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  • Title: Value Investment Institute
    Descriptive info: .. Value Investment Institute.. You are here :.. Homepage.. Contact Us.. The truth is, I am pained by the disastrous investment results experienced by great numbers of unsophisticated or indisciplined investors.. If I can persuade just a few of them to avoid dangerous investment strategies and maintain their hard earned capital, I will be satisfied.. Margin of Safety, 1991.. Welcome to the Value Investment Institute.. Whether you are a professional investor or much earlier in your investment journey, we believe this site will provide you with informative content and much material for debate.. We want to make this clear; the Value Investment Institute is not selling anything.. We believe many of the great value investors such as Warren Buffett, Seth Klarman and David Einhorn developed and continue to grow through their interaction with other value investors.. Many if not all have benefitted early in their careers from the guidance of a value oriented mentor.. Though of course, their undoubted investment genius plays no small part in their success.. While each of us have extensive experience in the field of money management, one of our key objectives is to continue to further our investment knowledge.. We hope through this  ...   on the web.. The value investment community is relatively small, but luckily for all of us who want to enhance our knowledge, the best value investors tend to be very willing to share their experiences and knowledge.. Another key objective of the Value Investment Institute is to provide a forum for debate about all aspects of value investment.. If you have suggestions or comments on any of the content please don t hesitate to contact us.. From time to time you may find the blog topics interesting.. Let s hear your views, learning should be a two way process!.. Keyword :.. Specialty Drug Industry, the Alchemy of Finance?.. It seems that acquisitions are in' these days, nowhere more so than in the specialty drug sector.. With each deal, excited investors and analysts.. Read more.. |.. More articles.. Honest Answers or Clever Lies?.. Having worked in various parts of the investment industry the author has an interesting perspective on the business of investment.. His experience.. Most influential and/or educational investment related piece.. More blog articles.. Forename :.. Surname :.. E-mail :.. Copyright 2014 Value Investment Institute.. Website Terms & Conditions.. About Us.. Articles.. Blogs.. Value Investment.. Links.. Powered by.. MACULA:MEDIA..

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  • Title: Contact Us - Value Investment Institute
    Descriptive info: Contact Us - Value Investment Institute.. :.. 11 Herbert Street.. Dublin 2.. Email :.. info@valueinstitute.. org.. Web :.. www.. valueinstitute.. Please use the contact form below if you wish to contact us directly from the website.. We will process your request as soon as possible.. Thank you for your interest in Value Investment Institute.. Subject/Topic :.. Your Name :.. Your Email :.. Your Phone :.. By Email or Phone :.. Either.. Email.. Phone.. Your Enquiry :.. Please type in the verification code shown below.. Verification :..

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  • Title: About Us - Value Investment Institute
    Descriptive info: About Us - Value Investment Institute.. The Value Investment Institute has been set up by a group of Investment professionals and asset managers, all of whom share the core belief that value investment has the greatest chance of delivering strong performance over the long term.. We remain students of value investment and hope this site will facilitate education and interaction among the global value investment community.. To be a forum for advancement of value investment thinking and discussion.. To become the portal for the best value investment thinking.. To produce high quality research to further understanding of all aspects of value investment.. To educate investors about the merits of value investment.. To encourage educational institutions to include value investment within their curriculum.. To provide readers with links to the vast wealth of useful discourse on value investment across the internet.. Among the Value Investment Institute board are:.. Gary Connolly, MA Economics.. Chairman.. Gary has a diverse range of experience in the financial services industry having spent a number of years working in treasury and bank financial services before finding the