Rule # 1 Resources

Replies to This Discussion

Permalink Reply by Jeff on August 6, 2009 at 10:47am

Hey Adrian, thanks for starting this group.

Here is my Rule One Worksheet. I haven't updated it in over 9 months, so the analysis is a bit dated.

Jeff

Attachments:

• Rule One Analysis.xls, 100 KB

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Permalink Reply by steve on August 6, 2009 at 4:08pm

So What is MOS on this spread sheet?

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Permalink Reply by Adrian on August 6, 2009 at 6:12pm

@ Jeff - Looks great ... and, almost identical to mine, only your is much neater!

@ Steve - Margin of Safety i.e. if you think the stock is worth $100, still you should only pay $50 'just in case' .... but, these are all concepts explained in the book, which I highly encourage you to buy/read.

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Permalink Reply by steve on August 6, 2009 at 6:36pm

I should have known this shortened version of margin of safety. I am constantly reading about stocks. Its just that old age(mind goes where it wants to thing lol). Thanks again

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Permalink Reply by John Doe Jr on August 6, 2009 at 9:55pm

I haven't read Phil's book - I'll look for it at the local library next visit. If he's a value investor with the Buffett add-on of durable competitive advantage, then it should be a useful (always good to get a different perspective on tried-and-true principles).

I particularly hope he talks about the emotional side of investing. As a competitive guy, this one is a real challenge for me and one I'd like to throw out to you guys, if I may.

The big example on my mind is my initial investment in BYD (the Chinese electric car/battery company) (HKG:1211) which Buffett bought into at HK$8 late last year (but which he only consummated last month after regulatory approval). I was intrigued because of Charlie Munger's involvement in recommending the company. Munger is a big Phil Fisher fan (as am I) and it seemed this would be a great growth company with a big economy of scale advantage in addition to having a very impressive CEO/founder.

I bought a big chunk (for me at least) of BYD shares here in Hong Kong at average of HK$13 between Nov 08 and Feb 09. Then I sold out at around HK$14.50 in March. I was freaked out by the PE rising to over 30 after a report of losses for FY08 and given the questionable state of the global recovery at that time. I also (invented?) growing concerns that the electric car industry is going to get real crowded with some big names dumping big bucks to win market share thereby eroding margins for every operator, including BYD.

The bottom line was that I was nervous in a Ben Graham sense of thinking the share was over valued. I suppose part of me was also greedily waiting for the price to drop so I could get more shares later. Bad move and arguably wholly deserved ...

Fast forward to Aug 09. BYD at HK$47 and PE over 70. So how would you feel?

Fortunately after selling out of BYD I went back to what I know and more than doubled my money from March by getting into Chinese Mainland property companies. But I could have been over 3.5 times up if I'd just kept my nerve. (My wife assures me I would have sold out well before HK$20 anyway!). As an investor, to "give away" that kind of return can do weird things to your mind and make you feel pretty low.

Then this morning, as I continued reading my latest withdrawal from the local library - Benjamin Graham On Value Investing by Janet Lowe - I found some respite via Lowe's paraphrase of one of Buffett's baseball analogies in which he sees his role as a stock picker like:

"... that of a baseball player having an endless number of strikes. Such a batter can easily let good pitches fly by, certain that he will finally receive a pitch that suits him." p.171 (my emphasis added)

So here's my take. I may have lost out on BYD, at least for the time being. I'd certainly buy back in again at HK$13, but not at HK$47. Would Buffett buy at HK$47? I'm not convinced he would, but who knows. As Munger no doubt told him "At HK$8 it's a no-brainer." Bear in mind, if the price falls to under HK$30 that will be the equivalent of buying at HK$13 back earlier in the year given the growth of my alternative investments in the meantime.

Thing is, Buffett also missed out on some big Internet stocks in the late 1990s. He could have multiplied his investments many times over. But he didn't because he didn't understand (he claims) how those businesses worked. Did he moan and groan about what he missed out on? No. He was CERTAIN that other great deals would come along.

