Posts
Here is a link about Dell from a business perspective...
http://finance.google.com/group/google.finance.153088/browse_thread/thread/976104c1835f181
Cheers,
Lucas
Monday, September 17, 2007
Saturday, September 15, 2007
Subprime crisis
The subprime crisis! Is it really a crisis?
Lets do some break down of what has been happening. The subprime market is basically the market of lending money to credit unworthy borrowers for their home loans. This group of people have poor credit histories and have often defaulted on their debts which makes this group of people very risk to lend to. Anyhow, the market values this group of people as higher interest rates are charged to them and hence these companies earn higher interest margins.
Well the market can actually be segmented into 2 types. There are actually fixed rates and variable rates. Variable rates have an inverse relationship to the housing index. When the housing index in US dipped, you find variable rates rising and hence leading to higher default rates which has led to the bankruptcy of certain companies.
Not all companies in the housing market offering subprime loans are affected. As a matter of fact and relativity, variable rates packages have been more drastically affected than fixed rate packages. Its not like the whole subprime market consists of only variable rate loans right? Is it a crisis? Not really in my opinion as the subprime market is only 7% of the housing loan market. Yes it has repercussions but me and manpreet actually believe that the whole subprime scare might have been overplayed. As it stands, The fed is expected to cut interest rates while Asia, remembering the impact of the Asian Financial Crisis has been building its reserves drastically. Also, in emerging markets, interest rates are on a down trend. Valuation levels in South East Asia remain attractive from about 8x to 17x from what i read in a report.
Hence, it is a fantastic time for bargain hunting people!!!!!
Better and better,
Lucas
Lets do some break down of what has been happening. The subprime market is basically the market of lending money to credit unworthy borrowers for their home loans. This group of people have poor credit histories and have often defaulted on their debts which makes this group of people very risk to lend to. Anyhow, the market values this group of people as higher interest rates are charged to them and hence these companies earn higher interest margins.
Well the market can actually be segmented into 2 types. There are actually fixed rates and variable rates. Variable rates have an inverse relationship to the housing index. When the housing index in US dipped, you find variable rates rising and hence leading to higher default rates which has led to the bankruptcy of certain companies.
Not all companies in the housing market offering subprime loans are affected. As a matter of fact and relativity, variable rates packages have been more drastically affected than fixed rate packages. Its not like the whole subprime market consists of only variable rate loans right? Is it a crisis? Not really in my opinion as the subprime market is only 7% of the housing loan market. Yes it has repercussions but me and manpreet actually believe that the whole subprime scare might have been overplayed. As it stands, The fed is expected to cut interest rates while Asia, remembering the impact of the Asian Financial Crisis has been building its reserves drastically. Also, in emerging markets, interest rates are on a down trend. Valuation levels in South East Asia remain attractive from about 8x to 17x from what i read in a report.
Hence, it is a fantastic time for bargain hunting people!!!!!
Better and better,
Lucas
Sunday, September 09, 2007
Buffett Talk to MBA Students at Florida University 1998.
Excerpts from Buffett's talk to MBA students at Florida University
You were rumored to be one of the rescue buyers of Long Term Capital, what was the play there, what did you see?
Buffett: The Fortune Magazine that has Rupert Murdoch on the cover. It tells the whole story of our involvement; it is kind of an interesting story. I got the really serious call about LTCM on a Friday afternoon that things were getting serious. I know those people most of them pretty well--most of them at Salomon when I was there. And the place was imploding and the FED was sending people up that weekend. Between that Friday and the following Wed. when the NY Fed, in effect, orchestrated a rescue effort but without any Federal money involved. I was quite active but I was having a terrible time reaching anybody. We put in a bid on Wednesday morning. I talked to Bill McDonough at the NY Fed. We made a bid for 250 million for the net assets but we would have put in 3 and 3/4 billion on top of that. $3 billion from Berkshire, $700 mil. from AIG and $300 million. from Goldman Sachs. And we submitted that but we put a very short time limit on that because when you are bidding on 100 billion worth of securities that are moving around, you don't want to leave a fixed price bid out there for very long. In the end the bankers made the deal, but it was an interesting period.
