The Greatest Business In the World

Some meaningful quotations:

"I call investing the greatest business in the world because you never have to swing. All day you wait for the pitch you like. Then when the fielders are asleep, you step up and hit it." - Warren Buffett.

Big money is made in the waiting - Jessy Livermore

Be prepared, act promptly, in scale, on a few major opportunities.

It takes character to sit there wit hall the cash and do nothing. I didn't get to where I am by going after mediocre opportunities.

It's like looking for a horse that pays 50/50 and has a 3-to-1 chance of winning. - Charlie Munger.

Is Mr. Market Always Wrong?

An interesting article by Ooi Kok Hwa
Taken from The Star (July 16, 2008)

The market is always wrong (in Malaysia)

It exists to serve and not to instruct, it will not tell you whether you are right or not.

The rippling effect of the US subprime issue, coupled with the fear of high oil prices and political uncertainties have sent a lot of stocks tumbling to very low levels recently.

At the start of this year, when the market was touching a new high of 1,500 points, some fund managers predicted the market might go even higher.

However, following the recent market crashes, the KL Composite Index fell to about 1,150 points, a drop of 350 points within six months. Now, certain fund managers have started to predict the market dropping below 1,000points in the near future.

Most retailers cannot comprehend how fund managers can change their market forecast by 500 points within a six-month period. The main reason for this is the change in market perception.

Due to the impact of the issues mentioned above and the tumbling stock prices, the fear of weak corporate performance has caused some company owners’ to hold back on expansion programmes. This has resulted in weaker corporate results and panic selling on the stock.

According to George Soros, this phenomenon can be explained by the “reflexive process”, - the feedback loop where a change in stock prices causes a change in company fundamentals, which, in turn, justifies a further drop in stock prices.

He said perceptions change facts; and facts change perceptions. Hence, the drop in stock prices can cause further drop in the company’s stock prices.

According to Phillip Fisher, market prices are determined more by perceptions than facts. Besides, analysts like to place more weight on the short-term performance of a company rather than focus on its long-term prospects.

As a result, when the overall market is coming down, analysts like to lower the target-selling price of a company and increase the target-selling price when the overall market is trending higher.

Risk means uncertainty of outcome. The stock market reacts negatively to risk. Whenever the stock market has a lot of uncertainties, all stocks - regardless of whether they are good or poor fundamental stocks - will be hammered down.

However, we always believe crisis means opportunities. The recent drop in market prices creates magnificent investment opportunities. Even though the market may drop further as there are still a lot of uncertainties and outstanding negative news pending announcement, we believe there is great opportunity for long-term investment.

Warren Buffett believes that the stock market is manic-depressive: it always overreacts to positive as well as negative news. If the overall market sentiment is good, the stock price may surge sky high. However, if the market sentiment is depressive, the stock price may plunge to insanely cheap.

That is why Buffett said: “The market is there to serve you and not to instruct you. It is not telling you whether you are right or wrong. The business results will determine that.”

Hence, the key factor is to purchase the right business at the right (price).

We believe a lot of investors know which good quality stocks to hold for the long-term. However, they always complain these stocks are too expensive most times. As a result of the recent market crashes, some of these stocks have dropped to quite attractive levels.

Even though they may get even cheaper if the overall market drops further, we need to prepare ourselves by understanding the intrinsic value of the stocks and at what price we will start to accumulate them.

According to Nassim Nicholas Taleb in his book entitled The Black Swan, we should stop trying to predict anything and instead take advantage of uncertainty.

A lot of investors or analysts may spend a lot of time trying to predict the market bottom. We should not try to predict when the market will reach its bottom as we will never know until it happens.

The key thing is to focus on is whether we have already identified which good quality stocks to invest in when the market is getting nearer to the bottom. Instead of trying to catch the stock at the lowest point, we hold the principle that we would be happy if we are able to catch those stocks 20% from the low.

George Sampson - The Greatest Dancer I Have Ever Seen!

When I first saw him dancing, I thought "Is he the next Michael Jackson?" He is just an incredible dancer. For your information, I am not a fan of break-dance or some sort of that. But when I see him dance, I was just speechless. Everyone knew that Michael Jackson is famous for his moon walk dance. But George Sampson is different. He is unique. He has got his own special moves. He is simply the best dancer I have ever seen since Michael Jackson.

After his unsuccessful first attempt in Britain’s Got Talent 2007, he continued to train hard and dance on the street in Manchester for about one year. In 2008, he entered the competition again. This time with better moves and George Sampson finally entered the semi final on second attempt. As he said, he hopes to win the competition for a better life for him and his family.

Sometimes I wonder “Is it most of the successful people come from a poor family/difficult background?” They have live life the hard way and can work hard and never give up easily. George reminds me of many successful people who live a hardship life before their successful life.

He just never gives up, hardworking and eventually return with a bang! George made it into the final and went on to win the Britain’s Got Talent 2008. Even if he didn’t win, I believe he will become a very famous dancer in the world. Hats off to George Sampson!

