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Now at Amazon.com, the Four Filters paperback

budlab — Mon, 25 Aug 2008 10:28:41 -0400

"The Four Filters Invention of Warren Buffett and Charlie Munger" is an investment "decision framing"

book: http://www.lulu.com/content/3215722

"The Four Filters Invention of Warren Buffett and Charlie Munger" examines each of the basic steps they perform in "framing and making" an investment decision. This book is a focused look into this amazing invention within "Behavioral Finance." The genius of Buffett and Munger's four filters process was to "capture all the important stakeholders" in a "multi-variable" equation or formula. Imagine...Products, Enduring Customers, Managers, and Margin-of-Safety... all in one mixed "qual + quant" formula.

Book Cover Art: http://www.frips.com/cover4.jpg

Very Interesting

mwgr5 — Wed, 20 Aug 2008 23:17:02 -0400

Thanks for adding this article. Warrenn Buffett is a great person and investor, and it is always great to learn more about the Oracle of Omaha.

http://www.sharpeinvesting.com

Nothing like freedom or

sunnyspeaks1 — Tue, 19 Aug 2008 02:14:04 -0400

Nothing like freedom or privacy exists in the US. Period.

You might as well have written "Fire BAD. Me no like fire."

Mr.Frotz — Thu, 14 Aug 2008 17:51:52 -0400

Shorting is just another tool in the arsenal of the investor or trader. Used properly, it is very powerful, just like fire. Let it get out of hand, and ... well, you get the idea. Why not continue the thought experiement and condemn options, or small caps, or any other vehicle with more risk than blue chip buy and hold? (And buy and hold has plenty of risk for the unwary, uneducated and/or unlucky - ask anyone who has experienced the downside of irrational exuberance - the hangover after a bubble 'party' ends isn't pretty, and burns many people for life)

I can vouch for the link above to ShortJester's performance; I'm an active participant on BillyTickets forum (approx 6 months now) and watch throughout the day as ShortJester documents his trades as they happen, in real time. He lists symbols, price, and short commentary/rationale when it is warranted. And each post is timestamped.

The man is consistently correct, day in and day out. If the market turns on him, he posts the correction before any damage is done. On the incredibly rare chance a stock that is fundamentally weak runs against him, he averages in, still with conviction and still comes out on top, every time.

I've learned a lot, following him... especially the idea that shorting is just another tool. It takes a different level of concentration and stewardship than going long, but it offers great rewards as well. At first I followed his lead, then I started shorting on my own, successfully. It's a learnable skill, and I'm greatful he was willing to teach.

The claim on 100 winning trades is an understatement if you ask me. Some days he will make 3, 4, 5, 6 profitable trades as stocks move through a range.

The most impressive part is that you can follow along in the thread on any given day and see his trades take shape- this isn't theory or fantasy baseball.

buffett

Dividend Growth Investor — Wed, 13 Aug 2008 15:44:29 -0400

I do agree that Buffett tends to buy businesses/stocks that he has previously mentioned in a positive way ( Pritzker family business is one that comes to mind)

I didnt ask him how much he

billytickets — Wed, 13 Aug 2008 00:00:34 -0400

I didnt ask him how much he invested. The posts are all time stamped and if he edits them it is recorded Bottom line is the trades have been very successful and I know of at least 3 investors ( me included) who have profited from many of them. Iam not trying to hype him just refuting Alex G's FOOLISH claim that short selling is somehow bad.When he moves out from his mom's house I willtake his words more serious. All i can suggest is for anyone to follow Short Jester's trades during the day.I admit the thread is very long but his record is excellent as is Dr Options who has had all but 1 trade as winner and my bargain bins of 43 stocks have had 40 that are ahead. We report you decide .peace

Billytickets

dbs119 — Tue, 12 Aug 2008 16:15:44 -0400

Billy,

The thread posted below was pretty long. The person below claims to have made 100 winning trades - there isn't an outside party that has documented/tracked this claim.

Did this person make these trades with real money? What was his winning/losing %-age?

This person has made over

billytickets — Sun, 10 Aug 2008 14:11:04 -0400

This person has made over 100 winning short trades http://www.atfreeforum.com/billyticketswin/viewtopic.php?t=131&start=0&mforum=billyticketswin.

Dividend Focused Stocks Versus

david — Sun, 10 Aug 2008 13:01:57 -0400

I think the point of the study was to evaluate the income generated from a dividend paying stock portfolio versus a bond portfolio. As I work with investment clients, they have a hard time accepting the lower dividend income generated from a stock portfolio versus the higher bond yield income. At the beginning of a portfolio construction process, bonds nearly always yield more than stocks. Over the long run the growth of the dividend income ultimately surpasses the bond yield. Then looking at yield on equity cost, ultimately has a higher yield than bonds. The difficulty for clients is to get them to accept lower dividend income today versus the bond yield. Say a ten dollar stock pays $2 and grows the dividend 10% per year. In 10 years the dividend will equal $5 and yield on cost will equal 5% (near a bond yield). Clients have difficulty seeing this; hence one of the reasons for the study.

What are your thoughts on Dow Chemical?

valuegeek — Wed, 06 Aug 2008 17:44:05 -0400

Buffett has recently made a substantial investment in Dow Chemical in the form of a convertible bond with a $42 conversion price. It would seem that the current drop in oil price would benefit Dow Chemical immensely, yet Dow stock has not risen, and still sports a whopping 5%+ dividend yield. It seems to be a steal at this price. Am I missing something?

Good News For Income Investors

sanserve — Wed, 06 Aug 2008 12:06:19 -0400

Good News For Income Investors

Looking for good news in today's markets is like searching for the proverbial needle in a haystack. Needless to say, practically all investment grade equities and nearly all closed end funds that specialize in providing regular recurring monthly income have been reduced in market value by this prolonged correction. The quake has spread in all directions from its financial epicenter, and the mounting doom and gloom has taken its toll on even the most rational investment decision makers. Try to keep in mind that the purpose of income investing is the income that your portfolio produces not an increase in the securities' market values---

So here's the good news (and for anyone with a 40% or higher income asset allocation, or an income portfolio being used for living expenses), it really is very good news. Base income levels, from the beginning of the stock market correction in June '07 until mid-July '08, have barely changed at all. In fact, they have probably risen in properly asset allocated portfolios. I have examined the regular recurring monthly income distributed by 56 taxable income CEFs and 61 tax-free income CEFs, and the conclusions are pretty remarkable.

In spite of the fact that the vast majority of my favorite monthly income producers are lower in market value than I would like, the amount of income they are distributing to shareholders has not moved lower meaningfully--- even though the Federal Reserve has reduced interest rates by approximately 60% during the past twelve months. Here are the numbers: (1) 48% of the taxable-income CEFs are distributing precisely the same amount per share as they did a year ago. Fourteen issues have increased their payouts and fifteen have reduced them.

The net result is a decrease of just fourteen cents (2.5% of the total monthly payout). The average current yield on the portfolio, as of mid July '07, is 9.86% without considering any capital gains distributions. Additionally, the group is selling at market prices that reflect an average discount of nearly 11% from NAV. Is that special or what? The bonds, preferred stocks, government securities are priced 11% below their current market values.

(2) The numbers are similar with regard to the 61 tax-free income CEFs: 46% have not altered their payout over the past twelve months; eighteen have reduced their payout slightly, and 15 have increased the monthly dole. The net difference for the group over the past year is less than one cent, or a percentage change of two-tenths of one percent. Remarkable. This group is selling at an average discount from NAV of 9.1% and has a current tax-free yield of 5.51%.

(3) Of 117 individual issues, about half have produced stable income. The others have accounted for a total payout reduction of less than 15 cents--- a measly 1.7%. Why is this amount of little consequence? Two reasons really.

First of all, a properly asset-allocated income portfolio does not disburse all of the base income it receives, so there is income available to reinvest in more shares of income producing securities. This process assures a growing cash flow to calm your fear of rising prices. The other reason is a bit more hypothetical. The Fed has lowered rates significantly, a process that normally produces higher prices for income securities. Eventually, those lower interest rates (even if global pressures convince politicians to take back some of the reductions) should produce higher prices (i.e., profit taking opportunities) in these securities.

