As we approach Global Stock Markets, the volatility that surrounds them can create opportunities for making a purchase rather than a reason to sell.
I am reminded of what Warren Buffett looks for when buying companies and the cheaper share prices that we are now experiencing are making one of Buffett's tenants of investing more focused as the markets get lower:
His investment criteria included companies with "good returns on equity", little or no debt, "simple" businesses that he could understand, and consistent earnings, Mr Buffett said in his latest annual report. (Warren Buffett 2007 Berkshire Hathaway Annual Report)
Sure , Buffett is talking about companies that he buys having a good return on equity as an operating business. As an investor in cheaper shares though one can use falling share values to buy good companies and as an investor make better returns on your "bargain" purchase therefore making your returns all that much better.
Buffett has been hoarding his cash like your grandma over the last few years and many potential targets would have revealed themselves over the last few weeks of turmoil:
Warren Buffett says the current market chaos and turmoil will probably create buying opportunities for him and Berkshire Hathaway:
"You get more excited when there's a lot going on, you can't help it. And frankly, it will probably present more opportunity to us because when dislocations occur things get more mispriced and that sort of thing...
"So it can be a time of opportunity. It won't be for sure, but generally speaking, when there's a certain amount of chaos in certain sections, the fallout, and its unpredictable where the fallout will be, but the fallout sometimes offers some real opportunities." (CNBC Aug 15 2007)
Shares of health insurers, steel makers and department stores are down by as much as 18 per cent than they were in May, when Buffett said he would "figure out a way" to raise up to $US60 billion for the right deal. WellPoint Inc, Nucor Corp, Kohl's Corp and dozens more companies are now closer to meeting his investment criteria.
He has disclosed purchases a few days ago that his company has bought a new stake in Bank Of America and increased his stakes in Wells Fargo and Bancorp in the last quarters SEC filings.
As these companies have been beaten down over recent times you might expect the Sage of Omaha to be sniffing around them again.
Warren Buffett's history shows that he has done well during market turmoils as he tends to be doing the opposite to everyone else.
He bought beaten down stocks during the 1970s bear market lull and it paid off handsomely as the 1980s began a bull market not seen since the likes of the 1920s. His mentor Benjamin Graham made money off the 1930s bear market by doing exactly the same thing.
I guess we just have to learn from history. Markets have always had these volatile "corrections". Currently most investors seem gripped in the fear mode and it looks unlikely that the slide will be ended until some certainty comes back to the market.
Buffett and his mentor Benjamin Graham were able to ride these market blowouts and actually make it a positive. Their history and reputations as value investors are largely made during these times of turmoil.
Take a lesson from Warren. Keep cool, keep your head, keep your shares(if they were good ones to begin with!) and look for the bargains that will come.
c Share Investor 2007
Friday, August 17, 2007
Global Market Meltdown: What is Warren Buffett Doing?
Posted by Share Investor at 4:58 PM 0 comments
Labels: bank of america, benjamin graham, berkshire hathaway, Global market meltdown, warren buffett, wells fargo
Thursday, August 16, 2007
Market Musings on the NZX
My portfolio is down almost 20% from this years highs and the bulk of that drop has been in the last two weeks.
Fear has gripped our market and our dollar cross with the US dollar has fallen from an all time high of over 81c to less than 70c as I write because foreign investors are moving their Kiwi investments offshore for "safer" risks.
I am not selling and will not sell but my main problem at the moment is when to buy more of what I already hold. There are 4 stocks out of the 11 that I hold that have fallen below their original purchase price but they seem to becoming cheaper and cheap by the day. I wait with my finger poised on the buy button on my computer screen.
One stock I am looking at more closely, now that the Summerset Retirement float has been cancelled today, is my holding in Ryman Healthcare (RYM) the Retirement home operator. It is looking tasty but could go lower.
Opportunities also abound in NZs Blue chips. Telecom New Zealand(TEL) is due a 14c dividend soon and is trading well down. Fletcher Building (FBU) has been given a right troweling as of late, with a 23c dividend due and Sky City Casino (SKC) has its chips down a few days before their full year announcement on Monday 21 August.
Auckland International Airport (AIA) has news that just over 6% of its shares have been purchased by Infratil (IFT) in conjunction with a Government Retirement fund, a potential blocker of a merger between AIA and Dubai International Aerospace. Strangely AIA shares are up today.
Steel and Tube (STU) the steel maker and supplier, have announced a 10% profit decrease today on increased business costs and increased revenue. A 14c dividend waits in the wings for STU shareholders.
Fisher and Paykel Appliances(FPA) has announced that they are moving their electronics division to Thailand. It will share a factory roof with the washer division that announced plans to move there earlier this year. 96 jobs will go from South Auckland with a saving to FPA of 6 million dollars.
Meanwhile the Labour Government is in trouble with its voters because the partially State owned and listed airline , Air New Zealand (AIR) has been carrying Australian troops to get them to theatres of war in the Middle East, something that cuts against the beliefs of Labour ministers and a minority of over vocal New Zealanders. The share price landed sharply.