fund management business.. Having been investment development manager at Setanta Asset Management responsible for client services and marketing for over eight years, Gary then joined Merrion Capital as head of marketing.. In Merrion Gary s role was to help in the set up of a new fund management operation.. Gary then moved to the broker side of the business, joining Citadel as its head of investments.. Gary left Citadel in 2010 to set up iCubed, an investment consulting company (.. icubed.. ie.. ).. Gary is a former committee chairman of the Irish Association of Investment Managers.. He has specific expertise in investment communications and training.. Gary writes a regular column for the  ...   base in the south east of Ireland Ken provides clients with impartial investment advice.. Paul McNulty CFA.. Paul is a passionate value investor with over a decade of experience in institutional asset management.. With an acute awareness of the many factors that make the long term generation of excess returns extremely difficult, Paul embraces the need for continuous learning.. Rowan Smith.. Rowan developed a keen interest in investment practice while studying at college and was hired as a trainee investment analyst after graduation in 1998.. The volatile market conditions that have prevailed since the 1990s created a particularly fertile environment in which to learn and Rowan believes his professional career began at a particularly opportune time.. He is struck with the observation that as his knowledge and experience expands, so does the scale of the apparent challenges involved in managing money.. Rowan has managed a variety of institutional investment funds for over a decade.. He aspires to become a "second level" thinker, as described by Howard Marks.. David Coyne.. David has over 10 years experience as an equity fund manager.. He has managed a global financial sector fund for the last 6+ years, a period that includes the.. Global Financial Crisis.. This has served as a wonderful (painful) learning experience, as major flaws in the financial system and elsewhere were exposed.. The good news.. and.. the bad news is that the learning never stops! David has managed a number of other funds, including a concentrated global equity fund.. Patrick McNulty.. Patrick graduated with a BA in Theoretical Physics from Trinity College Dublin and, later, from the Master in Finance program at IE Business School, Madrid.. An investor early in his career, Patrick aspires to learn the trade from every resource at his disposal..

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  • Title: Articles - Value Investment Institute
    Descriptive info: Articles - Value Investment Institute.. With each deal, excited investors and analysts salivate at the prospect of the next.. Mr.. Market.. Investment Strategy.. 3 Comments.. | Fri 21 Feb 2014.. His experience has taught him that in many cases people don't wan.. 1 Comments.. | Fri 03 Jan 2014.. Pfeiffer Acquisition Puts Future in a Vacuum.. In this, still evolving, saga the author uses a scuttlebutt network to learn about a company's strong position in a niche market.. A sudden change in strategy catalysed by an acquisition leaves hi.. | 0 Comments | Wed 06 Nov 2013.. The Hangover.. Sometimes seemingly sound stocks collapse.. On occasion the causes could not have been foreseen, but on others perhaps they should have been anticipated.. Arguably the case of UK pawn broker Albem.. | Tue 08 Oct 2013.. Screen or Smoke-Screen?.. Valuation-based screening is a pillar of most fund managers' investment approach, highlighting interesting value' stocks worthy of further analysis.. The academic research would appear to concur.. | Fri 02 Aug 2013.. Eternal Flames and Roman Candles.. In a detailed study of the dental implant industry, the author strives for a conclusion on whether the market leaders possess a sustainable competitive advantage.. | Thu 06 Jun 2013.. No Smoking Gun - Japanese Private Sector Pensions.. Japan is a popular hunting ground for Value Investors and pension analysis is an important element of a full understanding of the economics of company balance sheets.. How does the private sector.. 4 Comments.. | Tue 30 Apr 2013.. MAM's the word.. A tiny company in an unglamorous sector with small free float listed in a different market from its key sales.. A history of financial problems and exposure to the difficult automotive end market.. | Mon 11 Mar 2013.. Berkowitz, Bruce Almighty.. Most fund managers don't have the luxury of permanent capital and are therefore in the game of portraying a very positive image of themselves and their investment abilities, particularly in times.. | Fri 09 Nov 2012.. What happened to my Margin of Safety?.. When describing how we manage money, we value investors often use terms that slide effortlessly off the tongue.. This article is a real life chronology of an investment which the author believed.. 