rule number one. Clearly, both of these renowned sages understood the importance of minimizing risk, especially when investing in equities.


Sept. 12, 2013
Quality Investing: A Strategy For Uncertain Times

Tidbit from Morningstar article by Alistair Corden-Llyod and Christian Derold:
We believe quality companies may offer many attractions to investors:

  • Their “moats” are generally defended. 
  • They have pricing power to help protect against inflation and steady growth potential to help counter deflation. 
  • They are generally resilient. 
  • They generally advertise, innovate and adapt. 
  • Their historically high return on capital and low capital intensity can help generate strong free cash flow. 
  • They are generally prudently managed. 
  • They appear to be attractively priced. 

Above all, quality companies can have the hallmarks to compound shareholder wealth at potentially attractive rates of return over the long term.


Sept. 9, 2013
The Buffett Formula on How to Get Smarter
Snippet from Shane Parrish, Farnam Street:
We'll call it the Buffett formula, named after Warren Buffett and his longtime business partner at Berkshire Hathaway, Charlie Munger aka a "book with legs." These two are an extraordinary combination of minds. They are also learning machines. We can learn a lot from them. They didn't get smart because they are both billionaires. No, in fact they became billionaires, in part, because they are smart. More importantly, they keep getting smarter. And it turns out that they have a lot to say on the subject. How to get smarter? Read. A lot.


Tips from Top Value Investors
Tidbit from Barron’s article by John Heins and Whitney Tilson:

My favorite ideas tend to be companies that generate free cash flow, not cheap cyclicals or stocks trading at big discounts to book. One big advantage of investing in companies generating free cash flow is that you can be more patient because the intrinsic value tends to grow while you own it—they're adding cash to the balance sheet, paying down debt, buying back their stock. The stock price may not perform for a time, but the intrinsic-value growth will eventually be reflected in the market price. You're getting paid to wait.
—Andrew Jones, North Star Partners


Sept. 5, 2013
Buffett's Genius - Optimisim & Rationality
A tidbit tweeted by Robert Hagstrom, CFA (@RGHagstrom): In a recent paper titled “Buffett’s Alpha,” the authors were able to separate Buffett’s outstanding performance into three distinct buckets. First, Buffett, no surprise, is a good stock picker. Second, by using the premiums written by Berkshire Hathaway’s various insurance companies, he operates with a quasi-level of leverage, which amplifies his returns. But it is the third factor that I believe has had the biggest impact on his performance — something he believes in but can never prove. Read more.

Sept. 4, 2013
Tidbit from Briefing.com: IDC reported worldwide mobile phone market forecast to grow 7.3% in 2013 driven by 1 billion smartphone shipments. The worldwide mobile phone market is forecast to grow 7.3% year over year in 2013, marking a sharp rebound from the nearly flat (1.2%) growth experienced in 2012. Strong demand for smartphones across all geographies will drive much of this growth as worldwide smartphone shipments are expected to surpass 1 billion units for the first time in a single year, according to the International Data Corporation (IDC) Worldwide Quarterly Mobile Phone Tracker. Android remains the dominant smartphone operating system, a status that won't change even though its share will decline somewhat as the market matures and competition solidifies. The sheer volume of devices at a wide range of price points combined with Google's-GOOG backing and a growing application library will keep Android atop the smartphone O.S. heap. Samsung remains the world's top seller of Android-based smartphones, while the resurgence of LG and Sony have also contributed to its success in recent quarters. iOS will remain the clear number two operating system as the expected launch of a lower-cost iPhone will open up a wider addressable market for Apple-AAPL. Windows Phone will solidify its position as the number three O.S. with incremental share gains over the course of the forecast for Microsoft-MSFT.

Read more: http://www.briefing.com/InPlayEq/InPlay/InPlayViewAll.htm#ixzz2dxHl69iP

Sept. 1, 2013
Snippet from Jason Zweig’s WSJ piece, “Charlie Munger: Lessons From an Investment Giant
In the late 1980s, [Charlie Munger]] recalled in a magazine interview, a guest at a dinner party asked him, "Tell me, what one quality accounts for your enormous success?" Mr. Munger's reply: "I'm rational. That's the answer. I'm rational."


Aug. 30, 2013
Tidbit from "Forrest Gump Stock Market" by William Smead:

Remember, "life is like a box of chocolates" and "you never know what you are going to get." Here are the factors we focus on that allow us to take advantage of long-duration common stock ownership in this less than perfect environment:

  • The US economy has had a major and historical five-year cleansing.
  • Banks are over-capitalized and making sensible lending decisions.
  • S&P 500 companies carry loads of cash on their balance sheet and are producing high levels of free cash flow.
  • Household income statements are the best they've been since the Federal Reserve Board started keeping track of household debt service ratios at the beginning of 1980.
  • Housing is the most affordable in my lifetime. (We can thank GMO's Edward Chancellor for putting out a great report on housing in 2011.)
  • Demographics are incredibly favorable in the US with 86 million 18-37 year old's concentrated around the age of first marriages and first babies. Household formation took off in 2012 as a result of the largest population group matching up with societal norms.
  • The "brilliant" folks have created a wonderful ongoing "wall of worry" which reestablishes itself on any 5-10 percent correction in US stocks.
  • US common stocks have produced 6% per year capital growth historically with an average P/E ratio of 15. The consensus of estimates for 2014 is 14.3 PE on the S&P 500 index.

We could go on, but we believe this economy and stock market are as underestimated as Forrest Gump. We intend to keep our focus on seeking out undervalued companies of great merit and show the same kind of faith in the future that led to Forrest's success in this less than perfect world.


Aug. 28, 2013
Here is a snippet from the Ruane, Cunniff & Goldfarb Investor Day transcript, which is always a good read and discusses several of our HI-quality companies like Berkshire Hathaway, Fastenal and TJX.

Question: When Warren Buffett and Charlie Munger are no longer at Berkshire, what would make you reduce your stake?

Bob Goldfarb: We would have to see what the price was at that time and what the businesses and investment portfolio look like. They are probably going to be somewhat different from the set of businesses and the portfolio that they own today.

Jon Brandt: You can do some math based on the buyback price limit and what Warren said about wanting to buy 80-cent dollars and infer that he and Charlie think the company is worth at least $180,000 per A share. I would be above that, somewhat above that number. I do not think it is selling at a premium to its intrinsic value. A larger question is whether the discount would widen if Warren and Charlie were not there. You can look at conglomerate discounts all over the world, and you can find anything from 10% discounts to 40% discounts. Given that, again the math of the buybacks, the company will buy back at 120% of book value, I think if the discount gets over a certain amount, management would buy back stock and that would be accretive. So it would actually be good for long-term intrinsic value growth if the stock did trade down.


Aug. 20, 2013
Don’t Put Faith in Cape Crusaders
Tidbit from Jeremy Siegel’s article in the Financial Times:
"U.S. stocks have risen more than 150 per cent from their bear market low, and many are asking whether they are overvalued. The S&P 500 Index is selling for between 15 and 16 times 2013 estimated earnings, close to its historical average. The bears claim that current earnings are unsustainably high and can be expected to fall. Bulls, including myself, believe earnings are unlikely to fall and higher price-to earnings (P/E) ratios may propel stocks even higher."


Aug. 19, 2013
Brendan O'Donohoe of Frito-Lay talks with EconTalk host Russ Roberts about how potato chips and other salty snacks get made, distributed, and marketed. The interview follows an hour-long tour of a local supermarket where O'Donohoe showed Roberts some of the ways that chips and snacks get displayed and marketed in a modern supermarket. The conversation is a window into a world that few of us experience or are even aware of--how modern producers and retailers make sure the shelves are stocked and their products get noticed.

July 29, 2013
Good Businesses at Great Prices Trump Ugly Macro Economics
When companies become attractive in our conservative base case earnings scenarios, we will make an ir even against what might be an ugly macro-economic backdrop. We believe a good business at a great pr demands the commitment of capital and invariably trumps whatever larger fears may be impacting that cc industry or the general economy.

June 30, 2013

Most Respected
Tidbit from Barron's on their annual ranking of the most respected companies in the world: Apple's-AAPL reign is over. Its remarkable three-year hold on the throne of Barron's annual ranking of thu most respected companies is history. No longer the apple of the market's eye, the immensely successful iPads, iPhones, and Mac computers slipped to third place in the 2013 survey. And proving that comeback possible even for an 82-year-old CEO, Warren Buffett's Berkshire Hathaway -BRKB came out on top thi; from a No. 15 finish in 2012 - the only time in this ranking's nine-year history that it finished out of the top /-//-quality companies that were ranked in the top 20 most respected companies included: Google-GOOG Cola-KO, 3M-MMM, UPS-UPS, Johnson & Johnson-JNJ, United Technologies-UTX, and ExxonMobil-XO
http://online.barrons.com/article/SB50001424052748704382404578565722725198066.html? mod=BOL hps highlight top#articleTabs article%3D0

June 25, 2013
It Is Not All About The Fed
Snippet from interview with Morningstar’s Bob Johnson:
So I really give the Fed a lot of credit for nudging things along. But this idea that they're creating a bubble are just superenergizing the market and that it's the only reason it's gone up--my goodness, there's so ma going right in the U.S. stock market and in the U.S. economy that explain the move in the stock market tha about the Fed. We've seen tremendous growth in oil and gas reserves and production in this country, whi been a huge factor in the improvement in this economy. The auto industry has gone from building 9 millio bottom to back to close to 15.5 million-16 million units. So we've had a huge deal there. Housing is up. Ye

Bernanke has helped stimulate that. Yes, mortgage rates have stayed low, but there's a lot of pent-up dem should be starting 1.5 million new homes every year just to keep up with population. It's pent-up demand. about this artificial stimulus, whether rates are 4% or 5% or 5.5%, it may exclude a few buyers at the edge you've got people that just are now having children and need to move in a bigger facility. You've got people being born and have to get put somewhere, and that's what's not being captured. Then you've got produc mentioned the auto industry is practically back to normal. We are practically back at 100% of production in recovery. And employment's only about 70% of what it was. We've gone through tremendous productivity enhancement. We've seen corporate earnings go up dramatically. Again that's not all about the Fed. They nudge a few things along, but there are a lot of fundamentals in the economy that are strong, as well.