Admittedly, even if your asset allocation has been fine tuned for years, lower portfolio market values in this area make stock market valuation shrinkage feel even worse. But the value of stable cash flow becomes painfully clear for investors who misguidedly depend on capital gains for their spending money. Properly asset allocated portfolios contain enough base income generators to pay the bills. The purpose of capital gains is to produce proportionately more base income generators.

The purpose of this email is simply to bring some needed sunlight into an investment environment that is far gloomier than I think it needs to be. If you want the details, you'll have to request them personally.

Steve Selengut
http://www.sancoservices.com
http://www.kiawahgolfinvestmentseminars.com/
Professional Portfolio Management since 1979
Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

Re: Joel Greenblatt on Finding Bargain Stocks

George — Sun, 03 Aug 2008 18:44:10 -0400

Nice find on this vintage Joel Greenblatt interview. I really enjoyed reading it.

It seems silly that a study

George — Sun, 03 Aug 2008 18:03:44 -0400

It seems silly that a study was commissioned for this. Isn't it obvious that a stock portfolio would maintain a higher purchasing power than a bond portfolio.

awesome post

Dividend Growth Investor — Wed, 30 Jul 2008 15:58:00 -0400

Love the post Gannon! I was especially intrigued by the arbitrage idea. If one can make 20% annually by being and arbitrageur that would be pretty cool.. The only issue with that is that you won't be able to compund your profits over time since the size of the deals which you take from a value approach could fluctuate greatly over time..

Kimberly-Clark Corporation

budlab — Tue, 29 Jul 2008 23:44:18 -0400

Kimberly-Clark Corporation is a global health and hygiene company. The Company is engaged in the manufacturing and marketing of a range of health and hygiene products around the world. The segments of the Company include Personal Care; Consumer Tissue; K-C Professional & Other; and Health Care. During the year ended December 31, 2007, the Company acquired the remaining 50% interest in its Indonesian subsidiary, P.T.

Kimberly-Clark, KMB has a (5-year annual average) net income growth rate of 2.29 . What competitive advantages does it have? Brand, Technology, Cost of Production, Distribution Network? Are possible advantages sustainable? Does KMB have a solid mix of Product, Pricing Power, Placement, and Promotions? When buying companies or common stocks, look for understandable first-class businesses, with enduring competitive advantages, accompanied by first-class managements.

KMB has a current market price is 57.46 Using an assumed growth rate of 6 percent, the estimated Intrinsic Value is 87.11 per share from ValuePro.net, and this may or may not indicate a bargain of 30 dollars. Is it a possible Value Trap? If the growth assumptions used in estimating the Intrinsic Value are accurate and sustainable, this may or may not indicate a price-to-value ratio of .66 , and a possible margin of safety of 34 percent.

The current price/earnings ratio = 13.5
It's current return on capital = 14.41
Using a debt to equity ratio of 0, Kimberly-Clark shows a current return on equity = 32.2

Some industries have higher ROE because they require no assets, such as consulting firms. Other industries require large infrastructure builds before they generate a penny of profit, such as oil refiners. Generally, capital-intensive businesses have higher barriers to entry, which limit competition. But, high-ROE firms with small asset bases have lower barriers to entry. Thus, such firms face more business risk because competitors can replicate their success without having to obtain much outside funding. Growth benefits investors only when the business in point can invest at incremental returns that are enticing; only when each dollar used to finance the growth creates over a dollar of long-term market value. In the case of a low-return business requiring incremental funds, growth hurts the investor. The wonderful companies sustain a competitive advantage, produce free cash flow, and use debt wisely.

Does Kimberly-Clark make for an intelligent investment or speculation today? Time is said to be the friend of the wonderful company and the enemy of the mediocre one. Before making an investment decision, seek understanding about the company, its products, and its sustainable competitive advantages over competitors. Next, look for able and trustworthy managers who are focused more on value than just growth. Finally ask: Is there a bargain relative to its intrinsic value per share today? Great investment opportunities come around when excellent companies are surrounded by unusual circumstances that cause the stock to be misapraised. In terms of Opportunity Cost, is KMB the best place to invest our money today? What about growth in Free Cash Flow?

Excerpts, comments, and news items: http://finance.yahoo.com/q/h?s=KMB

As always, I appreciate hearing your views about a company's competitive position and brands.

Bud Labitan
www.frips.com