2 Comments.. | Tue 16 Oct 2012.. Remind Me P(lease).. Company management often use leases to access capital.. Despite this source of capital being senior to equity holders, its effect on liquidity, solvency and valuation is often ignored by investors.. 6 Comments.. | Tue 21 Aug 2012.. Annual Report Review - 5 pointers.. Reviewing the annual report is a must for any serious stock investor.. Here we highlight a list of five pointers that we hope will assist our readers during this process.. | Tue 03 Jul 2012.. Market and ASM International.. In 2008 Applied Materials was prepared to pay up to $800m for a business that "Mr.. Market" is currently giving away for free.. This article analyses this business to try to determine whether Applie.. | Thu 03 May 2012.. Rethinking 'equities for the long run'.. One of the bedrocks of investing is that equities (riskier assets) outperform bonds (safer assets) over the long run certainly history has borne this out.. However, as we know, accepting investm.. 17 Comments.. | Sat 24 Mar  ...   0 Comments | Thu 22 Sep 2011.. A Lesson on Japanese Corporate Governance from Third Avenue.. To be able to learn a lesson without charge, from one of the greatest ever practitioners of their profession, is a chance none of us should pass up.. Marty Whitman first bought Toyota Industries i.. | Wed 21 Sep 2011.. Next Big Things.. Growth is not incompatible with Value; the two are intertwined.. Nonetheless, conservative investors face a delicate task when considering the impact of growth on stock valuation.. This article.. | 0 Comments | Wed 21 Sep 2011.. Portfolio Concentration - Sleep With One Eye Open.. Value investing can appear to be quite easy: thoroughly analyse a business and its risks and then ensure the price paid offers an adequate margin of safety.. Many advocates postulate that because.. | Fri 15 Apr 2011.. Banks expensive at any price.. "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness.. " Charles Dickens' opening to A Tale of Two Cities could well be a description of Wes.. 5 Comments.. | Mon 21 Mar 2011.. The Trouble with P/E.. The humble price-to-earnings ratio (PE) has become the most widely referenced valuation metric amongst equity investment commentators.. How useful is it as a valuation metric? Here we examine where.. | Tue 22 Feb 2011.. What does Economic Goodwill' mean for the Value Investor?.. When the father of value investing, Ben Graham, formalised his approach to value investing together with David Dodd in 1934, he made clear his goal of buying stocks at a discount to their net cu.. | 0 Comments | Tue 22 Feb 2011.. 'Buffett-ites or Bluff-it-ites?'.. Someway through his investment career Warren Buffett broke from the restrictive' Ben Graham value investing mould.. Buffett is prepared to pay up for businesses that he believes have barriers to.. Buffett.. | Mon 03 Jan 2011.. Beware the Price of Fashion.. Good companies don't make good investments.. Research using historic stock market returns indicates that not only do 'bad' companies outperform, but they do so with significantly lower risk.. | 0 Comments | Mon 03 Jan 2011.. Is Japan a Value Trap?.. Many value investors are debating the merits and drawbacks of investing in Japan.. On the positive side, Japanese stock valuations are a fraction of their Asian / Western peers the result of a 2.. Overvaluation and leverage, a toxic combination.. Healthcare company Boston Scientific purchased its peer, Guidant, in 2006 for the princely sum of $27 billion.. At the time Guidant was viewed as a high return, high growth company.. Boston made tw.. Letter to Company CEOs from a Value Investor.. Company chief executives have a difficult job and there is probably no end to the advice they are being offered.. The average investor holds the stock for less time than it takes to implement a ma.. Management.. Articles.. Blogs.. (.. 1.. 2.. 29.. 5.. February 2014.. 0.. January 2014.. November 2013.. October 2013.. September 2013.. August 2013.. July 2013.. June 2013.. April 2013.. March 2013.. November 2012.. October 2012.. August 2012.. July 2012.. May 2012.. March 2012.. February 2012.. January 2012.. December 2011.. November 2011.. September 2011.. 4.. April 2011.. March 2011.. February 2011.. January 2011..

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  • Title: Blogs - Value Investment Institute
    Descriptive info: Blogs - Value Investment Institute.. | Thu 05 Sep 2013.. Sir John Templeton's 22 Principles for Successful Investing.. Sir John Templeton is a name many in financial markets have heard and learned from.. Looking back recently at some writings and videos we feel we can only gain from reminding ourselves of the stor.. | 0 Comments | Sun 21 Jul 2013.. Bill Gates' 13 favourite TEDtalks.. TEDtalks are a phenomenal resource for unusual insights into a diverse range of subject matters.. It is likely that Bill Gates, as former CEO and current chairman of Microsoft, member of the board.. | 0 Comments | Tue 19 Mar 2013.. Schroeder on Buffett.. We highly recommend viewing the following video of a speech given by Alice Schroeder, author of The Snowball: Warren Buffett and the Business of Life, at the Value Investing Conference hosted by t.. | 0 Comments | Sun 21 Oct 2012.. Three Kings  ...   Buffett with Berkshire Hathaway's success.. But we award the wise man crown to his longstanding business partner Charlie Munger.. We find time spent reading Charlies' writing.. | Sat 05 May 2012.. London Value Investor Conference.. We would like to bring a very interesting conference to the attention of all our Value Investment Institute readers.. While the Institute does not have a role in this conference, two friends of th.. | Thu 26 Jan 2012.. Management focus on shareholder return.. An important message from Value Investment Institute piece, A letter to Company CEOs from a Value Investor (January 2011) is that management should act in the long term interests of shareholders.. | Thu 22 Sep 2011.. "Reports of the death of mean reversion are premature" James Montier.. In August 2010 James Montier posted a very interesting article on his blog http://behaviouralinvesting.. blogspot.. com/ Originally this was written for the Financial Times, but deemed too technical..

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  • Title: Value Investment - Value Investment Institute
    Descriptive info: Value Investment - Value Investment Institute.. A value investment strategy is focused on purchase of securities trading at a discount to a reasonable estimate of their intrinsic value.. While the process of determining intrinsic value certainly varies depending upon the practitioner, most share common beliefs and characteristics:.. The market is not efficient.. Value does not equal price.. A value investor regards a stock as part ownership of an operational business, not merely a symbol to be traded.. Value investors believe time spent forecasting and predicting the future and market direction is wasted time.. A long term investment horizon is essential.. A belief that risk is the potential for permanent impairment  ...   from their investment process and attempt to take advantage of Mr Markets periodic irrationality.. In general value investments fall into one of three categories:.. A discount to asset value.. A discount to earnings power value.. A discount to the value of growth within franchise.. Value investors look for opportunity across the capital structure and do not confine themselves to equity or bond silos.. In summary:.. Value in relation to price, not price alone, must determine investment decisions.. For a fuller explanation of value investment, read two of the seminal texts on the subject:.. Margin of Safety, Seth Klarman, 1991.. Security Analysis, Ben Graham and David Dodd.. First published in 1934..

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  • Title: Links - Value Investment Institute
    Descriptive info: Links - Value Investment Institute.. This link is to a value investing blog maintained by a Columbia University graduate, who currently works as a buy side investment analyst in Manhattan, which serves as a fantastic database of superb value investing resources.. Click here.. We point you directly to the investment letters of the Chou Associates Fund.. These date back to 1997 and run to the most recent quarter.. This amazing resource gives time stamped insight into the thinking of a truly independent investment mind.. This website from the Heilbrunn Center for Graham Dodd Investing provides insights and links to excellent research  ...   investors attended.. This website from the Ben Graham Center for Value Investing provides some wonderful research and interviews with some value investing legends.. And the Walter Schloss archives.. Also Warren Buffett s legendary article published in 1984 on The Superinvestors of Graham-and-Doddsville.. The Brandes Institute provides some very well written and value oriented research from a partner institute for the well-established value investor.. This is a PDF link to the seminal value investment book.. Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor.. by Seth Klarman, written in 1991.. This is a must read for all serious value investors..

