Value Quest: November 2007

2007-11-22

Mark Sellers's FT Inside Curve Column

Mark Sellers's articles on FT Inside Curve Column :

2007-12-15, Rational investors should rejoice
2007-11-16, Investors, cast off your bonds
2007-09-21, Dodge the sharks and keep yourself afloat
2007-08-24, Irrational world of institutionalised money managers
2007-08-03, Tend to overanalyse stocks? Bring out the dart-wielding monkey
2007-06-29, Optionalities add up to buying opportunity
2007-06-01, Wide-moat companies with hidden assets
2007-05-04, Buffett never makes a bet with sucker odds
2007-03-23, The stock market is a weighing machine in the long run
2007-02-23, Focus on the downside and the upside will take care of itself
2007-01-26, Be contrarian, beat the market
2006-12-08, Exploration of management talent is crucial to success
2006-11-10, For now, stocks are your best option
2006-10-13, Many reasons to like this quality spin-off
2006-09-08, Home Depot needs to launch share buy-back
2006-08-11, Why greatness can beat expectations
2006-07-07, Think big and sell the small caps short
2006-06-02, Wide moats about to come full circle
2006-04-07, Performers that don't look so short in real life
2006-03-13, No time to ease up on the natural gas business

Mark Sellers: Investors, cast off your bonds

Mark Sellers's latest article on FT's Inside Curve column.

After a brutal three-year bear market to begin the 21st century, US stock markets have done well for four consecutive years. Despite this fact, stocks (especially large-caps) remain a great buy.

Direct Link - Investors, cast off your bonds.

David Einhorn's Speech Excerpt on 2006 Ira W. Sohn Investment Research Conference

David Einhorn's Speech Excerpt on 2006 Ira W. Sohn Investment Research Conference.

Direct Link - David Einhorn's Speech Excerpt.

Francis Chou's Speech at The Ben Graham Centre - 8/1/07

This is Francis Chou's Speech to Value Investing Classes on August 1, 2007. His approach is to “find bargains and maintain discipline; if you can not find bargains stay in cash”.

Video Link - Francis Chou's Speech at The Ben Graham Centre - 8/1/07.

Digging for Value in the Real Estate Rubble by Zeke Ashton

There is a terrific piece by Centaur Capital's Zeke Ashton on finding value in the sub-prime rubble that you can read right now! Zeke Ashton is the managing partner of Centaur Capital Partners, a Dallas area investment advisor that specializes in value-based strategies.

Direct Link - Digging for Value in the Real Estate Rubble.

David Dreman on WealthTrack

What more can the Federal Reserve do to limit the economic damage from subprime related bombshells? We'll ask PIMCO's Fed watcher and bond maven Paul McCulley. Plus find out where BlackRock's global investment star, Dennis Stattman is putting his money, and why value investing legend David Dreman believes some beaten down financials are becoming bargains.

Here is video link and transcript. (Only available for 2 weeks)
Or you can download the video (MP4 Format) here (Right Click and Save as..).

2007-11-16

Warren Buffett's Statement to Congress on Estate Taxes

Video clip and transcript of Warren Buffett's opening statement before the Senate Finance Committee holding a hearing on estate taxes.

Graham and Doddsville Newsletter - Interview with David Winters, Richard Pzena

Graham and Doddsville Newsletter is an investment newsletter from the students of Columbia Business School.

First Eagle Funds Update Call featuring Jean-Marie Eveillard

First Eagle Funds Update Call featuring Jean-Marie Eveillard.

Mark Sellers's Speech to Harvard MBA students - "So you want to be the next Warren Buffett? How's your writing?"

Here is Mark Sellers's speech to Harvard MBA students - "So you want to be the next Warren Buffett? How's your writing?"

7 traits of great investors

Trait #1 - The ability to buy stocks while others are panicking and sell stocks while others are euphoric.
Trait #2 - A great investor is that he is obsessive about playing the game and wanting to win.
Trait #3 - The willingness to learn from past mistakes.
Trait #4 - An inherent sense of risk based on common sense.
Trait #5 - Great investors have confidence in their own convictions and stick with them, even when facing criticism.
Trait #6 - It's important to have both sides of your brain working, not just the left side (the side that's good at math and organization.)
Trait #7 - The most important, and rarest, trait of all: The ability to live through volatility without changing your investment thought process.

4 sources of "hard to duplicate" economic moats

Economies of scale and scope.

ex : Wal-Mart, Procter & Gamble or Home Depot and Lowe's.

Network affect

ex : eBay or Mastercard or Visa or American Express

Intellectual property rights

such as patents, trademarks, regulatory approvals, or customer goodwill
ex : Disney, Nike, or Genentech

High customer switching costs

ex : Paychex and Microsoft

Direct Link - "So you want to be the next Warren Buffett? How's your writing?" (PDF, Speech Transcript)

Investment Nuggets From Charlie Munger

Valuable investment insights from Charlie Munger :

To avoid envy from other, you should deserve your success.
Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts… Slug it out one inch at a time, day by day, at the end of the day — if you live long enough — most people get what they deserve.
Never wrestle with a pig, for if you do, you will both get dirty, but the pig will enjoy it.
The ethos of not fooling yourself is one of the best you could possibly have. It’s powerful because it’s so rare.
The number one idea is to view a stock as an ownership of the business (and) to judge the staying quality of the business in terms of its competitive advantage. Look for more value in terms of discounted future cash flow than you’re paying for. Move only when you have an advantage. It’s very basic. You have to understand the odds and have the discipline to bet only when the odds are in your favor.
A single stock can make up 50 per cent of the value of the entire portfolio. Holding a concentrated number of stocks, that you know extremely well, will in the long term produce superior returns.
The mental habit of thinking backward forces objectivity. One of the ways you think a thing through backward is you take your initial assumption and say, Let’s try and disprove it. For example, if you were hired by the World Bank to help India, it would be very helpful to determine the three best ways to increase man-years of misery in India — and, then, turn around and avoid those ways. So think it backward as well as forward. It’s a trick that works in algebra and it’s a trick that works in life. If you don’t, you’ll never be a really good thinker.
Rationality is not just something you do so that you can make more money, it is a binding principle. Rationality is a really good idea. You must avoid the nonsense that is conventional in one’s own time. It requires developing systems of thought that improve your batting average over time.
The idea of caring that someone is making money faster (than you are) is one of the deadly sins. Envy is a really stupid sin because it’s the only one you could never possibly have any fun at. There’s a lot of pain and no fun. Why would you want to get on that trolley?

Direct Link - Investment Nuggets.

Whitney Tilson: Nothing to fear on the wild ride

Whitney Tilson's latest article on FT's Inside Curve column.

Panic and fear create buying opportunities; euphoria and complacency deliver great opportunities to sell.
Taking a proverbial deep breath before responding to short-term market moves goes a long way to avoiding panic-induced mistakes.
Also important are regular disciplines or checklists to follow in making any buy or sell decision.

Direct Link - Nothing to fear on the wild ride.

Whitney Tilson on Citigroup

Whitney Tilson's recent video clips :

Whitney Tilson on Citigroup, Fox Business News, 11/5/07

Whitney Tilson talks about Citigroup and their CEO replacement, Robert Rubin.

2007-11-05

Legg Mason Value Trust Releases 2007 Q3 Letter to Shareholders

Bill Miller Legg Mason Value Trust's Releases 2007 Q3 Letter to Shareholders :

The stock market can close down for a while and it really doesn't matter all that much. The primary function of the stock market is not to finance company operations, it is to price assets. Companies go public once, and most come to the equity market for capital sporadically, and then typically to finance long-lived projects or acquisitions.

Credit markets are different. They are the source of liquidity to fund operations. If they are not functioning, the economy is threatened. That is why the problems that began in US subprime but which have spread to encompass a wide swath of the mortgage market, as well as the commercial paper market, are so serious and have galvanized central banks and government financial authorities to move swiftly to try to restore those markets to normalcy.
...
We will likely reduce the weightings of many of our top 10 holdings. They will still be among our largest holdings, we will just have less of them. This is being done to reduce risk in the over-all portfolio, and to fund some of the new names we are buying.

