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November 14, 2011

Change Is Good

"The difficulty is not in the new ideas, but in escaping the old ones." - John Maynard Keynes

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

Disclosure: At the time of this writing, I and the clients of Brick Financial Management, LLC owned shares of Berkshire Hathaway (BRK-B). But positions can change at any time.

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August 11, 2011

Graham's Secret to Happiness

Security Analysis
source: Librarity

"I blame myself... for having slipped into an extravagant way of life which I hadn't the temperament or capacity to enjoy. I quickly convinced myself that the true key to material happiness lay in a modest standard of living which could be achieved with little difficulty under almost all economic conditions." - The Memoirs of the Dean of Wall Street


Market

"Financial Turmoil Evokes Comparison to 2008 Crisis" by Nelson D. Schwartz; New York Times

It [now vs. 2008] feels completely different. I don’t think there is a U.S. debt crisis right now, and European debt is not held as broadly as mortgage debt or derivative debt was back in 2008. The prospect of a 2008-like drop in the market is remote. - Larry Kantor, the head of research at Barclays Capital.

"Looking for the bottom" by Buttonwood; The Economist

How does one tell when the markets are cheap?... The best measure is the cyclically-adjusted p/e ratio which averages profits over a decade and pointed to market tops in 1929 and 2000, as well as the early 1980s. According to Professor Shiller, the ratio was 20.7 at the end of last week, whicn makes it around 19.5 after yesterday's fall. That is still above the long-term average of 16.4. The dividend yield is between 2 and 2.5%, on the FT's various measures; even adding 0.5-1% for buy-backs doesn't make that look cheap.

Portfolio:

"Target and the New Frugal " by Michael Shulan; Seeking Alpha

"Target, other retailers deliver solid sales gains" by Thomas Lee; Star Tribune


Life:

"Want to Remember Everything You'll Ever Learn? Surrender to This Algorithm" by Gary Wolf; Wired Magazine

"Is Frugality Dead?" by Robyn Griggs Lawrence; Mother Earth News

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January 02, 2009

Best To Go With The Devil You Know

The stock market ended the year of 2008 posting one of its worst annual price performances ever. The Standard & Poor's 500 index dropped 38.5% for the year marking its worst performance since 1937’s 39% drop in the index. In fact it was the first time the index saw a 30% or more drop in price in those 71 years. So if you survived this year, give yourself a pat on the back.

Investors over the past year made many wrong moves, paralyzed by fear, they drove down stock market prices to unreasonable levels. One bright spot is patient investors could invest in stocks very cheaply. Valuation levels had not been at those levels since the early 1980’s. Although the S&P 500 has advanced more than 20% from its low of November 20th, there remain bargains to be had.  

With so many bargains to choose from, some investors may experience paralysis because of greed. Which stock does one pick? In such an instance, it is best to invoke the spirit of Charles Munger, co-chairman of Berkshire Hathaway. In an Outstanding Investor Digest article some years back Munger was quoted as saying:

“For an ordinary individual, the best thing you already have should be your measuring stick. If the new thing isn’t better than what you already know is available then it hasn’t met your threshold. This screens out 99 percent of what you see.”

Although I picked up a few new positions for myself and my clients’ portfolios, in following Munger’s advice I found that the positions already in the portfolios were of solid companies that were similarly beat down as the market. Every nook and crannie of the market was hurt this year. It couldn't be avoided. And the potential of being hurt further is still present. However, when choosing where to allocate funds, sometimes it is best to go with "the devil you know".

Instead of scouring the investment universe for the new thing, I simply averaged down. The following chart marks the return of a few positions from the beginning of the year to the S&P 500’s low on November 20th and then the return to the end of the year from that November date compared to the market’s return.

 

Although as a group the stock of these companies declined to a similar degree as the market, their rebound so far as been nearly 50% greater. Although it is too soon to say, I believe superior companies will bounce back to a greater degree than the average stock. I think this is what we are seeing in the chart above.

