These are my own notes which I want to keep easily accessible and not for public use, although not prohibited to the interested.
Also, these are merely learning from what Berkshire Hathaway's annual letters by Warren Buffett explain so the language is similar. No IP theft here, all credit goes to Mr. WB here. One might call him world bank in fact given that he manages funds better than the actual bank.
2016:
Funds
Index funds over a period of time beat hedge funds that are manged actively/passively. The simple reason for this is the fee portion of the hedge funds (they have layers of funds and are usually very popular with big investors). Bigger the money, bigger the fee. Investors of any size, massive or tiny should always prefer an index fund over a manged fund.
NOTE: Hedge funds are not the same mutual funds. However, John Bogle from whom Buffet picked this information says the same of mutual funds too.
Advice from John Bogle:
Share Repurchases:
It makes sense for a company to repurchase shares ONLY when it is paying a price less than the intrinsic value of the stock of the company else not. This MUST be the only yardstick for share repurchase. This also means that a company is repurchasing its shares at a higher value might attribute a much higher intrinsic value to its shares than what the market has accorded it. Such shares are definitely worth a further study in your search of bargain shopping.
What is easy with millions becomes tough with billions. Simple reason is that the scope of growth diminishes as one grows in size.
2014:
Warren Buffet's Mantra-
Don't buy fair business at wonderful prices. Instead learn to buy wonderful business at fair prices.
Issuing shares: companies that issue shares to become conglomerates buying cheaper companies are effectively buying low quality businesses while also diluting their own value. Stay away from such businesses. If investing in any such businesses, thoroughly analyze the quality of the company being acquired.
Financial staying power requires a company to maintain three strengths under all circumstances-
1) a large and reliable stream of earnings 2) massive liquid assets 3) no significant near-term cash requirements
2013:
Some words about investment
Invest in good, solid businesses irrespective of where the market is going. Think of stocks as a small portion of businesses. The businesses may fall upon bad times in recessions but if they are solid businesses, they will come out of it. Some of your investments may not work out but a cross section of good investments is almost certain to provide good results. The investors who don't have the know-how to find such businesses should just invest in the low cost index funds.
Excerpts from the letter:
When buying stocks, think of them as small portions of businesses – your analysis must be very similar to that which you use in buying entire businesses. First decide whether you can sensibly estimate an earnings range for five years out, or more. If the answer is yes, buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of your estimate. If, however, you lack the ability to estimate future earnings – which is usually the case – simply move on to other prospects. Never forego an attractive purchase because of the macro or political environment, or the views of other people.
2012:
The advice in this issue is basically to keep away from dividends and instead re-invest the money back into the investment opportunity and instead if any money is needed to be taken away by selling a part of the actual investment. This ultimately gets one a better return then what gets by dividends.
2011:
The choices of an investor and what you should prefer.
There are three basic categories of investments that any person can look at.
First is Currency based investments - Savings accounts, government bonds - given the inflation they will NEVER give one good returns over a period of time and the prices of the currency is controlled by government. The only time there are some mis-priced financial products that may deliver value to investors, rest assured they are complex enough for simple investors to understand so stay far away from these when you think investments.
Second is investments that never produce anything - These products are purchased in the hope that there's always a greater fool than yourself to continue buying the product in hope of getting a better price. For the record, the theory is called the greater fool theory. The major asset in this category is gold which does have its uses but apparently not enough to continue to produce it forever. It will produce returns no doubt but after inflation adjustment, it's going to be far less superior than what a better option would.
Investment in productive assets - The first two categories are the most in demand at the peak of fear. Fear of economic collapses, circumstances with great uncertainty. For ex. people taking their investments and running towards cash and gold in 2008 when cash should have been deployed rather than being locked away in unproductive assets and accounts.
Instead a productive asset whether businesses, farms or real estate is the best choice for the investor irrespective of what times they are in. The times like crashes of 2000, 2008 are in fact the best times to put your cash to good use buying productive assets at bargain prices. Ideally, these investments should return enough in inflationary times to keep your purchasing power intact as well as need minimum new investments. Companies like HDFC Bank, Eicher Motors stand true on both the tests. A country's businesses will continue to efficiently deliver goods and services that citizens want. They will continue to churn out profits for centuries (with ups and downs) but will never stop. I believe that over any extended period of time this category of investing will prove to be the runaway winner of the three. More importantly, it is by far the safest in preserving your capital.
Also, these are merely learning from what Berkshire Hathaway's annual letters by Warren Buffett explain so the language is similar. No IP theft here, all credit goes to Mr. WB here. One might call him world bank in fact given that he manages funds better than the actual bank.
2016:
Funds
Index funds over a period of time beat hedge funds that are manged actively/passively. The simple reason for this is the fee portion of the hedge funds (they have layers of funds and are usually very popular with big investors). Bigger the money, bigger the fee. Investors of any size, massive or tiny should always prefer an index fund over a manged fund.
NOTE: Hedge funds are not the same mutual funds. However, John Bogle from whom Buffet picked this information says the same of mutual funds too.
Advice from John Bogle:
- Select low-cost funds
- Consider carefully the added costs of advice
- Do not overrate past fund performance
- Use past performance to determine consistency and risk
- Beware of stars (as in, star mutual fund managers)
- Beware of asset size
- Don't own too many funds
- Buy your fund portfolio - and hold it
Share Repurchases:
It makes sense for a company to repurchase shares ONLY when it is paying a price less than the intrinsic value of the stock of the company else not. This MUST be the only yardstick for share repurchase. This also means that a company is repurchasing its shares at a higher value might attribute a much higher intrinsic value to its shares than what the market has accorded it. Such shares are definitely worth a further study in your search of bargain shopping.
What is easy with millions becomes tough with billions. Simple reason is that the scope of growth diminishes as one grows in size.
2014:
Warren Buffet's Mantra-
Don't buy fair business at wonderful prices. Instead learn to buy wonderful business at fair prices.
Issuing shares: companies that issue shares to become conglomerates buying cheaper companies are effectively buying low quality businesses while also diluting their own value. Stay away from such businesses. If investing in any such businesses, thoroughly analyze the quality of the company being acquired.
Financial staying power requires a company to maintain three strengths under all circumstances-
1) a large and reliable stream of earnings 2) massive liquid assets 3) no significant near-term cash requirements
2013:
Some words about investment
Invest in good, solid businesses irrespective of where the market is going. Think of stocks as a small portion of businesses. The businesses may fall upon bad times in recessions but if they are solid businesses, they will come out of it. Some of your investments may not work out but a cross section of good investments is almost certain to provide good results. The investors who don't have the know-how to find such businesses should just invest in the low cost index funds.
Excerpts from the letter:
When buying stocks, think of them as small portions of businesses – your analysis must be very similar to that which you use in buying entire businesses. First decide whether you can sensibly estimate an earnings range for five years out, or more. If the answer is yes, buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of your estimate. If, however, you lack the ability to estimate future earnings – which is usually the case – simply move on to other prospects. Never forego an attractive purchase because of the macro or political environment, or the views of other people.
2012:
The advice in this issue is basically to keep away from dividends and instead re-invest the money back into the investment opportunity and instead if any money is needed to be taken away by selling a part of the actual investment. This ultimately gets one a better return then what gets by dividends.
2011:
The choices of an investor and what you should prefer.
There are three basic categories of investments that any person can look at.
First is Currency based investments - Savings accounts, government bonds - given the inflation they will NEVER give one good returns over a period of time and the prices of the currency is controlled by government. The only time there are some mis-priced financial products that may deliver value to investors, rest assured they are complex enough for simple investors to understand so stay far away from these when you think investments.
Second is investments that never produce anything - These products are purchased in the hope that there's always a greater fool than yourself to continue buying the product in hope of getting a better price. For the record, the theory is called the greater fool theory. The major asset in this category is gold which does have its uses but apparently not enough to continue to produce it forever. It will produce returns no doubt but after inflation adjustment, it's going to be far less superior than what a better option would.
Investment in productive assets - The first two categories are the most in demand at the peak of fear. Fear of economic collapses, circumstances with great uncertainty. For ex. people taking their investments and running towards cash and gold in 2008 when cash should have been deployed rather than being locked away in unproductive assets and accounts.
Instead a productive asset whether businesses, farms or real estate is the best choice for the investor irrespective of what times they are in. The times like crashes of 2000, 2008 are in fact the best times to put your cash to good use buying productive assets at bargain prices. Ideally, these investments should return enough in inflationary times to keep your purchasing power intact as well as need minimum new investments. Companies like HDFC Bank, Eicher Motors stand true on both the tests. A country's businesses will continue to efficiently deliver goods and services that citizens want. They will continue to churn out profits for centuries (with ups and downs) but will never stop. I believe that over any extended period of time this category of investing will prove to be the runaway winner of the three. More importantly, it is by far the safest in preserving your capital.
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