The Third Pig

Warren Buffett is famous for not investing in technology. He is also famous for avoiding international shares. He also has been known to avoid railroads. But things change. Buffett announced this morning on CNBC, he has bought upwards of $10 billion worth of IBM stock. Although investing in a technology company marks new territory for Buffett, he did not come to the decision quickly. He reports he's been reading IBM annual reports for 50 years and finally decided to pull the trigger.

Buffett, has also invested in internationally and in railroads. Recent years have marked and expansion of Buffett's willingness to invest in areas he traditionally hasn't. This is likely less a divergence from his core investment principles than it is an expansion of his investment circle of competence. Perhaps this will also be an boost to Berkshire Hathway's stock. Time will tell.

The embedded video is of Buffett's appearance on CNBC today. (LINK)

Portfolio:

"Warren Buffett's Berkshire Was Buying as Stock Prices Fell" by Alex Crippen; CNBC

"Warren Buffett Still a Shrewd Investor: Tilson" by Michelle Fox; CNBC

You can buy one of the greatest collections of businesses [Berkshire Hathaway] run by one of the greatest investors [Warren Buffett]—if not the greatest investor—of all time at a 35 percent discount to intrinsic value. - Whitney Tilson

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Posted by Ben Taylor at 04:00 PM | Permalink | TrackBacks (0)

Starbucks reported earnings yesterday and profits were up 29% in the fourth quarter. The company bested Dunkin Donuts in same-store sales as well. Theirs rose 10% while its main rival's rose just 6%. The company credits its recent success with brand loyalty among its customers.

source: Benjamin Taylor

I for one have been a loyal customer of Starbucks for many years. I also admired Starbuck's way of doing business. I always thought of the company as well run. However, during those years, Starbucks's stock remained at lofty prices and it wasn't until the Great Recession that the company's stock became reasonably priced. Since we bought it for the Core Portfolio at the end of 2008, it has returned nearly 336% for us and become our largest holding (as of 11/3/2011).

I believe one of the reasons Starbucks can generate loyalty amongst its customers is the social responsibility the company exhibits. Customers (and investors) want to be associated with a company they can feel good about. I also believe that companies that act responsibly also make good investments. Although Brick Financial does not engage in Socially Responsible Investing (SRI) as it is commonly known, I look for companies that have certain characteristics and these companies are typically good citizens. There has been some research to suggest SRI does in many cases outpace general market investing. The authors find:

In terms of firm level performance, we compare regular funds with replicating portfolios that have been adjusted for unethical companies according to a norm-based screening method. We find that the replicating portfolios perform better than the regular funds, suggesting that certain socially responsible practices affect fund performance positively.

Again, if a company does good, it is likely to be doing well. And vice versa. It is also likely to produce loyal customers like myself. As an example, I purchased my Let's Create Jobs For USA bracelet this morning and will be wearing it proudly.

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Posted by Ben Taylor at 11:00 AM | Permalink | TrackBacks (0)

I am writing today just to vent about a pet peeve of mine, two in fact. One of my pet peeves is when folks make uninformed declarations about any topic. I mean folks who take a position, an important position, with no qualified information, research or experimentation to back up their claim or position.

We see this all the time, especially when taking political positions. Someone takes the position that they don’t like or don’t care for the President (whomever the Prez happens to be at the time). When asked why they don’t like the President, the person lists so-called actions the President or his administration has taken. But many times the information they have is completely erroneous. What we find is that often times, the person had no idea what they were talking about and resorted to pulling so-called information out of the air.

The other pet peeve I have is when someone takes a position or makes a declaration based on very little information. This person, unlike the previous, has actually done some study. But that so-called study is so lacking thoroughness and depth, no rational person should or would ever draw any serious conclusion from it.

