Sunday, October 30, 2005

Charter Communications

High debt? Big price drop? SEC investigation?

These could all signal buying opportunities. But in the case of Charter Communications, Tom Gardner and Rex Moore thought it was too much of a bad thing.

Weitz sold out the last of his shares before 6/30/05. This is one Wally got wrong. CHTR is currently at 1.20.

Saturday, October 29, 2005

Guru managers

The equities team at Morningstar is a group of stock junkies: We love investing, and we love to research and find great investment ideas. In my experience, stocks are the discussion topic of choice (since we're in Chicago, the White Sox have temporarily supplanted stocks, but hey, it's been 46 years!) as we chat around the office. We also enjoy discussing what our favorite money managers think about the market, and what stocks those managers are buying. Most of this information can be found easily, thanks to an excellent, free resource available to everyone: shareholder letters.

Among the funds are Baron Asset (Ron Baron), Clipper (James Gipson), FPA Capital (Robert Rodriguez), Legg Mason Value (Bill Miller), Longleaf (Mason Hawkins), Oak Value (David Carr), Oakmark Select (Bill Nygren), Olstein Financial Alert (Robert Olstein), Selected American Shares (Chris Davis), Sequoia (Goldfarb and Ruane), Third Avenue Value (Martin Whitman), Weitz Value (Wally Weitz). Coincidentally, many of these same managers are covered at gurufocus also.

The best predictor of mutual fund performance

[10/28/05] According to an S&P study, the most consistently top-performing funds had three common characteristics: longer manager tenure, lower expense ratios, protected downside.

[8/8/05] the expense ratio isn't only the best predictor of performance, it is the only statistically reliable predictor, according to a study by Boston-based Financial Research Corp.

FRC tested 11 popular criteria that investors use in picking mutual funds: Morningstar ratings, past performance, turnover ratios, asset size, expense ratios, fund-manager tenure, net sales as well as four measures of risk/volatility.

The results showed that out of the 11 criteria, the expense ratio was the only one that had sufficient statistical relevance in predicting fund performance. Funds with low operating costs "deliver above-average future performance across nearly all time periods," the study says.

When to sell a stock

[3/7/06] The best reason to sell

[3/2/06] Seth Jayson chimes in with signs of a superior business that shouldn't be sold.

[2/28/06] I say again. Almost never.

[10/28/05] the only good strategic reason to ever sell a position: When the reason you bought it no longer holds true.

[3/30/05] Actually Philip Fisher gives three reasons

[3/18/05] Philip Fisher wrote "almost never"

Monday, October 24, 2005

Bernanke nominated as Greenspan's successor

President Bush on Monday nominated Ben Bernanke to succeed Federal Reserve Chairman Alan Greenspan, whose term is set to expire at the end of January. Bernanke, currently chairman of the president's Council of Economic Advisers and a former Fed governor, was widely considered one of the leading candidates for the job.

Friday, October 21, 2005

Lazy Investing

Seth Jason writes

A while back, I also suggested applying some strategic sloth to your stock picking. I was trying to find businesses that required very little babysitting, but better yet, had the potential to beat the market, not in spite of, but because of those same characteristics.

Briefly put, I figure opportunity is in Wall Street's madness. As the rest of the Wise flit from next big thing to next big thing, trying to zig when the other guys are zagging, I thought we could do better by concentrating on solid, dependable business leaders that didn't require daily checkups or keep you up at night. The same characteristics that made these investments easy on the stomach should, I thought, make them superior performers over the long term.
Sounds good to me, (though I wouldn't have chosen the stocks that he chose).

Tuesday, October 18, 2005

Free Cash Flow

[9/9/05] The joy of free cash flow

Four cash-flow red flags

Forbes says free cash flow doesn't do justice to growth companies

Investopedia says free cash flow is a great gauge of corporate health but is not infallible

[10/5/05] Free cash flow is a great metric for measuring the cash profitability of a business over time. But it's possible to overestimate it if you don't pay careful attention to details. Nathan Parmelee walks through a few of the items he likes to check for when analyzing a company's free cash flow.

