More Buffett and Munger Readings

What a day. I mean the stock market. Monday IBM gave us some good news. Today neither Citi nor Apple (and New Oriental if I may add) sent out re-assuring news, and the market (both Dow and Nasdaq) tanked…

These days I started to read the Buffett shareholder letters date back to year 1978.

I also found this talk “human mis-judgement” given by Charlie Munger, vice chairman of Berkshire Hathaway, to be enlightening. Two things I immediately connected with:

1) Association: He mentioned Coke is associating its product with Olympics etc. I think McDonald is another genius doing this. It gives all kinds of toys to the kids. So as Buffett’s own Geico Car insurance, did you see all these “stupid” ads on TV?

Geico = a cool car insurance company.

2) Frog is not as alert to a slow cooker compared to being put into hot water. I know I have similar problem. Take my loss on Longtop as an example, I did not sell when it dropped a little every day. Today I decided to sell some eventually because it dropped more (under $17 the IPO price).

(source: creighton.edu)

Why not Berkshire for stock investments

I know no broker offer this as an option in IRA. But how about buying Berkshire (BRK.A, BRK.B) over mutual funds in a taxable brokerage account? Not only does Berkshire has a track record which beats almost all mutual fund (21.4% annual compound return in last 42 years) and the 10.4% annual return of S&P 500. See this Buffett’s 2006 letter for details. But also an investor get the service of the best investor with virtually no fees: Buffett is paid a salary of 100,000. So why don’t we all give the money to Buffett, rather than mess up with our own investments, which in most cases can not beat Buffett’s performance in long term.

I can think of the following reasons:

1) We think it’s harder and harder for Buffett to repeat the performance he had in last 42 years. It’s practical because as much as Buffett is getting better (he is a life long learner), his portfolio is growing so big that expecting an annual return of 20% is impossible.

Walter Schloss also beats S&P

and he had done it for 47 years (maybe not every year, but compound annual return), that’s pretty good.

The following is quoted from Buffett 2006 shareholder letter, you can get the full letter at Berkshire web site:
……
Let me end this section by telling you about one of the good guys of Wall Street, my long-time friend Walter Schloss, who last year turned 90. From 1956 to 2002, Walter managed a remarkably successful investment partnership, from which he took not a dime unless his investors made money. My admiration for Walter, it should be noted, is not based on hindsight. A full fifty years ago, Walter was my sole recommendation to a St. Louis family who wanted an honest and able investment manager.

In Berkshire we trust?

The following is a one-year chart of Berkshire Hathaway (B share).

Durable competitive edge

Buffett talks about “durable competitive edge” a lot.

Here is a video (scroll down the article) he used Berkshire mill, the first major company he bought in 19060s, as an example to explain this concept.

Also I watched the “Buffett goes global” show on CNBC in the weekend, I am sure CNBC will run it again just like the other two shows about Walmart and eBay.

This is a much better show than Jim Cramer’s Mad Money, in terms of education value. I watched the Mad Money mostly for entertainment, along with Fast Money, etc.

Investing with Bolton

Screen shot Capital Week published on Dec. 1, 2007

Anthony Bolton is the legendary fund manager for Fidelity (the mutual fund company Peter Lynch made his name). He visited China lately and answered investing questions from reporter of Capital Weekly.

Peter Lynch One Up on Wall Street

I heard about Peter Lynch and his book more than two years ago; I ordered his book from Amazon last week because I wanted to learn more about stocks and investing. I just got to Chapter 5 now, but I found his book to be educational and interesting: his humor can be felt in many places of the book. This is a much fun book than Ben Graham’s Intelligent Investing. By the way, both Ben and Peter are considered as the gurus of investment, Ben is the mentor of Warren Buffett, Peter managed Fidelity fund and had a sterling record. Peter is not a big fan of Business School although he graduate from Wharton, here is what said about B-school: Some Wharton courses were not rewarding, but even if they’d all been worthless, the experience would have been worth it, because I met Carolyn (his wife) on the campus.

Seriously, he proposed the three questions “mirror test” for investing in stocks: