Tuesday, 28 January 2014 - 20:00
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Value investing the Buffett way: 1992 ? 1997
“We think the very term "value investing" is redundant. What is "investing" if it is not the act of seeking value at least sufficient to justify the amount paid? Consciously paying more for a stock than its calculated value - in the hope that it can soon be sold for a still-higher price - should be labelled speculation (which is neither illegal, immoral nor - in our view - financially fattening).”
Warren Buffett mentioned in his 1992 letter that when investing, practice does not make perfect but rather that practice makes permanent. It pays to be active, interested and open-minded when investing, but patience is essential. Instead of looking for fair businesses at good prices, rather take your time to buy good businesses at fair prices.
One should always be open to new ideas. Berkshire, for example, included holdings from the shoe industry in its portfolio, at that time Mr Buffett mentioned he probably would’ve never thought of it five years prior. It is again stressed to look at intrinsic value rather than book value. These two often diverge during the short run. Intrinsic value equals the present value of all future cash flows that can be taken out of a business during its remaining life, whereas book value includes retained earnings.
He sees “risk” as the possibility of loss or injury and not volatility, as it’s widely defined (particularly in academic circles). “It is better to be approximately right than precisely wrong.”
In his opinion, the real risk that an investor must assess is whether his after tax returns from an investment will match inflation over the prospective holding periods plus a modest real return on the initial stake. In order to achieve this, the principles to be evaluated include the certainty of:
• economic characteristics of the business;
• company management (to operate the business to its potential and to wisely employ its cash flows;
• management that can be trusted to run the business to reward the shareholders rather than themselves;
• the purchase price of the business;
• the levels of taxation and inflation that will be experienced and that will determine the degree by which an investor's purchasing-power return is reduced from his gross return.
“You know it when you see it – you don’t need complex equations or price histories.”
Berkshire ignores political and economic forecasts, which are wrong most of the time, and has proven to be an expensive distraction for many investors and businessmen. Buffett mentions that Berkshire usually makes its best purchases when apprehensions about some macro event are at a peak, “Fear is the foe of the faddist, but the friend of the fundamentalist.”
He looks for managers that earn extraordinary returns from what appear to be ordinary businesses. His goal is then to acquire either part or all of the business that is understandable, has sustainable underlying economics, and is run by managers whom he likes, admires, and trusts. Before looking at a new investment one should consider adding to old ones. If a business is attractive enough to buy once, it may well pay to repeat the process.
Qualitative analysis is of immense importance, as seen in factors such as good corporate governance. “Directors should speak their mind and persuade other members for the greater good. The requisites for board membership should be business savvy, interest in the job, and owner-orientation. Not because they’re prominent or add diversity”.
Interestingly, in the late 1990’s Mr Buffet makes his infamous concerns regarding tech companies. He exclaims the importance of a “margin of safety” that Ben Graham identified as the cornerstone of intelligent investing. He called himself a life-long sufferer from technophobia (admittedly Berkshire did start uploading their annual reports to the internet in the 1990’s – but as a means of saving printing and distribution costs). He does not invest in tech stocks because he does not understand the business model – plain and simple.
It is evident from this report that Warren Buffett seeks to focus his time and effort on what he knows. This is his “circle of competence”. Investors would do well to only invest where they have expertise and resist investing purely on the back of a ‘good story’. At Seed we don’t claim to ‘know it all’, but rather focus on our areas of expertise to provide solid inflation beating returns for our clients.
