Bruce Berkowitz Conference Call

Bruce Berkowitz, from Fairholme Funds, participates in a public Q&A conference call. He gives insight into his holdings, what the future holds, and some of his theories on investing. A great call from one of the best value investors recently. It's good insight into value investing theory in these troubled time, especially because not many value investors talk about their holdings this openly.

Focus (Part 2)

(Source: markrekers.files.wordpress.com)

As a follow up to my previous post "Focus", this post is derived from a book I have recently been reading called The Snowball - Warren Buffett and the Business of Life by Alice Schroeder.

While having dinner with some very successful people, the story tells how Warren Buffett (Biography) met Bill Gates and described what is meant by "focus", their key to success.

Excerpt from The Snowball:

"Then at dinner, Bill Gates Sr. posed the question to the table: What factor did people feel was the most important in getting to where they'd gotten in life? And I (Warren) said 'Focus'. And Bill (Gates) said the same thing."

It is unclear how many people at the table (Katherine Graham, Tom Foley, Jerry Grinstein) understood "focus" as Buffett lived that word. This kind of innate focus couldn't be emulated. It meant the intensity that is the price of excellence. It meant the discipline and passionate perfectionism that made Thomas Edison the quintessential American investor, Walt Disney the king of family entertainment, and James Brown the Godfather of Soul. It meant the depth of commitment and mental independence that led Jeannette Rankin to stand alone as the only representative in Congress to vote against U.S. entry into both World Wars in the face of widespread ridicule. It meant single-minded obsession with an ideal. "Focus" meant the kind of person who could earn billions by allocation capital (referring to Buffett), yet to be baffled by a sign that said "No TP."

"TP" refers to a note on the door of a bathroom which Buffett had not understood what it meant when he saw it.

It is clear what they mean. Focus is putting all of your efforts mainly into one thing. Something that you are extremely good at, something that you have unlimited motivation for, something that you are or could be the best at in the world. Gates is undoubtedly one of the best businessmen in the world, Buffett is the best capital allocator and they both achieved these heights because of one word - Focus.

Intense focus on something will likely achieve you insurmountable results, and the above two heroes are proof of that.

Focus

Source: Photobucket.com

Focus (definition):

• concentrate: direct one's attention on something;
  

• maximum clarity or distinctness of an idea; "the controversy brought clearly into focus an important difference of opinion"

The Most Important Ingredient to Success

When asked what the most important thing that led to their success, Warren Buffett and Bill Gates replied "focus".

I have always been told to do well on everything and if I become really good at something I would be successful. I have been told to find something I have a relentless interest for and success will eventually follow. I think the secret to success breaks down to "focus". To be the best at something in the world, you have to have the physical and mental capacity first. If you want to be the best business man/woman, you aren't born with the knowledge of business. You may have the attributes to be a great business person as you grow up, but the knowledge has to be learned. I feel the more you learn on the topic the better off you will be.

My goal is to be a great investor and businessman. How do I get there? I have determined that I have the physical and mental capacity to be one of the best. Step 1, complete. Step 2, obtain and gain knowledge in those areas. My knowledge comes from experiences in investing and business (both success and failures), talking to others and getting their opinions, building scenarios and possible outcomes, joining clubs and associations, and reading on the subject (books, blogs, audiobooks, podcasts, internet sites, seminars, studying for certifications, news stories, and following the advice of others who are great in the field or fields).

Never stop learning about your topic, to be the best you have to have the best, most accurate information from the past and present. The better your information, the better assessments you can make now and for the future. Focus on what you want to be and how you are going to get there and what you have to do. Constantly focus on the topic and dream about where you will be in the future. Don't get lazy, put time, effort and focus into it. Think about what you are doing and build a scenario on what someone else in the world is doing and compete against them. If you are not thinking about it at least once a day or at minimum most days out of the week, you probably will never be the best, because chances are someone else is thinking about it on a daily basis and acting on how to be the best.

The Stock Market is the Worst in 80 Years

Source: Cleveland Blog

The stock market is going crazy. What am I doing about it? Standing strong and adding to my positions.

From CrossingWallStreet.com - The Worst Decade since the 1930s.

