Intelligent Investor Club

One of my readers, Ken, asked me this question:

Read your blog. Very good- I wonder if you do discounted cash flow analysis for the stocks you value (as opposed to the PE multiples approach).

If you do, then, how do you evaluate a company with decrease in earnings growth in the first year of projection?

Thanks for your input.

I gave Ken a very concise reply:

…Continue reading » Discounted Cash Flow Analysis

This year, Mohnish Pabrai, author of The Dhandho Investor: The Low – Risk Value Method to High Returns, won the eBay bid for a lunch with Warren Buffett.

Mohnish Pabrai was recently interviewed by Justin Fuller, Stock Analyst of Morningstar. During this interview, Mohnish talks about:

…Continue reading » Mohnish Pabrai, Author of Dhandho Investor

For those of you who have been reading the annual letters, you will realise that Warren Buffett likes to include humourous writings into his letter. Some of them are actually quite funny and starting from today, I will be sharing them with you on a consistent basis. Here’s one:

There are really only three kinds of people in the world: those who can count and those who can’t.

Just managed to stumble upon a collection of audios and videos by some prominent value investors.These are recorded from various conferences and lectures, capturing their invaluable thoughts, ideas and philosophies. The collection includes teachings by: …Continue reading » The Ben Graham Centre for Value Investing

I’m done with the summary of the 1997 reports! That makes it twenty years from 1977 to 1997.

Ten more years to catch up with the present 2007 report.

To all my readers, thank you for your support.

Here are my plans for the future:

…Continue reading » Twenty Years of Berkshire Annual Reports!

Berkshire Annual Letter 1997 (Part 7)

Whenever Warren Buffett buys into an industry whose leading participants aren’t known to him, he will always ask his new partners, “Are there any more at home like you?”

Here’s something interesting. When he asked that of the Blumkin family upon buying Nebraska Furniture Mart in 1983, he was given three names – R.C. Willey, Star Furniture and one other.

Many years later, Warren Buffett puchased R.C. Willey and put the same question to the CEO, Bill Child. He was given two names which matched the remaining two given by Blumkin.

…Continue reading » Making Acquisitions

Berkshire Annual Letter 1997 (Part 6)

Many of Berkshire’s businesses have an extraordinary performance that may not be immediately obvious to the untrained observer. Certainly, if you compare the earnings history of Buffalo News or Scott Fetzer to their publicly-owned counterparts, they might be similar.

The reality behind the scenes is that most public companies retain at least two-thirds or more of their earnings to fund their growth. On the other hand, Berkshire subsidiaries have always returned 100% of their earnings to their parent company.

…Continue reading » Operating Earnings of Berkshire’s Subsidiaries

Berkshire Annual Letter 1997 (Part 5)

Continuing on from Warren Buffett’s discussion on insurance float, we now move on to the most volatile form of insurance, the super-cat (or super-catastrophy) insurance.

Insurance companies and reinsurance companies purchase insurance themselves to limit their losses in the event of a major disaster. A company that is willing to underwrite such policies must have a very strong financial strength.

Berkshire, being in such a position, underwrites super-cats heavily and has a huge involvement in this form of insurance.

…Continue reading » Super-Cat Insurance

Berkshire Annual Letter 1997 (Part 4)

Unless you understand about “float” and how to measure its cost, you will never be able to make a good estimate about Berkshire’s intrinsic value.

Float is money that is held but not owned.

In the insurance industry, there is float because premiums are received before losses are paid. This time interval can sometimes extend to decades. During this time, the money can be invested by the insurer.

…Continue reading » A Discussion on Insurance Float

Berkshire Annual Letter 1997 (Part 3)

If you intend to eat hamburgers all your life and you are not a cattle producer, do you prefer higher or lower prices for beef?

If you are going to buy a car from time to time but are not an autor manufacturer, would you prefer higher or lower car prices?

The answer to these two questions are obvious. Now, for the third question.

…Continue reading » Warren Buffett Views on Market Fluctuations