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kincsem

I am reading the 2006 edition of The Intelligent Investor by Benjamin Graham updated with new commentary by Jason Zweig.

I have no loans and a small bit of cash. I took early retirement two years ago and have been waiting to put it into the US market.

Today I bought Berkshire Hathaway B (BRKB) shares at $3400 a share, and a few Fannie Mae (FNM) at $0.66. A few weeks ago I bought a little Abercrombie & Fitch (ANF) at $26.00. 90% of my money is now in the BRKB shares.

The S&P 500 P/E ratio (price to earnings) is 11.1 today. Historically an S&P 500 under 10 was a good time to buy.

Stock bear market declines in the Dow Jones Industrial Average (DJIA) from 1899 to 1970 were -31%,-45%,-49%,-47%,-33%,-47%,-89%,-50%,-41%,-24%,-12%,-19%,-27%,-37% (my calculations).
The present decline from 14,200 to 7,700 was -46%. We are now at 8,400.

Everyone is talking negatively. Fear is high. This is the time to buy.

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pocketdooz

Congratulations on your early retirement.

1) How have you / are you planning to . . . hedge your currency exposure ?

2) Why do you have 90% of your money in one stock ?

3) Why did you buy a high-end consumer retailer stock at the beginning of one of the biggest instances of deleveraging, credit contraction and plummeting consumer confidence we have seen in 70 years ?

4) What value do you see in Fannie Mae (what goes down must come back up doesn't hold up) ?

I agree with you that now is the time to buy but not on your investment thesus. As a person who has stopped working with no stated alternative source of income I think your investment strategy is very risky at best.

Good luck with it though

.

kincsem

pocketdooz wrote: »

Congratulations on your early retirement.
1) How have you / are you planning to . . . hedge your currency exposure ?
2) Why do you have 90% of your money in one stock ?
3) Why did you buy a high-end consumer retailer stock at the beginning of one of the biggest instances of deleveraging, credit contraction and plummeting consumer confidence we have seen in 70 years ?
4) What value do you see in Fannie Mae (what goes down must come back up doesn't hold up) ?

I agree with you that now is the time to buy but not on your investment thesus. As a person who has stopped working with no stated alternative source of income I think your investment strategy is very risky at best.

Good luck with it though.

(1) I put the cash into my E*Trade account in January 2008 and converted the Euro into dollars at that time. I made about 20% profit before I acted today. I could have taken out the cash and walked away with the profit, but I would prefer to buy the discounted stocks. If the exchange rate moves against me in the future I accept that.

(2) I put the money into one share. That company owns many shares (Coca-Cola; Washington Post; Geico; and dozens of others) that are solid. The company is run by 78 year old Warren Buffett, at 31/12/07 the richest man in the world, a position achieved by his ability in the stock market, without any inherited wealth. He will invest conservatively. He once went three years without buying a share as prices were too high.

Read my post # 18 here -
http://www.boards.ie/vbulletin/showthread.php?t=2055199191&page=2
and also on the following page.

(3) Aberdrombie & Fitch is a gamble, but they were selling at a P/E of 5 (now 4). They have almost no debt, and imo can weather a downturn. They have a high profit margin. For every $100 sold, material is $30, expenses $40, profit $30 (rough figures). I do not have much in these.

(4) Fannie Mae is also a gamble. This crisis will pass. They may lose all their capital, but I am prepared for a 100% loss of small money.

I have a pension, so have no financial worries. The invested money is not needed for living expenses. I will probably put more from my pension into the market if it stays low, or declines further. This week I am in the late stages of opening a UK E*Trade account to put a small amount into local shares.

Blackjack

pocketdooz wrote: »

Congratulations on your early retirement.

3) Why did you buy a high-end consumer retailer stock at the beginning of one of the biggest instances of deleveraging, credit contraction and plummeting consumer confidence we have seen in 70 years ?

4) What value do you see in Fannie Mae (what goes down must come back up doesn't hold up) ?

I agree with you that now is the time to buy but not on your investment thesus. As a person who has stopped working with no stated alternative source of income I think your investment strategy is very risky at best.

Good luck with it though

.

Have to agree here. Abercrombie and Fannie is an odd choice, and the lack of diversity may cost you.

Hope it works out. You're braver than me with your money.

kincsem

The Abercrombie & Fitch, Fannie Mae, and the local stock I will buy next week are speculations. Forget them.

The real choice is Berkshire hathaway at what I think is a low price. 90% of my money is in Berkshire Hathaway B shares.