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  • Title: Articles - Value Investment Institute
    Descriptive info: | Fri 21 Feb 2014.. Market approves unequivocally, but we advise caution.. Click here to download (PDF).. Comments.. On 27/02/2014 19:34:22, Anonymous wrote:.. McKinsey: Article on "Why pharma megamergers work".. "Unlike deals in many industries, big mergers and acquisitions among pharmaceutical companies generally have resulted in positive returns to shareholders.. ".. http://www.. mckinsey.. com/insights/health_systems_and_services/why_pharma_megamergers_work.. On 28/02/2014 11:31:32,.. Makisig.. wrote:.. Thank you for the link.. I am always trying to keep an open mind and debate helps us all to learn.. After reading the Mckinsey article, my negativity has moderated a little but I still remain concerned for the following reasons:.. The data is arguably insufficient and I don't think it is fair to measure success/failure over a 2 year period (we need a longer period, maybe 10-15 years).. "ROIC" excludes Goodwill - I presume on the denominator.. Well, it is very easy to add value if you ignore much of the acquisition cost!!!.. 3.. Economic profit rises significantly two years after consolidation deals.. But this will fall after 5-10 years if r&d/replacement spending is insufficient and  ...   three years after the merger but turn negative after five years; for growth-platform deals, TRS is consistently positive through the five-year mark.. I would argue most of the specialty drug deals recently seen are "consolidations" (very cost-synergy-heavy).. The median excess TSR for acquirers two years after the deal is just 5%.. Yet the specialty drug stocks are generally +100% in the past 12 months as more deals are anticipated.. Maybe this has run too far?.. 6.. Luckily throughout the period under examination (1995-2011) interest rates kept falling.. Surely there is a higher chance of rising interest rates of the next 15 years?.. Not trying to rain on anyone's parade here.. I have no long/short interest here - just a fascinated sideline observer, and a natural, though certainly not always correct, sceptic.. On 09/03/2014 15:28:44,.. George.. Looks like Obama trying to eliminate tax inversions.. It isn't clear if this impacts companies that have already used inversions,.. http://dealbook.. nytimes.. com/2014/03/05/obama-budget-seeks-to-eliminate-inversions/?_php=true&_type=blogs&_r=0.. Post a comment.. Name :.. *.. Anonymous :.. Yes.. No.. Comment :.. Fields marked with a.. are required..

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  • Title: Articles - Value Investment Institute
    Descriptive info: | Fri 03 Jan 2014.. His experience has taught him that in many cases people don't want to hear the truth, and so are often not furnished with it.. This journey through an industry with so many questions outstanding gives the reader an honest appraisal on many of the most important issues an investor faces, from a practitioner that is still learning midway through his career.. On 23/01/2014 14:54:14,.. Brendan.. I very much enjoyed.. this piece from VII.. After practicing for a short while now, I.. appreciate  ...   but on the other, value investing is.. predicated on buying at a discount to the present value of future cash.. flows.. It's something of a paradox.. The article mentioned indexing - I was reading Bill Miller's old.. letters, and at one point he points out why he believes indexing often.. works better than active management.. Indexes are composed of mostly high.. quality companies, held for long periods of time with relatively little.. turnover.. How many active portfolios have the same characteristics? I.. hadn't considered that perspective previously..

