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Enlightened Investor Digest 051226F Strategies of Warren Buffett, Charlie Munger, John Templeton, Peter Lynch, Joel G

Enlightened Investor Digest 051226F Strategies of Warren Buffett, Charlie Munger, John Templeton, Peter Lynch, Joel G

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Ze n w a y. com
Dec 26, 2005 Issue 051226
Enlightened InvestorDigest
BEST IDEAS, BEST PRACTICES AND BEST JOKES FROM THE WORLD\u2019 S BEST INVESTORS
\u00a9 Copyright 2005. Zenway.com Inc. 401 Broadway, Suite 2200, New York, NY 10013. (646)388-0887 zenway.us@gmail.com
ACTIVITIES OF THE WORLD\u2019S BEST INVESTORS
QUARTER ENDING SEPTEMBER 30, 2005
Enlightened Investors
Buys
Sells
BAUPOST GROUP
Seth Klarman
ACUS

CALGZ, UNS, HCBK
BERKSHIRE HATHAWAY
Warren Buffett, Lou Simpson,

TYC, USG
BRANDES Investment Partners
Charles Brandes, Glenn Carlson
EK, PXT, CV, ATYT, BORL, LZB,
QNTA, FITB
S, RAI, CTL, FLE, AOC
CENTURY Management
Arnold Van Den Berg
WBSN, CT, IWN, IJR, CNC, PFCR,
JWN, RCI

VAR, CTXS, EDO, XXIA, BECN
CNA Financial Corp
James Tisch, Joe Rosenberg

WMT, CHK

FHN, RHI, FCS, VTR
CUNDILL, Peter & Associates
Peter Cundell, Tim McElvaine

L, DTV
LTR
DAVIS Advisors
Chris Davis, Ken Feinberg
FMD, AMB, LM, FELE, SFC, TIF, FLA,
NWS, S
ITD, KBH
ESL Investments
Edward Lampert
FAIRHOLME Capital
Bruce R. Berkowitz
NLY (Insider buys, price drop, positive
cash flow, low capex), FRE, CFC
EAC
GMO Jeremy Grantham
KO (Historical valuation low), USPI
SEE, ECL, ITUI
ICAHN Group JANA Partners
Carl Icahn, Barry Rosenstein
BKF (Large price drop, insider buy,
improving cash flow, low capex), ANX,
FHR, LEXR, WLT, ANX
MYL, PPP, SEBL, MWD
KAHN Brothers

ALV, IDT
KINETICS ASSET MGMNT
Peter Doyle

GBLBF, IMO, TKC, RHD, PICO, DEO,
LICT, AMP
LEGG MASON
Bill Miller & Company

IACI, NIHD, PHG, USB, MWD, TO,
FWLT, MRX, DNA, USG, RTN, SPP,
LRW

LEUCADIA NATIONAL
IAAC, PRKR, VECO, ACCL
OAKMARK Oak Value Fund
Bill Nygren
IWR
JNJ, PRE
OLSTEIN & Associates
Robert Olstein
FL, AIG, MTLG, FINL
BMS, LXK, WLM, MTW, SYNA,
PA
OMEGA Advisors
Leon Cooperman
S, MCD, RDSA,MSFT, NWSA, CTX,
VIA.B, CNX, KND
VOD, FBN, TPX, BAC, LLY,
RDPL
PRIVATE CAPITAL
Bruce Sherman, Gregg Powers

AGI, TD
PROSPECTOR PARTNERS
John D. Gillespie

PFE, MRK, DD, NYT, OTL, AMD,
TRH, NEM, ABX, ABS, JPM, MMM
C
SEQUOIA FUND INC
Bob Goldfarb

MICC, PCLN, NMHC, MCF, LEAP
SOURCE CAPITAL
Eric Ende
SOUTHEASTERN ASSET MGMT
Mason Hawkins