When it comes to investing both these approaches are not only bothersome to someone with my inclination for checking and cross-checking, it can be dangerous to the investor himself. Today I was perusing the CNBC website and noticed two articles about technical analysis. According to Investopedia, technical analysis is “A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.” However, anyone who has ever seriously studied the record of technical analysis knows it is of little value.

source: CNBC. Click picture to enlarge.

But that’s not what caught my attention on the CNBC site. Notice the headlines of the two articles circled in red. Each gives a totally opposing outlook of the future and both credit technical analysis as the method used to make the conclusion. Now an amateur investor, who is confident (falsely) but who isn’t necessarily vigilant in his research, might read either article and take a stance on the market that’s really ill-informed. Thus dangerous to his portfolio.

Venting over.

But here’s an approach I think is sound when it comes to investing on your own:

1. Don’t pay attention to the talking heads in the financial media.


2. Have some grounding in basic accounting.


3. Exercise a “lazy” approach.


4. Do your own research and make a habit of cross-checking your sources.

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Posted by Ben Taylor at 05:00 PM | Permalink | TrackBacks (0)

Sunday will be the tenth anniversary of the terrorist attacks of September 11, 2001. I worked in the World Trade Center in downtown New York City at the time for Lehman Brothers. That particular day I was scheduled to be in our Jersey City offices across the Hudson River. I often think about how lucky I was, simply due to a scheduled monthly meeting, not to be in the direct line of fire. But then I am saddened by all those who lost their lives needlessly and so violently. Having been an eyewitness to the attacks and not in the direct line of fire, I have been given the peculiar gift of being able to enjoy the NOW.

source: HowardLake

Let’s face it, life is short and if you’re breathing, you are blessed. Even more so, if you have been fortunate enough to enjoy and benefit from the fruits of this nation, you are mega-blessed. And with those blessings I believe it is only right to pay homage in one form or another.

Poor and restricted are our opportunities in this life; narrow our horizon; our best work most imperfect; but rich men should be thankful for one inestimable boon. They have it in their power during their lives to busy themselves in organizing benefactions from which the masses of their fellows will derive lasting advantage, and thus dignify their own lives…

This, then, is held to be the duty of the man of wealth: first, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community…

- Andrew Carnegie, The Gospel of Wealth

The following are some favorite charities of mine. In honor of those who left us due to the events of 9/11/01, please consider these charities or donate to your favorite worthy cause.

Fight Gone Bad 6
On September 17, 2011, CrossFitters from around the world will come together to endure 17 minutes of one of our most grueling workouts in honor of those men and women who have given a lifetime of service and sacrifice. Proceeds go the The Special Operations Warrior Foundation.

Donate here.

NFTE (pronounced "Nifty")
The Network for Teaching Entrepreneurship's mission is to provide programs that inspire young people from low-income communities to stay in school, to recognize business opportunities and to plan for successful futures. Through entrepreneurship, young people discover that what they are learning in the classroom is relevant to the real world. To date, NFTE has worked with nearly 350,000 young people from low-income communities in programs across the U.S. and around the world.

Donate here.

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Posted by Ben Taylor at 02:00 PM | Permalink | TrackBacks (0)

I'm sometimes asked by people who know I'm in "some sort of finance", "What do you do?" Usually the person asking wants to make what I do, since it is "some sort of finance" and most folks have an irrational aversion to numbers, seem more difficult than it really is. What I do ain't rocket science, trust me. Warren Buffett is fond of saying investing requires the math skills of a 5th grader. So I usually answer with as simple an explanation as I can muster. "I help people invest in stocks and funds," is the line I offer by rote.

Recently someone followed up with, "I mean, what do you do day to day? How do you help people invest?" Again, what I do is not that complex or exciting. My answer was, "I read." I wasn’t being flippant. It is just really the answer. I read anything I can and have time for about the companies of interest to me, philosophies on investing to philosophies about other disciplines that might help my approach to investing. Charlie Munger, the long-time partner of Buffett calls this a latticework of mental models. This is what I am trying to create with my reading.

