Tag Archives: Business

SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS

Posted on by under Simple is Better

We have seen in the previous simple is better to issue regarding profit and loss account in Issue-8, balance sheet in Issue-9, Relationship between balance sheet and profit & loss account in Issue-10, and Cash flow statement in issue-11. Analysis of balance sheet is essential for a better understanding of the financial strength of the company. Balance sheet majorly focuses on the sources from where we have brought the fund and at where we have deployed that fund.

Equity and liability side shows us a source of funds and assets side show us an application of the funds which we have brought.

We have to check in detail that does fund get proper utilization which company has to bring or not. For proper understanding, we need to prepare and analysis fund flow statement. Using fund flow analysis, we can come to that fund is effectively utilized by the management or not. This analysis also helps us to know where the fund is going and from where the fund is coming to the business. Does fund utilize to the wrong places or does fund brings from the sources which can be not favorable for the owners of the company?

For Detail Issue, Click here —> SIMPLE IS BETTER – ISSUE -12 – FUND FLOW ANALYSIS

WARREN BUFFETT’S LETTER – 1997 – 1998

Posted on by under Bibliophile

Warren Buffett’s Letter 1997

We need to wait for the opportunity which falls under our Circle of Competence and we are comfortable with it, rather catch each opportunity.

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We do not have to try to capture each and every single opportunity available rather we should focus on the opportunity which falls under our Circle of Competence and our philosophy. Till the time, we need to wait for the appropriate opportunity. Those who try to capture every opportunity, they do not get a better investment result.

As we have discussed investment into the cyclical industries in one of the articles of the same series (WARREN BUFFETT’S LETTER – 1987), we further get insights from Mr. Buffett –

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When higher the supply of a particular commodity then prices of that particular commodity starts falling and vice-versa with the lower supply of the commodity. We should build a position into commodity companies during an excess supply of a particular commodity and we get insights for dry out excess supply.

Repurchase of Shares

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We have seen in the current market fall that many people lose their investment, many have made an investment by bringing borrowing. But those who are careful and defensive investors, those get an opportunity to acquire position into the businesses at an attractive valuation. Many of the investors, I know who was holding a good liquidity position in their portfolio. They got saved from market fall. I also have experienced similar because of having good liquidity positions into my portfolio.

Acquisitions

Berkshire has made an acquisition into Star Furniture and International Dairy Queen (Company has a 5792 dairy stores in 23 countries)

Warren Buffett’s Letter 1998

When the company spends any money than Mr. Buffett always analyze that whether company able to create more than one dollar for anyone dollar spend or not. If the company can able to create more than one dollar for every dollar spend then they are happy to spend money. If the company is incurring a capital expenditure and consistently company is not able to earn higher returns than the company is facing capital allocation problem. We do not have to check it for 1, 2 or 3 years but we need to check it for a longer horizon.

Indian Company examples –

One of the textile machinery manufacturing company –

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One of the tyres manufacturing company –

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One of the largest IT Company –

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Berkshire help to the CEOs of companies in which they have made an investment –

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They also focus on the long-term benefits from the business rather focus on the shorter term perspective. Additionally, Mr. Buffett and Mr. Charlie provide an environment to the CEOs where CEOs can show their talent.

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When CEOs does not have such kind of pressure and time freedom then they can able to perform well with the value creation among the business. Unnecessary and excess of meetings also reduces the performance. Also, those who do not have a pressure, get the freedom to work then they will produce a better result.

General Re

Berkshire has made a 100% ownership acquisition of General Re which is operated into the reinsurance business. The company is the largest U.S. property-casualty reinsurer, the company also owns 82% of the oldest reinsurance company in the world, Cologne Re. The two companies together reinsure all lines of insurance and operate in 124 countries.

Warren Buffett’s Letters 1957 – 2012

BIBLIOPHILE THE MOST IMPORTANT THING BY HOWARD MARKS

Posted on by under Bibliophile, E-BOOK

One of the books which have influenced me and my investment journey is “The Most Important Thing by Howard Marks”. This book teaches us the most important thing which we need to develop for becoming a wise investor.

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“The Most Important Thing” has many concepts which can help us to our investment journey. I have posted articles on the book. Now, I have compiled different articles into the one file for the ease of reading.

For, All in One Article click – BIBLIOPHILE THE MOST IMPORTANT THING BY HOWARD MARKS

WARREN BUFFETT’S LETTER – 1987

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WB Letter 1987

Mr.Buffett indicates the behavior of most of the investors and which should be avoided.

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Companies which can perform well and earned 20% above return on equity, all those companies have also performed well into stock-market in terms of stock prices. But such companies are few and we need to identify those and sit tight with holding those companies. Companies which have a good earning power then those companies do not require the debt.

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Mr.Buffett indicated that they do not cut down budget as the profit of the company falls. He has always focused on the employees and their welfare. We have seen that the Textile division of the company remains to continue for the longer period only due to largest employees’ works at the company.

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Whenever the shortage of a particular commodity arises then prices of particular commodity start rising and commodity companies start getting benefits of price raised.

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We should enter into the commodity companies when there is an excess supply and price of the particular commodity is traded lower which having a lower profitability, lower return ratio, such lower prices bring bankruptcy to weak companies etc. and should try to exit when shortage of supply and price of the particular commodity is traded on a higher side. But generally, we forget it and enter while the financial matrix of the commodity companies already improved which creates wealth destruction.

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Major mistakes made by an investor in the cyclical company is that they choose to invest when commodity prices are at higher level, return ratio improves well, profitability margin improves, etc. We should try to avoid such mistake.

Additionally, Mr.Buffett explained the philosophy of Ben Graham to see a market. Ben Graham quote market as Mr.Market and price moment as the mood of Mr.Market.

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Mr.Buffett has made a point regarding when he will ready to sell his existing security in which he has made an investment. These points can be used as a checklist for selling decision of our investment.

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People have misunderstood saying of Mr.Buffett and they keep on believing that Mr.Buffett never sell his investment and keep on holding it forever. But in reality, it is fact. He is also ready to sell securities when the above-mentioned criterion matched with his investment and he holds till the above-mentioned criterion does not match.

Warren Buffett’s Letters 1957 – 2012