I did not have free cash until I retired. Berkshire has grown from a share value of $8 to $150,000 (I hope you took the time to read my link) by avoiding speculation in aviation, computers, internet, real estate, and other bubbles.

Although you say my choice is not diversfied, if you look closely you will see that Berkshire owns many shares and businesses. Diversification can also mean lack of care in choosing shares, on the assumption that holding many shares spreads the risk. The real risk is in not taking care in researching your choices.

For the YouTube generation I think you should Google "Warren Buffett MBA talk". After a few minutes watching his talk you will realise that Buffett is special.

Blackjack

kincsem wrote: »

The Abercrombie & Fitch, Fannie Mae, and the local stock I will buy next week are speculations. Forget them.

The real choice is Berkshire hathaway at what I think is a low price. 90% of my money is in Berkshire Hathaway B shares.

I did not have free cash until I retired. Berkshire has grown from a share value of $8 to $150,000 (I hope you took the time to read my link) by avoiding speculation in aviation, computers, internet, real estate, and other bubbles.

Although you say my choice is not diversfied, if you look closely you will see that Berkshire owns many shares and businesses. Diversification can also mean lack of care in choosing shares, on the assumption that holding many shares spreads the risk. The real risk is in not taking care in researching your choices.

For the YouTube generation I think you should Google "Warren Buffett MBA talk". After a few minutes watching his talk you will realise that Buffett is special.

Trust me, I'm a lot more familiar with the work of Warren Buffet than you may think.

I realise that Buffet has had some pretty good capital returns (from 8 to 150K over a 30-something year period), currently at around 100K per share, and if you're going to put all your eggs in a single basket, it's one of the better baskets to put it in, but I'm just a bit more risk averse personally.

I'm waiting for better news before I start putting my money anywhere. I'll miss out on early gains, but I'm not going to try to predict the bottom of the curve myself.

pocketdooz

kincsem wrote: »

(1) I put the cash into my E*Trade account in January 2008 and converted the Euro into dollars at that time. I made about 20% profit before I acted today. I could have taken out the cash and walked away with the profit, but I would prefer to buy the discounted stocks. If the exchange rate moves against me in the future I accept that.

(2) I put the money into one share. That company owns many shares (Coca-Cola; Washington Post; Geico; and dozens of others) that are solid. The company is run by 78 year old Warren Buffett, at 31/12/07 the richest man in the world, a position achieved by his ability in the stock market, without any inherited wealth. He will invest conservatively. He once went three years without buying a share as prices were too high.

Read my post # 18 here -
http://www.boards.ie/vbulletin/showthread.php?t=2055199191&page=2
and also on the following page.

(3) Aberdrombie & Fitch is a gamble, but they were selling at a P/E of 5 (now 4). They have almost no debt, and imo can weather a downturn. They have a high profit margin. For every $100 sold, material is $30, expenses $40, profit $30 (rough figures). I do not have much in these.

(4) Fannie Mae is also a gamble. This crisis will pass. They may lose all their capital, but I am prepared for a 100% loss of small money.

I have a pension, so have no financial worries. The invested money is not needed for living expenses. I will probably put more from my pension into the market if it stays low, or declines further. This week I am in the late stages of opening a UK E*Trade account to put a small amount into local shares.

Best of luck with everything. I understand your points with BH. One problem I have had with the stock is that it is like 'Buying into Buffett' in that essentially you're buying a call option on Warren Buffett's life. If the main reason you bought BH was because of WB (which is a pretty decent argument, I agree), does it not reason that many others have too and that when/if he retires/dies and the mantle is passed on to Munger or whoever it will be the stock will lose some of its sparkle ? Some of their underlying cash streams are very good (esp. insurance) - what is their div. yield on the B shares? Do they carry voting rights ?

Also, you seem to suggest that Berkshire is extremly diversified when in fact over half of their revenue is form insurance underwriting. Do not be misled by what you read about CocaCola, Gillette etc - Berkshire Hathaway is essentially an insurance company that uses it's revenue stream to purchase other assets as a holding company. Either way - I'm sure you know this.

If you're looking for European companies I would point you in the direction of Fresenius SE (Germany) - very solid revenue stream, no economic risk, hugely cash generative, dividend paying, well run etc.

Anyway - good luck with it.

kincsem

pocketdooz wrote: »

Best of luck with everything. I understand your points with BH. One problem I have had with the stock is that it is like 'Buying into Buffett' in that essentially you're buying a call option on Warren Buffett's life. If the main reason you bought BH was because of WB (which is a pretty decent argument, I agree), does it not reason that many others have too and that when/if he retires/dies and the mantle is passed on to Munger or whoever it will be the stock will lose some of its sparkle ? Some of their underlying cash streams are very good (esp. insurance) - what is their div. yield on the B shares? Do they carry voting rights ?

