Monday, December 29, 2008

Introduction to Value Investing by Whitney Tilson

Whitney Tilson gave a good speech about Value Investing in 2008's Value Investing Conference. Although most of his ideas came from Warren Buffett, nevertheless, it's a good introduction to those who reads little of Warren Buffett's article.

His slides can be downloaded here:

Mental Mistakes
Slides for Wednesday's Workshop
T2 Partners Presentation
Valuing Companies

The entire Video recordings of Value Investing Congress 2008

The entire conference presentation of Value Investing Congress 2008

Friday, December 26, 2008

The Intelligent Investor - "By far the best book on investing ever written." - Warren E. Buffett

This comic describes how Warren Buffett feels when he first read the book "The Intelligent Investor" back then when he was 19 years old. This is his various quotes about the book.

“I went the whole gamut. I collected charts and I read all the technical stuff. I listened to tips. And then I picked up Graham’s The Intelligent Investor . That was like seeing the light .”
(Adam Smith, Supermoney (New York: Random House, 1972),p. 181.)

“I don’t want to sound like a religious fanatic or anything, but it really did get me. ”
(Source: L. J. Davis, “Buffett Takes Stock,” New York Times Magazine ,April 1, 1990, p. 16.)

“Prior to that, I had been investing with my glands instead of my head. ”
(Source: Warren Buffett correspondence to Benjamin Graham, July 17, 1970.)

Here's the Preface written by Warren Buffett on The Intelligent Investor.
I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.

To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What’s needed is a sound intellectual framework for making decisions
and the ability to keep emotions from corroding that framework. This book precisely and clearly prescribes the proper framework. You must supply the emotional discipline.

If you follow the behavioral and business principles that Graham advocates—and if you pay special attention to the invaluable advice in Chapters 8 and 20—you will not get a poor result from your investments. (That represents more of an accomplishment than you might think.) Whether you achieve outstanding results will depend on the effort and intellect you apply to your investments, as well as on the amplitudes of stock-market folly that prevail during your investing career. The sillier the market’s behavior, the greater the opportunity for the business-like investor. Follow Graham and you will profit from folly rather than participate in it.

To me, Ben Graham was far more than an author or a teacher. More than any other man except my father, he influenced my life. Shortly after Ben’s death in 1976, I wrote the following short
remembrance about him in the Financial Analysts Journal. As you read the book, I believe you’ll perceive some of the qualities I mentioned in this tribute.

Warren Buffett recommended this book (The Intelligent Investor) so many times, and it's quoted below:

1966 Letters to his Partners in Buffett Partnership
The availability of a quotation for your business interest (stock) should always be an asset to be utilized if desired. If it gets silly enough in either direction, you take advantage of it. Its availability should never be turned into a liability whereby its periodic aberrations in turn formulate your judgments. A marvelous articulation of this idea is contained in chapter two (The Investor and Stock Market Fluctuations) of Benjamin Graham’s "The Intelligent Investor". In my opinion, this chapter has more investment importance than anything else that has been written.

1984 Letters to Berkshire Hathaway shareholders
(In what I think is by far the best book on investing ever written - “The Intelligent Investor”, by Ben Graham - the last section of the last chapter begins with, “Investment is most intelligent when it is most businesslike.” This section is called “A Final Word”, and it is appropriately titled.)

1990 Letters to Berkshire Hathaway shareholders
In the final chapter of The Intelligent Investor Ben Graham forcefully rejected the dagger thesis: "Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety." Forty-two years after reading that, I still think those are the right three words.

1993 Letters to Berkshire Hathaway shareholders
In fact, the true investor welcomes volatility. Ben Graham explained why in Chapter 8 of The Intelligent Investor.

2003 Letters to Berkshire Hathaway shareholders
Jason Zweig last year did a first-class job in revising The Intelligent Investor, my favorite book on investing.

2004 Letters to Berkshire Hathaway shareholders
Some people may look at this table and view it as a list of stocks to be bought and sold based upon chart patterns, brokers’ opinions, or estimates of near-term earnings. Charlie and I ignore such distractions and instead view our holdings as fractional ownerships in businesses. This is an important distinction. Indeed, this thinking has been the cornerstone of my investment behavior since I was 19. At that time I read Ben Graham’s The Intelligent Investor, and the scales fell from my eyes. (Previously, I had been entranced by the stock market, but didn’t have a clue about how to invest.)