Kind regards,
Lourens Rabé
www.seedinvestments.co.za
info@seedinvestments.co.za
021 914 4966
Tue, 28 Jan 2014
Top News
Stock markets steadied on
Tuesday after three days of intense selling as investors waited
to see if Turkey, one of the epicenters of the recent rout,
would hike interest rates to defend its battered lira. Full story
South African shares steadied on Tuesday with twitchy global investors taking a pause from dumping risky emerging market assets and as oversold stocks were snapped up. Full story |
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Ukrainian Prime Minister Mykola
Azarov resigned on Tuesday while deputies loyal to President
Viktor Yanukovich, acting to calm violent street protests,
back-tracked and overturned anti-protest laws they rammed
through parliament 12 days ago. Full storyA deal to lift an armed
blockade of Libyan oil ports and restart exports could be
possible within two weeks after talks with the government
advanced on key demands, a senior leader of the protest movement
said. Full storyIndia is set to become the
first country since World War Two to buy a military aircraft
from Japan, helping Prime Minister Shinzo Abe dismantle a ban on
weapons exports that has kept his country's defence contractors
out of foreign markets. Full story |
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Markets | European shares snapped a
three-day fall on Tuesday, bouncing back on better growth
prospects for Spain, encouraging updates from some industrial
companies and a. . . Full story | | Britain's blue chip shares picked
up on Tuesday from five-week lows after finding strong technical
support in the face of easing tensions in. . . Full story | | U.S. stocks edged up on Tuesday
after a three-session decline on the S&P 500, but an unexpected
drop in durable goods orders in. . . Full story | | Gold prices eased on Tuesday,
extending the previous session's 1 percent drop, as global
equities rebounded from their lowest in over a month. . . Full story |
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| Wall Street edged modestly
higher on Tuesday after a three-session decline on the S&P 500,
but market sentiment was weighed by an unexpected. . . Full story | | U.S. stock index futures pared
gains on Tuesday after data showed orders for long-lasting U.S.
manufactured goods unexpectedly fell in December as did. . . Full story | | European shares bounced back from
near one-month lows on Tuesday, helped by a rise in Spanish
banks and higher profits at German engineer. . . Full story | | European shares bounced back from
near one-month lows on Tuesday, helped by a rise in Siemens
after the German engineer posted higher. . . Full story |
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SA Business | South Africa's rand stabilised against the dollar on Tuesday a day after sliding to a five-year low, as a sell-off of. . . Full story | | South African maize farmers have planted 2.71 million hectares for 2014 compared to 2.78 million hectares last year, a government agency. . . Full story | | Aquarius Platinum Ltd, the world's fourth-largest platinum miner, reported a 7 percent rise in second-quarter output attributable to the company, despite. . . Full story | | Government-brokered talks between South Africa's AMCU union and the world's top three platinum producers ended on Monday with no breakthrough in. . . Full story |
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| Turkey's lira
extended gains on Tuesday on bets of an aggressive interest rate
hike, while other emerging market currencies and stocks rose on
