Friday, March 31, 2006

Intel Corp; INTC Part II April 1, 2006

John Chew, a wonderful analyst, has kindly shared his excellent analysis on Intel vs. AMD.

Summary of Intel vs. AMD (by John Chew)

  1. He discovered that Intel Corp has consistently high ROIC, while AMD has variable ROIC. 3 out of 6 years, AMD has negative ROIC.
  2. Intel far outspends AMD in R&D and has shown a strong commitment to increasing its R&D as a percentage of sales over the past five years as R&D expenditures have increased from 8%/10% of sales prior to 2000 to 14% to 15%. Intel spends on average 5X more in R&D than AMD. This should enable Intel to win the “war”.

Another brilliant friend of mine, Arpit Ranka, points out one of the crucial factor to consider. Below is what he wrote….

“The first question that comes into my mind is Intel is 115 B dollar company. A 40% appreciation would mean that the market cap should get to 161 B. Now for every percentage of point of investment return you'd expect the market cap to approximately grow by $1B!!”

There is a wonderful article published in Fortune in year 2002 about “Too Big to Fly”. It talked about why superior companies like Coca Cola, Microsoft, GE, Cisco, etc. find it hard to achieve superior return, which is related to their sizes.

To read the article, please visit:

Last but not least, Terence Tan, another brilliant thinker, points out to me…..

R&D ≠ Success

This is what he said, “Shell spends more on oil discovery than ExxonMobil or BP. But it has not managed to find enough oil to replace it's stock compared to Exxon or BP. So R&D expenditure not necessarily clear indicator of future success.”

In conclusions:

Besides doing all the standard analysis on companies, we should also pay attention to:

  1. Consistency of results.
  2. Company’s size.
  3. R&D may not equal success.

If you find this discussion helpful or if you have anything else to add, shoot me an email. Remember, sharing is the best way to learn.

To read Intel's analysis:

All the best,
Dah Hui Lau (David)

April 1, 2006:

In response to big size limiting return, John Chew, has shared another great point. This is what he said...

"Intel, MSFT, Coke, CISCO are all behmouths--they became huge through their dominance, so their size will limit returns vs. a smaller cap company, so I don't dispute what your friend said.

However, what you give up in returns you may pick up in safety through their consistent slower growth IF the management knows they are over capitalized and return cash to shareholders through buybacks and dividends.

MSFT is essentially a utility company--they control 95% of the operating systems market and they earn 100%+ returns on tangible capital, the problem is what do they do with the cash? Let it sit on the balance sheet, deworseify, or give it back to shareholders. If mgt. returns cash to shareholders then buying at a 30% discount to IV with IV growing through 4% to 6% organic growth and 4% to 6% share buybacks or dividend yield is not bad given that it probably will be hard for the market to average much above 6% over the next few years."

I couldn't have agreed more of what John has said. Buying great companies below intrinsic value, with great management, and organic growth of 4-6%, and share buybacks, will definitely enable investors to beat the market average. And most importantly, this strategy will enable investors sleep well at night.

All the best,

Dah Hui Lau (David)

To visit my archive:

Wednesday, March 29, 2006

Intel Corp; INTC March 29, 2006

Price per share: $19.60
Market Cap (intraday): 115.10B
Enterprise Value (29-Mar-06)3: 105.84B
Trailing P/E (ttm, intraday): 13.96
Forward P/E (fye 31-Dec-07) 1: 15.41
PEG Ratio (5 yr expected): 1.24
Price/Sales (ttm): 2.97
Price/Book (mrq): 3.20
Enterprise Value/Revenue (ttm)3: 2.73
Enterprise Value/EBITDA (ttm)3: 6.29

Profit Margin (ttm): 22.32%
Operating Margin (ttm): 31.50%

Return on Assets (ttm): 15.85%
Return on Equity (ttm): 23.18%


Total Cash / Investments = $12.77B
Total Liabilities = $12.1B (including Account Payable)

Enterprise Value (EV)
= Market Cap + Total Liabilities – Total Cash/Investments
= $115.1B + $12.1B - $12.77B
= $114.43B

Free Cash Flow (FCF)
= Total Operating Cash Flow – Capital Expenditure
= $14.8B – $5.82B
= $8.98B

FCF/EV yield
= $8.98B / $114.43B
= 7.85%

Treasury yield (30-years)
= 4.56%

Why is Intel Corp a good buy now?

As a value investor, we only invest when there is margin of safety. At current price, Intel Corp has a great FCF/EV yield; 7.85%. This is much better than the treasury yield of 4.56%.