Bespoke points out that this decade has been one of the worst in history for stock returns:

Unless we get a major rally to close out the year (15%+), this will only be the third time since 1900 that the Dow Jones posted negative returns in the first nine years of a decade (excluding dividends).

I am adding to some of my positions and have put about 20% more money in the market, than I had previously, in the last few weeks. The US is in trouble, banks are failing, there is not very much credit available. People are scared and pulling their money out.

A bear market doesn't come around very often and this has been a big one so far. Big enough to be compared to the crash in the 1930s. I keep buying, my emotions are turned off and I am buying great companies on the cheap. The stocks I own are pretty risky but have solid balance sheets. They can hold on for a while and if and when we come out of this I hope to make a bundle. I am still young and can afford to lose some if it doesn't work out. I am not financing my investments by debt or by betting payments that I owe and have a cash reserve to cover me for a while in case things get really bad.

"Be greedy when others are fearful and be fearful when others are greedy". - W. Buffett

10 Ways to Get Rich by Warren Buffett

(Source: BusinessWeek.com)

In Parade Magazine, Warren Buffett listed ten ways to get rich.  Here is the list and my comments are below.

1. Reinvest your profits.
2. Be willing to be different. 
   
3. Never suck your thumb.
   
4. Spell out the deal before you start.
   
5. Watch small expenses.
   
6. Limit what you borrow. 
   
7. Be persistant.
   
8. Know when to quit.
   
9. Assess the risks.
   
10. Know what success really means. 
    

Reinvest your profits.

• If you make a little money, refrain from spending it on unnecessary things.  Instead, reinvest your profits in the asset or other investments.  Typically the more you invest, the better off you will be.  Compounding interest as quoted by Albert Einstein is "the most powerful force in the universe."

Be willing to be different. 

• Don't always follow the crowd, be a contrarian.  This is where you will make your money.  Place bets on what the crowd doesn't like and the calculate the risks in doing so.  If the benefits outweigh the risks and you are correct in your assumptions, you will make a bundle when the crowd starts to follow the idea again.

Never suck your thumb.

• Buffett also calls this "unnecessary sitting".  A form of procrastination, determine what you need to do, and DO IT.  Action and execcution are really all that matter.  If the task is large, break it up into pieces and set deadlines to get those pieces done.  It will seem like a much smaller task once you break it up.

Spell out the deal before you start.

• The ability to see scenarios of what can happen and planning on your responses is the best way to get what you want out of negotiations.  Always be prepared.  Understand what the other party wants from the deal and both sides can win.

Watch small expenses.

• Sometimes we lost sight of the little things in life, and in this example are the small expenses.  In general, the more we make, the more we lose track of the little expenses because we feel they don't matter.  Managing your little expenses can save you a lot down the road.  This also applies to doing business.

Limit what you borrow. 

• Living on credit cards and loans will not make you rich.  It may appear to other people that you are for a short period of time until all of the debt becomes apparent.  Work on being debt-free and investing the excess.

Be persistant.

• Don't give up what you believe in and stand for.  

Know when to quit.

• Know when to walk away from a loss.  If the business is a failing business, leave emotional ties behind.  The ability to think clearly and knowing when to cut your losses is crucial to being successful.

Assess the risks.

• Crucial to Berkshire Hathaway's business, Warren has to constantly evaluate possible risks when owning companies.  Evaluate all possible scenarios so there will be no surprises.

Know what success really means. 

• Buffett doesn't measure success in dollars surprisingly.  He lives an extremely humble live and doesn't own many lavish things.  This is how Warren measures success "When you get to my age, you'll measure your success in life by how many of the people you want to have love you actually do love you. That's the ultimate test of how you've lived your life." 

Warren Buffett on Charlie Rose - May 2007

My Recent Book Readings

I have completed reading a few books over the last few months.