growing. . . Full story | | Zimbabwe's central bank on Tuesday published an interest rate range guide for the money market to try and rein in large. . . Full story | | From the rattle of weaving looms and footwear stitching machines in northern Portugal to the rumble of trucks shipping high-quality paper. . . Full story | | From the rattle of weaving looms
and footwear stitching machines in northern Portugal to the
rumble of trucks shipping high-quality paper across the. . . Full story |
World Markets (Spot Prices)
Name | Time | RP | Move | % Move | JSE Overall | 17:00 | 45724.70 | -26.00 | -0.06% | JSE Top 40 | 17:00 | 41085.10 | -5.54 | -0.01% | JSE Gold | 17:00 | 1234.17 | -35.93 | -2.83% | JSE Financial | 17:00 | 32259.43 | -4.95 | -0.02% | JSE Industrial | 17:00 | 59877.36 | -98.31 | -0.16% | JSE Indust 25 | 17:00 | 52617.73 | -99.73 | -0.19% | JSE Resource | 17:00 | 53600.49 | 86.24 | 0.16% | DJ Futures | 19:58 | 15840.00 | 52.00 | 0.33% | DJ Ind | 19:58 | 15908.36 | 70.48 | 0.45% | SP 500 | 19:58 | 1789.52 | 7.96 | 0.45% | Nasdaq | 19:58 | 4082.78 | -0.83 | -0.02% | FTSE 100 | 18:35 | 6572.33 | 21.67 | 0.33% | DAX | 19:10 | 9406.91 | 57.69 | 0.62% | CAC40 | 19:10 | 4185.29 | 40.73 | 0.98% | Nikkei | 08:30 | 14980.16 | -411.40 | -2.67% | Shanghai | 09:28 | 2038.51 | 5.21 | 0.26% | Hang-Seng | 10:26 | 21960.64 | -15.46 | -0.07% | All Ords | 07:41 | 5188.00 | -66.30 | -1.26% | NZSE 50 | 06:48 | 4848.44 | -5.36 | -0.11% |
| | Name | Time | RP | Move | % Move | Gold $ | 19:59 | 1250.50 | -5.00 | -0.40% | Gold R | 19:59 | 13844.93 | -100.00 | -0.72% | Gold R/kg | 19:58 | 444969 | -5411 | -1.20% | Silver $ | 19:59 | 19.4800 | -.1500 | -0.76% | Platinum $ | 19:59 | 1407.60 | 1.60 | 0.11% | Palladium $ | 19:59 | 715.20 | -4.30 | -0.60% | R157 | 15:37 | 6.66 | .09 | 1.37% | R186 | 15:37 | 8.70 | .02 | 0.29% | R204 | 15:37 | 7.80 | .06 | 0.84% | R207 | 15:37 | 8.10 | .06 | 0.75% | Brent Crude | 19:58 | 107.19 | -.69 | -0.64% | Rand / Dollar | 19:59 | 11.0724 | -0.0391 | -0.35% | Rand / Pound | 19:55 | 18.2971 | -0.0937 | -0.51% | Rand / Euro | 19:55 | 15.1121 | -0.0815 | -0.54% | Rand / NZD | 19:59 | 9.1462 | -0.0036 | -0.04% | Rand / AUD | 19:55 | 9.7102 | 0.0033 | 0.03% | Yen / Dollar | 19:59 | 102.9000 | 0.2730 | 0.27% | Euro / Dollar | 19:59 | 0.7320 | 0.0006 | 0.08% | Dollar / Euro | 19:59 | 1.3661 | -0.0010 | -0.07% | Pound / Dollar | 19:55 | 0.6033 | 0.0004 | 0.07% |
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Click here for the Sharenet Spot Price page
The JSE Today
Trading Statistics
Date | Adv. | Decl. | Unch. | Actives | Volume | Value | Trades | Orders |
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28/01/2014 | 150 | 207 | 80 | 437 | 213,975,563 | R15,807,037,893 | 166594 | 1421746 | 27/01/2014 | 97 | 301 | 58 | 456 | 256,668,120 | R16,861,200,462 | 203416 | 1511771 | 24/01/2014 | 146 | 247 | 60 | 453 | 271,519,529 | R16,888,834,355 | 184355 | 132016 | 23/01/2014 | 200 | 175 | 61 | 436 | 259,129,078 | R16,679,165,575 | 185393 | 1450169 | 22/01/2014 | 215 | 137 | 71 | 423 | 178,695,665 | R11,250,990,086 | 136459 | 774460 |
* Includes all listed instruments on the JSE
Index Summary Index Name | RP | Move | % Move | Top 40 | 41,085.10 | -5.54 | -0.01% | Industrial | 59,877.36 | -98.31 | -0.16% | Mid Cap | 58,617.71 | -133.13 | -0.23% | Small Cap | 49,717.75 | -265.09 | -0.53% | Resource 20 | 53,600.49 | 86.24 | 0.16% | Industrial 25 | 52,617.73 | -99.73 | -0.19% | Financial 15 | 12,252.70 | 20.71 | 0.17% | Financial & Ind. 30 | 55,479.78 | -63.95 | -0.12% | All Share | 45,724.70 | -26.00 | -0.06% | Oil & Gas | 41,121.56 | 484.32 | 1.19% | Mining | 32,113.11 | -33.13 | -0.10% | Gold Mining | 1,234.17 | -35.93 | -2.83% | Platinum Mining | 50.82 | .58 | 1.15% | GENERAL MINING | 9,349.84 | 9.45 | 0.10% | Oil & Gas Producers | 22,110.30 | 260.41 | 1.19% | Basic Materials | 28,431.88 | -36.37 | -0.13% | Chemicals | 24,643.43 | 197.81 | 0.81% | Forestry & Paper | 28,544.04 | -131.92 | -0.46% | Industrial Metals | 23,689.41 | -244.28 | -1.02% | Industrials | 42,574.01 | -116.09 | -0.27% | General Industrials | 129.82 | -.44 | -0.34% | Consumer Goods | 56,261.00 | -683.12 | -1.20% | Automobiles & Parts | 9,873.04 | -101.90 | -1.02% | Household Goods | 312.73 | 2 | 0.68% | Health Care | 71,051.14 | 1076.67 | 1.54% | Beverages | 178.69 | -3.81 | -2.09% |