In the past, I have talked about how my process, which is influenced by Buffett, Munger, Benjamin Graham and many less well-known investment managers, leads to superior results. That process includes:

• A commitment to a long-term investment philosophy.
• Owning a concentrated portfolio of easy to understand companies that generate high degrees cash and generate high returns on capital/equity.
• Adherence to a value-oriented approach to investing.
• Not deviating into non-profitable areas of the market or areas where competitive advantages are hard to come by (i.e. gold, shorting, or commodity trading).

Clearly we’ve done well:

source: Foliofn.com, Standard & Poors. Disclosure. Enlarge image.

As the chart points out, our Core Portfolio has beaten the market in most calendar years and is ahead of the market so far this year. From the time of inception the portfolio’s annualized total return has been more the double that of the market’s total return (Core: 12.3% vs. S&P 500 Index: 5.1%). Over a typical working lifetime of about 40 years, 12.3% will turn a one-time $10,000 investment into $1,000,000 while a 5.1% investment will become $70,000.

A Day In The Life

The following is an example of how my day transpires. No day is typical. It depends on the season, if school is in, if quarterly earnings are imminent. But this gives a good representation.

• 6:00am: Open emailed version of Wall Street Journal and New York Times and read articles pertinent to the positions in the portfolio. Read any other article that sparks an interest – not necessarily finance related.
• 7:00am – 8:00am: Get daughters ready for and dropped off to school.
• 8:00am: Continue reading articles and any alerts emailed to me regarding our current positions.
• 9:30am: Market opens. Check portfolio to see how our positions opened. Take any action if necessary (which rarely happens).
• 10:00am: Go to the gym.
• 11:00am (bulk of the day): Turn on the financial news, primarily for the ticker. Watch any videos on the web that pique my interest. Google/Twitter search for news relevant to our investments or investments I have my eye on. Listen to recorded quarterly conference call or read financial statements or write a blog post, etc. Hop on the train to the New York and drop in on an investment conference, especially if its free or low cost. Read or watch anything I can find by investment managers who share a value oriented approach.
• 3:00pm: Pick up girls from school.
• 4:00pm: Market closes. See how portfolio shaped up for the day. Check if any positions currently on our watchlist look like buys.
• 4:30pm – 8:30pm: Spend time with family. Help girls with homework.
• 9:00pm: Listen to recorded quarterly conference call or read financial statements or write a blog post, etc. or, Just shut it down for the day and spend that time with family or fun.

The process is not sexy and may be boring but it gets results. There is no secret formula.

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Posted by Ben Taylor at 01:00 PM | Permalink | TrackBacks (0)

source: digitalsadhu

UPDATE: 5.9 earthquake rocks Virginia, East Coast By: STAFF AND WIRE REPORTS; The Richmond Times-Dispatch

A 5.9 earthquake in Virginia was felt in Washington, New York City and North Carolina this afternoon. Buildings swayed, and damage reports began trickling in within minutes of the largest quake in Virginia in more than a century.

"What to Do if Your Bank Is Destroyed" By Justin Pritchard, About.com Guide

"Safeguarding Your Finances Against Natural Disasters" By Lynnette Khalfani-Cox; DailyFinance

"Protect your home (and finances) from disaster" By Katherine Reynolds Lewis; CNN Money

"How to Protect Important Documents" by Amy Debra Feldman; Better Homes and Garden

"Conquer the paper piles" by Consumer Reports

"What You Should (and Shouldn’t) Put in a Safe Deposit Box" by Jason Lankow; Mint.com

"Get It Done: Create a Grab-and-Go Box" by Dayana Yochim; Motley Fool

SentrySafe DS0200 Safe 1 Hour Fireproof Combination Safe, 0.8 Cubic Feet, Black

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Posted by Ben Taylor at 05:00 PM | Permalink | TrackBacks (0)

source: James Broad

According the country’s leading expert on wealthy households, Thomas J. Stanley, about 80 percent of the top 5 percent of wealthy households (about $1.5 million in net worth) are first-generation affluent. Meaning these households did not inherit any significant portion of their wealth. It was accumulated typically by investing in their own private businesses or the stock of publicly traded companies. How were millionaires able to allocate enough funds to investments that would allow them to become wealthy?