1. Security Analysis (Classic 1940s Edition) by Benjamin Graham and David Dodd
   
2. The 4-Hour Workweek: Escape 9-5, Live Anywhere and Join the New Rich by Timothy Ferriss
   
3. The Intelligent Investor by Benjamin Graham (my second time reading it)
   

Security Analysis (Classic 1940s Edition)
To date, Security Analysis (Classic 1940s Edition) is my most accomplished reading. This 841-page behemoth is a work that any investor would respect. Co-written by the father of value-investing, Benjamin Graham gives in-depth insight to the world of value investing. Reading this book is on par, in terms of technicality, with many of the college textbooks I have used. Written originally over 80 years ago, this book still had amazing validity in the stock market today. The basic premise of value-investing is still intact and the theory remains much the same. It's amazing the knowledge I have learned through reading it and I will definitely apply it to investing. Many great investors have followed Graham-style investing including Warren Buffett, Eddie Lampert, Monish Pabrai, among many others.

The 4-Hour Workweek: Escape 9-5, Live Anywhere and Join the New Rich - My Thoughts
Great book about outsourcing your life. Probably not relevant to many people due to the fact that Tim talks a lot about getting rid of your 9-5 job, starting a successful, non-demanding business, and traveling the world, working 4-hours a week on the business that runs itself. What I really got out of the book was traveling while you're young and not waiting until retirement to start traveling. Tim refers to his travels or vacations as "mini retirements" and details many of the adventures that he has been on. These adventures struck a nerve in me and made me want to act on my ideas for traveling and doing adrenaline-pumping activities.

Other things that I took from the book were the ability for anyone to hire a virtual assistant for $5-$10 an hour from India to assist you if you need anything. They will research a topic, pay your bills, reply to emails, etc. for a minimal charge and most of these virtual assistants have MBA's and are incredible educated. This maybe something worth looking into.

The Intelligent Investor
Referred to as the best investment book written by Warren Buffett, this is a great book for controlling your emotions in the stock market. The theory of Mr. Market in the book depicts that the market is full of people's emotions and prices wander to cheap or expensive levels, in which intelligent investors can capitalize on. The book believes holding great companies for the long-term. If you are truly interested in the stock market and the pschology of human emotions, I highly recommend it.

Warren Buffett Rap

This guy made a rap about legendary Warren Buffett.

Morningstar Interview with Bruce Berkowitz

Truly an inspirational investor, Bruce Berkowitz discusses his new investments.

Peter G. Peterson: The Best Advice I've Ever Got

Co-founder and Senior Chairman, Blackstone Group

Focus On the Things You Do Better Than Others:
When I was at the University of Chicago Graduate School of Business, I had Milton Friedman as a professor. He worshipped free markets and was also a powerful advocate of Adam Smith's concept of comparative advantage: Focus on those things you do better than others. That has been enormously helpful in defining our business strategies. For example, when we [Peterson and co-founder Steve Schwarzman] were setting up the Blackstone Group in 1985, many argued that Blackstone should invest in hostile LBO transactions. We felt that our advantage was that we were on friendly terms with many American CEOs and boards. So we took the contrarian position. We would only do strictly friendly investments. As a result, so-called corporate partnerships have become a major foundation - and a very profitable contribution - to our business.

Source: The Best Advice I Ever Got

Top 10 Philanthropists of Our Time

Philanthropy is donating money, goods or services for an extended period of time and is usually intended to promote good in the world. The people listed below are very wealthy individuals. Being wealthy is not a requirement to partake in philanthropy, it is giving something to promote well-being. The people ranked below are ranked accordingly to the amount given or pledged.

1. Warren Buffett (Bio), Berkshine Hathaway
   
• A monumental gift announced in June, Buffett's $31-billion commitment to the Bill & Melinda Gates Foundation will fund efforts to improve global health and U.S. education. Buffett, the world's second-richest man, also earmarked billions for the Susan Thompson Buffett Foundation, the Howard G. Buffett Foundation, and the NoVo Foundation--independent family foundations that support causes ranging from reproductive health to worldwide conservation.


2. Bill and Melinda Gates, Microsoft
• With $31 billion in assets, the Bill and Melinda Gates Foundation is the world's largest charity. And its endowment is expected to double, thanks to a long-term gift from investor Warren Buffett, who installed the first $1.6-billion contribution over the summer. The Gateses' mission is to alleviate global poverty and find a cure for AIDS and other fatal diseases, provide access to information technology in libraries, and turn around America's schools. They will begin construction on a new headquarters for their foundation in downtown Seattle early next year.


