Wednesday, December 01, 2010
Friday, November 26, 2010
Wednesday, November 24, 2010
Monday, November 22, 2010
Friday, November 05, 2010
Friday, October 29, 2010
Wednesday, October 27, 2010
Wednesday, October 20, 2010
Monday, October 18, 2010
Wednesday, October 13, 2010
Thursday, September 30, 2010
Monday, September 27, 2010
I came across an article on Bloomberg Businessweek, which said….
If given a choice between investing with Buffett and billionaire investor George Soros, Taleb also said he would probably pick the latter.
“I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”
I have high respect for your intelligence and thinking, and I believe that “Fooled by Randomness” and “The Black Swan” are must-read books for everyone. However, I believe your observation on Warren Buffett is wrong.
You justified your pick on Soros because you have observed his thousands if not millions of trades; therefore, giving you comfort that he is making decisions and his success, to quote what you said, is “2 million times more statistically evidence that his results are not by chance than Buffett does”.
You are implying that Soros is making thousands more decisions that Buffett. It seems to me that your understanding of Buffett is superficial, leading to your flawed conclusion.
During a meeting with MBA students from the University of Georgia in early 2007, Buffett told the group of students that "There were four Moody's manuals at the time. I went through them all, page by page, over 10,000 pages twice. On page 1433, I found Western Insurance Securities. Its earnings per share were as follows: 1949 - $21.66, 1950 - $29.09. In 1951, the low-high share price was $3 - $13. Ten pages later, on page 1443, I found National American Fire Insurance….”
Again, in 2004, Buffett searched through the entire Korean stock market by reading Citigroup Investment Guide to Korean Stocks (that is over 1,700 companies). In 4 hours he found 20 companies that he liked and put $100 million to work.
These two examples illustrated that Buffett did make thousands of decisions of not to invest. Those who study Buffett intensely know that he works extreme hard and study all companies available from A to Z, leaving no stone unturned. Deciding not to buy is just as important as deciding to buy. However, inactivity is commonly misunderstood for not making any decision.
To quote Albert Einstein, “Not everything that counts can be counted, and not everything that can be counted, counts.”
Thursday, September 23, 2010
Thursday, September 16, 2010
Tuesday, September 14, 2010
Thursday, September 09, 2010
- Keep it simple. Write and communicate in a way that even an art teacher or veterinarian could understand. When she famously made her Citi call, she looked at three key variables - leverage ratio, how much Citi needed to raise to reach similar leverage ratio as its peers, and dividend payout. She realized that in order for Citi to achieve similar ratio as its peers, it would need to raise $30billion in equity against $100billion in net assets. Therefore, Citi would need to stop paying dividend or else, go bust.
- Work hard. She "taps dance to work". Don't mind asking dump questions.
- Having high conviction after you have done your homework. It's ok to be the minority if you're right.
- Be a prolific reader. Leave no stone unturned.
Tuesday, September 07, 2010
Wednesday, August 04, 2010
Friday, July 30, 2010
From Tiananmen Square to Possible Buffett Successor
By SUSAN PULLIAM
Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.
Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.
The job of filling Mr. Buffett's shoes is among the most high-profile succession stories in modern corporate history. Mr. Buffett, who will turn 80 in a month, says he has no current plans to step down and will likely split his job after he leaves the company into separate CEO and investing functions. Mr. Li's emergence as a contender to oversee Berkshire investments is the first time a name has been identified to fill the investment part of Mr. Buffett's legendary role.
The development illustrates that Berkshire is moving toward putting in place—possibly sooner than investors anticipated—certain aspects of its succession plan.
The Chinese-American investor already has made money for Berkshire: He introduced Mr. Munger to BYD Co., a Chinese battery and auto maker, and Berkshire invested. Since 2008, Berkshire's BYD stake has surged more than six-fold, generating profit of about $1.2 billion, Mr. Buffett says. Mr. Li's hedge funds have garnered an annualized compound return of 26.4% since 1998, compared to 2.25% for the Standard & Poor's 500 stock index during the same period.
Mr. Li's ascent on Wall Street has been no less dramatic. He spent his childhood shuttling between foster families after his mother and father were sent to labor camps during the Cultural Revolution. After the Tiananmen Square protest, he escaped to France and came to the U.S. Investors in his hedge fund have included a group of senior U.S. business executives and the musician Sting, who calls Mr. Li "hardworking and clever."
Mr. Li's investing strategy represents a significant shift for Mr. Buffett: Mr. Li invests chiefly in high-technology companies in Asia. Mr. Buffett typically has ignored investments in industries he says he doesn't understand.
