Thursday, December 29, 2005

What has Worked in Investing by Tweedy, Browne Company LLC

Studies of Investment Approaches and Characteristics Associated with Exceptional Returns

Great article.
Dah Hui Lau (David)

Value Investing Presentation by Prof. Sanjay Bakshi; August 13, 2002

Prof. Sanjay Bakshi is professor of finance in India.

Here is his value investing presentation at Oxford Book Club.

Enjoy this superb presentation.

All the best,
Dah Hui Lau (David)

The Graham and Dodd Lecture Series; Value Investing Seminar London; August 4-5, 2005

The speaker is Prof. Bruce Greenwald from Columbia University, where Benjamin Graham worked before. The 3 hours video archive is free.

Here is link for Value Investor Seminar:

Enjoy the seminar.

All the best,
Dah Hui Lau (David)

2005's Value Creators and Destroyers December 21, 2005

We've crunched the numbers and found this year's winners and losers.....

Enjoy the reading from Morningstar

Warmest regards,
Dah Hui Lau (David)

Wait for the Right Price Part 2; June 25, 2004

Despite a stellar record, Morningstar's Mark Sellers admits he's not perfect: "My timing when I sell seems always to be too early"

Enjoy reading from BusinessWeek Online

All the best,

Dah Hui Lau (David)

Wait for the Right Price Part 1; June 23, 2004

In Part 1 of a Q&A, Morningstar whiz Mark Sellers explains his basic approach to investing. "We don't do much trading," he says

Enjoy reading from BusinessWeek Online

All the best,

Dah Hui Lau (David)

Friday, December 23, 2005

Interview with Arne Alsin has posted excerpts from the latest Value Investor Insight interview with Arne Alsin

Interview with Larry Robbins, October 2005

Value Investor Insight Interview with Larry Robbins, October 2005

Interview with Lisa Rapuano, September 2005

Value Investor Insight Interview with Lisa Rapuano, September 2005

Interview with Jim Chanos, July 2005

Value Investor Insight Interview with Jim Chanos, July 2005

Interview with Mark Sellers, June 2005

Value Investor Insight Interview with Mark Sellers, June 2005

Interview with David Einhorn, March 2005

Value Investor Insight Interview with David Einhorn, March 2005

Interviews with Rich Pzena & Zeke Ashton, February 2005

Value Investor Insight Interviews with Rich Pzena & Zeke Ashton, February 2005

Our Favourite Stock Idea: Berkshire Hathaway

Great presentation by Glenn Tongue & Whitney Tilson at Value Investing Congress on Nov 16, 2005.
Thank you to T2 Partners LLC for sharing the insight.
Enjoy the presentation.
Warmest regards,
Dah Hui Lau (David)

Audio Interview of Joel Greenblatt

The Motley Fool, December 2, 2005 · David Gardner talks investing with Joel Greenblatt, the founder and managing partner of Gotham Capital, a private investment partnership that has achieved 40-percent annualized returns since its inception in 1985. Greenblatt's new book is The Little Book That Beats the Market.

Benjamin Graham on Fixed Income (Bond) Investing

A wonderful article on fixed income investments by Benjamin Graham

Thank you Prof Brian Zen for the link.

Thursday, December 22, 2005

Olstein Financial Alert Fund

Bob Olstein of Olstein Funds has published an ebook - "A Decade of Shareholder Letter excerpts" for Olstein Funds 10th Anniversary.

Thanks for for the link.

Wednesday, December 21, 2005

Cost of capital

Munger: "Obviously, consideration of costs is key, including opportunity costs. Of course capital isn't free. It's easy to figure out your cost of borrowing, but theorists went bonkers on the cost of equity capital. They say that if you're generating a 100% return on capital, then you shouldn't invest in something that generates an 80% return on capital. It's crazy." (2001 Annual Meeting)

Buffett: "A corporation's cost of capital is 1/4 of 1% below the return on capital of any deal the CEO wants to do." (2001 Annual Meeting)

"I've listened to many cost of capital discussions and they've never made much sense. It's taught in business school and consultants use it, so Board members nod their heads without any idea of what's going on." (2001 Annual Meeting)

Economic Value Added

Asked to elaborate on his comments at the Berkshire Hathaway meeting on Stern Stewart and their concept of Economic Value Added, Munger said:

"It's obvious that if a company generates high returns on capital and reinvests at high returns, it will do well. But this wouldn't sell books, so there's a lot of twaddle and fuzzy concepts that have been introduced that don't add much -- like cost of capital. It's accepted because some of it is right, but like psychoanalysis, I don't think it's an admirable system in its totality." (May 15, 2000)

Be satisfied

"Here's one truth that perhaps your typical investment counselor would disagree with: if you're comfortably rich and someone else is getting richer faster than you by, for example, investing in risky stocks, so what?! Someone will always be getting richer faster than you. This is not a tragedy.” by Charlie Munger (May 15, 2000)

Practice Evolution

"This is really important. For example, Hertz and Enterprise Rent-a-Car through practice evolution have developed personnel systems, etc. that work for them. They are like different species in similar ecological niches." by Charlie Munger (May 15, 2000)

"Common stock investors can make money by predicting the outcomes of practice evolution. You can't derive this by fundamental analysis -- you must think biologically.” by Charlie Munger (May 15, 2000)

"Another example is Tupperware, which developed what I believe to be a corrupt system of psychological manipulation. But the practice evolution worked and had legs. Tupperware parties sold billions of dollars of merchandise for decades.” by Charlie Munger (May 15, 2000)

"We wouldn't have bought CORT if we didn't like the culture, which resulted from long practice evolution." by Charlie Munger (May 15, 2000)


"Originally, there were interest rate swaps. If you did them naked, you could lose or make an enormous amount. But there wasn't enough money for traders, so they adopted mark-to-market accounting. Everyone caved, adopted loose [accounting] standards and created exotic derivatives linked to theoretical models. As a result, all kinds of earnings, blessed by accountants, are not really being earned. When you reach for the money, it melts away. It was never there." by Charlie Munger (May 15, 2002)

Expect the unexpected (Japan example)

"Warren has said that over 40 years, a lot of surprising things will happen." by Charlie Munger (May 15, 2002)

"What's interesting in Japan is that every life insurance company is essentially insolvent because they promised to pay 3%. Who'd have thought that this could lead to insolvency, but interest rates went to zero and stayed there for years. They tried to invest in equities, but got negative returns. Can you imagine 13 years with negative equity returns and interest rates below 1%?" by Charlie Munger (May 15, 2002)

"Is it inconceivable that it could ever happen here? I don't think so. Strange things happen." by Charlie Munger (May 15, 2002)

"Anyone has to be flabbergasted by Japan's recession, which has endured for 10 years, despite interest rates below 1%. The government is playing all the monetary games, but it's not working. If you had described this situation to Harvard economists, they would have said it's impossible. Yet at the same time, there's an asset bubble in Hong Kong. Why? Because Japan and China are two vastly different cultures. The Chinese are gamblers.” by Charlie Munger (May 15, 2000)

Risk of the unexpected

"A lot of things happen that you can't predict. Who would have predicted the war on terrorism, government spending increasing 10% each of the past two years, etc.?" by Charlie Munger (May 15, 2002)

"We try to run our companies so there's no chance of going back to Go. I think we're way more aware of that possibility [the risk of going back to Go], but that's no guarantee [that it can't happen to us]. In our insurance underwriting, we put in more clauses [limiting our risk] and are more aware of aggregate risks." by Charlie Munger (May 15, 2002)


"[Our investment in] USG obviously hasn't worked out very well. It wasn't just asbestos -- the market for wallboard went to hell. We missed that too. What can I say? It reminds me of a story about a man who had a wife and three kids. He conceived an illegitimate child with a woman he'd just met. When asked why he did it, he said, 'It seemed like a good idea at the time.'" by Charlie Munger (May 15, 2002)

Financial industry

"The financial industry has become so big. We keep pushing it further and further and further. For example, we now lease new autos for 36 months and guarantee a high residual value. How much further can you push consumer credit? We don't like it. We don't like pushing credit to extremes. We don't like daisy chain stock promotion. However, one of Berkshire's largest holdings is American Express, so we think it has a great future." by Charlie Munger (May 8, 2001)


"Wrigley is a great business, but that doesn't solve the problem. Buying great businesses at advantageous prices is very tough." by Charlie Munger (May 8, 2001)

