Top 20 Questions From The 2006 Berkshire Hathaway Annual Meeting

Thank you to Futile France for this wonderful link.

http://www.jvbruni.com/Berkshire2006annualmeeting.htm

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

Sarbit Asset Management

Larry Sarbit is one of Canada's best known and highly respected money managers. There are plenty of things to learn from him.

According to Larry Sarbit, there are 4 pillars of successful business investing.

1. Buy "wonderful" businesses.
2. Paying a bargain price.
3. Concentration: Own a few terrific companies.
4. Have patience.

So, what is a "wonderful" business?

A "wonderful" business:

1. A huge sustainable competitive advantage - a franchise.
2. A growing stream of free cash flow.
3. Simple, understandable.
4. Stable - The basic business changes little over time.
5. Predictable earnings.
6. Consistent, repeated purchases of product or service.
7. Not natural targets of regulations.
8. Disaster proof - Most mistakes are forgiven.
9. A royalty on the growth of others, requiring little capital itself.
10. Good management.

To learn more of Larry Sarbit..... http://www.sarbit.com/welcome.php

Happy Investing,

Dah Hui Lau (David)

dahhuilaudavid@gmail.com

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

Dell, An Excellent Company at Bargain Price

I'm going to do some simple calculation and discussion to explain why Dell is an excellent company at a bargain price.......

Step 1: FCF/EV yield vs. Treasury yield

Enterprise Value (EV) = $49.1B

Free Cash Flow (FCF) = $4.1B

FCF/EV yield = 8.35%

Treasury yield (30 years) = 5.30%

Dell 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.

Michael Dell has holdings over 10% of the Dell. On top of that, he is still young and has great enthusiasm to expand Dell’s empire.

To read my previous comment on insiders holding, please visit: http://dahhuilaudavid.blogspot.com/2006/04/superior-stock-return-by-having.html

Step 3: Is Dell a good Company?

Profit Margin (ttm): 6.39%
Operating Margin (ttm): 7.96%

Return on Assets (ttm): 12.01%
Return on Equity (ttm): 67.31%

Dell has good Return on Assets.

Step 4: Does Dell management shareholders-orientated?

Dell has been buying its own shares aggressively; purchasing up to $6.2B, which is more than its income of $3.57B. Over the last 3 years, Dell has repurchased over $10B worth of shares, and with its current low price, I don’t see why Dell will stop repurchasing its shares even more furiously. Buying back shares is an important step to enrich shareholders, as long as it doesn’t restrict its financial ability to expand and improve its service.

Step 5: Do you understand its Business?

Dell was founded in 1984 by Michael Dell, the longest-tenured executive to lead a company in the computer industry. The company is based on a simple concept: by selling computer systems directly to customers, Dell could best understand their needs and efficiently provide the most effective computing solutions to meet those needs. This direct business model eliminates retailers that add unnecessary time and cost, or can diminish Dell's understanding of customer expectations. The direct model allows the company to build every system to order and offer customers powerful, richly-configured systems at competitive prices. Dell also introduces the latest relevant technology much more quickly than companies with slow-moving, indirect distribution channels, turning over inventory every four days on average. [From: Dell's website]

Step 6: Does Dell have a Moat?

Moat comes in different forms. As for Dell, its moat is being the lowest-cost producer of commodity, which is computer. Dell has done extremely well with its supply chain and direct model that it is hard to fathom an emergence of possible competitors.

Do you know how strong is its working capital management? Very, very strong. Dell has negative working capital! That’s right, it has a minus $4.6B of working capital. There aren’t many companies that have a negative working capital.

Step 7: Does any superinvestor invest in Dell?

Without doubt, there are famous superinvestors investing in Dell. Among them are Mason Hawkins (7.18% of assets), Bill Miller (0.87% of assets), and others. Mason Hawkins believes so strongly Dell is undervalued that he makes Dell its biggest holding.

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

“Our biggest worry is the competitive climate in the desktop PC market. Asian firms have often endured break-even margins to generate growth and could induce an irrational pricing environment in their quest for market share.” [From Morningstar report]

Conclusion:

Dell is a buy at current price of $25.20.

Warren Buffett said, “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.”


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

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

Wesco Financial Annual Meeting, May 11, 2006

Notes from Wesco Financial Annual Meeting (May 11, 2006) by Peter Boodell. Thanks to Futile France for sharing this wonderful link.

http://users.rcn.com/hpersson/WescoNotes2006.pdf

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

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

Buffett's $15 Billion Tease May 13, 2006

I came across this interesting article from DealBook... talking about possible $15 billion deal by Warren Buffett.

...Warren Buffett, the billionaire investor who leads Berkshire Hathaway, stoked speculation about such a deal when he told shareholders on Saturday that he is working on a $15 billion acquisition, which, if it happens, would put a large chunk of his company’s $40 billion in cash holdings to work...

To read the complete article: Buffett's $15 Billion Tease

Happy investing,

Dah Hui Lau (David)

dahhuilaudavid@gmail.com

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

Berkshire Hathaway Annual General Meeting 2006 Notes May 13, 2006

Shai Dardashti has kindly shared this wonderful link to Whitney Tilson's Berkshire Hathaway Annual General Meeting Notes for 2006.

http://users.rcn.com/hpersson/BRKA_Meeting_Notes-2006.pdf

Thank you, Shai.

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

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

New Century, New Wealth May 11, 2006

Majority of people too focus on money as wealth. However, money is not everything. I read about an article from Metro, which made me realized that how lucky we are in this new century.

....If you think life is violent now you should have tried living in Neolithic Britain. Our ancestors living 5,000 to 6,000 years ago had a one in 14 chance of being bashed over the head and seioursly injured. One in 50 was likely to be fatally wounded in the attack. The research was done by systematic survey of Neolithic British skulls by a team from Queen's University, Belfast, reported in New Scientist....

Be thankful! We are all alive and well.

All the best,
Dah Hui Lau (David)
dahhuilaudavid@gmail.com

To visit my archive: http://dahhuilaudavid.blogspot.com/2005/11/archive-of-dah-hui-laus-blog.html

Warren Buffett on Naked Short Selling

"There’s nothing evil about short-selling. But it’s a tough way to make a living. It’s tough emotionally. If you short a stock at $20, the most you can make is $20, but there’s no limit to how much you can lose. People on the short side will do and say things to try to get their positions to fall; people on the long side do, too. Some of the things they do may be inappropriate," said Warren Buffett.

"Historically, a lot of stocks that have high short interest are later shown to be frauds or semi-frauds. I’ve had 100 ideas to be short, and have often been right—eventually, but long after I’ve covered, and the stocks have risen a lot. The people who run those companies tend to be good at keeping their stock prices up," said Warren Buffett.

"Being short stocks is a tough psychological game. I’d never put money in a short fund," said Warren Buffett.

Berkshire Hathaway Annual General Meeting May 6, 2006

Charlie Munger on Jeremy Siegel

"I think he’s demented. He tries to compare apples and elephants in making accurate projections," said Charlie Munger.

Berkshire Hathaway Annual General Meeting May 6, 2006

Charlie Munger on Newspaper Companies

"I used to think that GM was a bulletproof franchise. Now I’d put GM and newspapers in the “Too Hard” pile. If something is too hard to do, we look for something that isn’t too hard," said Charlie Munger.

Berkshire Hathaway Annual General Meeting May 6, 2006