Month: August 2012

The following is a guest post by Sean Seah. He runs an investing blog and it can be accessed at http://crossroadmoneyskills.wordpress.com/.

When I began my journey as a Value Investor, I started by reading books to acquire the proper knowledge. One of the best author in my opinion is none other than Mary Buffett. Her books were not only inspiring as she shares the story of Warren Buffett, it was practical and applicable.

While there are many other good books I enjoyed, I would find myself not being able to implement most of its ideas. Mary’s books are different in the sense, I found so many gems which I can immediately apply.

Last year, when I met Mary Buffett face to face to discuss investment ideas, I was again taken to a whole new level of understanding the investment philosophy held by Warren Buffett.

Some key lessons anchored what I already knew by reading. But I am also going to share some lessons which I gleaned that is not written in books.

1) Warren Buffett buys Businesses

One story Mary shared was that at one point of time, Warren owned shares of Philip Morris. And when it was announced in the news that tobacco caused cancer, the share price fell sharply. Mary then asked Warren if he was worried, and his replied was that he isn’t worried at all. In fact Warren was glad that the share price fell because this means he can own more of the shares at an even more affordable price.

Lesson: Once we identify a great business, we should see it as our goal to own as many of its shares as possible so that we own more of the business. And when the share price falls, we should take the opportunity to buy even more once we are sure that the Profitability of the business is not affected.

2) Patience and Discipline

Warren Buffett rejected a $2 bet on a golf game. His rationale is that if he does stupid things with small amount of money, it would translate to stupid decisions in bigger amount of money. That is discipline.

And patience – Mary shared that Warren wanted to buy Diary Queen years back, but the price wasn’t right. So he wanted for decades. He waited patiently (and this again shows discipline).

3) Continuous Improvement as an Investor

Warren Buffett was quoted to have said that “derivatives are financial weapons of mass destruction”. But as some of you may already know, he wrote options on Burlington, Coka Cola and in his recent letters to his shareholders, it was stated that Berkshire wrote options on indices. Is he contradicting his philosophy? No. The idea that he goes for has not changed. The way he uses options is in support of his investment methods. The fact that he uses options shows that he is not “stuck” with only one fixed way of thinking and investing. As long as the investment makes sense to him, he does it. An apparent one example was when he broke away from Graham’s method of picking undervalued business to incorporating Munger’s (or Fisher’s) idea of buying great business at a fair price. This makes the mark of a billionaire.

4) Diversification is protection against ignorance?

Warren says that he likes to put all his eggs in one basket then watch the basket. But looking at his personal portfolio in 2012, we can identify 9 different sectors with 32 stocks. On first look, we may think that this dude is not practicing what he preaches. But of course we must understand that Warren does have to allocate billions and just a few businesses cannot contain that amount of capital he has. But why 32 stocks?

Well, Buffett’s warning about diversification, as Mary explains, is not to blindly diversify. Like some investors will go for counter – cyclical sectors where when one sector goes up, the other goes down. This kind of see-saw investors get your portfolio an average returns. So while we invest, we can meaningfully put our capital into areas which makes most sense at the point of having the capital. So if the allocation happen to be in different areas, so be it. But we do not diversify for the sake of diversifying.

Well, these are just some of the lessons I learnt from her.

Now, a piece of good news from investors who want to learn from Mary Buffett Face to Face. She will be here in Singapore on the 8th Sept 2012 at Marina Bay Sands for a one day conference (a 1 day course on Buffettology) which is jointly organized by Phillip Capital and myself (Value Investing Academy). You can visit http://avic2012.eventbrite.com/?access=VIA for more info.

Hope to see you there and God Bless,

Sean Seah

I think Apple is slowly losing market share in the smartphone business. I see more and more people buying Samsung Galaxy S3. Many of Apple’s iPhone users I know have converted to S3 ever since it was launched end May 2012. I have statistical evidence to show that this is the case.

My class consists of 24 people. Before S3 was launched, 10 out of 24 people were using iPhone. This was 42% of the class. After S3 was launched, this number dropped to six out of 24. This now represents only 25% of the class. Four out of 10 or 40% of the iPhone users have converted to S3. Taking it a step further, a total 17 out of 24 use Android devices (Samsung, HTC, Motorola and LG). This represents 71% of the class. One of them is using Nokia and the rest of the six are using iPhone as stated earlier. Even though the sample size is small, I think what I have observed in my class is representative of what is happening around the world.

When S3 was launched, I saw in Facebook many of my friends showcasing their latest catch. I remember one of them, a Navy friend during National Service, previously was a iPhone user as well. Even in the trains, which I use to commute to school everyday, I see more and more S3 users. On a side note, isn’t it timely that Apple has sued Samsung for patent infringement? If Apple does not see Samsung as a threat, it would not bother pumping in so much money to sue a “small fry”. Apple is being threatened and it is doing all it can protect its market share.

Even though the number of iPhone users may be going down, the stock price seems to defy gravity. It became the largest company ever by market capitalization on 20th August 2012. The price has been rising on anticipation of the latest iPhone 5 that is rumoured to be released next month.

What I mentioned above about my class, my Facebook friends and the daily train rides is a method of research called “scuttlebutt” and it was coined by Philip Fisher. Scuttlebutt means researching about a company or industry by observing what is going on around you. Apple’s stock price might be going up but what is going on around me does not seem to justify the increasing price. Is Apple’s stock becoming a bubble? Will the new iPhone 5 revive Apple’s market share? Only time will tell but I strongly believe there is a divergence between the stock price and reality.