If you're looking for European companies I would point you in the direction of Fresenius SE (Germany) - very solid revenue stream, no economic risk, hugely cash generative, dividend paying, well run etc.

Anyway - good luck with it.

I'm not worried about Buffett's health at 78. Munger is 84. My guess is Ajit Jain will handle Berkshire in Buffett's absence.

Berkshire do not pay a dividend. Profits are re-invested. The idea is that Berkshire profits accumulate untaxed in the company instead of paying taxed dividends.

Some of his recent deals show his belt and braces attitude -
Bought $3 billion of General Electric preferred at a 10% dividend with an option to purchase their shares at $22.25 through 2013.
Bought $5 billion of Goldman Sachs preferred at 10% interest with conversion to shares at $115 within five years. Afaik he gets an extra 10% if the preferred are repaid.

Books I've read on Berkshire Hathaway / Warren Buffett

Of Permanent Value - Andrew Kilpatrick (759 pages)
Buffett - The Making Of An American Capitalist - Roger Lowenstein (475 p)
The Snowball - Warren Buffett And The Business Of Life - Alice Schroeder (960 p)
The Warren Buffett Way - Roger Hagstrom (313 p)
The New Buffettology - Mary Buffett & David Clark (288 p)
The Buffettology Workbook - Mary Buffett & David Clark (190 p)
Warren Buffett Speaks - Janet Lowe (192 p)
The Intelligent Investor - Benjamin Graham (623 p)

A big shock like General Motors going bankrupt might drive the market lower. But shares are cheap at the moment. I did not want to wait for the market to move up and away.

My first share purchase ever was on 30/12/74 in Mercantile Credit. The UK market hit a FTSE low of 146 a week later on 06/01/75 when Burmah Oil failed. I sold my shares on 30/01/75 for a 115% profit. At the time comments were similar - why would anyone buy shares? But when shares are cheap why would you not buy?

Baird

kincsem wrote: »

But when shares are cheap why would you not buy?

That is probably the worst piece of advice i have ever heard in my life.
AIB were cheap at €6, they were cheaper at €4 and yesterday they were super cheap at €2.80.

ranger4

As markets seem in the middle of re testing october lows and even falling further does anyone believe that we are anywhere near bottom? lots of traders expect the low to fall withinn next years second quarter, Be interested to hear views from other traders with when and why they see a possible bottom.

kincsem

The Dow Jones (DJIA) low of 7,773.71 was on 10/10/08. Today, 13/11/08 the DJIA hit 7,965.42 before surging to a close at 8,835.25.

I loaded bigcharts.com and clicked the red Advanced Charting button at the top of the screen.

I input these values on the sidebar on the left side of the screen –
Symbol – SP500
Time Frame – I selected Custom, and input dates From 1/4/68 To 11/13/08
Indicators – I selected Volatility Slow
Chart Style – Logarithmic
Chart Background – Graph Paper
Chart Size – Big

Then back up to the top of the left-hand sidebar and click Draw Chart.

When the chart displays you will see peaks in the Volatility Slow graph at 1974, 1987, 2002, 2008 – all market lows before strong upswings in the market. The present peak in the Volatility Slow is the largest in that graph covering 1968 to 2008.

Baird

kincsem wrote: »

The Dow Jones (DJIA) low of 7,773.71 was on 10/10/08. Today, 13/11/08 the DJIA hit 7,965.42 before surging to a close at 8,835.25.

I loaded bigcharts.com and clicked the red Advanced Charting button at the top of the screen.

I input these values on the sidebar on the left side of the screen –
Symbol – SP500
Time Frame – I selected Custom, and input dates From 1/4/68 To 11/13/08
Indicators – I selected Volatility Slow
Chart Style – Logarithmic
Chart Background – Graph Paper
Chart Size – Big

Then back up to the top of the left-hand sidebar and click Draw Chart.

When the chart displays you will see peaks in the Volatility Slow graph at 1974, 1987, 2002, 2008 – all market lows before strong upswings in the market. The present peak in the Volatility Slow is the largest in that graph covering 1968 to 2008.

..... and that means absolutly nothing
This is the third worst volatility seen in the DJI in history, its the second worst in the spx and the worst in the ftse and nasdaq.
Does that mean its a good buying opportunity or that it will not continue?
No of course it doesnt.

Time Magazine

ranger4 wrote: »

Be interested to hear views from other traders with when and why they see a possible bottom.

