Stocks are simple. All you do is buy shares in a great business for less than the business is intrinsically worth, with management of the highest integrity and ability. Then you own those shares forever. I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.

January 30, 2011

Lou Simpson on investing

Lou Simpson, has long managed the investment $4 billion portfolio of GEICO, the insurance company Berkshire Hathaway owns. He is also the only man other than Warren Buffett who has managed stock investments in Berkshire’s portfolio. Like Warren Buffett, he has a general distaste for technology stocks. He favors intensive research to find attractive companies to invest in and a willingness to bet on just a handful of stocks. In 2004, the only time that Berkshire ever stated Geico’s performance separately, Mr. Simpson over 24 years had posted a 20 percent average annual gain, surpassing the Standard & Poor’s 500-stock index by 6.8 percentage points. Mr. Simpson is known for eschewing publicity so it is a unique opportunity to learn more about him.

On many occasions when the media announces that Berkshire Hathaway has taken a sizable stake in a publicly-traded business, it is actually a position initiated by Mr. Simpson for the GEICO portfolio. You can learn a lot by reading about one of his rare interviews, given in 1987 with the Washington Post. Lou Simpson said:

Think independently - We try to be skeptical of conventional wisdom, he says, and try to avoid the waves of irrational behavior and emotion that periodically engulf Wall Street. We don’t ignore unpopular companies. On the contrary, such situations often present the greatest opportunities.

Invest in high-return businesses that are run for the shareholders - Over the long run, he explains, appreciation in share prices is most directly related to the return the company earns on its shareholders’ investment. Cash Flow, which is more difficult to manipulate than reported earnings, is a useful additional yardstick. We ask the following questions in evaluating management: Does management have a substantial stake in the stock of the company? Is management straightforward in dealings with the owners? Is management willing to divest unprofitable operations? Does management use excess cash to repurchase shares? The last may be the most important. Managers who run a profitable business often use excess cash to expand into less profitable endeavors. Repurchase of shares is in many cases a much more advantageous use of surplus resources.

Pay only a reasonable price, even for an excellent business - We try to be disciplined in the price we pay for ownership even in a demonstrably superior business. Even the world’s greatest business is not a good investment, he concludes, if the price is too high. The ratio of price to earnings and its inverse, the earnings yield, are useful gauges in valuing a company, as is the ratio of price to free cash flow. A helpful comparison is the earnings yield of a company versus the return on a risk-free long-term United States Government obligation.

Invest for the long term - Attempting to guess short-term swings in individual stocks, the stock market, or the economy, he argues, is not likely to produce consistently good results. Short-term developments are too unpredictable. On the other hand, shares of quality companies run for the shareholders stand an excellent chance of providing above-average returns to investors over the long term. Furthermore, moving in and out of stocks frequently has two major disadvantages that will substantially diminish results: transaction costs and taxes. Capital will grow more rapidly if earnings compound with as few interruptions for commissions and tax bites as possible.

Do not diversify excessively - An investor is not likely to obtain superior results by buying a broad cross-section of the market, he believes. The more diversification, the more performance is likely to be average, at best. We concentrate our holdings in a few companies that meet our investment criteria. Good investment ideas--that is, companies that meet our criteria--are difficult to find. When we think we have found one, we make a large commitment. The five largest holdings at GEICO account for more than 50 percent of the stock portfolio.

16 golden rules from Walter Scholos

Here are 16 golden rules for investing from Walter Scholoss. This came from a 1994 lecture he gave. Thanks to Todd Sullivan for the finding:

1. Price is the most important factor to use in relation to value

2. Try to establish the value of the company. Remember that a share of stock represents a part of a business and is not just a piece of paper.

3. Use book value as a starting point to try and establish the value of the enterprise. Be sure that debt does not equal 100% of the equity. (Capital and surplus for the common stock).

4. Have patience. Stocks don’t go up immediately.

5. Don’t buy on tips or for a quick move. Let the professionals do that, if they can. Don’t sell on bad news.

6. Don’t be afraid to be a loner but be sure that you are correct in your judgment. You can’t be 100% certain but try to look for the weaknesses in your thinking. Buy on a scale down and sell on a scale up.

