Friday, June 30, 2006

Buffett Lunch fetches $620,100.00

To read the complete article.

Happy investing,
Dah Hui Lau (David)

Thursday, June 29, 2006

PartyGaming (PYGMF.PK) (LSE: PRTY)

Brief History:
PartyGaming is a brainchild of Ruth Parasol. Ruth is the eldest of three girls, born in 1967 in San Francisco, California to a Swedish born mother and a Polish born Holocaust survivor. She has an unconventional upbringing by her entrepreneurial and self-made millionaire father. By the age of 12, Ruth was attending Grateful Dead concerts and overseeing her father’s household bills, writing cheques and categorising tax deductible business expenses.

Ruth earned a BS in Business from University of San Francisco and a Juris Doctorate from Western State University College of Law in 1992. Ruth started an Internet pornography website in 1994 and exited the business in 1996. In 1997, she launched Starluck Casino Online from the Caribbean on licensed third party software. In 1998, she decided to build her own software with the help of Anurag Dikshit, a computer science graduate from Indian Institute of Technology, who she made a partner. With their own proprietary gaming and processing software, they have greater degree of control over their IT platform and improved their competitive advantage.

After seeing the success of their rival Paradise Poker in 2000, they switched their focus from roulette and blackjack to poker. PartyPoker was launched in 2001 with great publicity stunt. It announced a poker tournament with a first prize of $1M. Vikrant Bhargava and Russ DeLeon, who become partners, joined in 2001.

PartyGaming is the world’s largest online gaming company. It is number one in online poker and online casino. Since launched in 2001, PartyPoker grew rapidly to become clear leader in online poker, a position it has held since 2003. On average, PartyPoker handles around 32 hands of real money poker per second, every hour, every day, every month. Over £45 billion was wagered on the site in 2005. The Group’s secondary poker brands include EmpirePoker, IntertopsPoker, MultiPoker and PokerNOW.

Poker is the largest business segment of PartyGaming, accounting for 88% of its revenue in 2005. The Group essentially acts as the host for customers wanting to play poker against each other and as such takes no principal risk but simply charges players a fee, or “rake”, for every hand of real money poker played (where the pot is greater than $1 and where the hand reaches the flop).

The Group’s online casino business is the largest of its kind in terms of revenue, and it includes PartyCasino, Starluck Casino, PartyBingo and PlanetLuck Casino.

PartyGaming has over 12 million registered players throughout the world. 1.8 million were active players in 2005.

Price/share: $2.10
Current PE: 28.6
Forward PE: 12.5
Price/Sales: 5
ROE: Neg
ROA: 73.6%
TEV: $ 8373.8M
EBITDA – Maintenance Capex: $295.6M
TEV / (EBITDA – Maintenance Capex): 28.3
Free Cash Flow: $297.5M
Price/Free Cash Flow: 28.2

Investment Perspective:
At first glance at the valuation, PartyGaming does not look cheap. However, its potential to grow over the next few years will make investment in PartyGaming a steal.

Online gaming accounted for approximately 5% of the total $258.3 billion of gross gaming in 2005. It is the fastest growing segments of the overall gaming market, having grown at a compound annual growth rate since 1998 of over 50%. Over the next few years, it is estimated that the online gaming sector as a whole will grow at a compound annual growth rate of over 14% reaching 7.7% of the global gaming market by 2010.

Online poker, which is the most important segment of PartyGaming, represented approximately 20% of online gaming revenue. Although smaller than online sports betting (36%) and online casino (25%), online poker has been the fastest growing segment within the online gaming sector in recent years (compound annual growth rate of 158% from 2000 to 2005). GBGC estimated that online poker will grow at over 18% per annum between 2005 and 2010.

The high rate of growth undoubtedly has attracted a number of online poker operators, and provides listings for over 390 online poker sites in operation around the world. The key features which enable PartyGaming to dominate 41% of market share of online poker and make it more than 3 times bigger than its nearest competitor are (1) player liquidity, (2) control of software, (3) payment processing expertise, (4) excellent customer service and (5) Affiliates.