The whole LTCM is really fascinating because if you take Larry Hillenbrand, Eric Rosenfeld, John Meriwether and the two Nobel prize winners. If you take the 16 of them, they have about as high an IQ as any 16 people working together in one business in the country, including Microsoft. An incredible amount of intellect in one room. Now you combine that with the fact that those people had extensive experience in the field they were operating in. These were not a bunch of guys who had made their money selling men’s clothing and all of a sudden went into the securities business. They had in aggregate, the 16, had 300 or 400 years of experience doing exactly what they were doing and then you throw in the third factor that most of them had most of their very substantial net worth’s in the businesses. Hundreds and hundreds of millions of their own money up (at risk), super high intellect and working in a field that they knew. Essentially they went broke. That to me is absolutely fascinating. If I ever write a book it will be called, Why Smart People Do Dumb Things. My partner says it should be autobiographical. But this might be an interesting illustration. They are perfectly decent guys. I respect them and they helped me out when I had problems at Salomon. They are not bad people at all. But to make money they didn’t have and didn’t need, they risked what they did have and what they did need. That is just plain foolish;
it doesn’t matter what your IQ is. If you risk something that is important to you for something that is unimportant to you it just doesn’t make sense. I don’t care if the odds you succeed are 99 to 1 or 1000 to 1 that you succeed. If you hand me a gun with a million chambers with one bullet in a chamber and put it up to your temple and I am paid to pull the trigger, it doesn’t matter how much I would be paid. I would not pull the trigger. You can name any sum you want, but it doesn’t do anything for me on the upside and I think the downside is fairly clear. Yet people do it financially very much without thinking.
There was a lousy book with a great title written by Walter Gutman—You Only Have to Get Rich Once. Now that seems pretty fundamental. If you have $100 million at the beginning of the year and you will make 10% if you are unleveraged and 20% if you are leveraged 99 times out of a 100, what difference if at the end of the year, you have $110 million or $120 million? It makes no difference. If you die at the end of the year, the guy who makes up the story may make a typo, he may have said 110 even though you had a 120. You have gained nothing at all. It makes absolutely no difference. It makes no difference to your family or anybody else. The downside, especially if you are managing other people’s money, is not only losing all your money, but it is disgrace, humiliation and facing friends whose money you have lost. Yet 16 guys with very high IQs entered into that game. I think it is madness. It is produced by an over reliance to some extent on things. Those guys would tell me back at Salomon; a six Sigma event wouldn’t touch us. But they were wrong. History does not tell you of future things happening. They had a great reliance on mathematics. They thought that the Beta of the stock told you something about the risk of the stock. It doesn’t tell you a damn thing about the risk of the stock in my view. Sigma’s do not tell you about the risk of going broke in my view and maybe now in their view too. But I don’t like to use them as an example. The same thing in a different way could happen to any of us, where we really have a blind spot about something that is crucial, because we know a whole lot of something else. It is like Henry Kauffman said, “The ones who are going broke in this situation are of two types, the ones who know nothing and the ones who know everything.” It is sad in a way. I urge you.
We basically never borrow money. I never borrowed money even when I had $10,000 basically, what difference did it make. I was having fun as I went along it didn’t matter whether I had $10,000 or $100,000 or $1,000,000 unless I had a medical emergency come along. I was going to do the same things when I had a little bit of money as when I had a lot of money. If you think of the difference between me and you, we wear the same clothes basically (SunTrust gives me mine), we eat similar food—we all go to McDonald’s or better yet, Dairy Queen, and we live in a house that is warm in winter and cool in summer. We watch the Nebraska (football) game on big screen TV. You see it the same way I see it. We do everything the same—our lives are not that different. The only thing we do is we travel differently. What can I do that you can’t do?
You were rumored to be one of the rescue buyers of Long Term Capital, what was the play there, what did you see?
Buffett: The Fortune Magazine that has Rupert Murdoch on the cover. It tells the whole story of our involvement; it is kind of an interesting story. I got the really serious call about LTCM on a Friday afternoon that things were getting serious. I know those people most of them pretty well--most of them at Salomon when I was there. And the place was imploding and the FED was sending people up that weekend. Between that Friday and the following Wed. when the NY Fed, in effect, orchestrated a rescue effort but without any Federal money involved. I was quite active but I was having a terrible time reaching anybody. We put in a bid on Wednesday morning. I talked to Bill McDonough at the NY Fed. We made a bid for 250 million for the net assets but we would have put in 3 and 3/4 billion on top of that. $3 billion from Berkshire, $700 mil. from AIG and $300 million. from Goldman Sachs. And we submitted that but we put a very short time limit on that because when you are bidding on 100 billion worth of securities that are moving around, you don't want to leave a fixed price bid out there for very long. In the end the bankers made the deal, but it was an interesting period.
