Technology Investments5

Warren Buffett is the only person who made his wealth from the stock market. Buffett plays bridge with Bill Gates but does not invest in technology stocks because he says that he does not understand how to evaluate information technology.

"Being a lifelong technophobe, I tiptoed into the computer world only a few years ago" - Warren Buffett

In the field of mutual funds the Names of Jeffrey Vinik of Fidelity, Peter Lynch, and George Soros of Quantum Funds are some of the well-known names. George Soros’ hedge funds made profits against the Bank of England in 1980’s and later in 1998 against the Malaysian economy. Later in the Russian debt default he was to lose a lot of his profits so much so that he became an advocate of Government controlled financial interventions in the Global markets much in the same vein as Prime Minister Mahathir of Malaysia was to defend his currency against speculators.

Warren Buffett is the only person who made his wealth from the stock market. In 1956 he started his investment partnership with $ 100. After 13 years [1969] he cashed out with $ 25 million. 22 years later [1991] he amassed the biggest fortune in USA.

Buffett was influenced by Benjamin’s classic book " The Intelligent Investor" so much so that after finishing his college degree he went to study under Graham at Columbia Graduate School. Graham’s experience of being financially deprived twice in a lifetime led him to embrace an approach that stressed downside protection rather than upside potential. Graham’s approach taught the importance of studying a company’s intrinsic value.

Berkshire Hathaway’s Stock Holdings 2001

Acme Building Brands	H.H. Brown Shoe Company
Ben Bridge Jeweler	International Dairy Queen, Inc.
Benjamin Moore & Co.	Johns Manville
Berkshire Hathaway Group	Jordan's Furniture
Berkshire Hathaway Homestates Companies	Justin Brands
Borsheim's Fine Jewelry	Lowell Shoe Company
Buffalo NEWS, Buffalo NY	MidAmerican Energy Holdings Company
Central States Indemnity Company	National Indemnity Company
CORT Business Services	Nebraska Furniture Mart
Dexter Shoe Company	Precision Steel Warehouse, Inc.
Executive Jet	RC Willey Home Furnishings
Fechheimer Brothers Company	Scott Fetzer Companies
FlightSafety	See's Candies
GEICO Direct Auto Insurance	Shaw Industries
General & Cologne Re Group	Star Furniture
Helzberg Diamonds	United States Liability Insurance Group

Warren Buffet Investment Tenets [ fundamental value investing]

Business Tenets .

-- simple and understandable business .-- consistent operating history.-- favorable long-term prospects.

Management Tenets.

-- Rationality ; allocation of capital in various stages of company life cycle.-- Candor and correct financial reporting -- Institutional imperative to resist pressure from the market.

Financial Tenets.

-- Focus on return on equity[ value added ] , not earnings per share .-- Calculate "owner earnings" to get true reflection of value.[ a company's net income plus depreciation, depletion, amortization, less capital expenditures and working capital] -- Look for companies with high profit margins.-- for every dollar retained, company must create one dollar of market value.

Market Tenets.

-- Determine the Value [ calculated by the net cash flows expected to occur over the life of the business discounted at the appropriate interest rate ] ......." thus all businesses , from buggy whip manufacturers to operator of cellular phones become economic equals............" -- This mathematical exercise is similar to valuing a bond - the predictability of a company's future cash flow should take on a "coupon-like" certainty that is found in bonds.

-- Buy at attractive prices. Can the business be purchased at a significant discount [ sale ] to its value?

Charlie Munger who has been a partner / lawyer with Buffett has the following rules for a successful value investment approach. [See the recent book "Damn Right" – by Janet Lowe].

Live below your means. Consistently under spend your income investing excess funds wisely. The most difficult part is accumulating the first $100,00 from a start with no seed money. Making the first million is the next big hurdle.
Understand your risk tolerance. Since losses are inevitable adopt conservative strategies at various age levels.
Research opportunities. Investors must process a massive amount of information and learn to evaluate risks and rewards. Magazines and the electronic Internet archives at EDGARS, the SEC online database of public companies are good sources.
Invest for the long term. Volatility [Beta] has not been a major concern of these investors. At various points accumulate positions when stock prices fall.
Funds are no substitute. Americans are oversold on the money managers.
Patience coupled with decisive action.
Look for long term growth – Coke, Gillette, Dexter Shoes, Home Building Materials, Insurance, Jewelry are the main holdings of Berkshire Hathaway. Buffett plays bridge with Bill Gates but does not invest in technology stocks because he says that he does not understand how to evaluate information technology.

next page

page 1 - Introduction - Japan & US - Similarities & Differences

page 2 - Types of Economic Slowdowns

page 3 - The Long View - Nasdaq & SP500 Compositions

page 4 - Investment Bankers/Analysts - IPO Hard Sells

page 5 - Value Investing - Warren Buffett 'the Sage of Omaha'

page 6 - Technology Investment Risk Factors
&
Lessons for South Asia

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