BUFFETTOLOGY

The previously unexplained technique that have made Warren Buffet The worlds most famous investor

MARY BUFFETT & DAVID CLARK

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Presented By:- Amit Gupta

About The Authors

Mary Buffett is the ex-wife of Peter Buffett, the son of WARREN BUFFET. She is an internationally acclaimed writer and lecturer on Warren Buffetts investment techniques. She is also the CEO of a multimillion-dollar-a-year commercial and film editing company with clientele that ranges from CocaCola to Madonna. She currently makes her home in Santa Monica, California. 2 26/03/02

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About The Authors

David Clark, a portfolio manager and friend of the Buffett family for over thirty years, is recognized as a leading authority on Warren Buffett's investment methods. He lives in Warren Buffett's hometown, Omaha, Nebraska.He is today one of the most brilliant buffettologist in the world

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FLOW OF PRESENTATION

ABOUT The MAN

The NINE QUESTIONS

The Right Time

Sell

Why to

Analysis

What to Buy

When To buy

When to Sell

The warren Buffet Technique 4

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THE MAN

BORN 19 AUG 1930 SON OF HOWARD & LEILA BUFFETT WAS ALWAYS INTERESTED IN NOs. READ GRAHAMS THE INTELLIGENT INVESTOR WENT TO NY FOR POSTGRADUATION WORKED WITH FATHERS FIRM
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THE MAN (contd..)

WENT TO WORK FOR GRAHAM-NEWMAN COMPANY DISBANDED IN 1956 CAME BACK TO OMAHA SET A PARTNERSHIP INVESTMENT FIRM OVER NEXT 13 YEARS GOT A CAGR OF 30% DISBANDED THE PARTNER-SHIP INVESTED IN BERKSHIRE HATHAWAY REST IS HISTORY
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CONCEPT-1 BUSSINESS PERSPECTIVE INVESTING

WHAT ARE SHARES? SHARES REPRESENT THE PART OWNERSHIP IN THE COMPANY

STOCK MARKET IS NOT AS AN END UNTO ITSELF BUT THE OWNERSHIP OF THOSE BUSINESSES THAT THE COMMON STOCKS REPRESENT

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HIS VIEWS ..ON MARKETS

Move in the market as if you are the only one .dont let the whims ,rumours and greed affect your investment strategies.find out the company you want to invest,then wait for the right time .

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CONCEPT-2 WHAT BUSSINESS NOT TO INVEST IN?

COMMODITY TYPE Price is the single most important factor for consumer

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CONCEPT-2 WHAT BUSSINESS NOT TO INVEST IN?

Investment

More sales

Competitor invests

Competition

Less sales

Reduced Price

Lower Return
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Less Profit
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EXCELLENT BUSINESS
This

has a consumer monopoly Single most important question is:-

IF YOU HAD BILLIONS OF DOLLARS AND TOP 50 MANAGERS CAN YOU EASILY / COMFORTABILY COMPETE WITH THAT BUSINESS?

If YES DONT INVEST If NO APPLY THE NEXT TEST

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The Influencers

BENJAMIN GRAHAM

PHILIP FISHER The Teacher BLOOMBERG The excellent business What is a consumer monopoly? The Employer JOHN BURR WILLIAMS Concept of future earnings What time is the right time? LORD KEYENS Concept of specialization The Mentor Or there is any right time. if EDGAR SMITH

Concept of retained earnings of business

The Influencer
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CHARLIE CHARLIE MUNGER MUNGER

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NINE RULES
Does

the business have an identifiable consumer monopoly? CASES OF HLLs DISTRIBUTION NETWORK BAJAJ AND LML COKE AND PEPSI

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Does

the business have an identifiable consumer monopoly? Will the retailer lose its business if it does not carry the product? Chocolates Cadbury Noodles Maggi Soft Drinks Coke Pen-Reynolds
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NINE RULES
Are

the earnings of the company strong and showing an upward trend?

Company 1
Year
0 1 2 3 4 5 6 7 8 9

| Company 2
|
| | | | | | | | | |

EPS
1.07 1.16 1.28 1.42 1.64 1.60 1.90 2.39 2.43 2.69

Year
0 1 2 3 4 5 6 7 8 9

EPS
1.57 0.06 0.28 1.24 (0.23) 0.60 1.93 2.39 0.43 1.69
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NINE RULES

Is

the company conservatively financed? Having a low Debt to Equity Ratio Is it necessary to have low debt equity ratio? BCG MATRIX

?
COW 16 DOG
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NINE RULES

Does the business earn a high rate of return on shareholders equity? He looks for return on retained earnings as well

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NINE RULES
Does

the business get to retain its earnings?

