Wednesday, 25 September 2013 - 20:00
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Seed Weekly - Value Investing the Buffett Way
During my honours year at UCT we had to read and summarise all of Berkshire Hathaway’s annual shareholder letters. This was most likely to have the philosophy of value investing indoctrinated into our minds, as it’s a widely utilised investment philosophy – and one you hear most at investment presentations and while studying at university.
Value investors buy companies at prices below their true value. Company value is determined through fundamental bottom up analysis. Typical value indicators are companies with strong balance sheets, low price-to-earnings (PE) and price to book (P ratios and high dividend yields.
Unfortunately, while value investing seems simple, it’s not always that easy and cannot be done 100% through ratio analysis as one also needs wisdom and insight. For that reason it’s best to go back to the source of value investing. Benjamin Graham, a former professor at Columbia business school, is considered to be the father of value investing. If one wants to get into the heart and soul of value investing, two of Graham’s well known books The Intelligent Investor and Security Analysis are a good place to start.
Warren Buffett is his most famous student, and his nuggets of wisdom are found in his annual letters to his shareholders. One can learn a lot from the “Oracle of Omaha” and I thought this to be insightful information to share.
Warren Buffett was born in 1930, and at the age of 83 he is currently still the Chairman of Berkshire Hathaway Inc., the company he took over by way of a share buyout. Interestingly, the company was not started as an investment house; rather formed through two textile companies merging in 1955. Warren Buffett started buying shares in the company in 1962 and in 1964 he was the majority shareholder. Today it operates as a multinational investment holding company.
Some of the highlights found in his letters are his thinking and rationale behind the decisions he makes. Warren Buffett makes investing sound very simple:
• Use your logic.
• Work hard.
• Think clear.
• Be ethical.
• Enjoy what you do, that way you won’t have to work one single day of your life.
• Invest into businesses where tailwinds prevail rather than headwinds.
• Place a lot of weight on measuring managerial economic performance by a company’s return on equity (ROE).
• Buy shares to become a mutual owner in the company – and thereby aim to remain a shareholder forever.
• Measure a company’s performance over the long term – not any given day.
Mr Buffett tries to get a significant stake in a company since; “If something’s not worth doing at all, it’s not worth doing.” he admits that he made mistakes in the past by acquiring businesses – mostly due to miscalculation. However, it is easier to correct your wrongs when you have controlling interest in the company. While investors and managers must place their feet in the future, their memories and nervous systems often remain plugged into the past.
Some of his lines of wisdom are indeed very catchy. “Like virginity, a stable price level seems capable of maintenance, but not of restoration” or the Noah principle: “predicting rain doesn’t count, building arks does.”
The first letter dates back to 1977 we will therefore break it up in sections of five years at a time. A one page summary of each year will also be posted onto our website. For what it’s worth – feel free to give it a read and provide us with any insights and comment if you like. This is by no means a comprehensive summary of his work; the full collection of his letters is available at http://www.berkshirehathaway.com. Judging by the appearance of the company’s website (which looks like something from the 80’s) – it is clear that Warren Buffett completely skipped the dotcom bubble. There is much to learn from this man. It is this kind of insight that makes Warren Buffett the most successful investor of the 20th century.
Kind regards,
Lourens Rabe
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Wed, 25 Sep 2013
Top News
Revenue for the year grew to R93.7 million (2012: R81 million). Operating profit shot up to R10.8 million (2012: R8.5 million). Total comprehensive income attributable to owners of the company increased to R9.8 million (2012: R7.2 million). In addition, headline earnings per share rose to 10 Full story
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Markets | U.S. stocks were set to open
mixed on Monday as traders balanced upbeat data from Germany and
China with angst ahead of Federal. . . Full story | | Gold edged down on Monday,
adding to the previous session's sharp sell-off as confusion
over the outlook for U.S. monetary policy dragged on,. . . Full story | | Shares and the euro trod water
on Monday as an election triumph for Angela Merkel and upbeat
euro zone and Chinese data helped. . . Full story | | Britain's top share index
slipped on Monday, led down by banks on a hint that the U.S.