As a Buffettised / Greenblattised value investor, we want to invest in strong, dominant company with moat. Without doubt, Intel Corp is a strong, dominant company with superior long-term results.

Strong managements are vital for superior returns. By looking at how management deploy excessive cash, we see that Intel has a great management. It has been repurchasing its own shares like crazy. Last year (2005), Intel repurchased over $9.4B of shares, more than its net income. On top of that, Intel has been paying out over $1.9B of dividend.


At current attractive yield, we are confident that Intel Corp is undervalued, and it is an attractive investment. We should be seeing more superinvestors investing in this wonderful stock soon.

All the best,
Dah Hui Lau (David)

To visit my archive:

Monday, March 27, 2006

Roll Up the Tim to Win; March 27, 2006

Instead of the usual book review, I will apply what I learned from reading Joel Greenblatt’s "You Can Be A Stock Market Genius" to everybody’s new favorite IPO: Tim Hortons.

After the IPO was announced in July 2005, like most everyone on the planet, all I could think about was whether I should buy Tim Hortons stock. Not once, however, did I seriously consider the value unlocked in Wendy’s stock. Thanks to Greenblatt, I will know next time.

To read further:

This is an excellent article showing analysis of why Wendy's stock is undervalued by Theo Wong.

All the best,
Dah Hui Lau (David)

Friday, March 24, 2006

Ronald Muhlenkamp Interview; Feb 24, 2006

"We ran a screen two months ago, and again a week ago, we said we want companies that have return on equity over 14%. You're familiar with us, that's where we start, we want a PE well below the ROE, that just gives us a good value and we want revenue growth of 10% or more over the last year. We screened 6,000 stocks. Usually when you screen 6,000 stocks, you find a lot of little stuff that has been overlooked. Two-thirds of the names that came through those screens are in the S&P 500. We're finding more value today in the big stuff than we are in the little stuff. Now the momentum continues on the little stuff. Incidentally, in 1998, the only values we were finding were small stuff. And for a long time we were viewed as a small cap manager, and we don't care cap. We care about value." "We haven't yet bought a Wal-Mart, but they’re starting to look interesting. In the last year and a half we have bought a Johnson & Johnson and a Pfizer, we own a Citigroup, Eliot Spitzer gave us a chance to buy AIG at a reasonable price."

To read further:

Thank you GuruFocus for the wonderful link.

All the best,
Dah Hui Lau (David)

Thursday, March 23, 2006

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


Apollo has an excellent business model, which Morningstar awards a 'wide moat', great, experienced, management and good financials.I'm not entirely comfortable with the current valuation, 'past performance is not indicative of future performance', 57 is an extremely high PE and it would be foolish to assume a company with a PE of 21 would revert back to that high a PE. Quicken assumes 6% terminal growth which I would downplay greatly (growing 6% for eternity will make Google look overvalued) and will not take the Quicken assumption very seriously. The valuation I feel most comfortable with is the DCF, this implies a 23% margin of safety, thought I would pay up for a business of this quality, I want at least a 30% margin of safety before committing the money in my concentrated portfolio.

To read Mike's analysis, please visit:

All the best,
Dah Hui Lau (David)

Monday, March 20, 2006

Albert Einstein's Wisdom

Albert Einstein's Wisdom.....

  • A person who never made a mistake never tried anything new.

  • Everything should be as simple as it is, but not simpler.

  • Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.
All the best,
Dah Hui Lau (David)

Wednesday, March 15, 2006

Chairman's Letter: Edward Lampert; March 15, 2006

Edward Lampert's annual shareholder letter: "I view Sears Holdings as a $55 billion revenue, 350,000 person start-up - and I continue to believe that we have the challenges, excitement, pace of change, and opportunity for success that characterize a start-up. We will not be bound by the dictates of past practices."

To read more of Sear's Chairman's letter, please visit:

All the best,
Dah Hui Lau (David)

Interview: Whitney Tilson; March 14, 2006

Mike Price, Kyle Schnare, and Kevin Kelly had the wonderful opportunity to interview Whitney Tilson. Whitney runs or holds senior positions in T2 Partners, Tilson Mutual Funds, Value Investor Insight, and the Value Investing Congress.

