Wisdoms in investmentYau Tat Kwan, Jacob2008046921

Similarities and Differences Warren E. Buffett Jack Bogle Bill Miller Tony Measor

Warren E. Buffett

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.

Jack Bogle

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.

Bill Miller

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.

Tony Measor

Asia’s best stock commentator Financial editor of ‘The Standard’ 50 years’ experience in Hong Kong,

London and Asia Pacific

Cash is NOT King --- Tony Measor At least 70% of the time, stock price

increases while cash remains unchanged.

Especially in inflation.

Know what you don’t know --- Warren E. Buffett 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.

Which stock should we pick? --- Warren E. Buffett 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%

Which stock should we pick? --- Warren E. Buffett Simplicity is the best. The intrinsic value (accounting value

X) of a company The stock price is fairly priced or not

Intrinsic Value

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.

When to buy a stock? 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

The ideal stock

Preference: to hold the stock forever. Lowest cost of trade Increasing return Buy the stock when it is underpriced

Warren E. Buffett’s favorite 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

Risk Adverse? Risk Love? 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

Common Pitfalls

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

Common Pitfalls

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

Common Pitfalls

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

Common Pitfalls

Effect of loss Given a certain amount of money,

effect of loss > effect of gain 250% (Kahneman and Tversky)

People prefer bonds to stocks

Common Pitfalls

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.

Common Pitfalls

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

Put all the eggs in one basket?Diversification??? YES Lack of judgement ability Lack of professional knowledge

Conclusions:

Investment =/= Mathematics No correct or not Only successful or not Luck contributes Hard working also contributes

End

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