Mr. Buffett says Berkshire's top investing job could be filled by two or more managers who would be on equal footing and divide up responsibility for managing Berkshire's $100 billion portfolio. David Sokol, chairman of Berkshire unit MidAmerican Energy Holdings, is considered top contender for CEO. Mr. Sokol, 53, joined MidAmerican in 1991 and is known for his tireless work ethic.
In an interview, Mr. Buffett declines to comment directly on succession plans. But he doesn't rule out bringing in an investment manager such as Mr. Li while still at Berkshire's helm.
"I like the idea of bringing on other investment managers while I'm still here," Mr. Buffett says. He says he doesn't preclude making a move this year, though he adds that there is no "goal" to bring on an additional manager that quickly either. Mr. Buffett says he envisions a team approach in which the Berkshire investment officials would be "paid as a group" from one pot, he says. "I don't want them to compete."
Mr. Li fits the bill in some important ways, Mr. Buffett says. "You want someone" who "can think about problems that haven't yet existed before," he says. Mr. Li is a contrarian investor, loading up on BYD shares when they were beaten down. And he's a big fan of Berkshire, which may also help his cause. "We don't want them unless they have special feelings about Berkshire," Mr. Buffett says.
But hiring Mr. Li could be risky. His big bet on BYD is his only large-scale investing home run. Without the BYD profits, his performance as a hedge-fund manager is unremarkable.
It's unclear whether he could rack up such profits if managing a large portfolio of Berkshire's.
What's more, his strategy of "backing up the truck," to make large investments and not wavering when the markets turn down could backfire in a prolonged bear market. Despite a 200% return in 2009, he was down 13% at the end of June this year, nearly double the 6.6% drop in the S&P-500 during the period.
Mr. Li declines to discuss a potential Berkshire position, saying only that he feels fortunate to be a member of the Berkshire inner circle. "This is the stuff you can't conjure in dreams," he says.
Mr. Li was born in 1966, the year Mao Zedong's Cultural Revolution began. When he was nine months old, he says, his father, an engineer, was sent to a coal mine to be "re-educated." His mother was sent to a labor camp. Mr. Li's parents paid various families to take him in. He was shuttled from family to family for several years until moving in with an illiterate coal miner, with whom he developed a close bond, in his hometown of Tangshan. Living apart from his family as a child taught him survival skills, Mr. Li says.
He was reunited with his family, including two brothers, by age 10, when a massive earthquake hit his hometown, killing an estimated 242,000 people in the area, including the coal miner and his family. His nuclear family was spared, he says, but "most of the people I knew were killed."
At the time, he says he had no direction and was fighting in the streets. Mr. Li says his grandmother, who was among the first women in her city to attend college, inspired him to begin reading and studying. He later attended Nanjing University, majoring in physics.
In April 1989, he traveled to Tiananmen Square in Beijing to meet with students who were gathering to mourn the death of Secretary General Hu Yaobang, who was viewed as a supporter of democracy and reforms.
The students protested against corruption, among other things, and Mr. Li helped organize the students and participated in a hunger strike.
He and other students fled to France. Later in 1989, he traveled to the U.S. to speak at Columbia University, where human-rights activists embraced him as a hero. He spoke little English but landed an advance to write a book about his experiences.
Helped by financial scholarships at Columbia, Mr. Li quickly learned English. He simultaneously earned three degrees: an economics degree, a law degree and a graduate degree in business, according to Columbia.
With his student loans piling up, Mr. Li attended a lecture by Mr. Buffett at Columbia in 1993. At the time, the 1990s bull market was in full swing, and hedge funds were on the rise. Mr. Li says in China he didn't trust financial markets but hearing Mr. Buffett helped him overcome skepticism about stock investing.
He began dabbling in stocks using money from his book advance. By his graduation in 1996, he had built a sizable nest egg and says he thought he could retire. Instead he took a job at securities firm Donaldson Lufkin & Jenrette and then left to set up his own hedge fund. In 1997, he had set up Himalaya Partners, a hedge fund. Later he started a venture-capital fund to invest in U.S. technology companies.
It was a heady time on Wall Street. The Internet boom was beginning. Investors were clamoring to find hot stocks.
Through his human-rights contacts, Mr. Li quickly attracted well-heeled clients including Bob Bernstein, former chairman of Random House and founder of Human Rights Watch as well as the musician Sting. Other investors included financier Jerome Kohlberg, News Corp. director emeritus and Allen & Co. executive Stanley Shuman and hedge fund manager Jack Nash, Mr. Li says.
But Mr. Li bombed out in 1998, his first year as a hedge fund manager. His fund, which was invested chiefly in Asian stocks, was hammered by the Asian debt crisis, and lost 19%.
"I felt bad that people had trusted me," he says. "All they knew was I was a student activist and all they saw was losses."
His fortunes rebounded as the Asian crisis quickly faded. As 1998 began, so did a huge new bull market. By now, the hedge-fund industry was growing gangbusters, and by the end of 1999, Mr. Li's fund had regained its losses.
In 2002, hedge-fund giant Julian Robertson gave Mr. Li money to invest in his fund on the condition that the fund would make bearish as well as bullish bets on companies.
It wasn't a good fit. Mr. Li says he "hated" betting against stocks, complaining that he had to "trade all the time" to adjust his portfolio. (The remaining parts of the fund now are being unwound.) Mr. Robertson declined to comment on the business relationship.
One of Mr. Li's human-rights contacts was Jane Olson, the wife of Ronald Olson, a Berkshire director and early partner at a Los Angeles law firm Mr. Munger helped found. Mr. Li began spending time at the Olsons' weekend home in Santa Barbara, Calif., and on Thanksgiving 2003 met Mr. Munger, whose home is nearby.
Mr. Munger says Mr. Li made an immediate impression. The two shared a "suspicion of reported earnings of finance companies," Mr. Munger says. "We don't like the bull—."
Mr. Munger gave Mr. Li some of his family's nest egg to invest to open a "value" fund betting on beaten-down stocks.
Two weeks later, Mr. Li says he met again with Mr. Munger to make certain he had heard right. In early 2004, Mr. Li opened a fund, putting in $4 million of his own money and raising an additional $50 million from other investors. Mr. Munger's family put in $50 million, followed by another $38 million. Part of Mr. Li's agreement with Mr. Munger was that the fund would be closed to new investors.
Mr. Li's big hit began in 2002 when he first invested in BYD, then a fledgling Chinese battery company. Its founder came from humble beginnings and started the company in 1995 with $300,000 of borrowed money.
Mr. Li made an initial investment in BYD soon after its initial public offering on the Hong Kong stock exchange. (BYD trades in the U.S. on the Pink Sheets and was recently quoted at $6.90 a share.)
When he opened the fund, he loaded up again on BYD shares, eventually investing a significant share of the $150 million fund with Mr. Munger in BYD, which already was growing quickly and had bought a bankrupt Chinese automaker. "He bought a little early and more later when the stock fell, which is his nature," Mr. Munger says.
In 2008, Mr. Munger persuaded Mr. Sokol to investigate BYD for Berkshire as well. Mr. Sokol went to China and when he returned, he and Mr. Munger convinced Mr. Buffett to load up on BYD. In September, Berkshire invested $230 million in BYD for a 10% stake in the company.
BYD's business has been on fire. It now has close to one-third of the global market for lithium-ion batteries, used in cell phones. Its bigger plans involve the electric and hybrid-vehicle business.
The test for BYD, one of the largest Chinese car makers, will be whether it can deliver on plans to develop the most effective lithium battery on the market that could become an even bigger source of power in the future. Even more promising is the potential to use the lithium battery to store power from other energy sources like solar and wind.
Says Mr. Munger: "The big lithium battery is a game-changer."
BYD is a big roll of the dice for Mr. Li. He is an informal adviser to the company and owns about 2.5% of the company.
Mr. Li's fund's $40 million investment in BYD is now worth about $400 million. Berkshire's $230 million investment in 2008 now is worth about $1.5 billion. Messrs. Buffett, Munger, Sokol, Li and Microsoft founder and Berkshire Director Bill Gates plan to visit China and BYD in September.
Mr. Li is able to travel in China on a limited basis today, but he hopes to regain full travel privileges soon. It isn't clear how he is viewed by the Chinese government.
Mr. Li declined to name his fund's other holdings. Despite this year's losses, the $600 million fund is up 338% since its late 2004 launch, an annualized return of around 30%, compared to less than 1% for the S&P 500 index.
Mr. Li told investors he took a lesson from watching the World Cup, comparing his investment style to soccer. "You may very well work extremely hard and seldom score," he says. "But occasionally—very occasionally—you get one or two great chances and you make decisive strikes that really matter."
Wednesday, June 16, 2010
Monday, June 14, 2010
As Skonieczny put it, “Many people choose to invest their entire life savings into stocks, yet they do not take the time to learn basic accounting, which is the language of business.”