Insurance risk

"We write huge policies or ones with unusual limits, but never ones with unlimited liability. The biggest risks are [assumed by] those who write lots of homeowner's policies." by Charlie Munger (2001 Annual Meeting)

How to detect bad reserving

"If [an insurance company's] combined ratio is wonderfully regular, then it's probably crooked. It's also a bad sign if a company is consistently under-reserving." by Charlie Munger (May 8, 2001)
"Sometimes you can tell by the people that the numbers are good. For example, George Joseph of Mercury General is a genius and you know his numbers are right." by Charlie Munger (May 8, 2001)

State Farm

"State Farm is one of the very richest insurance companies in the world. It's an honorable, old fashioned, high-grade place. They have integrity and skill. In condominium insurance, for example, they're the best. They're in Indiana, don't have elaborate compensation schemes, no stock options, and no high-falutin' advisors -- and they've blown by competitors. We admire them." by Charlie Munger (May 8, 2001)

"They're enormously rich, so if they decide to keep a lid on auto insurance, I can't predict when they might stop. We [at GEICO] have a better model though." by Charlie Munger (May 8, 2001)

Retailing and Costco

"If I were teaching at business school, I'd take people through retailing because it's easy to understand. Retailing is pretty simple. There are four or five strategies." by Charlie Munger (May 8, 2001)

"I'm a director of Costco. It's easy to understand. In the history of the world, few companies have succeeded on a 12% mark-up. They make it up with high volume. Costco has the right culture. They promote from within. It's a wonderful place to work." by Charlie Munger (May 8, 2001)

"I think that Costco is a better operator in the warehouse club format than Sam's. Both companies will do well in the future, but I predict that Costco will do better." by Charlie Munger (May 8, 2001)

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?'" (May 9, 2003)

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." (May 9, 2003)

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." by Charlie Munger (May 9, 2003)


"There's a lot wrong [with American universities]. I'd remove 3/4 of the faculty -- everything but the hard sciences. But nobody's going to do that, so we'll have to live with the defects. It's amazing how wrongheaded [the teaching is]. There is fatal disconnectedness. You have these squirrelly people in each department who don't see the big picture." by Charlie Munger (May 15, 2002)

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." by Charlie Munger (May 15, 2002)

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." by Charlie Munger (May 15, 2002)

"You must know the big ideas in the big disciplines, and use them routinely -- all of them, not just a few. Most people are trained in one model -- economics, for example -- and try to solve all problems in one way. You know the old saying: to the man with a hammer, the world looks like a nail. This is a dumb way of handling problems." by Charlie Munger (May 15, 2000)

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." by Charlie Munger (May 15, 2002)

Extraordinary Charges

"If it happens every year like clockwork, what's so extraordinary about it?" by Charlie Munger (May 8, 2001)

The scandal of American pension fund accounting

"IBM (NYSE: IBM) just raised its return expectations for its pension fund to 10%. [Editor's note: Companies can make adjustments to the assumptions that make up the value of their pension funds, which can affect reported earnings.] Most companies are at 9%. We think 6% is more realistic. They may believe it -- they're honest people -- but subconsciously they believe it because they WANT to believe it. It makes earnings good so they can promote the stock.” by Charlie Munger (May 8, 2001)

"The reason accountants don't say anything is best summed up by the saying, 'Whose bread I eat, his song I sing.' I think you're getting very foolish numbers in American accounting. I don't think it's willful dishonesty, but it might as well be." by Charlie Munger (May 8, 2001)

Future returns from equities

"If I'm wrong [about future stock market returns being in the mid-single digits], it could be for a bad reason. Stocks partly sell like bonds, based on expectations of future cash streams, and partly like Rembrandts, based on the fact that they've gone up in the past and are fashionable. If they trade more like Rembrandts in the future, then stocks will rise, but they will have no anchors. In this case, it's hard to predict how far, how high, and how long it will last.” by Charlie Munger (May 8, 2001)

"If stocks compound at 15% going forward, then it will be due to a big 'Rembrandt effect.' This is not good. Look at what happened in Japan, where stocks traded at 50 to 60 times earnings. This led to a 10-year depression. I think that was a special situation, though. My guess is that we won't get extreme 'Rembrandtization' and the returns will be 6%." by Charlie Munger (May 8, 2001)

Tuesday, November 29, 2005


“Both of us feel that those of us who have been very fortunate have a duty to give back. Whether one gives a lot as one goes along as I do or a little and then a lot [when one dies] as Warren does is a matter of personal preference. I would hate to have people ask me for money all day long. Warren couldn't stand it.” by Charlie Munger (2003 Annual Meeting)

“When we were born, odds were 50 to 1 against us being born in the US. So we were lucky. My lump sum should go to society. There's no reason little Buffetts should be running around in 100 years rich because they were lucky.” by Warren Buffett (2003 Annual Meeting)

Stock Market Predictions

“I don't know if we'll ever see stocks in general at mouthwatering levels that we saw in 1973-4 or 1982 even. I think there's a very excellent chance that neither Warren or I will see those opportunities again, but that's not all bad. We'll just keep plugging away.” by Charlie Munger (2003 Annual Meeting)

“It's not out of [the realm of] possibility though. You can never predict what markets will do. In Japan, a 10 year bond is yielding 5/8 of 1%. [Who could have ever imagined that?]” by Warren Buffett (2003 Annual Meeting)

Happiness and Success

“I tell college students, when you get to be my age you will be successful if the people who you hope to have love you, do love you. Charlie and I know people who have buildings named after them, receive great honors, etc., and nobody loves them -- not even the people who give them honors. Charlie and I talk about wouldn't it be great if we could buy love for $1 million. But the only way to be loved is to be lovable. You always get back more than you give away. If you don't give any you won't get any. Everybody loves Don Keough [former senior executive and Board member of Coca Cola]. There's nobody I know who commands the love of others who doesn't feel like a success. And I can't imagine people who aren't loved feel very successful.” by Warren Buffett (2003 Annual Meeting)

“You don't want to be like to motion picture exec who had so many people at his funeral, but they were there just make sure he was dead. Or how about the guy who, at his funeral, the priest said, "Won't anyone stand up and say anything nice for the deceased?" and finally someone said, "Well, his brother was worse."” by Charlie Munger (2003 Annual Meeting)

Preparing for the future

"Imagine that you had a car and that was the only car you'd have for your entire lifetime. Of course, you'd care for it well, changing the oil more frequently than necessary, driving carefully, etc. Now, consider that you only have one mind and one body. Prepare them for life, care for them. You can enhance your mind over time. A person's main asset is themselves, so preserve and enhance yourself." by Warren Buffett (2002 Annual Meeting)


"I agree. We took an $88 million loss to get out of Gen Re's derivative business. Many companies have similar problems, but don't want to face up to them. You're seeing the unwinding of a derivative book in the Enron debacle. You couldn't devise a worse system. It's like hell." by Warren Buffett (2002 Annual Meeting)

“Charlie and I think that there is a low but not insignificant probability that at some time -- I don't know when; it could be three years, it could be 20 years -- derivatives could lead to a major problem. The problem grows as derivatives get more complex. We hoped to give a mild wakeup call to the financial world that there's a problem. In the energy sector, derivatives destroyed or almost destroyed institutions that shouldn't have been destroyed. [He mentioned Enron.]” by Warren Buffett (2003 Annual Meeting)

“In engineering, people have a big margin of safety. But in the financial world, people don't give a damn about safety. They let it balloon and balloon and balloon. It's aided by false accounting. I'm more pessimistic than Warren. I'll be amazed if we don't have some kind of significant blowup in next 5-10 years.” by Charlie Munger (2003 Annual Meeting)

Feedback mechanisms

"Having a good partner is key. Charlie will not accept anything I say because I say it. It's great to have a partner who will tell you when you're thinking is wrong."

"Having good feedback mechanisms is terribly important. We have a very good system." by Warren Buffett (2002 Annual Meeting)

Index funds

“In response to a question about which index funds he's recommend, Buffett replied, "Just pick a broad index like the S&P 500. Don't put your money in all at once; do it over a period of time. I recommend John Bogle's books -- any investor in funds should read them. They have all you need to know." by Warren Buffett (2002 Annual Meeting)

"One could imagine a period like Japan 13 years ago, however, in which indexing over time wouldn't work." by Charlie Munger (2002 Annual Meeting)

Shorting stocks

"It's an interesting item to study. It's ruined a lot of people. You can go broke doing it."