7. Have the courage of your convictions once you have made a decision.

8. Have a philosophy of investment and try to follow it. The above is a way that I’ve found successful.

9. Don’t be in too much of a hurry to see. If the stock reaches a price that you think is a fair one, then you can sell but often because a stock goes up say 50%, people say sell it and button up your profit. Before selling try to reevaluate the company again and see where the stock sells in relation to its book value. Be aware of the level of the stock market. Are yields low and P-E rations high. If the stock market historically high. Are people very optimistic etc?

10. When buying a stock, I find it heldful to buy near the low of the past few years. A stock may go as high as 125 and then decline to 60 and you think it attractive. 3 yeas before the stock sold at 20 which shows that there is some vulnerability in it.

11. Try to buy assets at a discount than to buy earnings. Earning can change dramatically in a short time. Usually assets change slowly. One has to know much more about a company if one buys earnings.

12. Listen to suggestions from people you respect. This doesn’t mean you have to accept them. Remember it’s your money and generally it is harder to keep money than to make it. Once you lose a lot of money, it is hard to make it back.

13. Try not to let your emotions affect your judgment. Fear and greed are probably the worst emotions to have inconnection with purchase and sale of stocks.

14. Remember the work compounding. For example, if you can make 12% a year and reinvest the money back, you will double your money in 6 yrs, taxes excluded. Remember the rule of 72. Your rate of return into 72 will tell you the number of years to double your money.

15. Prefer stock over bonds. Bonds will limit your gains and inflation will reduce your purchasing power.

16. Be careful of leverage. It can go against you.

Walter Schloss - buy less than book value, no debt


Bernard Condon 02.11.08, 12:00 AM ET
At 91, the man Warren Buffett famously dubbed a "superinvestor" is still picking unloved stocks.

Walter Schloss has lived through 17 recessions, starting with one when Woodrow Wilson was President. This old-school value investor has made money through many of them. What's ahead for the economy? He doesn't worry about it.

A onetime employee of the grand panjandrum of value, Benjamin Graham, and a man his pal Warren Buffett calls a "superinvestor," Schloss at 91 would rather talk about individual bargains he has spotted. Like the struggling car-wheel maker or the moneylosing furniture supplier.

Bushy-eyebrowed and avuncular, Schloss has a laid-back approach that fast-money traders couldn't comprehend. He has never owned a computer and gets his prices from the morning newspaper. A lot of his financial data come from company reports delivered to him by mail, or from hand-me-down copies of Value Line, the stock information service.

He loves the game. Although he stopped running others' money in 2003--by his account, he averaged a 16% total return after fees during five decades as a stand-alone investment manager, versus 10% for the S&P 500--Schloss today oversees his own multimillion-dollar portfolio with the zeal of a guy a third his age. In a day of computer models that purport to quantify that hideous and mysterious force called risk, listening to Schloss talk of his simple, homespun investing methods is a tonic.

"Well, look at that," he says brightly, while scanning the paper. "A list of worst- performing stocks."

During his time as a solo manager after leaving Graham's shop, he was a de facto hedge fund. He charged no management fee but took 25% of profits. He ran his business with no research assistants, not even a secretary. He and his son, Edwin (who joined him in 1973), worked in a single room, poring over Value Line charts and tables.

In a famous 1984 speech titled the "The Superinvestor of Graham-and-Doddsville," Buffett said Schloss was a flesh-and-blood refutation of the Efficient Market Theory. This hypothesis holds that no stock bargains exist, or at least ones mere mortals can pick out consistently. Asked whether he considers himself a superinvestor, Schloss demurs: "Well, I don't like to lose money."

He has a Depression-era thriftiness that benefited clients well. His wife, Anna, jokes that he trails her around their home turning off lights to save money. If prodded, he'll detail for visitors his technique for removing uncanceled stamps from envelopes. Those beloved Value Line sheets are from his son, 58, who has a subscription. "Why should I pay?" Schloss says.

Featured in Adam Smith's classic book Supermoney (1972), Schloss amazed the author by touting "cigar butt" stocks like Jeddo Highland Coal and New York Trap Rock. Schloss, as quoted by Smith, was the soul of self-effacement, saying, "I'm not very bright." He didn't go to college and started out as a Wall Street runner in the 1930s. Today he sits in his Manhattan apartment minding his own capital and enjoying simple pleasures. "Look at that hawk!" he erupts at the sight of one winging over Central Park.