I've got to keep drilling into my mind that there will be other opportunities coming along - and I have to believe this with certainty. That's comforting to me, and I think I can sleep better knowing that even as I see BYD rise more and more (HK$47 was from earlier in the week, I haven't dared look what it did yesterday!). I just have to put my boots on again and get out and kick some more tires. Which is actually not a bad way to spend your time.

Truth be known, I don't think I was ready for BYD when I bought in. I didn't really understand the business and I didn't anticipate how it's share price would perform. I suspect there's a lot of Buffett-premium in there, but equally this definitely a high growth company. Maybe it's because I've been too much of a bargain hunter all my investment life. I need to change my thinking. Reminds me of another Buffett quote: "Boy, if I had listened only to Ben [Graham], would I ever be a lot poorer."

Thanks for hearing me out on this. The life of an investor is necessarily a lonely one (listening to other people can be bad for your investment health). I know you guys more than most know what I'm talking about and how I feel, so that helps a lot.

Questions:

1. Does Phil talk about these things emotional/mental aspects of investing in his book? If so, how effective do you think his strategies are?

2. I'd love to see Adrian and Jeff's spreadsheets, but I don't have Excel on my Mac (if need be I can use my wife's computer, so no big drama). Would it be possible to convert them to Google Docs Spreadsheet?

3. After Adrian's positive comments on stock2own.com, I was dismayed to find it doesn't have the Hong Kong stock exchange. Maybe they'll get around to that later.

PS. I don't want to sound like a jerk being disappointed with a 100% increase in my stocks to date. Sometimes letting go a big fish is really gutting. 100% (on paper) return in 6 months is really incredible.

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Permalink Reply by steve on August 6, 2009 at 10:42pm

Yeah, well, I haven't taken time to really check this company out. But the things I have read, lead me to believe this guy is a master at what he does, and this company can be huge. I think you may have been spooked out too soon. But that too is ok, as you have said , there will be others that will do well. Read up on this company (really read ) cause if I am right, this will be similar to Micro Soft or Wal-Mart.This guy is truly amazing . He created a battery where you can drink the acid without fear of harm (great for the environment? ) I would bet so , and the bottom line as well.This guy eats and sleeps his businesses. He has a will that says he won't settle for less that top spot in any industry. Its part of the reason Buffet bought into this company.He has this drive and that is one of Buffett's Main Criteria when looking at Companies(only the best in management).

John Doe Jr said:

I haven't read Phil's book - I'll look for it at the local library next visit. If he's a value investor with the Buffett add-on of durable competitive advantage, then it should be a useful (always good to get a different perspective on tried-and-true principles).
I particularly hope he talks about the emotional side of investing. As a competitive guy, this one is a real challenge for me and one I'd like to throw out to you guys, if I may.
The big example on my mind is my initial investment in BYD (the Chinese electric car/battery company) (HKG:1211) which Buffett bought into at HK$8 late last year (but which he only consummated last month after regulatory approval). I was intrigued because of Charlie Munger's involvement in recommending the company. Munger is a big Phil Fisher fan (as am I) and it seemed this would be a great growth company with a big economy of scale advantage in addition to having a very impressive CEO/founder.

I bought a big chunk (for me at least) of BYD shares here in Hong Kong at average of HK$13 between Nov 08 and Feb 09. Then I sold out at around HK$14.50 in March. I was freaked out by the PE rising to over 30 after a report of losses for FY08 and given the questionable state of the global recovery at that time. I also (invented?) growing concerns that the electric car industry is going to get real crowded with some big names dumping big bucks to win market share thereby eroding margins for every operator, including BYD.

The bottom line was that I was nervous in a Ben Graham sense of thinking the share was over valued. I suppose part of me was also greedily waiting for the price to drop so I could get more shares later. Bad move and arguably wholly deserved ...

Fast forward to Aug 09. BYD at HK$47 and PE over 70. So how would you feel?