(1) Player liquidity: Players want to be able to find a table playing the game they want at the stakes they want to play for, with plenty of other players to make it interesting and all at the time they want to play. Player liquidity is therefore very important for attracting and retaining customers. Therefore, the larger the site, the better liquidity it will get. PartyPoker, being the biggest online poker site, will therefore have better competitive advantage over its competitors.

(2) Control of software: Being able to upgrade, augment and add new features to software means that an operator can keep pace with changing consumer tastes, stay ahead of the competition and, should they arise, fix problems quickly. PartyGaming has recognised the value in owning and developing its own gaming software and currently has over 200 software engineers based in Hyperabad, India, that deliver systems upgrades and developing new games as well as maintaining the existing systems architecture.

(3) Payment processing: PartyGaming continues to expand the number of ways that customers can pay-in and withdraw funds and now offers 23 different mechanisms, more than any of its competitors.

(4) Excellent customer service: It has established a dedicated customer service function with over 900 representatives that provide a 24/7 service, addressing technical as well as personal account enquiries. It has also established a series of performance targets that its seeks to meet on a daily basis; 80% of all cash out verifications are completed and processed within six hours, 90% of all phone calls are answered within 10 seconds, and 75% of all emails are answered within 30 minutes and 90% are answered within 90 minutes.

(5) Affiliates: PartyGaming has one of the largest affiliate networks with over 5,000 active affiliates in 2005. Customer traffic generated by its affiliate network accounted for 34% of poker revenue.

Despite intense competition in online casino (1050 online casino sites), GBGC has confirmed that PartyGaming’s online casino business is the largest online casino in the world. It is estimated by GBGC that online casino will continue to grow at approximately 9% per annum until 2010.

Insiders Ownerships:
Four founders have over 65% holdings of PartyGaming.

Potential Risks:
The biggest risk for PartyGaming is related to gaming laws. Online gaming laws are not well established and application and enforcement of unfavourable gaming laws, especially in North America, may restrict and jeopardize its growth.

Online gaming is a highly competitive market with over 2,400 sites in operation in 2005. Competition could get worse if US-based operators are to offer online gaming if legal status were clarified.

· Introduction of new games, such as backgammon (PartyGammon) may increase revenue substantially.
· High online gaming growth potential (ranging from 9% for online casino to 18% for online poker) over the next few years.
· If US legal status turned favourable, PartyGaming may enjoy higher valuation.
· 1st Quarter revenue ending March 31, 2006 increased by 54%.
· Websites were launched in French, German, Portuguese, Spanish, Swedish and Russian, with more foreign language versions planned for later in the year.

An Open Letter to Warren Buffett

Below is an open letter written by Susan Raymond to Warren Buffett. Very interesting article to read.

You and Mr. Gates control something infinitely more important than your money. You and Mr. Gates, Mr. Buffett, are leaders of people, leaders of immense stature, leaders who can be colleagues of the emerging commercial and civil society leaders in developing countries. If you will step forward not with the handout of pity, but with the hand of a colleague to these emerging commercial and social leaders, the hand of a peer, you will accomplish more for the ultimate sustainability of solutions than has been accomplished in 40 years of trying.

You are a leader, Mr. Buffett. Lead.

To read the complete article.

Happy reading,
Dah Hui Lau (David)

My hero: Jackie Chan

I am glad to read about Jackie Chan following Buffett and Gates' philanthropic efforts.

Jackie Chan says he has bequeathed half of his fortune to charity, saying he looks up to philanthropists like Warren Buffett and Bill Gates. "I admire the efforts by Buffett and Gates to help those in need a lot," Chan said. The 52-year-old action star said half his fortune would go to his own Jackie Chan Charitable Foundation, which helps needy Hong Kong youngsters, provides disaster relief, medical donations and supports the performing arts. The size of his donation isn't known, as Chan refused to disclose his net worth. To read the article.

By the way, Jackie Chan is my hero since young. He is one of the best actors that I have ever known; hardworking; ambitious; charitable; funny and a great person.