One company he's keen on now shows the Schloss method. That's the wheelmaker. Superior Industries International gets three-quarters of sales from ailing General Motors and Ford. Earnings have been falling for five years. Schloss picks up a Value Line booklet from his living room table and runs his index finger across a line of numbers, spitting out the ones he likes: stock trading at 80% of book value, a 3% dividend yield, no debt. "Most people say, 'What is it going to earn next year?' I focus on assets. If you don't have a lot of debt, it's worth something."

Schloss screens for companies ideally trading at discounts to book value, with no or low debt, and managements that own enough company stock to make them want to do the right thing by shareholders. If he likes what he sees, he buys a little and calls the company for financial statements and proxies. He reads these documents, paying special attention to footnotes. One question he tries to answer from the numbers: Is management honest (meaning not overly greedy)? That matters to him more than smarts. The folks running Hollinger International were smart but greedy--not good for investors.

Schloss doesn't profess to understand a company's operations intimately and almost never talks to management. He doesn't think much about timing--am I buying at the low? selling at the high?--or momentum. He doesn't think about the economy. Typical work hours when he was running his fund: 9:30 a.m. to 4:30 p.m., only a half hour after the New York Stock Exchange's closing bell.

Schloss owns a prized 1934 edition of Graham's Security Analysis he still thumbs through. Its binding is held together by three strips of Scotch tape. In the small room he invests from now, across the hall from his apartment, one wall contains a half-dozen gag pictures of Buffett (the Omaha sage with buxom cheerleaders or with a towering stack of Berkshire Hathaway tax returns). Each has a joke scribbled at the bottom and a salutation using Schloss' nickname from the old days, Big Walt.

Schloss first met that more famous value hunter at the annual meeting of wholesaler Marshall Wells. The future billionaire was drawn there for the reason Schloss had come: The stock was trading at a discount to net working capital (cash, inventory and receivables minus current liabilities). That number was a favorite measure of value at Graham-Newman, the investment firm Schloss joined after serving in World War II. Buffett came to the firm after the Marshall Wells meeting, sharing an office with Schloss at New York City's Chanin Building on East 42nd Street.

Schloss left the Graham firm in 1955 and with $100,000 from 19 investors began buying "working capital stocks" on his own, like mattressmaker Burton-Dixie and liquor wholesaler Schenley Industries. Success drew in investors, eventually rising to 92. But Schloss never marketed his fund or opened a second one, and he kept money he had to invest to a manageable size by handing his investors all realized gains at year-end, unless they told him to reinvest.

In 1960 the S&P was up half a percentage point, with dividends. Schloss returned 7% after fees. One winner: Fownes Brothers & Co., a glovemaker picked up for $2, nicely below working capital per share, and sold at $15. In the 1980s and 1990s he also saw big winners. By then, since inventory and receivables had become less important, he had shifted to stocks trading at below book value. But the tempo of trading had picked up. He often found himself buying while stocks still had a long way to fall and selling too early. He bought Lehman Brothers below book shortly after it went public in 1994 and made 75% on it in a few months. Then Lehman went on to triple in price.

Still, many of his calls were spot-on. He shorted Yahoo and Amazon before the markets tanked in 2000, and cleaned up. After that, unable to find many cheap stocks, he and Edwin liquidated, handing back investors $130 million. The Schlosses went out with flair: up 28% and 12% in 2000 and 2001 versus the S&P's --9% and --12%.

The S&P now is off 15% from its peak, yet Schloss says he still doesn't see many bargains. He's 30% in cash. A recession, if it comes, may not change much. "There're too many people with money running around who have read Graham," he says.

Nevertheless, he has found a smattering of cheap stocks he thinks are likely to rise at some point. High on his watch list (see table) is CNA Financial, trading at 10% less than book; its shares have fallen 18% in a year. The insurer has little debt, and 89% of the voting stock is owned by Loews Corp., controlled by the billionaire Tisch family. He says buy if it gets cheaper. "I can't say people will get rich on it, but I would rather be safe than sorry," he says. "If it falls more, I won't worry about it. Let the Tisches worry about it."