DELL, BUD, NSRGY, PHCT
FIC, CKP
Enlightened Investor Digest
Page 2
THIRD AVENUE Funds
Marty Whitman
BORL, HVT, HDL, GSIG, IDT, OME,
TSG, PAAS, MOVI
COMS, ASGN, OFLX, BBX, SXC,
WRP, FAL, PWR
TRACINDA Corp
Kirk Kerkorian
GM
TWEEDY BROWNE
Chris & Will Browne, John Spears
SNY, LXK, BUD

SLE
VINIK ASSET MANAGEMENT
Jeffrey Vinik

NSC, OS, EFII, IPS, HAL, RHI, ARG
SYGR, WSCI, RCKY, KSWS,
PCR
WASATCH ADVISORS INC

EASI, MVL, JBHT, WCG, SINT, TUTR ECPG, GPI, CARS, IPMT
WEITZ FUNDS
Wallace R. Weitz

BUD, LEAP
HCM, COF, PBCT
WHITE MOUNTAINS Insurance
Note: The most interesting moves are underlined or in bold face. The accuracy of the information above is NOT guaranteed. Please
read our legal disclaimerh e re: 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
\u2666 First off, follow Graham and you\u2019ll be fine.
\u2666 You have to turn over a lot of rocks to find
those little anomalies.
\u2666 You have to find the companies that are off

the map - way off the map. You may find
local companies that have nothing wrong with
them at all.

\u2666 When investing you don\u2019t have to invest in all

10,000 companies available, you just have to
find the one that is out of line. You can often
find a couple of companies that are out of line.
Find one; get rich.

\u2666 No one will tell you about these businesses.
You have to find them.
\u2666 \u201cInvesting is Journalism.\u201d Investing is finding

out about something most people don\u2019t know
about, just like a reporter wanting to break a
big story. He further stated, \u201cYou don\u2019t need
99 percent of the information out there for
investments.\u201d

\u2666 It would perhaps even be easier to make 50%

a year with smaller amounts in today\u2019s
environment because information is easier to
access.

\u2666 The answer is still yes today that you can still

earn extraordinary returns on smaller amounts
of capital. For example, I wouldn\u2019t have had
to buy issue after issue of different high yield
bonds. Having a lot of money to invest forced
Berkshire to buy those that were less attractive.
With less capital, I could have put all my
money into the most attractive issues and
really creamed it.

\u2666 If you buy GM, you need to write the price
and the respective market valuation. Then

write down why you are buying the business. If you can\u2019t, then you have no business doing it.

\u2666 Don't put yourself at risk of a bad day.
Meaning: don't get in a position that a single
bad, low probability day would damage you.
Capitalize on Volatility
\u2666 Markets are there to serve you, not to instruct

you. Most people think that what the stock
does from day to day contains information,
but it doesn\u2019t. It isn\u2019t just something that
wiggles around.

\u2666 Mr. Market is your servant. Mr. Market is

your partner and wants to sell the business to
you everyday. Some days he is very
optimistic and wants a high price, others he is
pessimistic and will sell at a low price. You
have to use this to your advantage.

\u2666 The stock market is the best game in the world.
You can take advantage of people who have
no morals.
\u2666 The market is the greatest game in the world.

There is nothing else that can, at times, get
this 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\u2019t. Just keep your
wits about you and you can make a lot of
money in the market.

\u2666 High prices inside of a year will typically be

100% of the low price. Businesses don\u2019t
change in value that much. That is simply
crazy. There are extreme degrees of
fluctuation, and Mr. Market will call out the

\u00a9 2005 Zenway.com Inc. This free version of EID can be distributed without prior permission on an \u201cas-is\u201d basis without alteration.
Enlightened Investor Digest
\u00a9 2005 Zenway.com Inc. This free version of EID can be distributed without prior permission on an \u201cas-is\u201d basis without alteration.
Page 3
prices. Wait until he is nutty in one direction
or the other.
\u2666 Never has so much been managed by so few

that care so much about what happens
tomorrow. So much of the world of investing
is people who are trying to beat indexes, and
they have a willingness and eagerness to make
decisions in the next 24 hours. This condition
didn\u2019t exist years ago. It has created a \u201chair
trigger\u201d effect. An example of this hair
trigger effect was Black Monday in \u201987. The
cause was program trading and stop loss
orders.

