Atul Karmarkar.Com» Value Investing

Graham’s strategy still holds good in these troubled times

Atul Karmarkar — Thu, 15 Jan 2009 01:06:15 +0000

There has often been a lot of debate on whether Benjamin Graham’s strategy, developed over 50 years ago, still holds good. A couple of years ago, some Indian companies that made the cut were identified.

In his book “The Intelligent Investor“, Graham found that one strategy that worked well was to buy companies that are sold at below its net current asset value, which he termed bargains. He wrote:

“The idea here was to acquire as many issues as possible at a cost for each of less than their book value in terms of net-current-assets alone – i.e., giving no value to the plant account and other assets. Our purchases were made typically at two-thirds or less of such stripped-down asset value. In most years we carried a wide diversification here – at least 100 different issues.”

In an experiment which was carried out from a couple of months ago, users at GuruFocus created portfolios based on Graham’s Net Current Asset Value Screener to find bargain buys, which would conform to these norms;

The stock prices are less than the net current asset value of the companies
During the past 12 months, the companies generated postive operating cashflow
The company has no meaningful debt compared to its cash position.

In order to test this screener, GuruFocus created a portfolio on November 24, 2008 with the top Ben Graham bargains, and guess what?

The portfolio returned an amazing return of 40% in just 7 weeks (anualized returns of 1098% over a year). Seven weeks is of course not an apt period to test this hypothesis, but the results and the stocks selected were pretty interesting studies in themselves. Head over to have a closer look.

Warren Buffett is Morningstar's CEO of 2008

Atul Karmarkar — Sat, 10 Jan 2009 10:58:13 +0000

As a tumultous year ends, Morningstar has decided to stick their neck out when naming Warren Buffett as CEO of the year – 2008. While it is difficult to disagree with this choice, the year gone by has been an extremely challenging one for financial markets worldwide, and probably been the closest that people have actually come close to questioning if the “Oracle of Omaha” had finally begun to slip.

The reason for such perceptions are well known; mainly his exposure to derivatives (which he refers to as financial weapons of mass destruction), his large stakes in GE and Goldman Sachs and his call to buy stocks, not to mention the performance of Berkshire Hathaway in 2008.

Paul Larson of Morningstar writes,

Beyond creating a company that treats common shareholders with the utmost fairness and respect, one needs only to look at the long-term value created at Berkshire Hathaway to see why Buffett deserves the award. Since taking the helm of the sleepy textile business 44 years ago and turning it into arguably the strongest conglomerate on the planet, Buffett and his managers have grown the book value per A share from $19 to just over $77,500, as of Sept. 30. This translates to a 20.7% annualized increase in book value since 1965, versus a mere 9.6% annualized return in the S&P 500 (including dividends) over the same time period.

He also goes on to say, “While many corporate managers may say they are positive and careful stewards of owner capital, few overtly view common shareholders for what they really are–partners. For being a successful managing partner, both in principle as well as in practice, Warren Buffett is our 2008 CEO of the year.“

Berkshire Hathaway Q3 profit down 77% to $1.06 Billion

Atul Karmarkar — Fri, 07 Nov 2008 15:33:04 +0000

Berkshire Hathaway Inc. announced a drop in their Q3 profit, the fourth consecutive one, on diminishing returns at insurance businesses and investment losses.

Net income fell 77% to $1.06 billion, or $682 per Class A share, from $4.55 billion, or $2,942 in the same period last year. Operating earnings per share fell to $1,335 from $1,655 a share in the three-month period a year ago, while revenue declined 6.7% to $27.93 billion. Investment income at Berkshire’s insurance units, including stock dividends, fell 12 percent to $809 million.

Some of the losses from derivatives ($1.26 billion) came about due to accounting rules related to calls Buffett made on four stock indices, including the S&P 500 and three foreign ones. If these indices fall below contractually agreed-upon levels at expiration dates beginning in 2019, Berkshire will lose the bets, worth $ 4.85 billion. This is inspite of the fact that Buffett has called derivatives ‘financial weapons of mass destruction.’

Buffett has committed around $28 billion this year to acquire companies, finance buyouts and purchase securities as prices fall and competitors are hobbled by limited access to credit, which is in line with his stated intention of buying US stocks.