3. George Soros, Investor
• Investor George Soros distributes $400 million or more each year through his charitable network. In 2005, he shelled out an extra $200 million for his Central European University, a graduate school he helped found in Budapest in 1991. An immigrant from Hungary who made his first billion dollars in England, Soros has a passion for politicking, giving millions each year to promote open and democratic societies.


4. Gordon and Betty Moore, Intel
• With charitable gifts totaling well above $7 billion, the Moores are serious conservationalists. In 2001, the couple gave $5 billion to their San Francisco-based foundation, headquartered in an eco-friendly "Green Building," for worldwide environmental research. The Moores also fund scientific and nursing initiatives in the Bay Area, working closely with the California Institute of Technology and local hospitals.


5. Herbert and Marion Sandler, Golden West
• The Sandlers have given generously to cure asthma and deadly African diseases such as malaria. The press-shy couple from California also support education, social reform and progressive government, and Jewish causes. Last year they doled out $1 million for stem cell research.


6. Eli and Edythe Broad, SunAmerica KB
   
• The Broads, who own some 800 pieces of contemporary art, are building a new 60,000-square-foot gallery at the Los Angeles County Museum of Art. This year they gave $25 million to the University of Southern California for stem cell research and have given generously to other schools in the past. The Broad Foundations (yes, there are three of them) not only tackle education, science, and the arts, but they also help fund civic initiatives like the Grand Avenue Project in downtown Los Angeles and the nearby Frank Gehry-designed Walt Disney Concert Hall.


7. Walton Family, Wal-Mart
• The world's richest family is also one of the most united when it comes to philanthropy. The Waltons commit the bulk of their gifts through the Walton Family Foundation, which has given more than $1 billion to a variety of charitable causes over the past 20 years. Their areas of focus: K-12 education reform, quality of life initiatives in Northwest Arkansas (home to Wal-Mart), economic development initiatives in the Mississippi Delta region of the U.S., and most recently, marine and fresh-water fishing sustainability initiatives.


8. Donald Bren, Real Estate
• Bren's commitment to education runs the gamut from students to principals to school districts to university scholars on his Irvine Ranch. On top of a $20-million gift to fund elementary fine arts, music, and science programs at schools in Irvine, Calif., Bren quietly gave away properties worth hundreds of million of dollars this year to recipients such as schools and retirement communities.


9. Bernard Osher, Investing
• This year Osher funneled more than $700 million into his private foundation, which supports the arts, higher education, and integrative medicine in the San Francisco Bay area and his native Maine. Approaching his eighties, he runs a scholarship program for people over 50.


10. Alfred Mann, Medical devices
• The founder of 11 biomedical companies, Mann plans to parlay his wealth into at least as many top biomedical research institutes, the first of which opened at the University of Southern California with an endowment of more than $100 million. An October agreement with the Technion-Israel Institute of Technology plants the seeds for the first of these overseas.

Source: The 50 Most Generous Philanthropists

Edward Lampert, American Investor

Edward S. "Eddie" Lampert (born July 19, 1962) is an American investor, financier and businessman.

He is the chairman of Sears Holdings Corporation(SHLD) and founder, chairman, and CEO of ESL Investments. Until May, 2007 he was a director of AutoNation, Inc. He previously served as a director of AutoZone, Inc. from 1999 to 2006.

Lampert graduated from Yale University in 1984 (B.A., economics, summa cum laude), where he was a member of Skull and Bones and Phi Beta Kappa. He was an intern at Goldman Sachs in July 1984, and worked in the firm's risk arbitrage department from March 1985 to February 1988. He worked directly with Robert Rubin; when Lampert decided to go out on his own, Rubin warned it was a bad career decision.

He left the bank to form ESL Investments, based in Greenwich, Connecticut, in April 1988. The name ESL derives from Lampert's initials. Richard Rainwater, whom he had met on Nantucket Island, gave him $28 million in seed money and introduced him to clients, such as Geffen. In 2003, he was kidnapped from the parking lot of his office, but Lampert convinced his captors to let him go after two days.

