Warren Buffett Blog

 

This blog is being launched on the occasion of Warren Buffett’s 80th Birthday (August 30, 2010). It will primarily provide analyses of Berkshire Hathaway’s investments, news releases, and statements made by Warren Buffett. The intent is to expand upon major news items relating to Warren Buffett and Berkshire Hathaway. I hope that the material provided here will be useful to value investors and others who wish to learn from Warren Buffett.

I have been closely following Warren Buffett’s investment philosophy for 25 years and regularly incorporate this material in my finance classes at the University of Maryland (Robert H. Smith School of Business). I have accompanied University of Maryland students on a trip to Omaha for a private Q&A session with Warren Buffett and regularly attend Berkshire Hathaway annual meetings.

 Posted by at 4:33 pm

  22 Responses to “Warren Buffett Blog”

  1. I have a web site where I research stocks under five dollars. I am a astute value investor. I do not believe that warren buffett is the value investor he was years ago if he was he most certainly would have caught the spectacular comeback of ford motor. the stock was trading at just 1 dollar a share two years ago the shares trade at 16 dollars today and the company is well on its way to becoming the leading world automobile company. another example is apple computer the shares traded at just 5 dollars in 1998 today they trade at 340 dollars. he did not see this one either their are numerous other examples.

    • Warren Buffett makes relatively few new investments each year. His purchases of Goldman Sachs 10% Preferred Stock along with warrants convertible at $115 per share, and a similar purchase of Preferred Stock and warrants of General Electric, were relatively low risk investments that have worked out well and were made at the peak of the financial crisis.

  2. I have a web site where I research stocks under five dollars. I have many years of experience with these type of stocks. I find that the best measurement of how undervalued a stock is is the price to sales ratio of a companies stock. the price to sales ratio is the market cap of a companies stock compared to the amount of sales the company does on an annual bases.a good example of a company with a low price to sales ratio is carrols restaurant group the company has a market cap of just 160 million dollars but does over 800 million dollars in annual sales the company is solidly profitable. in other words the price that the market is valuing the company at is 160 million dollars this is only one fifth of what the company does in annual sales 800+ million dollars. the stock currently trades at around 7.25 cents a share under the symbol {TAST} I think the stock could get to 40.00 dollars a share over the next five years. I base this on the current net profit margin of around 1.75% or 14 million dollars on sales of 800 hundred million dollars. if the companies sales were to increase by 50% or 400 million dollars to 1.2 billion dollars over the next five years. and if the companies net profit margin were to expand from 1.75% to 5% or 60 million dollars over the next five years. than if the companies stock increased in price to where it was trading at a price earnings ratio of 20 this would put the stock at 40 dollars a share. this may seem to be a somewhat optimistic scenario but not really that much. there are many stocks that trade at much higher price earnings ratios when they become popular than 20 times earnings. I find that companies like carrols restaurant group are very rare. I also find that companies that have low price to sales ratios that are profitable or of decent quality tend to become takeover targets or get taken private by private equity firms or the management of the company. or other companies in the same business.

  3. James Moylan:

    Let me make this as simple as possible. Buffett picks from 100 stocks like the GS pref. & GE prefr. which have NO chance of going down over 10-20 years. The F & APPL are a nother group of say a 100 stocks where 50-90% will go down after 10-20 years. One can always pick an APPL out of the second group of 100 and say see: ” Buffett missed this one” But the trick is not to lose !! And picking winners like you are doing with the benefit of hindsight is MEANINGLESS.