"You'll see way more stocks that are dramatically overvalued than dramatically undervalued. It's common for promoters to cause a stock to become valued at 5-10 times its true value, but rare to find a stock trading at 10-20% of its true value. So you might think short selling is easy, but it's not. Often stocks are overvalued because there is a promoter or a crook behind it. They can often bootstrap into value by using the shares of their overvalued stock. For example, it it's worth $10 and is trading at $100, they might be able to build value to $50. Then, Wall Street says, "Hey! Look at all that value creation!" and the game goes on. [As a short seller,] you could run out of money before the promoter runs out of ideas." (2001 Annual Meeting)

"Charlie and I have agreed on around 100 stocks over the years that we thought were shorts or promotions. Had we acted on them, we might have lost all of our money, every though we were right just about every time. A bubble plays on human nature. Nobody knows when it's going to pop, or how high it will go before it pops." (2002 Annual Meeting)

"I had a harrowing experience shorting a stock in 1954. I wouldn't have been wrong over 10 years, but I was very wrong after 10 weeks, which was the relevant period. My net worth was evaporating." by Warren Buffett (2002 Annual Meeting)

Critique of EBITDA

"It amazes me how widespread the use of EBITDA has become. People try to dress up financial statements with it."

"We won't buy into companies where someone's talking about EBITDA. If you look at all companies, and split them into companies that use EBITDA as a metric and those that don't, I suspect you'll find a lot more fraud in the former group. Look at companies like Wal-Mart, GE and Microsoft -- they'll never use EBITDA in their annual report."

"People who use EBITDA are either trying to con you or they're conning themselves. Telecoms, for example, spend every dime that's coming in. Interest and taxes are real costs." by Warren Buffett (2002 Annual Meeting)

How to avoid fraud

"There's no short answer on how to avoid fraud. But there are whole fields where there's too much fraud, so we avoid them."

"We've been defrauded very infrequently over the years. If we do get defrauded, it'll be by someone carrying [Ben Franklin's] Poor Richard's Almanac under his arm."

"Crooks are often obvious. For example, Robert Maxwell's nickname was 'The Bouncing Check,' yet Salomon was trying to lend him money until three weeks before he went under. Wall Street has no filter, as long as there's profit." by Warren Buffett (2002 Annual Meeting)

Fannie Mae, Freddie Mac and Other Highly Leveraged Financial Institutions

Buffett continued, "There are many things you don't know by looking at a financial company's financial statements. We've seen enough to be wary. We can't be 100% sure that we like what's going on. With some types of companies, you can spot problems early, but you spot troubles in financial institutions late." by Warren Buffett

"Financial institutions make us nervous when they're trying to do well." [Think about that one for a while.] by Charlie Munger (2001 Annual Meeting)

Turnarounds vs. One-Foot Hurdles

"A further related lesson: Easy does it. After 25 years of buying and supervising a great variety of businesses, Charlie and I have not learned how to solve difficult business problems. What we have learned is to avoid them. To the extent we have been successful, it is because we concentrated on identifying one-foot hurdles that we could step over rather than because we acquired any ability to clear seven-footers."

"Both our operating and investment experience cause us to conclude that “turnarounds” seldom turn, and that the same energies and talent are much better employed in a good business purchased at a fair price than in a poor business purchased at a bargain price." by Warren Buffett

Losing and Regaining Competitive Advantage

“There aren't many examples of companies that lose and then regain competitive advantage. I have a friend who likes taking over lousy businesses and trying to turn them into great businesses [I wonder whether he was referring to Jack Byrne of White Mountains Insurance?]. I asked him for examples of this [bad businesses turning into good businesses] over the past 100 years [and he couldn't name very many].”

“One example: Pepsi lost its edge post-WW II when costs went up, but they successfully changed. To some extent Gillette lost its competitive edge in the 1930s to penny blades, but then regained it.”

“But generally speaking, when a company loses its edge, it's very difficult to regain. Packard [cars] went downscale one year and never regained its upscale image. Department stores have done this. You can always juice sales by going down market, but it's hard to go back up market.” by Warren Buffett (2003 Annual Meeting)


“Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ…Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.” by Warren Buffett

Sunday, November 27, 2005

The Borsheim Advantage

“The Borsheim selections are sent all over the country, some to people no one at Borsheim's has ever met. (They must always have been well recommended, however.) While the number of mailings in 1990 was a record, Ike has been sending merchandise far and wide for decades. Misanthropes will be crushed to learn how well our "honor-system" works: We have yet to experience a loss from customer dishonesty. At Borsheim’s, we attract business nationwide because we have several advantages that competitors can't match. The most important item in the equation is our operating costs, which run about 18% of sales compared to 40% or so at the typical competitor. (Included in the 18% are occupancy and buying costs, which some public companies include in "cost of goods sold.") Just as Wal-Mart, with its 15% operating costs, sells at prices that high-cost competitors can't touch and thereby constantly increases its market share, so does Borsheim's. What works with diapers works with diamonds.” by Warren Buffett

Purchase of Nebraska Furniture Mart

“One question I always ask myself in appraising a business is how I would like, assuming I had ample capital and skilled personnel, to compete with it. I’d rather wrestle grizzlies than compete with Mrs. B and her progeny. They buy brilliantly, they operate at expense ratios competitors don’t even dream about, and they then pass on to their customers much of the savings. It’s the ideal business - one built upon exceptional value to the customer that in turn translates into exceptional economics for its owners.” by Warren Buffett

Purchase of Wells Fargo

“Our purchases of Wells Fargo in 1990 were helped by a chaotic market in bank stocks. The disarray was appropriate: Month by month the foolish loan decisions of once well-regarded banks were put on public display. As one huge loss after another was unveiled - often on the heels of managerial assurances that all was well - investors understandably concluded that no bank's numbers were to be trusted. Aided by their flight from bank stocks, we purchased our 10% interest in Wells Fargo for $290 million, less than five times after-tax earnings, and less than three times pre-tax earnings.” by Warren Buffett


“Of course, Charlie and I can identify only a few Inevitables, even after a lifetime of looking for them. Leadership alone provides no certainties: Witness the shocks some years back at General Motors, IBM and Sears, all of which had enjoyed long periods of seeming invincibility. Though some industries or lines of business exhibit characteristics that endow leaders with virtually insurmountable advantages, and that tend to establish Survival of the Fattest as almost a natural law, most do not. Thus, for every Inevitable, there are dozens of Impostors, companies now riding high but vulnerable to competitive attacks. Considering what it takes to be an Inevitable, Charlie and I recognize that we will never be able to come up with a Nifty Fifty or even a Twinkling Twenty. To the Inevitables in our portfolio, therefore, we add a few "Highly Probables."” by Warren Buffett

Saturday, November 26, 2005

Investing expectations

"We think people whose expectations were set from 1982 - 1999 will be disappointed [with future investment returns]. But there's nothing wrong with earning 6% annually on your money, in a world of low inflation."

Munger: "One of the smartest things a person can do is dampen investment expectations, especially with Berkshire. That would be mature and responsible. I like our model and we should do nicely."

"The problem is the starting point in predicting modest returns for equity investors. [Expectations were too high.] In 1999, a Gallup poll showed people expected 15% [returns from stocks] in a low inflation environment. In a low inflation environment, how much will GDP grow? If there's 2% inflation and 3% [real] growth, that's 5%. This will be the rate of corporate growth, so if you add dividends, you get 6-7% [annualized returns] before frictional costs -- and investors incur high frictional costs (they don't have to, but they do) -- which adds up to 1.5%. [This 4.5-5.5% is] not bad." by Warren Buffett

Capital Expenditure

“Such an attitude is clearly delusional. At 95% of American businesses, capital expenditures that over time roughly approximate depreciation are a necessity and are every bit as real an expense as labor or utility costs. Even a high school dropout knows that to finance a car he must have income that covers not only interest and operating expenses, but also realistically-calculated depreciation. He would be laughed out of the bank if he started talking about EBDIT.”

“Capital outlays at a business can be skipped, of course, in any given month, just as a human can skip a day or even a week of eating. But if the skipping becomes routine and is not made up, the body weakens and eventually dies. Furthermore, a start-and-stop feeding policy will over time produce a less healthy organism, human or corporate, than that produced by a steady diet. As businessmen, Charlie and I relish having competitors who are unable to fund capital expenditures.” by Warren Buffett


"GEICO is a great business. Over the past 20 years, they've done three acquisitions to get into new businesses and they've all been disasters. Why when you have a wonderful business would you want to get into an inferior business? It happens time after time after time. Charlie and I have no such inclinations."

