Let's Talk About Warren Buffet

Just give me some time to finish this book and I will kick it off. (Bank work no allow me read at my normal pace )
Meanwhile Egoldman and others that have read books on him can specify the methods outlined in those books so that we can analyse them. Please concentrate on how he selects the companies he invests in , his outlook to investment and How he assesses their performance, etc.
I don't want us to talk about his personal life as that would not contribute to our objective.

Nice one Mr. F

@ckenneths: Dangote Sugar, Salt, and Dunlop in the tyre division (for example)

Who says michellin is staging a comeback.
They have shut down their factory

@Egoldman & Frank: what do you say about the salt, do you think dangote salt has serious competition?

With the way NAFDAC is canvassing the use of iodized salt, I think people are beginning to pay attention to the kind of salt they consume. And don't forget that the Annapurna (salt) is manufactired by Dangote.

Ok, let's use you and I for example; how many brands of iodized salt can you readily name?

Buffett established Buffett Associates, Ltd., his first investment partnership, in 1956. It was financed by $105,000 from Buffett, the general partner, and $105,000 from seven limited partners consisting of Buffett's family and friends.

Buffett created several additional partnerships which were later consolidated as Buffett Partnership Limited. He ran the partnerships out of his bedroom, adhering closely to Graham's investment approach and compensation structure. These investments made in excess of 30% compounded annually between 1956 to 1969, in a market where 7% to 11% was the norm.

Buffett employed a three-pronged approach:

Generals: undervalued securities that possess margin of safety and meet expected return-to-risk characteristics[6]
Arbitrages: company events that are not related to broader market changes, such as mergers and acquisitions, liquidation, etc.
Controls: build sizeable holdings, ally with other shareholders or employ proxies to effect changes in companies
In 1962 Buffett Partnerships began purchasing shares of Berkshire Hathaway, a large manufacturing company in the declining textile industry that was selling for less than its working capital. In 1969, Buffett would dissolve all his partnerships to focus on running Berkshire Hathaway. At the time, Charlie Munger, Berkshire's current Vice Chairman, remarked that purchasing the company was a mistake, due to the failure of the textile industry. Berkshire, however, became one of the largest holding companies in the world, as Buffett redirected the company's excess cash to acquire private businesses and stocks of public companies. At the core of his strategy were insurance companies, due to the large cash reserves they must keep on hand to pay out future claims. Essentially, the insurer does not own the reserve, but may invest it and keep any proceeds.

Under Munger's influence, Buffett's investment approach moved away from a strict adherence to Graham's principles, and he began to focus on high-quality businesses with enduring competitive advantages. He described such advantages as a "moat" that kept rivals at a safe distance, as opposed to commodity businesses, which sell undifferentiated products and face direct competition. A classic example of a wide-moat company is Coca-Cola, because consumers are willing to pay more for a Coke than for a generic beverage with a similar taste. On the other hand, salt is considered a commodity product because consumers generally have no preferences for one brand of salt over another.

Investment in wide-moat businesses has become a hallmark of Berkshire Hathaway, particularly when buying whole companies rather than public stocks. As a result, it now owns a large number of businesses which are dominant players in their respective industries, specialize in various niche markets, or possess other unique characteristics to separate them from their competitors.

The Essays of Warren Buffett: Lessons for Corporate America Summary
The essays comprising this book, selected mostly from Warren Buffett’s letters to the shareholders of Berkshire, provide a guide to fundamental business analysis and an approach to wise investing. A central point that Buffett makes is that good investors, rather than focusing on the market, should identify good businesses, attempt to buy them at good prices, and hold them for the long term. Buffett has done just this in his management of Berkshire.

Disagreeing with the dogma popular in recent decades known as modern finance theory that holds that market prices efficiently express business values, Buffett instead argues that the market sets prices in a manic-depressive manner. A good investor learns to insulate himself from market emotions and to make a distinction between market price and intrinsic value. Such an investor will not bothered by such nonsense as a high “beta”—a measure of volatility academic theorists use as a risk factor and warning—but will understand that volatility provides investment opportunities and will use market drops to make good purchases. Eventually, the market will confirm his good sense.