The whole LTCM is really fascinating because if you take Larry Hillenbrand, Eric Rosenfeld, John Meriwether and the two Nobel prize winners. If you take the 16 of them, they have about as high an IQ as any 16 people working together in one business in the country, including Microsoft. An incredible amount of intellect in one room. Now you combine that with the fact that those people had extensive experience in the field they were operating in. These were not a bunch of guys who had made their money selling men’s clothing and all of a sudden went into the securities business. They had in aggregate, the 16, had 300 or 400 years of experience doing exactly what they were doing and then you throw in the third factor that most of them had most of their very substantial net worth’s in the businesses. Hundreds and hundreds of millions of their own money up (at risk), super high intellect and working in a field that they knew. Essentially they went broke. That to me is absolutely fascinating. If I ever write a book it will be called, Why Smart People Do Dumb Things. My partner says it should be autobiographical. But this might be an interesting illustration. They are perfectly decent guys. I respect them and they helped me out when I had problems at Salomon. They are not bad people at all. But to make money they didn’t have and didn’t need, they risked what they did have and what they did need. That is just plain foolish;
it doesn’t matter what your IQ is. If you risk something that is important to you for something that is unimportant to you it just doesn’t make sense. I don’t care if the odds you succeed are 99 to 1 or 1000 to 1 that you succeed. If you hand me a gun with a million chambers with one bullet in a chamber and put it up to your temple and I am paid to pull the trigger, it doesn’t matter how much I would be paid. I would not pull the trigger. You can name any sum you want, but it doesn’t do anything for me on the upside and I think the downside is fairly clear. Yet people do it financially very much without thinking.
There was a lousy book with a great title written by Walter Gutman—You Only Have to Get Rich Once. Now that seems pretty fundamental. If you have $100 million at the beginning of the year and you will make 10% if you are unleveraged and 20% if you are leveraged 99 times out of a 100, what difference if at the end of the year, you have $110 million or $120 million? It makes no difference. If you die at the end of the year, the guy who makes up the story may make a typo, he may have said 110 even though you had a 120. You have gained nothing at all. It makes absolutely no difference. It makes no difference to your family or anybody else. The downside, especially if you are managing other people’s money, is not only losing all your money, but it is disgrace, humiliation and facing friends whose money you have lost. Yet 16 guys with very high IQs entered into that game. I think it is madness. It is produced by an over reliance to some extent on things. Those guys would tell me back at Salomon; a six Sigma event wouldn’t touch us. But they were wrong. History does not tell you of future things happening. They had a great reliance on mathematics. They thought that the Beta of the stock told you something about the risk of the stock. It doesn’t tell you a damn thing about the risk of the stock in my view. Sigma’s do not tell you about the risk of going broke in my view and maybe now in their view too. But I don’t like to use them as an example. The same thing in a different way could happen to any of us, where we really have a blind spot about something that is crucial, because we know a whole lot of something else. It is like Henry Kauffman said, “The ones who are going broke in this situation are of two types, the ones who know nothing and the ones who know everything.” It is sad in a way. I urge you.
We basically never borrow money. I never borrowed money even when I had $10,000 basically, what difference did it make. I was having fun as I went along it didn’t matter whether I had $10,000 or $100,000 or $1,000,000 unless I had a medical emergency come along. I was going to do the same things when I had a little bit of money as when I had a lot of money. If you think of the difference between me and you, we wear the same clothes basically (SunTrust gives me mine), we eat similar food—we all go to McDonald’s or better yet, Dairy Queen, and we live in a house that is warm in winter and cool in summer. We watch the Nebraska (football) game on big screen TV. You see it the same way I see it. We do everything the same—our lives are not that different. The only thing we do is we travel differently. What can I do that you can’t do?
Sunday, August 19, 2007
Pssst...Buffett tells his secret to his incredible fortune
At the moment, i was rereading Buffett's lecture to Notre Dame students (in spring 1991) and wanted to share some insights in Buffett's thought process....Ultimately,the key to successful investing is really quite simple but tends to get lost in the frantic noises of the Market.In the following para, Buffett explains what's really successful investing all about...