“In making acquisitions, Charlie and I have tended to avoid companies with significant post-retirement liabilities. As a result, Berkshire's present liability and future costs for post-retirement health benefits - though we now have 22,000 employees - are inconsequential. I need to admit, though, that we had a near miss: In 1982 I made a huge mistake in committing to buy a company burdened by extraordinary post-retirement health obligations. Luckily, though, the transaction fell through for reasons beyond our control. Reporting on this episode in the 1982 annual report, I said: "If we were to introduce graphics to this report, illustrating favorable business developments of the past year, two blank pages depicting this blown deal would be the appropriate centerfold." Even so, I wasn't expecting things to get as bad as they did. Another buyer appeared, the business soon went bankrupt and was shut down, and thousands of workers found those bountiful health-care promises to be largely worthless.” by Warren Buffett


“We face another obstacle: In a finite world, high growth rates must self-destruct. If the base from which the growth is taking place is tiny, this law may not operate for a time. But when the base balloons, the party ends: A high growth rate eventually forges its own anchor.”

“Carl Sagan has entertainingly described this phenomenon, musing about the destiny of bacteria that reproduce by dividing into two every 15 minutes. Says Sagan: "That means four doublings an hour, and 96 doublings a day. Although a bacterium weighs only about a trillionth of a gram, its descendants, after a day of wild asexual abandon, will collectively weigh as much as a two days, more than the sun - and before very long, everything in the universe will be made of bacteria." Not to worry, says Sagan: Some obstacle always impedes this kind of exponential growth. "The bugs run out of food, or they poison each other, or they are shy about reproducing in public."

"We don't want people focusing on growth. It's suicide [in the insurance business]." by Warren Buffett

Stock Options

“Shareholders should understand that companies incur costs when they deliver something of value to another party and not just when cash changes hands. Moreover, it is both silly and cynical to say that an important item of cost should not be recognized simply because it can't be quantified with pinpoint precision. Right now, accounting abounds with imprecision. After all, no manager or auditor knows how long a 747 is going to last, which means he also does not know what the yearly depreciation charge for the plane should be. No one knows with any certainty what a bank's annual loan loss charge ought to be. And the estimates of losses that property-casualty companies make are notoriously inaccurate.”

“Does this mean that these important items of cost should be ignored simply because they can't be quantified with absolute accuracy? Of course not. Rather, these costs should be estimated by honest and experienced people and then recorded. When you get right down to it, what other item of major but hard-to-precisely-calculate cost - other, that is, than stock options - does the accounting profession say should be ignored in the calculation of earnings?”

“Moreover, options are just not that difficult to value. Admittedly, the difficulty is increased by the fact that the options given to executives are restricted in various ways. These restrictions affect value. They do not, however, eliminate it. In fact, since I'm in the mood for offers, I'll make one to any executive who is granted a restricted option, even though it may be out of the money: On the day of issue, Berkshire will pay him or her a substantial sum for the right to any future gain he or she realizes on the option. So if you find a CEO who says his newly-issued options have little or no value, tell him to try us out. In truth, we have far more confidence in our ability to determine an appropriate price to pay for an option than we have in our ability to determine the proper depreciation rate for our corporate jet.”

“It seems to me that the realities of stock options can be summarized quite simply: If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it? And, if expenses shouldn't go into the calculation of earnings, where in the world should they go?” by Warren Buffett

Dividend Policy

"There is no logic to regularly paying out 10% or 20% of earnings as dividends." by Warren Buffett

Selling Policy

“Sometimes, of course, the market may judge a business to be more valuable than the underlying facts would indicate it is. In such a case, we will sell our holdings. Sometimes, also, we will sell a security that is fairly valued or even undervalued because we require funds for a still more undervalued investment or one we believe we understand better.”

“We need to emphasize, however, that we do not sell holdings just because they have appreciated or because we have held them for a long time. (Of Wall Street maxims the most foolish may be "You can't go broke taking a profit.") We are quite content to hold any security indefinitely, so long as the prospective return on equity capital of the underlying business is satisfactory, management is competent and honest, and the market does not overvalue the business.”

“Selling, however, is a different story. There, our pace of activity resembles that forced upon a traveler who found himself stuck in tiny Podunk's only hotel. With no T.V. in his room, he faced an evening of boredom. But his spirits soared when he spied a book on the night table entitled "Things to do in Podunk." Opening it, he found just a single sentence: "You're doing it."”

“Interestingly, corporate managers have no trouble understanding that point when they are focusing on a business they operate: A parent company that owns a subsidiary with superb long-term economics is not likely to sell that entity regardless of price. "Why," the CEO would ask, "should I part with my crown jewel?" Yet that same CEO, when it comes to running his personal investment portfolio, will offhandedly - and even impetuously - move from business to business when presented with no more than superficial arguments by his broker for doing so. The worst of these is perhaps, "You can't go broke taking a profit." Can you imagine a CEO using this line to urge his board to sell a star subsidiary? In our view, what makes sense in business also makes sense in stocks: An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.” by Warren Buffett

Buying Policy

“The critical investment factor is determining the intrinsic value of a business and paying a fair or bargain price.”

“Buy companies with strong histories of profitability and with a dominant business franchise.”

“An investor should act as though he had a lifetime decision card with just twenty punches on it.”

“It is more important to say "no" to an opportunity, than to say "yes".”

“Always invest for the long term.”

“Buy a business, don't rent stocks.”

“An investor should ordinarily hold a small piece of an outstanding business with the same tenacity that an owner would exhibit if he owned all of that business.”

“Buy pieces of wonderful companies that you intend to keep forever.”

"Our investments continue to be few in number and simple in concept: The truly big investment idea can usually be explained in a short paragraph. We like a business with enduring competitive advantages that is run by able and owner-oriented people. When these attributes exist, and when we can make purchases at sensible prices, it is hard to go wrong (a challenge we periodically manage to overcome).

“Before looking at new investments, we consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process. We would love to increase our economic interest in See's or Scott Fetzer, but we haven't found a way to add to a 100% holding. In the stock market, however, an investor frequently gets the chance to increase his economic interest in businesses he knows and likes. Last year we went that direction by enlarging our holdings in Coca-Cola and American Express.”

“When carried out capably, an investment strategy of that type will often result in its practitioner owning a few securities that will come to represent a very large portion of his portfolio. This investor would get a similar result if he followed a policy of purchasing an interest in, say, 20% of the future earnings of a number of outstanding college basketball stars. A handful of these would go on to achieve NBA stardom, and the investor's take from them would soon dominate his royalty stream. To suggest that this investor should sell off portions of his most successful investments simply because they have come to dominate his portfolio is akin to suggesting that the Bulls trade Michael Jordan because he has become so important to the team.”

“Be fearful when others are greedy and greedy only when others are fearful.”

"The most common cause of low prices is pessimism -- some times pervasive, some times specific to a company or industry. We want to do business in such an environment, not because we like pessimism but because we like the prices it produces. It's optimism that is the enemy of the rational buyer.”

Munger: "If you buy something because it's undervalued, then you have to think about selling it when it approaches your calculation of its intrinsic value. That's hard. But if you buy a few great companies, then you can sit on your $%@. That's a good thing." Buffett added, "We want to buy stocks to hold forever."

“Focus on price and value. If a stock gets cheaper and you have some cash, buy more. We sometimes stop buying when prices goes up. This cost us $8 billion a few years ago when we were buying Wal-Mart. When we're buying something, we want the price to go down and down and down.” by Warren Buffett


“We rarely use much debt and, when we do, we attempt to structure it on a long-term fixed rate basis. We will reject interesting opportunities rather than over-leverage our balance sheet. This conservatism has penalized our results but it is the only behavior that leaves us comfortable, considering our fiduciary obligations to policyholders, depositors, lenders and the many equity holders who have committed unusually large portions of their net worth to our care.”

“At the height of the debt mania, capital structures were concocted that guaranteed failure: In some cases, so much debt was issued that even highly favorable business results could not produce the funds to service it. One particularly egregious "kill- 'em-at-birth" case a few years back involved the purchase of a mature television station in Tampa, bought with so much debt that the interest on it exceeded the station's gross revenues. Even if you assume that all labor, programs and services were donated rather than purchased, this capital structure required revenues to explode - or else the station was doomed to go broke. (Many of the bonds that financed the purchase were sold to now-failed savings and loan associations; as a taxpayer, you are picking up the tab for this folly.)” by Warren Buffett

Share Repurchase

“One usage of retained earnings we often greet with special enthusiasm when practiced by companies in which we have an investment interest is repurchase of their own shares. The reasoning is simple: if a fine business is selling in the market place for far less than intrinsic value, what more certain or more profitable utilization of capital can there be than significant enlargement of the interests of all owners at that bargain price? The competitive nature of corporate acquisition activity almost guarantees the payment of a full - frequently more than full price when a company buys the entire ownership of another enterprise. But the auction nature of security markets often allows finely-run companies the opportunity to purchase portions of their own businesses at a price under 50% of that needed to acquire the same earning power through the negotiated acquisition of another enterprise.”