May Buffett and Gates and Chan's efforts inspire more and more wealthy people.

Thank you,

Dah Hui Lau (David)

Wednesday, June 28, 2006

Charlie Rose - An Exclusive Hour with Warren Buffett and Bill and Melinda Gates

50 mins TV appearance.

To watch the video.

Dah Hui Lau (David)

Bill Gates on Vaccines

To watch the video.

Thank you Futile France for the link.

Dah Hui Lau (David)

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

This week is really Warren's time. This is about an amazing person doing something quite extraordinary. I still find it hard to believe. I mean, I know it's true and all that, because once Warren makes up his mind, he is a very crisp guy. But even so, it may only really hit me later.

To read the complete article.

Thank you Futile France for the link.

Good read,
Dah Hui Lau (David)

A Discussion with Warren Buffett and Bill and Melinda Gates

90 min video or 5 min Highlights

To watch the video.

Thank you Futile France for the link.

Dah Hui Lau (David)

Sunday, June 25, 2006

Warren Buffett gives away his fortune

The world's second richest man - who's now worth $44 billion - tells editor-at-large Carol Loomis he will start giving away 85% of his wealth in July - most of it to the Bill & Melinda Gates Foundation.

To read the complete article.

To read: A conversation with Warren Buffett

To read: Letters from Buffett on gifts of Berkshire stock

To read: The global force called the Gates Foundation

This a wonderful news... one of the best news of the year. Joining Bill Gates now in the philanthropy efforts will accelerate the improvement in people's lives.

Mr. Buffett, I'm truly proud of you. You set a great example for all of us to follow.

Thank you,
Dah Hui Lau (David)

Saturday, June 24, 2006

FIFA World Cup Winner Prediction

Know something interesting about FIFA World Cup

Brazil won the world cup in 1994. Before that, he had won this title for the last time in 1970.

If you add up: 1970 + 1994 = 3964

Argentina won the world cup for the last time in 1986. Before that only in 1978.

And 1978 + 1986 = 3964

Germany , though, won the world cup in 1990. Before that, Germany won in 1974.

Look: 1990 + 1974 = 3964

This could lead us to guess the winner of the World Cup in 2002, since it should be the winner
of the 1962 World Cup (In fact 3964 - 2002 = 1962).

And Brazil won the world cup in 1962! (And, in fact, Brazil won the 2002 WC)

This numerology seems to work...

And now, who would be the winner of the 2006 world cup?

Let's see, 3964 - 2006 = 1958

And who won in 1958?....

Brazil did!!!

By the way, one of my friends asked me whether I believe in astrology... I find it interesting, but no.


Dah Hui Lau (David)

Tom Brown: Let the Wind Blow

Moral of story: despite widespread expectations to the contrary, the reinsurance industry seems set to earn very attractive returns in 2006 and beyond, under all but the most extreme scenarios. For an industry that’s under a death watch in certain quarters of Wall Street, that is very bullish news.

To read the complete article.

Excellent article by Tom Brown regarding reinsurers.

Happy learning,
Dah Hui Lau (David)

Earth 'likely' hottest in 2,000 years

It has been 2,000 years and possibly much longer since Earth has run such a fever.

To read complete article.

This is a very worrying news... :(
Dah Hui Lau (David)

Eighteen 5-Star Stocks from the Markel Portfolio

For those of you who are unfamiliar with Markel, it's a niche-focused specialty insurance company that is modeled on Berkshire Hathaway (brk.b.B), and like Berkshire CEO Warren Buffett, the executives at Markel have an enviable track record investing in public equities.

Vice chairman Steve Markel and chief investment officer Tom Gayner head the firm's stock-picking, and over the last decade their equity investments have appreciated by 13.1% annually, far outpacing the S&P 500's 7.31% annual gain.

