Warren Buffett Can Help Us Here !

[c kenneths]

Lets talk about the greatest investor in the world, Warren Buffet. Have anyone else read about this great genius? I have read some books written about him and will like to expose some of his techniques that has made him the worlds richest investor, and I still believe his strategies are applicable in the Nigerian investment landscape.
There is this strategy I like most, its called BUSINESS PERSPECTIVE INVESTING. The summary of this strategy is;

1. You will find yourself waiting for the market to go down instead of up, so that you can buy partial interests in publicly traded companies that you have been wanting to own.
2. You will adopt the wisdom of businesslike thinking and come to realize that the stupidest reason in the world for owning a stock is that you think the price is going up next week.
3. You will learn that diversification is something that people do to protect themselves from their own stupidity, not because of investment savvy.
4. You will find yourself getting great investment ideas from shopping in the supermarket.
5. You will find out your stockbroker may be wildly optimistic but not very intelligent in matters of stock investing!
6. You will learn that a 1500 naira stock may be cheap and a 2 naira stock may be grossly expensive.

[SpecNomics]

Cool down abeg!!! That number 3 get as e be!!!

Why not diversify, I just read a minute ago, and already believed, that Ghandi said "even the strong weaken, even the wise err...." This is good enough reason to diversify.

Warren Buffet is in a good position, when you run an insurance company whose liabilities are a low probability event, making a concentrated bet is affordable. When your running a Bond or Equity Mutual Fund you better make sure you diversify your probability of erring away.

The Buffett follower that was betting on Interest rate cuts in the US would feel very stupid today. Thank God for Options We can be stupid i.e. take concentrated bet, but at least we know the cost is our premium on the contract.

Fair enough diverisfication is not Investment Savvy like he rightly said, but I am writing this so that peeps do not get it twisted, we can all be stupid so why not hedge that risk by diversifying.

[c kenneths]

I think what the man means is that you can really close your eyes and dump all your money in only one stock, if and only if you are convinced after rigorous research and investigations about the financial health and economic soundness of the company in question.

At the same time i am a great advocate of diversification, i own stocks in almost every sector on the NSE, I play the property market with even greater intensity than the stock market, i run another business and even try fixed deposits now and then.

I still think the man is trying to teach us to do more research, at one point he said 'if you cannot see the company in your minds eye performing ten years from now, its not worth buying'

[olusolakemmy]

the number three point can be view in two different ways,

from personal experince diversification only preserve wealth, while concentration builds it.

I diversify alot, but if i analysed one of my company and and dump money in it rather splitint it, i would have hit over 600% on my investment.

At the same time, it is possible for a company to look good today and have prospect for 10years to come, and you decided to concentrate on that company alone, something drastic can happen along the line and you will be doomed.

[Taipan]

Originally Posted by SpecNomics

Cool down abeg!!! That number 3 get as e be!!!

Why not diversify, I just read a minute ago, and already believed, that Ghandi said "even the strong weaken, even the wise err...." This is good enough reason to diversify.

Warren Buffet is in a good position, when you run an insurance company whose liabilities are a low probability event, making a concentrated bet is affordable. When your running a Bond or Equity Mutual Fund you better make sure you diversify your probability of erring away.

The Buffett follower that was betting on Interest rate cuts in the US would feel very stupid today. Thank God for Options We can be stupid i.e. take concentrated bet, but at least we know the cost is our premium on the contract.

Fair enough diverisfication is not Investment Savvy like he rightly said, but I am writing this so that peeps do not get it twisted, we can all be stupid so why not hedge that risk by diversifying.

How come we never learn? Anyone who knows anything about mathematics knows that diversification and averages are one and the same thing. And we all know that with averages, you just manage to break even!
It hurts when me, almost personally, when people begin to reason away other people's success instead of emulating them. No wonder the remain average (diversified)... or poor.
Check out Andrew Carnegie of the US, the richest and greatest steel giant of all time, "Put all your eggs in one basket and watch the basket. That's how to make money." Do your research on all the megarich of the past, none defers from this basic law... cept for Richard Branson!
Having stocks in 4, 5, 6 sectors of the NSE is ok if you want to protect your investments or cant do so much research. But when you're ready to give it what it takes, you sit down, do your research, and concentrate your portfolio. Is it more risky? Sure! But then we all know, the greater the profit potential, the greater the risk hazard. Why else do you think penny stocks and startups generally give greater returns as well as horror tales?

[femibyte]

Diversification is all about minimizing your risk. The higher the risk/volatility, the higher your potential gains/losses. My maxim is that I only speculate using money I can afford to lose. I try to invest in solid companies, and speculate using money I can afford to lose.