In the wake of the financial turmoil that unfolded a couple of months ago, he picked up substantial stakes totalling $8 billion (Goldman Sachs - $5 billion, and GE – $3 billion). Earlier this year, in April, he helped Mars buy out Wrigley, and lent $3 billion to Dow Chemicals to help fund their acquisition of Rohm & Haas Co. in July.

As on September 30, Berkshire said its stock portfolio was worth $76 billion, which represents an increase of 9.4% over a three month period.

Buy stocks. Now. – Warren Buffett

Atul Karmarkar — Fri, 17 Oct 2008 16:52:00 +0000

If there was a clear signal or a call to action in these troubled times facing the financial world, that call just came from Warren Buffett.

In an article that appeared in the New York Times, titled "Buy American. I Am.", Buffett has once again outlined why equity is the best bet over the long term. He is also putting his money where his mouth is, not just on behalf of Berkshire Hathaway, but from his personal account as well, which till now only held US Government bonds.

He is also clear that he has no idea where the markets will be a month from now, or even a year, but believes that eventually it will move higher, and quotes several historical examples as well.

He also dishes out advice to those who invest in a knee-jerk manner, by using a quote from ice hockey champion Wayne Gretzky, "I skate to where the puck is going to be, not to where it has been."

Though Buffett is focussed on US stocks, there are a lot of lessons even for Indian investors. Several Indian bluechip stocks are trading at lows last seen 3-5 years ago and are now available at bargain prices. The businesses are all good, and one can make a killing by investing in such stocks, if prepared to wait out this period of pain and uncertainty, when age old financial institutions and banks are crumbling all around.

Lunch with Warren Buffett: The Mohnish Pabrai experience

Atul Karmarkar — Mon, 18 Aug 2008 01:43:08 +0000

Finally, that day had to come. After bidding for, and winning the opportunity to break bread with Warren Buffett, Mohnish Pabrai and Guy Spier got to actually do so after a year, or as Pabrai put it, three hundred and sixty two days, twenty hours and forty five minutes later.

He has described the events in the latest issue of Business Today, accompanied by pictures of both families with Buffett. There are also some unknown nuggets, mostly pertaining to Buffett’s first wife, Susan.

Pabrai also got a pat from the Master, who said the annual report of Dakshana, Pabrai’s non-profit organization, was the best he’d seen in that segment, and then, to top it all, Buffet also offered to set him up for a lunch date with Charlie Munger, for free !

Cool, huh !!

Authorized Warren Buffett biography to hit stores on Sept 29

Atul Karmarkar — Tue, 12 Aug 2008 23:50:34 +0000

Finally, the authorized biography of Warren Buffett, the billionaire Oracle of Omaha, is all set to hit bookstores on 29-Sep-08.

There are of course, numerous books on Buffett, but the difference with this one is that it is the first book written with his consent and cooperation. All of 976 pages long and published by Bantam Dell, the book is authored by former Morgan Stanley insurance analyst Alice Schroeder, with the title being, ”The Snowball: Warren Buffett and the Business of Life”. Apparently, this is courtesy a comment by Buffett: “Life is like a snowball. The really important thing is finding wet snow and a really long hill.”

They first met when Schroeder, in her capacity as analyst, covered Berkshire Hathaway Inc, and has spent countless hours with Buffett, talking about his life and career, gaining access to his memorabilia and those around him. The book was initially to be released to coincide with Berkshire’s annual shareholder meeting in May, but was delayed.

The price of the book has been set at $35, but you can The Snowball: Warren Buffett and the Business of Lifepre-order it on Amazon for $23.10. At 976 pages, it is going to be a really looooong read, but definitely one that I will be looking forward to.

A lunch with Warren Buffett is now worth $2 million

Atul Karmarkar — Sat, 28 Jun 2008 02:28:37 +0000

The winning bid on this year’s eBay auction for a lunch with Warren Buffett is $2,110,100, which is more than triple of last year’s bid. It opened on June 22 at $25,000 and closed on Friday.