June 18, 2013

In her latest blog, Pride: In the Name of the US Manufacturing/Energy Renaissance, Liz Ann Sonders, Sc Chief Investment Strategist, identifies three key reasons for rational optimism:

  • Manufacturing/energy renaissance in the United States is a long-term theme; not a short-term trade …underway
  • The list of companies "reshoring" to the United States are powerful and growing
  • The United States can become a global exporting powerhouse thanks to our lead in artificial intelligenc technology, large domestic shale oil and natural gas deposits and the growth in demand for U.S. goods a from emerging markets

“The bottom line is that the manufacturing and energy renaissance in the United States is a long-term stor short-term trade … but it has legs. It should ultimately benefit our economy in multiple ways, including: ke inflation low, boosting capital/infrastructure spending, improving job growth, lowering the trade deficit, and national security/geopolitical landscape.”

Jan. 14, 2013

Horace “Woody” Brock: Good Debt vs Bad Debt

Snippet from a good article by Bob Veres in Advisor Perspectives:
A polarizing choice confronts policymakers. Either they side with Paul Krugman and the Keynesians, and for aggressive fiscal measures to stimulate America’s economic growth rate, or they align themselves with called austerians, who argue that budget cutbacks are necessary to eliminate deficits. A third option is rar discussed. Its most outspoken proponent, Horace “Woody” Brock, says that America should continue to b spend wisely – and develop new policy instruments that would eliminate asset bubbles and stimulate eco activity.


June 11, 2013
Six Percent Real Total Returns
Tidbit from McKinsey & Company: “Over the long term, shareholder returns reflect a fundamental relationship between economic growth, corporate profits, and returns on capital—that is, stock-price appreciation combined with shareholder payback has resulted in about 6 percent real total returns to shareholders. This reflects a rough equilibrium between expectations and returns that has held true, over the long term, in spite of 100 years of war and peace, industrialization, major demographic shifts, and technological advances. In fact, even with relatively extreme assumptions about long-term earnings growth, it is difficult to foresee real long-term expected shareholder returns of less than about 5 percent. “ Explore how changes in the real economy or fundamental shifts in investor behavior might affect long-term equity returns through their interactive simulator:


May 30, 2013
We Wait!
Tidbit from Tweedy, Browne's annual report on their investment philosophy, which mirrors ours:

We own a business and businesses have a value independent of stock prices. Determining that value, we believe, is a more objective, knowable process than forecasting markets. We continually ask ourselves, what are the competitive advantages or weaknesses of a business? Does it have the financial flexibility and strength to withstand a difficult economic environment? Do its products have sustainable demand prospects? Can the business adapt to changing circumstances? In this process, we are attracted to companies that compete around the world, because in effect, we think that they are reducing the risk presented by any one market while at the same time positioning themselves to take advantage of more promising opportunities. Once we are comfortable with the business, and the value that would accrue to us as shareholders in an arm's-length sale of the business, we then look to buy shares, if they are available in the public market at a discount from our estimate of value. If not, we wait.


May 20, 2013
Investment Risk In The Real World
Is volatility a true measure of risk? That was the age-old question that Wong Kok Hoi, CFA, founder and chief investment officer of APS Asset Management, put to delegates at the 66th CFA Institute Annual Conference. His answer? "I don't think so. There is insufficient evidence to back it up."
So, if volatility is not a good measure of risk, what are the investment risks that matter? Wong proposed the following:

  • Overpaying for a security or asset;
  • Investing in the security of a company owned and/or run by dishonest and incompetent people;
  • Investing in a company that has a weak business model;
  • Investing in a company with a highly leveraged balance sheet;
  • Investing in a company that changes its auditor, CFO, and independent directors frequently;
  • Investing in securities you can never exit.

Read Lauren Foster’s excellent report on Investment Risk In The Real World from the CFA Institute's Annual Conference on Seeking Alpha.

Investing For Income and Capital Appreciation
Snippet from good interview with the folks at First Eagle Investment Management:

It all starts with the question of margin of safety. In any investment that we consider, we ask ourselves, does it have an adequate margin of safety? Do we have a level of comfort with management and feel that they will treat us fairly as stakeholders? What is our attachment point to the enterprise? Does it afford us an adequate buffer to protect us from permanent impairment of capital? How sustainable and how volatile is the free cash flow generation?

May 15, 2013
A tidbit from Vanguard’s 2013 Investment Symposium - Income Generation in a Low-Yield World
by Francis M. Kinniry, CFA
Main Points:

  • Persistent low yields are chasing investors into riskier assets
  • Portfolios are becoming less diversified and less tax-efficient, increasing the chance of falling short of investors’ long-term goals
  • Rather than reaching for yield, investors should follow a total return approach which focuses on income as well as capital appreciation
  • Tax-wise investing, selling and rebalancing can add value for investors concerned about meeting spending needs during retirement

May 2, 2013
Women Are The Key to America's Prosperity
Tidbit from Warren Buffett's, CEO of Berkshire Hathaway-BRKB, latest Fortune essay:
In the flood of words written recently about women and work, one related and hugely significant point seems to me to have been neglected. It has to do with America's future, about which -- here's a familiar opinion from me -- I'm an unqualified optimist. Now entertain another opinion of mine: Women are a major reason we will do so well.


May 1, 2013
Investors Snap Up $17 Billion of Apple’s iBonds

Snippets on Apple's record bond offering from the L.A. Times:

First came the frenzy for iPhones and iPads. Now there's a scramble for iBonds. Apple-AAPL sold $17 billion in bonds, a gargantuan deal that ranked as the largest in global corporate history. And even though the securities are paying microscopically low interest, investors tripped over themselves to buy in. In the financial equivalent of a line stretching around the block, investors reportedly submitted more than $50 billion in requests, or more than three times the amount available. The company announced last week that it will return $100 billion to shareholders by the end of 2015. Apple could easily tap into the $145 billion in cash it has accumulated over the years. But $102 billion of that is held overseas, and the company would have to pay U.S. income taxes of 35% if it transferred the cash back to the U.S. There's another benefit to Apple from borrowing money. Companies can write off interest payments, lowering their ultimate cost even more. "When you think about it, it's kind of strange," said Patrick Moorhead, principal analyst at Moor Insights & Strategy. "You're sitting on a pile of cash, but you're borrowing money to give it back to shareholders. It's really a kind of testament to our screwy tax laws."

April 9, 2013
Tidbit from Barron’s interview with Robert Zagunis, portfolio manager of the Jensen Quality Growth Fund, who comments on many of the same HI-quality companies we own, including United Technologies-UTX, 3M-MMM, Abbott Labs-ABT, T.Rowe Price-TROW and Microsoft-MSFT. “ When you look at Microsoft, they have a huge embedded base which is pretty remarkable, they are still by far the world's largest software company with a ROE of 37%. They have some debt, but cash that's ridiculously high. It's not as large a position as we had before, but it is an important position for us, and it gets back to the idea that the market may not recognize it for a long, long time but it is creating shareholder value, and that's what we are after.”

April 6, 2013
Poised to Achieve Air Supremacy

Snippet on United Technologies from a feature article in Barron’s:

In September 2011, United Technologies-UTX announced it would pay $18.4 billion to acquire Goodrich, a maker of airplane brakes, landing gear, and other aircraft components—the largest aerospace deal in history. Goodrich is expected to add 55 cents a share to UTC's earnings this year, lifting them to an estimated $6.11 a share. It has given the conglomerate important new items to sell to aerospace customers worldwide and an imposing perch in the airline business. United Technologies has been getting better news from other parts of its global business, as well, helping the company regain momentum after earnings and organic sales flattened out last year. Otis, the world's largest elevator maker, seems to have gotten past some stumbles in China early last year; UTC's security and fire-prevention businesses also are expanding abroad. "People are moving from the farms to the cities, which drives tremendous demand for our products," says Chênevert, who became CEO in 2008. The company gets 60% of its revenues from overseas. After the transition, the company, which generated $57.7 billion in revenue last year, has a stronger balance sheet. It has raised more than $4 billion in the past year or so by divesting non-essential businesses, including rockets and wind turbines. The company has already paid down about one-third, or $5.5 billion, of the debt it incurred from the Goodrich deal. Chênevert says the plan is to bring debt as a share of capital, currently about 46%, down to its historical levels in the low 30% range—a very reasonable goal given the company's strong free cash flow, which totaled $5.2 billion last year. The company has continued to support its dividend, currently $2.14 a share, for a respectable yield of 2.3%. With more certainty about the future, UTC also has resumed share repurchases after a 15-month hiatus. The company targets at least $1 billion in buybacks this year.

These tidbits from the PIMCO article “Can Something Good Be Cheap Too?” by Charles Lahr is consistent with our investment philosophy that investing in HI-quality investments at reasonable valuations provides higher returns with lower risk.

The potential benefits of investing in high quality/low volatility equities have been documented in both academia and industry (see "When Quality Pays: A Fundamental Approach to Pursuing Lower Risk and Higher Returns"). Historically, lower risk has led to higher equity returns, contrary to conventional belief and what many of us learned in school. This anomaly, in fact, appears to be one of the most persistent in all of equity space. Further, the data associated with low volatility stocks clearly tie them to businesses that exhibit attributes of high quality, such as higher operating margins and dividend yields. The importance of the long-term return advantage derived by buying less expensive equities and the avoidance of downside that can arise when overpaying for a stream of cash flows should not be underestimated. By focusing on quality companies, an investor may substantially increase the potential to earn more returns with less risk and can do so while buying stocks with valuation multiples below the market.

Make Folksy Pronouncements and Neglect to Trim Eyebrows for Decades

That is the best investment lesson from Warren Buffett according to Scott Adams, the creator of Dilbert ;-) Other experts provided these Buffett tidbits from the Wall Street Journal:

Invest in Things. Don't Rent
Keep It Real-Focus On the Business
Invest Like a Woman
Don't Get Swept Up By the Crowd
Be Fearful When Others are Greedy and Greedy When Others Are Fearful
The Importance of Being a Mensch
Take the Long Term View
Index Funds
Own A Business, Not a Piece of Paper
Never Panic and Stick to Your Strategy


March 27, 2013
Snippet from a WSJ article on the rail renaissance:

BNSF, purchased by Warren Buffett's Berkshire Hathaway-BRKB in 2010, is investing $4.1 billion on a list that includes locomotives, freight cars, a giant terminal southwest of Kansas City and new track and equipment for its oil-related business in the Bakken shale region of North Dakota and Montana. BNSF expects to increase daily crude oil shipments this year to 700,000 barrels from 500,000 at the end of last year, says Mr. Rose (BNSF’s CEO). On a recent winter day near Minot, N.D., BNSF crews worked feverishly, despite numbing minus-23 degree temperatures, to repair frozen parts that were jamming the brakes of eight tank cars. Their hands were cold despite gloves, but nobody wasted time to warm them. They wanted to get the tank cars back online. They were in a race against OPEC, China, Brazil. They were part of the new pipeline.