Schloss flips through Value Line again and stops at page 885: Bassett Furniture, battered by a lousy housing market. The chair- and tablemaker is trading at a 40% discount to book and sports an 80-cent dividend, a fat 7% yield. Schloss mutters something about how book value hasn't risen for years and how the dividend may be under threat.

His call: Consider buying when the company cuts its dividend. Then Bassett will be even cheaper and it eventually will recover.

If only he had waited a bit to buy wheelmaker Superior, too. It's been two years since he bought in, and the stock is down a third. But the superinvestor, who has seen countless such drops, is philosophical and confident this one is worth book at least. "How much can you lose?" he asks.
Walter Schloss-1995
What makes these successful investors particularly interesting is that their good fortune is not uniformly attributable to extraordinary brilliance–though they are certainly smart–but more to the principles of value investing, which anyone with a solid grasp of high school mathematics can learn. Value investors don’t try to predict the growth prospects of the latest high-tech darling. Instead they focus on stocks that are cheap by basic measures such as market value to book value or earnings to price.
Take a closer look at the record of Walter Schloss, a walking, talking refutation of just about every major tenet of the EMT and probably the purest example of a traditional value investor. Schloss, 78, has been beating the S&P 500 since before there was an S&P 500. (Although data for the index now go back to 1926, S&P didn’t create the 500 until 1957. Schloss began his market-beating run in 1955, and the following year outpaced what would become the S&P 500.)
Over the 39 years that Schloss has been managing money on his own, the firm has averaged an annual rate of return of slightly over 20%, while his limited partners have made 15.5% a year on their money, reflecting the 25% cut of profits Schloss collects for his services. Over the same period, the S&P 500 averaged a 10% return.
The high returns that Schloss has earned are possible in a world governed by the EMT, but only if you take on much more risk than the market as a whole entails. Schloss, however, has taken less risk. Consider: Since the Brooklyn Dodgers beat the Yankees in the 1955 World Series, the S&P 500 has finished in the red nine times. Schloss lost money in only six years, and eased the pain for his clients in those periods by forgoing
management fees. Says he: “I don’t think I should get paid if I do a lousy job.”
Described by someone who knows him well as “a man of modest talent and light work habits,” Schloss practices investing in a way that any ordinary investor can. Dressed in a well-worn trader’s smock, he works entirely from public documents and a few publications like Value Line in one cramped, little office squirrelly with annual reports, 10-Ks, pictures of Babe Ruth, Lou Gehrig, and Schloss’s children and grandchildren. The
one window looks out onto an air shaft. The total value of the fixed assets in that office? Three thousand dollars. He has never had a computer or a fax machine, and he still pecks away on an old Olympus manual typewriter to correspond with clients.

Schloss doesn’t speak to the managements of the companies he invests in, because he says he doesn’t want to get attached to them. And he doesn’t attend the companies’ annual meetings unless they are within a 20-block radius of his office. The simple truth here is that Schloss holds no advantage over other investors. And he agrees: He claims to have no special ability at analyzing businesses–a modest assertion with which his friends generally agree. Other investors may fly around the country searching for investment ideas; Schloss is far more likely to spend the entire day chatting with his son Edwin, the only other member of the firm, about the theater or the latest Updike novel, while their one telephone sits, un- ringing, on Schloss’s desk. What Schloss does have, however, says Chris Browne, of the old-line investment firm Tweedy Browne, which has provided Schloss with office space for many years, “is the ability to think for himself. Walter leans into the wind until the wind changes.”
Although Schloss says that he is flexible, he favors buying cheap companies as measured by market to book value. He prefers looking at asset values rather than earnings because he feels that accounting rules leave too much wiggle room to manipulate profits. Generally he prefers to buy stocks that are selling for one-half to two-thirds of book value. But they aren’t easy to find–only about 15 members of the 1,600-stock Value Line
universe meet that criteria. So he will go up to 100% of book or even slightly over. He gets in cheap, and when the stock price rises to what he thinks is fair, he gets out. Like many other dyed-in-the-wool value investors, Schloss doesn’t put a time limit on stocks he buys. As long as the reasons for buying remain valid, he’s willing to wait years for the payoff.
Not all of Schloss’s picks work out, but by maintaining a portfolio of about 75 to 100 stocks, which he turns over once every four years, he limits the damage from bad decisions. And he has had a few of those, including Intertan, an electronics retailer that Schloss bought in 1992, when the shares were $12. After Schloss invested, the stock suffered a big drop as its earnings dried up. He sold last year at $8 a share. Says Schloss:
“We bought it at about half book value, but it just got worse.” Even great value investors occasionally have to admit they were wrong.
Schloss keeps his risk low in other ways: Because he gets in when prices are already low and the market has low expectations for the company, he runs less chance of disappointment than if he owned fast-growth stocks, where investor expectations run high. Proof of Schloss’s low-risk style came in a dramatic way in 1987. Going into that fateful October, Schloss was up 53% for the first nine months, vs. 42% for the market.
But he finished the year up 26%, vs. the market’s 5%.
There are no secrets to the way that Schloss invests. The value investing he practices can be learned by anyone who takes the time. Just ask Schloss’s landlord and fellow outperformer, Tweedy Browne, which has passed on its successful value investing strategy from one generation to the next like Grandma’s recipe for pfefferneusen.

