109

Real estate can be rented out (or otherwise "used"), so it "produces" income. He's not solely investing in real estate in the hopes the value increases, he's saying it's a better investment because it produces income whether or not the value increases.


69

For gold mining companies, the amount of gold that the company has access to but has not yet been mined is accounted for in "reserves". The company can claim a percentage of those reserves as assets, but must spend money to mine them. That is why the market value of those reserves is not entirely reflected in the value of the company. The actual value must ...


46

Buffett is a value investor. His goal is to buy good companies when the market is overly worried and prices them below intrinsic value. When the market is highly priced it is much more difficult for him to find things that he thinks are at an attractive price. When people are very worried and the market has crashed, stocks are then priced below their ...


22

I would recommend reading Intelligent Investor first. It was written slightly more recently (1949) than Security Analysis (1934). More important is that a recently revised edition* of Intelligent Investor was published. The preface and appendix were written by Warren Buffett. Intelligent Investor is more practical as an introduction for a novice. You may ...


20

From the letter you link: Our performance, relatively, is likely to be better in a bear market than in a bull market so that deductions made from the above results should be tempered by the fact that it was the type of year when we should have done relatively well. In a year when the general market had a substantial advance I would be well satisfied ...


14

Warren Buffet and Berkshire Hathaway took a 50% loss in each of the last two bear markets. His stock even lost 10% in 2015 when the S&P lost 8%. He doesn't have a track record to support the claim that his stock performs relatively better in a bear market, so perhaps it's best to take his letter with a grain of salt. Edit: As one commenter points out, ...


12

You haven't mentioned how much debt your example company has. Rarely does a company not carry any kind of debt (credit facilities, outstanding bonds or debentures, accounts payable, etc.) Might it owe, for instance, $1B in outstanding loans or bonds? Looking at debt too is critically important if you want to conduct the kind of analysis you're talking about....


11

Gold is a commodity. If I have some gold, my gold is exactly the same as someone else’s gold. I have absolutely no control over the value, and when I go to sell it, my price is completely dependent on what everyone else in the market is doing. I compete with every other seller on price alone; there is no other way to differentiate my product. For real ...


11

Let's say you are offered ten million dollars. You have the choice between taking ten million dollars, and spend the rest of your life on some lovely beach. Or you can keep working hard until your company is worth twenty million dollars. You could still go to a lovely beach, but you missed many years of beach life, and you are now old and exhausted. ...


11

Why do value investors ignore technical analysis? Technical analysis tries to predict future behavior from past behavior purely by looking at prices (and possibly other stats like volume traded). Fundamental analysis looks at the present fundamental financial attributes of a company (and possibly the recent past of those fundamentals) to predict future ...


10

I would start with The Intelligent Investor. It's more approachable than Security Analysis. I read the revised edition which includes post-chapter commentary and footnotes from Jason Zweig. I found the added perspective helpful since the original book is quite old. Warren Buffet has called Intelligent Investor "the best book about investing ever written." ...


10

This is certainly possible. There are lots of strategies that involve taking out loans to invest. However, they are all high risk strategies. There's a school district for a major US city that was able to get incredibly favorable loan terms because their repayment was assured by law. They borrowed a bunch of money and put it into a variety of sure things ...


9

I think he was trying to say that in the long term the company's fundamental intrinsic value will drive the price of a company's stock, but in the short term stocks move on emotion and publicity that are not necessarily a reflection of their true underlying value.


9

You are assuming too many things. Quite a few well run companies due to various factors are in liquidity crisis. If not resolved, they would go bankrupt. So they approach Warren and quite a few Private equity firms. A deal is made. Most of Warren investment are also through regular purchase on stock market via block deals. In the example you have quoted, ...


8

You seem to be assuming that ETFs must all work like the more traditional closed-end funds, where the market price per share tends—based on supply and demand—to significantly deviate from the underlying net asset value per share. The assumption is simplistic. What are traditionally referred to as closed-end funds (CEFs), where unit creation and ...


8

Warren Buffett isn't using any special sauce. He looks for value and ignores hype, greed, and fear. He buys what he knows and looks for companies that generate cash and/or are available for a discount of their true value. He explains what he looks for in a company and his reasons for buying it. He has said on numerous occasions, "I look for intrinsic ...


8

When people use non-standard terms to refer to pretty standard concepts, they are likely looking to appear as the sole authority on the topic, rather than one of many sources you could be learning from.. Using standardized terms reduces the above to the following: "An industrial company should have a debt:equity ratio of 1:1 or less." ie: They should be ...


7

HFT trade under a maker-taker fee structure. They receive payment for having their posting quotations hit (or taken) by the market place. They pay access fees when they hit (or take) other lit market participants posted quotations. Access fees are capped under Reg NMS at $.003 per $100. HFT will also have overhead (mostly technology, market data, cost of ...


7

All you have to do is ask Warren Buffet that question and you'll have your answer! (grin) He is the very definition of someone who relies on the fundamentals as a major part of his investment decisions. Investors who rely on analysis of fundamentals tend to be more long-term strategic planners than most other investors, who seem more focused on momentum-...


7

Gold reserves refers to gold in the ground that a mining company has an option to retrieve. 68 million ounces is a lot! And yes, a mining company's value is partially dependent on the size of their reserves. But it costs an exorbitant amount to retrieve gold. Newmont are projecting costs of $700-$750 per ounce in 2018, and this doesn't include their ...


6

If you look at the value as a composite, as Graham seems to, then look at its constituent parts (which you can get off any financials sheet they file with the SEC): Total annual sales Total assets Total debt Profit margin Each of those as percentages of the state/national GDP For example, if you have a fictitious company with: $1B sales $2B assets $250m ...


6

Your items The Income Statement The Balance Sheet The Cash Flow Statement are presumably available to any analyst, but some of the items in GDP growth rates Inflation Interest rates Exchange rates Productivity Energy prices, etc... might not be assessed in the same way by different analysts. For example, should general measures of inflation be used (and ...


6

You are smart to read books to better inform yourself of the investment process. I recommend reading some of the passive investment classics before focusing on active investment books: Common sense on mutual funds A Random Walk Down Wall Street Stocks for the Long Run If you still feel like you can generate after-tax / after-expenses alpha (returns in ...


6

Interesting idea. Don't catch the falling knife strategy sounds like you're buying while the stocks are appreciating (e.g. they are trending up) - which seems like the opposite to the Warren Buffett advice: Be fearful when everyone else is greedy. Be greedy when everyone is fearful. I think Crab investing is the way to go, dollar cost averaging spreads ...


6

I created a simulation to test the performance of cash, crab, and "falling knife" strategies in a variety of random market conditions. What I found is that in a rising market, the "crab" strategy outperforms both "falling knife" and "cash". In a roughly flat market, all three strategies are roughly the same performance. In a falling market, "cash" ...


5

The definition of market cap is exactly shares oustanding * share price, so something is wrong here. It seems that the share price is expressed in pence rather pounds. There's a note at the bottom: Currency in GBp. Note the 'p' rather than 'P'. So the share price of '544' is actually 544p, i.e. £5.44. However it's not really clear just from the ...


5

If you are inside of a ROTH IRA you are not getting taxed on any gain. Dividends, distributions, interest payment, or capital gains are never taxed. This, of course, assumes you wait until age 59.5 to do ROTH withdrawals on your gains.


5

Isn't real estate's price increase only driven by other people's demand Yes, that's what makes it productive. Productive assets, in general, have prices that are largely based on their ability to produce income. If you are putting money into real estate hoping to make money from price increases, you aren't treating real estate as a productive asset, but ...


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