Martin Lee @ Sg
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Mary Buffett Asian Value Investing Conference 2012 Review

A couple of weekends ago, I was at Marina Bay Sands for the Asian Value Investing Conference. The conference had a lineup of value investing speakers, with Mary Buffett as the keynote speaker.

Other speakers include Seah Sean and Cayden Chang (Mind Kinesis Value Investing Academy), Anthony Hoe (Senior Fund Manager of Phillip GEMS Managed Accounts), Anson Chow (Deutsche Bank) and Wong Hur Ming (Deutsche Asset Management).

Mary Buffett is actually the (ex) daughter-in-law of Warren Buffett, and has published a number of books on investing.

After a short introduction by Asa Soo from Phillip Capital, Mary Buffett took the stage.

It was the first time i was listening to Mary Buffett, and to be honest, I was actually quite disappointed with this particular segment. She was reading from a prepared script (for 30 minutes), and it was nowhere as stimulating as the delivery of Jim Rogers the previous week.

Mary spoke about some aspects of value investing and also what Warren Buffett has done or will do. The other segments were better as they involved some interaction. Rather than summarizing each speaker’s portion, I will just try to list out all the points that I can remember below:

  1. Value investing is about buying shares whose prices are under-valued. This could be a discount over the book value or intrinsic value.
  2. You can’t make a good deal with a bad guy. If you really have to make a deal, get your money upfront.
  3. It is easier to stay out of trouble than to get out of trouble.
  4. Invest in yourself.
  5. Know what to buy. Look for companies with durable competitive advantage with consistent long term track record (steadily increasing earnings over 10 years).
  6. Know when to buy it. Wait to buy it at the right price. Have patience (This is probably the hardest thing to do for most investors).
  7. Time to sell an excellent business is never.
  8. Investment rule #1 – Don’t lose money. Investment rule #2 – Remember rule #1.
  9. Be fearful when others are greedy and greedy when others are fearful.
  10. Know your own circle of competence, and stay inside it!

Ten Ways to Get Rich (from Mary Buffett)

  1. Reinvest your profits
  2. Be willing to be different – to be above average you need to measure yourself by your inner scorecard
  3. Never suck your thumb – swiftly make up your mind and act on it
  4. Spell out the deal before you start – bargaining leverage is always biggest before you begin your job – even with friends or relatives
  5. Watch small expenses
  6. Limit what you borrow – leverage can kill
  7. Be persistent – with tenacity and ingenuity, you can win against a more established competitor
  8. Know when to quit – know when to walk away from a loss, don’t let anxiety fool you into thinking you can try again
  9. Assess the risk
  10. Know what success really means –  measure your success in life by how many people that loves you

The Q and A segment was not very eventful, with the panel answering questions that were submitted earlier. Sean seemed to enjoy himself answering the questions, and Mary even managed to skip answering a couple of questions by saying “I agree with Sean” after Sean had given a lengthy reply.

They did had time to take one live question from the audience, and as you would have expected, it was the standard question of “What should we buy now?”

Actually, I feel that the best place to learn about Warren Buffett’s investing methods is to read his annual letter to his shareholders, which you can download for free here:

Warran Buffett Annual Letter to Shareholders

Warren writes in a style that is very candid, and if you have not read them before, you should really go and have a look. And everything is available free – you don’t need to pay a couple of thousand dollars to Warren Buffett to learn about his methods. 🙂

I did spend a couple of years trying to summarize all his letters. I stopped at the year 2000, and you can find a collection of my summary here:

Berkshire Letters Summary

That site has not been updated for a while, so you might need a while to navigate through all the posts. Hope you find the materials there useful. Happy reading! 

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11 comments
Loong says 6 years ago

In shareholder letters – Berkshire Hathaway Inc from 1970 until 2012, Warren Buffett mentioned the per-share investment and pre-tax. Maybe you can ask Marry Buffett what is the meaning of per-share investment? What is the financial ratio of per-share investment?

Reply
    Martin Lee says 6 years ago

    Dear Loong,

    Warren likes us to evaluate a stock holding as a company. And how much of that company you own.

    The per-share relates to one share. For example, say a company has 1 million shares outstanding. If it makes $10 million a year, the per-share earnings will be $10 a year. If the entire company is worth $100 million, then the per-share worth would be $100.

    Reply
      Loong says 6 years ago

      Warren Buffett revealed his magical “Two-Column Valuation Method” investment process publicly on page 6 of his Berkshire Hathaway’s (BRK.A, BRK.B) 2010 Annual Report. (Buffett later republished his “Two-Column Method” on page 99 of his 2011 Annual Report, and on page 104 of his 2012 Annual Report).

      I will now quickly summarize page 6 of Berkshire Hathaway’s 2010 annual report describing Buffett’s “Two-Column Valuation Method”:

      BERKSHIRE HATHAWAY INC. INTRINSIC VALUE – TODAY AND TOMORROW *

      Though Berkshire’s intrinsic value cannot be precisely calculated, two of its three key pillars can be measured. Charlie and I rely heavily on these measurements when we make our own estimates of Berkshire’s value.

      COLUMN #1: The first component of value is our investments: stocks, bonds and cash equivalents. At yearend these totaled $158 billion at market value.

      Year end

      Per Share Investments

      Period

      Compounded Annual Increase in Per-Share Investments

      1970

      $66

      1980

      $754

      1970-1980

      27.5%

      1990

      $7,798

      1980-1990

      26.3%

      2000

      $50,229

      1990-2000

      20.5%

      2010

      $94,730

      2000-2010

      6.6%

      COLUMN #2: Berkshire’s second component of value is earnings that come from sources other than investments and insurance underwriting.

      Year end

      Per Share Pre-Tax Earnings

      Period

      Compounded Annual Increase in Per-Share Pre-Tax Earnings

      1970

      $2.87

      1980

      $19.01

      1970-1980

      20.8%

      1990

      $102.58

      1980-1990

      18.4%

      2000

      $918.66

      1990-2000

      24.5%

      2010

      $5,926.04

      2000-2010

      20.5%

      Market price and intrinsic value often follow very different paths – sometimes for extended periods – but eventually they meet.

      There is a third, more subjective, element to an intrinsic value calculation that can be either positive or negative: the efficacy with which retained earnings will be deployed in the future. Some businesses will turn these retained dollars into fifty-cent pieces, others into two-dollar bills.

      This “what-will-they-do-with-the-money” factor must always be evaluated along with the “what-do-we-have-now” calculation in order for us, or anybody, to arrive at a sensible estimate of a business’s intrinsic value. A dollar of then-value in the hands of Sears Roebuck’s or Montgomery Ward’s CEOs in the late 1960s had a far different destiny than did a dollar entrusted to Sam Walton.

      *Reproduced from Berkshire Hathaway Inc. 2010 Annual Report.

      OK. So how does Warren Buffett’s “Two-Column Valuation Method” work?

      EXAMPLE #1: I will explain, and the answer is simpler than you may think. First, determine the “Per-Share Investments” amount for the most recent year. In Buffett’s 2010 Annual Report, let’s use $94,730. Next, determine the “Per-Share Pre-Tax Earnings” for the most recent year. In Buffett’s Annual Report, let’s use $5,926.04. Next, determine which multiple to apply to the “Per-Share Pre-Tax Earnings.” Choose a multiple to apply this other similar businesses show within the same sector/ industry

      .

      Pre-Tax Earnings can also be referred to as Operating Earnings, which are found on the Income Statement.

      Pre-Tax Earnings are also referred to as EBIT, or Earnings Before Interest and Taxes.

      If other businesses stock prices are currently trading at a multiple of Pre-Tax Earnings of 10; then, for this example let’s use 10 as our multiple we’ll apply to Pre-Tax Earnings.

      Therefore, if Pre-Tax Earnings are $5,926.04, and we multiple this amount by our multiple of 10, then this equals $59,260.40.

      $5,926.04 x 10 = $59,260.40

      Next, we add the business’s Per-Share Investments to this amount. Therefore,

      $94,730 + $59,260.40 = $153,990.40

      EXAMPLE #2: Similarly, if we were to apply a different multiple to Berkshire Hathaway’s 2010 Pre-Tax Earnings of $5,926.04, we would arrive at a different estimated intrinsic value. For instance, if we were to use a multiple of 12 (instead of 10), then…

      $5,926.04 x 12 = $71,112.48

      Next, if we were to add the Berkshire’s 2010 Per-Share Investments of $94,730 to $71,112.48, Berkshire Hathaway’s estimated intrinsic value at the end of 2010 would be $165,842.48.

      $94,730 + $71,112.48 = $165,842.48

      Therefore, using Warren Buffett’s “Two-Column Method,” the intrinsic value of Berkshire Hathaway at the end of 2010 could be estimated to be somewhere between $153,990.40 and $165,842.48. Comparatively, Berkshire Hathaway’s stock price on December 31, 2010 closed at $120,450, well below it is underlying intrinsic value.

      “Market price and intrinsic value often follow very different paths – sometimes for extended periods – but eventually they meet.” Warren Buffett

      “Wall Street is more concerned with correlation than valuation.” Scott Thompson

      “It’s better to be approximately right, than precisely wrong.” Warren Buffett

      Obviously, the key to mastering Buffett’s “Two-Column Method” is correctly calculating Per-Share Investments, selecting an appropriate multiple to apply to Pre-Tax Earnings, and accurately combining these two amounts together to arrive at an estimated intrinsic value.

      Reply
        Loong says 6 years ago

        Martin, sorry. Human error. Please refer to letter to shareholders- berkshire hathaway inc.
        maybe you should shoot the question to Mary Buffett. Warren Buffett does not use the DCF method or her methodology to estimate the intrinsic value of the company.
        There are NO ASSUMPTIONS in warren Buffett’s valuation.

