If you have heard fund managers talk about the way they invest, you know a great many employ a top down approach. First, they decide how much of their portfolio to allocate to stocks and how much to allocate to bonds. At this point, they may also decide upon the relative mix of foreign and domestic securities. Next, they decide upon the industries to invest in. It is not until all these decisions have been made that they actually get down to analyzing any particular securitie…
Understanding Fixed Income Securities: Expectations
Wall Street pumps out products and Investment Experts rationalize strategies that cloud the simple rules governing the behavior of what should be an investors retirement blankie. The investment gods have spoken: The market price of Fixed Income Securities shall vary inversely with Interest Rates, both actual and anticipated and it is good.
What Is Value Investing?
Different sources define value investing differently. Some say value investing is the investment philosophy that favors the purchase of stocks that are currently selling at low price-to-book ratios and have high dividend yields. Others say value investing is all about buying stocks with low P/E ratios. You will even sometimes hear that value investing has more to do with the balance sheet than the income statement.
In his 1992 letter to Berkshire Hathaway shareholders, War…
Return On Assets Is The Hit By Pitch Of Investing
Despite all appearances to the contrary, this is a post about investing not baseball. So, to those of you who love reading about investing but hate reading about baseball: dont be deterred. Its worth reading all the way through.
Return on assets is the hit by pitch of investing. Common sense suggests it isnt a very important measure. Why would any investor care about return on assets when return on equity and return on capital tell you so much more?
You dont have …
Some Lessons From Warren Buffett’s Annual Letter
Warren Buffetts annual letter to Berkshire Hathaway shareholders was released over the weekend. Readers will find plenty of investing lessons among the twenty-three pages. Warren began this letter as he begins each letter, by stating Berkshires change in per-share book value:
“Our gain in net worth during 2005 was $5.6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 41 years, (that is, since present managemen…
The Wonders And Horrors Of Compounding
Google Price Target: $16,578.90
Some of you will immediately recognize this headline is a joke. For the rest of you, I was kind of hoping the ninety cents part would give it away.
If youre reading this because youre interested in what I have to say about Google (GOOG), you can stop now. Im not going to say anything interesting about Google. Rather, Im going to say something (that I hope is) very interesting about the wonders of compounding.
Warren Buffetts annua…
The Logic Behind Technical Analysis
Let me first say that I do not now engage in technical analysis; nor, have I ever engaged in technical analysis. I do not believe doing so would be a productive use of my time.
Having said that, I do not claim technical analysis has no predictive value. In fact, I suspect it does have some predictive value. The Efficient Market Hypothesis is flawed. It is based upon the (unwritten) premise that data determines market prices. As Graham so clearly put it in Security Analysi…
Buffett’s Big Bet
Over the past few days, there have been several stories written about Warren Buffetts $14 billion bet on global stock markets. I believe these stories are all in reference to this excerpt form Berkshire Hathaways annual report:
Berkshire is also subject to equity price risk with respect to certain long duration equity index put contracts. Berkshires maximum exposure with respect to such contracts is approximately $14 billion at December 31, 2005. These contracts genera…