Read the book online (FREE !)

Alternatively, you can view each page individually, seperated by Chapters here. If it's too much, the 3 most important Chapters are as below:

  1. Chapter 1 : Investment vs. Speculation : results to be expected by the Intelligent Investor
  2. Chapter 8 : The Investor and market fluctuations
  3. Chapter 20: Margin of safety as the Central Concept

The 3 Bedrock Ideas above are the cornerstone of Warren Buffett's Billions. Watch the Video from my previous post.

Or if you prefer to own the book, you can get from Amazon from the links below.

Sunday, December 21, 2008

21 (Movie by Columbia Pictures)

I've watched this movie yesterday morning after reading they synopsis. I got hooked to the synopsis that i can't wait to watch it with my wife. I had to drag her out from the bedroom because she enjoys sleeping in the morning, while i enjoy taking afternoon nap. :-)

The true story of the very brightest young minds in the country - and how they took Vegas for millions. Ben Campbell is a shy, brilliant M.I.T. student who -- needing to pay school tuition -- finds the answers in the cards. He is recruited to join a group of the school's most gifted students that heads to Vegas every weekend armed with fake identities and the know-how to turn the odds at blackjack in their favor. With unorthodox math professor and stats genius Micky Rosa leading the way, they've cracked the code. By counting cards and employing an intricate system of signals, the team can beat the casinos big time. Seduced by the money, the Vegas lifestyle, and by his smart and sexy teammate, Jill Taylor, Ben begins to push the limits. Though counting cards isn't illegal, the stakes are high, and the challenge becomes not only keeping the numbers straight, but staying one step ahead of the casinos' menacing enforcer: Cole Williams.

It's definitely one of my favourite movies because:
  1. This movie is inspired by a True Story
  2. It's about brightest minds of students combining their knowledge to beat the Casino
  3. Their system of beating the casino deals with Odds and Probability, which is my favourite subject back in the school days.
  4. Unlike majority who "Gambles" in casino, they "Invest". Over a long term, they can't lose.
  5. They use their Talent to make money.

Download the movie in's Forum
(need a free registration before being able to view the links)

Read more about Card Counting in Blackjack : (it's written by a math teacher)

Will i try to do Card Counting (In Blackjack) to beat the Dealer?
I don't think so. I rather keep to Valuing Public Listed Companies and "trade" with anonymous people. At least, nobody knows the who they are trading with in Stocks.

I might write about the similarities of their system with Investing (in Common Stocks), if there is enough demand for it.

Saturday, December 20, 2008

Distinction between Investment and Speculation

Benjamin Graham, a famous investor in his own right and also notable because he is the man that taught Warren Buffett to invest, defined the difference between speculation and investment in this famous passage from his book The Intelligent Investor.

“An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative.”

Note that investing, according to Graham, consists equally of three elements:

  1. Thorough analysis - which means the study of the facts in the light of established standards of safety and value;
  2. Safety Of Principal - which means protection against loss under all normal or reasonably likely conditions orvariations;
  3. Adequate return - which means any rate or amount of return, however low, which the investor is willing to accept, provided he acts with reasonable intelligence;
    (Source: Security Analysis, 1934 Edition, by Benjamin Graham)

Like casino gambling or betting on the horses, speculating in the market can be exciting or even rewarding (if you happen to get lucky). But it’s the worst imaginable way to build your wealth. That’s because Wall Street, like Las Vegas or the racetrack, has calibrated the odds so that the house always prevails, in the end, against everyone who tries to beat the house at its own speculative game.

On the other hand, investing is a unique kind of casino—one where you cannot lose in the end, so long as you play only by the rules that put the odds squarely in your favor. People who invest make money for themselves; people who speculate make money for their brokers.

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator's primary interest lies in anticipating and profiting from market fluctuations. The investor's primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels at which he would be wise to buy and high price levels at which he certainly should refrain from buying and probably would be wise to sell."