2007 Audition


2008 Audition
http://www.youtube.com/watch?v=W_dcnS-KZpE&feature=related

Semifinal
http://www.youtube.com/watch?v=wbUcfL9BQhk&feature=related

Final
http://www.youtube.com/watch?v=TKKdvyTd4rg&feature=related

And the Winner is.......
http://www.youtube.com/watch?v=3zFcpRXn95o&feature=related

The Next Bear Stearns?

Taken from bloomberg.com

Fannie, Freddie `Insolvent' After Losses, Poole Says
By Dawn Kopecki

July 10 (Bloomberg) -- Borrowing at Fannie Mae, the U.S. government-sponsored mortgage company, has never been so expensive and it may not get better any time soon.

Fannie Mae paid a record yield relative to Treasuries on the sale of $3 billion in two-year notes yesterday amid concern the biggest provider of financing for U.S. home loans won't have enough capital to weather the worst housing slump since the Great Depression. The company's credit-default swaps show traders are treating the AAA rated debt as if it were five steps lower. Fannie Mae shares tumbled 13 percent yesterday in New York to the lowest level in almost 14 years.

Chances are increasing that the U.S. may need to bail out Fannie Mae and the smaller Freddie Mac, former St. Louis Federal Reserve President William Poole said in an interview. Freddie Mac owed $5.2 billion more than its assets were worth in the first quarter, making it insolvent under fair value accounting rules, he said. The fair value of Fannie Mae's assets fell 66 percent to $12.2 billion, data provided by the Washington-based company show, and may be negative next quarter, Poole said.

``Congress ought to recognize that these firms are insolvent, that it is allowing these firms to continue to exist as bastions of privilege, financed by the taxpayer,'' Poole, 71, who left the Fed in March, said in the interview yesterday.

Fair value accounting measures a company's net worth if it had to liquidate all of its assets to repay liabilities. Fannie Mae and Freddie Mac, both of whom have the implicit backing of the government, make money by borrowing in the bond market and reinvesting the proceeds in higher-yielding mortgages and securities backed by home loans.

`Inflection' Point

Lawmakers in Washington may question Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson at a 10 a.m. hearing today about the financial health of the companies and whether they jeopardize the financial system.

``At some point we're going to reach that inflection, where the government is going to have to either guarantee explicitly or Fannie and Freddie are going to have be left to fend for themselves,'' Peter Boockvar, an equity strategist at Miller Tabak & Co. in New York, said in an interview with Bloomberg Television. ``We're getting to that point where a decision has to be made by Washington.''

The plunge in Fannie Mae and Freddie Mac yesterday in New York Stock Exchange trading led financial shares to their biggest decline in six years and sent the Standard & Poor's 500 Index into its first bear market since 2002. Fannie Mae, which dropped $2.31 yesterday, rose 41 cents to $15.72 in Frankfurt trading today. Freddie Mac, which declined $3.20 yesterday, rose 24 cents to $10.31 as of 9:25 a.m.

To read full article, click here http://www.bloomberg.com/apps/news?pid=20601087&sid=a7NPAG.LEjHQ&refer=home

When Warren Buffett Speaks, The World Listen!

Taken from CNBC.com

Warren Buffett's Advice to Young People Seeking Financial Independence
Thursday, 3 Jul 2008

Warren Buffett has some advice for young people, like college students, who want to remain financially independent. It's not new and its not a surprise, but it is solid counsel on avoiding a very common money pitfall, and worth repeating:

"The biggest suggestion I have is to avoid credit cards. Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke.... So if I had one piece of advice for young people generally it would be to just avoid credit cards."

Warren Buffett tries out a new variety of Blizzard at a Dairy Queen in Omaha earlier this week. We assume he didn't use a credit card to pay for it.

That quote comes from a news release about Buffett's visit this week to a Dairy Queen in Omaha to promote a July-only special: Girl Scouts Thin Mint Cookie Blizzard Treat. Dairy Queen is a subsidiary of Berkshire Hathaway.

It was during this event that Buffett told the Associated Press he was amazed that a Chinese fund manager agreed to pay $2.1 million to have lunch with him. "It kind of blew me away," said Buffett. Last year's winner paid about $650 thousand. But, says Buffett, the extra dollars won't necessary translate into a longer lunch, which usually clocks in at three hours in any case.

Every year, a chance to share lunch with Buffett is auctioned off to raise money for San Francisco's Glide Foundation.

Is Berkshire Undervalued?

Buffett's Berkshire in bear territory
July 2, 2008 - 3:45PM
Source: http://business.theage.com.au/buffetts-berkshire-in-bear-territory-20080702-30je.html?page=2

It must be a bear market because even billionaire Warren Buffett's Berkshire Hathaway has slumped almost 20% since December.

The decline exceeds the 15% drop of the Standard & Poor's 500 Index from December 10 through yesterday. It's the worst first half for the investment and holding company since 1990, as price competition drove down revenue at Berkshire's insurance units, which account for about half of its income.