  4. I have a web site where I research penny stocks and stocks under ten dollars. I would like to reply to sunil kololgi comment about my comments about apple computer and carrols restaurant group. MR sunil kololgi the method that I use to select my stocks would have identified apple computer as a great buying opportunity back in 1998 when it was trading between 5 and 10 dollars. it would have identified petsmarts as a great buying opportunity back in 2000 when it was trading between 2 an 3 dollars. it would have identified the sports authority as a great buying opportunity when it was trading between 2 and three dollars back in 2000. it would have identifiied joan ann stores back in 2000 when it was trading at 2 3 dollars as a great buying opportunity. it would identified ispat international as a great buying opportunity back in 2000 2002 when it was trading around 1 2 dollars. it would have identified pricesmart as a great buying opportunity back in 2003 2004 when it was trading between 5 7 dollars. it would have identified laboratory corporation of america back in 2000 when it was trading between 3 and 5 dollars as a great buying opportunity. it would have identified shuff steel corporation as a great buying opportunity when it was trading at 2 3 dollars in 2003. it would have identified MFRI as a great buying opportunity back in 2003 when it was trading around 2 dollars. it would have identified Industrial Services of America as a great buying opportunity back in 2003 when it was trading at 2 dollars. it would have identified bright point symbol {CELL} back in 2002 when it was trading at 25 cents as a great buying opportunity it now trades at 10 dollars. the method I use to select my stocks would also have identified those stocks trading under 5 dollars that had the highest risk and I would have been able for the most part to avoid most of those stocks. in other words MR sunil kololgi my stock selection method would have enormously increased the odds in my favor as a result out of hundreds of stocks trading under ten dollars or under five dollars it would have increased by an incredible enormous amount my odds of identifing those stocks that would increase by five ten twenty or even thirty fold over a five to ten year period. while at the same time keeping me out of those stocks that had the highest risk and the greatest chance of declining by a large amount in value.

  5. James Moylan should submit his stock selection to Hulburt prospectively and see how well the entire group does not just a group pf hand picked stocks that have done well in retrospect. Hindsight is 20/20.

    Years before MSFT rose meteorically there were at least 12 stocks that appeared to be as good. None of them did well. If Moylan’s method is so good consistently =, he should be able to beat Buffett’s 21-22% per year return handily.

    James, please document your results prospectively and we will then ask you,nay,beg you to teach us.

    Buffett is great because he puts his results in his annual letter every year for 60+ years. No one else has even a 10 years record that is half as good without leverage, without inside information etc.

    BTW, I think Buffett would have bought the whole Ford company at $ 2 if he could. An younger Buffett would have bought 10% of the outstanding shares of Ford at $ 2 as he did with BYDDF. – Just my thoughts

    Also read Buffett’s 1984 talk on the ‘Super Investors of Graham and Doddsville’ He tracked the long term results of 4 of his classmates;4 was 100% of the classmates he could track down. He did not pick the results of top 4 after tracking down 14;that would be misleading. All were students of Ben Graham, if course….

  6. I have a web site where I research penny stocks and stocks under ten dollars MR sunil kololgi warren buffett has commented on numerous occasions that berkshire hathaway is forced by its size to invest in mega cap or large cap stocks because it is not possible to invest in small cap or in some cases mid cap stocks with tens of billions to invest which berkshire hathaway has. if warren buffetts holding company was just starting out today the type of stocks he would invest in today would be entirely different his methodology of picking stocks would be the same but he could choose from micro cap stocks small cap stocks mid cap stocks large cap stocks and mega cap stocks. warren buffett has also stated that his investors will not get the enormous returns that his holding company has achieved in the past largely because mega cap and large cap stocks do not generally produce extremely large returns. MR sunil kololgi all the stocks that I referred to in my last comment I followed those stocks when they were trading at those low levels. and I purchased many of them at those prices. warren buffett has always stated that the key to finding really great bargains in the stock market is research. I totally agree with him. also remember that a large part of warren buffetts investment philosophy is based on the methodology of the late benjamin graham. I have no ax to grind here I just follow the method of buying the best companies I can at very low price to sales ratios like carrols restaurant group and it generally works very well for me.

  7. A question and comments to james moylan, who has have a web site where he researches penny stocks and stocks under ten dollars. How do you know that ‘warren buffett is not the value investor he was years ago.’? He invests for Berkshire Hathaway and he invests for his personal account which is in the hundreds of millions of dollars. What has he invested in, in his personal account?

    We must understand that Buffett has certain uniquely corporate and fiduciary responsibilities and limitations in managing Berkshire Hathaway’s investments and I’m surprised that so many people can’t seem to comprehend that responsibility.

    Moreover, based on your stated highly successful methodology I would suggest you track down and watch Buffett’s talk on Long Term Capital’s failure where he expresses some surprise at how wealthy, successful, highly intelligent people still often do very stupid things. Mr. moylan, you might learn a valuable lesson for your future.

    I would also have you note that at least twice in his lifetime Buffett has mostly been out of the equity markets prior to massive declines – the latest being in 2008 in his personal account. He is still clearly an astute value investor. In fact, what I view as the most astute comments ever by Warren Buffett were in an early 1970s interview where he stated that ‘had he stayed in the market he’d have had only mediocre returns’. there is so much wisdom contained in that short remark, I’m surprised that so few conceptually grasp all that it implies. (I’d say Seth Klarman, Robert Rodriguez and maybe Arnold van Den Berg and a few others.)

  8. Buffett has also more recently said something to the effect that; ‘both he and Wall Street have had many good ideas, it’s just that he’s been better at avoiding the bad one.’

    Here’s a link and reference to that 1974 Forbes interview:

    “Look At All Those Beautiful, Scantily Clad Girls Out There!,” Forbes, November 1, 1974

    excerpts:

    “Swing, You Bum!

    Buffett is like the legendary guy who sold his stocks in 1928 and went fishing until 1933. That guy probably didn’t exist… But Buffett did kick the habit. He did “go fishing” from 1969 to 1974. If he had stuck around, he concedes, he would have had mediocre results.”…

    “Any general suggestions, we asked?”

    “Just common sense ones. Buy stocks that sell at ridiculously low prices. Low by what standards? By the conventional ones of net worth, book value, the value of the business as a going concern. Above all, stick with what you know; don’t get too fancy. “Draw a circle around the businesses you understand and then eliminate those that fail to qualify on the basis of value, good management and limited exposure to hard times.” No high technology. No multicompanies. “I don’t understand them,” says Buffett. “Buy into a company because you want to own it, not because you want the stock to go up.” ”

    http://www.forbes.com/2008/04/30/warren-buffett-profile-invest-oped-cx_hs_0430buffett.html

  9. Mr. Kass,
    Thank you so much for starting this blog. I, too, have been closely following Buffett’s financial philosophy and I’m always happy to find more interesting info.

    Thanks for all your tips!

    George

  10. Great blog David!

    Warren Buffet is certainly somebody whose financial advice I would like to follow. I am glad to see that there are other Buffet fans out there.

    Thanks,

    Nina

  11. There are so many stocks that trade at much higher price earnings ratios when they become popular than 20 times earnings. This is stock market. Anything can be happen in it…

  12. Warren has the sense to understand what’s what in today’s world. Great man to follow! Just understand half of what he knows would make you a rich wonder…

  13. I missed this birthday. Hes 81 now. I love the guy, such an amazing human.

  14. Whether we differ with Warren buffett approach or not, we cannot ignore the fact that he is an value investor and his investments has increased in value despite so many crisis in stock markets. He is an inspiration for many new investors from all over the world.

  15. I found a great post about warren buffett on this site and it’s interesting for me.So the next month, that’s on aug 30’th we are going to celebrate his 82 birth day.

    And i am the first one here to say Happy Birthday Wishes to Mr:warren buffett & my prays for his healthy life

    Thanks & Teagds
    Dr. Binda Thomas

  16. Usefull information this is.. Thanks for sharing

  17. I found this article to be interesting, glad to stop by. Thank you for sharing your views with us. Appreciate it!

  18. I’ve been investing for over 27 years… I have written a course on trading and a New York time bestseller “The Millionaire Dropout” You can learn more on my website http://www.vincestanzione.com

    I have trained may women over the years and on average women make better traders than men. Also over 50s tend to make great traders including men and women.

    The best trading is done in the waiting, that’s where the money is.

  19. I am big fan of Warren Buffet and I would like to follow his path. I also like his simple living.

  20. Thank you for such a nice detailed post. I always love to read your site content as these are really helpfull for me 🙂 Bookmarked your website for future visit

  21. Dr. David Kass, thank you for your valuable blog.

    We all admire Warren Buffett – not only for what he has tremendously achieved, but also for his great moral and generosity.

    Though I work in the trading industry, investing is my ultimate interest and pursuit. The philosophy of “buy 1 dollar for just 50-70 cents” has become a mandatory factor in any of my investments. In many cases, stock valuation can be done with a simple discounted cash flow model.

    Best!
    Pi

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