To read the complete article

Happy reading,

Dah Hui Lau (David)

Friday, June 23, 2006

EarthLink, ELNK, Interesting but Risky Company

Step 1: FCF/EV yield vs. Treasury yield

Price per share = $8.30

Enterprise Value (EV) = $845M

Free Cash Flow (FCF) (Normalised) = $94M

FCF/EV yield = 11.1%

Treasury yield (30 years) = 5.03%

EarthLink looks like a better deal compared with treasury yield.

Step 2: Insider holdings

Founder (Sky Dayton) and insiders have holdings over 10% of the EarthLink.

Step 3: Is EarthLink a good Company?

Profit Margin (ttm): 9.94%
Operating Margin (ttm): 11.77%

Return on Assets (ttm): 10.41%
Return on Equity (ttm): 23.63%

EarthLink has good Return on Assets and Return on Equity.

Step 4: Does EarthLink management shareholders-orientated?

EarthLink has been buying its own shares aggressively; $85.8M (2003), $108M (2004) and $169M (2005).

Step 5: Do you understand its Business?

EarthLink, Inc. provides Internet access and related services to individual and business customers in the United States. Its primary service offerings include narrowband Internet access, including dial-up access over traditional telephone lines; broadband access via DSL, cable, satellite, and dedicated circuits; advertising and other services; and Web hosting. The company also sells equipment and devices used by subscribers to access its services. It has strategic alliances with Sprint Nextel Corporation and Dell, Inc. The company provides its services to approximately five million paying customers through a network of dial-up points of presence and a broadband footprint. EarthLink was founded by Sky Dayton in 1994 and is based in Atlanta, Georgia. [Yahoo website]

Step 6: Does EarthLink have a Moat?


Step 7: Does any superinvestor invest in EarthLink?


Step 8: What are the potential risks in buying EarthLink?

"Earthlink faces intense competition from Time Warner's TWX AOL unit and Microsoft's MSFT MSN service in the market for dialup access, as well as the nation's largest cable and telephone companies offering broadband service. These competitors have considerably greater scale and financial resources.

Intense competition is resulting in heavy customer churn for Earthlink. In addition, the firm is seeing steadily decreasing average revenue per subscriber for its premium narrowband and broadband services.

Earthlink does not own its broadband network and must negotiate with its competition to gain access. This puts the firm at a disadvantage as customers rely more on price as a differentiator and increasingly seek to bundle broadband Internet access with cable TV and phone service.

Earthlink is pursuing new growth opportunities. The company recently entered into a joint venture with SK Telecom SKM, South Korea's largest wireless carrier. The business plans to offer wireless communications services and equipment to U.S. customers. However, it is still early to decide whether this is a successful venture or not." [Morningstar report]

Insiders have been selling the stocks since last year. [MSN website]


Earthlink ($8.30 per share) is an interesting stock with low valuation, which is rightly so, as its future outlook is uncertain. It doesn't have a moat, and there is no superinvestor buying this company.

On the other hand, there are still significant insiders holdings and the management have been doing the right things of share repurchase.

Happy investing,
Dah Hui Lau (David)

Bruce Berkowitz: Forget GAAP accounting.

"Buy good businesses with strong balance sheets and above average returns on capital," Berkowitz says. "For us, some of the best businesses are those with huge free cash flows. Forget GAAP accounting. Cash is all you can spend."

He continues, "Like Buffett, we want companies run by great people. Our ideal company is one that is run by an owner/manager or by people who act like owner/managers. We want managers who are honest, talented, and hard working. We want their interests aligned with ours. Price is also a factor. We are willing to pay a fair price, but we will not overpay. Buying on weakness provides us with an extra margin of safety."

Berkowitz and Fairholme believe that good investment ideas are rare. As a result, the fund is organized as a non-diversified open-end fund. This means that it can hold fewer securities (typically 10 to 25 positions) and that it can hold larger positions in Berkowitz's best ideas. According to the latest available portfolio report, the fund's two largest holdings Berkshire Hathaway A (12.1%) and EchoStar Communications DISH (11.31%) accounted for almost 25% of assets. The fund's top five holdings account for nearly 45% of its assets.

"We want to put most of our money to work in our top few ideas, not our 50th best idea or our 100th best idea," Berkowitz says. In addition, Berkowitz believes that the size of his investments in a company provides him with better access to management. "When we put enough money into a firm, they treat us like we are owners."

Read the complete article

Thank you GuruFocus for the link.

Happy learning,

Dah Hui Lau (David)

Warren Buffett Power Lunch to Benefit Glide Foundation

Glide's mission is to break the cycles of multi-generational dependency, poverty, and low self-worth by providing a spiritual home of unconditional love. Glide strives to create a healthy community by offering effective services that foster holistic healing in an environment of cultural integrity and diversity.

Please visit Ebay: Warren Buffett Power Lunch

Dah Hui Lau (David)

Thursday, June 22, 2006

Profit Implications of Underwriting Discipline

This is a very interesting analysis of underwriting discipline = excellent profits by Russ 21401 on BRK-A Yahoo Board. Thank you Russ for sharing.

Please visit: Profit Implications of U/W Discipline Part 1

Please visit: Profit Implications of U/W Discipline Part 2

Happy learning,
Dah Hui Lau (David)

Friday, June 16, 2006

Bill Gates' New Life Goal

From July 2008, Bill Gates will begin full-time work at his non-profit foundation.

Bill Gates said "It's not a retirement, it's a reordering of my priorities."
[From: Wall Street Journal]

I am very proud of Bill Gates in refocusing his new life goal. With such a brilliant, gifted, wealthy man involving full-time in charity work, his foundation would be a great foundation, helping millions of people.

I truly believe that Bill Gates has made the best decision in his life. When one is so rich, one should focus on philanthropy. Bill Gates' decision to dedicate the rest of his life in philanthropy should set a great example to all of us.

All the best Mr. Gates. And, thank you for being a great philanthropist! God bless your work.

Dah Hui Lau (David)

Monday, June 12, 2006

Berkshire Hathaway A Good Business by Buffett Standard

According to Warren Buffett, 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).

Hmm… this sounds like Berkshire Hathaway!

Bloomberg article published recently mentioned that:

  1. Harrah's Entertainment Inc., the world's biggest casino company, is paying 50 percent more for property insurance because Warren Buffett's Berkshire Hathaway Inc. is one of its only options after last year's hurricanes.
  2. Buffett's prices are as much as 20 times higher than the rates prevalent a year ago.
  3. ``Every major account I've placed, those with half a billion dollars or more of coverage, had Berkshire involved,'' Bullock said. ``That was not the case prior to this year. They were not on any of those placements.''

Most insurance companies do not have competitive advantages over one another, except being a low cost provider. Berkshire, on the other hand, has many competitive advantages… low cost provider (GEICO), AAA rating, ability to increase prices, and the best investment managers (Buffett, Munger, Simpson).

Without doubt, Berkshire Hathaway is a Good Business by Buffett Standard. :)

Happy investing,

Dah Hui Lau (David)

Friday, June 09, 2006

The magic money machine: Joel Greenblatt’s Interview

As head of Gotham Capital, a hedge fund based in New York, he claims to have achieved average annual returns of 40% for 20 years.

Summary of Joel Greenblatt’s Interview:

  • Our strategy comes down to two things. We look for good businesses and we look for businesses selling for cheap prices. What do we mean by "good" and what do we mean by "cheap?" We define "good" as a company that earns a high return on capital and we define "cheap" as a company that earns a lot compared to the price we're paying for it.

  • Why isn't everyone already using it?

  • It can take three to five years before it starts showing its stuff. Over any one- or two-year period, it might not work, and that's why most people quit. Most people who don't understand what they're doing quit after one or two years of under-performance.

Read the complete article

Always learn from the best,
Dah Hui Lau (David)

Buffett to auction another lunch on eBay

Billionaire Warren Buffett will auction another lunch on eBay Inc.’s Web site in June 22 to benefit a San Francisco non-profit, in what has become an annual tradition that last year raised $351,100 from an anonymous bidder.

The Glide Foundation, which offers programs for the poor, hungry and homeless, announced the auction on its Web site.