March 23, 2013
Barron’s provided profiles on the “World’s Best CEO’s,” including several HI-quality leaders including Warren Buffett from Berkshire Hathaway-BRKB, Carol Meyrowitz from The TJX Companies-TJX, Larry Page from Google-GOOG and Miles White from Abbott-ABT. Here are a few snippets:

Berkshire Hathaway
Buffett's creation is one of the great achievements in business history. Investors fortunate enough to have gone along for the ride have enjoyed an 8,000-fold rise in the stock price since 1965. Berkshire is now the fourth-largest company in the market, with a capitalization exceeding $250 billion.

Meyrowitz, 59, got her start as an assistant buyer at Saks Fifth Avenue, and joined TJX in 1983. She led the company successfully through the recession, opening stores and taking market share. Next, she aims to boost annual sales to $40 billion from a current $26 billion, by speeding store openings in the U.S. and abroad, jumping into e-commerce, and targeting younger shoppers.

The nerd who co-founded Google 15 years ago is turning out to be far savvier than anyone gave him credit for. Page, who turns 40, has ruthlessly cut Google's side projects to focus on building revenue. YouTube, thought to be folly when the company paid $1.65 billion for it in 2006, is expected to rack up $4.5 billion in sales this year, and mobile advertising via its Android operating system could bring in $6 billion.

Abbott Laboratories
During White's 14 years as CEO, Abbott has been the envy of much of the drug industry, with its consistent earnings growth and excellent shareholder returns. To unlock even more value, White got board approval to split the company in two. The separation, which took effect on Jan. 1, created AbbVie, the branded pharmaceutical business, and Abbott Labs, which sells diagnostic products, coronary stents, and infant formula. White, 58, who is leading the new Abbott, speaks often about the need for "balance." It isn't only about making money for shareholders, he says, but also "doing the right thing" for employees, health-care providers, and patients.

March 20, 2013
Natural Juices of Capitalism
People tend to “focus too much on what the government’s done, and to give them either credit or blame,” Warren Buffett, CEO of Berkshire Hathaway-BRKB, said in a recent interview conducted by the chief executive officer of Business Wire, the Berkshire subsidiary that distributes press releases. “The real credit belongs to our system.” The U.S. economy “is coming back because of the natural juices of capitalism and not because of government,” Buffett said. “We have a wonderful system that eventually is self-cleansing and always moves forward.” “We went from a wooded land to an incredible, absolute abundance of riches” because the U.S. has had a system that can “unleash human potential,” he said. “Never bet against what humans can accomplish if they’re operating in the right soil. And we have the right soil.” Watch the full interview below!

March 18, 2013
Several HI-quality firms continue to grow their gigantic cash stashes. Tidbit from Bloomberg:

U.S. nonfinancial companies held a record $1.45 trillion in cash at the end of 2012, up 10 percent from the previous year, according to Moody’s Investors Service. Apple Inc.-AAPL, Microsoft-MSFT, Google-GOOG, Pfizer Inc. and Cisco Systems-CSCO maintain the five biggest cash balances, comprising $347 billion, or 24 percent of the total. Cash balances of non-financial companies have increased 77 percent from the $820 million in 2006, according to Moody’s. The four areas in which companies spend cash are acquisitions, dividends, share repurchases and capital expenditures.

March 14, 2013
The Outsiders
, by William N. Thorndike, Jr.

I immensely enjoyed reading this book, which provided case studies on eight great companies and their successful CEO’s, including Berkshire Hathaway-BRKB (Warren Buffett), General Dynamics-GD (Bill Anders), Capital Cities (Tom Murphy), Teledyne (Henry Singleton), TCI (John Malone), The Washington Post Company (Katharine Graham), Ralston Purina (Bill Stiritz), and General Cinema (Dick Smith) . The book highlighted that:

  • Capital allocation is a CEO’s most important job.
  • What counts in the long run is the increase in per share value, not overall growth or size.
  • Cash flow, not reported earnings, is what determines long-term value.
  • Decentralized organizations release entrepreneurial energy and keep both costs and “rancor” down.
  • Independent thinking is essential to long-term success, and interactions with outside advisers (Wall Street, the press, etc.) can be distracting and time-consuming.
  • Sometimes the best investment opportunity is your own stock.
  • With acquisitions, patience is a virtue…as is occasional boldness.

March 12, 2013
, March 6-8, 2013
2013 Investment Outlook, By Bob Doll, Chief Equity Strategist, Nuveen Asset Management, LLC.

Bob Doll described current market conditions as the best environment for equities, thanks to low interest rates and subpar economic growth, which is not high enough to stoke inflation. The U.S. corporate sector’s balance sheet and free cash flow yield are the best they have ever been. As a result, he expects dividends to increase at double-digit rates as companies increase their payout ratios from historically low levels. Bob Doll’s bottom line for 2013: Overweight equities and underweight cash and fixed-income investments. His outlook for the next 10 years is for total real returns of 6%-7%, driven by 5.1% real returns from equities and 1.6% real returns from fixed-income investments. Read more here

March 11, 2013
Tidbit from Barron’s on the power of dividend compounding:
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, calculates that the S&P 500's indicated annual dividend has reached an all-time high—$300.2 billion. That's 18.8% above the June 2008 pre-decline level of $257.7 billion and 59.5% above the $188.2 billion bottom level of July 2009. Back to the Dow 30 and what Silverblatt calls the Magnificent 7—companies that have sweetened payouts for at least 30 years. If you had invested $1,000 in each of them at year-end 1982, that investment would have been worth $425,581 at the close of 2012, a 14.7% annualized return. The group: 3M-MMM, Coca-Cola-KO, ExxonMobil-XOM, Johnson & Johnson-JNJ, McDonald's, Procter & Gamble-PG, and Wal-Mart Stores-WMT.


March 9, 2013
“An era of optimism dies in the crisis, but in dying, it gives birth to an error of pessimism. This new error is born not an infant, but a giant.” Arthur C. Pigou

When Liz Ann Sonders, Schwab's Chief Investment Officer, first read this quote, she noticed the play on words “error” for “era”. After reflecting on that play as it relates to the financial crisis, she sees how pessimism became an error of judgment, causing many investors to miss the market’s monumental rebound since the March 2009 lows. Remaining anchored in the error of pessimism, many continue to miss the bright spots of unfolding positive economic stories. Below is a summary of those unfolding economic stories Liz Ann told at Barron’s Top 100 Independent Financial Advisors Summit held in Orlando March 6-8, 2013. Read more

Feb. 28, 2013
Fortune's "World's Most Admired Companies" list is out and includes many HI-quality companies, which we admire, too,  among the top 50, including Apple as number one, Google as number two, Coca-Cola, Berkshire Hathaway, Procter & Gamble, Microsoft, 3M, Johnson & Johnson, ExxonMobil, Wal-Mart, UPS, PepsiCo, Accenture and Cisco Systems.


Jan. 31, 2013
The Fundamentals of the Economy Look Remarkably Good
Tidbit from Wealth Management: "The environment in Washington is not as bad as the media has made it out to be; in fact, the fundamentals of the economy look remarkably good," said Greg Valliere, chief political strategist of Potomac Group. He expects GDP to grow to 2.5 percent by the second quarter of this year, and the unemployment rate to drop to 7 percent by the end of 2013. In addition, rates are low; there’s no sign of inflation; and the auto, manufacturing and housing sectors are looking good.

Jan. 14, 2013 

Tidbit from the “More Things Change…” by Charles Schwab: Liz Ann Sonders, Brad Sorensen, Michelle Gibley

There seems to always be another crisis around the corner but over the past several years we've seen that it can be detrimental for investors to overreact. Although there are concerns all over the world, there are also bright spots. America averted the full force of the fiscal cliff and economic growth continues; Europe seems to have found at least a near-term floor and is making some progress; China's growth appears to have bottomed; and Japan has at least a glimmer of hope of escaping the grip of deflation. While there will be inevitable dips and potentially stomach-churning selloffs, we believe evidence is building that things are improving and investors who have been on the sidelines should use any weakness in first part of 2013 to add to equities as their risk profile and asset allocation model suggests.


Jan. 2, 2013

As we expected, the vast majority of Americans will NOT face an income tax rate increase or an increase in their capital gains and dividend tax rates. Snippets from the attached CBS News article What the Fiscal Cliff Deal Means for Taxpayers”:

Individuals who earn more than $400,000 and couples who make more than $450,000 will see tax rates increase from 35 to 39.6 percent.

Capital gains and dividends will rise to 20 percent from the current 15 percent for the same income thresholds. In addition to the capital gain and dividend rates, health care reform will levy a new surtax of 3.8 percent on capital gains for wealthy Americans, pushing up the top capital gains rate to 23.8 percent.


December 26, 2012
Tidbit from interview with Jeremy Siegel on “Dow 15,000

Where do you see the fair value of the S&P now, relative to its current level?
We’re going up. We could get another 15 to 20%. I’m on record saying that I think there is an overwhelming probability that we’re going to get Dow 15,000 by the end of next year, so if the current level is 13,180, that’s a 14% rise. There is a possibility – if we get some good work done on the entitlements, if we set the tax rates appropriately – with the housing recovery, it’s very possible to get 25% next year. That would certainly be a very-good-case scenario.


December 19, 2012
Now in its fifth year, the annual ranking of the Chief Executive/Applied Finance Group wealth creators—and destroyers—attempts to capture those business leaders who best generate real economic value, as opposed to accounting value. With analysis from Drew Morris of Great Numbers!, Chief Executive seeks to identify those leaders whose companies have created real returns in excess of their risk-adjusted cost of capital. Coach tops the list with several other HI-quality companies among the top 15 Wealth Creators, including Fastenal, T. Rowe Price and C.H. Robinson.  Read the entire article, Who’s Generating Real Economic Value?,  by JP Donlon.