Merged with a thread with views on when and why people traders see a possible bottom.

Raskolnikov

Personally, I wouldn't have a problem with having 90% of my investments wrapped up in Berkshire. Yes, a good deal of Berkshire's profit does come from insurance but you must remember that the companies equity is spread over a very wide series of businesses and investments.

Abercrombie and Fitch looks like a good long-term play. Yes, money is tight and we are facing a recession. I'm sure that ANF are going to be facing challenging times over the next two years. However, Western society is still highly brand driven and I have no doubt that as a premium fashion brand, ANF will rebound.

My only criticism of your portfolio is your Fannie Mae pick. It certainly is too big to fail, but that doesn't mean there is substantial risk to investors.

Raskolnikov

Getting back to your original point by the way, I do think now is a fantastic time to go bargain hunting. Everytime I hear the likes of Jim Cramer or Joe Soap on the street talking about how stocks are such a terrible investment, I feel reassured about my bullish stance.

Here are two stocks (one Irish, one foreign) that I have taken a position in over the last week. Pearls of wisdom or pellets of poo; you decide!

My Irish pick is Total Produce. I've been watching this company for the last year and a half and have been impressed by the work of McCann in increasing the size of the company organically and not through debt. The boring business that they do is fruit distribution and although they're a small player, they are expanding throughout the British Isles and Europe. Despite increasing profits and turnover, the market has devalued the company by nearly 70%. The nice dividend, favourable P/E and P/B ratios make this stock a no-brainer for me.

My international pick is the Dow Chemical Company. I like it for much the same reasons as Total Produce. It's stil a growing company, trades waaay below book value and is commited to paying a juicy dividend every year.

kincsem

My investments in November were 90% Berkshire; 8% Abercrombie; 2% Fannie Mae. I have bet more on a horse, or as a buy-in to a poker tournament than I invested in Fannie Mae.

My best investment decision was waiting with the money I received (AVC contributions) since I took early retirement in November 2006 . Many stocks are now less than one third of the price they were at the Dow peak in summer 2007.

I will be in the bank tomorrow transferring more money into my investment account. My biggest problem at the moment is the paperwork / passport / bank account / tax number copies.

Raskolnikov

I only wish that I had more to invest in today's market.

One stock that I'm looking at (you already have exposure to it through Berkshire) is ConocoPhillips. On the software I use, I have set a classic Graham-type filter (dividend yield at least 4%, P/E at most 10, P/B at most 0.8, etc). Usually, the filter throws up dodgy stuff (financials, shipping, etc), but I was amazed to see COP there. Anyway, I added the stock to my watchlist (will buy in the new year when I get tax back and assuming I get a favourable price). Felt vindicated when I read that Buffett loaded up on it yesterday

Idu

Just read through this thread now and just picked out a few things that stood out to me. I dont have any opinions on any of the stocks chosen for investment, people should trade on their own research and work not on the back of other peoples advice

kincsem wrote: »

But when shares are cheap why would you not buy?

Because most stocks have a genuine financial reason why they are so cheap. Fear and panic is not a good enough reason to believe that everything is still rosy

kincsem wrote: »

Everyone is talking negatively. Fear is high. This is the time to buy.

No the time to buy would be when the tide turns and the bulls return to the party

kincsem wrote: »

I have a pension, so have no financial worries

Good lesson for anyone out their thinking of making a killing because prices are low(Not saying you are kincsem)

Blackjack wrote: »

I'm waiting for better news before I start putting my money anywhere. I'll miss out on early gains, but I'm not going to try to predict the bottom of the curve myself.

This is the best point of this entire thread. Bottom picking is a fools errand. The most important things I learned when I started trading were that the Trend is your friend and the tops and bottom are not when you want to be involved with stocks. Why spend all your time trying to pick a bottom and getting chewed up when you can sit back, wait for the turn, and get on the move then. If for example AIB were to make a 6 euro move what does it matter if you miss the first euro when you can be confident that your investment is already heading in the right direction.

Raskolnikov

janets_on_clubs wrote: »

No the time to buy would be when the tide turns and the bulls return to the party.

I disagree. While I wouldn't try and call a bottom, I have no qualms in buying in a bear market if the stock fufills my criteria. If it gets cheaper, then so be it, I will just buy more. The most important thing is not to throw all your eggs into a basket at once. If you do that, you've no hope of lowering your buying cost.

janets_on_clubs wrote: »

If for example AIB were to make a 6 euro move what does it matter if you miss the first euro when you can be confident that your investment is already heading in the right direction.

