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Dec 26, 2005 Issue 051226
 
Enlightened InvestorDigest 
BEST IDEAS, BEST PRACTICES AND BEST JOKES FROM THE WORLD’S BEST INVESTORS
 © Copyright 2005. Zenway.com Inc. 401 Broadway, Suite 2200, New York, NY 10013. (646)388-0887 zenway.us@gmail.com
 
A
CTIVITIES OF THE
 W 
ORLD
’
S
B
EST
I
NVESTORS
 
Q
UARTER
E
NDING
S
EPTEMBER
30,
 
2005
Enlightened Investors Buys Sells
BAUPOST GROUPSeth Klarman ACUS CALGZ, UNS, HCBKBERKSHIRE HATHAWAYWarren Buffett, Lou Simpson,
TYC
, USGBRANDES Investment PartnersCharles Brandes, Glenn CarlsonEK, PXT, CV, ATYT, BORL, LZB,
QNTA
, FITB S, RAI, CTL, FLE, AOCCENTURY ManagementArnold Van Den BergWBSN, CT, IWN, IJR, CNC, PFCR,JWN, RCIVAR, CTXS, EDO, XXIA, BECNCNA Financial CorpJames Tisch, Joe Rosenberg
WMT
, CHK FHN, RHI, FCS, VTRCUNDILL, Peter & AssociatesPeter Cundell, Tim McElvaine L, DTV LTRDAVIS AdvisorsChris Davis, Ken FeinbergFMD, AMB, LM, FELE, SFC, TIF, FLA,NWS, S ITD, KBHESL InvestmentsEdward LampertFAIRHOLME CapitalBruce R. Berkowitz
NLY
(Insider buys, price drop, positivecash flow, low capex), FRE, CFCEAC GMO Jeremy Grantham
KO
(Historical valuation low), USPI SEE, ECL, ITUIICAHN Group JANA PartnersCarl Icahn, Barry Rosenstein
BKF
(Large price drop, insider buy,improving cash flow, low capex), ANX,FHR, LEXR, WLT, ANX MYL, PPP, SEBL, MWDKAHN Brothers ALV, IDTKINETICS ASSET MGMNTPeter DoyleGBLBF, IMO, TKC, RHD, PICO, DEO,LICT, AMPLEGG MASONBill Miller & CompanyIACI, NIHD, PHG, USB, MWD, TO,FWLT, MRX, DNA, USG, RTN, SPP,LRWLEUCADIA NATIONAL
IAAC
, PRKR, VECO, ACCLOAKMARK Oak Value FundBill Nygren IWR JNJ, PREOLSTEIN & AssociatesRobert Olstein FL, AIG, MTLG, FINLBMS, LXK, WLM, MTW, SYNA,PAOMEGA AdvisorsLeon CoopermanS, MCD, RDSA,
MSFT
, NWSA, CTX,VIA.B, CNX, KNDVOD, FBN, TPX, BAC, LLY,RDPLPRIVATE CAPITALBruce Sherman, Gregg PowersAGI, TDPROSPECTOR PARTNERSJohn D. Gillespie
PFE
,
MRK
,
DD
,
NYT
, OTL, AMD,TRH, NEM, ABX, ABS, JPM, MMM CSEQUOIA FUND INCBob Goldfarb MICC, PCLN, NMHC, MCF, LEAPSOURCE CAPITALEric EndeSOUTHEASTERN ASSET MGMTMason Hawkins
DELL
, BUD, NSRGY, PHCT FIC, CKP
 
 
Enlightened Investor DigestPage 2
THIRD AVENUE FundsMarty WhitmanBORL, HVT, HDL, GSIG, IDT, OME,TSG, PAAS, MOVICOMS, ASGN, OFLX, BBX, SXC,WRP, FAL, PWRTRACINDA CorpKirk Kerkorian GMTWEEDY BROWNEChris & Will Browne, John Spears SNY, LXK, BUD SLEVINIK ASSET MANAGEMENTJeffrey Vinik NSC, OS, EFII, IPS, HAL, RHI, ARGSYGR, WSCI, RCKY, KSWS,PCRWASATCH ADVISORS INC EASI, MVL, JBHT, WCG, SINT, TUTR ECPG, GPI, CARS, IPMTWEITZ FUNDSWallace R. Weitz
BUD
, LEAP HCM, COF, PBCTWHITE MOUNTAINS Insurance
Note: The most interesting moves are underlined or in bold face. The accuracy of the information above is NOT guaranteed. Pleaseread ourlegal disclaimerhere:http://zenway.com/disclaimTo suggest an enlightened value investor worth tracking, please email: zenway.us@gmail.com 
Z
 
Golden Nuggets & Zen Wisdom from Warren Buffett
(in his lectures to student groups)
 
How to Make 50% a Year
♦
 
First off, follow Graham and you’ll be fine.
♦
 
You have to turn over a lot of rocks to findthose little anomalies.
♦
 
You have to find the companies that are off the map - way off the map. You may findlocal companies that have nothing wrong withthem at all.
♦
 
When investing you don’t have to invest in all10,000 companies available, you just have tofind the one that is out of line. You can oftenfind a couple of companies that are out of line.Find one; get rich.
♦
 
No one will tell you about these businesses.You have to find them.
♦
 
“Investing is Journalism.” Investing is findingout about something most people don’t knowabout, just like a reporter wanting to break abig story. He further stated, “You don’t need99 percent of the information out there forinvestments.”
♦
 
It would perhaps even be easier to make 50%a year with smaller amounts in today’senvironment because information is easier toaccess.
♦
 
The answer is still yes today that you can stillearn extraordinary returns on smaller amountsof capital. For example, I wouldn’t have hadto buy issue after issue of different high yieldbonds. Having a lot of money to invest forcedBerkshire to buy those that were less attractive.With less capital, I could have put all mymoney into the most attractive issues andreally creamed it.
♦
 
If you buy GM, you need to write the priceand the respective market valuation. Thenwrite down why you are buying the business.If you can’t, then you have no business doingit.
♦
 
Don't put yourself at risk of a bad day.Meaning: don't get in a position that a singlebad, low probability day would damage you.
 