To read complete article: MSNBC

May Buffett raise much more money this year. Keep going, Buffett!

Happy charity,
Dah Hui Lau (David)

Wednesday, June 07, 2006

Real Estate Investing

February 9, 2004 Interesting Blurb from Richard Russell on simple formula for real estate investing.

Now I want to say something about real estate. My father was in real estate all his life. Dad was a civil engineer, and prior to the Depression he was a builder. He knew building from the foundations to the elevators to the roofs to the electrical systems.. Then the Depression hit, and construction stopped dead. Nobody built a damn thing -- wait, the government built post offices and roads, mainly to give people jobs.

During the Depression and afterwards, my father went into management. He managed building for Tishman Co. and these were all New York City Apartment houses -- many on Park Avenue. In those days, times were was so tough that you had to negotiate a lease on an apartment. In other words, you had to sit down with a prospective tenant, and try to get him to sign on the dotted line. Believe me, it wasn't easy, and my dad would often come home exhausted after getting someone to signs a one-year lease.

My father had a "formula" that he used when buying a house, any house. He insisted, "No matter what you buy, figure it's going to cost you 10 percent to carry. That includes loss of interest on your the money you put down, property taxes, wear-and-tear, repairs, extras -- your cost will ALWAYS come to 10 percent." I've checked these figures over and over again, and my father war correct. When you buy real estate, think 10 percent!

Today in the WSJ there's a group (with pictures) of five houses that are listed as rental and income properties. The first house is typical. It's in Sanibel, Florida, a two bedroom condo -- price $1,150,000. The house rents for $39,000 for the year. OK, so the house cost you $115,000 to carry (10%), and you pull in $39,000. Loss $76,000.

Russell conclusion -- This is an income property? It's selling at near three times what it's worth as an investment, in my opinion. And this is typical of almost all real estate today.

You want your own home and a roof over your head that you can call your own? Fine, buy a house, own a house. But if you think you're getting a bargain today, forget it. Houses, like stocks, are overpriced. Period. The only economic reason to buy a house today is the thesis that inflation will bail you out. The only thing I don't like about that reasoning is that the public has swallowed it hook, line and sinker. Too many people own homes today and far too many own them along with fat mortgages.

Thank you Ron Redfield for sharing.

Happy investing,
Dah Hui Lau (David)

Beating The Street

By : Peter Lynch with John Rothchild

1. Never invest in any idea you can't illustrate with a crayon. You should be able to easily explain why you own an investment in 3 minutes or less. You should be able to explain this to a 5th grader. Ideally, you should be able to do this in 90 seconds, as a 5ht grader might get bored in the 3 minutes discussed above.

2. You can lose money in a very short time but it takes a long time to make money.

3. The stock market really isn't a gamble, as long as you pick good companies that you think will do well, and not just because of the stock price.

4. You can make a lot of money from the stock market, but then again you can also lose money, as we proved.

5. You should invest in several stocks because out of every five you pick one will be very great, one will be really bad, and three will be OK.

6. Just because a stock goes down doesn't mean it can't go lower.

7. You should not buy a stock because it's cheap but because you know a lot about it. Do your homework.

8. Hold only those stocks on which you can remain informed.

9. Invest regularly.

10. The key to making money in stocks is not to get scared out of them. This point cannot be overemphasized.

11. A decline in stocks is not a surprising event; it's a recurring event ‑ as normal as frigid air in Minnesota. If you live in a cold climate, you expect freezing temperatures, so when your outdoor thermometer drops below zero, you don't think of this as the beginning of the next Ice Age. You put on your parka, throw salt on the walk, and remind yourself that by summertime it will be warm outside.

12. A successful stock picker has the same relationship with a drop in the market as a Minnesotan has with freezing weather. You know it's coming and you're ready to ride it out, and when your favorite stocks go down with the rest, you jump at the chance to buy more.

13. Historically, stocks return nearly 11 percent.

14. Warren Buffet’s admonition that people who can't tolerate seeing their stocks lose 50 percent of their value shouldn't own stocks also applies to stock funds.

