Enterprising Investor Forum

We recently came across this thought provoking speech to a group of Harvard MBAs by Mark Sellers titled - So You Want To Be The Next Warren Buffett? How’s Your Writing?

You can find the link to the whole paper after this excerpt:

‘”One thing I will tell you right off the bat: I’m not here to teach you how to be a great investor. On the contrary, I’’m here to tell you why very few of you can ever hope to achieve this status… If you spend enough time studying investors like Charlie Munger, Warren Buffett, Bruce Berkowitz, Bill Miller, Eddie Lampert, Bill Ackman, and people who have been similarly successful in the investment world, you will understand what I mean.

…

The way I see it, there are at least seven traits great investors share that are true sources of advantage because they can’t be learned once a person reaches adulthood. In fact, some of them can’t be learned at all; you’re either born with them or you aren’’t.”

Link to PDF file: here.

Enjoy!

With the oil price at an all time high, we hear more and more talk about ‘Peak Oil’ but what does this really mean? This theory refers to when the maximum rate of global petrol production is reached, after which the rate of production enters its terminal decline. If the global consumption is not tackled before this peak, there will undoubtedly be an energy crisis due to the drop of supply and rise of demand.

Here is a CNBC in depth interview on the subject:

One of the best books on markets and investment psychology! Despite really being about Jesse Livermore, one of the greatest stock speculators EVER, it is actually written as a fictional biography of “Larry Livingston.”

The book follows Jesse (Larry Livingston) from his early start helping out in “bucket shops”, to him starting to trade, to market speculator, to market manipulator, to market maker.. all the way to market legend. Throughout this whole incredible journey, the readers get a detailed account of what happened, how he made and lost millions of dollars and all of his words of wisdom.

This book takes place in the early twentieth century but it ‘practically’ reads as if it where written today. Naturally, there are differences but the psychology remains the same. Actually, readers will find out where a lot of the commonly used investment phrases/concepts originated. For example:

• following the ‘path of least resistance” = the trend is your friend
• do not buy a stock that is going down, if nothing is supporting it = don’t try and catch a falling knife
• the crowds do not profit from tips, think for yourself = tips are for waiters
• No stock is too high to buy or too low to sell
• and so on….

This is a really great read and has probably been the foundation for most of the other investment books out there. Remember that despite being published in 1923, this is the most read and recommended investment book ever! Do yourself a favor and pick up a copy…

Enjoy!

I’m always happy when the market goes down…

… then I feel pretty good about the stocks I didn’t buy with the money I don’t have.

Why is the Street staying away from Dr Pepper Snapple Group (DPS)? Is this one of those classic misunderstood spin-offs that Peter Lynch always talks about? We definitely think so - this is a great company that holds a number of classic brands like:Dr Pepper, Snapple, 7 UP, Sunkist, A&W, Hawaiian Punch and a lot more.

As most people already noted, when DPS started to trade towards the begging on this month, it presented investors with a big discount to the LBO price. However, the stock still went down; probably due to a lot of the UK based funds that did not want to or could not hold securities traded in the US.

DPS is currently trading at a discount to competitors with a P/E ratio that is one of the lowest among major food and beverage companies. Most analyst value the company above 32 USD per share which represents a premium of about 30% to current prices.

The company is moving in the right direction and despite the weakness in the economy, brands like Dr Pepper, Snapple and A&W will continue to be American classics! And don’t forget Mott’s Apple Juice, Canada Dry, Sunkist, and so on. Furthermore, despite troubles with 7-Up, they are also moving strong with brands like Orangina in Europe and Emerging Markets remain strong.

As Peter Lynch state, Spin-offs often are usually misunderstood and offer great investment opportunity also due to the fact that, once set free, their managers do their best to perform as independent entities!

Please read our disclaimer.

As most of you know, Warren Buffett is currently on a 4 day trip in Europe to look for family owned business to invest in. His main objective is to get on the “radar screens” of large family-owned businesses that would like to sell due to various reasons (mainly generation transition) but that want to keep on working in the company and in the same way they have always done but with the added advantage of having Buffett as a shareholder.

Here are links to the two press conferences so far:

• Germany: Link.
• Switzerland: Link.

Enjoy!

It is only a matter of time before the housing market picks up again and despite this slowdown, even the houses that are being foreclosed need to be fixed-up. Home Depot (HD) is ideally placed to reap all potential gains and is paying a healthy dividend while you wait.

Ahead of earnings and as a long-term buy-and-hold, we would be looking for a miss and therefore share price decline to open a position.

Please read our disclaimer.

As regular readers know, the Monday post is usually Dilbert humor but today, we thought we’d start the week with some music. Let’s enjoy the Wall Street Shuffle:

We ofter hear talk of investors seeking ‘alfa’ or wanting to know what the ‘beta’ is but what do they actually mean? Well, here goes an attempt to try and simplify these terms:

• Alfa: essentially, this is simply a measure of risk-adjusted performance. It will tell you how a stock or fund has performed relative to the benchmark. For example, if the figure is 2.0, it means 2% above the index and -2.0, 2% below.
• Beta: measures volatility, or what is called ’systematic risk’, of a stock vs. the whole market. The actual calculation is made through regression analysis but basically, you should just keep in mind that it will give you an idea of how the stock is likely to react/respond to market movements. A beta of 1.0 means that the stock will tend to move in-line with the market, under 1.0 that it is less volatile and above 1.0 that it is more volatile (i.e. 1.5 will indicate a tendency to be 50% more volatile than the market).

We hope that this makes things a bit easier to understand.