Prudence and Margin of Safety
\u2666 Put in a margin of safety. Don\u2019t find a bridge

that says no more than 10,000 pounds when
you have a 9800 pound vehicle. It isn\u2019t a
function of IQ, but receptivity of the mind.

\u2666 Be careful that when you buy something for a
sound reason, make sure that the reason stays
sound.
\u2666 Ben Graham said: \u201cYou can get in more

trouble with a sound premise than an unsound
premise because you\u2019ll just throw out the
unsound premise\u201d. [Editor\u2019s note: Therefore,
write down the pros and cons. Debate with
yourself. Debate with other smart people,
preferably in the Zenway Mastermind Group.]

\u2666 Don't mess with borrowed money. (His max
debt to equity ratio used to be 25 percent.)
\u2666 To value a business, analyze where it will be

10 years down the road. Is there someone to
run the business, and is it reasonably priced?
The only two classes you need as an investor
are "how to value a business" and "how to
think about the stock markets."

Investment Case Studies
\u2666 Western Insurance Securities, found by going

over the S&P stock guide page by page, was
trading for $3/share when it was earning
$20/share!! Buffett tried to buy up as much of
it as possible.

\u2666 Genesee Valley Gas, public utility trading at a

P/E of 2, GEICO, Union Street Railway of
New Bedford selling at $30 when $100/share
is sitting in cash, high yield position in 2002.
No one will tell you about these ideas, you
have to find them.

\u2666 Berkshire owned the Washington Post, the

ABC network and Newsweek. It was selling
for $100 million based on the stock price. No
debt. You could have held an auction, and
sold off the companies individually for $500M
total, but $100M was the price. In other

words they were willing to sell us money that
was worth $1 for $0.25. According to
efficient markets, the beta was higher when
the stock was at $20 than at $37. This is
insanity. We bought what was then worth $9
million that is now worth $1.7 billion.

It\u2019s Hard to Profit from Bubbles
\u2666 Identifying bubbles is fairly easy. You don\u2019t

know how big they will get and you don\u2019t
know when they will pop. You don\u2019t know
when midnight will hit, but when it does, it
turns carriages to pumpkins and mice. What
markets will do is pretty easy. When they will
do it is more difficult. Some people want to
stick around for the last dance, and they
thought that a bigger fool would be just
around the corner tomorrow. [Cashing in your
chips at the top is not easy.]

\u2666 If you are buying to own a home, that is fine.
Otherwise, real estate seems to be getting into
bubble territory.
\u2666 \u201cNever get into something if you have the

intention of someday wanting to get out of it.\u201d For instance, Buffett stated he does not invest in IT stocks because technology changes too much.

The Zen of Inner Happiness
\u2666 \u201cYour inner scorecard is more important than

your outer scorecard.\u201d It\u2019s very important for
people to evaluate how they behave over a
lifetime morally and ethically and not be
overly concerned with other people\u2019s
impressions. Keep an inner scorecard: judge
yourself by your own standards. This keeps
you focused when you have many people
giving you advice.

\u2666 You should do the job you love whether or not

you are getting paid for it. I didn\u2019t know my
salary when I went to work for Graham until I
got his first paycheck. Do what you love and
don\u2019t even think about the money.

\u2666 If there is a place that is warm in the winter

and cool in the summer, and you do what you
love doing, you will do fine. I will take a trip
on Paul Allen\u2019s Octopus ($400M yacht), but
wouldn\u2019t want one for myself. A 60 man
crew is needed. They could be stealing,
sleeping with each other, etc.

\u2666 You\u2019re rich if you are working around people

you like. You will make money if you are energetic and intelligent. This society lets smart people with drive earn a very good living. You will be no exception.

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