We have published tons of articles about different aspects of investing. But is investing really that complex philosophically? Actually no. Philosophically, value investing ought to be simple.
Seth Klarman divides value investing into three categories:
1. Buying ��igar butts��at good prices
2. Buying great companies at great prices
3. Buying great companies at so-so prices.
Mr. Klarman said that he is still in the first stage. We can clearly see that from his recent purchase of Taracept (TRGT) and PDL Biopharma (PDLI). Most of the stocks in our Ben Graham Net-Net screener are cigar butts.
The problems with investing in cigar butts are:
1. You need to require a very large margin of safety with them. Therefore the risk premium must be high enough.
2. The timing of both buying and selling is important.
3. It is much more stressful.
Warren Buffett was once a cigar-butt investor. Under the influence of Phil Fisher and Charlie Munger, he invests more in high-quality companies. He made most of his money by buying companies like See�� Candy, Geico, American Express (AXP), Coca-Cola (KO) and Procter & Gamble (PG). The advantages with buying great companies are:
1. The entry point is not that important. Warren Buffett buys great companies at great prices and fair prices. Time is on your side with growing high-quality companies. If you did not do a good job with the valuation and the margin of safety is not enough, the growth of the company will gradually compensate for the premium you have paid.
2. You don�� have to make a sell decision. Buy and hold works well in this case.
3. You sleep well.
As pointed out by Charlie Munger is his speech, Art of Stock Picking:
There are huge advantages for an indi! vidual to get into a position where you make a few great investments and just sit back and wait: You're paying less to brokers. You're listening to less nonsense. And if it works, the governmental tax system gives you an extra 1, 2 or 3 percentage points per annum compounded.
If you can find some fairly-priced great company and buy it and sit, that tends to work out very, very well indeed especially for an individual��br>
The idea of buying high-quality companies at fair prices is at work in the universe of GuruFocus Value Strategies. The Buffett-Munger Model Portfolio is our live proof that buying great companies at fair prices works. Since inception in January 2009, this model portfolio consisting of 25 high-quality companies has outperformed the market EVERY year. We only rebalance it once a year at the beginning of each year. The current list of the stocks is in the Buffett-Munger screener (Premium Access only).
It is worth noting that the quality of companies tends to be quite lasting. You don�� need to worry too much about the deterioration of business quality. Those who have made a lot of money for a long time tend to continue that way, as pointed out by the research of GMO in Profits for the Long Run: Affirming the Case for Quality.
Considering this, GuruFocus will publish a Quality Rank of businesses. We will also calculate the risk premium of low-quality companies vs. high-quality companies. The rank of quality will be based on these factors:
1. Profitability
a. Operating margin
b. The consistency of operating margin
c. The stability of operating margin
2. Financial Strength
a. Debt to equity ratio
b. Interest coverage
3. F-score
4. Z-score
We will create several model portfolios to track the performances of stocks with different quality ranks. In the meantime, we believe that the stocks in Buffett-Munger screener are a subset of high-quality companies that are traded at reasonable prices.
If you ar! e not a P! remium Member, we invite you for a 7-day Free Trial.
Best Warren Buffett Companies To Invest In 2014: (GLAXO.NS)
GlaxoSmithKline Pharmaceuticals Limited, a research-based healthcare and pharmaceutical company, provides prescription medicines and vaccines in India. Its product portfolio comprises prescription medicines that range across various therapeutic areas, such as anti-infectives, dermatology, gynecology, diabetes, oncology, analgesic, anti-inflammatory, anti-parasitic, gastrointestinal, endocrine, immunosuppressant, nutritional, central nervous system, and cardiovascular and respiratory diseases; and vaccines for the prevention of various diseases, including hepatitis A, hepatitis B, invasive disease caused by H, influenza, chickenpox, diphtheria, pertussis, tetanus, rotavirus, and cervical cancer. The company was founded in 1924 and is based in Mumbai, India. GlaxoSmithKline Pharmaceuticals Limited is a subsidiary of GlaxoSmithKline plc.
Advisors' Opinion:- [By Quickel]
GlaxoSmithKline Pharma or GSK Pharma, the Indian arm of a multinational research-based Pharmaceutical company focused on making prescription medicines and vaccines, - is arguably one of the best and safest Indian Pharma stocks. The company is committed to tackling the three major diseases identified by the World Health Organization - HIV/AIDS, tuberculosis and malaria. With opportunities in India opening up, GSK India is aligning itself with the parent company to realize certain well-set long term goals An investor in GSK Pharma can reap rich dividends without being unduly obssessed with safety factor.