For every 100 millionaires who do not budget, there are 120 who do have a budget. According to Stanley via his book The Millionaire Next Door, those who do not use an official budget, “create an artificial economic environment of scarcity for themselves and the members of their household”. (In other words, they adhere to an imaginary budget.) The millionaire non-budgeters employ the “pay-yourself-first” strategy. And both the millionaire budgeters and non-budgeters save at a minimum of 15% of their gross income and did so even before they were wealthy. Thus, the reason they became wealthy in the first place.

Mint.com is a financial aggregator and budgeting site owned by Intuit, Inc. makers of Quicken and Quickbooks. Although there are plenty of aggregators out there and many work well, I like Mint because a) it’s free, b) it offers a mobile app, also free and c) it offers tools many others do not. For instance, Mint allows users to compare their budgets and spending habits to the typical habits of its other nearly 3 million registered users by city, region, age and other demographic factors. Additionally, since Mint is a part of the Intuit family, its privacy and security measures are tops in the industry. All your information is encrypted.

I want you to use Mint and get familiar with it now because it is one of the best budgeting tools I have seen. You may be someone who has seen budgeting as a waste of time. Hopefully the information regarding millionaires’ budgeting habits will change your mind. Or perhaps you’ve tried to do it, but have not displayed the mental stamina to keep up with it. This tool, addresses both those dilemmas. After you have connected your financial accounts to the Mint website, you’re up and running in seconds.

Then there are those of you who are fastidious budgeters and are unwilling to change your system. “If it ain’t broke don’t fix it”. My parents, more specifically my mother (Yes, I’m calling you out ma!), fit this category. You may recall I wrote of them:

…on a teacher’s and painting contractor’s income, they have been able to save and invest where their capital will kick off enough income in retirement as they earned when they were working. They live modestly but do not need to. They could actually increase their lifestyle substantially if they wanted, but are satisfied making cookies with my daughters, their grandchildren, and going on the occasional vacation.

My parents have an elaborate paper system of shoe boxes, binders, check books, hand-written spreadsheets and envelopes that make up their budget. With such an elaborate system, it takes them and hour to account for a $5 purchase at the corner bagel shop. If my parents were to use Mint, it would essentially perform all those financial gyrations for them in the blink of an eye. Alas, I have not been able to convince my parents to “fix what ain’t broke” by adopting Mint. While their paper system gives them a sense of control over their budget, it is hardly efficient.

While I urge you to follow my parents’ example (and the example of the typical millionaire household) by actually having and following a budget, do not follow their lead regarding their system. Get Minted instead.

Market

"Volatile Stocks to Leave Lasting Scars on Fund Investors’ Psyche" by Laura Keeley; Bloomberg

Cash holdings are at the highest levels since the record in March 2009... The average investor tends to hold large amounts of cash when the markets are at a low and thus miss out on gains, JPMorgan’s Andrew Goldberg said. The previous high of cash as a percentage of portfolios was in October 2002, right before the start of a five-year bull market.

Portfolio:

Two year chart of Coach (COH) vs. the iShares S&P 500 ETF (IVV)

Coach Declares Quarterly Cash Dividend , source: Coach, Inc.

"Coach falls on worries rich will slow spending" by AP; Businessweek

Life:

"Myth-Busting the Black Marriage 'Crisis'" by Jenée Desmond-Harris; The Root

"World of Class Warfare - Warren Buffett vs. Wealthy Conservatives" by The Daily Show with Jon Stewart

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Posted by Ben Taylor at 02:00 PM | Permalink | TrackBacks (0)