To read the interview, please visit:

All the best,
Dah Hui Lau (David)

Tuesday, March 14, 2006

Gannett Corp Undervalued at $61.26; March 14, 2006

Market Cap (intraday): 14.59B
Trailing P/E (ttm, intraday): 12.13
Forward P/E (fye 25-Dec-07) 1: 11.45
Price/Sales (ttm): 1.92
Price/Book (mrq): 1.93
Enterprise Value/Revenue (ttm)3: 2.62
Enterprise Value/EBITDA (ttm)3: 8.556
Return on Assets (ttm): 8.22%
Return on Equity (ttm): 15.40%
Profit Margin (ttm): 16.38%


Enterprise Value
= Market Cap + Total liabilities (excluding net payables) – Cash
= $14.6B + $7.3B – $0.16B
= $21.74B

Free Cash Flow
= Net operating Cash Flow – Capital Expenditure
= $1.43B - $0.263B
= $1.167B

Enterprise Value / Free Cash Flow
= $21.74B / $1.167B
= 18.62

March 14, 2006
McClatchy's purchase of Knight Ridder for $4.5 billion.

Knight Ridder’s:

Enterprise Value (based on purchase price) (March 14, 2006)
= $4.5B + $2.9B - $0.04B
= $7.36B

Year FCF
TTM $0.25B
2004 $0.34B
2003 $0.37B
2002 $0.35B
2001 $0.39B
2000 $0.31B

Normalised FCF = $0.335B

EV / FCF (Normalised)
= $7.36B / $0.335B
= 22

Based on Knight Ridder’s purchase, if Gannett is valued at 22X of EV/FCF, then Gannett could potentially worth 27% more than current market price.

This is not meant as a full, detailed analysis of Gannett, but a simple and quick calculation.

All the best,
Dah Hui Lau (David)

To visit my archive:

Monday, March 13, 2006

How to Be a Buy-and-Hold Investor; March 13, 2006

by Russel Kinnel
In investing, patience is more than a virtue, it's a necessity. If you trade a lot, you will run up increased costs such as commissions and taxes, thus driving down returns. In addition, you risk messing up your long-range plan by altering your portfolio's diversification among asset classes and sectors.

To read further:

All the best,
Dah Hui Lau (David)

Interview with Deep-Value Superinvestor; March 12, 2006

Mike Price, the 15 years old investor, has interviewed Henry Lu, the famous Blast_Investor regarding deep value investing. Henry Lu has been perfecting his value strategy for six years and now runs Blast Invest, an investing newsletter with 200 subscribers, which follows a focused portfolio consisting of stocks he has picked through Graham’s methods. The model portfolio has returned 44% CAGR since inception in 2003.

To read the interview, please visit:

All the best,
Dah Hui Lau (David)

Wednesday, March 08, 2006

Berkshire Hathaway Intrinsic Valuator

Interesting Berkshire Hathaway Intrinsic Value Calculator.

Please visit:

All the best,
Dah Hui Lau (David)

Monday, March 06, 2006

Berkshire: Your Biggest Holding? March 6, 2006

Helloooo everyone!

Many great investors think Berkshire is undervalued...... Superinvestors like Ruane Cunniff (24% of assets are in Berkshire), Wallace Weitz, Tweedy Browne, Mohnish Pabrai, Whitney Tilson, Jim Chuong (13.6% of assets are in Berkshire), Charles de Vaulx and others own significant amount of Berkshire.

I truly believe that Berkshire is undervalued and has great potential for significant return over the medium to long term. Thus, I have invested a significant amount of my family investment fund into Berkshire, making it our biggest investment holding.

I'm wondering how many investors own significant amount Berkshire.

Is Berkshire your biggest holding? Or, is Berkshire your top 3 holdings?

To join this discussion, please visit:

Warm regards,
Dah Hui Lau (David)

To read Whitney Tilson's presentation on Berkshire Hathaway, please visit:

Sunday, March 05, 2006

Berkshire Hathaway Annual Reports

Berkshire Hathaway annual reports are must read reports.....

All the best,
Dah Hui Lau (David)

Saturday, March 04, 2006

India Value Investing Conference; Jan 25, 2006

On a personal note:

There are a few things that I have learnt about investing from my own experience and from talking or reading about successful investors. There is nothing original in anything that I’m just going to say – its just that I’ve been a very slow learner.

1. Investing requires persistence, patience and practice.
2. Investing is like being in a fog and seeing things that others can’t. You have to be comfortable with vague outlines and imagine them to be real and then bet that your imagination is right.
3. Profits abound where wisdom prevails. Wisdom states that the first step toward making money is not losing it. And yet countless clever people forget this seemingly simple rule.
4. “You know less than what you think you do.”
5. “Try to focus on the facts, not the stories.”
6. “More information does not necessarily mean better information.”
7. “Look for people who disagree with you.”
8. “Don’t attribute your failures to bad luck; acknowledging mistakes and examining them are necessary to improving performance.”
9. “People often anchor on the irrelevant, so its important to have a valuation framework and the process and the discipline to stick to it.”
10. Always think probabilistically and judge future outcomes by how statistically likely they are.
11. “Don’t value something more, simply because you own it. “
12. Always think critically and play only when the odds are in your favor and lastly Never, never stop learning.