Federal Reserve could move to cut. . . Full story |
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| European shares traded flat at
midday on Monday after stronger euro zone data and Angela
Merkel's landslide personal victory in Germany's election failed
to. . . Full story | | Hong Kong shares slipped from
a near eight-month high, led by a 1.9 percent tumble for index
heavyweight HSBC Holdings as investors. . . Full story | | China shares returned
strongly from a holiday break, outperforming most Asian markets
on Monday after a survey showed manufacturing activity in the
world's second-largest. . . Full story | | Australian shares fell 0.5
percent on Monday as investors fretted over mixed signals of
when the Federal Reserve could scale back its stimulus. . . Full story |
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Company News | The company has entered into an agreement with Izingwe Holdings PTy LTd (Izingwe) which currently holds 10.25% of the issued share. . . Full story | | The board of Trustco advised that at the Annual General Meeting of shareholders held today, all the resolutions as set out. . . Full story | | The company reported a 26% increase in second quarter volumes of gravel processed to 934 975m3, of which 627 746m3 was. . . Full story | | Taste is currently finalising its results for the six months ended 31 August 2013 and shareholders were advised that the directors. . . Full story |
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| Anglo American South Africa ("AASA") announced that it has concluded an agreement which resolves fully and finally 23 stand-alone silicosis claims, instituted against it between 2004 and 2009. The settlement has. . . Full story | | Shareholders were referred to the company's outlook statement contained in its 2013 year-end results announcement and are advised that the company's normalised headline earnings per share are expected to be between. . . Full story | | On 4 January 2013 Anglo announced the sale of its 70% interest in the Amapß iron ore operation in Brazil ("Amapß") to Zamin Ferrous Ltd. ("Zamin"). On 28 March 2013, prior. . . Full story |
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Company Results | Interest income rose by 52% to R4.6 billion (R3 billion). Net interest income was up 55% to R3.6 billion (R2.3 billion).. . . Full story | | Revenue was up to R133.1 million (2012: R92 million). Operating loss was recorded at R7.7 million (2012: profit of R7.6 million).Total. . . Full story | | Revenue for the year grew 2% to R862.6 million (R844.4 million). Operating loss was R44.5 million (profit of R45.6 million). Loss. . . Full story | | Torre released its maiden final results as a listed company showing revenue of R83.1 million. Gross profit amounted to R41.7 million. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 44453.88 | 436.15 | 0.99% | JSE Top 40 | 17:00 | 39824.79 | 380.73 | 0.97% | JSE Gold | 17:00 | 1224.59 | -.17 | -0.01% | JSE Financial | 17:00 | 32120.86 | 338.51 | 1.07% | JSE Industrial | 17:00 | 58664.32 | 621.85 | 1.07% | JSE Indust 25 | 17:00 | 51517.96 | 542.02 | 1.06% | JSE Resource | 17:00 | 50340.02 | 382.33 | 0.77% | DJ Futures | 19:54 | 15210.00 | -76.00 | -0.50% | DJ Ind | 20:00 | 15261.74 | -72.85 | -0.48% | SP 500 | 20:00 | 1693.06 | -4.36 | -0.26% | Nasdaq | 20:00 | 3762.76 | -5.49 | -0.15% | FTSE 100 | 17:35 | 6551.53 | -19.93 | -0.30% | DAX | 18:08 | 8665.63 | 1.03 | 0.01% | CAC40 | 18:08 | 4195.35 | -.26 | -0.01% | Nikkei | 08:50 | 14620.53 | -112.08 | -0.76% | Shanghai | 09:28 | 2198.52 | -9.02 | -0.41% | Hang-Seng | 10:28 | 23209.63 | 30.59 | 0.13% | All Ords | 08:44 | 5270.10 | 40.60 | 0.78% | NZSE 50 | 07:52 | 4764.72 | 54.13 | 1.15% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1335.41 | 12.09 | 0.91% | Gold R | 20:00 | 13294.27 | 51.78 | 0.39% | Gold R/kg | 20:00 | 427411 | 7740 | 1.84% | Silver $ | 19:59 | 21.8300 | .1310 | 0.60% | Platinum $ | 19:59 | 1425.00 | 1.50 | 0.11% | Palladium $ | 19:59 | 721.70 | 4.10 | 0.57% | R157 | 16:49 | 5.98 | .04 | 0.67% | R186 | 17:32 | 7.89 | -.01 | -0.13% | R204 | 16:51 | 6.93 | .02 | 0.29% | R207 | 16:51 | 7.21 | -.00 | -0.07% | Brent Crude | 20:00 | 108.64 | -.58 | -0.53% | Rand / Dollar | 19:59 | 9.9552 | 0.0872 | 0.88% | Rand / Pound | 19:55 | 15.9684 | 0.2056 | 1.30% | Rand / Euro | 19:55 | 13.4609 | 0.1648 | 1.24% | Rand / NZD | 23/09 | 8.2389 | 0.1084 | 1.33% | Rand / AUD | 19:55 | 9.3266 | 0.0585 | 0.63% | Yen / Dollar | 19:59 | 98.5430 | -0.1790 | -0.18% | Euro / Dollar | 23/09 | 0.7390 | -0.0001 | -0.01% | Dollar / Euro | 19:59 | 1.3524 | 0.0053 | 0.39% | Pound / Dollar | 19:55 | 0.6219 | -0.0028 | -0.45% |
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The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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25/09/2013 | 275 | 112 | 64 | 451 | 221,276,228 | R14,833,035,530 | 173775 | 1953521 | 23/09/2013 | 171 | 157 | 67 | 395 | 140,696,274 | R8,545,910,216 | 110199 | 1585614 | 20/09/2013 | 139 | 215 | 70 | 424 | 297,858,518 | R20,989,169,169 | 176196 | 1689215 | 19/09/2013 | 292 | 88 | 72 | 452 | 342,688,748 | R28,432,805,050 | 164257 | 1983928 | 18/09/2013 | 116 | 222 | 77 | 415 | 193,231,660 | R11,369,297,273 | 122273 | 1639447 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 39,824.79 | 380.73 | 0.97% | Industrial | 58,664.32 | 621.85 | 1.07% | Mid Cap | 58,105.24 | 659.04 | 1.15% | Small Cap | 48,208.10 | 485.84 | 1.02% | Resource 20 | 50,340.02 | 382.33 | 0.77% | Industrial 25 | 51,517.96 | 542.02 | 1.06% | Financial 15 | 12,149.46 | 134.49 | 1.12% | Financial & Ind. 30 | 54,415.62 | 567.47 | 1.05% | All Share | 44,453.88 | 436.15 | 0.99% | Oil & Gas | 36,769.51 | 634.91 | 1.76% | Mining | 30,542.63 | 171.91 | 0.57% | Gold Mining | 1,224.59 | -.17 | -0.01% | Platinum Mining | 51.49 | .26 | 0.51% | GENERAL MINING | 8,757.90 | 56.56 | 0.65% | Oil & Gas Producers | 19,770.29 | 341.38 | 1.76% | Basic Materials | 27,133.79 | 196.26 | 0.73% | Chemicals | 23,535.67 | 681.03 | 2.98% | Forestry & Paper | 27,699.52 | 752.74 | 2.79% | Industrial Metals | 24,657.54 | -226.35 | -0.91% | Industrials | 43,184.76 | 428.99 | 1.00% | General Industrials | 129.76 | 1.61 | 1.26% | Consumer Goods | 54,332.84 | 261.42 | 0.48% | Automobiles & Parts | 7,585.94 | 113.23 | 1.52% | Household Goods | 236.61 | 2 | 0.99% | Health Care | 75,458.04 | 1223.30 | 1.65% | Beverages | 175.68 | 1.08 | 0.62% |
