Warren E. Buffett Jack Bogle Bill Miller Tony Measor
The third on the list of the world’s richest people. 1951 – 1954 Investment Salesman at Buffett – Falk & Co. 1954-1956 Securities Analyst at Graham- Newman Corp. 1956-1969 General Partner at Buffett Partnership, Ltd. 1970 - CEO at Berkshire Hathaway Inc.
he was named chairman of Wellington Founder and retired CEO of The Vanguard Group Creator of the first index fund and author of several prominent books on investing.
Portfolio Manager of Legg Mason Value Trust (LMVTX). Since inception, his fund has earned 15.25% average annual total returns. Bill Miller is the only fund manager that has outperformed S&P500 for 15 consecutive years.
Asia’s best stock commentator Financial editor of ‘The Standard’ 50 years’ experience in Hong Kong, London and Asia Pacific
At least 70% of the time, stock price increases while cash remains unchanged. Especially in inflation.
Only invest in a company that you trust and know well. The company should perform well and have a great potential in providing increasing return to stockholders. If the operation of the company varies a lot and is so complicated to predict, then we may not have enough intelligence to predict the future cash flow.
Read more financial reports The more you concern, the more the prediction may be wrong E.g. 5 variables concerned 90% x 90% x 90% x90% x90% = 59.049% Probability to be wrong = 1 – 59.049% = 40.951%
Simplicity is the best. The intrinsic value (accounting value X) of a company The stock price is fairly priced or not
Present value of cash flow generated by the rest of the life of the company Value is predicted differently The more conservative, the better The value depends on the stable and long- history operations It depends on return of stockholders, increase in accounting value.
Buy stocks of an incredible company with a reasonable and fair price? Buy stocks of a normal company with a incredibly low price? The stock price is judged to be too high or too low by comparing with other companies’ stock price. Reason: It is difficult for companies with currently bad operations to succeed again. Agreed by all investors
Preference: to hold the stock forever. Lowest cost of trade Increasing return Buy the stock when it is underpriced
What customers need or desire No other substitutes No constraint on price E.g. Coca Cola 680% return Profit of 8,851,000,000 US dollars in 15 years
Warren E. Buffett: risk adverse Rule Number 1: Never lose Rule Number 2: Remember rule number 1 Bill Miller: risk love Statistically you are far better off with huge gains because you are going to make mistakes. And if you are playing small ball and you make a few mistakes, you can’t recover. Jack Bogle: learn from mistakes
Over-confidence You can take control of the market. Success is attributed to my ability, regardless of the importance of luck and opportunity. (especially professionals) Result: over-trade -> price increases -> loss suffer
Over react Depending too much on short-term information with the ignorance of long-term information. Result 1)Stock price increases, a decrease in stock prices occur, vice versa 2) The larger the amplitude, the larger the response
Inability to react Lack of knowledge of the newest information Professional investors have prejudice on bad performing companies, ignoring their growth. Result: Miss the chance to invest
Effect of loss Given a certain amount of money, effect of loss > effect of gain 250% (Kahneman and Tversky) People prefer bonds to stocks
Conformity Don’t be a follower Miller agrees with Buffett that you should be fearful when others are greedy, and greedy when others are fearful. So when the market has been down for a while, and it looks bad, then you should be more aggressive, and when it has been up for a while, then you should be less aggressive.
Good company = Good stock??? When a good company’s stock price is too high bad stock When a bad company’s stock price is too low good stock
Diversification??? YES Lack of judgement ability Lack of professional knowledge
Investment =/= Mathematics No correct or not Only successful or not Luck contributes Hard working also contributes