15. People who can't tolerate seeing their mutual funds lose 20‑30 percent of their value in short order certainly shouldn't be invested in growth funds or general equity funds.

16. When stocks in good companies are selling at 3‑6 time’s earnings, the stock picker can hardly lose.

17. A sure cure for taking a stock for granted is a big drop in the price.

18. Ergo, the devoted stock picker is happier when the market drops 300 points than when it rises the same amount.

19. If you like the store, chances are you'll love the stock.

20. Peters Principle #18: When even the analysts are bored, it's time to start buying.

21. It is a wonderful thing for shareholders when a utility builds a new plant (one that get a license to operate, at least) or takes other steps to increase capacity. When capacity grows, so does the rate base, and so do the earnings.

22. A healthy portfolio requires a regular checkup‑perhaps every six months or so.

23. Long shots almost always miss the mark.

24. Owning stocks is like having children ‑ don't get involved with more than you can handle. There don't have to be more than 5 companies in the portfolio at any one time.

25. If you can't find any companies that you think are attractive, put your money in the bank until you discover some.

26. Avoid hot stocks in hot industries.

27. A stock‑market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.

28. Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what's actually happening to the companies in which you’ve invested.

29. If you don't study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.

30. Equity to Assets ratio discussion. The higher the E/A, the better. E/A of 5.5 to 6 is average. S&L, he likes to see E/A of at least 7.5.

31. 6 month check up as a reminder. Two Basic questions of 6 month check up.
A. Is the stock still attractively priced relative to earnings?
B. What is happening in the company to make the earnings go up.

Thank you Ron Redfield for the above article.

Happy investing,
Dah Hui Lau (David)

Sunday, June 04, 2006

Berkshire Hathaway: Buffett's Attraction

Steven Roge thinks he's found the best steward of capital at a bargain price. The ace's name: Warren Buffett. That's right, Roge, a fee-only investment adviser who also manages the open-end Roge Partners Fund, sees irresistible value in the shares of Berkshire Hathaway.

Complete article

Happy investing,
Dah Hui Lau (David)

To visit my archive:

Thursday, June 01, 2006

K-Swiss Inc. Excellent Investment

K-Swiss is one of the most exciting companies that my Family Fund owned. Let me tell you why…

Step 1: FCF/EV yield vs. Treasury yield

Current price/share = $26.50

Enterprise Value (EV) = $725M

Free Cash Flow (FCF) = $86M

FCF/EV yield = 11.86%

Treasury yield (30 years) = 5.30%

K-Swiss looks like an excellent deal compared with treasury yield.

Step 2: Insider holdings

I have mentioned about superior return by investing in founder-CEO companies. Investing in companies that have significant insiders holding is one of the great ways to achieve superior return.

Steven Nichols has holdings over 22% of the K-Swiss.

To read my previous comment on insiders holding, please visit:

Step 3: Is K-Swiss a good Company?

Profit Margin (ttm): 14.70%
Operating Margin (ttm): 20.33%

Return on Assets (ttm): 19.43%
Return on Equity (ttm): 27.45%

These simple metrics show that K-Swiss is an excellent company.

Step 4: Does K-Swiss management shareholders-orientated?

K-Swiss has been raising its dividend payment every year from $1.4M (2003) to $5.8M (2005). Also, K-Swiss has been buying back its own shares aggressively, and consistently. Share repurchase increased from $17.6M (2003) to $25.9M (2005).

Step 5: Do you understand its Business?

K-Swiss Inc. designs, develops and markets an array of athletic footwear for high performance sports use, fitness activities and casual wear under the K-Swiss brand. We also design and manufacture footwear under the Royal Elastics brand. Royal Elastics, a wholly owned subsidiary, is a leading innovator of slip-on, laceless footwear. Sales of Royal Elastics brand were not significant during 2005.