“There is only one combination of facts that makes it advisable for a company to repurchase its shares: First, the company has available funds — cash plus sensible borrowing capacity — beyond the near-term needs of the business and, second, finds its stock selling in the market below its intrinsic value, conservatively-calculated. To this we add a caveat: Shareholders should have been supplied all the information they need for estimating that value. Otherwise, insiders could take advantage of their uninformed partners and buy out their interests at a fraction of true worth. We have, on rare occasions, seen that happen. Usually, of course, chicanery is employed to drive stock prices up, not down. The business “needs” that I speak of are of two kinds: First, expenditures that a company must make to maintain its competitive position (e.g., the remodeling of stores at Helzberg’s) and, second, optional outlays, aimed at business growth, that management expects will produce more than a dollar of value for each dollar spent (R. C. Willey’s expansion into Idaho).”

“When available funds exceed needs of those kinds, a company with a growth-oriented shareholder population can buy new businesses or repurchase shares. If a company’s stock is selling well below intrinsic value, repurchases usually make the most sense. In the mid-1970s, the wisdom of making these was virtually screaming at managements, but few responded. In most cases, those that did made their owners much wealthier than if alternative courses of action had been pursued. Indeed, during the 1970s (and, spasmodically, for some years thereafter) we searched for companies that were large repurchasers of their shares. This often was a tipoff that the company was both undervalued and run by a shareholder-oriented management.”

“That day is past. Now, repurchases are all the rage, but are all too often made for an unstated and, in our view, ignoble reason: to pump or support the stock price. The shareholder who chooses to sell today, of course, is benefited by any buyer, whatever his origin or motives. But the continuing shareholder is penalized by repurchases above intrinsic value. Buying dollar bills for $1.10 is not good business for those who stick around.”

“Charlie and I admit that we feel confident in estimating intrinsic value for only a portion of traded equities and then only when we employ a range of values, rather than some pseudo-precise figure. Nevertheless, it appears to us that many companies now making repurchases are overpaying departing shareholders at the expense of those who stay. In defense of those companies, I would say that it is natural for CEOs to be optimistic about their own businesses. They also know a whole lot more about them than I do. However, I can’t help but feel that too often today’s repurchases are dictated by management’s desire to “show confidence” or be in fashion rather than by a desire to enhance per-share value.” by Warren Buffett

Cost Structures

“The businesses have different characteristics: Service businesses such as Executive Jet have costs that are human-resource and capital heavy. The carpet company has a large raw-material-buyer cost, and only 15% human-resource cost. The costs vary by business. The retail business costs include purchased goods and labor, and insurance has claims costs that can extend out over years. The important part of knowing the business is that we understand the cost structure and that the company has an enduring competitive advantage with top-notch management.” by Warren Buffett


“I've never seen an investment banker's book in which future earnings are projected to go down. But many businesses' earnings go down. We made this mistake with Dexter shoes -- it was earning $40 million pretax and I projected this would continue, and I couldn't have been more wrong.”

“20% of Fortune 500 companies will be earning significant less in five years, but I don't know which 20%. If you can't come up with reasonable estimates for that, then you move on.” by Warren Buffett

Management vs. Business

“My conclusion from my own experiences and from much observation of other businesses is that a good managerial record (measured by economic returns) is far more a function of what business boat you get into than it is of how effectively you row (though intelligence and effort help considerably, in any business, good or bad). Some years ago I wrote: “When a management with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.” Nothing has since changed my point of view on that matter. Should you find yourself in a chronically-leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” by Warren Buffett


"Time is the friend of the wonderful business, the enemy of the mediocre. You might think this principle is obvious, but I had to learn it the hard way. In fact, I had to learn it several times over. Shortly after purchasing Berkshire, I acquired a Baltimore department store, Hochschild Kohn, buying through a company called Diversified Retailing that later merged with Berkshire. I bought at a substantial discount from book value, the people were first-class, and the deal included some extras - unrecorded real estate values and a significant LIFO inventory cushion. How could I miss? So-o-o - three years later I was lucky to sell the business for about what I had paid."

"I could give you other personal examples of "bargain-purchase" folly but I'm sure you get the picture: It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. Charlie understood this early; I was a slow learner. Now, when buying companies or common stocks, we look for first-class businesses accompanied by first-class managements." by Warren Buffett

Companies to Own

We select our marketable equity securities in much the same way we would evaluate a business for acquisition in its entirety. We want the business to be

  1. one that we can understand,
  2. with favorable long-term prospects,
  3. operated by honest and competent people, and
  4. available at a very attractive price.

Good Business has:

  1. an ability to increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume.
  2. an ability to accommodate large dollar volume increases in business (often produced by inflation than by real growth) with only minor additional investment of capital.
  3. low cost provider (in enormous market place).

by Warren Buffett

Book Value vs. Intrinsic Value

“Book value is an accounting concept, recording the accumulated financial input from both contributed capital and retained earnings. Intrinsic business value is an economic concept, estimating future cash output discounted to present value. Book value tells you what has been put in; intrinsic business value estimates what can be taken out.” by Warren Buffett

Focus Investing and diversification

“Risk can be greatly reduced by concentrating on only a few holdings.”

“Our policy is to concentrate holdings. We try to avoid buying a little of this or that when we are only lukewarm about the business or its price. When we are convinced as to attractiveness, we believe in buying worthwhile amounts.”

“You don't have to be right on everything or 20%, 10%, or 5% of businesses. You only have to be right one or two times a year. I used to handicap horses. You can come up with a very profitable decision on a single company. If someone asked me to handicap the 500 companies in the S&P 500, I wouldn't do a very good job. You only have to be right a few times in your lifetime, as long as you don't make any big mistakes.” by Warren Buffett

Investor’s Temperament

“Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market.”

“Temperament is what causes smart people not to function well.”

"Fear is the foe of the faddist, but the friend of the fundamentalist." by Warren Buffett


“Inactivity strikes us as intelligent behavior. Neither we nor most business managers would dream of feverishly trading highly-profitable subsidiaries because a small move in the Federal Reserve's discount rate was predicted or because some Wall Street pundit had reversed his views on the market. Why, then, should we behave differently with our minority positions in wonderful businesses? The art of investing in public companies successfully is little different from the art of successfully acquiring subsidiaries. In each case you simply want to acquire, at a sensible price, a business with excellent economics and able, honest management. Thereafter, you need only monitor whether these qualities are being preserved.” by Warren Buffett


"We like to own castles with large moats filled with sharks and crocodiles that can fend off marauders -- the millions of people with capital that want to take our capital. “We think in terms of moats that are impossible to cross, and tell our managers to widen their moat every year, even if profits do not increase every year. We think almost all of our businesses have big and widening moats."

"Usually, if something can gain competitive advantage very quickly, it can lose it very quickly, so be careful of industries in flux."

"You will see that we favour businesses and industries unlikely to experience major change. The reason for that is simple: We are searching for operations that we believe are virtually certain to possess enormous competitive strength ten or twenty years from now. A fast-changing industry environment may offer the chance for huge wins, but it precludes the certainty we seek."

"The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors."

“Experience, however, indicates that the best business returns are usually achieved by companies that are doing something quite similar today to what they were doing five or ten years ago. That is no argument for managerial complacency. Businesses always have opportunities to improve service, product lines, manufacturing techniques, and the like, and obviously these opportunities should be seized. But a business that constantly encounters major change also encounters many chances for major error. Furthermore, economic terrain that is forever shifting violently is ground on which it is difficult to build a fortress-like business franchise. Such a franchise is usually the key to sustained high returns.” by Warren Buffett


"Investors should remember that their scorecard is not computed using Olympic-diving methods: Degree-of-difficulty doesn't count. If you are right about a business whose value is largely dependent on a single key factor that is both easy to understand and enduring, the payoff is the same as if you had correctly analysed an investment alternative characterized by many constantly shifting and complex variables."