Two words - bull trap! AIB has had plenty of these.

soddy1979

Raskolnikov, what do you mean by this "Two words - bull trap! AIB has had plenty of these." Thanks.

Raskolnikov

soddy1979 wrote: »

Raskolnikov, what do you mean by this "Two words - bull trap! AIB has had plenty of these." Thanks.

I'll give you an example.

AIB is selling at €5 a share after falling from €10. AIB then goes up to €6. Buyer thinks that the bottom has come and buys AIB shares. Shares then go frm €6 to €3. Buyer has a paper loss of 50% after thinking the market was in a reversal; we call that a bull trap.

soddy1979

OK thanks.

Idu

Good point but the point I was making was its easier to catch a full reversal than to pick the bottom. I wouldnt just be using price action to determine my in but the fundamentals of the stock and the overall market sentiment

ranger4

Raskolnikov wrote: »

I'll give you an example.

AIB is selling at €5 a share after falling from €10. AIB then goes up to €6. Buyer thinks that the bottom has come and buys AIB shares. Shares then go frm €6 to €3. Buyer has a paper loss of 50% after thinking the market was in a reversal; we call that a bull trap.

Looks like all the bank stocks are being flushed down the toilet at the moment.

Guvnor

Not having watched the BOI share price for about two weeks, was I surprised to see it hit 87 cents!

How low can it go before something gives? With the government backing it is unlikely to go bust but could we see it de-listed.

It is funny to see on google finance the ADR quoting a dividend yield of 96% - if only it were true!

What are the views on EFT's? DIG & DUG specifically.

Baird

Raskolnikov wrote: »

Personally, I wouldn't have a problem with having 90% of my investments wrapped up in Berkshire. Yes, a good deal of Berkshire's profit does come from insurance but you must remember that the companies equity is spread over a very wide series of businesses and investments.

Abercrombie and Fitch looks like a good long-term play. Yes, money is tight and we are facing a recession. I'm sure that ANF are going to be facing challenging times over the next two years. However, Western society is still highly brand driven and I have no doubt that as a premium fashion brand, ANF will rebound.

My only criticism of your portfolio is your Fannie Mae pick. It certainly is too big to fail, but that doesn't mean there is substantial risk to investors.

Couldnt disagree more with AnF to be honest.
Of all things luxury goods are going to be one of the last things people buy.
The world is in recession, the severity of the recession is going to get worse
in the short - medium term. AnF are a terrible terrible stock to own in a downturn. Consumer confidence is going to continue to plummet id get rid of
that stock if it was my call.

Jesus Wept

How do you expect the currency markets to affect your stocks, mostly your BKRB as it is the one you are most invested in?

kincsem

kincsem wrote: »

(1) I put the cash into my E*Trade account in January 2008 and converted the Euro into dollars at that time. I made about 20% profit before I acted today. I could have taken out the cash and walked away with the profit, but I would prefer to buy the discounted stocks. If the exchange rate moves against me in the future I accept that.

My exchange rate is about 1.56 so I am ahead until the dollar rate moves back to that. I expect the dollar to weaken.
I have no idea how fluctuating rates will impact Berkshire - that's not my job.
But I like having the world's best investor in this market with a load of cash.

I see ANF are down to $16 from the $26 I got. Today I put cash into a UK E*Trade account, but now I want to put more into ANF. With luck that price will hold for a while, or drop. Chasing is not good, but I might make an exception here.

Baird

kincsem wrote: »

My exchange rate is about 1.56 so I am ahead until the dollar rate moves back to that. I expect the dollar to weaken.
I have no idea how fluctuating rates will impact Berkshire - that's not my job.
But I like having the world's best investor in this market with a load of cash.

I see ANF are down to $16 from the $26 I got. Today I put cash into a UK E*Trade account, but now I want to put more into ANF. With luck that price will hold for a while, or drop. Chasing is not good, but I might make an exception here.

Dont
Burberry issued a profit warning today along with a raft of other US retailers
showing that the US consumer is getting more and more stretched by the day.
Retail stocks are definitely the last place you want to be in and especially a
higher end retailer.
Your money though but thats my advice.

kincsem

The big negative on ANF at the moment imo is a comment that the driving force behind the company might move elsewhere. The price dropped on big volume, and that looks like a typical US market over-reaction to bad news (4th quarter sales likely to be down a third). I am not worried about the company, but it will probably be early 2009 before I have free cash to buy (if). I would love to see the shares in single figures.

woodseb

http://blogs.wsj.com/marketbeat/2008/11/20/would-buffett-find-berkshire-a-value/

interesting article on BH in the WSJ, seem the sage of omaha is not immune in this market