In her latest commentary. Liz Ann Sonders, Schwab Chief Investment Strategist, encourages investors to imagine a better future...

It's often the case that when I'm writing one of these reports it feels like the topic is the most important in the world. The events of Friday in Newtown sure put that into perspective. The fiscal cliff has felt like one of those crucially important topics, about which we've been opining for weeks on end. In light of the fact that there's still no deal to speak (or write) of, I'm holding off on what would have been this week's topic—my 2013 outlook. The fiscal cliff has the potential to be too big a needle-mover to assess the coming year without those details. So that leaves me with a blank slate for this week's missive, and in light of so much tragedy over the weekend, I want to look into the future and find my inner optimist.  

Nov. 15, 2012
In her latest Market Insight, Liz Ann Sonders, Chief Investment Strategist at Schwab, puts the fiscal cliff in sharp focus, analyzing the possibilities with an interesting chart put together last week by ISI Group.

Nov. 14, 2012
  It is likely your taxes will NOT go up in 2013. Given the narrow window Congress has to pass fiscal cliff avoiding legislation, it is likely politicians will revisit existing proposals from both parties. The House has already passed legislation to extend current individual tax rates for all individuals, while the Senate has passed a bill to extend rates for individuals earning less than $200,000 and couples earning less than $250,000. This article, Examining the Congressional Options For Dealing With The Fiscal Cliff, from Forbes takes a closer look at proposals from both parties.

Nov. 12, 2012
In this WSJ article, Opportunity Lurks Next to the Cliff, David Reilly contends that "even a modest deal that balances short- and long-term concerns could boost confidence, leading to a virtuous economic circle where companies and individuals spend and invest more. That could boost growth and tax receipts."

Oct. 24, 2012
Get Into a Bunch of Wonderful Businesses and Stay with Them
This timeless advice came from Warren Buffett’s, CEO of Berkshire Hathaway-BRKB,  recent interview on CNBC: “The idea that the European news or slowdown in this or that or anything like that, that would not cause you to, if you owned a good farm and had it run by a good tenant, you wouldn't sell it because somebody says, 'Here's a news item,' you know, 'This is happening in Greece' or something of the sort. If you owned an apartment house and you got to raise the rents a little and it was well located and you had a good manager, you wouldn't dream of selling it. If you had a good business personally, a local McDonald's franchise, you wouldn't think of buying or selling it every day. Now, when you own stocks, you own pieces of businesses, and they're wonderful businesses. You can pick the best businesses in the world. And to buy or sell on current news is just crazy.  You're in a wonderful business. You've got people running it for you. You know you're going to do well over five to ten years. And to think news events should cause you to dance in or out of something that's a wonderful game is a terrible mistake. So, get into a bunch of wonderful businesses and stay with them...”

Some other tidbits from Buffett's interview:

Residential real estate business is turning up as evidenced by the fact that Shaw Carpet's business will double this year and  Clayton Home unit sales are up 10%-15%.

Berkshire will spend a record $9 billion on capital expenditures as it continues to invest in PP&E for BNSF and MidAmerican.

Buffett bought more WFC shares this week. It is a good business, but it won't be as profitable as in the past due to new regulations.

On a base of about 270,000 employees, Berkshire will add 8,000 employees this year through organic growth at units such as Geico, BNSF, Clayton Homes, etc. Another 10,000-15,000 employees will be added through acquisitions with Berkshire doing more bolt-on acquisitions (about 15 businesses worth a combined $2 billion) this year than at any time in the company's history. Berkshire has
about $40 billion in cash currently, and Buffett is salivating to do a big deal. A fellow handed him a business card last night for a business Buffett knows and that he could buy for $6 billion. Buffett said he would be calling the company tomorrow. Buffett said he had two opportunities this year for $20 billion deals that didn't happen due to price issues.

Buffett sold part of his Procter & Gamble-PG shares due to valuation. He said PG has disappointed on the earnings front, and the Board is actively engaged to improve earnings. He said he also sold some Kraft shares among other sales. The proceeds over the
past year or so went into buying $11-$12 billion of IBM, $1 billion of Wells Fargo, $700-$800 million of Wal-Mart-WMT with additional funds given to Todd and Ted for investment purposes. He continues to give Ted Weschler and Todd Combs, Berkshire’s investment managers,  more to invest.

Dairy Queen's same-store sales in Sept. were up 5.8%, much better than McDonald's. He thinks Bloomberg's restriction on Coke sales by size is silly. Joked that if he had to survive on broccoli and spinach, he would have been gone long ago!


Oct. 5, 2012
BNSF and the Bakken Boom
Tidbit on Berkshire Hathaway-BRKB, Burlington Northern Sante Fe and the Bakken Boom, related to how railroads are benefitting from the oil boom in the Bakken region:

For the industry as a whole, loadings of petroleum and products in the most recent week are up 59 percent year on year, from 7,371 in 2011 to 11,749 in 2012. BNSF, which was bought by Warren Buffett's Berkshire Hathaway in 2010, has been the main beneficiary. It owns all the tracks in North Dakota and Montana, at the heart of the Williston Basin, and most of the routes connecting south to the major refining centres in Illinois and along the Gulf Coast, putting it in a commanding position to capitalise on the oil boom. BNSF's petroleum loadings doubled to 8,156 in the most recent week, from 4,131 last year. BNSF accounts for 70 percent of all oil loadings, and essentially all of the growth in oil by rail over the last 12 months.


Sept. 12, 2012
Tidbit from "On Uncertain Ground" by Oaktree Capital's Howard Marks:

The best response when seas are choppy is to focus on completing the long-term voyage and not think about whether the next wave is going to push the nose of the boat up or down. Our investment destination is best reached by accurately valuing assets, assessing the relationship between price and that value, and acting resolutely and unemotionally when mispricings are detected. That’s still the best – I think the only – reliable path to investment success. Nothing about the current environment alters that one bit.


Sept. 11, 2012
Value Investor Par Excellence
The CFA article linked below says Warren Buffett's outperformance comes from strategies described as "Betting Against Beta" and "Quality Minus Junk." Here is a snippet:

Previous researchers analyzing Buffett's returns using conventional size, value, and momentum factors haven't been able to adequately explain his outperformance,
the authors say, leaving admirers to conclude that Buffett's magic is pure alpha. So they extend the analysis by testing Buffett's impressive returns — as
measured by Berkshire's stock — against two factors that better reflect his folksy investing wisdom: One called "Betting Against Beta," which represents
safe, low-beta stocks, and another called "Quality Minus Junk," which represents the stocks of high-quality companies that are profitable, growing, and paying
dividends. As one commentator put it, "It's some evidence that Buffett is doing what he says he's doing." But the takeaway is more nuanced. Buffett is in fact best
known as a value investor par excellence, yet the authors' findings suggest that his focus on safe, quality stocks "may in fact be at least as important" as his
value bent in accounting for his consistent outperformance.


Sept. 7, 2012
Snippet from “Spinning Pessimism Into Opportunity
Sir John Templeton famously described the progression of market cycles thusly: “Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” Today, global equity investors may be described as largely in the pessimism phase of Sir John’s scenario, but Ed Jamieson, CIO of Franklin Equity Group®, views this pessimism as a harbinger of a buying opportunity. He sees “Five Points of Light” in the U.S. economy: Housing, bank lending, household debt burdens, the trade-weighted value of the U.S. dollar, and job growth.


August 10, 2012
Stocks Are Cheaper Than Bonds
Tidbit from J.P. Morgan article “A Plane on the Tarmac”:
This combination of expensive bonds and cheap stocks has left relative valuations at extreme levels. One measure of this is the gap between the “earnings yield” on stocks, (which is just the inverse of the P/E ratio) and the yield on 10-year Treasury bonds. By early July, this gap was wider than it had been in over 98% of the days in the last 50 years. Indeed by this measure, in early July, stocks were cheaper relative to bonds than was the case in the midst of the Cuban missile crisis, the day after the 1987 stock market crash, the day the market reopened after 9/11 and the day after Lehman declared bankruptcy. Despite all of this, in the first half of this year, as has been the case for the last four years, investors, on average, took money out of stock mutual funds and put money into bond funds. For long-term investors, this is probably a mistake. While the economy is only slowly moving forward, it is not moving backward, and markets are priced for a far more scary environment than, in fact, exists. This being the case, long-term investors, here at the mid-way point in 2012, should consider being somewhat overweight equities and underweight bonds relative to a normal allocation or, failing that, to at least be balanced in a way that allows them to benefit from gradual economic improvement rather than be victimized by it.


July 13, 2012
In a CNBC interview, Warren  Buffett, chairman of Berkshire Hathaway-BRKB,  says he now sees U.S. economic growth slowing, but residential housing is picking up slightly. He also says Europe has "been slipping pretty fast" over the past six weeks.


Further in the interview, Warren Buffett, Alan Simpson and Erskine Bowles discussed why the U.S. needs to address its mounting debt problem and suggested some solutions.


I would like to own all of Wal-Mart-WMT, Buffett jokes as he talks stocks in this Bloomberg interview:

http://www.bloomberg.com/video/how-did-warren-buffett-s-big-bets-do-GEGypXWmSw~wX3 sYOV2BKQ.html?cmpid=yhoo

June 28, 2012
Snippets from a Bloomberg article on Leon Cooperman:

Cooperman says stocks offer the best opportunities for investors, particularly in the U.S., where there are no signs of a recession. Banks are more profitable, household debt has declined and companies are increasing capital spending. Yet stocks have remained undervalued, he says, because of economic troubles and uncertainty over the U.S. presidential election. The S&P 500 is trading at a price-earnings ratio of 12.5 compared with an average of 15 during the past 50 years. As he scours reports and quizzes executives on earnings calls and at conferences, Cooperman is trying to discover stocks that have a low price-earnings ratio, lots of cash and decent yields and that are trading for less than their net assets are worth. He also looks for what he calls smart managers who own big stakes in their companies and for firms that buy back their own shares cheaply. A piece of paper taped to his computer monitor reminds Cooperman of the simple investing rules that have helped Omega weather market storms for the past two decades: “Buy low, sell high, cut your losses, let your profits run.”