Best Warren Buffett Companies To Invest In 2014: Microsemi Corporation(MSCC)
Microsemi Corporation engages in the design, manufacture, and marketing of analog and mixed-signal integrated circuits (IC) and semiconductors primarily in the United States, Europe, and Asia. Its products include individual components and IC solutions that offer light, sound, and power management for desktop and mobile computing platforms, LCD TVs, and other power control applications. These products are used in notebook computers, data storage, wireless local area network, LCD backlighting, LCD TVs, LCD monitors, automobiles, telecommunications, test instruments, defense and aerospace equipment, sound reproduction, and data transfer equipment. The company?s semiconductor products include silicon rectifiers, zener diodes, low leakage and high voltage diodes, temperature compensated zener diodes, transistors, subminiature high power transient suppressor diodes, and pin diodes used in magnetic resonance imaging (MRI) machines. It also manufactures semiconductors for commer cial applications, such as automatic surge protectors, transient suppressor diodes used for telephone applications, and switching diodes used in computer systems. In addition, the company provides electronic components and systems for the defense and aerospace markets; multi-band radio frequency integrated circuit solutions; and anti-tamper solutions to defense clients in securing systems against tampering, piracy, and reverse engineering. It markets its products directly, as well as through electronic component distributors and independent sales representatives to the defense and security, aerospace, enterprise and communication, and industrial and alternative energy markets. The company was formerly known as Microsemiconductor Corporation and changed its name to Microsemi Corporation in February 1983. Microsemi Corporation was founded in 1960 and is headquartered in Aliso Viejo, California.
Top Value Companies To Watch In Right Now: Ventripoint Diagnostics Ltd (VPT.V)
VentriPoint Diagnostics Ltd., a medical device company, engages in the development and commercialization of diagnostic tools to monitor patients with heart disease primarily in Canada and Europe. The company offers VentriPoint Diagnostic System that is used to generate critical shape and volume measurements of the right ventricle. Its VentriPoint Diagnostic System consists of commercial off-the-shelf computer and tracking system sensor, as well as patented and proprietary methods, and software. VentriPoint Diagnostics Ltd. is based in Calgary, Canada.
Best Warren Buffett Companies To Invest In 2014: Standard Pacific Corp(SPF)
Standard Pacific Corp. operates as a diversified builder of single-family attached and detached homes in the United States. It constructs homes targeting various homebuyers primarily move-up buyers in metropolitan markets in California, Florida, the Carolinas, Texas, Arizona, Colorado, and Nevada. The company also provides mortgage financing services to its homebuyers; and title examination services to its Texas homebuyers. As of December 31, 2011, it owned or controlled 26,444 homesites and had 166 active selling communities. Standard Pacific Corp. was founded in 1965 and is headquartered in Irvine, California.
Best Warren Buffett Companies To Invest In 2014: CommVault Systems Inc. (CVLT)
CommVault Systems, Inc., together with its subsidiaries, provides data and information management software applications and related services primarily in North America, Europe, Australia, and Asia. The company develops, markets, and sells a suite of software applications and services under the Simpana brand. Its Simpana software suite includes solution for the backup and restoration of enterprise data for file systems, applications, databases, and virtual machine systems; integrated data archiving solution that optimizes data tiering and improves information governance; and enterprise-wide storage optimization for email and files reducing space on primary storage. The company also provides solutions for protection of critical applications and data with snapshots and real-time replication; solutions to analyze, discover, track, trend, and report on physical and virtual storage usage; and Web browser, which allows search, sort, select, and retrieval of corporate files and in formation from online, archive, and backup data copies. In addition, it offers assessment and design, implementation and post-deployment, training, consulting, and customer support services. The company markets and sells its software applications and related services directly to large enterprises, small and medium sized businesses, and government agencies, as well as indirectly through a network of value-added reseller partners, systems integrators, corporate resellers, and original equipment manufacturers. It licenses its software applications to customers in various industries, including banking, insurance and financial services, government, healthcare, pharmaceuticals and medical services, technology, legal, manufacturing, utilities, and energy. The company has strategic relationships with Dell, Inc.; Hitachi Data Systems; and NetApp. CommVault Systems, Inc. was incorporated in 1996 and is headquartered in Oceanport, New Jersey.
Best Warren Buffett Companies To Invest In 2014: Ramba Energy Limited (R14.SI)
Ramba Energy Limited, an investment holding company, engages in the exploration and production of oil and gas in Indonesia; and the provision of transportation and logistics services in the Asia Pacific region. The company holds a 70% interest in the Jatirarangon block in West Java, a 100% interest in the West Jambi block in Sumatra, and a 51% interest in the Lemang block in Sumatra. It also provides supply chain services, including inbound and outbound transportation, distribution management, seaport and airport cargo handling services, and chemical logistics distribution; and container haulage, project logistics, and warehousing. The company�s container haulage services comprise import and export haulage, container staging and fumigation, container loading and unloading, freight documentation, permit declaration, customs clearance, cross-border haulage, and short-term storage services. Its project logistics services include bulk commodity transportation primarily for co al, steel, and nickel; marine logistics covering ship brokering and ship chartering; heavy lift and logistics services for project cargo movement, mainly in the energy, mining, construction, and infrastructure sectors; and freight management and contract logistics for oil and gas exploration and production companies. The company�s warehousing services comprise order fulfillment, merge in transit, pick and pack, asset ownership, multi-client warehousing management, consolidation x-dock, and bulk and chemical warehousing services. It serves technology, petrochemical, oil and gas, freight-forwarding, consumer goods, and manufacturing sectors. In addition, Ramba Energy Limited engages in property rental activities. The company was formerly known as RichLand Group Limited and changed its name to Ramba Energy Limited in January 2009. The company was founded in 1992 and is based in Singapore. Ramba Energy Limited is a subsidiary of Redmount Holdings Limited.
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