“Managers of various companies communicate with shareholders about the successes and failures of their business endeavors through financial statements which include the balance sheet, the income statement, and the cash flow statement. The preparation of financial statements is guided by various accounting guidelines. When buyers and sellers of stocks are truly involved in buying and selling businesses, it is critical that they know how to read and understand financial statements so that they know what it is that they are buying or selling.”
If you are interested in the book, please visit: Classic Value Investors website and become a subscriber of his blog. You will get the book for free!
Wednesday, June 02, 2010
Thursday, May 27, 2010
Forbes has obtained a copy of Buffett's March 5, 1982, letter to Rep. John Dingell, D-Mich., laying out the risks of derivatives to the nation that were, of course, largely ignored. In the letter Buffett modestly refers to his background, referencing his previous 25 years spent as a financial analyst, and 30 years "in various aspects of the investment business." He adds, "I currently have the sole responsibility for an equity portfolio that totals over $600 million." It sounds prosaic now: $600 million!
Monday, May 17, 2010
Thursday, May 13, 2010
Monday, May 10, 2010
Saturday, May 08, 2010
Friday, April 23, 2010
Wednesday, April 21, 2010
Tuesday, April 13, 2010
Tuesday, March 23, 2010
Monday, March 15, 2010
Wednesday, March 03, 2010
In early 2004 a 32-year-old stock-market investor and hedge-fund manager, Michael Burry, immersed himself for the first time in the bond market. He learned all he could about how money got borrowed and lent in America. He didn’t talk to anyone about what became his new obsession; he just sat alone in his office, in San Jose, California, and read books and articles and financial filings. He wanted to know, especially, how subprime-mortgage bonds worked. A giant number of individual loans got piled up into a tower. The top floors got their money back first and so got the highest ratings from Moody’s and S&P, and the lowest interest rate. The low floors got their money back last, suffered the first losses, and got the lowest ratings from Moody’s and S&P. Because they were taking on more risk, the investors in the bottom floors received a higher rate of interest than investors in the top floors. Investors who bought mortgage bonds had to decide in which floor of the tower they wanted to invest, but Michael Burry wasn’t thinking about buying mortgage bonds. He was wondering how he might short, or bet against, subprime-mortgage bonds.
Every mortgage bond came with its own mind-numbingly tedious 130-page prospectus. If you read the fine print, you saw that each bond was its own little corporation. Burry spent the end of 2004 and early 2005 scanning hundreds and actually reading dozens of the prospectuses, certain he was the only one apart from the lawyers who drafted them to do so—even though you could get them all for $100 a year from 10kWizard.com.
The subprime-mortgage market had a special talent for obscuring what needed to be clarified. A bond backed entirely by subprime mortgages, for example, wasn’t called a subprime-mortgage bond. It was called an “A.B.S.,” or “asset-backed security.” If you asked Deutsche Bank exactly what assets secured an asset-backed security, you’d be handed lists of more acronyms—R.M.B.S., hels, helocs, Alt-A—along with categories of credit you did not know existed (“midprime”). R.M.B.S. stood for “residential-mortgage-backed security.” hel stood for “home-equity loan.” heloc stood for “home-equity line of credit.” Alt-A was just what they called crappy subprime-mortgage loans for which they hadn’t even bothered to acquire the proper documents—to, say, verify the borrower’s income. All of this could more clearly be called “subprime loans,” but the bond market wasn’t clear. “Midprime” was a kind of triumph of language over truth. Some crafty bond-market person had gazed upon the subprime-mortgage sprawl, as an ambitious real-estate developer might gaze upon Oakland, and found an opportunity to rebrand some of the turf. Inside Oakland there was a neighborhood, masquerading as an entirely separate town, called “Rockridge.” Simply by refusing to be called “Oakland,” “Rockridge” enjoyed higher property values. Inside the subprime-mortgage market there was now a similar neighborhood known as “midprime.”
But as early as 2004, if you looked at the numbers, you could clearly see the decline in lending standards. In Burry’s view, standards had not just fallen but hit bottom. The bottom even had a name: the interest-only negative-amortizing adjustable-rate subprime mortgage. You, the homebuyer, actually were given the option of paying nothing at all, and rolling whatever interest you owed the bank into a higher principal balance. It wasn’t hard to see what sort of person might like to have such a loan: one with no income. What Burry couldn’t understand was why a person who lent money would want to extend such a loan. “What you want to watch are the lenders, not the borrowers,” he said. “The borrowers will always be willing to take a great deal for themselves. It’s up to the lenders to show restraint, and when they lose it, watch out.” By 2003 he knew that the borrowers had already lost it. By early 2005 he saw that lenders had, too.