Berkshire is "close to getting more fairly priced,'' said Charles Hamilton, an analyst at FTN Midwest Securities. "I wouldn't say it presents a buying opportunity right now.

''After reporting record 2007 earnings of $US13.2 billion ($13.7 million), the 77-year-old Buffett told shareholders in February that profit margins from insurance will drop. "That party is over,'' Buffett wrote in his annual letter to shareholders in February. "It is a certainty that insurance industry profit margins, including ours, will fall significantly in 2008.''

Berkshire also has been hurt by the declines of Wells Fargo, American Express and US Bancorp, three of the company's 10 biggest equity holdings at the end of March. Wells Fargo, Berkshire's second-largest holding, dropped 18% in the second quarter, while American Express and US Bancorp slipped 14%.

Berkshire closed at $US120,100 yesterday in New York Stock Exchange composite trading, down from their all-time high of $US151,650 in December. That's the sharpest drop in more than five years.

Berkshire spokeswoman Jackie Wilson didn't respond to a request for comment. The slide hasn't deterred Buffett devotees, who think Berkshire's decline represents a buying opportunity. "I'd put a new client in Berkshire right now,'' said Frank Betz, a partner at Carret Zane Capital Management. "It's probably the highest-quality collection of individual companies that's ever been assembled. Long slides are not in the Berkshire Hathaway lexicon.''

Berkshire bulls are betting with history on their side: the shares advanced in 17 of the past 20 years. The last annual decline was 3.8% in 2002. The company had record earnings last year as Buffett booked a $US3.5 billion profit on a $US500 million investment in oil producer PetroChina, and insurance units made money selling coverage against storms that never came.

The decline in financial shares may provide Buffett an opportunity to boost holdings, said Whitney Tilson, a principal at New York-based hedge fund T2 Partners, which counts Berkshire among its investments.

"Where Buffett makes his money is taking advantage of weak, chaotic markets,'' Tilson said. "The odds that Buffett could do a large transformative deal have gone up substantially.'

'Buffett built Berkshire over four decades from a failing maker of men's suit linings into a $US185 billion company. He plows revenue into companies whose management he trusts and whose business models he deems superior. The billionaire's Berkshire stake makes him the world's richest person, according to Forbes magazine.

With Berkshire's $US35 billion in cash, Buffett can scoop up bargains on beaten-down securities and make acquisitions while near-frozen credit markets curb purchases by leveraged buyout firms, Tilson said. Tilson calculates the so-called intrinsic value of Berkshire's assets and operations at $US157,000 a share. The stock reached intrinsic value in 11 of the past 12 years, Tilson said. The discount was about 24% at yesterday's close.

This year's gap emerged amid a drop in commercial property rates from their peaks after Hurricane Katrina in 2005. Property and casualty prices in the US fell 14% in the first quarter from the same period a year earlier, according to a survey by the Council of Insurance Agents and Brokers.Berkshire, which owns National Indemnity, General Re and Geico, saw first-quarter earnings from underwriting insurance policies fall 70% to $US181 million.

Pretax underwriting profit at Berkshire Hathaway Reinsurance Group, which sells catastrophe coverage, dropped 95%.

Also damaging to Berkshire's earnings is the biggest housing slump since the Great Depression, which slowed the company's building-related businesses, including Acme Brick, wallboard maker Johns Manville and Shaw Industries, the world's largest carpet manufacturer.

Family First

Taken from The Star - Friday July 4, 2008

Father wants to sell kidney

GEORGE TOWN: A man who claims he was declared a bankrupt for a car loan he never took is resorting to a desperate measure – he wants to sell his kidney.

“I hope someone will buy my kidney at a reasonable price soon, so I can use the money to start a small business to feed my family,” said the man, who only wanted to be known as Murali.

The father of four said his wife and his four children, aged between five and 14, had already cried their hearts out over his decision.

“They were sad and they cried, but I don’t have any other choice. It’s all I’ve got,” he said.

“Our life has been difficult. With a chronic asthma, I cannot work. Three of my children are still in school.

He claimed that his situation was worsened by the bankruptcy order issued to him after someone unknown to him had used his identification document which he had lost some time ago to acquire a RM36,000 loan.

“To make the situation worse, my bank account was frozen, and I cannot take any loan or even register a business with the Malaysian Companies Commission (SSM).” he said.

Murali said he did not put a price on his kidney, but hoped the offer would be reasonable and worth it.
He said although he had chronic asthma, a medical check-up confirmed that his kidneys were in good condition.

Murali now supports his family with the RM368 monthly pension from the Social Security Organisation (Socso) he received since he quit his job in 2005, and RM100 for each of his children, given by the Welfare Department, since last year.

He also explained that he had approached the media about his plan to sell his kidney so that he could find a buyer.

He said it was not meant to win the public’s sympathy.

“I really hope someone will be interested to buy my kidney. I don’t care if the buyer is a local or foreigner, as long as I can sell it, so my family and I can continue with our lives,” he said.

Murali can be reached at 014-6002714. – Bernama