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  • Title: Blogs - Value Investment Institute
    Descriptive info: | Thu 05 Sep 2013.. Since before the days of Graham and Dodd s contribution to the field of security analysis, and certainly afterward, there have been thousands of investment articles written by economists, would-be investors and professional investors alike.. Some of them have stood the test of time.. The purpose of this blog is to encourage the exchange of such pieces and ignite healthy debate about which should top the poll of Most Influential and / or Educational.. We are starting the ball rolling with a particular favourite: Warren Buffett s How Inflation Swindles the Equity Investor (link below).. This is a herculean work in reducing much investment know-how to simple fundamentals it is often said that should you be unable to explain a concept to a kinder-gardener, you do not fully understand it.. Whilst this article is unlikely to ever be pre nap-time reading for youngsters, it s a Master in Finance during afternoon tea for students of sensible investing.. This particular article might even spark a to-and-fro on recent monetary manoeuvres.. Particularly interesting is Seth Klarman's 'doubling-down' on gold, presumably as protection from what is.. ,.. in his view.. inevitable.. severe.. currency depreciation relative to real / scarce assets.. If you are on Seth's side, why? In addition, what are examples of companies at reasonable valuations you would be happy to own should that scenario play out and again, why? If, on the contrary, you take the opposing view that there is no need to fret over impending.. currency depreciation / inflation please explain your thinking.. Note: severe currency depreciation is very different from the mild currency depreciation relative to, at an aggregate level, real goods and services we should all expect in a fiat monetary system, where the money supply monopolists (i.. e.. Central Banks) typically have a stated nominal inflation target.. Please post, in the comments section, links to your favourite articles and letters and reference important chapters in books etc.. http://features.. blogs.. fortune.. cnn.. com/2011/06/12/warren-buffett-how-inflation-swindles-the-equity-investor-fortune-1977/.. On 01/11/2013 13:53:44,.. Conor Maguire.. grahamanddoddsville.. net/wordpress/Files/Gurus/Seth%20Klarman/Seth%2520Klarman%2520on%2520Cash.. pdf.. In the 2004 Baupost investor letter, Seth Klarman s description of investors facing a crisis of low returns resonates strongly with the current market climate.. He describes the dilemma of choosing to either hold securities at the historically high prices prevailing at that time and the prospect of lower returns, versus the painful decision to remain liquid by holding cash and refrain from equities or bonds as the market climbs higher.. The pain in this instance would stem from missing out on the prospect of higher returns should the market continue to rise.. His dissecting of this dilemma serves as an extremely helpful aid for investors in appraising the current market climate and the decision to deploy or conserve investment capital.. Klarman elucidates that betting that the markets never revert to historical norms, and the expectation of a new era of higher stock prices exposes the investor to genuine or true risk, the potential for significant, permanent capital impairment.. He contrasts that with the risk attaching to the alternative of holding cash in an expensive market the opportunity cost of not being invested, which is of course unquantifiable ( to be able to quantify would imply having some certainty about future security prices, which is absurd).. Weighing the two alternatives up then produces a very logical conclusion that speaks to prudent risk management, based on the true definition of risk (the potential for permanent loss of capital).. By investing in a continuously rising market, the probability of earning satisfactory returns decreases, while the probability of loss of capital increases.. In contrast, by remaining in cash, the probability of loss of capital is almost negligible (excluding an extremely inflationary environment of course), while the only downside is the negligible returns available on cash.. This fear or risk of negligible returns that should always be of secondary concern however, as all value investors will know that rule number 1 is never lose money in Buffett parlance.. It therefore follows that to invest in an expensive market, such as the one at present, actually and knowingly involves running the risk of both capital impairment and lower prospective returns; in essence, prudent risk management is at best inverted (by putting the quest for returns ahead of safety of principal), and at worst ignored.. Klarman s reminder that One doesn t need the entire market to become inexpensive to put significant money to work, just a limited number of securities is reassuring to those of us frustrated by lack of value in today s market generally.. Investors much be patient, with an appreciation of what Howard Mark s calls the temperature of the market, and adhere to Graham and Dodd s over-arching principle of always seeking safety of principal first, and an adequate return