The winning bidder is Zhao Danyang, general manager of Pure Heart China Growth Investment Fund. He, along with seven friends or family members can eat with Buffett at New York steakhouse Smith & Wollensky at a mutually decided date and time.

This auction has been an annual affair for nine years now, with the last six on ebay. Last year, along with partner Guy Spier, Mohnish Pabrai had bid $650,100 for a chance to break bread with Buffett. They got their chance to do so this week; Spier and wife, and Pabrai with wife and two daughters spent close to three hours with the Oracle of Omaha.

The auction benefits the Glide Foundation, which provides social services to the poor and homeless in San Francisco.

Warren Buffett becomes the world's richest man

Atul Karmarkar — Thu, 06 Mar 2008 14:48:05 +0000

After 13 long years, Bill Gates finally lost the title of the “World’s Richest Man” to his friend and bridge partner, Warren Buffett. As if that were not enough, he slipped to # 3, behind Buffett and Mexican telecom tycoon, Carlos Slim Helu, as per the latest rankings released by Forbes. There are also four Indians in the top 20 richest men.

Forbes estimated Buffett’s worth at $62 billion, Slim’s at $60 million, and Gates’ at $58 billion. Here is the list of the Top 20;

Warren Buffett
Carlos Slim Helu
William Gates III
Lakshmi Mittal
Mukesh Ambani
Anil Ambani
Ingvar Kamprad
KP Singh
Oleg Deripaska
Karl Albrecht
Li Ka-shing
Sheldon Adelson
Bernard Arnault
Lawrence Ellison
Roman Abramovich
Theo Albrecht
Liliane Bettencourt
Alexei Mordashov
Prince Alwaleed
Mikhail Fridman

Warren Buffett on the prowl

Atul Karmarkar — Sat, 04 Aug 2007 08:53:00 +0000

The crash and yo-yo swings in global stock markets seems to have roused Warren Buffett, who is on the lookout for new acquisitions as reported by ET.

“Buy when others sell, and sell when others buy” has been oft quoted and endlessly repeated but very few actually put this into practice. Berkshire Hathaway is sitting on $46 billion in cash, and would have no problem in funding Buffett’s appetite for the “right” target.

Lunch with Warren Buffett for $650,100

Atul Karmarkar — Wed, 04 Jul 2007 04:21:00 +0000

How far can $650,100 go ?

Well, a three hour power lunch with the Oracle of Omaha, Warren Buffett, for starters…

After four earlier unsuccessful attempts, Mohnish Pabrai, a California based Indian investor and hedge fund manager and his bidding partner, Guy Spier of Aquamarine Capital Management LLC finally managed to come up with the winning bid of $650,100 (Rs. 2.6 crore) in the annual charity auction on eBay.

The auction benefits the Glide Foundation, which provides social services to the poor and homeless in San Francisco. Pabrai, his wife and two daughters will accompany Spier and his wife to the Smith & Wollensky steakhouse in New York City where they will break bread with Buffett. Pabrai will pay two-thirds of the winning bid and Spier, the other third.

So who is Mohnish Pabrai ?

According to him, he is just a humble disciple of Warren Buffett. A serial entrepreneur, he exited his ventures around the time of the dot com meltdown to begin a full time occupation in value investing. He also applied to Buffett for a job, even offering to work for free, which was turned down. He launched his fund, the Pabrai Investment Fund in 1999 with $ 1 million, which has now grown to managing almost $ 600 million. Though he follows the master’s investing principles and calls himself a “shameless clone” of Buffett, he has outperformed his guru by a wide margin. Since inception, his fund has managed annualized returns of almost 30% beating Berkshire Hathway’s returns of around 20% over the same period.

He has authored a book The Dhandho Investor: The Low – Risk Value Method to High Returns in which he examines the low-risk, high-return approach to business of the Patel community from India. “Dhandho” is a Gujarati word which broadly means business or creation of wealth.

According to Pabrai, the secret to investment success lies in not confusing activity with productivity. So just like Buffett, who sometimes goes years without actually buying any stocks, Pabrai is also not too keen on an investment unless it makes enough compelling sense to buy it.

Atul Karmarkar.Com» Value Investing

Graham’s strategy still holds good in these troubled times

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