Fortunately after selling out of BYD I went back to what I know and more than doubled my money from March by getting into Chinese Mainland property companies. But I could have been over 3.5 times up if I'd just kept my nerve. (My wife assures me I would have sold out well before HK$20 anyway!). As an investor, to "give away" that kind of return can do weird things to your mind and make you feel pretty low.

Then this morning, as I continued reading my latest withdrawal from the local library - Benjamin Graham On Value Investing by Janet Lowe - I found some respite via Lowe's paraphrase of one of Buffett's baseball analogies in which he sees his role as a stock picker like:

"... that of a baseball player having an endless number of strikes. Such a batter can easily let good pitches fly by, certain that he will finally receive a pitch that suits him." p.171 (my emphasis added)

So here's my take. I may have lost out on BYD, at least for the time being. I'd certainly buy back in again at HK$13, but not at HK$47. Would Buffett buy at HK$47? I'm not convinced he would, but who knows. As Munger no doubt told him "At HK$8 it's a no-brainer." Bear in mind, if the price falls to under HK$30 that will be the equivalent of buying at HK$13 back earlier in the year given the growth of my alternative investments in the meantime.

Thing is, Buffett also missed out on some big Internet stocks in the late 1990s. He could have multiplied his investments many times over. But he didn't because he didn't understand (he claims) how those businesses worked. Did he moan and groan about what he missed out on? No. He was CERTAIN that other great deals would come along.

I've got to keep drilling into my mind that there will be other opportunities coming along - and I have to believe this with certainty. That's comforting to me, and I think I can sleep better knowing that even as I see BYD rise more and more (HK$47 was from earlier in the week, I haven't dared look what it did yesterday!). I just have to put my boots on again and get out and kick some more tires. Which is actually not a bad way to spend your time.

Truth be known, I don't think I was ready for BYD when I bought in. I didn't really understand the business and I didn't anticipate how it's share price would perform. I suspect there's a lot of Buffett-premium in there, but equally this definitely a high growth company. Maybe it's because I've been too much of a bargain hunter all my investment life. I need to change my thinking. Reminds me of another Buffett quote: "Boy, if I had listened only to Ben [Graham], would I ever be a lot poorer."

Thanks for hearing me out on this. The life of an investor is necessarily a lonely one (listening to other people can be bad for your investment health). I know you guys more than most know what I'm talking about and how I feel, so that helps a lot.

Questions:

1. Does Phil talk about these things emotional/mental aspects of investing in his book? If so, how effective do you think his strategies are?

2. I'd love to see Adrian and Jeff's spreadsheets, but I don't have Excel on my Mac (if need be I can use my wife's computer, so no big drama). Would it be possible to convert them to Google Docs Spreadsheet?

3. After Adrian's positive comments on stock2own.com, I was dismayed to find it doesn't have the Hong Kong stock exchange. Maybe they'll get around to that later.

PS. I don't want to sound like a jerk being disappointed with a 100% increase in my stocks to date. Sometimes letting go a big fish is really gutting. 100% (on paper) return in 6 months is really incredible.

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Permalink Reply by Adrian on August 6, 2009 at 11:23pm

On a forum, it's best to keep questions to topic e.g. start this as a blog post on your own profile or start a new discussion on this group (as it is Rule # 1 related ... just not Rule # 1 resource-related) .... but, hey, we're all new at this so don't sweat it :)

As to your question, I doubt that a run from 30 to 70 P/E is anything to be sad about missing out on, strictly from a Value Investing point of view (which, by its nature, generally means looking for LONG TERM gains) ... Warren is speculating, which IS very unusual for him!

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Permalink Reply by John Doe Jr on August 6, 2009 at 11:31pm

Thanks Steve. I've read a lot about the company and am a big fan of Wan Chuan-fu, the CEO - then I got spooked early, like you say.

At HK$47 BYD is expensive (to me), but on a longer term view probably okay. I do know, though, that the price I pay will ultimately determine the value of the investment. [I just checked, and now BYD is HK$44, PE 77 and price/book is over 3. Still scares me.]

