cigar butt

Cigar Butts and Turnarounds

August 19, 2014 4 Comments

Last week I was holidaying in France, and when I go away I like to take a stack of reading that I don’t normally have time for. Among my stack were Buffett’s shareholder letters; I’ve read them before but they are always worth a re-read. Upon reading them I came across his thoughts on ‘cigar butt’ investing and wanted to do an article on them because there seems a lot of mis-information about them floating on the web.

I have never been a fan of ‘cigar butts’, and if I recall my positions that have had the highest gains, these have been in growing and strong companies. The market seems to realise true value far more quickly when a company is performing well – and if it doesn’t the business is growing intrinsic value for every year you are waiting.

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House Buying vs Renting

August 1, 2014 1 Comment

In my last article on the ‘Best Investment for you’ I considered John Paulson’s advice for investors to buy a home. I focused a lot on how to value a house using rental yield to get an idea of whether or not you are overpaying for an asset. What I didn’t do was consider whether John Paulson’s advice was sensible or not and a lot of the discussion in the comments focused on house buying vs renting. So I’m going to rewind and address that question. The easiest way of doing this is to crunch the numbers – lucky for you I’ve tried to do as much of the hard work as possible and here is a model of buying vs renting costs with customizable inputs.

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The best and biggest investment for you

July 28, 2014 8 Comments

John Paulson gave an interview on CNBC in which he described the “best investment for a retail investor”. To some it may come as a surprise that this wasn’t some stock or bond, it was to buy a home (or primary residence).

For many this will represent a large investment, possibly larger than the whole of their equity investments put together. So why is John Paulson saying it is a good idea?

Well over a period of 20-30 years the chances of house prices being below where you buy are minimal due to inflation, but in the short term it can create financial pressure on you. I look at how you can assess house prices in the short term and estimate intrinsic value.

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The dangers of retail

June 9, 2014 1 Comment

Asset prices throughout the western world, from property to shares, are at all time highs and show no signs of slowing. Quantitative easing and low interest rates, rather than encouraging new investment and entrepreneurship are simply fuelling price increases in existing assets. Now is the time to be fearful in my opinion, however that doesn’t stop me trying to find great investments even if it is that much harder at the moment.

I recently ran a stock screen of US companies to try and find some interesting prospects. The results were very interesting so I wanted to share them with you, and highlight some possible value traps I noticed going through the list, particularly retailers, along with some stories of my experiences investing in them.

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Ridley & how not to hedge

May 9, 2014 6 Comments

Ridley has been a star performer in my portfolio this year. Only 7 months after I purchased it for $12.45 I have sold it for $24.32. So that’s almost a 100% return right? Well not quite, the currency moved against me by 13% which knocks that 100 down to more like 70%. Ah but that’s where my hedge comes in, it should make up the shortfall – that’s what I thought. Well imagine my surprise when it contributed just 5% to my return. I made an error which has cost me dearly – don’t make the same mistake.

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Free markets vs government

May 6, 2014 Leave a comment

The recent news of Pfizer’s (NYSE:PFE) prospective takeover of AstraZeneca (LSE:AZN) has had me contemplating what governments should do (if anything) about this. There have been wide calls in the media and by the public in the UK for the government to block any takeover as it would put British jobs at risk and it’s not in our national interest to sell our best assets to foreigners.

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How would your portfolio do without you?

April 28, 2014 2 Comments

One of Warren Buffett’s favourite tips is to invest in businesses that you would be happy to hold even if the market closed for the next couple of years. The principle behind this is to invest in strong businesses that grow in intrinsic value over time. The investor doesn’t need to do anything except sit by and watch the returns compound. But apart from being a path to riches this also has benefits for an investors life at large and I think it is an essential consideration when entering an investment – because even though the market wont close for 2 years, unforeseen events can turn our lives upside down. How would your portfolio do if you couldn’t trade for the next few years?

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Charlie and the chocolate factory

March 28, 2014 2 Comments

1972 was an important year for Warren Buffett. It is the year in which he made an investment that was what I consider to be the turning point in his investing career that was inspired by none other than his partner in crime, Charles Munger. Some of you may have already guessed what I’m talking about (perhaps the title gave it away?) – See’s Candy.

This was a company trading at 3x book value and Buffett had likely never paid more than 80% of book value for a company in his life. Yet he saw something new in this investment and was willing to break with all he had known for most of his adult life. I’m going to look at the arguments for these types of businesses that likely persuaded him to do so.

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