[Achii Kima]

what do you mean by ''speculate" using moning money i can afford to lose?

[bwalaman]

Achii- personal finance, you have to define how much you want to invest of out your total income. This figure/percentage comes after running cost (rent, fuel, school fees, food etc), ideally savings and then investment...

If you lose the investment part, it should not set you back too much, remember that the stock market goes up, but what goes up also comes down...

The discuss on the personal finance thread is a good place to check out...

[bwalaman]

Wait a minute, Buffett is portrayed as a straight one or few stock investor- in a way all the posting describe Buffett in a very general way. True he has concentrated his investment, but he is still very diversified.

How? Look at where Buffett made the bulk of his money- Coke, American Express and GEICO. But Buffett has the second highest holding the Insurance in USA- this is several small- large insurance company. He was brave in a way to heavily invest in a few stocks- but he had information and did his due diligence.

Basically Buffett is an insurance guy- Insurance provides its managers with CASH, what the manager does with this cash is the next question. Buffett invests this cash in sound, undervalued companies with good managers and that has a future.

Because Insurance companies need to be ready to pay out- US law requires a huge percentage of the cash to be invested in fixed equities, thus Buffett has one of the highest holding of government bonds, bill etc – this itself is a form of diversification.

Ok, Buffett put huge chunks of cash in GEICO, Coke and American Express, but why because he assessed those companies were fundamentally sound and trading below their intrinsic value.

For example he bought and increased his holdings in American Express when it was in crisis, but he assessed that the company was still sound and while shareholders bolted, he bought in…

He only bought into Coke after it was restructured, again after a crisis.

GEICO was not in crisis, but suffering and GEICO, stands for Government Employees Insurance Company (in Niger terms- NICON), it is huge!!!

In addition to the companies being sound, undervalued and having good management, what do they all have in common- when he bought them, they all had good future propects. Take Coke, what do they do? The product has not changed, but everyone drinks Coke- it is a global brand and a global leader in fizzy drinks. People need Coke!!!

And today the only thing that Buffett is not into is the Tech sector, because he says he does not understand it- that is why the late 1990s – early 2000 bubble burst didn’t affect him.

So while he appears not to diversify, he is in fact very diversified- it is just that good chunks of his cash are in sectors he understands, he invests in companies that are sound, but undervalued- so when spots such companies he goes for huge blocks, controlling shares or straight out buys it out.

Example with myself under current NSE conditions- I have 23 shares, if I had concentrated in 8-12, I would be better off today. Concentrated, but still diversified. But we all have a problem- most of what we are doing is speculation because of information asymmetries in the Nigerian environment. So while most of us can practically follow Buffett type style, we will be short on the technical side- what is the intrinsic value?

Since we have been talking about it - NASCON, what can we factually say of its management? Is the company fundamentally sound? What is its intrinsic value? We can intelligently guess that it produces a needed commodity- Salt and we can say it has Dangote momentum. But I personally do not have the most important answer to the questions.

You don’t get to be the richest investor in the world without diversifying – it is a matter of scale. Don't mistake an investor with an industrialist. There is a huge difference between Bill Gates (builds/inovates/sell) and Buffett (straight investor).

Follow successful people with caution- follow Buffett very carefully, he is qualified (academically and taught by market “pioneers” in a way), experienced (as he worked in a brokering firm and was a fund manager) and now rich…

What do you think???

[femibyte]

Originally Posted by bwalaman

Wait a minute, Buffett is portrayed as a straight one or few stock investor- in a way all the posting describe Buffett in a very general way. True he has concentrated his investment, but he is still very diversified.

How? Look at where Buffett made the bulk of his money- Coke, American Express and GEICO. But Buffett has the second highest holding the Insurance in USA- this is several small- large insurance company. He was brave in a way to heavily invest in a few stocks- but he had information and did his due diligence.

Basically Buffett is an insurance guy- Insurance provides its managers with CASH, what the manager does with this cash is the next question. Buffett invests this cash in sound, undervalued companies with good managers and that has a future.

Because Insurance companies need to be ready to pay out- US law requires a huge percentage of the cash to be invested in fixed equities, thus Buffett has one of the highest holding of government bonds, bill etc – this itself is a form of diversification.

Ok, Buffett put huge chunks of cash in GEICO, Coke and American Express, but why because he assessed those companies were fundamentally sound and trading below their intrinsic value.

For example he bought and increased his holdings in American Express when it was in crisis, but he assessed that the company was still sound and while shareholders bolted, he bought in…

He only bought into Coke after it was restructured, again after a crisis.

GEICO was not in crisis, but suffering and GEICO, stands for Government Employees Insurance Company (in Niger terms- NICON), it is huge!!!

