2007 August « Enterprising Investor Forum

Margin of Safety Monday, August 20, 2007

Posted by ei-forum in Investing.
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It is precisely in times like these that the value investor should be looking for opportunities to ‘buy dollar bills for ninety-five cents or less’. As Buffett would say, the trick to to purchase shares for less than their calculated value.

As we all know, short-term price swings can be very volatile and irrational but in the long-term, the market tends to reflect the ‘real/intrinsic’ value of a company, and it is for this reason that one always has to strive to ensure protection through a margin of safety. As Benjamin Graham explained: “… the function of the margin of safety is, in essence, that of rendering unnecessary an accurate estimation of the future.”

To learn more about a true value investor and his perspectives on investing, we recommend reading this interview with Mohnish Pabrai on TheMotleyFool: click here.

Please come back to read our upcoming book review of’ ‘The Dhandho Investor’ which should be published before the end of the week!

Market Expert: Fund Performance! Monday, August 20, 2007

Posted by ei-forum in Investing Humor.
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Next Monday, we will look at the Dogbert Reincarnation Investment Fund …

Market Update + Cramer is happy… Friday, August 17, 2007

Posted by ei-forum in Uncategorized.
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Link to TheStreet.com video: here.

We still feel that the correction is far from being over, things are still not clear and we would encourage caution with these initial signs of recovery (probably, great part being due to shorts covering).

Buffett: The Making of an American Capitalist, R. Lowenstein Thursday, August 16, 2007

Posted by ei-forum in Book Reviews.
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A must read, the biography of Warren Buffett, probably the best investor that ever lived! Lowenstein does a great job not only in detailing Buffett’s life and investment career but also allows the reader to understand more about the man himself and his unique perspective on life.

Starting from scratch, Buffett built his empire by consistently sticking to his investment philosophy, focusing on studying fundamentals in order to determine when to take positions in companies, usually, in difficult times and when the market fails to reflect/acknowledge their true potential. Despite his fame and fortune, Buffett has remained extremely modest for a billionaire and continues to stand by his principles, values and keeps on proving his detractors wrong.

Be prepared for a beautiful journey through Buffett’s life. You will get a taste of his views, philosophy, humor, integrity and actions. You will also see and appreciate how he has managed to lead his life according to his principles without backing down.

You cannot read this book without being inspired. It presents countless lessons on how to lead a simple and honest life guided by values and principles. If you manage to take in even a small part of the lessons that Buffett’s story highlights, they will not only make you a better investor but they will guide you through all aspects of your life.

Enjoy!

Heliad Update Wednesday, August 15, 2007

Posted by ei-forum in EU Traded Stocks.
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Our view on this company remains unchanged as they keep delivering.

Heliad (HPB:DE) posts record results in first half of 2007
Intrinsic value (NAV) of Euro 1.36 at reporting date
Outlook remains highly positive

Link to the full press release: here.

Bear Stearns Tuesday, August 14, 2007

Posted by ei-forum in US Traded Stocks.
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We have been following Bear Stearns (BSC) for about a year but always thought it was a bit too expensive and that it didn’t offer the margin of safety which we usually look for. Despite current troubles, we do not think that this firm is going to go out of business any time soon and with a stock price that is 60% off from the 52-week high, it is definitely worth a closer look.

OK, the collapse of their hedge funds, the losses and the top level resignations are nothing to be proud of and the firm – at this moment in time – may not inspire a lot of confidence. However, it remains one of the top global investment banks and brokerage firms. It has always been know for being able to keep performing like the other top investment banks despite not having the same reach and resources.

The recent fall in the share price (as for many other financial stocks) has started to spark our interest. Why? Well, firstly because the fundamentals are looking better and better and secondly because we suspect that the correction has already accounted for the worst case scenario. Let’s look at some of the numbers:

Price to Book: 1,2
Price to Earnings: 8.2
5 Year Average Pre-Tax Margin: over industry average
Book Value per Share: 92.50 USD

Having said this, we are not sure that the worst is over but if no more skeletons come out of the closet and short-term panic pushes this stock back under 100 USD, we would seriously consider opening a position.

Bear Stearn does have a reputation as an aggressive and ambitious trading oriented firm. This temperament, is no doubt part of the cause why they have ended up in the current situation but we also feel that, these traits could play an important role in getting them back into shape.

Please read our Disclaimer.

Market Expert: Client Selection! Monday, August 13, 2007

Posted by ei-forum in Investing Humor.
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Next Monday, we will look at Fund Performance …

Credit Crunch Explained Friday, August 10, 2007

Posted by ei-forum in Miscellaneous.
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Everyone is talking about this ‘Credit Crunch’ but what exactly do they mean? What are they referring to?

Basically, it refers to a specific period when capital is difficult to obtain and hence people also talk about liquidity drying up. In this specific economic period, which is considered to be recessionary, banks and investors are very hesitant to lend out any funds and therefore the price of debt products keeps on moving up.

Due to this drying up of liquidity and increased cost of capital, it becomes more and more difficult for companies, institutions and/or individuals to borrow new funds. Not only can this result in halting growth, payment defaults and increased bankruptcies but it can have a devastating ripple effect on the whole economy.

Margin of Safety & Compelling Value Thursday, August 9, 2007

Posted by ei-forum in Uncategorized.
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As already discussed, in these nervous markets, we should be looking for companies that have suffered from the random sell-off and that offer long-term value for investors.

We recently came across an interesting article from Morningstar that offers their views of 4 stocks that should return at least 15%. Furthermore, the article will help readers understand the kind of research and companies they should be looking for and offers picks in 4 different industries.