Capitalize on Volatility
♦
 
Markets are there to serve you, not to instructyou. Most people think that what the stock does from day to day contains information,but it doesn’t. It isn’t just something thatwiggles around.
♦
 
Mr. Market is your servant. Mr. Market isyour partner and wants to sell the business toyou everyday. Some days he is veryoptimistic and wants a high price, others he ispessimistic and will sell at a low price. Youhave to use this to your advantage.
♦
 
The stock market is the best game in the world.You can take advantage of people who haveno morals.
♦
 
The market is the greatest game in the world.There is nothing else that can, at times, getthis far out of line with reality. For example,land usually only fluctuates within a 15%band. Negotiated transactions are less volatile.Some get this; others don’t. Just keep yourwits about you and you can make a lot of money in the market.
♦
 
High prices inside of a year will typically be100% of the low price. Businesses don’tchange in value that much. That is simplycrazy. There are extreme degrees of fluctuation, and Mr. Market will call out the
© 2005 Zenway.com Inc. This free version of EID can be distributed without prior permission on an “as-is” basis without alteration.
 
Enlightened Investor Digest
© 2005 Zenway.com Inc. This free version of EID can be distributed without prior permission on an “as-is” basis without alteration.
Page 3prices. Wait until he is nutty in one directionor the other.
♦
 
Never has so much been managed by so fewthat care so much about what happenstomorrow. So much of the world of investingis people who are trying to beat indexes, andthey have a willingness and eagerness to makedecisions in the next 24 hours. This conditiondidn’t exist years ago. It has created a “hairtrigger” effect. An example of this hairtrigger effect was Black Monday in ’87. Thecause was program trading and stop lossorders.
Prudence and Margin of Safety
♦
 
Put in a margin of safety. Don’t find a bridgethat says no more than 10,000 pounds whenyou have a 9800 pound vehicle. It isn’t afunction of IQ, but receptivity of the mind.
♦
 
Be careful that when you buy something for asound reason, make sure that the reason stayssound.
♦
 
Ben Graham said: “You can get in moretrouble with a sound premise than an unsoundpremise because you’ll just throw out theunsound premise”. [Editor’s note: Therefore,write down the pros and cons. Debate withyourself. Debate with other smart people,preferably in the Zenway Mastermind Group.]
♦
 
Don't mess with borrowed money. (His maxdebt to equity ratio used to be 25 percent.)
♦
 
To value a business, analyze where it will be10 years down the road. Is there someone torun the business, and is it reasonably priced?The only two classes you need as an investorare "how to value a business" and "how tothink about the stock markets."
Investment Case Studies
♦
 
Western Insurance Securities, found by goingover the S&P stock guide page by page, wastrading for $3/share when it was earning$20/share!! Buffett tried to buy up as much of it as possible.
♦
 
Genesee Valley Gas, public utility trading at aP/E of 2, GEICO, Union Street Railway of New Bedford selling at $30 when $100/shareis sitting in cash, high yield position in 2002.No one will tell you about these ideas, youhave to find them.
♦
 
Berkshire owned the Washington Post, theABC network and Newsweek. It was sellingfor $100 million based on the stock price. Nodebt. You could have held an auction, andsold off the companies individually for $500Mtotal, but $100M was the price. In otherwords they were willing to sell us money thatwas worth $1 for $0.25. According toefficient markets, the beta was higher whenthe stock was at $20 than at $37. This isinsanity. We bought what was then worth $9million that is now worth $1.7 billion.
It’s Hard to Profit from Bubbles
♦
 
Identifying bubbles is fairly easy. You don’tknow how big they will get and you don’tknow when they will pop. You don’t knowwhen midnight will hit, but when it does, itturns carriages to pumpkins and mice. Whatmarkets will do is pretty easy. When they willdo it is more difficult. Some people want tostick around for the last dance, and theythought that a bigger fool would be justaround the corner tomorrow. [Cashing in yourchips at the top is not easy.]
♦
 
If you are buying to own a home, that is fine.Otherwise, real estate seems to be getting intobubble territory.
♦
 
“Never get into something if you have theintention of someday wanting to get out of it.”For instance, Buffett stated he does not investin IT stocks because technology changes toomuch.
The Zen of Inner Happiness
♦
 
“Your inner scorecard is more important thanyour outer scorecard.” It’s very important forpeople to evaluate how they behave over alifetime morally and ethically and not beoverly concerned with other people’simpressions. Keep an inner scorecard: judgeyourself by your own standards. This keepsyou focused when you have many peoplegiving you advice.
♦
 
You should do the job you love whether or notyou are getting paid for it. I didn’t know mysalary when I went to work for Graham until Igot his first paycheck. Do what you love anddon’t even think about the money.
♦
 
If there is a place that is warm in the winterand cool in the summer, and you do what youlove doing, you will do fine. I will take a tripon Paul Allen’s Octopus ($400M yacht), butwouldn’t want one for myself. A 60 mancrew is needed. They could be stealing,sleeping with each other, etc.
♦
 
You’re rich if you are working around peopleyou like. You will make money if you areenergetic and intelligent. This society letssmart people with drive earn a very goodliving. You will be no exception.
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