second.. On 03/11/2013 22:07:38,.. Patrick.. Conor, I read your comment with interest and agreed with much of it.. However, I think there is an over-arching need to dis-aggregate 'investors' in this instance.. That is, is one referring to a hedge fund manager, a mutual fund manager, a pension fund manager, an endowment manager or Mr.. Smith (a retail investor) who invests his own excess income in order to prepare better for retirement?.. If your game is beating market returns, of course the optionality value in holding cash today should make it an important part of your portfolio holdings - you are much more likely to compound at higher rates than the major indices if you have the flexibility and discipline to hold elevated cash levels when they (the indices) trade on relatively expensive valuation metrics.. However, if you are managing a university endowment, for example, the problem is more complicated.. The endowment must make a payout every year - and thus current income is a necessity and their needs are being thwarted by Bernanke et al.. If you are Mr.. Smith, and are an average (typically unsophisticated) investor I believe it wouldn't be very sensible not to invest your excess income this year in an index fund, or a basket of securities fairly representative of the index but perhaps with slightly less business risk / higher business quality (all other things, like price, being equal), just because it trades on 16x earnings - or whatever the figure is.. I am afraid, much like Seth Klarman's motivation for writing MOS, that the Mr.. Smith's of this world are the ones who will lose out most as a result of the current environment.. Will they be attracted to the potential for higher gains by partaking in IPOs like that of the recent and ridiculous Potbelly, or buying Tesla at 100x earnings? I fear that the investment media dis-serves these people by creating so much noise in relation to the valuation of the stock market and in hyping the securities that perform 'hotly' over a short period of time.. Having said all that - of course, you are exactly right in that portfolio managers who are charged with preserving capital, first and foremost, should hold elevated levels of cash; and that should in fact, in my opinion, only be a result of the lack of individual opportunities / new ideas rather than a tactical decision.. There is one proviso, about which I have not the slightest inkling on the truth or reality going forward - that is, does quantitative easing reduce the returns on real assets (as well as obviously have done so on financial assets).. If I am an entrepreneur and want to buy and employ a piece of capital equipment today - does quantitative easing have any impact on the returns I should expect from it? I suspect the answer is no - but if it is yes, then valuations of stocks today in general are by no means expensive (excepting biotechs, Potbelly, Tesla etc).. On 06/11/2013 21:51:35,..  ...   those rates over the very long term and is able to put enough of his income aside every year in order to compound ever greater amounts of capital he will find himself very nicely prepared for retirement.. On whether QE will affect the returns on assets going forward, I was of course referring to real returns.. Buffett has himself said that in an inflationary environment the worst businesses to own are capital intensive ones, where continual maintenance of equipment means inevitably decreasing real profits since most companies can t raise prices enough to offset the increases in capital costs so real returns are affected.. If Buffett is in fact investing in capital intensive industries in order to time inflation as you suggest, which may in fact be an accurate interpretation of those purchases, it will only be the capital outlay on which he saves (which will be less meaningful over time).. That may in fact allow those businesses to take market share etc.. but again, I don t know enough about them or their respective to industries to really make a comment.. I post here a link to a letter written by Buffett to Katherine Graham about pension costs and inflation written decades ago.. It is another on my all time favorites list.. cookandbynum.. com/wp-content/uploads/2013/08/Warren-Buffett-to-Katharine-Graham.. On 13/12/2013 12:26:01,.. David Horgan.. Hi Connor & Patrick,.. Great exchange from you both, informative and relevant.. I would agree with most of what you have said above and would particularly echo Connor's concerns on market valuations, and symptoms of a highly over valued stock market in the US, about fair value in the UK, and similar in many developed markets in Europe.. All the signs are there for a significant correction in the short to medium term, or else the prospect of lousy returns over the next 10 to 15 years.. There is a great chapter in William Bernsteins 'The Intelligent Asset Allocator' which fully illustrates the relative advantage that a well informed and disciplined (i.. have a plan & stick to it) private investor has over all institutional investors who make up approximately 80+% of the market.. From memory these advantages were as follows:.. being able to invest with a longer time frame than 1 year.. Not being assessed quarterly and not having to track an industry benchmark.. Having