January 28, 2011

Mohnish started building an investment checklist
I am lucky enough to be attending the Value Investing Congress. I took extensive notes on every speech and hope to post each one on GuruFocus over the next few days, in addition I will be posting a couple of interviews I plan on conducting. To follow my live updates from the Congress sign up for my Twitter alerts

Mohnish Pabrai spoke on the second day of the conference.

Mohnish Pabrai, is Managing Partner of Pabrai Investment Funds, a group of focused value funds. Since inception in 1999 with $1 million, Pabrai Funds has grown to over $500 million in assets under management. Pabrai is the author of two books on value investing,Mosaic andThe Dhandho Investor.

Mohnish Pabrai’s talk centers on checklists for investing. Mohnish “highly, highly recommends reading Dr. Atul’s book,The Checklist Manifesto: How to Get Things Right.”

In 1935 when the US was looking for next bomber, Boeing invented the B-17 bomber widely exceeded everything the army had previously put out, however they had a test run and two pilots died.

Boeing went back to look at what happened. And they realized that this was too complex. So Boeing engineers came up with a checklist. Afterwards the plan had a flawless bomber.

Today the aviation check list has become very organized, and the pilots are trained to live and die by that checklist.

The list is highly practical and easy to understand. The checklist is extensively researched and is stimulated by flight simulators to see if anything should be added or subtracted.

In America there are five million lines inserted into America in ICUs. About 80% of these line insertions led to infection, of which 20-25% of which were fatal.

A doctor in John Hopkins had nurses stand by the doctors before line insertions.

He listed five points in his check list which are all pretty basic thinks like washing hands with soaps before line insertions.

Nurses noticed that a lot of these rules were missed, so he had the nurses make sure the doctor kept to the five rules. After this happened the amount of infections went down to zero. He took this approach to other hospitals. And nowadays this procedure has become standard in US hospitals.

The FAA is actually one of the most successful agencies.

The FAA has very little to do with actual flights, they only go into action when an accident occurs. The FAA gets down of what happened. Bird hits happen to be a major problem for airplanes. When the Hudson crash occurred due to the Canadian geese, the FAA made sure to keep better track of Canadian Geese.

Flying is very cheap and safe. However, the nuclear industry took a different approach which was not pragmatic and could not tolerate a single human life. And we are praying the price 20 years later.

Mohnish found that the FAA approach could be used in investing. He compares a crash to a loss of capital.

Mohnish started building an investment checklist. He looked at mistakes Warren Buffett and Charlie Munger made and mistakes by other great value investors.

Mohnish compiled a list of 70 items two years ago. Since then Mohnish has achieved a zero error rate. However, Mohnish warns there are bound to be errors in the future.

Mohnish looked at many the great fund’s 13Fs from 2004 to see approximately what their buy price and look at their sell price. He analyzed twelve investors and came up with a list of 320 companies that these investors lost money in totaling $20 billion. He looked at why they might have bought and sold these securities.