Unless this company grows incredibly quickly (which it may well do), I'm probably better off with my present holdings which I bought well and think have good prospects over the next 5 years or so, albeit in the cyclical real estate sector.

I don't know how things are going to work out in the electric car space, and I don't really understand the other markets into which BYD will be establishing themselves.

So it's a balance between Munger's Lollapalooza concept (where the stars align to make BYD the biggest event of the decade) and Buffett's admonition: "I would rather be certain of a good result than hopeful of a great one." I'm also mindful of Peter Lynch's take on excessive PE figures and BYD being a hugely popular stock. If it falls, it could go down a long way - and my money with it!

With real estate I know a bit more what I'm doing and can work things out for myself more easily. LIke Buffett says, he doesn't look to jump over 7-foot bars, but goes instead for 1-foot bars he can step over. I could have stepped over BYD at HK$8 no problem (HK$13 was okay), but the bar rises a lot when it's over HK$40 at this early stage.

Bottom line is that I haven't lost money, which I think is Rule #1, isn't it?

steve said:

Yeah, well, I haven't taken time to really check this company out. But the things I have read, lead me to believe this guy is a master at what he does, and this company can be huge. I think you may have been spooked out too soon. But that too is ok, as you have said , there will be others that will do well. Read up on this company (really read ) cause if I am right, this will be similar to Micro Soft or Wal-Mart.This guy is truly amazing . He created a battery where you can drink the acid without fear of harm (great for the environment? ) I would bet so , and the bottom line as well.This guy eats and sleeps his businesses. He has a will that says he won't settle for less that top spot in any industry. Its part of the reason Buffet bought into this company.He has this drive and that is one of Buffett's Main Criteria when looking at Companies(only the best in management).
John Doe Jr said:

I haven't read Phil's book - I'll look for it at the local library next visit. If he's a value investor with the Buffett add-on of durable competitive advantage, then it should be a useful (always good to get a different perspective on tried-and-true principles).
I particularly hope he talks about the emotional side of investing. As a competitive guy, this one is a real challenge for me and one I'd like to throw out to you guys, if I may. The big example on my mind is my initial investment in BYD (the Chinese electric car/battery company) (HKG:1211) which Buffett bought into at HK$8 late last year (but which he only consummated last month after regulatory approval). I was intrigued because of Charlie Munger's involvement in recommending the company. Munger is a big Phil Fisher fan (as am I) and it seemed this would be a great growth company with a big economy of scale advantage in addition to having a very impressive CEO/founder. I bought a big chunk (for me at least) of BYD shares here in Hong Kong at average of HK$13 between Nov 08 and Feb 09. Then I sold out at around HK$14.50 in March. I was freaked out by the PE rising to over 30 after a report of losses for FY08 and given the questionable state of the global recovery at that time. I also (invented?) growing concerns that the electric car industry is going to get real crowded with some big names dumping big bucks to win market share thereby eroding margins for every operator, including BYD. The bottom line was that I was nervous in a Ben Graham sense of thinking the share was over valued. I suppose part of me was also greedily waiting for the price to drop so I could get more shares later. Bad move and arguably wholly deserved ... Fast forward to Aug 09. BYD at HK$47 and PE over 70. So how would you feel? Fortunately after selling out of BYD I went back to what I know and more than doubled my money from March by getting into Chinese Mainland property companies. But I could have been over 3.5 times up if I'd just kept my nerve. (My wife assures me I would have sold out well before HK$20 anyway!). As an investor, to "give away" that kind of return can do weird things to your mind and make you feel pretty low. Then this morning, as I continued reading my latest withdrawal from the local library - Benjamin Graham On Value Investing by Janet Lowe - I found some respite via Lowe's paraphrase of one of Buffett's baseball analogies in which he sees his role as a stock picker like:

"... that of a baseball player having an endless number of strikes. Such a batter can easily let good pitches fly by, certain that he will finally receive a pitch that suits him." p.171 (my emphasis added)

So here's my take. I may have lost out on BYD, at least for the time being. I'd certainly buy back in again at HK$13, but not at HK$47. Would Buffett buy at HK$47? I'm not convinced he would, but who knows. As Munger no doubt told him "At HK$8 it's a no-brainer." Bear in mind, if the price falls to under HK$30 that will be the equivalent of buying at HK$13 back earlier in the year given the growth of my alternative investments in the meantime.