On a much lighter and perhaps tasty note, for the third day in a row Burger Fuel(BFW) has failed to trade.
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c Share Investor 2007
Posted by Share Investor at 2:26 PM 0 comments
Labels: auckland international airport, Burger Fuel, Fisher and Paykel Appliances, fletcher building, infratil, Ryman Healthcare, sky city casino, steel and tube, Summerset IPO, telecom
Wednesday, August 15, 2007
Telecom New Zealand Hangs Up.
Telecom New Zealand's [TEL.NZ] profit announcement last week reveals a company in gradual decline.
There are many reasons for this, not the least of them being the fact that management have always had a siege mentality to competition, that is, they tended to respond to rivals in a reactive rather than a proactive way. Their customers suffered on monetary and service levels simply because Telecom's monopoly position allowed them to do so.
When Government moved to untangle their monopoly their shortcomings were revealed to a greater extent than we already knew. Overwhelming arrogance seemed to be the order of the day.
Underspending in infrastructure over the last 18 years has left the company in a position where it now would have to spend multi billions just to get their networks and infrastructure up to speed to present day technology so they could offer their customers anything close to high speed broadband or mobile technologies that allow modern fast content.
The shortsightedness of the past seems to pervade Telecom's culture to the core. I say this because the companies answer to falling profits and revenue in the fixed line business was to sell the Yellow Pages unit to a Canadian Pension Fund for NZ$ 2.2B earlier this year. Roughly half of the proceeds will be dispersed to shareholders.
The Yellow Pages unit was one of Telecoms most profitable divisions, contributing over $200M in before tax profit and set to increase revenue and profit in years to come. The new owners have increased their own advertising for their product and are concentrating on growing their online presence.
As a business owner myself I would be ditching declining businesses rather than flogging off the most profitable.
To be sure $2.2 B is a nice little wedge of moola but it is a short sighted of management not to look towards its future in a more considered manner.
Most of Telecoms other businesses are either mature or near maturity. Fixed line is in decline, Mobile is reaching saturation and "Broadband" or what Telecom call broadband is constrained by their 19th century copper wire outlook in a 21st century world.
Lessons that should have been learned in the 1990s: lack of investing back in the business, slow to respond to competition etc, still haven't reached managements brain stems and look unlikely to do so unless coerced by Government intervention.
Management even suggested last week that Taxpayers should fund the badly needed infrastructure needed if New Zealanders "...wanted broadband quicker...".
For a communications company, Telecom New Zealand are not communicating the right message. Its customers continue to get an engaged signal and its clear message to the public at large is that they just don't care.
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Posted by Share Investor at 9:10 PM 0 comments
Labels: TEL, Telecom New Zealand, yellow pages
Tuesday, August 14, 2007
Global Credit Squeeze: There is no Free Lunch
The current news about what is being called the "global credit squeeze" has got me thinking.
Like every other man and his dog I have a few things to say about the subject. The implications for share markets, lending between banks and institutions involved directly with dodgy loans and those invested in companies holding those loans have been crystal clear over the last two weeks.
Market participants have reacted in a highly negative way which has spread fear and some loathing amongst the investing community. As I commented a few days ago, I and nobody else is entirely sure about how bad the squeeze is, but we will find out soon enough. What is clear though is that we are talking multi billions of dollars of losses.
Banks and other lenders have been lending money to people who cant afford it and surprise surprise they cant pay it back.
In New Zealand we have already had a local taste already of what is currently happening globally, with several finance companies exposed to risky loans going belly up and investors in those finance companies being out of pocket.
Globally though, with the exception of countries like New Zealand and Australia, State financed backing has been pumped into the banking sector to "increase liquidity" and stem the flow of losses on financial markets.
Now I do understand how this happened but what I cant begin to fathom are the details and what this means in detail: how these taxpayer funded "loans" get paid back, how much if any interest is charged and what happens if the banks and institutions getting these state funds cant pay the loans back because the losses they are exposed to are greater than they have let on?
So many questions I have huh?
I feel uneasy about the billions being "lent" to institutions in the first place to prop up their liquidity problems. Surely they should just take the hit for writing bad loans to begin with and then either fold or move on the wiser and not expose themselves again. After all the guy living next door to you ain't going to bail you out if you cant meet the mortgage payment.
In my humble opinion ,I think the interventions by the likes of the US, European and Asian States have merely postponed the inevitable and the interventions overwhelm the problem it was originally trying to ameliorate. These over extended banks with cash flow problems will take big hits anyway and interventions by governments meddling in money markets are just going to end the way most government intervention does.
Badly.
One thing is very clear though. Regardless of whether banks pay back taxpayer money or not. Giving away your equity like this does have a material effect somewhere. There is always a downside when money is "lent" without it being worked for.
We are talking large sums here and we probably haven't seen the end it it.
Hang on.
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c Share Investor 2007
Posted by Share Investor at 5:32 PM 2 comments
Labels: global equity squeeze