Benjamin Graham also say that to have a true investment there must be present a true margin of safety. And a true margin of safety is one that can be demonstrated by figures, by persuasive reasoning, and by reference to a body of actual experience.

Friday, December 19, 2008

What Warren Buffett says about Diversification

This is one of the question asked by one of the student about Diversification to Warren Buffett. The entire video is available here : . I strongly recommended to see the video!.

Says Buffett, "If you are not a professional investor, if your goal is not to manage money in such a way that you get a significantly better return than world, then I believe in extreme diversification. I believe that 98 or 99 percent — maybe more than 99 percent — of people who invest should extensively diversify and not trade. That leads them to an index fund with very low costs. All they’re going to do is own a part of America. They’ve made a decision that owning a part of America is worthwhile. I don’t quarrel with that at all — that is the way they should approach it."

Thursday, December 11, 2008

Definition of Intrinsic Value

This article was extracted from Berkshire Hathaway's Owner's Manual written by Warren Buffett. It's available at :


Intrinsic value is an all-important concept that offers the only logical approach to evaluating the relative attractiveness of investments and businesses. Intrinsic value can be defined simply: It is the discounted value of the cash that can be taken out of a business during its remaining life.

The calculation of intrinsic value, though, is not so simple. As our definition suggests, intrinsic value is an estimate rather than a precise figure, and it is additionally an estimate that must be changed if interest rates move or forecasts of future cash flows are revised. Two people looking at the same set of facts, moreover — and this would apply even to Charlie and me — will almost inevitably come up with at least slightly different intrinsic value figures. That is one reason we never give you our estimates of intrinsic value. What our annual reports do supply, though, are the facts that we ourselves use to calculate this value.

Meanwhile, we regularly report our per-share book value, an easily calculable number, though one of limited use. The limitations do not arise from our holdings of marketable securities, which are carried on our books at their current prices. Rather the inadequacies of book value have to do with the companies we control, whose values as stated on our books may be far different from their intrinsic values.

The disparity can go in either direction. For example, in 1964 we could state with certitude that Berkshire’s per-share book value was $19.46. However, that figure considerably overstated the company’s intrinsic value, since all of the company’s resources were tied up in a sub-profitable textile business. Our textile assets had neither going-concern nor liquidation values equal to their carrying values. Today, however, Berkshire’s situation is reversed: Now, our book value far understates Berkshire’s intrinsic value, a point true because many of the businesses we control are worth much more than their carrying value.

Inadequate though they are in telling the story, we give you Berkshire’s book-value figures because they today serve as a rough, albeit significantly understated, tracking measure for Berkshire’s intrinsic value. In other words, the percentage change in book value in any given year is likely to be reasonably close to that year’s change in intrinsic value.

You can gain some insight into the differences between book value and intrinsic value by looking at one form of investment, a college education. Think of the education’s cost as its "book value." If this cost is to be accurate, it should include the earnings that were foregone by the student because he chose college rather than a job.

For this exercise, we will ignore the important non-economic benefits of an education and focus strictly on its economic value. First, we must estimate the earnings that the graduate will receive over his lifetime and subtract from that figure an estimate of what he would have earned had he lacked his education. That gives us an excess earnings figure, which must then be discounted, at an appropriate interest rate, back to graduation day. The dollar result equals the intrinsic economic value of the education.

Some graduates will find that the book value of their education exceeds its intrinsic value, which means that whoever paid for the education didn’t get his money’s worth. In other cases, the intrinsic value of an education will far exceed its book value, a result that proves capital was wisely deployed. In all cases, what is clear is that book value is meaningless as an indicator of intrinsic value.

Source : Berkshire Hathaway's Owner's Manual

This paragraph was extracted from Warren Buffett's letters to Berkshire Hathaway's shareholders in 1992. It's available at :

In The Theory of Investment Value, written over 50 years ago, John Burr Williams set forth the equation for value, which we condense here: The value of any stock, bond or business today is determined by the cash inflows and outflows - discounted at an appropriate interest rate - that can be expected to occur during the remaining life of the asset. Note that the formula is the same for stocks as for bonds.

Get from Amazon from the links below.


A good write-up about Intrinsic Value by Sham Grad in :