20 Punches for Value Investors

• 2011-04-22

  Cisco is financially strong and we think statistically cheap. It has a dominant market position and has been growing within a category that we believe still has a lot of room for future growth. Perceived competitive threats and concerns about possible slower rates of growth have put pressure on Cisco’s stock price, which has allowed us an entry point in the stock that we believe is at roughly a one third discount from a conservative estimate of the company’s intrinsic value.

  — 

  Tweedy Brown in their 2010 annual letter, [via Why Are Value Gurus Buying Cisco? — GuruFocus.com]

  I bought some CSCO a couple months back and its been a painful ride so far. As Tweedy says, it offers a high margin of safety based on conservative valuations (33% is their estimate) and I’ve been holding tight. Not sure how much faith I have in a turnaround at this point, which oddly enough leads me to believe the turnaround is coming soon.

  Source: gurufocus.com

• 2011-03-27

  They are not new lessons. Never owe any money you can’t pay tomorrow morning. Never let the markets dictate your actions. Always be in a position to play your own game. Never take on more risks than you can handle. But all of those were old lessons, unfortunately. Even though I didn’t see it coming, those lessons which are timeless allowed us to in effect profit from it rather than suffer from it. Good businesses, good management, plenty of liquidity, always having a loaded gun; if you play by those principles you will do fine no matter what happens. And you don’t ever know what’s going to happen.

  — 

  - Warren Buffett on key lessons from the financial crisis.

  [via Warren Buffett: The U.S. is moving toward plutocracy - Haaretz Daily Newspaper | Israel News]

  Source: english.themarker.com

• 2011-02-27

  Operating earnings, despite having some shortcomings, are in general a reasonable guide as to how our businesses are doing. Ignore our net income figure, however. Regulations require that we report it to you. But if you find reporters focusing on it, that will speak more to their performance than ours.

  Both realized and unrealized gains and losses are fully reflected in the calculation of our book value. Pay attention to the changes in that metric and to the course of our operating earnings, and you will be on the right track.

  —  Warren Buffett in his 2010 Letter to Shareholders

• 2011-02-26

  When Charlie and I met Todd Combs, we knew he fit our requirements. Todd, as was the case with Lou, will be paid a salary plus a contingent payment based on his performance relative to the S&P. We have arrangements in place for deferrals and carryforwards that will prevent see-saw performance being met by undeserved payments. The hedge-fund world has witnessed some terrible behavior by general partners who have received huge payouts on the upside and who then, when bad results occurred, have walked away rich, with their limited partners losing back their earlier gains. Sometimes these same general partners thereafter quickly started another fund so that they could immediately participate in future profits without having to overcome their past losses. Investors who put money with such managers should be labeled patsies, not partners.

  — 

  Warren Buffett in his 2010 Letter to Shareholders

  My ongoing search for fairness in fees for managing money continues.

• 2011-02-15

  Marriott International announces plan to split in 2

  An opportunity may be a-brewing here.

• →

  The stock market is a no-called-strike game. You don’t have to swing at everything—you can wait for your pitch.

  — 

  Warren Buffett

  I got nothin’ worth a swing right now. I think about this quote often.

• 2011-02-08

  A public opinion poll is no substitute for thought.

  — Warren Buffett

• →

  

  I was looking for ideas tonight on my favorite site for browsing for ideas and saw this. I was buying Sabra a while ago when it was in the $16’s. Value Line says there is $30/share of book value. My analysis put it much lower when I was making my purchases. I must have discounted intangible assets or something. Time to revisit.

  Sabra Healthcare REIT ($SBRA) is an REIT spin-off from Sun Healthcare ($SUNH or $SUNHD).

  Spin-offs can be quite lucrative. I’m up 20 or 30 some-odd percent since Oct/Nov from this whole Sun Healthcare spin-off deal. (It’s weird to calculate becomes symbols come and go.)

• 2011-02-01

  

  Doing some research on Buffett’s original partnership. He raised $105,000 from 7 different investors in 1956. Thats about $850,000 in 2011 dollars.

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  In 2006, promises and fees hit new highs. A flood of money went from institutional investors to the 2-and-20 crowd. For those innocent of this arrangement, let me explain: It’s a lopsided system whereby 2% of your principal is paid each year to the manager even if he accomplishes nothing – or, for that matter, loses you a bundle – and, additionally, 20% of your profit is paid to him if he succeeds, even if his success is due simply to a rising tide. For example, a manager who achieves a gross return of 10% in a year will keep 3.6 percentage points – two points off the top plus 20% of the residual 8 points – leaving only 6.4 percentage points for his investors. On a $3 billion fund, this 6.4% net “performance” will deliver the manager a cool $108 million. He will receive this bonanza even though an index fund might have returned 15% to investors in the same period and charged them only a token fee.

  …. the 2-and-20 action spreads. Its effects bring to mind the old adage: When someone with experience proposes a deal to someone with money, too often the fellow with money ends up with the experience, and the fellow with experience ends up with the money.

  — Warren Buffett, 2006 Letter to Berkshire Hathaway Shareholders