Lampert's investment style can best be described as "concentrated value", often focusing on the retail sector. He has produced annual returns of 30% since forming his fund. Lampert typically holds his investments for several years and usually has between three and fifteen stocks. His investment style has drawn comparisons to the financier Warren Buffett. He has, in large part, been credited for forming and merging Kmart and Sears into Sears Holdings.

His earnings in 2004 were estimated to be $1.02 billion USD, making Lampert the first Wall Street financial manager to exceed an income of $1 billion in a single year. In 2006, Lampert was the richest person in Connecticut with a net worth of $3.8 billion. As of 2007, he retained that rank, with a net worth totaling $4.5 billion.

Source: Wikipedia.org

Achieve your full potential, even if people question you:
“Like Eli Manning, we know what it’s like to be underestimated and questioned, but we intend to keep working on our game to achieve our full potential,” - Eddie Lampert

Edward Lampert: The Best Advice I've Ever Got

Eddie Lampert (Bio)

Chairman and CEO, ESL Investments; Chairman, Sears Holdings

Almost every weekend when I was 7, 8, 9, 10 years old, my father and I would toss a football in the yard or play basketball in the driveway. When we played football, he'd say, "Go out ten steps. Turn to your right." The ball would reach me just before I turned, and it would hit me right in the chest. Why would my dad do this? He told me, "If I waited for you to turn, you and the defensive player would have an equal chance to get the ball. Your opportunity is gone."

Don't Wait for an Opportunity, Think Ahead:
This idea of anticipation is key to investing and to business generally. You can't wait for an opportunity to become obvious. You have to think, "Here's what other people and companies have done under certain circumstances. Now, under these new circumstances, how is this management likely to behave?" The plays my father designed for me helped me learn to think ahead. Lots of days I asked him, "Why can't we just invite kids over and play a game?" In order to do something well, he explained, you have to keep practicing and preparing.

Source: The Best Advice I Ever Got

Michael Bloomberg: The Best Advice I've Ever Got

There is a great segment on The Best Advice I Ever Got from CNN Money. There are 25 stories from successful people including Michael Bloomberg, Larry Page, Tina Fey, Eddie Lampert, and Bob Iger, among many others. Here is an excerpt:

Michael Bloomberg, Mayor of New York City, founder of Bloomberg LP

Stop talking when the customer says yes: I can't remember who told me this, but I certainly didn't grow up knowing it, so I must have gotten this advice at Salomon Brothers in the 1970s. The advice was, first, always ask for the order, and second, when the customer says yes, stop talking. I have watched more people make great presentations, whether they're trying to sell to their family or in business or in government, and never get to the point of what they're trying to get out of it. And too many times when the customer says yes, the person who got that answer just doesn't stop talking. Worst advice? The worst advice that people can take is to react before they've had a chance to think. I think we all say things and wish we hadn't said them. Ready, shoot, aim is not the smartest policy.

Source: The Best Advice I Ever Got

The Superinvestors of Graham-and-Doddsville

One of the most influential articles I have read on investing by, the Oracle of Omaha, Warren Buffett is The Superinvestors of Graham-and-Doddsville.

An interest in investing and knowledge on value investing are a plus here, but this article is excellent and describes value investing from teachers, Benjamin Graham and David Dodd, and the successes their students have had since.

Students of Graham and Dodd, mentioned in the article, are:
Walter J. Schloss
Tom Knapp (Tweedy Browne)
Ed Anderson (Tweedy Browne)
Bill Ruane (Sequoia Fund Inc.)
Charlie Munger (Berkshire Hathaway)
Stan Perlmeter (Perlmeter Investments)

Warren Buffet - American Investor and Philanthropist

Warren Edward Buffett (born August 30, 1930, in Omaha, Nebraska) is an American investor, businessman and philanthropist. He is regarded as one of the world's greatest stock market investors, and is the largest shareholder and CEO of Berkshire Hathaway. With an estimated net worth of around US$62 billion, he was ranked by Forbes as the richest person in the world as of March 5, 2008.