He picked 26 of the 320 companies and looked in depth at them. He only looked at three financial companies to diversify across industries. Now Mohnish is up to 97 points in his checklist.

Mohnish quotes Jack Welsh as stating that GE will only be in an industry where they are number one or two.

HP and Lexmark had a duopoly in printers. Oakmark and Davis Funds lost a lot of money in Lexmark.

However, if you looked at checklist you likely would have avoided this investment. Lexmark was more similar to Schick than to Gillette.

One are with the largest area of mistakes has to do with moats. The question that must be asked is if the moat is sinking. LongLeaf lost $550 million in Sun Micro systems.

There was a huge decrease in computer prices over the past few years, plus a shift from desktops to laptops this affected Dell a lot. LongLeaf, and Fairfax had some pain in that company.

LongLeaf bought GM thinking that GM owned the truck business. When gas went to $4, GM was decimated. One of the checklist items is to look at what other factors can affect a moat in this case being commodity prices.

There are give categories in the check list:

Personal biases are a small part.

Leverage, Management, Moat and valuation are the main four items of the checklists.

The checklist highlights the possible main failure points. But there will never be an investment that will fit all 97 items.

Mohnish is currently building a cheap Japanese basket of cheap stocks. Mohnish believes there is a great opportunity in that market. Despite the fact that it is hard to invest in the low cap and micro cap Japanese stocks.

Mohnish does not currently have a checklist for selling.

Disclosure: No Positions

比亞迪 系統極限已被觸及

















  由此,便出現了前面李彤離開比亞迪的一幕。從10月開始,比亞迪銷售公司開始召回大量的銷售人員,下放工廠,去掉了區域運營經理的職位。此前比亞迪汽車銷售分三大戰區,每個戰區有一號總經理和二號總經理,現在比亞迪撤銷掉其中一個戰區總經理,並且每個戰區同時負責4張網(比亞迪汽車銷售渠道分成A1、A2、A3、A4四個銷售網路,每個網都有自己的標準車型和盈利的重量級車型,比如A1網的F3、F6,A2網的F0、 L3,A3網的G3,A4網的M6、I6。)的銷售。此外,比亞迪汽車還計劃把A4網路併入A3網,大幅放慢網路擴張的腳步。


























January 07, 2011

discipline, hardwork, practice

charlie munger
Becoming a good investor
"If you're going to be an investor, you're going to make some investments where you don't have all the experience you need. But if you keep trying to get a little better over time, you'll start to make investments that are virtually certain to have a good outcome. The keys are discipline, hard work, and practice. It's like playing golf -- you have to work on it."

Investing mental models
"You need a different checklist and different mental models for different companies. I can never make it easy by saying, 'Here are three things.' You have to derive it yourself to ingrain it in your head for the rest of your life."

Views on Ben Graham's ideas
While Munger largely rejects Ben Graham's cigar-butt style of investing, he embraces the core principles: "The idea of a margin of safety, a Graham precept, will never be obsolete. The idea of making the market your servant will never be obsolete. The idea of being objective and dispassionate will never be obsolete. So Graham had a lot of wonderful ideas."

Stock valuations
Munger continues to report difficulty finding good stocks to buy: "In terms of the general climate, I think it's pretty miserable for anyone who likes easy, sure money. Common stocks may be reasonably fairly valued, but they are not overwhelming bargains."

The importance of reading
"In my whole life, I have known no wise people (over a broad subject matter area) who didn't read all the time -- none, zero... You'd be amazed at how much Warren reads -- at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out."

How to get rich
A young shareholder asked Munger how to follow in his footsteps, and Munger brought down the house by saying, "We get these questions a lot from the enterprising young. It's a very intelligent question: You look at some old guy who's rich and you ask, 'How can I become like you, except faster?'"

Munger's reply was: "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."

Circle of competence
"There are a lot of things we pass on. We have three baskets: in, out, and too tough...We have to have a special insight, or we'll put it in the 'too tough' basket. All of you have to look for a special area of competency and focus on that."

Buying into stock declines
"Over many decades, our usual practice is that if [the stock of] something we like goes down, we buy more and more. Sometimes something happens, you realize you're wrong, and you get out. But if you develop correct confidence in your judgment, buy more and take advantage of stock prices."