        Reply
Loong says 6 years ago

FYI, On November 20, 2008, Alice Schrooder, author of “The Snowball: Warren Buffett and the Business of Life”, spoke at the Value Investing Conference at the Darden School of Business. She gave some fascinating insights into how Buffett invests that are not in the book. I hope you find them useful.
Much of Buffett’s success has come from training himself to practice good habits. His first and most important habit is to work hard. He dug up SEC documents long before they were online. He went to the state insurance commission to dig up facts. He was visiting companies long before he was known and persisting in the face of rejection.
He was always thinking what more he could do to get an edge on the other guy.
Schroeder rejects those who argue that working harder will not give you an edge today because so much is available online.
Buffett is a “learning machine”. This learning has been cumulative over his entire life covering thousands of businesses and many different industries. This storehouse of knowledge allows Buffett to make decisions quickly.
Schroeder uses a case study on Mid-Continent Tab Card Company in which Buffett invested privately to illustrate how Buffett invests.
In the 1950′s, IBM was forced to divest itself of the computer tab card business as part of an anti-trust settlement with the Justice Department. The computer tab card business was IBM’s most profitable business with profit margins of 50%.
Buffett was approached by some friends to invest in Mid-Continent Tab Card Company which was a start-up setup to compete in the tab card business. Buffett declined because of the real risk that the start-up could fail.
This illustrates a fundamental principle of how Buffett invests: first focus on what you can loose and then, and only then, think about return. Once Buffett concluded he could lose money, he quit thinking and said “no”. This is his first filter.
Schroder argues that most investors do just the opposite: they first focus on the upside and then give passing thought to risk.
Later, after the start-up was successfully established and competing, Buffett was again approached to invest capital to grow the business. The company needed money to purchase additional machines to make the tab cards. The business now had 40% profit margins and was making enough that a new machine could pay for itself in a year.
Schroeder points out that already in 1959, long before Buffett had established himself as an expert stock picker, people were coming to him with special deals, just like they do now with Goldman Sachs and GE. The reason is that having started so young in business he already had both capital and business knowledge/acumen.
Unlike most investors, Buffett did not create a model of the business. In fact, based on going through pretty much all of Buffett’s files, Schroder never saw that Buffett had created a model of a business.
Instead, Buffett thought like a horse handicapper. He isolated the one or two factors upon which the success of Mid American hinged. In this case, sales growth and cost advantage.
He then laid out the quarterly data for these factors for all of Mid Continent’s factories and those of its competitors, as best he could determine it, on sheets of a legal pad and intently studied the data.
He established his hurdle of a 15% return and asked himself if he could get it based on the company’s 36% profit margins and 70% growth. It was a simple yes or no decision and he determined that he could get the 15% return so he invested.
According to Schroder, 15% is what Buffett wants from day 1 on an investment and then for it to compound from there.
This is how Buffett does a discounted cash flow. There are no discounted cash flow models. Buffett simply looks at detailed long-term historical data and determines, based on the price he has to pay, if he can get at least a 15% return. (This is why Charlie Munger has said he has never seen Buffett do a discounted cash flow model.)
There was a big margin of safety in the numbers of Mid Continent.
Buffett invested $60,000 of personal money or about 20% of his net worth. It was an easy decision for him. No projections – only historical data.
He held the investment for 18 years and put another $1 million into the business over time. The investment earned 33% over the 18 years.
It was a vivid example of a Phil Fisher investment at a Ben Graham price.
Buffett is very risk averse and follows Firestone’s Law of forecasting: “Chicken Little only has to be right once.” This is why Berkshire Hathaway is not dealing with a lot of the problems other companies are dealing with because he avoids the risk of catastrophe.
He is very realistic and never tries to talk himself out of a decision if he sees that it has cat risk.
Buffett said he thought the market was attractive in the fall of 2008 because it was at 70%-80% of GDP. This gave him a margin of safety based on historical data. He is handicapping. He doesn’t care if it goes up or down in the short term. Buying at these levels stacks the odds in his favor over time.
Buffett has never advocated the concept of dollar cost averaging because it involves buying the market at regular intervals – regardless of how overvalued the market may be. This is something Buffett would never support.
Here is a link to the video: http://www.youtube.com/watch?v=PnTm2F6kiRQ

Reply
Loong says 6 years ago

Martin, what is per-share investment? You can find it on the letters to shareholders from 1970 until now.

Reply
    Martin Lee says 6 years ago

    Dear Loong,

    Sorry, I don’t quite get your question. Do you mean things like per-share earnings, etc?

    Reply
Jackson says 7 years ago

I saw an interview of her on CNA recently. She seems to be simply regurgitating what followers of Warren Buffet already know.

Reply
    Martin Lee says 7 years ago

    Because that is essentially what she teaches. The investing style of Warren Buffett. 😉

    Reply
Createwealth8888 says 7 years ago

What was there any mention of Mary Buffett’s own investing performance over years?

Reply
    Martin Lee says 7 years ago

    Dear Createwealth8888,

    I remember reading a short article in The Edge recently. She declined to reveal the numbers when asked by the journalist.

    Reply
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