June 21, 2012
Michael J. Mauboussin with Legg Mason wrote an insightful article “Share Repurchases from All Angles.” We agree with this tidbit:

Encourage the companies you own to adhere to the golden rule of buybacks: A company should repurchase its shares only when its stock is trading below its expected value and when no better investment opportunities are available. Most executives think in terms of “growth versus no growth” rather than “value creation versus value destruction.” There are times when repurchasing shares is more attractive than investing in the business. Note the evidence that shows that companies that reduce asset growth via dividend initiations, buybacks, and spinoffs generate better shareholder returns than companies that grow their capital bases rapidly. Judge whether there is sufficient evidence of capital deployment discipline. Further, the research shows that companies that return cash actually grow faster than the average of all companies. As Warren Buffett wrote in Berkshire Hathaway’s-BRKB 1984 annual report, “When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases.”


June 16, 2012
Along with about 500 other CFAs, I attended lunch with Jack Bogle, one of our investment heroes, who thought aloud with us about what lies ahead for investors.“Thinking About What Lies Ahead for Investors”

June 6, 2012
A timely tidbit from an interview with  Milton Friedman published twenty years ago in June 1992. 

Region: In your new book, Money Mischief, you discuss monetary union. What are your thoughts on Europe’s plan for one currency?

Friedman: I believe it will not come to an achievement in my lifetime. It may in yours, but I’m not sure that’s true either.

Region: Why is that? 

Friedman: Because I do not believe that at the moment, a single European currency is either feasible or desirable. Let me restate that. It would be highly desirable if Europe could have a common money, a single unified money, just as it’s desirable for the United States that we have a single unified currency. But in order for that to be possible or desirable, you have to have a unified currency over an area in which people and goods move relatively freely, and in which there is enough homogeneity of interest so that severe political strains are not raised by divergent developments in different parts of the area. Let me illustrate. In the United States, right now you have much more severe economic problems in New England, in the Northeast in general, than you have elsewhere. If the Northeast were a separate country with a different language from the rest of the country, with a supposedly national government, it would be very tempted to resort to devaluation. What prevents it from doing that now is that we are a nation with one language, one political structure, a recognition that one region or another may have difficulties relative to other regions. Some years ago it was the South that had this problem. Now come to Europe. Will there be as much tolerance for that kind of an adjustment as between France, on the one hand let’s say, Germany, Italy, Spain, Sweden, and so forth? I’m very dubious that those preconditions for a successful unified currency exist on the European continent. That’s looking at the ultimate.

Now consider the process you have to go through to get to a unified currency. In order to have a truly unified currency, not a collection of separate national currencies joined by temporarily fixed exchange rates like the European Monetary System or the International Monetary Fund was in its earlier days - in order to have a truly unified currency, you either need to have no central bank, as with a commodity currency like a gold standard for example, or you need to have at most one true central bank: one authority that can issue money. In the United States that authority is the Federal Open Market Committee of the Federal Reserve System. It’s one. The Federal Reserve Bank of Minneapolis issues currency notes on which the bank’s name appears, but you can’t decide how much to issue. That decision is made in Washington by the Federal Open Market Committee.

In order to have a comparable situation in Europe, you have to eliminate the Bank of France, the Bank of Italy, the Deutsche Bundesbank, the Bank of England and so forth. You have to have one true central bank with full authority. The plans that are being made call for such a central bank, but it’s a long cry from calling for it and having it. After all, the Treaty of Rome, which I believe was signed in 1957, called for eliminating all customs and tariff barriers among the Common Market nations. They still have not all been eliminated some 35 years later. So to call for something is one thing, to do it is a very different thing. And even the central bank that’s called for is going to be run by essentially a committee of representatives from France, from Germany, from England, and so on. I cannot see that kind of institution as having the same ability to withstand political pressures internally in these various areas that the Federal Reserve’s Federal Open Market Committee has.

Read the entire article, which includes other valuable, timely insights.

Odds of Renewed Recession Very Low
The U.S. economy isn't likely to slip back into a recession, despite recent economic reports signaling the recovery has lost momentum, Warren Buffett, chairman of Berkshire  Hathaway-BRKB,  said. Speaking at the 25th anniversary dinner of the Economic Club of Washington, the billionaire investor said he sees the odds of a renewed recession as "very low." An alarmingly weak May jobs report last week sent financial markets tumbling and has led economists to lower their forecasts for U.S. economic growth this year. While downplaying the risk of a recession, Buffett said that all bets could be off if the effects of Europe's financial crisis were to "spill over in a big way." European leaders need to reconcile the "half-in, half-out," nature of the euro zone, Buffett said. The 17 nations that use the euro share the same central bank and interest rate policies, but follow wildly different national tax and budget policies.

Read more: http://www.seattlepi.com/news/article/Buffett-says-odds-of-a-US-recession-very-low-3612359.php#ixzz1x18RAYBX

June 1, 2012
China’s Growth “Miracle”: The Untold Story
Liz Ann Sonders
, Charles Schwab’s Chief Investment Strategist, frequently reminds investors that stock and bond markets are forward looking. Therefore, prices reflect consensus expectations and prevailing views of the future. Because prevailing expectations and views are baked into prices, Liz Ann is always most intrigued by the stories that are not being told. Those gathered at the 65th Annual CFA Conference in Chicago were treated to an untold story about China presented by Michael Pettis, professor of finance at the Guanghua School at Peking University, chief strategist at Guosen Securities, senior associate at the Carnegie Endowment for Peace and formerWall Street trader of Latin American debt.

Contrary to consensus, Professor Pettis expects China’s GDP to growth at a 3% annual rate. During his presentation, he made a compelling case for his forecast based on prior emerging country “growth miracles.” Read more.

May 31, 2012
During the 2012 IMCA Conference held in Washington, DC, Michael Jones, MBA, CFA, presented a compelling case on why stock investments appear to be a safer investment for retirees than bonds. With the following question regarding risk in mind, “During retirement will my investment income meet my needs while maintaining my standard of living?” Michael took us on a historical tour through other U.S. debt crises, highlighting the resulting impact on interest rates, investment income, investment principal, inflation and currency valuation.

Conclusions of his presentation, with which we agree, are below.

  • Many financial advisors’ processes and assumptions are based upon the 30-year bond bull market.
  • The current rate environment indicates that bond returns will be depressed for the next several years.
  • Rates don’t have to rise for bonds to hurt investors as purchasing power will decline due to inflation.
  • Successful investors will shift focus from stability of principal to stability of income.
  • At current prices, equities are a safer investment for retirees than bonds.
  • Gold is overvalued by about 70% to 80%, but there have been times when gold has been 200% overvalued. The run in gold will likely end when real interest rates increase, thereby creating an opportunity cost to holding non-income generating hard assets. Read more...

May 29, 2012
What Does A Dividend Tax Hike Mean For Dividend-Paying Stocks?
We agree with this snippet from Steve Chun who reviews how potential changes in taxation of dividends may impact stocks:
"High-quality companies that share their prosperity with shareholders, and that are able to increase their dividends by rising free cash flow, should be a part of any investor’s portfolio – regardless of the tax rate on dividends. The underlying business models of such companies are the true driving factor behind their performance. Compounded investment income – not style, sector, or market capitalization – is the true driver of total returns. Ultimately, if dividend taxation changes, the cash flows from dividends are no more disadvantaged than those from bonds – and dividends offer more opportunity for growth. Dividends will remain a sound investment – no matter how Congress finally decides to act."

May 22, 2012
In his straightforward, commonsense talk, The Flaws of Finance, at the 65th Annual CFA Conference we attended in Chicago this month, James Montier of GMO LLC declared that bad models, bad behavior, bad policies and bad incentives caused the financial crisis. In his effort to rethink finance, he examined each of these factors and then presented a Hippocratic Oath for financiers, with an emphasis on doing no harm. Practitioners of finance should avoid becoming “slaves to some defunct economist” to borrow Keynes’s phraseology. Far too frequently, ideas flow out of academia and are seized upon by those in pursuit of profit because they serve their own ends, rather than the ends of the client.


May 8, 2012
Folly of Attempting to Predict the Market
Snippet from Barron’s interview with Don Yacktman, who holds many of the same HI-quality stocks as we do:

Barrons.com: Is the stock-market ready for a correction? Sell in May?

Yacktman: We don’t try to predict that. That’s folly. We are looking at the macro picture, but it is best to focus on forward risk-adjusted returns at individual securities. We have learned that over and over again. We are looking at a company and taking into account the cash flows, reinvestment of those cash flows by management, and what kind of compounded rate of return one would earn by holding that stock for a long period of time -- like a bond. Nobody can predict the cash flows of a business, so one has to deal with probabilities of potential outcomes.


May 7, 2012

Warren Buffett Three Hour Interview

Here is a link to the transcript of the CNBC interview with Warren Buffett in which he echoed many of his comments from the annual meeting. Here is a tidbit:

While Buffett said  Europe will have a hard time resolving its fiscal problems because of the structure of the European Union,  the turmoil in Europe won’t keep him from investing. "I think the worst mistake you can make in stocks is to buy or sell based on current headlines," Buffett said


May 2, 2012

Margin of Safety
We agree with these tidbits from the folks at the Royce funds on how to build a margin of safety when making investments:

How do we attempt to build a margin of safety? In three very important ways: The first, and arguably most important step, is a detailed examination of a company’s balance sheet. We want to be sure that a company has sufficient financial flexibility to both survive challenging periods and to invest in strengthening its business when the opportunity arises. Second, we focus on finding high-quality companies where we can become comfortable with the long-term sustainability of the company’s success. High internal rates of return and the ability to generate free cash flow are key metrics in this analysis. Finally, we focus on what we pay. We have found that investment returns are primarily a function of entry price. Put simply, we like to buy what is out of favor with the crowd. Paying a discount to our estimate of intrinsic value is an important aspect of our investment approach, especially in an uncertain future.


March 31, 2012
On March 14, 2012, Charles Schwab & Co. Inc. gathered industry leaders and investment professionals in Baltimore for a day of discussions and perspectives on today's economic, investment and political climates. Below are some snippets and tidbits from the Investment Outlook 2012 forum. 

March 30, 2012
We agree with the Financial Times snippet below that boring is beautiful.  As we scan our portfolio of HI-quality companies, it is hard to find more boring products than nuts and bolts, bleach or SPAM, but Fastenal-FAST, Clorox-CLX and Hormel-HRL have provided Spamtastic results over the lost decade:

Why Boring Is Best
The genius of Buffett and Berkshire-BRKB was to be boring. Buffett has preached the virtues of dull but steady businesses for a generation, with his stake in Coca-Cola-KO fizzing even as the company plods along. This month it increased its annual dividend for the 50th year in a row.