"Now if I had some rare insight about software, or something like that – I would say that, maybe, other people couldn’t do that – or biotechnology, or something. And I’m not saying that every insight that I have is an insight that somebody else could have, but there were all kinds of people that could have understood American Express Company as well as I understood it in ‘62. They may have been...they may have had a different temperament than I did, so that they were paralyzed by fear, or that they wanted the crowd to be with them, or something like that, but I didn’t know anything about credit cards that they didn’t know, or about travelers checks. Those are not hard products to understand. But what I did have was an intense interest and I was willing, when I saw something I wanted to do, to do it. And if I couldn’t see something to do, to not do anything.
By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.
That’s why Graham is so important. Graham’s book [The Intelligent Investor] talks about the qualities of temperament you have to bring to the game, and that is the game."
The link to the entire article
Cheers,
Manpreet
"Now if I had some rare insight about software, or something like that – I would say that, maybe, other people couldn’t do that – or biotechnology, or something. And I’m not saying that every insight that I have is an insight that somebody else could have, but there were all kinds of people that could have understood American Express Company as well as I understood it in ‘62. They may have been...they may have had a different temperament than I did, so that they were paralyzed by fear, or that they wanted the crowd to be with them, or something like that, but I didn’t know anything about credit cards that they didn’t know, or about travelers checks. Those are not hard products to understand. But what I did have was an intense interest and I was willing, when I saw something I wanted to do, to do it. And if I couldn’t see something to do, to not do anything.
By far, the most important quality is not how much IQ you’ve got. IQ is not the scarce factor. You need a reasonable amount of intelligence, but the temperament is 90% of it.
That’s why Graham is so important. Graham’s book [The Intelligent Investor] talks about the qualities of temperament you have to bring to the game, and that is the game."
The link to the entire article
Cheers,
Manpreet
Thursday, August 16, 2007
Market Crash? Wait that sounds a little familiar....
The recent tumble in the stock markets brings me to reflect on one of Buffett's key tenets:Stay rational in an irrational world.Buffett has always viewed buying stocks as owning a stake in a business.So what does Buffett mean by that? Well, taking a quote from the '97 Berkshire Annual Shareholder letter, Buffett describes this aptly
"Selling fine businesses on "scary" news is usually a bad decision. (Robert Woodruff, the business genius who built Coca-Cola over many decades and who owned a huge position in the company, was once asked when it might be a good time to sell Coke stock. Woodruff had a simple answer: "I don't know. I've never sold any.)"
Now when the market is bearish,Buffett always never fails to remind us that opportunities lie ahead.In a recent interview on CNBC (Aug 15 2007), Buffett says this
"Generally speaking, when there's a certain amount of chaos in certain sections, it is unpredictable where the fallout will be, but the fallout offers some real opportunity"
In reality, to be a successful investor, one just needs to be a little patient and wait for the right time to buy pieces of fine businesses ; especially when everyone is panic selling and selling off their portfolios.For example, despite strong earnings growth in the credit card business,American Express stock is down from a 3 month high of $66 USD to about 57$ USD.Obviously, the concerns over the subprime mortgage market has hit financial stocks hard but this is irrational considering that American Express has little exposure to the subprime mortgage lending market.Now, buying a stake in a company with strong management and wide moat at a discounted price.... that sounds like a home run to me.
Cheers,
Manpreet
"Selling fine businesses on "scary" news is usually a bad decision. (Robert Woodruff, the business genius who built Coca-Cola over many decades and who owned a huge position in the company, was once asked when it might be a good time to sell Coke stock. Woodruff had a simple answer: "I don't know. I've never sold any.)"
Now when the market is bearish,Buffett always never fails to remind us that opportunities lie ahead.In a recent interview on CNBC (Aug 15 2007), Buffett says this
"Generally speaking, when there's a certain amount of chaos in certain sections, it is unpredictable where the fallout will be, but the fallout offers some real opportunity"
In reality, to be a successful investor, one just needs to be a little patient and wait for the right time to buy pieces of fine businesses ; especially when everyone is panic selling and selling off their portfolios.For example, despite strong earnings growth in the credit card business,American Express stock is down from a 3 month high of $66 USD to about 57$ USD.Obviously, the concerns over the subprime mortgage market has hit financial stocks hard but this is irrational considering that American Express has little exposure to the subprime mortgage lending market.Now, buying a stake in a company with strong management and wide moat at a discounted price.... that sounds like a home run to me.
Cheers,
Manpreet
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