Thing is, Buffett also missed out on some big Internet stocks in the late 1990s. He could have multiplied his investments many times over. But he didn't because he didn't understand (he claims) how those businesses worked. Did he moan and groan about what he missed out on? No. He was CERTAIN that other great deals would come along.

I've got to keep drilling into my mind that there will be other opportunities coming along - and I have to believe this with certainty. That's comforting to me, and I think I can sleep better knowing that even as I see BYD rise more and more (HK$47 was from earlier in the week, I haven't dared look what it did yesterday!). I just have to put my boots on again and get out and kick some more tires. Which is actually not a bad way to spend your time.

Truth be known, I don't think I was ready for BYD when I bought in. I didn't really understand the business and I didn't anticipate how it's share price would perform. I suspect there's a lot of Buffett-premium in there, but equally this definitely a high growth company. Maybe it's because I've been too much of a bargain hunter all my investment life. I need to change my thinking. Reminds me of another Buffett quote: "Boy, if I had listened only to Ben [Graham], would I ever be a lot poorer."

Thanks for hearing me out on this. The life of an investor is necessarily a lonely one (listening to other people can be bad for your investment health). I know you guys more than most know what I'm talking about and how I feel, so that helps a lot.

Questions:

1. Does Phil talk about these things emotional/mental aspects of investing in his book? If so, how effective do you think his strategies are?

2. I'd love to see Adrian and Jeff's spreadsheets, but I don't have Excel on my Mac (if need be I can use my wife's computer, so no big drama). Would it be possible to convert them to Google Docs Spreadsheet?

3. After Adrian's positive comments on stock2own.com, I was dismayed to find it doesn't have the Hong Kong stock exchange. Maybe they'll get around to that later.

PS. I don't want to sound like a jerk being disappointed with a 100% increase in my stocks to date. Sometimes letting go a big fish is really gutting. 100% (on paper) return in 6 months is really incredible.

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Permalink Reply by steve on August 6, 2009 at 11:46pm

money won't go with it if you do 2 things. Watch the company as a whole so you know where they intend to head and where they are actually heading(heads up if that looks wrong) and second keep a trailing stop in place (while taking some money off the table as it appreciates). A plan is where many investors go wrong(they simply have none ) so don't know when to get in or out.Or for that matter, why the bought that stock in the first place.

But Like I said, you did the right thing for your own sleep at night.

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Permalink Reply by John Doe Jr on August 6, 2009 at 11:51pm

Apologies. I'll get the hang of these discussions soon, hopefully.

When you find people who speak your language, it's sometimes hard not to say what's on your mind : ]

Adrian said:

On a forum, it's best to keep questions to topic e.g. start this as a blog post on your own profile or start a new discussion on this group (as it is Rule # 1 related ... just not Rule # 1 resource-related) .... but, hey, we're all new at this so don't sweat it :)

As to your question, I doubt that a run from 30 to 70 P/E is anything to be sad about missing out on, strictly from a Value Investing point of view (which, by its nature, generally means looking for LONG TERM gains) ... Warren is speculating, which IS very unusual for him!

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Permalink Reply by Adrian on August 7, 2009 at 6:48am

No probs ... it's a new forum and we're all learning, but it's best to get the 'rules' down early :)

BUT, the idea is to ENCOURAGE exactly this sort of discussion, so keep 'em coming (just by posting your own blog entry or by creating a new discussion question in the appropriate group ... OR you can even create a new group).

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Permalink Reply by Jeff on August 7, 2009 at 6:49pm

@Adrian...That's funny, I actually thought yours was neater than mine. :-)

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