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January NewsletterIn this issue: 1. Thomas Kahn on Benjamin Graham Thomas Kahn on Benjamin Graham Thomas Kahn is a New York based private investor and according to MSN Money a former student of Benjamin Graham. That service reports that Kahn, who has warned investors that the market remains high, is taking a strong position in the stock of Bristol Myers Squibb (BMY). Is Benjamin Graham still relevant? In a recent article in the National Post, Professor Paul Kedrosky examined some of the tenets of Benjamin Graham in the context of modern industrial stocks and found that they needed modification. This is nothing new – after all Warren Buffett acknowledges that he has not always followed Graham slavishly, but instead continually re-confirms the validity of Graham’s principles. Graham’s investment principles remain compelling. According to the Professor, investors who stuck with Graham principles would have avoided high flying but now collapsed stocks such as Enron. Buffett and Gates play bridge Warren Buffett and Bill Gates may be the two richest men in the United States but apparently are both beatable at bridge. They formed part of a team at a recent bridge tournament at Lakewood, Washington, but their team could do no better than second. According to a report in HeraldNet, in a comment attributed to Vernon Myers, president of the Tacoma Unit No. 451 of the American Contract Bridge League, the two magnates: ‘just got together and talked about bridge like all the rest of our players. They played bridge and minded their own business.’ In another report, Sharon Osberg, a champion bridge player, says that Gates has a mathematical approach to the game whereas Buffett is more intuitive. She says that he is phenomenal on working out probabilities and is very funny. According to Sharon Osberg, she and Warren were playing his sister and brother-in-law once at a Berkshire Hathaway occasion and were beaten. Warren’s sister expressed a wish to frame the score-card. In response, Warren ate it. Read the full story here. Dow Jones hits 10,000 In a recent story on the Dow Jones hitting 10,000, warning investors to be wary, the Boston Globe quoted past remarks of Warren Buffett that the stock market and American productivity do not always behave in parallel fashion. The article suggested that experience showed that when the Index regained a past high point, it sometimes took a long time to advance any further forward. For the full article, go here. Warren Buffett and the Greenback The Mercury News is reporting as a solid fact that Warren Buffett has been buying foreign currencies against the American dollar. According to the report on 13 December, so too has George Souros, another legendary investor. Foreign currency speculation does not, to us, appear to come anywhere near the principles of investment laid down by Benjamin Graham. Geico into Buffalo Warren Buffett was apparently the driving force behind the move by Geico into Buffalo, New York, with a call centre in CrossPoint Business Park in Amherst that could provide up to 3400 new jobs. According to the Buffalo News, Buffett said that ‘When it became clear that we needed another center in the Northeast, as far as I was concerned, it should come to Buffalo.’ Another Berkshire Hathaway? Bill Miller, from Legg Mason mutual funds, and Morningstar Manager of the Decade during the 1990s, has recently stated that it is a good time to invest in the stock market. He said he would be surprised if stocks rose only by about 7 or 8 per cent over the next year. Miller spoke favorably about Internet stocks, singling out InterActive Corp as a ‘Berkshire Hathaway of the New Economy’. Go here for the full story. John Neff John Neff, one of the most successful fund managers, continues to get rave reviews for his book, John Neff on Investing. Neff managed the Windsor Fund which, during his time, increased returns at more than double market standards. In a review of the book in the Sunday Times (Straights Times), Leong Teik recommends the book for long-term stock investors. The Straights Times review is here, or purchase the book from Amazon here. Switching from Pepsi to Coke Warren Buffett is not hesitant about putting his money where his mouth is, or is it the reverse. According to Will Browne of Tweedy and Co, as quoted in the Financial Times, Buffett was a consistent Pepsi drinker in the 1960s when Browne did a lot of brokering for Warren. As we know, Berkshire is now a substantial shareholder in Coca Cola and Warren is a conspicuous consumer of that company’s products. Fair enough! Charlie Munger’s book list Influence, by Robert Cialdini, is not a book that we have read but scuttlebutt has it that it is a book frequently recommended by Charlie Munger, Warren Buffett’s Vice Chairman. Charlie Munger never misses an opportunity to recommend Robert Cialdini's book, which examines why people give in to pressure from others. We understand that the book examines why people give in to the pressure exerted by others and why and how other people influence your behavior. A good explanation, it seems, why many investors still slavishly follow Mr Market and ignore the teachings of Buffett and Ben Graham to use Mr Market, rather than allow him to use you. We will try to get a book review on Charlie’s recommended reading for a future issue of this newsletter. Purchase Influence (rev) : The Psychology of Persuasion at Amazon.com Berkshire Hathaway sells notes It is worth remembering what Buffett has said about going into debt. He does not like it all that much but does not rule it out when appropriate. He has said that at times, it can be prudent to borrow but only at a time that it suits you and only when rates can be fixed. It is being reported that Berkshire has recently sold $500 million in 7-year notes. Does this suggest that they are stocking up for future investments and getting the finance lined up a) before they need it and b) before rates go up? Distress investing Business Week Online has an interesting article on distress investing and on Wilbur Ross, a very successful investor. Go here for the full article New at Warren Buffett Secrets The latest addition to the website is an article on the innovative approach Berkshire Hathaway is taking to the issue of charitable corporate donations. Read it here. Be sure to place [email protected] on the allowed list of any spam filters you are using to avoid missing out on our newsletter. Have a happy and prosperous New Year, from us at Warren Buffett Secrets. website: www.buffettsecrets.com
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