This is likely to make little sense to investors brought up to think that an efficient market rewards those who take more risk. In fact, the market is full of anomalies, and Buffettâ€â„¢s success seems to come from exploiting one of the oddest of them: higher-risk companies produce lower returns for the amount of risk (volatility) taken.Andrea Frazzini of AQR, a quantitative fund manager, and Lasse Pedersen of AQR and New York University's Stern business school find that buying the safest, least flashy companies is a recipe for beating the market.

March 24, 2012
“Profiles of the World’s Best 30 CEO’s” includes  several of our high-quality companies. Here are snippets:

Warren Buffett, Berkshire Hathaway CEO since 1965
If Warren Buffett has his way, his giant conglomerate will be in such strong shape when he retires that even the caveman in its Geico ads could run it.  It should be quite the cave. Berkshire Hathaway has never been stronger, generating $11 billion a year in profits from Burlington Northern railroad, insurer Geico and more than 60 other businesses. Buffett last year paid $10 billion to bag Lubrizol, a chemical maker, and he’s eager for more big deals. Buffett, 81 , likes nothing more than to curl up with a good annual report. He read IBM’s annual for 50 years before sinking $11 billion into Big Blue in 2011. He’s now warning of "huge" risks in bonds. He’s also down on gold, calling it a static asset that merely "looks back at you." Buffett may be on the job for five more years. After he retires, investors will look back at him for decades to come.

Lew Frankfort, Coach CEO since 1995
Now that he’s established Coach as a global leader in "affordable luxury," Frankfort is drawing fresh strength from the company’s heritage as a modest purveyor of bags for American women. This summer he’ll roll out colorful, freshened-up versions of the leather duffles and shoulder bags that put Coach on the map in the ??s and ??s. "It fits in with some of the broader trends towards leather, towards authenticity, towards value," he says . Frankfort’s nose for fashion rarely fails him. Although Coach took a beating in the dark days of 2009, it has come roaring back with big pushes into men’s accessories and burgeoning China. Those wins have put Frankfort, 66, back on our list after a short absence -- and back in the hearts of investors. Earlier this month, Coach’s stock hit an all-time high of $79.

Marius Kloppers, BHP Billiton CEO since 2007
Kloppers, who sits atop the world’s largest mining concern, knows as much about doing business with China as anyone. His Australia-based company supplies some 20% of all the iron ore used by China for making steel for refrigerators, cars, office towers and more. Though Kloppers sees some weakness ahead for China, he’s in for the long haul and looks likely to be a huge winner. Kloppers also provides the world with coal, copper, potash and, increasingly, natural gas. Last year, BHP Billiton joined the U.S. gas-drilling boom, buying Petrohawk Energy and some assets of Chesapeake Energy. Such growth helped support a 20% dividend hike last year despite volatility in commodities. Kloppers, 49, grew up in South Africa, holds a doctoral degree in engineering and keeps trim with a vegetarian diet.

Rex Tillerson, ExxonMobile CEO since 2006
Tillerson presides over one of the best-managed giant companies in the world, one that is staggering in both its size and its complexity. Exxon produces the equivalent of 4.5 million barrels a day of oil and natural gas on six continents, to say nothing of its global refining and chemical businesses. While acknowledging a place for alternative fuels, Tillerson rightly argues that oil and gas likely will persist as mainstays of world energy consumption for decades to come. Exxon is spending $37 billion a year to develop those sources, and continues to get good results. It has replaced more than 100% of its annual production with new reserves for 18 straight years. Tillerson, 59, joined Exxon in 1975 and never looked back. A huge fan of the Boy Scouts -- and a former Eagle Scout himself -- he says the Scouts are "more relevant today than ever" because of the need to develop strong leaders.

Miles White, Abbott CEO since 1999
When White was a rising manager at Abbott Labs, he turned down a transfer to Japan because it would have impeded his wife’s plans to open a bookstore outside Chicago. Bad move, some colleagues told him. The family-friendly decision evidently didn’t hurt: White became CEO at just 43. Thanks to a series of shrewd acquisitions and successful product launches like Humira, a treatment for rheumatoid arthritis, and Xience, the top drug coated stent, Abbott has been a bright spot in the struggling pharmaceutical industry. Later this year, White will make his boldest move yet, splitting Abbott into separate medical-products and pharmaceutical companies. He should have plenty of time to make it all work: He’s still just 57.

Feb. 24, 2012
Snippets from Jeremy Grantham’s latest letter, “Investment Advice From Your Uncle Polonius:” For individual investors setting out on dangerous investment voyages, he offers the following advice:

  1. Believe in history.
  2. Neither a lender nor a borrower be.
  3. Don’t put all of your treasure in one boat.
  4. Be patient and focus on the long term.
  5. Recognize your advantages over the professionals.
  6. Try to contain natural optimism.
  7. But on rare occasions, try hard to be brave.
  8. Resist the crowd.
  9. In the end, it is quite simple.


Feb. 22, 2012
Low Valuations and Signs of Recovery
Are still not enough to entice investors back into the stock market, which may be a good contrarian sign. Snippet from Investment News:

Earnings in the S&P 500 have more than doubled to $96.58 since 2009 and are projected to reach a record $104.28 this year, more than 11,000 analyst estimates compiled by Bloomberg show. The earnings yield, or annual profits divided by price, climbed to 7.1 percent, 5.1 percentage points more than the rate on 10-year Treasuries. That’s wider than in 97 percent of months in 50 years of Bloomberg data. The spread was last this wide in the four months before the S&P 500 reached a 12-year low in March 2009, data compiled by Bloomberg show. The benchmark gauge for American equities has increased 101 percent since then, including an 8.2 percent increase in 2012, the best start to a year since 1997. Low valuations and signs of recovery have failed to lure individuals back to equities. Stocks are trading at a 14 percent discount to their average price-earnings ratio over the past five decades. The multiple has been stuck below the mean of 16.4 times earnings since May 2010, the longest stretch below the average since the 13 years beginning in 1973, data compiled by Bloomberg show.

Feb. 15, 2012
Fortune magazine included this transcript of Apple-AAPL CEO, Tim Cook’s, comments at a Goldman Sachs conference. Here is a snippet on the growth opportunities still ahead for Apple:

On the 37 million iPhones Apple sold in Q12012:

Yes, 37 million is a big number. It was a decent quarter. It was 17 million more than we’d ever done before. And so we were pretty happy with that. But let me give you a different--at least the way I look at the numbers, which is maybe a little differently than you do.

As I see it, that 37 million for last quarter, represented 24 quarter of the smartphone market. So there’s 3 out 4 people that bought something else. And it represented less than 9% of the handset market, so 9 out of 10 people are buying something else. The smartphone market last year was a half a billion units; in 2015, it’s projected to be a billion units. The handset market is projected to go from 1.5 to 2 billion units. And so when you take it in the context of these numbers, the truth is that this is a jaw-dropping industry. It has enormous opportunity to it, and so up against those, the numbers don’t seem so large anymore.

What seems large to me is the opportunity. So what we’re focusing on is the same thing we’ve always focused on, which is making the world’s best products. And we think if we stay laser-focused on that, and continue to develop to the ecosystem around the iPhone then we have a pretty good opportunity to take advantage of this enormous market.

Feb. 14, 2012
Can You Sum Up Your Investing Philosophy in 10 Words? 
These snippets are from an artticle by Jason Zweig in the Wall Street Journal:

Zweig asked some leading investors and financial thinkers for their investing philosophy in 10 words after penning his own: Anything is possible, and the unexpected is inevitable. Proceed accordingly.

{I’ll insert mine: Buy HI-quality companies at reasonable valuations for the long term}

Here are a few more:

Determine value. Then buy low, sell high. ;-)

—David Herro, chief investment officer for international equities, Harris Associates, and manager of Oakmark International Fund

If everybody wants it, I don’t. Avoid crowds.

—Gus Sauter, chief investment officer, the Vanguard Group

Invest for the long term and ignore interim aggravation.

– Charles D. Ellis, director, Greenwich Associates, and author, "Winning the Loser’s Game"

Plan for the worst. Hope for the best.

—Robert Rodriguez, managing partner, First Pacific Advisors

Own competently managed, competitively advantaged businesses at discounted prices.

—O. Mason Hawkins, chairman and chief executive officer, Southeastern Asset Management

Do the math. Expect catastrophes. Whatever happens, stay the course.

– William J. Bernstein, Efficient Frontier Advisors, and author, "The Four Pillars of Investing"

Fallible, emotional people determine price; cold, hard cash determines value.

—Christopher C. Davis, chairman, Davis Advisors and co-manager, Davis New York Venture Fund

Save. Invest long-term. Compounding returns builds. Compounding costs destroys.Courage!

–John C. Bogle, founder, the Vanguard Group

Finally, it’s worth remembering that the great investing analyst Benjamin Graham engaged in a similar exercise (also evoking Lincoln’s tale) but came in seven words under our maximum:

In the old legend the wise men finally boiled down the history of mortal affairs into the single phrase, `This too will pass." Confronted with a like challenge to distill the secret of sound investment into three words, we venture the

—Benjamin Graham, "The Intelligent Investor," Chapter 20.


Feb. 13, 2012
Many HI-quality companies score well in a brand reputation survey. Tidbit from Reuters:

In a corporate brand reputation survey of 12,961 people online in December, respondents evaluated companies on six qualities: leadership, financial performance, workplace environment, social responsibility, emotional appeal and the quality of products and services. Apple-AAPL and Google-GOOG have emerged as top American brands. Harris, which has been tracking brand reputation since 1999, has found that tech companies have been consistently associated with strong vision, innovation and leadership over the past five years. Coca-Cola Co-KO, Amazon.com and Kraft Foods rounded out the top five slots in the survey.  Walt Disney Co, Johnson & Johnson-JNJ, Whole Foods Market, Microsoft-MSFT and United Parcel Service-UPS  filled out the 2012 top 10.


Feb. 9, 2012
In this Fortune excerpt from Berkshire Hathaway’s upcoming annual report, Warren Buffett, chairman of Berkshire Hathaway-BRKB, explains why stocks beat gold and bonds. Here are a few snippets:

Investments that are denominated in a given currency include money-market funds, bonds, mortgages, bank deposits, and other instruments. Most of these currency-based investments are thought of as "safe." In truth they are among the most dangerous of assets. High interest rates, of course, can compensate purchasers for the inflation risk they face with currency-based investments -- and indeed, rates in the early 1980s did that job nicely. Current rates, however, do not come close to offsetting the purchasing-power risk that investors assume. Right now bonds should come with a warning label.

