Home mortgages owned or guaranteed by:
-Fannie Mae $3 trillion
-Freddie Mac $2.2 trillion
-Others $6 trillion
% of uninsured bank deposits of $7.07 trillion: 37%
What it is going to cost FDIC according to WSJ to take over IndyMac: $4-8B. Approximately 10% or so of the $53 billion the FDIC has.
According to Credit Suisse, Yingli Green Energy (YGE), SunPower (SPWR), Suntech Power (STP), Canadian Solar (CSIQ), and Solarfun Power (SOLF) all had 50%+ exposure to Spain in the last quarter. Obviously with the murmurs about a subsidy cut, that is not good for these companies.
Listen to Glenn Greenberg of Chieftain Capital give a lecture to Columbia Business School students on March 28th, 2006. He’s an investing legend.
Real Media Video Stream [You need a player that can play Real Media Videos]
Some basic learnings:
-You need an approach that over long-term will win and not utterly fail even during 100 year hurricane. If you have a strategy that can make explosive money, but blow up in any given year, it doesn’t matter. Buffett likes to say: 100% X 100% X 0% still equals 0%.
-Only one approach that makes sense to him: Buy good businesses, reasonably predictable, necessary businesses, don’t have high rate of change, figure out paying a under-valued price given the long-term prospects.
-Was an English major. Was a teacher during Vietnam War. Went to Columbia Business school. Then worked JP Morgan – 2 years in research as money “mis-manager”. 150 growth stocks in the portfolio. Left to work for family office, Central National, for 5 years. Learned how to look at companies and how to take them apart.
-Don’t trust other people’s research is a mistake. Best thing to learn is “to do your own work.”
-After 10 years in the business started Chieftain Capital with $40 million (about $26 from family and friends). Will never market again. Will never ask Wall Street to call them up with their investment ideas. Told clients we don’t have time to meet with you. Maybe meet once a year. Spend time “doing research.”
-Early on 100% invested. 3-4 ideas. Last 8 years, 30% in cash. Hedge-funds used get you 25-30% after fees. Today people invest 2/20 to get 8-10% after fees.
-Occasionally come across a business that was “wildly mis-priced.” Is it a great business at a cheap price?
-Chieftain owns 6-12 stocks. Normally fewer than 10 stocks. Focus on U.S. stocks.
-We don’t do relative valuations. Look for 14-15% rate of return. Buffett even looks at 13% EBIT return or 7-8Xs pre-tax (but he has low cost of capital due to insurance companies).
-Study company carefully, be confident in your analysis. Many of his stocks imploded after they bought it, but bought more lower and made more money.
-Huge fan of periodicals, read 4-5 newspapers a day, magazines, and trade magazines. Most information comes from reading and talking to smart people. However journalism standards have gotten worse, point of view has to be “punchy” and take an extreme stand.
I’ve read a ton of Buffett related books, interviews, annual reports, original partnership letters, etc. Here’s his strategy boiled down to the basics:
1. Do you understand the business? Stick to your “Circle of Competence”. If you don’t know what your “edge” is, you don’t have an “edge”.
2. Does it have “durable competitive advantage” or in other words “a moat”? Companies in this camp have a great brand, a franchise, high returns on equity and returns on invested capital, and pricing power. Buffett likes to ask if someone spent $1 billion on trying to build a competitor, would it make a “dent” on the business? If no, it has a good “moat”.
3. Do we like the people that run it? Honest and able management. Life is too short to deal with bad people.
4. Does it sell for a price that is attractive? He bought See’s Candies for 6Xs earnings. He bought Korean stocks a few years ago at 2Xs earnings. He bought Connoco Phillips at 6Xs earnings. He bought PetroChina at 5Xs earnings and a 10% dividend yield.
The above is his primary core strategy these days. In the past he did more micro-cap “cigar butt”, arbitrage, and activist type things.
General Motors -18% y/y
Toyota -21% y/y
Ford -28% y/y
Chrysler -36% y/y
Honda +1.1%
GM wasn’t as bad as the other U.S. makers as it offered no interest loans for up to 72 months and cash rebates of up to $7,000. Toyota got stung with a 30% decline y/y in their luxury Lexus division. The weak consumer and higher gas prices are taking their toll indeed.