4 Lessons from Warren Buffet a billionaire investor

9 April 2017

Dear Fellow Investor,

4 Lessons from Warren Buffet a billionaire investor:

The first lesson is to buy value at a reasonable price.

There is a company  which has been incredibly successful. They are a semiconductor  company and supply radio frequency chips  to Apple as well as other hand phone companies.  Their earnings growth and return on equity continues to climb. When we visited them, we noticed their fanatical efforts to control costs. They have a fortress balance sheet and are net cash. Because the valuation at the time we visited was a relatively low PE of 13 we decided to buy for our clients and ourselves.  The company is Inari. Presently the PE has advanced to 23.8 .  Although Inari is a great company  the valuations are a bit high.

The second lesson is to buy great companies.

How do I identify a great company ? It is the brand. Nestle, Thai Beverage, Carlsberg, F & N, Dutch Lady are a few.  They consistently grow earnings and for the last 3 down years they and their shareholders have prospered.

The third lesson is to buy imaginary fear.

In March 2014 there were thousands of protestors rioting in Thailand demanding the resignation of the PM Yingluck Shinawatra. Thai Beverage which we were holding dropped 40 % one week after I bought it. I immediately went to Thailand and found that the riot was like a carnival. Protestors were paid to blow whistles  and wave flags.

I spoke with investor relations and found revenues were going up during the riots as protestors were drinking more Chang Beer and other beverages from Thai Bev. I immediately averaged down the position and the share has virtually doubled from the low. 

A steady stream of increasing dividends continues to roll in. Virtually every stockbroker at that time recommended to sell.    That is why it is important to visit companies you are interested in. You will understand the company better.When imaginary fear hits you will be prepared to buy and avoid acting on conventional analysis

The fourth lesson is to buy companies with little or no debt.

We need to see companies generating lots of cash and prudently investing part of the cash as well as paying out dividends.   I like to see retained earnings of at least 60 %. Hong Kong Land, listed in Singapore which I recently bought for clients and myself fits this profile.  They own high quality commercial buildings in Singapore and Hong Kong with rising cash flows generated from rental incomes. 

They are investing part of this cash into commercial buildings in Vietnam and Thailand and paying the balance in generous dividends. We bought this value share cheaply at 0.8 to book value and a PE of 11.   Their brand is their manager Jardine Matheson which is a blue chip and Hong Kong icon.  These people know about property .

Never worry about the China market . They invest in hard assets. The Hong Kong market is a proxy.

The meeting between  Trump and Xi Jinping this weekend is bullish for markets as it sets the stage for progress on various fronts.  Trump and Xi Jinping are master deal makers. They are meeting to deal not to fight.

These 4 lessons reflect my investment style.  With the bullish sentiment in markets today we need to look carefully and be patient .  Opportunity will emerge.  The Trump missile  launch is a bullish signal for defence/ infrastructure  related shares which should provide more fiscal stimulus. Trump is a man of action unlike Obama who was all talk and no action.

Invest well and grow your wealth
Bill