Often called the "Oracle of Omaha," Buffett is noted for his adherence to the value investing philosophy and for his personal frugality despite his immense wealth. His 2006 annual salary was about $100,000, which is on the low side of senior executive remuneration in other comparable companies. He lives in the same house in the central Dundee neighborhood of Omaha that he bought in 1958 for $31,500, today valued at around $700,000.

Buffett is also a noted philanthropist. In 2006, he announced a plan to give away his fortune to charity, with 83% of it going to the Bill & Melinda Gates Foundation. In 2007, Buffett was listed among Time's 100 Most Influential People in The World. He also serves as a member of the board of trustees at Grinnell College.

Source: Wikipedia

Here are the Success Traits:

Warren Buffett Biography
Even Harvard Makes Mistakes:
[In 1947, a seventeen year old Warren Buffett graduated from High School. It was never his intention to go to college; he had already made $5,000 delivering newspapers (this is equal to $42,610.81 in 2000). His father had other plans, and urged his son to attend the Wharton Business School at the University of Pennsylvania. Buffett stayed two years, complaining that he knew more than his professors. When Howard was defeated in the 1948 Congressional race, Warren returned home to Omaha and transferred to the University of Nebraska-Lincoln. Working full-time, he managed to graduate in only three years.

Warren Buffett approached graduate studies with the same resistance he displayed a few years earlier. He was finally persuaded to apply to Harvard Business School, which, in the worst admission decision in history, rejected him as "too young". Slighted, Warren applied to Columbia where famed investors Ben Graham and David Dodd taught - an experience that would forever change his life.]

Persistence:
[Ben Graham became an idyllic figure to the twenty-one year old Warren Buffett. Reading an old edition of Who's Who, Warren discovered his mentor was the Chairman of a small, unknown insurance company named GEICO. He hopped a train to Washington D.C. one Saturday morning to find the headquarters. When he got there, the doors were locked. Not to be stopped, Buffett relentlessly pounded on the door until a janitor came to open it for him. He asked if there was anyone in the building. As luck (or fate) would have it, there was. It turns out that there was a man still working on the sixth floor. Warren was escorted up to meet him and immediately began asking him questions about the company and its business practices; a conversation that stretched on for four hours. The man was none other than Lorimer Davidson, the Financial Vice President. The experience would be something that stayed with Buffett for the rest of his life. He eventually acquired the entire GEICO company through his corporation, Berkshire Hathaway.]

Even the Best Fail Sometimes:
[During these initial years, Warren's investments were predominately limited to a Texaco station and some real estate, but neither were successful. It was also during this time he began teaching night classes at the University of Omaha (something that wouldn't have been possible several months before. In an effort to conquer his intense fear of public speaking, Warren took a course by Dale Carnegie). Thankfully, things changed. Ben Graham called one day, inviting the young stockbroker to come to work for him. Warren was finally given the opportunity he had long awaited.]

More Hard Times:
[It was shortly thereafter one of the most profound and upsetting events in Buffett's life took place. At forty-five, Susan Buffett left her husband - in form. Although she remained married to Warren, the humanitarian / singer secured an apartment in San Francisco and, insisting she wanted to live on her own, moved there. Warren was absolutely devastated; throughout his life, Susie had been "the sunshine and rain in my [his] garden". The two remained close, speaking every day, taking their annual two-week New York trip, and meeting the kids at their California Beach house for Christmas get-togethers. The transition was hard for the businessman, but he eventually grew somewhat accustomed to the new arrangement. Susie called several women in the Omaha area and insisted they go to dinner and a movie with her husband; eventually, she set Warren up with Astrid Menks, a waitress.]

A Chronological History of the Oracle of Omaha: 1930-1956
Confidence:
[1943: Warren declares to a friend of the family that he will be a millionaire by the time he turns thirty, or "[I'll] jump off the tallest building in Omaha."]

Strengthen Your Weaknesses:
[1951: Buffett takes a Dale Carnegie public speaking course. Using what he learnt, he began to teach a night class at the University of Nebraska, "Investment Principles". The students were twice his age [he was only 21 at the time].]