This is the first time since 1990 we have had two calendar years behind the S&P 500. Perhaps not surprisingly, that was also a time of panic due to a housing market recession, soaring oil prices, banks and financials collapsing. We were able to take advantage of the values then offered to begin a pretty good period of excess returns.

While the past may not repeat itself, it does often rhyme, as Mark Twain once said. The chapters to come may be different, but the verses are likely to sound the same.

Whitney Tilson's recent video clips

Whitney Tilson's recent video clips :

Whitney Tilson on Fox Business Network, 11/2/07

Whitney Tilson on the credit crunch and Berkshire Hathaway.

Whitney Tilson on Buffett and his trip to Asia, 10/29/07

Whitney Tilson on Warren Buffett and his trip to Asia.

Whitney Tilson on Fox Business Network, 10/25/07

Whitney Tilson on Fox Business Network, answering "what is value investing?", bearish on housing, how to build a position.

Weitz Fund 2007 Semi-Annual Portfolio Manager Letter

Wally Weitz Weitz Fund released their 2007 Semi-Annual Report.

Over the years, our investors have gotten used to seeing our Funds zig while the market zagged. We write regularly, and with conviction, about our willingness to be "out of step" with the market. In the 3rd quarter of calendar 2007, we outdid ourselves.
Errors of omission. Energy, industrials and commodities bound for China attracted lots of investor capital. The stocks did not meet our investment criteria and they went up without us;
Errors of commission. Countrywide Financial was more vulnerable to a liquidity crisis than we had realized and it declined sharply;
"Good ideas that have not worked yet." Many of our businesses met or exceeded our expectations but their stocks lagged due to investor apathy or short-term concerns that we do not share;
Looking ahead, there are lots of things to worry about (there always are), but we feel very good about the prospects for the businesses we own and their stock prices.

Direct Link - Weitz Fund 2007 Semi-Annual Portfolio Manager Letter or Full Semi-Annual Report (PDF) .

Tom Russo on WealthTrack

Tom Russo Thomas Russo, of Gardner Russo & Gardner, talked on WealthTrack.

Taxes can take a big bite out of investment returns. We look for ways to turn the pain into gain with Vanguard tax specialist, Joel Dickson, plus we strategize with noted global value investor, Tom Russo and Morgan Stanley’s asset allocation guru David Darst.

Here is video link and transcript. (Only available for 2 weeks)
Or you can download the video (MP4 Format) here (Right Click and Save as..).

Ron Muhlenkamp's 2007 Q4 Quarterly Letter

Ron Muhlenkamp's review of events that impacted the markets during the past quarter.

The U.S. economy and the capital markets continue to work their way through the transition period which we’ve been discussing for nearly two years. We continue to believe that the economy will experience a “soft landing,” not a recession. Our mistake has been to believe that the markets would have a soft landing as well. That has been true for some industries but not for housing and financials, of which we’ve owned too much.
...
Bottom line: This transition has taken longer than we expected, but the pattern is familiar. We find it interesting that market participants alternate between despair and euphoria while the economy marches on and major market averages near all-time highs. We believe it’s a good time to put money to work.

Direct Link - Ron Muhlenkamp's 2007 Q4 Quarterly Letter.

Michael Mauboussin : Anatomy Of A Market Crash

Michael Mauboussin's article about market crash.

History shows crashes periodically arise from the market's inner workings. And crashes are not random--they tend to follow a distinct pattern, even if the assets or actors differ. However, psychology shows it is hard for investors to take advantage of the opportunities market crashes present. Awareness of these patterns and psychological pitfalls are the first step to succeeding in difficult markets.

Direct Link - Anatomy Of A Market Crash.

2007-11-04

NBC's Tom Brokaw Interview with Warren Buffett

The Tom Brokaw piece on NBC Nightly News Monday night highlighting Warren Buffett's call for a higher tax rate on very wealthy Americans includes an excerpt from a sit-down interview with Buffett.