| | Index Name | RP | Move | % Move | Food Producers | 66,730.23 | -63.75 | -0.10% | Personal Goods | 1,045.90 | -6.30 | -0.60% | Consumer Services | 10,557.73 | 226.01 | 2.19% | General Retailers | 57,501.17 | 157.33 | 0.27% | Travel & Leisure | 5,617.51 | 68.64 | 1.24% | Media | 234.07 | 8.13 | 3.60% | Support Services | 2,475.52 | -28.67 | -1.14% | Telecommunications | 9,770.63 | -114.01 | -1.15% | Financials | 32,259.43 | -4.95 | -0.02% | Banks | 54,275.68 | 270.31 | 0.50% | Non-life Insurance | 46,325.36 | 640.61 | 1.40% | Life Insurance | 31,349.14 | 18.45 | 0.06% | General Financial | 3,118.08 | -27.39 | -0.87% | Technology | 41,276.55 | -176.76 | -0.43% | SHARIAH TOP40 | 3,938.67 | -1 | -0.03% | FTSE/JSE SHARIAH ALL | 4,046.80 | -2 | -0.05% | COAL MINING | 19,190.19 | -527 | -2.67% | FTSE JSE Fledgling | 6,364.22 | -34 | -0.52% | FTSE/JSE Alt X | 1,250.76 | -9 | -0.74% | SA LISTED PROPERTY | 475.76 | | -0.60% | CAPPED PROPERTY | 420.70 | | -0.34% | RESOURCE | 29,287.26 | 38 | 0.13% | DIVIDEND PLUS | 210.58 | -1 | -0.35% | FTSE/JSE RAFI 40 | 9,096.19 | 4 | 0.05% | Capped Top 40 | 21,686.49 | 2 | 0.01% | Capped All Share | 23,139.56 | -14 | -0.06% | JSE TABACO | 7,044.39 | -138 | -1.92% |
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Click here for the Sharenet Index Summary page
Latest Consensus Changes** Code | Company Name | Status | Updated | ABL | AFRICAN BANK INVESTMENTS ... | BUY | 24/01/2014 | NPN | NASPERS LIMITED | BUY | 24/01/2014 | REI | REINET INVESTMENTS SCA | BUY | 24/01/2014 | ACL | ARCELORMITTAL SA LTD | HOLD | 24/01/2014 | REM | REMGRO LIMITED | HOLD | 24/01/2014 |
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Results Expected** Expected | Company Name | Fin. Date | 31/01/2014 | ZCI | September 2013 (Interim) | 03/02/2014 | AMPLATS | December 2013 (Final) | 03/02/2014 | ANGLOPLATCCP | December 2013 (Final) | 03/02/2014 | HARMONY | December 2013 (Interim) | 03/02/2014 | HARMONY-P | December 2013 (Interim) |
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Recent Dividends** Share Name | Dec-Date | LDT | Pay-Date | Amount | IMPL CONV | 24/01/14 | 07/02/14 | 21/02/14 | ZAR 25,000.0000 | TOWER | 23/01/14 | 07/02/14 | 17/02/14 | ZAR 0.3300 | FOORDCMPS | 20/01/14 | 07/02/14 | 17/02/14 | ZAR 0.5875 | MARSHALL | 17/01/14 | 31/01/14 | 14/02/14 | USD 0.0180 | ARGENT | 04/12/13 | 20/03/14 | 31/03/14 | ZAR 0.0700 |
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Ex Div** Share Name | Dec-Date | LDT | Pay-Date | Amount | TONGAAT | 11/11/13 | 24/01/14 | 06/02/14 | ZAR 1.5000 | PNR FOODS | 25/11/13 | 24/01/14 | 03/02/14 | ZAR 0.8600 | NETCARE | 18/11/13 | 24/01/14 | 03/02/14 | ZAR 0.4050 | DON | 08/01/14 | 24/01/14 | 03/02/14 | ZAR 0.1600 |
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Upcoming AGMs** Code | Company Name | Date | Status | BAW | Barloworld Ltd. | 29/01/2014 | Confirmed | BAWP | Barloworld Ltd. | 29/01/2014 | Confirmed | TMT | Trematon Capital Investments Ltd. | 29/01/2014 | Confirmed | CLS | Clicks Group Ltd. | 30/01/2014 | Confirmed | RDF | Redefine Properties Ltd. | 30/01/2014 | Confirmed |
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