A market downturn is always a good opportunity to shop for cheap stocks. Some big blue chip names have seen their share prices drop to levels that make them good values. These are everyday household names that participate in different areas of the economy. They all trade in the teens and are attractive for either their upside potential or dividend. [Read more...]
Stocks Are Starting To Get Cheap Again
August 2, 2011 By 5 Comments
The government may have reached a deal on the debt ceiling but that did not stop the stock market from taking it on the chin today. The Dow Jones plummeted over 265 points as investors turned their attention to the real problems facing the United States economy. Growth has slowed in the economy and the high unemployment rate is having an effect. This is causing many investors to flee stocks and run to the bond market. The panicking of the general public has started to make some stocks start to look cheap again. [Read more...]
Buy It Like Buffett
December 29, 2008 By Leave a Comment
Below are excerpts from a Motley Fool article by
It took him long enough.
At the end of 2004, Warren Buffett’s Berkshire Hathaway had around $44 billion in cash. Ditto for 2005. And 2006. And, yes, 2007 as well.
At one point, more than 20% of Berkshire’s assets were earning money-market returns. While armchair investors complained that the company had amassed too much capital to continue its market-thrashing ways, Buffett simply sat on Berkshire’s enormous pile of cash. And waited. And waited. And waited some more.
He refused to buy until the time was right.
The time is right
Buffett has called the current mess an “economic Pearl Harbor.” He has also said, “In my adult lifetime, I don’t think I’ve ever seen people as fearful economically as they are now.”
These aren’t just words. Mr. Greedy-When-Others-Are-Fearful has been stuffing money where his mouth is.
That $44 billion Berkshire had at the beginning of this year? By the end of June, Buffett had spent it down to $31 billion, in deals including Berkshire’s purchase of Marmon Holdings, the Mars purchase of Wrigley, and the Dow Chemical takeover of Rohm & Haas. He even bought up auction-rate securities at bargain prices.
And in the second half of the year, he accelerated. It’s nice to have cash when the credit markets are frozen.
This fall, he has committed:
- $4.7 billion to purchase Constellation Energy for $26.50 per share. (It had been trading above $100 at the beginning of the year.)
- $5 billion to purchase perpetual preferred stock in Goldman Sachs. He not only gets the hefty 10% dividend, but also receives warrants allowing him to buy $5 billion of common stock at $115 per share.
- $3 billion to General Electric under terms similar to the Goldman Sachs deal — except the preferred stock is callable for a 10% premium after three years. The warrants allow him to buy stock at $22.25 per share.
That’s more than $20 billion spent over just one month if he chooses to exercise those warrants. Buffett’s back, baby!
Learning from Buffett
Instead of buying what Buffett is buying, we should look to what his strategy has to teach us. So what can we learn from Buffett’s shopping spree? Two things:
- Invest for a lifetime.
- Compile a watch list of attractive companies.
Buffett’s pushing 80, but he hasn’t been panicking and trying to make a quick buck, no matter what the market has done. Rather, he’s been investing for the long term. In the past few years, that’s meant waiting for opportunities to present themselves. Now that they are, he’s striking with a vengeance.
And because of his patience, he hasn’t had to compromise — and he’s getting great companies at great prices. When Constellation Energy’s price dropped so precipitously in mid-September (from above $60 to the $20s), he was ready to pounce. Goldman and GE may have approached him, but you can be darn sure that he’d already done the bulk of his research beforehand.
Follow Buffett’s lead
To be great investors, we need to be similarly prepared. In volatile times like these, Mr. Market presents us with loads of great values — but just because a stock price has fallen, that doesn’t mean a given company is a good value.
The complete article can be found here.
Buffett U
December 10, 2008 By 6 Comments
I watched a television special about Warren Buffett over the weekend on Fox Business called Buffett U. Warren Buffett hosted a question and answer session with business school students from all over the country. The students were allowed to ask Buffett questions about any topic that they wished. I found one of Buffett’s comments particularly interesting.
Buffett explained his investment philosophy as a young investor. He stated that he always believed in investing in great companies at discounted prices. But he was a much more active investor when he was younger. Buffett explained that he began with only $9800 so he would have to sell one investment in order to purchase a better investment. If he had invested in a company selling for 80 cents on the dollar then he would sell his investment to purchase a company trading at 60 cents on a dollar.
This is intriguing because this differs from the buy and hold forever Buffett of the latter years. I am not trying to suggest that Warren Buffett was daytrading stocks. But he was selling cheap stocks to purchase cheaper stocks. I think that this illustrates that when you are investing small amounts of capital; you have to always seek the greatest return on capital. This may mean selling a good investment idea for a great one.
For example, let’s say you had about $25,000 to invest. You bought 1000 shares of American Express(AXP) at $23 per share because you believe that AXP has an intrinsic value of $30 per share. This equates to a $7 per share potential gain and a 23% profit. A few months later when American Express is trading at $25, you notice that Best Buy is selling at $20 per share. You believe however that Best Buy has an intrinsic value of $35 per share. This represents a $15 per share gain and a 43% profit. You can see that the most profitable move is to buy Best Buy despite the fact that you didn’t receive the full value for American Express.
Buffett is now rich enough that he no longer needs to sell one opportunity to recognize another. If you are not quite as rich as Buffett (like me) and want to maximize returns with less money then consider these tips. Always set an intrinsic value for an investment and aim to realize that value. Be flexible. If a more attractive opportunity presents itself then adapt your investment strategy.