Disclosure: I and the clients of Brick Financial Management, LLC owned shares in all the companies mentioned in this post at the time of this writing. But positions may change at any time.

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October 10, 2008

Buffett and Cramer Agree: It’s Time to Buy

It’s a little amusing to me how much attention Jim Cramer’s comments about pulling your “5-Year-Money” out of the market and sitting it in a safe place like cash or bonds garnered over the past few days. I for one, having given similar advice, didn’t find it that controversial. An investor, especially an individual investor, should never put their near term money at risk in the stock market.

Some professionals, like Henry Blodget [video], have even gone as far to say Cramer’s call to action is at odds with what Warren Buffett is doing, which is buying up strong franchises like, Constellation Energy, GE and Goldman Sachs. I beg to differ. Underlying Cramer’s call was any money investors do not need for near term purposes, should absolutely be at work in the market. It’s time to buy.

There are deals in the stock market that can be had right now that will likely not be seen again for quite sometime. A few are:

  • Berkshire Hathaway (BRK-A, BRK-B): If there was ever a time to invest in Buffett’s company it’s now. For years the firm held $50 billion in cash searching for investments to make. This year alone, Buffett has invested $40 billion. He received warrants on both the GE and Goldman Sachs deals and though both are currently out of the money, they stand to be highly profitable investments. Berkshire’s A shares are likely worth $150,000 to $160,000 before accounting for how the company’s new investments will impact the business. Shares ended the day at around $113,000 per share, representing a 25% to 30% discount.


  • Perini (PCR): Perini, a construction and general contracting concern has been trading well below the value of their backlog of sales and orders waiting to be filled. The company also recently announced $248 million in new contracts in Florida and Virginia. The stock gained almost 20% today skyrocketing at the end of the day to $17.64, but still trades near cash on the balance sheet of $15.55 per share.


  • Delia’s (DLIA): Recently Foot Locker (FL) offered to buy this clothing retailers direct marketing business CCS for $102 million. The enterprise value (market cap + debt – cash) for the entire firm is only $66 million. The market hasn’t responded yet as the stock continues to hover around $2 per share although it gained almost 10% today. The selling in the market is pervasive and there just aren’t any buyers right now. But there will be for this company which is likely trading at less than half it’s true worth.

Disclosure: I and the clients of Brick Financial Management, LLC owned share of Berkshire Hathaway, Perini and Delia’s at the time of this writing.

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May 08, 2008

The Soaps’ New Star: Warren Buffett

Warren Buffett and Susan Lucci

At this year’s Berkshire Hathaway annual meeting, as in all years, there was the usual business talk. But there was also plenty of entertainment. Actress Susan Lucci of “All My Children” fame and the woman who has brought character Erica Kane to life for so many years it seems contemplated a career change. She was, according to her, to take over chairman duties from Warren Buffett, effective immediately. Finally, the identity of Buffett’s eventual successor had finally been unveiled.

Lucci promised many changes, most of which you would have never seen under Buffett’s tenure as chairman. She promised Berkshire would pay a dividend and give its directors raises. Well, Buffett could take no more and advised that Lucci should keep her day job.

Today, the roles were reversed. Buffett made his second appearance (his first was in 1992) on the daytime soap “All My Children”. On the episode he help’s Lucci’s character, Erica Kane, deal with a little insider trading trouble. I was pleasantly surprised by Buffett’s acting “abilities”. But like Lucci, I hope he keeps his day job.

Disclosure: I and the clients of Brick Financial Management, LLC owned share of Berkshire Hathaway at the time of this writing.

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About Brick Financial Management, LLC

Blogged by Brick Financial

51 JFK Pkwy, 1st Fl. West
Short Hills, NJ 07078
973-486-9860
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Brick Financial Management, LLC is a Registered Investment Advisor specializing in providing investment management services to individuals, families, organizations and institutions. We implement highly focused stock, bond, and balanced portfolios using an investment approach commonly referred to as value investing. Disclosure

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