2011 Stock Market Review

It is mathematically impossible for Buffett to have amassed his wealth using Buffett principles. .

An individual shareholder in Berkshire would not have replicated the return that Buffett personally made because Buffett gets a management fee paid in Berkshire shares.

Easy example:
Mini Buffett sets up a $1million dollar investment company.
$100,000 is his own money, $900,000 from other investors.

He charges 1% of the the net assets as a management fee.

Assume 20% constant return.

Year 1:
Buffett makes $20,000 on his own investment, and $10,000 as the management fee. Total wealth $130,000. Value of investment company: $1.2million (never declares a dividend)

Year 2: Buffett makes $24 on his own investment and $12,000 management fee. Total wealth: $166,000. Value of investment company: $1.44 million

Year 3: Buffett makes $28,800 on his own investment and $14,400 management fee. Total wealth: $209,000.

Now compound this out to 20 years and see the result, and this is just on one million. What if the starting figure is $10 million with $1million personal wealth. (and never declaring a dividend)


I have no idea what the actual management fee was, but in its early days Berkshire was generating around 20% annual returns.

A high compounding return on personal invested money + management fee on a growing pool of assets = one massive massive increase in ones personal wealth.
 
The Virgin Music Megastores have all closed down, Virgin Mobile is Optus, Virgin Blue is no longer a budget airline and is going for the business traveller... I dunno.
Yes i know as with most of the companies,he gets out at the right time everytime,once you go inside Branson's mindset you would get lost..
 
I read half Branson's book. How he hasn't done a "Fossett" beats me. It's not just that he tried dangerous things, he tried them ill prepared, and in a rush. (Same thing I guess)
 
I read half Branson's book. How he hasn't done a "Fossett" beats me. It's not just that he tried dangerous things, he tried them ill prepared, and in a rush. (Same thing I guess)
A mate of mine has a photo of him and Branson in his Taxi in Brisbane,he picked him up one day in the city and too look at him ,he thought he was an ex sufer with 20 cents in his back pocket,but once he opened his mouth he said it was priceless, after all anyone that can size up a person in 60 seconds a be right most times must know something..
 
So the essential question becomes: are intrinsic values going to stabalise now, or is the continued downturn in share prices are precluder for intrinsic value to decline significantly further (ie value traps)

I currently value 96 stocks on the ASX. Stocks that I consider to be the best quality. I have 53 of them rising on 2011 valuation and the remaining 43 falling in my estimate of intrinsic value for 2012.

I have run a quick average of these 96 stocks and it comes to a rise of 118% in intrinsic value across these 96 stocks for 2012.

These valuation statistics are subject to change and will change on a daily/weekly basis. Finding the stocks that will have a significant intrinsic value rise while the share price is going down is like finding gold.

Stock picking on this basis rather than 'buying the market' is where it is at, and I think you know that IV.
 
Against this is the axiom that should apply to both traders and investors: do more of that which works and less of that which doesnt. At the moment my fundamental investing is working for US shares, i am making a profit.

Yes, that it true and hard to do. I have to say I am a stinker at buying individual shares. My return would have been much better if I had stuck to indexes and market timing. Periodically I get tempted to buy an individual share, fortunately I have been able to restrain myself for a while now. I think it's hard to stick at what is sucessful for you because there are actually quite few opportunites at any one time for this. Easy to say wait for a fat pitch but much harder to do. The temptation is to look at other strategies, other markets for some action.

I think you are right, quality in the US is underpriced currently, which mitigates that market being above fair value to me. On the index level I don;t see s sufficient margin of safety to be involved in either equity market currently. But then it is not too overvalued either so I have not been tempted to short the indexes. I am just waiting for undervaluation to emerge. I think it is probable that we will get there in the next 6 months. If it doesn't then I will be wrong and will have to reconsider my analysis.
 
. Finding the stocks that will have a significant intrinsic value rise while the share price is going down is like finding gold.

.

In the Australian market i think this kind of opportunity exists only in small and micro caps, where market cap and liquidity prevent the institutional investors from easily getting on board (it can be done, but its not easy, and even if a position is created what % will it be against the institutions funds under management, ie potentially negligable benefit).

Two situations that come to mind are TGA and ASZ (where profit is expected to increase yet share price is declining, and current share price is under intrinsic value).

In the US i think it is easier to gain exposure to large cap, because the market rotates its focus on sector specific issues. This creates windows of opportunity when a sector goes out of focus/popularity. ETF's are great (for the company specific investor) because they are used as long/short mechanisms without due consideration to the various qualitative issues of the different underlying companies that comprise the ETF (this issue is starting to get attention as there is a 30 year historical high correlation of shares moving together both within sectors and within the broader market as a whole, this provides opportunities for those focussing on individual companies)
 
. I think it is probable that we will get there in the next 6 months. If it doesn't then I will be wrong and will have to reconsider my analysis.

In this environment i think you are quite wise. Whats the worst that can happen, you miss an opportunity, but you still have your capital intact.

Different people will have different action plans, for myself i am still 'in play', but i totally respect the action plans of others.
 
Originally Posted by redwing
Whats the difference between rare earth and mineral sands
mineral sands arent rare .

Nor are rare earths. But they really have nothing in common bar the fact that both industries are unpopular.

Mineral sands are unpopular because they dredge beaches to remove the "black stuff". Not popular on Fraser Is where their lease is being cancelled.

Rare earths are OK to mine but the separation and refining of all the different metals is very polluting. Originally the industry was mainly in Nth. America but they closed it down because of pollution. China is not so squeamish so they took over production. Trouble is, they have now woken up that the heavy rare earths are what they produce strong magnets from, critical to modern industry and China pulls the strings.

Lynas is now having trouble commissioning it's refinery in Malaysia because the locals have become aware that the industry is so dirty. That is why their share price is dropping, not because of any oversupply.

Edit: The new, big wind turbines use 1.5 tonnes of RE magnets and China has restricted export of the material, thus cornering the market for manufacturing of the turbines and all manner of modern products. American firms are being invited to manufacture there where their secrets can be easily stolen and patents circumvented.
 
In the Australian market i think this kind of opportunity exists only in small and micro caps, where market cap and liquidity prevent the institutional investors from easily getting on board (it can be done, but its not easy, and even if a position is created what % will it be against the institutions funds under management, ie potentially negligable benefit).

Two situations that come to mind are TGA and ASZ (where profit is expected to increase yet share price is declining, and current share price is under intrinsic value).


That is true about small caps being more likely. Along with TGA and ASZ, I would also throw FLT of recent times into the mix. FLT is a bigger cap stock and in this environment, these opportunities will continue.

I do hold FLT and TGA so am perhaps looking through rose coloured glasses.
 
I would also throw FLT of recent times into the mix. FLT is a bigger cap stock and in this environment, these opportunities will continue.

.

key for me with FLT is
(a) exchange rate: higher AUD is a positive
(b) employment: effects underlying demand

I like the underlying company though, at the start of 2009 this was one of my biggest holdings, but i offloaded into 2010
 
Yes, employment is going to become a recurring theme for the foreseeable future.

Just in the last day or so we have heard about job cuts across the banking and retail sectors. Retail sector in particular is not a surprise but it is now being discussed widely.
 
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