In addition to the companies being sound, undervalued and having good management, what do they all have in common- when he bought them, they all had good future propects. Take Coke, what do they do? The product has not changed, but everyone drinks Coke- it is a global brand and a global leader in fizzy drinks. People need Coke!!!

And today the only thing that Buffett is not into is the Tech sector, because he says he does not understand it- that is why the late 1990s – early 2000 bubble burst didn’t affect him.

So while he appears not to diversify, he is in fact very diversified- it is just that good chunks of his cash are in sectors he understands, he invests in companies that are sound, but undervalued- so when spots such companies he goes for huge blocks, controlling shares or straight out buys it out.

Example with myself under current NSE conditions- I have 23 shares, if I had concentrated in 8-12, I would be better off today. Concentrated, but still diversified. But we all have a problem- most of what we are doing is speculation because of information asymmetries in the Nigerian environment. So while most of us can practically follow Buffett type style, we will be short on the technical side- what is the intrinsic value?

Since we have been talking about it - NASCON, what can we factually say of its management? Is the company fundamentally sound? What is its intrinsic value? We can intelligently guess that it produces a needed commodity- Salt and we can say it has Dangote momentum. But I personally do not have the most important answer to the questions.

You don’t get to be the richest investor in the world without diversifying – it is a matter of scale. Don't mistake an investor with an industrialist. There is a huge difference between Bill Gates (builds/inovates/sell) and Buffett (straight investor).

Follow successful people with caution- follow Buffett very carefully, he is qualified (academically and taught by market “pioneers” in a way), experienced (as he worked in a brokering firm and was a fund manager) and now rich…

What do you think???

To this I say KPOM!!

[c kenneths]

I still believe the real reasons people diversify is fear of the unknown, what if the company crashes/ what if my money vanishes, but we have here numerous companies that have lasted 50 yrs or more, a friend told me on phone that he will invest millions in first bank offers, and i asked what if the bank folds, and you know what he said, if the bank hasnt folded since 1894, why would it fold just now i invested?

While commending all of us for the constructive arguments on the third point alone, i'd like to draw our attention to the remaining five points. what do we think on those ones?

[Miss_Risky]

Originally Posted by c kenneths

4. You will find yourself getting great investment ideas from shopping in the supermarket.

This point, I can relate to. Two examples: I happen to have a small holding in a venture capital investment trust company which invests in mostly unquoted companies and some quoted companies in the UK. One of their top ten holdings is a restaurant called Waga Mama and anyone that's ever been to that restaurant knows how busy it gets. Sometimes people queue for up to 20 minutes to be seated. Yet they wait and very patiently too. Whenever I go to eat there, I can't resist feeling a little smug just knowing that the longer the queue gets, the better the return on my investment! So, anytime you eat at Waga Mama, just know that you're putting some change in my pocket apart from getting some really good food on the cheap of course.

Another example is a US commercial in which a teenage girl asks her dad for some money. The dad asks her what she wants to buy with the money. Armed with this information and not one to miss an opportunity, he promptly goes online to research the company to enable him make his own investment decision.

I guess we could apply the same to our investment strategy by taking an interest in what the kids/family/friends are wearing, eating, playing with etc. That could give you an indication of which companies to research and invest in. Which begs the question, who makes Indomie noodles???? Just playing...

[Avocado]

Well, some question! Indomie Noddles is manufactured by Indo Foods Limited. Not a quoted company. Not on the 2nd-Tier list either. The NSE's organising a meeting in July for 3rd-Tier companies, ... perhaps. On an other note: last time I was in Nigeria, the return bag was packed with packs of Indomie Noddles. Who 'll forget that seductive aroma on Indomie Noddles??

.

[Avocado]

The essential Warren Buffet website

The opening (on page 3 of the 2006 report) is persuasive:

"Our gain in net worht during 2006 was $16.9 billion, which increased the per-share book value of both our Class A and Class B stock by 18.4%. Over the last 42 years (that is, since persent management took over) book value has grown from $19 to $70,281, a rate of 21.4% compunded annually".

Read the whole thing: The 2006 Berkshire Hathaway Report .

Could anyone also crosscheck the math?

.

[c kenneths]

Talking about picking great investment ideas from the supermarket,I sometimes amuse myself, there are times i insist on buying Nestle products because i own some shares in the company, i seem to tell myself that some of the profit the company gets will come to me as dividend, no matter how little. Its like buying your own products.

Whenever you see a good in strong demand, always know that the company producing the good will be making great profits and as such its a sound buy, waiting to hear the profitability announced over the air or in newspapers will shoot the company share price beyond your immagination.

Think and act.