Thank you T-BoneJr and Dr. Brian Zen for this link.

To read more:

All the best,
Dah Hui Lau (David)

Thursday, March 02, 2006

Buying Pessimism?

Paradox: A good business does not usually make a good investment.

To read more about buying into pessimism:

All the best,
Dah Hui Lau (David)

24 Buffet Ideas to win 365 battles every year

1. Choose Simplicity over ComplexityWhen investing, keep it simple. Do what’s easy and obvious.If you don’t understand a business, don’t buy it.

2. Make Your Own Investment DecisionsDon’t listen to the brokers, the analysts, or the pundits. Figure it out for yourself.Become a value investor. It’s proven to be a very rewarding technique over the long term.

3. Maintain Proper TemperamentLet other people overreact to the market.To succeed in the market, you need only ordinary intelligence. But in addition, you need the kind of temperament to help you ride out the storms and stick to your long-term plans. If you can stay cool while those around you are panicking, you can surely prevail.

4. Be PatientThink 10 years, rather than 10 minutesDon’t dwell on the price of stocks. Instead, study the underlying business, its earnings capacity and its future. If the question is, “How long will you wait?” – “If we’re in the right place, we’ll wait indefinitely” says Buffet.

5. Buy Business, Not StocksOnce you get into the right business, you can let everyone else worry about the stock market........

To read more:

All the best,
Dah Hui Lau (David)

Wednesday, March 01, 2006

Assessing Your Risk Tolerance

By asking yourself a few simple questions, you may discover the type of investor that you should consider yourself.

Do market fluctuations keep you awake at night?

Are you unfamiliar with investing?

Do you consider yourself more a saver rather than investor?

Are you fearful of losing 25% of your assets in a few days or weeks?

If you answered "yes" to these questions, you are likely to be a "conservative" investor.

To read more:

All the best,

Dah Hui Lau (David)

Investors Must Recall Risk, Investing's Four-Letter Word; Jan 23, 1998


What four letter word should pop into mind when the stock market takes a harrowing nose dive? No, not those. R-I-S-K. Risk is the potential for realizing low returns or even losing money, possibly preventing you from meeting important objectives, like sending your kids to the college of their choice or having the retirement lifestyle you crave. But many financial advisers and other experts say that these days investors aren't taking the idea of risk as seriously as they should, and they are overexposing themselves to stocks. "The market has been so good for years that investors no longer believe there's risk in investing," says Gary Schatsky, a financial adviser in New York. "And when the market drops hundreds of points and rebounds immediately, that belief is confirmed."

To read more:

All the best,
Dah Hui Lau (David)

Small Advantages, Big Wins; Feb 28, 2006

By Seth Jayson (TMF Bent) February 28, 2006

One of the most sobering lessons you learn by watching the Olympics is just how small the difference is between winning and losing. In most timed events, there's less than a second between glory and anonymity. Italian speed skater Enrico Fabris beat American favorite Shani Davis by a mere 0.16 seconds over 1,500 meters. But that's a lifetime compared with other races. On the mountain, in the men's super giant slalom, Kjetil Aamodt beat Hermann Maier by 0.13 seconds. In the men's giant slalom, Benjamin Raich won by a mere 0.07 seconds.

To read more, please visit:

All the best,
Dah Hui Lau (David)

Learning From Longleaf; Feb 28, 2006

By Warren Gump February 28, 2006

During 2005, Longleaf initiated substantial positions in four publicly traded securities: Dell for 7.7% of the year-end portfolio, Liberty Media for 4.8%, Anheuser-Busch for 3.9%, and Sprint Nextel for 2.6%. Other new positions are spinoffs, splits, private placements, or de minimus. These four new positions are all large-capitalization companies that were market darlings at one point in the past decade.

To read more, please visit:

All the best,
Dah Hui Lau (David)

2 Things I Learned From Benjamin Graham; Feb 28, 2006

By Tim Beyers (TMF Mile High) February 28, 2006

Lesson No. 1: Buying stocks makes you an owner.

Lesson No. 2: Always buy with a margin of safety.

To read more, visit:

All the best,
Dah Hui Lau (David)