Thursday, March 19, 2009

Excerpts from Berkshire Hathaway Annual Report 1980

"The value to Berkshire Hathaway of retained earnings IS NOT determined by whether we own 100%, 50%, 20% or 1% of the businesses in which they reside. Rather, the value of those retained earnings is determined by the use to which they are put and the subsequent level of earnings produced by that usage. ....... If a tree grows in a forest partially owned by us, but we dont record the growth in our financial statement, we still own part of the tree."

"As we have noted, we evaluate single-year corporate performance by comparing operating earnings to shareholders' equity WITH securities valued at cost. Our long-term yardstick of performance, however, includes all capital gain or losses, realized or unrealized. We continue to achieve a long-term ROE that considerably EXCEEDS the average of our yearly returns. The major factor causing this pleasant result is a simple one: the retained earnings of those non-controlled holdings we discussed earlier have been translated into gains in market value."

"We believe that short-term forecasts of stock or bond prices are USELESS. The forecasts may tell you a great deal about the forecasters, they tell you NOTHING about the future."


See Guan said...

can i ask based on your value investing fundamental? what re those great value buys @ bursa Malaysia now ?

value investing in malaysia said...

see guan,

value investing is about predicting the discounted value of future cash flows of a company (or intrinsic value), and buy with a wide margin of safety. For instance, if the intrinsic value of Resorts is RM4, and the current stock price is around RM2. Do you think it is a good buy? Based on value investing, it is considered a good buy, since the intrinsic value is 100% more than the stock price. However, if the intrinsic value is only RM2.50, the answer would be different. The margin of 25% is not big enough to justify a buy decision. Hence, buy with a wide margin of safety, preferably above 100%.

Some good companies in KLCI are ioicorp, bursa,and resorts.

"There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time. No man can have adequate reasons for buying or selling stocks daily - or sufficient knowledge to make his play an intelligent play." - Jesse Livermore