"What counts for most people in investing is not how much they know, but rather how realistically they define what they don't know. An investor needs to do very few things right as long as he or she avoids big mistakes." by Warren Buffett

Long-term Investing

"Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards - so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio's market value."

"We try to price, rather than time, purchases. In our view, it is folly to forego buying shares in an outstanding business whose long-term future is predictable, because of short-term worries about an economy or a stock market that we know to be unpredictable. Why scrap an informed decision because of an uninformed guess?" by Warren Buffett

Mr. Market

“Ben Graham, my friend and teacher, long ago described the mental attitude toward market fluctuations that I believe to be most conducive to investment success. He said that you should imagine market quotations as coming from a remarkably accommodating fellow named Mr. Market who is your partner in a private business. Without fail, Mr. Market appears daily and names a price at which he will either buy your interest or sell you his.”

“Even though the business that the two of you own may have economic characteristics that are stable, Mr. Market's quotations will be anything but. For, sad to say, the poor fellow has incurable emotional problems. At times he feels euphoric and can see only the favorable factors affecting the business. When in that mood, he names a very high buy-sell price because he fears that you will snap up his interest and rob him of imminent gains. At other times he is depressed and can see nothing but trouble ahead for both the business and the world. On these occasions he will name a very low price, since he is terrified that you will unload your interest on him.”

“Mr. Market has another endearing characteristic: He doesn't mind being ignored. If his quotation is uninteresting to you today, he will be back with a new one tomorrow. Transactions are strictly at your option. Under these conditions, the more manic-depressive his behavior, the better for you.”

“Following Ben's teachings, Charlie and I let our marketable equities tell us by their operating results - not by their daily, or even yearly, price quotations - whether our investments are successful. The market may ignore business success for a while, but eventually will confirm it. As Ben said: "In the short run, the market is a voting machine but in the long run it is a weighing machine." The speed at which a business's success is recognized, furthermore, is not that important as long as the company's intrinsic value is increasing at a satisfactory rate. In fact, delayed recognition can be an advantage: It may give us the chance to buy more of a good thing at a bargain price.”

"[Many] investors who expect to be ongoing buyers of investments throughout their lifetimes... illogically become euphoric when stock prices rise and unhappy when they fall. They show no such confusion in their reaction to food prices: Knowing they are forever going to be buyers of food, they welcome falling prices and deplore price increases. (It's the seller of food who doesn't like declining prices.) Similarly, at the Buffalo News we would cheer lower prices for newsprint -- even though it would mean marking down the value of the large inventory of newsprint we always keep on hand -- because we know we are going to be perpetually buying the product.

"The market, like the Lord, helps those who help themselves. But, unlike the Lord, the market does not forgive those who know not what they do. For the investor, a too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments."

"A short quiz: If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? Likewise, if you are going to buy a car from time to time but are not an auto manufacturer, should you prefer higher or lower car prices? These questions, of course, answer themselves."

"But now for the final exam: If you expect to be a net saver during the next five years, should you hope for a higher or lower stock market during that period? Many investors get this one wrong. Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices." by Warren Buffett

Margin of Safety

"We insist on a margin of safety in our purchase price. If we calculate the value of a common stock to be only slightly higher than its price, we're not interested in buying. We believe this margin-of-safety principle, so strongly emphasized by Ben Graham, to be the cornerstone of investment success." by Warren Buffett

Investment Education

"To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing, or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses: How to Value a Business, and How to Think About Market Prices.” by Warren Buffett

Friday, November 25, 2005

My hero: Warren Buffett

I would like to share with you wisdom from the greatest investor of all time, Warren E. Buffett. Learning from the best is the most efficient way to success. As Mr. Buffett has over 60 years of superior records, we should learn as much as possible from the grandmaster.
All the wisdom, sayings, quotes, etc. were extracted from one of the following sources:

May all those who learn and instil his wisdom be financially enlightened!

Warmest regards,

Dah Hui Lau (David)

Peter Drucker (95 years old) (Nov 19, 1909 – Nov 11, 2005)

I would like to pay my tribute to Peter Drucker for his significant contribution to the world.

"The world knows he was the greatest management thinker of the last century," Jack Welch, former chairman of General Electric Co.

What John Maynard Keynes is to economics or W. Edwards Deming to quality, Drucker is to management.

Among Drucker’s best ideas:
  1. Decentralization (1940s).
  2. Workers should be treated as assets, not as liabilities to be eliminated (1950s).
  3. "No business without a customer" (1950s).
  4. On Leadership: Don’t ever think or say “I.” Think and say “we.”
  5. On Work: Focus on opportunities rather than problems.
  6. On Decisions: Every decision is risky. Risks can be minimised if you know when a decision is necessary, how to clearly define a problem and tackle it directly, and that you’ll have to make comprises in the end.

The above information has been obtained from BusinessWeek

May Peter Drucker rest in peace.

Dah Hui Lau (David)

Thursday, November 24, 2005

Fund manager focuses on worn stocks with potential; Jan 19, 2005

A bargain hunter, Rodriguez looks for beaten-up stocks with potential to turn around. At the heart of his philosophy is the question, "Am I being compensated for the risks I perceive in this investment?" If the answer isn't "yes," he looks elsewhere — even if that means parking money in cash or money market securities.

All the best,
Dah Hui Lau (David)

Dah Hui Lau's Testimonials

“I can see, even from my limited interactions via email, that Dah Hui is VERY enthusiastic about investing, has a true inner passion, and - most importantly - has a solid temperament. It is really an honor to have the chance to share my "value investing learning curve" with someone as dedicated as Dah Hui, and I can only imagine what rewards his energy will earn in the future.” (November 22, 2005) by Shai Dardashti (

“Dah Hui is motivated and intelligent individual, very good at picking stocks based on his past professional experiences.” (November 21, 2005) by Brian Zen, CFA (

All the best,

Dah Hui Lau (David)

Archive of Dah Hui Lau's Blog

I have stopped archiving on this page now. All the articles have labels.


Dah Hui Lau's Personal Details:

  1. Dah Hui Lau's Testimonials
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  3. Great Investing Blogs!
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Dah Hui Lau's Analysis / Comments / Discussions:

  1. MGIC Investment Corporation; MTG Feb 10, 2006
  2. What is your expectation of long term BRK performance; Feb 16, 2006
  3. Movie Gallery (MOVI); Feb 24, 2006
  4. Black & Decker (BDK) at $83; Feb 25, 2006
  5. Is Google Overvalued at $377? Feb 25, 2006
  6. Discussions on "Is Google Overvalued at $377? Feb 25, 2006"
  7. Berkshire: Your Biggest Holding? March 6, 2006
  8. Gannett Corp Undervalued at $61.26; March 14, 2006
  9. Intel Corp; INTC March 29, 2006
  10. Intel Corp; INTC Part II April 1, 2006
  11. Google; GOOG April 1, 2006
  12. Gannett Corp; GCI April 2, 2006
  13. Telstra Corporation; TLS April 4, 2006
  14. WPS Resources Corp; WPS April 5, 2006
  15. Berkshire Hathaway; BRK.A April 6, 2006
  16. Berkshire Hathaway; BRK.A Reasons I love Berkshire April 2006
  17. Gannett Co.;GCI April 19, 2006
  18. Russell Corporation; RML April 20, 2006
  19. Superior Stock Return by having "Founders Keepers" April 20, 2006
  20. Some great quotes April 21, 2006
  21. Some Great Quotes; April 26, 2006
  22. Investment from Difference Perceptive April 28, 2006
  23. Microsoft; MSFT, A Good Investment? April 29, 2006
  24. Eight signs Microsoft is dead in the water; May 5, 2006
  25. Microsoft, Where is your "Moat"? May 8, 2006
  26. Microsoft's New Brain; May 10, 2006
  27. New Century, New Wealth May 11, 2006
  28. Dell, An Excellent Company at Bargain Price
  29. K-Swiss Inc. Excellent Investment
  30. Bill Gates' New Life Goal
  31. EarthLink, ELNK, Interesting but Risky Company
  32. PartyGaming
  33. Online Internet Gambling Discussions July 20, 2006
  34. Dell a Value Play
  35. PartyGaming plans expansion outside U.S. July 21, 2006
  36. Amazon, A Scary Drop! July 26, 2006
  37. MGIC Investment Corp (MTG) at $58.44
  38. Partygaming 1Qtr Results Sept 7, 2006
  39. Partygaming plunging price Sept 7, 2006
  40. Lau Model Portfolio
  41. Zacks Buy List: K-Swiss (KSWS) Strong Buy
  42. Intel: Fat to Lean Sept 11, 2006
  43. Is online gambling now definitely illegal in the US?
  44. The Buckle Inc. (BKE) at $35.10
  45. My personal view on Dell
  46. Amaranth: Speculating and Trading don't Work
  47. Thought on Portfolio Construction
  48. PartyGaming's Meltdown and Lessons Learnt
  49. PartyGaming drops out of FTSE 100
  50. Rumination on 3Qtr Results: MGIC Investment Corp (MTG)
  51. Coca Cola: Potential Purchase?
  52. Pfizer (PFE): Potential Purchase? Oct 19, 2006

