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June 1, 2004

Cheap at half the price

Something for subscribers to keep their eye on for next year’s annual general meeting of Berkshire Hathaway. Normally, you need to be a shareholder to get in, and the price of a ‘’B’ share just before the meeting was over $3,000. Some cunning shareholders were selling their guest tickets on E-Bay for $100 or more.

This affronted the Berkshire management who decided to make a few thousand tickets available on E-Bay for $2.50 a ticket.

Diversify or not

One market theory is that if you spread your investments over a diverse range, you minimise risk. This was also an element of Benjamin Graham’s strategy when buying what he called second grade common stocks. Buffett followers know of course that, at least in respect of share investments as opposed to business purchases, Buffett is not an admirer of this strategy.

There has been a recent survey that tends to support the theory that diversification is not, per se, the answer. If you would like the full story in the Financial Times, go here

Coke still has Buffett

Despite the desires of some institutional shareholders to remove Warren Buffett from the Coca Cola board, he has been re-elected by an overwhelming majority of those voting. His vote was however lower than some of those other directors standing for election.

We would think that Coke shareholders are fortunate to retain as a director, not only the world’s most successful investor, but one who has a lot of money riding on Coke’s business prospects. We do not follow the motivation or reasoning of those who wanted to get rid of him.

New Buffett book

John Dorfman, of Dorfman Investments, has a review of a new book about Buffett by Robert Miles called ‘Warren Buffett Wealth’.

According to Dorfman, this is the third best book about Buffett behind Roger Lowenstein's ``Buffett: The Making of an American Capitalist" which we review here, and Andy Kilpatrick's ``Of Permanent Value, The Story of Warren Buffett.''

You can read Dorfman's review here

Got a spare $500?

Well, you would probably need more than this to buy an internship with Warren Buffett if the great investor was disposed to take you on.

Apparently, an admiring student called Douglas Sherrett, who has organised a Buffett fan club, offered Warren $500 if he could intern with him. Although Buffett declined this generous offer, he has agreed to meet soon with the members of the fan club for a general chat.

Defining ‘value investor’

David Dreman, Chairman of Dreman Value Management, has a try at defining ‘value investments’ in an article on Omaha.com.

This article is worth reading. Dreman is the author of several books on this subject, including, "Contrarian Investment Strategy," "Psychology and the Stock Market," "The New Contrarian Investment Strategy" and "Contrarian Investment Strategies, the Next Generation."

Review: Conscious Investor

We have noted several times on our main web page how essential it is for investors to get the right financial information and how summarised information is easily available to the public via subscription services like Value Line.

The secret, of course, is how to analyse the information once it is to hand and, if using a Buffett type approach, how to decide what to buy and when to buy it.

If you only want the bare company information, then Value Line offers a reasonably inexpensive subscription service that provides the basic data for the previous few years such as earnings per share, sales per share, profits, asset backings, debt details, profit margins and the like. This will enable you to use Buffettish methods to select companies based on the criteria that you chose.

We have recently looked at a software package and subscription service called Conscious Investor, developed by a Professor John Price, that provides in summary form the same kind of data that Value Line offers. It also comes with a suite of analytical tools that seek to reproduce several of the Buffett type tests.

The service provides company data for corporations listed on the New York, Canadian and Australian Stock Exchanges. You can choose one, two, or all of these services. The basic company data will give you, for current and previous years, such information as:

  • Debt to equity
  • Current ratio
  • Quick ratio
  • Interest cover
  • Return on equity
  • Market capitalisation
  • Sales per share
  • Predictive growth

The package enables the user to access and download the relevant data for corporations listed on those exchanges. Available data is updated on a regular basis.

The program consists of a number of inter-active analytical tools that allow you to:

  • Cull corporations by setting performance obstacles
  • Calculate an intrinsic value, based on past performance and your calculated future performance predictors
  • Set a price at which you are prepared to buy the stock, taking into account what growth/income returns you would like to achieve

Stock scanner

This enables you to select an industry, or the market generally, and to cull company lists according to whatever parameters you select over a chosen period of years., including:

You can either set your own parameters or use the default parameters set by Professor Price.

Importantly, the tool provides for growth analysis and predictability based upon a formula devised by the software originators that not only calculates past growth but also ranks it for consistency. You can also indicate the future rate of growth that you are looking for as an additional analysis obstacle.

Quick Analysis

This is a spreadsheet type tool that allows you to input, after making your investigations, all the necessary questions, and answers to enable a judgment. The types of questions included are the questions that Buffett is, according to all accounts, supposed to look at when making investment decisions.

Scenario analysis

This is a ‘what if’ spreadsheet tool that allows you to look at the future prospects of a selected company, inputting your own assumptions, to calculate rolling returns and allow you, if you wish, to make discount flow calculations.

Additional tools

The program also comes with market, industry and company charts and graphing facilities.

Using the program

Using the program is simple enough even for technological amateurs like the Editor of your Newsletter. There is both an online manual, and a series of seminars that you can take at your own pace to help you use the program.

Stock selection

If you do not want to select companies yourself, there are two additional facilities that are very useful: The Conscious Investor Watch list and Members Forum.

Each month, although the frequency may change depending upon market opportunities, Professor Price and his team analyse a stock or two in each selected market, doing the hard work of making all the Buffett type calculations. A typical review of a stock would include:

  • A business description of the company and its activities
  • Recent scuttlebutt
  • An analysis of any ‘economic moat’ that the company has, or in Buffett terms, the company’s continuing competitive advantage
  • An assessment of management abilities
  • An analysis of:
    • Management performance
    • Growth performance and prospects
    • Debt and liquidity
    • Price earnings performance
    • Retention feasibility
  • Intrinsic value calculations
  • A fair price

Conscious Investor does not necessarily recommend a purchase at that price but suggests subscribers make their own decisions based on individual needs and risk profiles.

The company also has a watch list for each of the markets that it services and a model portfolio, which seems to be consistently ahead of the market. We took up one of their recommendations and have to say that we are sufficiently ahead on our investment to have more than paid the subscription.

Member’s Forum

This is a very interesting feature in which members identify their own stock selections, ask questions, and communicate investment strategies. It can alert subscribers to value investments that they, and the Conscious Investor team, may have missed.

Review Summary

If you just want corporate data in an easy to read summary form, and nothing else, Value Line is probably the best bet, as it is a little bit cheaper than Conscious Investor.

If you want a good analysis tool as well as the basic corporate data, then you might consider trying out Conscious Investor. Plus, you get the bonus of the Conscious Investor team’s own stock selections, as well as an interesting and valuable member’s forum.

We are impressed enough with the package to have purchased it for our own use.

Further Information

Further information on Concious Investor can be obtained by submitting your email address here.

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