WARREN BUFFETT’S LETTER – 2013 – 2014

Posted on December 29, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2013

Mr.Buffett has mentioned that they have made a repurchase of Berkshire shares during the year 2012 which enhance intrinsic value per share and that provides a benefit to the shareholders who are continuing with the company.

Examples of Buyback – SIMPLE IS BETTER – ISSUE -13 – BUYBACK

Mr.Buffett on the Heinz investment –

I learn investment to fixed income instrument from my Guru. ZEE Entertainment has issued preference shares to the equity shareholder of the company with the condition to pay 6% interest payment and redemption of principle starts from FY18.

Preference share was available at Re.0.80 and face value of that is Re.1.00. If we consider total cash inflow to us in form of interest payment + principle repayment then we can able to earn ~10.75% IRR for the FY14-22. Here, the present value of all future cash inflow @ 10.75% is Re.0.80 which is also higher than our purchase price which indicates safety also.

NTPC has issued debenture to the equity shareholder of the company as a bonus with the condition to pay 8.49% interest payment and redemption of principle starts from FY23.

Debenture was given as a bonus and ex-date of debenture was 20^th March 2018. If NTPC was purchased on 18^th March 2015 then price of NTPC was ~Rs.153.74 (with brokerage + other charges) and if we sell NTPC on Ex-date then price of NTPC was ~Rs.144.70 (with brokerage + other charges) so that cost for getting bonus was Rs.9.05 and the face value of that is Rs.12.50. If we consider total cash inflow to us in form of interest payment + principle repayment then we can able to earn ~14.02% IRR for the FY15-25. Here, the present value of all future cash inflow @ 10.75% is Rs.10.90 which is also higher than our purchase price which indicates safety also.

In both the cases, the interest rate on risk-free investment was ~8-9% and we are getting higher return compared to it.

Mr. Buffett on investing –

During, the year 1973 to 1981, farm prices had a bubble situation. When the bubble burst, then leverage farmer and lender both had a troublesome time. And after that Mr. Buffett had made an investment into the farm.

Mr. Buffett also made an investment into the other commercial property.

Mr. Buffett has explained investing lessons –

In our investment to stocks, we are get affected with the stock price fluctuation and listen to the pundits for their comments. Due to such habits, we cannot sit quietly with our investment and we end up with little or no return. Mr. Charlie and Mr. Buffett always made an investment as they are buying an entire business. They check whether they can estimate future five years of earnings or not. If they can estimate earnings then check whether available at a reasonable price or not. If either of the condition does not match then they move on to the other prospects.

For non-professional investors, they can make an investment into the index fund and accumulate it over a period of time.

Warren Buffett’s Letter 2014

Mr. Buffett mentioned Investors behavior which affects the investment return –

Unexpected behavior from Stanton in the year 1964 –

Why Mr. Buffett has bought Berkshire Hathway at the year 1962 –

Example of Indian companies

One of the air-cooler manufacturing company of India was available below the book in the year 2009

One of the two-wheelers and commercial vehicle manufacturing company was available below book value in the year 2008 and below cash in the year 2008 and 2009

Charlie Straightens Me Out

The initial period of years, Mr. Buffett engage in the buying bargains (cigar-butt) strategy which he learns from Mr. Graham. The major weakness of the concept mentioned by Mr. Buffett is “Cigar-butt investing was scalable only to a point. With large sums, it would never work well.”

Here, I have also made a blunder but luck by chance got saved.

Mr.Munger has an impact on Mr. Buffett which has helped to Mr. Buffett to evolve cigar butt strategy to wonderful businesses at favorable prices. Many times, Mr. Buffett and Mr.Munger do not get agree but they never ever have made any arguments. When such scenario arises then Mr. Charlie end up a conversation with saying “Warren, think it over and you’ll agree with me because you’re smart and I’m right.” Mr. Buffett has accepted that transformation was not easy but he has done it.

Warren Buffett’s Letters

WARREN BUFFETT’S LETTER – 2008 – 2010

Posted on December 8, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2008

WB 2008 02

When there is a pessimism into the market then we get an opportunity to buy a good business at a discounted value. But during a euphoric time period, good businesses are available at a sky-high value.

Indian companies examples

One of the wealth creator IT Company during an IT bubble

Infy INFY Chart

One of the wealth creator IT Company during an IT bubble

Wipro

One of the two-wheelers and commercial vehicle manufacturing company was available at a discounted value during pessimism of the year 2008

Eicher Eicher Chart

Warren Buffett’s Letter 2009

What is avoided by Mr. Buffett and Mr.Munger —

WB 2009 01 WB 2009 02 WB 2009 03 WB 2009 04

Mr. Buffett on derivatives –

WB 2009 05

Warren Buffett’s Letter 2010

WB 2010 01

One of the infrastructure company

RInf

One of the electric motors, generators, transformers manufacturing company

Siemens 01 Siemens 02

Mr. Buffett on debt-

WB 2010 02

Example – SIMPLE IS BETTER – ISSUE -4 – Mr. EMI V/S Mr. SIP

Mr. Buffett on crowd mentality-

WB 2010 03

Mr. Buffett on Repurchase of shares –

WB 2010 04

One of the Pharma Company of India which has sold one of the business segment into the FY2011 and company becomes a Cash bargain. The company has done a buyback at that time.

PEL 01 PEL 02

The company has a total Cash balance of Rs.1770.28 crore + Upcoming cash due to the sale of the business worth of Rs.7136.00 crore = Rs.8906.28 crore. And the company was available at MCap of ~Rs.7830 crore. Entire continuing business was not given valued by the market.

One of the two-wheelers and commercial vehicle manufacturing company has done a buyback in the year 2009

EM 01

The company has a total Cash balance of Rs.1260.05 crore. And the company was available at MCap of ~Rs.608 crore. Entire continuing business was not given valued by the market.

One of the metal company in the year 2016 has come up with the buyback. In the year 2016, the price of iron ore was traded lower.

Iron ore NMDC 01 NMDC 02

Company had a cash balance of Rs.14806 crore in FY16 and PAT of Rs.2517 crore. Company was available at MCap of ~Rs.28440 crore. Entire continuing business ex-cash was available at 5.94x of PAT (MCap Rs.28440 crore – Cash Rs.14806 crore + debt Rs.1497 crore = Rs.15130.86 crore; EV Rs.15130.86 crore / PAT Rs.2517 crore = 5.94x).

Warren Buffett’s Letters 1957 – 2012

WARREN BUFFETT’S LETTER – 2007

Posted on December 1, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2007

Businesses – The Great, the Good and the Gruesome

One of the concepts which are essential to understanding making an investment and value to the business.

WB 2007 01

Many of us focus on the story builds for a particular business and make a hope investing rather than focusing on the actual reality. I always quote- “Stories are for kids, not for investors.” We need to focus on the ability of the company for creating access return on invested capital (Access return means higher than the cost of capital) and that should be sustainable for a longer period of time.

WB 2007 02

Mr.Buffett has always put a huge emphasis on the business which has a moat and earns consistently higher return compared to the cost of capital.

WB 2007 03

See’s Candy as an example of Great business –

WB 2007 04

Indian Companies example for Great business

One of the two-wheeler and commercial vehicle manufacturing company

Eicher 01

One of the FMCG Company

HUL 01 HUL 02 HUL 03 HUL 04

One of the Assets Management Company

HDFC AMC 01 HDFC AMC 02 HDFC AMC 03 HDFC AMC 04

Here, the company does not require to make a huge investment to earn more money. Float itself take care of the major requirement of the invested capital. Many a time float covers working capital as well as fixed assets requirement. Due to such nature, Profit earns from operation majorly gets to the investment and cash so that investment and cash to the company is compound which also provides benefits to the business.

Good Business –

WB 2007 05

Good business which does not have float available with the business or least float available with business, company has to invest money which they earn from profit, and sometimes little external funding also requires.

Indian Companies example for Good business

One of the company from tableware industry

La Opala 01 La Opala 02 La Opala 03 La Opala 04

One of the pharma company

Ajanta Pharma 01 Ajanta Pharma 02 Ajanta Pharma 03 Ajanta Pharma 04

One of the Tea manufacturing company

Goodricke 01 Goodricke 02 Goodricke 03 Goodricke 04

Gruesome Business –

A gruesome business which does not have float available with the business, company has to invest money which they earn from profit, and also external funding requires to earn little profitability, sustaining the business or further growth. Here, huge capital is required to run a business.

Mr.Buffett has quoted an example of U.S. Air, He acquired a preference share of the company in the year 1989 and sold at the year 1998 with a huge gain. After that company gone for bankruptcy for the twice. The airline business is a cyclical business, huge dependence on the prices of crude oil and during the year 1998-99, crude oil prices were at the bottom (near to the price at the year 1988). So that profitability gets improved for the year 1998-99 and after that crude has never come back to those price level, which has affected to the profitability of the company.

Indian Companies example for gruesome business

One of the telecom company of India

Idea 01 Idea 02 Idea 03

One of the logistics company

Snowman 01 Snowman 02 Snowman 03

One of the steel manufacturing company

Jindal Steel 01 Jindal Steel 02 Jindal Steel 03

WB 2007 07

We have to use a different valuation matrix for each category of the businesses and cannot provide a similar valuation to each category of businesses. We cannot give the same value to pour water and to dirty water. Yes, it is true that we can make process and pour dirty water but for that, we need to bring more capital and many a times, few qualities of water will be lost during the process of dirty water to pour water.

WB 2007 08

We have to sell out our position into the cyclical business at the proper time or else we stuck with the business.

WB 2007 09

Indian company’s example

For how to enter to the cyclical businesses, kindly visit – WARREN BUFFETT’S LETTER – 1987

Now, for taking an exit from cyclical businesses – When margin approaching towards a previous high margin, we should start to exit from a cyclical business. We need to track the price of the commodities as well as quarterly operating margins.

Sugar companies

Balram Exit Balram Exit 01

EID Exit 01 EID Exit 02

Cement Company

JK Cement Exit 01 JK Cement Exit 02

Warren Buffett’s Letters 1957 – 2012

WARREN BUFFETT’S LETTER – 2004 – 2006

Posted on November 25, 2018 by Jimit Zaveri under Bibliophile

Warren Buffett’s Letter 2004

Mr.Buffett has explained why many of the investors do not able to create wealth by investing into the equities.

WB 2004 01

When we trade extensively then we incurred an additional cost which reduces our return. Also, many of us follow tips of others and rely on others which also reduces investment return. Many of people start investing when market continuously moving into upward direction with the fear of losing an opportunity to earn and get exit from the market when the market starts moving downward with the fear of losing investment. Rather we should increase our investment when the market is continuously moving downward.

Mr.Buffett has been explained that one of the ways to survive into the commodity-like business is to become a low-cost producer. Commodity business generally does not have pricing power and prices of a particular commodity are decided based on the demand & supply of a particular commodity so that they have to focus on the costs.

WB 2004 02

Warren Buffett’s Letter 2005

Investment + Cash per share at Berkshire Hathaway –

WB 2005 01

Per share value of non-insurance business –

WB 2005 02

During January – 2006, the price of a share of Berkshire Hathway – A was traded at $90,000.

Mr.Buffett’s thought on Moat –

WB 2005 03

The strong moat can result in a strong flow of float. If the company having a moat then the company has the ability to raise prices, getting the float, higher return ratios, raising market shares, etc.

Indian Companies Examples

One of the two-wheelers and commercial vehicle manufacturing company of India

One of the four-wheeler manufacturing company of India

Maruti

We can see that float is also getting compound over a period of time which benefits to the company to survive for the long-term and to create wealth.

Why investors are not able to make money through the company can earn well –

WB 2005 04

20131210-image

Warren Buffett’s Letter 2006

Warren Buffett answer for his currency derivatives position –

WB 2006 01

WB 2006 02

We need to focus on avoiding mistakes which can spoil out our wealth. If we focus on avoiding mistakes then half of the battle, we won.

Mr.Buffett on Walter Schloss –

WB 2006 03

WB 2006 04

Mr.Buffett on people who clone others’ portfolio –

WB 2006 05

Mr.Walter Schloss is one of the investors who have an influence on my investment decisions. I keep his advice always with me. (Published at Safal Niveshak –

https://1icz9g2sdfe31jz0lglwdu48-wpengine.netdna-ssl.com/wp-content/uploads/2015/01/Walter-Schloss-16-Rules-to-Make-Money-in-Stock-Market.pdf )

Warren Buffett’s Letters 1957 – 2012