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Wisdoms in investment

Yau Tat Kwan, Jacob 2008046921. Wisdoms in investment. Similarities and Differences. Warren E. Buffett Jack Bogle Bill Miller Tony Measor. Warren E. Buffett. The third on the list of the world’s richest people. 1951 – 1954 Investment Salesman at Buffett – Falk & Co.

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Wisdoms in investment

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  1. Yau Tat Kwan, Jacob 2008046921 Wisdoms in investment

  2. Similarities and Differences • Warren E. Buffett • Jack Bogle • Bill Miller • Tony Measor

  3. Warren E. Buffett • The third on the list of the world’s richest people. • 1951 – 1954 Investment Salesman at Buffett – Falk & Co. • 1954-1956 Securities Analyst at Graham-Newman Corp. • 1956-1969 General Partner at Buffett Partnership, Ltd. • 1970 - CEO at Berkshire Hathaway Inc.

  4. Jack Bogle • he was named chairman of Wellington • Founder and retired CEO of The Vanguard Group • Creator of the first index fund and author of several prominent books on investing.

  5. Bill Miller • Portfolio Manager of Legg Mason Value Trust (LMVTX). • Since inception, his fund has earned 15.25% average annual total returns. • Bill Miller is the only fund manager that has outperformed S&P500 for 15 consecutive years.

  6. Tony Measor • Asia’s best stock commentator • Financial editor of ‘The Standard’ • 50 years’ experience in Hong Kong, London and Asia Pacific

  7. Cash is NOT King --- Tony Measor • At least 70% of the time, stock price increases while cash remains unchanged. • Especially in inflation.

  8. Know what you don’t know --- Warren E. Buffett • Only invest in a company that you trust and know well. • The company should perform well and have a great potential in providing increasing return to stockholders. • If the operation of the company varies a lot and is so complicated to predict, then we may not have enough intelligence to predict the future cash flow.

  9. Which stock should we pick? --- Warren E. Buffett • Read more financial reports • The more you concern, the more the prediction may be wrong • E.g. 5 variables concerned • 90% x 90% x 90% x90% x90% = 59.049% • Probability to be wrong = 1 – 59.049% = 40.951%

  10. Which stock should we pick? --- Warren E. Buffett • Simplicity is the best. • The intrinsic value (accounting value X) of a company • The stock price is fairly priced or not

  11. Intrinsic Value • Present value of cash flow generated by the rest of the life of the company • Value is predicted differently • The more conservative, the better • The value depends on the stable and long-history operations • It depends on return of stockholders, increase in accounting value.

  12. When to buy a stock? • Buy stocks of an incredible company with a reasonable and fair price? • Buy stocks of a normal company with a incredibly low price? • The stock price is judged to be too high or too low by comparing with other companies’ stock price. • Reason: It is difficult for companies with currently bad operations to succeed again. • Agreed by all investors

  13. The ideal stock • Preference: to hold the stock forever. • Lowest cost of trade • Increasing return • Buy the stock when it is underpriced

  14. Warren E. Buffett’s favorite • What customers need or desire • No other substitutes • No constraint on price • E.g. Coca Cola • 680% return • Profit of 8,851,000,000 US dollars in 15 years

  15. Risk Adverse? Risk Love? • Warren E. Buffett: risk adverse • Rule Number 1: Never lose • Rule Number 2: Remember rule number 1 • Bill Miller: risk love • Statistically you are far better off with huge gains because you are going to make mistakes. And if you are playing small ball and you make a few mistakes, you can’t recover. • Jack Bogle: learn from mistakes

  16. Common Pitfalls • Over-confidence • You can take control of the market. • Success is attributed to my ability, regardless of the importance of luck and opportunity. • (especially professionals) • Result: over-trade -> price increases -> loss suffer

  17. Common Pitfalls • Over react • Depending too much on short-term information with the ignorance of long-term information. • Result • 1)Stock price increases, a decrease in stock prices occur, vice versa • 2) The larger the amplitude, the larger the response

  18. Common Pitfalls • Inability to react • Lack of knowledge of the newest information • Professional investors have prejudice on bad performing companies, ignoring their growth. • Result: • Miss the chance to invest

  19. Common Pitfalls • Effect of loss • Given a certain amount of money, effect of loss > effect of gain 250%(Kahneman and Tversky) • People prefer bonds to stocks

  20. Common Pitfalls • Conformity • Don’t be a follower • Miller agrees with Buffett that you should be fearful when others are greedy, and greedy when others are fearful. • So when the market has been down for a while, and it looks bad, then you should be more aggressive, and when it has been up for a while, then you should be less aggressive.

  21. Common Pitfalls • Good company = Good stock??? • When a good company’s stock price is too high  bad stock • When a bad company’s stock price is too low  good stock

  22. Put all the eggs in one basket? • Diversification??? • YES • Lack of judgementability • Lack of professional knowledge

  23. Conclusions: • Investment =/= Mathematics • No correct or not • Only successful or not • Luck contributes • Hard working also contributes

  24. End • Q&A

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