Today the world’s gold stock is about 170,000 metric tons. If all of this gold were melded together, it would form a cube of about 68 feet per side. (Picture it fitting comfortably within a baseball infield.) At $1,750 per ounce -- gold’s price as I write this -- its value would be about $9.6 trillion. Call this cube pile A. Let’s now create a pile B costing an equal amount. For that, we could buy all U.S. cropland (400 million acres with output of about $200 billion annually), plus 16 Exxon Mobils (the world’s most profitable company, one earning more than $40 billion annually). After these purchases, we would have about $1 trillion left over for walking-around money (no sense feeling strapped after this buying binge). Can you imagine an investor with $9.6 trillion selecting pile A over pile B?

Our first two categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard "cash is king" in late 2008, just when cash should have been deployed rather than held. Similarly, we heard "cash is trash" in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort.

My own preference -- and you knew this was coming -- is our third category: investment in productive assets, whether businesses, farms, or real estate. Ideally, these assets should have the ability in inflationary times to deliver output that will retain its purchasing-power value while requiring a minimum of new capital investment. Farms, real estate, and many businesses such as Coca-Cola (KO), IBM (IBM), and our own See’s Candy meet that double-barreled test. Certain other companies -- think of our regulated utilities, for example -- fail it because inflation places heavy capital requirements on them. To earn more, their owners must invest more. Even so, these investments will remain superior to nonproductive or currency-based assets.

Our country’s businesses will continue to efficiently deliver goods and services wanted by our citizens. Metaphorically, these commercial "cows" will live for centuries and give ever greater quantities of "milk" to boot. Their value will be determined not by the medium of exchange but rather by their capacity to deliver milk. Proceeds from the sale of the milk will compound for the owners of the cows, just as they did during the 20th century when the Dow increased from 66 to 11,497 (and paid loads of dividends as well).

Berkshire’s goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety -- but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we’ve examined. More important, it will be by far the safest.


Separately, Warren Buffett was interviewed as part of CBS’s new show, "Person to Person." Here’s a tibit from the show with the link to the transcript of the full interview below:

LARA LOGAN: There’s no computer that we can see on your desk. Is there, does that really mean you have no computer in your office at all?

WARREN BUFFETT: Not in my office. I’m working on the abacus now. And if I get that mastered we’ll go to the multiplication tables.

CHARLIE ROSE: There’s hope for you yet. ...The phone seems to be the principle instrument there.

WARREN BUFFETT: Yeah. It’s - it - it -- it is the principle instrument, that, and -- and the pile of reading material ... it’s just a question of kind of gathering facts, which come in mostly via print, and then thinking about ’em. And if -- if I can make one good decision a year, you know, we’ll do OK.

CHARLIE ROSE: Well, take the IBM investment which you recently made. I mean it is said...you were reading the annual report, and you saw opportunity there to invest in a company because you saw potential.

WARREN BUFFETT: Yeah. Charlie, I’d been reading IBM’s annual report, literally, every year for 50 years. And then this year...I saw something that sort a clicked in terms of adding to my-- feeling of confidence. And -- so we spent $10-plus billion.

LARA LOGAN: What would you say most investors do wrong?

WARREN BUFFETT: Well, they-- they-- think that what is important is next quarter’s earnings. And they think they have to trade around, and they have to read news events and change their opinion ...And if people would...adopt the philosophy that they’re buying something to hold for the rest of their life. ...they can’t go wrong doing that.


Hendershot Investments in The News

Charles de Vaulx, May 2011 CFA Washington Seminar Notes 

Bogle/Davis 2010 CFA Conference Notes

Hank Paulson Schwab IMPACT 2010 Conference Notes 

Jan. 30, 2012
Corporate America continues to build up record levels of cash. Tibit from Reuters:

Apple’s-AAPL blowout quarter increased its cash holdings to almost $100 billion, a staggering hoard that casts a spotlight on what may prove a big catalyst for the U.S. equity market in coming years. U.S. corporations are sitting on record levels of cash - nearly $1 trillion for companies in the Standard & Poor’s 500 index - but with the exception of high dividend-paying stocks this past quarter, that cash pile has done little to boost share prices. Investors often shun companies with excess cash as they fear management will negotiate expensive or ill-advised acquisitions, or buy back shares when the stock is far from cheap. But that notion may be short-lived. In coming years, a pile of cash is going to be a distinct advantage in what is likely to be a conservative borrowing environment. Those cash-rich companies are the best placed to outperform the market.  Cash as a percentage of the S&P’s market value is now at 11.48 percent, just shy of a record high reached in 2010. The $998.6 billion that the S&P 500 companies hold is up 63 percent from five years ago, and nearly double the $342.3 billion in cash they held a decade ago.

Jan. 28, 2012
After a "lost decade" for the stock market, Warren Buffett, CEO of Berkshire Hathaway-BRKB,  has a bullish projection for stocks he is buying ;-) Tidbit from the Wall Street Journal:

Now consider the projected overall return of 7.1% at Berkshire Hathaway’s pension plan, which is overseen by Mr. Buffett. The Berkshire plan has about 30% of its money in bonds. When I estimated this week that Mr. Buffett projects a return of 8% to 9% for the stocks in Berkshire’s pension plan, he replied through a spokeswoman: "You are on the right track."


Jan. 3, 2012
Happy New Year! Tidbits from the Wall Street Journal on Berkshire Hathaway’s new investment managers, Ted Weschler and Todd Combs:

Even a cursory look at Mr. Weschler’s investments reveals his idol’s influence. Mr. Weschler, much as Mr. Buffett did, focuses on a small set of companies. He holds stocks for years at a time. And like Mr. Buffett, he has experience snapping up whole, privately held companies. In November, Mr. Buffett responded to a question from a student about his new hires by saying he picked investment managers he is "certain will do well" and have "outstanding character." He said he looked not only for managers who have performed well, but also for "people who only want to work at Berkshire, and not change jobs." "We have two people who are extraordinary investors and extraordinary human beings, and that’s a rare combination," he said of Messrs. Weschler and Combs. "I’m not going to be around forever, though I am going to try." Reached by telephone this week, Mr. Buffett said, "Normally, after you marry somebody, about a month later you realize you’ve learned things you didn’t expect. But everything I’ve seen so far about both [Mr. Weschler and Mr. Combs] makes me feel even more comfortable than before." 

Dec. 6, 2011
These snippets from the McKinsey Quarterly’s “Inside P&G’s Digital Revolution,” provide insights into Procter & Gamble-PG’s operations and leadership.

Robert McDonald is a CEO on a mission: to make Procter & Gamble-PG  the most technologically enabled business in the world. To get there, the 31-year company veteran and former US Army captain is overseeing the large-scale application of digital technology and advanced analytics across every aspect of P&G’s operations and activities—from the way the consumer goods giant creates molecules in its R&D labs to how it maintains relationships with retailers, manufactures products, builds brands, and interacts with customers. The prize: better innovation, higher productivity, lower costs, and the promise of faster growth.

Senior executives can benefit from codifying their beliefs and sharing them with colleagues, says ?P&G CEO Robert McDonald. In his document titled “What I believe in,” which he shares with managers at P&G and elsewhere, McDonald explains the ten principles that make up the values-based leadership model he says influences him most:

  • Living a life driven by purpose is more meaningful and rewarding than meandering through life without direction.
  • Companies must do well to do good and must do good to do well.
  • Everyone wants to succeed, and success is contagious.
  • Putting people in the right jobs is one of the most important jobs of the leader.
  • Character is the most important trait of a leader.
  • Diverse groups of people are more innovative than homogeneous groups.
  • Ineffective systems and cultures are bigger barriers to achievement than the talents of people.
  • There will be some people in the organization who will not make it on the journey.
  • Organizations must renew themselves.
  • The true test of leaders is the performance of the organization when they are absent or after they depart.


Dec. 5, 2011
Tidbit from "Five Reasons to Buy Equities" by Milton Ezrati of Lord Abbett

Amid all the risks today, and given the spotty history of stocks during the last 10 years or so, it is easy to understand why both retail and institutional investors continue to avoid the U.S. equity market. But understandable as their reluctance is, there are at least five good reasons to consider equities now: 1) There is good value. 2) There will be no double-dip recession. 3) Europe should survive. 4) Washington will not implode. 5) Nobody is buying equities.


Nov. 18, 2011
Snippets from “Behavioral Finance (Why Watching CNBC Won’t Make You Rich)" by David Edwards:

Investors withdrew $6.8 billion from US stock funds in September, $15.5 billion in August and $22.9 billion in July.  Makes sense, right?  Q3 was the worst quarter for US stocks since the 2008-9 financial crisis.  Investors withdrew another $18.2 billion in October, which was the best single month for US stocks in 25 years with a gain of 10.9% in the S&P 500.  YTD, US investors sold $53.5 billion of US funds, continuing a pattern of net annual redemptions that has prevailed since 2008. Warren Buffett, meanwhile, invested $23.9 billion (including $7 billion in stock purchases) in US markets in Q3 – his fastest pace of investment in 15 years.  As of March 2011, Buffett was worth about $50 billion, so who do you think is making the correct assessment of the investing climate?

We believe that the current confluence of strong and rising earnings, low stock price valuations and exceptionally low interest rates presents one of the best stock buying opportunities in 50 years.  We also believe that most Americans will not take advantage of that opportunity because most invest with their hearts, not with their heads, and right now their hearts are filled with fear! 

Warren Buffett buying large when others sell is a classic example of contrarian investing, defined as “an investment style that goes against prevailing market trends by buying assets that are performing poorly and then selling when they perform well.”  Humans, alas, are herd animals who become distressed when acting contrary to the group.  Watch this old Candid Camera prank http://youtu.be/fQI8pZJiMe0 to observe an individual’s distress from simply facing the wrong way in an elevator.  Now think about the distress you feel when your investment advisor maintains or even adds to your stock allocations, when clearly “a depression is eminent.” 