How

much does the business have to spend on maintaining current operations? Making money is one thing Retaining it another & Not having to spend it on maintaining current operations is still another (TISCO)
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NINE RULES

Is

the management free to invest in other business opportunities? (BAJAJ AUTO In early 80s)
Is

the company free to adjust price to inflation? Commodity Business Consumer Monopoly

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NINE RULES

Does

value added by retained earnings is reflected by increase in market value? (BERKSHIRE HATHAWAY)

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What I Feel..something more to investing

Six drivers of shareholders value

GILLETE COKE RELIANCE AMAZON.COM GE IN CTV MARKET SWISS AIR

Customer focus Brand equity Management & Planning Business design Timing Agility

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WHERE TO FIND . . .

THESE BUSINESSES

Business that makes products that wear out fast or are used up quickly, that have brand name appeal, and that merchants have to carry or use to stay in business.

Communications businesses that provide repetitive service manufacturers must use (Television, newspaper and advertising companies. )
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WHERE TO FIND

Businesses that provide repetitive consumer services that people and business are constantly in need of.

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The Next Test

Growth in Earning Per Share Relative Value of the return Return On Equity Dividend Or Buyback Compounded Annual Growth Rate

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Before we get to the pricing.. Retained earnings Taxation explanation:invested amount = 1,00,000 interest = 20% time = 5 years Case 1 :-- Interest paid in the same year After each year one gets = 20,000 Total due to interest =1,00,000 Taxation @ 30% = (30,000) Net amount after tax = 70,000 Total amount =1,70,000

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Before we get to the pricing..

Case 2 :-- full money retained interest after 5 years =1,48,830 taxation @ 30% = 44,649 net interest after tax =1,04,181 total amount payable =2,04,181
This is the effect of compounding

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For compounding to be effective high rate of interest for a long period of time example :-if 1 rupee becomes 2 rupees at the end of one year and 2 becomes 4 after another year What will be the sum after 30 years 107.36 khokhas(crores)

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What price to pay.

The predictability of the earnings ref:( the nine rules) Determining the price bank rate =10% so if EPS =5.05 Then I am ready to pay =50.5 Rs.

Or even more if enterprise is growing

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When To Buy sell

"Many shall be restored that now are fallen and many shall fall that are now in favor.
So dont ever feel that if u dont sell buy this this share share now now ,you ,you wont wont be able to sell buy it it at at these these prices prices again. again. While selling remember that it will reduce your earnings by the amount of tax you pay

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FACTS ABOUT BOOK

Language of the book is lucid and book is very well structured.. This book Can be used as a text book for SECURITY ANALYSIS for fundamental analysis. Full of examples, real life and financial figures too Doesnt talk about Warrens failures Very useful for small investors. Contradictions in quantitative and qualitative parts.
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Analysis Qualitative Side

Very well structured Full of examples and real life stories. Misleads the reader about the way Warren made his money HISTORICALLY 2/3 OF BERKSHIRE HATHAWAYS PROFITS ARE FROM INSURANCE BUSINESS Still One of the best books on Warrens investing technique 31
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Analysis Of The Technique

My Inabilities

Indian Aspect
Limited liability partnership Insurance companys float Short-term arbitrage Value investing
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Buffett-six rules
Buffett's six rules are the key to his approach. Rule 1: Pay not attention to macroeconomic trends or to people's predictions about the future course of stock prices. Focus on longterm business value - on the likely size of the future stream of profits. Rule 2: Stick to stocks within one's circle of competence. If you do not understand a business you cannot value the stock. Rule 3: Look for managers who treat shareholders' capital with owner-like care and thoughtfulness.
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Buffett-six rules
Rule 4: Study prospects and the competition in great detail. Look at raw data, not analysts' summaries.
Rule 5: Run profits and stay with investments and managements that are performing well. Rule 6: The vast majority of stocks are not compelling either way, so ignore them. When an investor has conviction about a stock, he or she should show courage and buy a ton of it.

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Bibliography

Buffettology Mary Buffett & David Clark, Simon &Schuster, 1997 The Buffettology Workbook Mary Buffett & David Clark, Simon &Schuster, 2001 The Intelligent Investor Benjamin Graham, Harper & Row,1973 The Warren Buffett Way Hegstrom.R, 1995 Beating The Street Peter Lynch, Simon &Schuster, 1993 Fortune, March 5, 2001.Page 40-48
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www.Amazon.com
www.Capitalideasonline.com www.Buffetwatch.com www.Simonsays.com www.Berkshirehathaway.com
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Thanks !

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