As the CEO of Berkshire, originally a textile company, Buffett has succeeded hugely by purchasing all of or significant portions of good businesses and then left talented managers alone to operate them. His business-centered, rather than market-oriented, approach has involved supporting the development over time of these companies. Buffett eschews the popular notion in investing of diversification, contending rather that an investor should focus on what he can understand.

Furthermore, a good investor needs to make decisions by regarding a business opportunity on its own terms and in its specific environment. These principles, he demonstrates, were unfortunately forgotten in the mania of the 1980s and 1990s during which “junk” and zero-coupon bonds became popular investment modes and stock prices got out of sync with values, bringing financial disaster for many. The merger movements of these years especially damaged shareholders in the acquiring companies because the mergers often involved undervalued stock of these companies being exchanged for overvalued stock of the acquired companies.

For Buffett, acquisitions provide an example of but one of many ways in which the actions of managements have conflicted with shareholder interests. He demonstrates in these essays that as a CEO he sees an identity between his interests and those of Berkshire shareholders. While most company heads would wish their stock to be sold at the highest possible price, Buffett wants the shares of Berkshire to maintain a close relationship with their intrinsic values; in this way shareholders should receive profits that represent company results over the period of their holdings. Furthermore, under Buffett’s leadership Berkshire avoided stock splits, which he considers mainly as marketing tools.

In the last chapters of the book, Buffett explores both the value and limitations of corporate accounting and laments how pressures to report a profit have damaged accounting integrity. The focus by companies on their stock prices—antagonistic to Buffett’s approach—has produced target prices that have encouraged accounting manipulations. The argument of many executives that stock options should not be considered a cost represents another pressure tending to corrupt honest accounting. As a way to allow a more effective evaluation of a business’s finances, Buffett offers the concept of “look-through earnings” that will credit both retained and distributed earnings. Above all, these essays provide good examples showing there is no substitute for honest, clear, and full disclosure in business.

Buffett's criteria for "wonderful businesses" include, among others, the following:

    * They have a good return on capital without a lot of debt.
    * They are understandable.
    * They see their profits in cash flow.
    * They have strong franchises and, therefore, freedom to price.
    * They don't take a genius to run.
    * Their earnings are predictable.
    * The management is owner-oriented.

He has given his CEO’s only two rules. Rule number 1: do not lose any of your share holder’s money. Rule number 2: Do not forget rule number 1.

@ Franiriri
If the comments of some of us will not let you itemise his methods as applicable to nigerianstheb please send them to my email so i cud benefit from them as i'm yet to get hold of his books.Also i will like to know how many companies in the NSE are currently undervalued
This also applies to everyother person with something to share.
Your response will be greatly apprecaited.

enurayce@yahoo.com
waiting to hearing from you all

well put

Cashflow means the infow and outlow of cash from a business. All cash outfows should ultimately be represented by inflows into the business from sales.
Profit does not translate to cash flow when some of the sales that generated that profit were for credit, ie the customers did not pay cash, as long as those debts remain uncollected the reported profit figure will be less than the corresponding cash flow.

On Question:
 1. Dangote Sugar is an example of what Buffet would call a consumer monopoly. It is a monopolist in the Sugar market and enjoys good business economics given its status as a pioneer company and the tax benefits associated with  it
2.  The earnings are on an upward trend even though the company has started making provision for tax.
3. the company is free to adjust prices for inflation.
4. The demand for sugar is predictable and therefore his earnings are predictable

I think both companies have what Warren would consider Consumer Monopoly. Their products are definitely household brand names which any retailer would have to carry fo them to remain in business.   With the prosposed entry by Obajana cement into the market a certain segment of flour mills business , albeit a very lucrative one,will be further threatened.