Tidbit from the latest Tweedy Browne letter, which is always a great read, and also includes a nice analysis on  Johnson & Johnson-JNJ:

We recently had the privilege to attend Walter Schloss’ 95th birthday party. Walter, as many of you know, worked alongside Benjamin Graham in the 1950s and is a great friend of Warren Buffett. He became a legendary investor in his own right, running his own partnership for nearly fifty years. In an evening full of toasts and accolades for Walter, perhaps Sandy Gottesman, another great investor and Berkshire billionaire,
said it best when he toasted Walter for the trait he felt he did not have, and the trait Sandy felt made Walter a great investor, his optimism. To a certain degree, value investors, while ever skeptical even in times of crisis, generally believe the world is not coming to an end. Warren Buffett tries  to remind us of this frequently during times of stress. Walter, if he were still managing his partnership today, would be leaning against the
wind and opportunistically buying stocks. We will be leaning as well in the weeks and months ahead.


Nov. 14, 2011
(Snippets from Bloomberg):

U.S. companies are buying back the most stock in four years, taking advantage of record-high cash levels and low interest rates to purchase equities at valuations 15 percent cheaper than when the credit crisis began. Corporations have authorized more than $453 billion in repurchases this year, putting 2011 on track for the third- highest annual total behind 2006 and 2007, data compiled by Birinyi Associates Inc. show.
S&P 500 companies are producing more free cash flow, or money available for buybacks, dividends or takeovers after capital expenditures, than they were when repurchases were last this high in 2007. The group generated $104.67 a share in the 12 months ended Sept. 30, according to Bloomberg data. That’s 3.3 times more than the comparable period in 2007, when a total of $862.9 billion in announcements were made, Birinyi data show. Valuations are also lower than they were four years ago. The S&P 500 has traded for an average of 14.3 times reported earnings in 2011, 15 percent lower than the same period in 2007. “The U.S. is still in a very good position,” Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.5 trillion of client assets, said in a Nov. 9 telephone interview. “Remember that companies still have huge volumes of cash on their balance sheets. Although we don’t believe we’ll see robust growth in the near future, the economy is improving. Valuations are attractive.”


Oct. 28, 2011
Tidbits from the Suntimes on a recent interview with Warren Buffett, chairman of Berkshire Hathaway:

Warren Buffett is bullish on America — and bullish on the stock market. And he’s putting his money where his mouth is — buying stocks and companies! Blending folksy commentary with economic wisdom, one of America’s richest citizens said he didn’t mind having a tax-increase proposal named after him. "That’s been my childhood dream," he said, getting a laugh. He went on to explain that to reduce our federal budget deficit, some promises for Social Security and Medicare will have to be diminished. And he believes in "shared sacrifice" to create opportunities for all. Buffett was adamant that America would continue to grow, noting that "there have always been tough times," but America has always continued to move forward. "We have not exhausted our potential," he said.

Buffett was not shy about expressing his views on:

  • The stock market: The market will be much higher 10 years from now, he said, but he can’t tell where it will be 10 months from now.
  • The dollar: It will be a worth a lot less 10 years from now — a good reason to buy stocks!
  • Time to invest? His company, Berkshire Hathaway, just spent $9 billion last month to buy Lubrizol Corp. and $7 billion on other investments and capital improvements. "We continue to buy," he said.
  • The housing market: "A lot of people paid too much for their houses!" he said.When you build 2 million houses a year and there are only 1 million new households being formed to live in them, you have an oversupply and prices drop. Buffett said he supports a plan to refinance underwater mortgages for those who have continued to pay on time.
  • Jobs: The 260,000 Berkshire employees do not wake up worrying about their job security or worrying about making their mortgage payments. Jobs will come back.
  • Our children: Parenting is the most important job anyone has. We need to improve our public school system to create equal opportunities, he said.
  • China: They finally found a market system that allows them to unleash their potential. . . . Growth is not a zero-sum game. . . . Their growth will benefit us.
  • Greek debt: The banks holding Greek bonds accept a 50 percent haircut on the value, but will others accept that cut in value? He’s not sure the European debt crisis is solved.

There is no doubting Buffett’s sincerity and optimism — two characteristics that have helped make him America’s most successful long-term investor.


Morningstar’s Jason Stipp recently interviewed Chuck McQuaid, manager of the Columbia Acorn Fund, to learn how the fund’s investment philosophy has helped Chuck manage through the recent stock  market volatility.

Jason Stipp: I want to talk to you about the market environment. We’ve seen some volatility, quite a bit of volatility in August and over the last few weeks. I wanted to ask you, if you believe the market on a day-to-day basis, these values of these companies could be moving up [or down] 1% and 2% as these new bits of information come in. But the way that you are looking at your companies, has anything that you’ve seen over the summer or over these periods of volatility caused you to rethink those fundamental valuations, or is it just a matter of a lot of noise and a very jittery market right now that’s creating ups and downs that perhaps aren’t meaningful to the longer term?

Chuck McQuaid: Well, in general we think that there is a lot of noise out there. Now, clearly there are lot of risk factors in the headlines, but everybody knows about them already. We are looking at long-term fundamentals. We are trying to ignore a lot of the talking heads on television that are causing a lot of alarm, so it’s company-by-company and theme-by-theme that we are investing in, and sometimes if some stock prices move enough in one direction or another to point where we call it an anomaly, we would be going against the crowd and buying something that people are all worried about, and we think unnecessarily worried, and would be selling things that we think a lot of people are too bullish on.

Five Exceptional Dividend Growth Stocks, by Chuck Carnevale For many people these are troubled times where fears about our economy and the stock market are at a heightened state.  Stock price volatility is higher than we’ve ever seen it, which only adds to investor nervousness.  Therefore, we searched for a safe place for conservative investors to invest.  Our due diligence identified five dividend growth stocks that possess stringent quality characteristics, while at the same time have produced strong above-average historical total returns.  But more importantly, each candidate had to have future consensus earnings estimated growth rates greater than the S&P 500.

[The five companies featured in the article included our HI-quality companies: TJX, Wal-Mart, Walgreen, General Dynamics and Becton Dickinson.]

One of the primary objectives of this article was to illustrate that above-average returns were capable of being achieved without sacrificing either quality or safety.  In this same vein, the companies highlighted in this article have proven to be much less volatile than the average company as represented by the S&P 500, while simultaneously producing significantly greater long-term returns.  In other words, as conservative as these companies are relative to stocks of companies in general, they were still capable of racking up superior long-term returns. 

With Buffett looking for the next Buffett in his recent hires, this article by J.J. Abodeely, CFA, CAIA appears timely. Here are a few snippets ;-)

I recently came across a Fortune Magazine article from 1989 titled "Are These The New Warren Buffetts?" The article attempted to identify which of the then-current cadre of young money managers might “go on to investing fame and their clients to fortunes.” Of the 12 managers highlighted in the article, 10 were in their 30s, and most only had independent track records of one to five years. Despite this, though, the article attempts to identify what makes a great money manager capable of delivering superior returns. The article provides an ex-ante assessment of what most investors only analyze ex-post. Now that we have 22 years of history from which to judge these managers, we can evaluate the effort.

The Fortune article cites Warren Buffett, who prioritizes “high-grade ethics. The investment manager must put the client first in everything he does.” He said he wants to know that a manager handles his mother’s money as well as his clients’. Intelligence is important, but the proper temperament is essential: “Rationality is essential when others are making decisions based on short-term greed or fear,” Buffett said. “That is when the money is made.”

While the article follows managers who invest across a variety of asset classes -both long and short — and utilize a variety of strategies, the common thread is a value discipline in the spirit of Buffett’s mentor Benjamin Graham. They all use fundamental analysis, among other things, to find mispriced securities that offer a margin of safety.

Importantly, they all seek to minimize the true risk of investing—a permanent loss of capital. The list of 12 managers is astounding, in that it presciently identifies many of the most prominent and successful managers of the last two decades: Michael Price, Jim Chanos, Karen and Jim Cramer, Glenn Greenberg and John Shapiro, Eddie Lampert, Richard Perry and Seth Klarman. The others on the list, including Randy Updyke and Thomas Sweeney, seem to have chosen a quieter path or retired early. The fact that so many of these managers have, in fact, “gone on to investing fame and their clients to fortunes” speaks volumes about the ability of investors to identify great managers.



Jason Zweig penned a good WSJ article on macro investing, including one of our favorite Buffett quotes ;-)

So how should investors respond in a world where macro events seem more common—and threatening—than in the past?

First, put the fears in perspective, taking a cue from the great investor Warren Buffett.

"We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen," wrote Mr. Buffett in his 1994 letter to shareholders of Berkshire Hathaway Inc. "Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points or Treasury bill yields fluctuating between 2.8% and 17.4%."

Added Mr. Buffett: "We have usually made our best purchases when apprehensions about some macro event were at a peak.…A different set of major shocks is sure to occur in the next 30 years. We will neither try to predict these nor to profit from them. If we can identify businesses similar to those we have purchased in the past, external surprises will have little effect on our long-term results."



Ok,maybe not quite bullish...but certainly more upbeat than most ;-) Tibit from interview in WSJ:

Over the next decade, Mr. Bogle said stocks are likely to generate an average annual return, including dividends, of around 7%. "Your money will double in 10 years," he said. "How bad is that? People ought to get over the illusion [of higher expectations] and realize that they may have to invest for longer time periods, start earlier and save more."



Mr. Market sure looks silly in high heels and a bikini ;-) Snippet from Robert Shiller in NY Times:

"We see such dismay among stock market investors today. People are trying to guess whether other investors are thinking that yet others are thinking that the stock market is "dangerous," or whether it is instead a great time to invest. And investors are making that decision with little more information than the "Girl of To-Day" judges had."

"When you hear a conversation among professional investors — including those who manage money for big institutions like university endowments and pension funds — it often sounds as if they are engaged in just this kind of guesswork. You wonder how many people are actually basing their decisions on what is taught in business school: calculating an optimal portfolio based on a rational statistical analysis of fundamental economic data. If you believe in efficient markets, you have to conclude that some other investors are doing those calculations today, because they don’t seem the main activity of the people I’m hearing."

In fact, the best explanation for the market’s back-and-forth swings is that each day we are conducting a Keynesian beauty contest, and reassessing what others think that still others are thinking. On days without much news, the market is simply reacting to itself. And because anxiety is running high, investors make quick, sometimes impulsive, responses to relatively minor events.



Howard Marks hits the mark when detailing what’s behind the market downturn ;-)