K-Swiss was founded in 1966 by two Swiss brothers, who introduced one of the first leather tennis shoes in the United States. The shoe, the K-Swiss “Classic,” has remained relatively unchanged from its original design, and accounts for a significant portion of our sales. The Classic has evolved from a high-performance shoe into a casual, lifestyle shoe. We have emphasized in our marketing the commitment to produce products of high quality and enduring style and we plan to continue to emphasize the high quality and classic design of our products as we introduce new models of athletic footwear.

On December 30, 1986, K-Swiss was purchased by an investment group led by our current President. Thereafter we recruited experienced management and reduced manufacturing costs by increasing offshore production and entering into new, lower cost purchasing arrangements. Our products are manufactured to our specifications by overseas suppliers predominately in China. In June 1991 and September 1992, we established operations in Taiwan and Europe, respectively, to broaden our distribution on a global scale.

This is from K-Swiss 2005 Annual Report.

Step 6: Does K-Swiss have a Moat?

Shoes companies are subjected to extreme competition, as their products are fashion-oriented. In order to tackle this problem, K-Swiss concentrates on classic styling to reduce the impact of changes in consumer preferences, reduce total markdowns over the life of the products, thereby enhancing their attractiveness to retailers and also enabling them to maintain inventory with less risk of obsolescence. K-Swiss’ classic shoes accounted for 69% of their 2005 sales.

Step 7: Does any superinvestor invest in K-Swiss?

Excellent companies attract excellent investors. Marty Whitman of Third Avenue Value Fund owns about 4.4% of K-Swiss. As you know, Marty Whitman is regarded as one of the deans in value investing, and he is an “aggressive, yet conservative” superinvestor.

Another young, but emerging great investment manager, Jim Chuong, owns a huge amount of K-Swiss in his fund. K-Swiss accounts for 27% of his portfolio!

Step 8: What are the potential risks in buying K-Swiss?

As I mentioned above, shoes companies are subjected to intense competition. Fashion changes quickly, and therefore, it is very hard to create a strong “moat” around its products.


K-Swiss at current price of $26.50 is an excellent bargain. I’ll end my article with Warren Buffett’s wisdom again…

"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.""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."

Happy investing,
Dah Hui Lau (David)

To visit my archive:

Berkshire Hathaway Acquisitions List

Richard Losch of Losch Management put together a nifty little list of Berkshire's acquisitions from 1986.

This is not a perfect list. It is just the best that I could piece together from my annual reports. You will see a lot estimates about prices. These estimates are based on what I remember and what I could guess from the Cash flow Statements. Any corrections or additions will be greatly appreciated.

The Total for cash deals through 2005 is about $17 Billion and the total of $24 billion in stock deals is of course mostly GenRe. The Total for noninsurance deals is about $17 Billion and Operating profit for this segment has grown from $200 million to $4 billion so the return on invested capital would be over 20%.

Even thought the table goes back 20 years most of the action has been in the last ten years, and if you ignore the insurance deals that brought in GenRe and GEICO most of the action has been since 2000. The momentum is definitely building with the deals getting bigger and more frequent. There are already five deals that are probably worth more $10 billion in the works for this year so it is already the biggest year for cash deals. A deal for an additional $15 Billion if it happens, would make 2006 a huge year.

Berkshire Acquistion List

Thank you to Sanjeev Parsad for sharing this link.

Happy investing,
Dah Hui Lau (David)

Wells Fargo A Different Kind of Bank

Geoff Gannon has done an excellent article of Wells Fargo.

Please visit: Geoff's Website

Happy investing,
Dah Hui Lau (David)

Earning Happiness

I read about this article from Fortune Magazine......

Carnegie said,"Millionaires rarely smile." This is substantially true. "Plenty of money" and the things which money will buy in abundance do not of themselves insure greater happiness, improvement in character, or any of the things which really count.

The richest heir in the world recently declared publicly that he envied his father the necessity of having had to earn his own way in the world. The greatest satisfaction in life is to be derived from striving to attain some honest, honarably worthy object, from giving to our work and to the world the best that is in us.

This was published on April 16, 1921.

Be happy,
Dah Hui Lau (David)