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Lau Model Porfolio

11 June 2007

Dear readers,

I hope most of you have read the Little Book That Beats the Market by Joel Greenblatt.

If you haven't, please get a copy asap and read it a couple of times. I have personally read it many times, and have come to conclusion that for most investors, Magic Formula Investing, which is only based on simple combination of earning yield and return on invested capital, is the best way to beat the market over the long run.

Thank you Joel Greenblatt for your generous sharing on MFI.

I truly agreed with Mike Price, who said that this book is one of the most important books ever written in the last 50 years.

Therefore, I have discontinued Lau Model Portfolio to track companies as investors are much much better off following the advice by Joel Greenblatt.

Best,

David

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I am creating a model portfolio, which I would name it as Lau Model Porfolio, to track all the companies that I think are undervalued and worth investing.

The purpose of this portfolio is to help investors monitor the undervalued companies.

Lau Model Portfolio:

1. MGIC Investment Corp; MTG at $63.00 Feb 10, 2006
2. Gannett Co; GCI at $61.26 March 14, 2006
3. Gannett Co; GCI at $56.00 April 19, 2006
4. Intel Corp; INTC at $19.60 March 29, 2006
5. Berkshire Hathaway; BRK.A $90,000 April 6, 2006
6. Microsoft; MSFT $24.15 April 29, 2006
7. Dell; DELL $24.20 May 18, 2006
8. K-Swiss; KSWS $26.50 June 1, 2006
9. MGIC Investment Corp; MTG at $58.44 Sept 4, 2006
10. CryptoLogic; CRYP at $20.00 Nov 20, 2006
11. Wal Mart; WMT at $46.50 Dec 18, 2006

I believe that the above companies are undervalued at the price mentioned, and should offer a market-beating returns over a long-term period. If you were to invest in the above companies, do your due diligence.

Remember, only invest if you know what you are doing.

Happy investing,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com

Previous recommended companies, but not anymore:

1. PartyGaming; PRTY Recommended at $2.10 June 29, 2006; dropped out from Lau Model Portfolio at $0.49 Dec 1, 2006. A plunge of over 76% in less than 6 months. Massive change in valuation and risk. For further details or analyis, email me.
2. The Buckle; BKE at recommended at $35.10 Sept 11, 2006; recommended sale on Dec 21, 2006 at $40.50 to realize profit. An increase of over 40% in less than 4 months.

Question by anonymous investor:

Is time a factor in your decision to buy an investment?

Time is a crucial factor in buying decision. We only invest when the time is right, in other words, we only invest when Mr. Market is pessimistic and offer good companies at bargain or great price.

Question by anonymous investor:

What would you do if the stock does not move in a designated time frame, would you sell and find something else? Worst case, if the stock goes down, what is your risk tolerance levels.

Time is great friend to good companies. As time passes, good companies will not only survive the temporary setbacks, but will strive and increase its shareholders value. When Mr. Market realises this, it may bid the price of the stock up. How long it takes for Mr. Market to respond is beyond my prediction. We are long-term investors and will wait for the good returns to unfold, between 3 to 5 years. Having said that, we would monitor the underlying fundamental of the companies and reassess the companies from time to time to make sure we have not made mistakes at the first place.

If the stock goes down, we would reassess the companies to make sure its moat is intake and the “events” that cause the stocks to dive are temporary rather than permanent. If we believe that we are right, we would take advantage of the price drop to increase our holdings.

If we made mistakes in judging the companies, and if we found out at later date that the companies are not as sustainable as we thought, we would sell the companies.

The Buckle Inc; BKE at $49.50

BKE has surged from $35.10 on Sept 11 to $49.50 on Dec 20; an increase of 41% in less than 4 months.

Mr. Market seems to be over-excited on BKE now. It is a good time to take a profit.

Merry Xmas and Happy New Year!
David

Warren Buffett & Washington Post

Good article written by Max Olson into reverse engineering of Buffett purchase of WPO.

To read further: Gannon Guest Column.

Keep on learning!
David

Warren Buffett: On Maxim Cover!

To view: Maxim.

Wow,
David

CryptoLogic; CRYP, Discussion on MSN BRK Board

There is interesting discussions and thinkings on CRYP.

To investigate further: MSN BRK Board.

If you are interested in my analysis on CRYP, please send me an email. If you have particular insight in CRYP, do send me an email too. I appreciate everyone's contribution.

David

Warren Buffett: Investment Manager of 2006

Gurufocus poll nominated Warren Buffett as the Investment Manager of 2006.

This is so predictable! :)

To read further: Gurufocus.com.

David

Wal Mart; WMT, at $46.50 A Strong Buy

Wal Mart is an excellent company selling at a wonderful price. This is a truly Warren Buffett-type company. At current price of $46.50, it is definitely a strong buy.

Best,

David

Berkshire Hathaway: Biggest Increase of Net Worth in US history!

Warren Buffett, chairman of Berkshire Hathaway Inc., says he expects the diversified holding company to increase its net worth this year by a record $14 billion.

Mr. Buffett said the increase in net worth, which he said would translate into strong growth in Berkshire's book value, could be the biggest of any U.S. company, barring any disasters over the next few weeks that could hurt 2006 earnings in Berkshire's lucrative reinsurance business.

Source: WSJ.com.

Wow!

David

PartyGaming: The significant setback

I have re-evaluated my PartyGaming position and concluded that PartyGaming poses significant risks in many forms.

I have therefore dropped PartyGaming off my Lau Model Portfolio as it is too risky.

If you would like to see my calculation of why PartyGaming is considered overvalued, send me an email.

Best,

David