the discretionary ability to invest more in risk assets when they are relatively cheap (like Europe was 2 years ago say) and less in risk assets when they are expensive e.. g.. bonds or the S&P currently for instance.. Being able to invest in small caps.. Being able to invest in alternative asset classes.. Being able to invest counter cyclically on a systematic basis.. I would highly recommend this book and this chapter in particular but would advise would be readers that it is not an easy read.. There's a fair bit of thought and engagement required to digest it.. Finally, I'll finish with a question and request for discussion if you don't mind: assuming one accepts that the US & many other developed markets are now heavily over valued versus long term norms, and since many Asian & Other EM currencies and markets have dropped significantly from their peaks and relative to their measurable medium term norms, are emerging markets now a value buy???.. I.. can a value index investor ignore the turmoil that a likely revaluation of developed markets will probably have on EM equity indices over the coming 12 to 18 months say?????.. P.. s.. stonking value buys for retail investors over past 3 years:.. Irish goverment bonds.. Euro equities.. Berkshire Hathaway when it fell below book value.. more on Bernstein's work.. economist.. com/blogs/buttonwood/2013/11/economics-and-markets-0.. On 06/01/2014 11:55:26,.. David,.. Thanks for your comments and for posing an interesting question with regard to EM vs.. developed equity markets.. Personally, I feel my circle of competence is limited to US, UK and Western European economies and businesses, rather than those further afield.. While this may seem like I am limiting my potential investment universe significantly by avoiding Asian or South American companies for example, I simply feel I don t know or understand their markets, their consumers or economic drivers enough to enable me to make sufficiently informed investment decisions.. By contrast, I have travelled extensively around the US and Europe, and regularly read up on current affairs and economics in these markets and so I can feel much more comfortable in appraising these businesses.. Additionally, from a governance and financial reporting perspective, I feel that standards remain higher or at least more reliable in the US and Europe versus, for example Indonesia or Mexico.. Additionally, much of the large-cap companies in the US and Europe are active in EMs and so I can always gain exposure that way, with less business or political risk.. Perhaps in time I will be able to widen my circle to understand EM s but in the meantime, there are approx.. 5000 publicly listed companies trading on the major US exchanges alone, and I only wish to hold approx.. 10 in my portfolio at any given time! (Due to time and resource constraints, I cannot reasonably expect to know and understand any more than this number of businesses in sufficient detail for me to comfortably own).. So what do I do when developed equity markets are at or near all-time highs, such as at present? I sit and wait for the fat pitch to use Buffett s expression.. I will read up on Bernstein s book thanks for sharing.. Regards,.. Conor.. 7.. On 24/02/2014 16:49:44,.. Paul.. Why try to be smart about it? Each and every one of the Berkshire Hathaway shareholder letters contains so much wisdom.. This may not be an earth shattering post.. but these letters are all 'diamonds'.. berkshirehathaway.. com/letters/letters.. html.. Here is a preview of this year's from Fortune:.. http://finance.. com/2014/02/24/warren-buffett-berkshire-letter/.. This is a fantastic excerpt:.. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his -- and those prices varied widely over short periods of time depending on his mental state -- how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm.. If the number he yelled was absurdly high, I could either sell to him or just go on farming.. 8.. On 15/03/2014 12:13:21,.. Paul, I agree The Berkshire Hathaway letters are a complete repository of investing wisdom that I read and re-read without ever getting bored.. I think the following excerpt from the 2013 letter is extremely helpful in the context of current stock prices:.. "When Charlie and I buy stocks which we think of as small portions of businesses our analysis is very similar to that which we use in buying entire businesses.. We first have to decide whether we can sensibly estimate an earnings range for five years out, or more.. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate.. If, however, we lack the ability to estimate future earnings which is usually the case we simply move on to other prospects.. In the 54 years we have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people.. In fact, these subjects never come up when we make decisions.. In just six sentences, Buffett provides us with the essential framework on how to value a business.. I ve just posted my own thoughts on the 2013 letter at the following link would welcome comments, feedback etc.. http://independentvalue.. wordpress.. com/2014/03/15/buffetts-2013-letter-to-shareholders-investment-strategy-outlook-and-the-valuation-of-businesses-2/..

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