Albert Einstein's Wisdom:

  1. Albert Einstein's Wisdom

Andrew Carnegie's Wisdom:

  1. Earning Happiness

Anne Gudefin's Wisdom:

  1. Buying a Dollar of Assets for 60 Cents; Jan 20, 2006

Arnold Van Den Berg's Wisdom:

  1. Arnold Van Den Berg Interview; June 28, 2004
  2. The Value Investor; Dec 31, 2004
  3. Arnold Van Den Berg: Large company stocks are 27% undervalued May 4, 2006

Arpit Ranka's Wisdom:

  1. Thinking Like A Kid; Jan 30, 2006
  2. Practice Makes Permanent; Feb 23, 2006

Benjamin Graham's Wisdom:

  1. Benjamin Graham on Fixed Income (Bond) Investing
  2. Graham Stock Gainers; Feb 15, 2006
  3. 2 Things I Learned From Benjamin Graham; Feb 28, 2006

Bill Gates' Wisdom:

  1. Bill Gates reboots : Microsoft's founder on his decision to step aside, Warren Buffett's gift, and why it all gets him a little choked up
  2. Bill Gates on Vaccines

Bill Miller's Wisdom:

  1. Miller Beats S&P 15th Year in a Row
  2. Bill Miller sees higher value in Google; January 20, 2006
  3. Bill Miller's Secrets to Success; Jan 27, 2006
  4. Bill Miller: Where to Invest Now and the 5 Year Psychological Cycle April 26, 2006
  5. Legg Mason's Miller Favors Biggest U.S. Stocks, Buys AIG, GE
  6. Bill Miller, Money Master

Bill Nygren's Wisdom:

  1. Sticking to his guns; "fallen angels." July 3, 2006

Bruce Berkowitz's Wisdom:

  1. Bruce Berkowitz Interview; March 31, 2006
  2. Bruce Berkowitz Investing Philosophy May 10, 2006
  3. Bruce Berkowitz: Forget GAAP accounting.

Bruce Sherman's Wisdom:

  1. Sherman’s March; Jan 29, 2006

Charles de Vaulx's Wisdom:

  1. Charles de Vaulx interview Sept 14, 2006

Charles Mizrahi's Wisdom:

  1. The Moat January 11, 2006

Charlie Munger's Wisdom:

  1. Future returns from equities
  2. The scandal of American pension fund accounting
  3. Extraordinary Charges
  4. Becoming a good investor
  5. Investing mental models
  6. Buying into stock declines
  7. Universities
  8. The importance of reading
  9. Retailing and Costco
  10. How to get rich
  11. State Farm
  12. How to detect bad reserving
  13. Insurance risk
  14. Wrigley
  15. USG
  16. Financial industry
  17. Risk of the unexpected
  18. Expect the unexpected (Japan example)
  19. Derivatives
  20. Practice Evolution
  21. Be satisfied
  22. Economic Value Added
  23. Cost of capital
  24. The World According to "Poor Charlie"; Dec 2005
  25. Charlie Munger on Investing Expectation
  26. Charlie Munger on Successes and Failures
  27. Charlie Munger on Iscar Metalworking Cos.
  28. Charlie Munger on Newspaper Companies
  29. Charlie Munger on Jeremy Siegel
  30. Wesco Financial Annual Meeting, May 11, 2006
  31. An Afternoon with Charlie Munger July 26, 2006
  32. Munger on Human Misjudgments

Chartered Financial Analyst:

  1. How to Read and Understand Earnings Releases Like an Investment Pro (Case Study: Wal-Mart) Dec 29, 2005

Chet Holmes' Wisdom:

  1. Chet Holmes: "America's Greatest Sales and Marketing Executive"

Chris Davis' Wisdom:

  1. Taking the Helm at Clipper; Jan 11, 2006

Columbia Business School:

  1. Columbia Greenwald Class Lectures.

Deep Wealth's Wisdom:

  1. Buying Pessimism?

easyGroup's Manual:

  1. easyGroup Brand Manual

Eddie Lampert's Wisdom:

  1. Eddie Lampert: An Olympic High Jumper?
  2. Eddie Lampert: The best investor of his generation; Feb 6, 2006
  3. Chairman's Letter: Edward Lampert; March 15, 2006
  4. Eddie Lampert and Sears by Mike Onghai May 5, 2006

Geoff Gannon's Wisdom:

  1. Wells Fargo A Different Kind of Bank

Henry Lu's Wisdom:

  1. Interview with Deep-Value Superinvestor; March 12, 2006

Irwin Michael's Wisdom:

  1. Irwin Michael's Interview on ABC Dirt-Cheap Stock Fund; Feb 13, 2006
  2. Meeting with Irwin Michael, Part 1; Feb 20, 2006

Jackie Chan's Wisdom:

  1. My hero: Jackie Chan

James Glassman's Wisdom:

  1. My 10 Stocks for 2006; Feb 2006

Jim Chuong's Wisdom:

  1. 2005 Chuong Investment Management Partner Letter

Joel Greenblatt's Wisdom:

  1. Audio Interview of Joel Greenblatt
  2. The magic money machine: Joel Greenblatt’s Interview

John Dorfman's Wisdom:

  1. Robot Portfolio Steams to 7th-Straight Victory: John Dorfman; Jan 3, 2006
  2. Pfizer, Chubb Are Among 10 Stocks for Long Haul: John Dorfman; Feb 21, 2006
  3. Exxon, Berkshire, K-Swiss Pass My 15-15 Screen: John Dorfman

John Maxwell's Wisdom:

  1. Most Important Choice by John Maxwell

Larry Sarbit's Wisdom:

  1. Sarbit Asset Management

Mark Seller's Wisdom:

  1. Wait for the Right Price Part 1; June 23, 2004
  2. Wait for the Right Price Part 2; June 25, 2004

Marty Whitman's Wisdom:

  1. Marty Whitman Speech at AAII-NYC; Jan. 11, 2006
  2. Marty Whitman's 'Safe and Cheap' Approach; Jan 27, 2006
  3. Exclusive Insights from Marty Whitman's NYSSA talk! Feb 16, 2006
  4. Martin Whitman's "Cowardly" Safe-And-Cheap Way To Invest; Feb 21, 2006
  5. Martin J. Whitman Profile
  6. The Evolution Of Marty Whitman
  7. Sears shareholder exiting; Third Avenue fund sells 250,000 shares July 21, 2006

Mason Hawkins' Wisdom:

  1. Learning From Longleaf; Feb 28, 2006

Mike Hochholzer's Wisdom:

  1. Fallen angel stocks can have wings for patient investors; Jan. 22, 2006

Michael J. Mauboussin's Wisdom:

  1. Size Matters; Feb 1, 2006

Mike Price's Wisdom:

  1. Apollo Group; Mike Price's Analysis; March 22, 2006

Motley Fool's Wisdom:

  1. Foolish Fundamentals: Enterprise Value
  2. Foolish Fundamentals: Margins
  3. Foolish Fundamentals: Free Cash Flow
  4. Small Advantages, Big Wins; Feb 28, 2006
  5. Motley Fool: Insider Holdings
  6. Five Lessons From Playing Poker

MSN BRK Shareholders' Board's Wisdom:

  1. Investing Mistakes

Muhammed Yunus' Wisdom:

  1. Muhammad Yunus: Nobel Peace Prize winner

Olstein Financial Alert Fund:

  1. A Decade of Shareholder Letter excerpts
  2. The Price of Victory; Feb 22, 2006
  3. Fighting an investing slump; April 2, 2006

Peter Drucker's Summary:

  1. Peter Drucker (95 years old) (Nov 19, 1909 – Nov 11, 2005)

Peter Lynch's Wisdom:

  1. The Wit and Wisdom of Peter Lynch
  2. Beating The Street

Prem Watsa's Wisdom:

  1. Prem Watsa : Short shrift; Jan 26, 2006

Prof. Bruce Greenwald's Wisdom:

  1. The Graham and Dodd Lecture Series; Value Investing Seminar London; August 4-5, 2005

Prof. Sanjay Bakshi's Wisdom:

  1. Value Investing Presentation by Prof. Sanjay Bakshi; August 13, 2002

Randy Oliver's Wisdom:

  1. Stock picker of the year is contrarian sort; Dec 22, 2005

Richard Russell's Wisdom:

  1. Real Estate Investing

Robert Rodriguez's Wisdom:

  1. Fund manager focuses on worn stocks with potential; Jan 19, 2005

Ronald Muhlenkamp's Wisdom:

  1. How To Choose a Money Manager
  2. What does "prosperity" mean to you?
  3. Ronald Muhlenkamp Interview; Feb 24, 2006

Seth Klarman's Wisdom:

  1. Seth Klarman's Lecture at Harvard May 3, 2006
  2. Seth Klarman's Portfolio Holdings

Sir John Templeton's Wisdom:

  1. One on One with Sir John Templeton; Feb 2, 2004
  2. An Investment Legend's Advice; Feb 4, 2004
  3. Sir John Templeton interview; February 2005

Theo Wong's Wisdom:

  1. Roll Up the Tim to Win; March 27, 2006

Tom Brown's Wisdom:

  1. Tom Brown: Let the Wind Blow

Tom Gayner's Wisdom:

  1. Eighteen 5-Star Stocks from the Markel Portfolio

Tom Stanley's Wisdom:

  1. Tom Stanley: Miles Ahead of the Crowd; Feb 1, 2006

Tweedy, Browne Company LLC's Wisdom:

  1. What has Worked in Investing by Tweedy, Browne Company LLC

Wallace Weitz's Wisdom:

  1. Wallace Weitz; Be prepared April 21, 2006
  2. The Other Guy From Omaha; May 5, 2006

Warren Buffett's Wisdom:

  1. My hero: Warren Buffett
  2. Warren Buffett’s Biography
  3. Berkshire Hathaway’s Holdings
  4. Berkshire Hathaway Annual Reports
  5. Berkshire Hathaway Intrinsic Valuator
  6. Investment Education
  7. Margin of Safety
  8. Mr. Market
  9. Long-term Investing
  10. Degree-of-difficulty
  11. Sustainability
  12. Inactivity
  13. Investor’s Temperament
  14. Book Value vs. Intrinsic Value
  15. Focus Investing and diversification
  16. Companies to Own
  17. Time
  18. Management vs. Business
  19. Cost Structures
  20. Earnings
  21. Share Repurchase
  22. Debt
  23. Buying Policy
  24. Selling Policy
  25. Dividend Policy
  26. Stock Options
  27. Growth
  28. Acquisitions
  29. Capital Expenditure
  30. Investing expectations
  31. Purchase of Wells Fargo
  32. Inevitables
  33. Purchase of Nebraska Furniture Mart
  34. The Borsheim Advantage
  35. IQ
  36. Losing and Regaining Competitive Advantage
  37. Turnarounds vs. One-Foot Hurdles
  38. Fannie Mae, Freddie Mac and Other Highly Leveraged Financial Institutions
  39. How to avoid fraud
  40. Critique of EBITDA
  41. Shorting stocks
  42. Index funds
  43. Feedback mechanisms
  44. Derivatives
  45. Preparing for the future
  46. Happiness and Success
  47. Stock Market Predictions
  48. Philanthropy
  49. Buffett Succeeds at Nothing; Oct 30, 2002
  50. Warren Buffett and Bill Gates Q&A Video; Oct 2005
  51. Warren Buffett & Bill Gates: The $91 Billion Conversation; Oct 31, 2005
  52. Warren Buffett, Unplugged; Nov 12, 2005
  53. University of Kansas Buffett Q&A; Dec 2, 2005
  54. Buffett - The Ultimate Financial Zen Master; Jan 18, 2006
  55. Buffett's Coca-Cola stake an example of value of dividends; January 28, 2006
  56. 24 Buffet Ideas to win 365 battles every year
  57. Interview of Warren Buffett on CNBC on March 20, 2006
  58. Inside the strategy of Soros and Buffett; April 8, 2006
  59. 2005 Sayings of Chairman Buffett
  60. Berkshire Hathaway 1st Quarter Results Highlights May 6, 2006
  61. Does it pay to be 'the next Buffett'? May 6, 2006
  62. Warren Buffett on Compensation
  63. Warren Buffett on Immigration Issue
  64. Warren Buffett on Hurricane Issue
  65. Warren Buffett on Media Business
  66. Warren Buffett on Housing Market
  67. Audio report about Buffett and Wertheimer Deal (4Mins)
  68. Warren Buffett on Commodities Bubble
  69. Warren Buffett on Manufactured Housing
  70. Warren Buffett on Coca Cola
  71. Warren Buffett on Professions
  72. Warren Buffett on Charities
  73. Warren Buffett on Newspaper Companies
  74. Warren Buffett on Naked Short Selling
  75. Berkshire Hathaway Annual General Meeting 2006 Notes May 13, 2006
  76. Buffett's $15 Billion Tease May 13, 2006
  77. Top 20 Questions From The 2006 Berkshire Hathaway Annual Meeting
  78. Berkshire Hathaway Acquisitions List
  79. Berkshire Hathaway: Buffett's Attraction
  80. Buffett to auction another lunch on eBay
  81. Berkshire Hathaway A Good Business by Buffett Standard
  82. Profit Implications of Underwriting Discipline
  83. Warren Buffett Power Lunch to Benefit Glide Foundation
  84. Warren Buffett gives away his fortune
  85. A Discussion with Warren Buffett and Bill and Melinda Gates
  86. Charlie Rose - An Exclusive Hour with Warren Buffett and Bill and Melinda Gates
  87. An Open Letter to Warren Buffett
  88. Buffett Lunch fetches $620,100.00
  89. Joe Tahoe pens open letter to Warren Buffett July 7, 2006
  90. Charlie Rose Talk show on Warren Buffett PBS 11PM
  91. Would you like that $11 billion in twenties, Mr. Buffett?
  92. Ajit Jain, Potential Buffett Successor
  93. Buffett's Car on Auction!
  94. Happy Birthday, Mr. Buffett!
  95. Warren Buffett married his long-time companion, Astrid Menks
  96. Investment success like the masters
  97. The battle of the billionaires
  98. SmartMoney: What Would Warren Buy?
  99. Warren Buffett's car sells for $73,200 on eBay
  100. Historic Moment for Berkshire Hathaway Share Price: $100,000
  101. Warren Buffett CEO: Kevin Clayton Video Interview with Robert Miles
  102. Berkshire Hathaway Interesting News

Whitney Tilson's Wisdom:

  1. Our Favourite Stock Idea: Berkshire Hathaway
  2. Interviews with Rich Pzena & Zeke Ashton, February 2005
  3. Interview with David Einhorn, March 2005
  4. Interview with Mark Sellers, June 2005
  5. Interview with Jim Chanos, July 2005
  6. Interview with Lisa Rapuano, September 2005
  7. Interview with Larry Robbins, October 2005
  8. Interview with Arne Alsin
  9. Traits of Successful Money Managers
  10. Thoughts on Value Investing
  11. The Perils of Investor Overconfidence
  12. Buffettesque Superinvestors
  13. The Perfect Business
  14. Whitney Tilson Interview by Bloomberg; Feb 23, 2006
  15. Interview: Whitney Tilson; March 14, 2006
  16. Stick with the simple, if scary, solution; April 21, 2006
  17. Looking For Hidden Value With Whitney Tilson April 25, 2006

Year 2006 Interesting Articles:

  1. Money really doesn't buy happiness; Feb 13, 2006
  2. The Top 10 Fund Value Creators and Destroyers; Jan 23, 2006
  3. India Value Investing Conference; Jan 25, 2006
  4. How to Be a Buy-and-Hold Investor; March 13, 2006
  5. Do All Banks Have Moats? May 3, 2006
  6. Earth 'likely' hottest in 2,000 years
  7. FIFA World Cup Winner Prediction
  8. The 400 Richest Americans

Year 2005 Interesting Articles:

  1. 2005's Value Creators and Destroyers December 21, 2005

Other Interesting Articles:

  1. Investors Must Recall Risk, Investing's Four-Letter Word; Jan 23, 1998
  2. Assessing Your Risk Tolerance

If you have any comment, please send me an email.

Dah Hui Lau (David)