| | Index Name | RP | Move | % Move | Food Producers | 72,179.13 | 1484.66 | 2.10% | Personal Goods | 1,007.05 | 1.30 | 0.13% | Consumer Services | 10,274.56 | 92.16 | 0.91% | General Retailers | 65,094.92 | 915.29 | 1.43% | Travel & Leisure | 5,550.87 | 21.44 | 0.39% | Media | 205.97 | .56 | 0.27% | Support Services | 2,610.47 | 9.33 | 0.36% | Telecommunications | 9,462.82 | 253.79 | 2.76% | Financials | 32,120.86 | 338.51 | 1.07% | Banks | 56,083.55 | 750.98 | 1.36% | Non-life Insurance | 49,513.08 | 765.66 | 1.57% | Life Insurance | 30,307.77 | 236.09 | 0.79% | General Financial | 2,837.93 | 19.21 | 0.68% | Technology | 43,562.62 | 499.71 | 1.16% | SHARIAH TOP40 | 3,755.38 | 44 | 1.19% | FTSE/JSE SHARIAH ALL | 3,868.95 | 47 | 1.24% | COAL MINING | 20,993.33 | 7 | 0.03% | FTSE JSE Fledgling | 5,883.77 | 43 | 0.73% | FTSE/JSE Alt X | 1,038.20 | 2 | 0.20% | SA LISTED PROPERTY | 510.72 | | 1.21% | CAPPED PROPERTY | 428.33 | | 1.45% | RESOURCE | 27,549.71 | 211 | 0.77% | DIVIDEND PLUS | 215.18 | 3 | 1.33% | FTSE/JSE RAFI 40 | 8,771.61 | 100 | 1.15% | Capped Top 40 | 21,085.95 | 208 | 1.00% | Capped All Share | 22,519.06 | 223 | 1.00% | JSE TABACO | 6,757.14 | -12 | -0.18% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | TKG | TELKOM SA LIMITED | BUY | 23/09/2013 | CLH | CITY LODGE HOTELS LIMITED | HOLD | 20/09/2013 | TSH | TSOGO SUN HOLDINGS LIMITE... | HOLD | 20/09/2013 | SUI | SUN INTERNATIONAL LTD | BUY | 20/09/2013 | BAW | BARLOWORLD LIMITED | SELL | 18/09/2013 |
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Results Expected** Expected | Company Name | Fin. Date | 26/09/2013 | FONEWORX | June 2013 (Final) | 26/09/2013 | KIBO | March 2013 (Interim) | 26/09/2013 | TORRE | June 2013 (Final) | 26/09/2013 | WITS LD | June 2013 (Interim) | 26/09/2013 | WITSLDTSX | June 2013 (Interim) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | PUTPROP | 20/09/13 | 11/10/13 | 21/10/13 | ZAR 0.1800 | CONVERGE | 20/09/13 | 22/11/13 | 02/12/13 | ZAR 0.1200 | FAIRVEST | 19/09/13 | 04/10/13 | 14/10/13 | ZAR 0.0600 | KGMEDIA | 18/09/13 | 04/10/13 | 14/10/13 | ZAR 0.4000 | ELBGROUP | 18/09/13 | 18/10/13 | 28/10/13 | ZAR 0.6000 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | ARM | 02/09/13 | 19/09/13 | 30/09/13 | ZAR 5.1000 | IMPERIAL | 20/08/13 | 19/09/13 | 30/09/13 | ZAR 4.4000 | GRINDROD PREF | 02/09/13 | 19/09/13 | 30/09/13 | ZAR 3.7100 | PSGFIN PREF | 02/09/13 | 19/09/13 | 30/09/13 | ZAR 3.5706 | IMPERIALP | 20/08/13 | 19/09/13 | 30/09/13 | ZAR 3.4966 |
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Upcoming AGMs** Code | Company Name | Date | Status | GGP | GoGlobal Properties Ltd. | 25/09/2013 | Confirmed | OMN | Omnia Holdings Ltd. | 26/09/2013 | Confirmed | ZCI | ZCI Ltd. | 26/09/2013 | Confirmed | BSS | BSI Steel Ltd. | 26/09/2013 | Confirmed | OMP | Omnia Holdings Ltd. | 26/09/2013 | Confirmed |
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