[10/18/05] If you ask 10 mathematically inclined Fools what a firm's free cash flow is, you're going to get 10 different answers

The Price-To-Sale Ratio (and other ratios)

[11/16/05] Philip Durell (himself!) discusses the usage of the p/s ratio

[10/18/05] a look at the p/b (price-to-book) ratio

[1/13/05] I often prefer to use the p/s ratio instead of (or in addition to) the p/e ratio since earnings can fluctuate more than revenue.

Follow the links for more discussion of the p/s and p/e.

Rembrandt paintings

Do stocks behave like Rembrandt paintings? Answer: sometimes they do - in the short term.

Charlie Munger, chairman of Wesco Financial (AMEX: WSC), spoke in 2000 about the price of a stock coming from a number of different places: It's valued like a bond, like a claim on earnings, and also like a Rembrandt painting, which tends to go up in value for the sheer fact that it has recently gone up in value.

Watch Warren

According to a yet unpublished research paper by Ohio University professor John Puthenpurackal and Gerald Martin, a visiting scholar at Texas A&M University, an investor who mimicked Buffett would have beaten the Standard & Poor's 500-stock index by an average of 11.6% a year from 1980 to 2003.

Thursday, October 13, 2005

are good investors brain damaged?

[10/12/05] Is Warren Buffett a psychopath?

[7/23/05] People with certain kinds of brain damage may make better investment decisions. That is the conclusion of a new study offering some compelling evidence that mixing emotion with investing can lead to bad outcomes.

[09/30/02] The neuroscience of investing

Wednesday, October 12, 2005

Profitable Bankruptcy

One of Philip Durell's favorite places to look for undervalued opportunities is among bankruptcy survivors. (Both he and Fairholme found MCI.)

Friday, October 07, 2005

Buffett eats hamburgers

[10/7/05] In Berkshire Hathaway's 1997 chairman's letter, Warren Buffett famously wrote:

If you plan to eat hamburgers throughout your life and are not a cattle producer, should you wish for higher or lower prices for beef? ...

Even though they are going to be net buyers of stocks for many years to come, they are elated when stock prices rise and depressed when they fall. In effect, they rejoice because prices have risen for the "hamburgers" they will soon be buying. This reaction makes no sense. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. Prospective purchasers should much prefer sinking prices.

[10/19/05] During the Berkshire Hathaway annual meeting, Buffett said the keys to being a successful investor are temperament and the right basic idea.

large font

Here's an interesting investing rule.

Must have large font
The most recent 10-K filing for tech giant Oracle (Nasdaq: ORCL) ran to 103 pages. Meanwhile, little Mine Safety (NYSE: MSA), a boring business whose stock has nearly tripled in two years on the Hidden Gems roster, offers its investors a mere 50 pages of reading material. Heck, with all that space, the company could go wild and print its financials in easy-to-read 12-point font -- investors would still have less paper to plow through. More important than the font size, though, is the fact that small companies like Mine Safety are transparent. Fewer pages mean fewer places to hide inconvenient facts. It means we're less likely to be surprised, and less likely to invest in something we do not understand.

Thursday, October 06, 2005

Bill Gates makes it 11 in a row

Bill Gates, Microsoft Corp.'s co-founder and chairman, was the nation's wealthiest person for the 11th straight year with a net worth of $51 billion, followed again by Berkshire Hathaway chairman and chief executive Warren Buffett's $40 billion, according to Forbes.

Perhaps more noteworthy is the ascent of Google founders Sergey Brin and Larry Page, who were ranked 16th by Forbes with $11 billion each, up from No. 43 last year when they each had a net worth of $4 billion.

Wednesday, October 05, 2005

S&P's Top Ten

S&P's Top Ten Portfolio comprises stocks that S&P regards as best positioned to deliver big total returns in the months ahead.

The stocks are BAC, BNI, CVD, GTRC, IR, ISCA, LEN, MDC, STJ, SII.

Of the ten, I own LEN. But I wouldn't put it in my top 10 (or even 20) stocks. Though this stock has been very profitable to me in the past, I'm thinking of selling some more. In other words, take more profits.