Here is an excerpt from Berkshire Hathaway 2007 Annual Report
You may recall a 2003 Silicon Valley bumper sticker that implored, “Please, God, Just One More Bubble.” Unfortunately, this wish was promptly granted, as just about all Americans came to believe that house prices would forever rise. That conviction made a borrower’s income and cash equity seem unimportant to lenders, who shoveled out money, confident that HPA – house price appreciation – would cure all problems. Today, our country is experiencing widespread pain because of that erroneous belief. As house prices fall, a huge amount of financial folly is being exposed. You only learn who has been swimming naked when the tide goes out – and what we are witnessing at some of our largest financial institutions is an ugly sight.
Here is the link to 2007 annual report
http://www.berkshirehathaway.com/2007ar/2007ar.pdf
Friday, February 29, 2008
Tuesday, February 26, 2008
The Economic Stimulus Package: Will It Work, and for Whom?
Congress and the White House recently settled on an economic stimulus package with unusual speed, pushing the throttle to pull the economy out of a nosedive. Is this just election-year grandstanding, or does economic stimulus really work? And if it can work, what works best?
While some experts argue that priming the economy now is unnecessary, ill-timed or even counter-productive, those who support the concept applaud the design of the recently approved $168 billion package, centered on rebates of $600 to $1,200 for more than 130 million households. "They have moved remarkably quickly, so maybe this time it will, in fact, be well-timed," says Nicholas S. Souleles, finance professor at Wharton. Souleles conducted a study titled, "Household Expenditure and the Income Tax Rebates of 2001," that found a 2001 stimulus package did indeed help the economy recover from recession....but will the same help the 2008 economy...why is it different now...to read more
Thursday, February 21, 2008
World of investment banking
This video introduces students to the exciting world of investment banking. The project was generously funded and co-produced by UBS. So watch out the video is about 30 minutes and sometimes a UBS (a leading financial firm) promotional...here you go.
4 Ways to Pay - Join Our Club!
The membership dues are a single payment of $60. This entails a "lifetime" membership which will cover you for all three years at the GSM. You will maintain your membership as an alumni once you graduate.
FOUR WAYS TO PAY:
FOUR WAYS TO PAY:
1. Pay using PayPal. E-mail Ahmed at gsmbafinance@gmail.com.
2. Put a check in Damien Mar Chong's box at the SRVCC.
3. Mail a check to: Damien Mar Chong or Ahmed Aly(see distribution email for their addresses
2. Put a check in Damien Mar Chong's box at the SRVCC.
3. Mail a check to: Damien Mar Chong or Ahmed Aly(see distribution email for their addresses
4. Give your check to any of the Finance Association officers.
Payment will only be accepted in the form of checks or via PayPal. Your returned check will be your receipt. Please make the check payable to: "UC Davis GSM Finance Club"
Thank you,
Damien Mar Chong, Co-VP Finance
Ahmed Aly, Co-VP Finance
Thank you,
Damien Mar Chong, Co-VP Finance
Ahmed Aly, Co-VP Finance
Tuesday, February 12, 2008
Buffet comes to rescue
In a live telephone call to Squawk Box of CNBC, Buffett offered to reinsure $800 billion in municipal bonds now insured by Ambac, MBIA and FGIC, effectively giving them a AAA credit rating. Those insurers are in danger of losing their AAA credit ratings due to problems with subprime mortgages and other loans.
Buffett told that he sent that offer to the bond insurers last week, and that he's giving them 30 days to find a better deal.
According to Buffett one bond insurer turned him down, and he hasn't yet heard from the other two.Buffett wouldn't say which company turned him down. He said he didn't think regulators could do much to force the bond insurers to accept his offer, unless they took over the companies themselves.
Here is the link to that letter sent by Ajit Jain (CEO of several reinsurance businesses for Berkshire)
Link to article
What do you think about this offer?
Buffett told that he sent that offer to the bond insurers last week, and that he's giving them 30 days to find a better deal.
According to Buffett one bond insurer turned him down, and he hasn't yet heard from the other two.Buffett wouldn't say which company turned him down. He said he didn't think regulators could do much to force the bond insurers to accept his offer, unless they took over the companies themselves.
Here is the link to that letter sent by Ajit Jain (CEO of several reinsurance businesses for Berkshire)
Link to article
What do you think about this offer?
Wednesday, February 6, 2008
BNET.com
Here is a great web resource full of free management and business advice for MBA students. Topics include interviewing tips, management advice, strategy, investing, reference library, etc, etc.
www.bnet.com
www.bnet.com
Microsoft Eyes Debt Sale to Finance Yahoo Bid
Finance Students following Microsoft's intended acquisition of Yahoo might find this interesting if you've ever... "wondered why Microsoft sits on the pile of cash. It doesn’t make a lot of financial sense.”
The New York Times
February 5, 2008
Microsoft said on Monday it might borrow money for the first time in its history to fund a portion of its $44.6 billion unsolicited offer for Yahoo.
February 5, 2008
Microsoft said on Monday it might borrow money for the first time in its history to fund a portion of its $44.6 billion unsolicited offer for Yahoo.
Microsoft’s chief financial officer, Chris Liddell, said the software company might issue some debt to finance the cash portion of its 50-50 stock and cash offer for Yahoo, instead of drawing down its entire $21 billion cash pile.
“It’s likely we’re actually going to borrow for the first time,” Mr. Liddell said in an annual strategy meeting with analysts. “It’s going to be a mixture of the cash we have on hand plus debt.”
Mr. Liddell declined to say whether Microsoft was already buying Yahoo stock on the open market. He also did not give any information on what form of debt Microsoft will seek in the capital markets.
Microsoft may attain the highest AAA rating, James Crandall, head of syndication at Calyon New York, told Bloomberg News. A Microsoft bond maturing in 2018 might yield 1.60 to 1.70 percentage points more than a United States Treasury security of the same maturity, Mr. Crandall told Bloomberg.
That would be a total yield of 5.2 percent to 5.3 percent, based on current Treasury prices.
Analysts applauded Microsoft’s decision to take on debt.
“Microsoft can probably get a lower price of debt than equity,” said Kim Caughey, senior analyst at the Fort Pitt Capital Group. “I’ve often wondered why Microsoft sits on the pile of cash. It doesn’t make a lot of financial sense.”
Mr. Liddell, when asked why Microsoft chose to dilute its stock instead of making an all-cash offer, said analysts need to keep the offer in perspective with the $31 billion that Microsoft spent in share buybacks and dividends in fiscal 2007.
Microsoft shares fell 26 cents to $30.19 in Nasdaq trading, while Yahoo shares rose 95 cents to $29.33.
Tuesday, February 5, 2008
Some Thoughts on "Value Investing" Philosophy
First of all, I would like to thank everyone who supported our efforts to start WP Finance Association. The response has been beyond anyone’s imagination. Few weeks back, it was just an idea like many other great things in life, but with your dedicated work and support we have one of the largest student associations in UCD GSM history.
I know that in very near future, some of you will get to meet one the best investor of all time - Mr. Warren Buffett. I was fortunate enough to be part of Omaha trip last year and it was one of the best experiences of my life. Ever since, meeting Oracle of Omaha (and riding with him on front sit in his car), I have been studying his life work and his style of investing. Buffet’s investing style is heavily influenced by two legends of investing world
1. Benjamin Graham: Buffet’s mentor and one of biggest proponent of “Value Investing”
2. Philips Fisher: “One of the great investors of all time” according to Morningstar
I wanted to share some thoughts with you about Value investing and Warren Buffet’s approach.
Who is a value investor?
The value investor, perhaps more than any other type of investor, is more concerned with the business and its fundamentals than other influences on the stock’s price. Fundamentals, such as earnings growth, dividends, cash flow, and book value are more important than market factors on the stock’s price or chart patterns (Remember Professor Barber’s comments on this?). Value investors are also “buy and hold” investors who are with a company for the long term. If the fundamentals are sound, but the stock’s price is below its obvious value, the value investor knows this is a likely investment candidate. The market has incorrectly valued the stock. When the market corrects that mistake, the stock’s price should experience a nice rise.
Here are some of the criteria I use to find “Value Stock”
• A Price Earnings Ratio (P/E) in the bottom 10 percent of its sector.
• A PEG of less than one. A PEG of less than one may indicate the stock is undervalued.
• A Debt to Equity Ratio of less than one.
• Strong earnings growth over an extended period. A realistic number might be in the 6% - 8% range over 7 to 10 years.
• A Price to Book ratio of one or less.
• Don’t pay more that 60% to 70% of the stock’s intrinsic per share price
• Above average growth on ROE for last five year
As mentioned earlier, one of the biggest challenges in Value investing is to understand the business model itself. Phil Fisher came up with a series of questions that helps to evaluate a company for investment perspective. These questions should be asked to key suppliers, customers and competitors.
1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
3. How effective are the company's research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company's cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholder's benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?
I strongly believe the Buffett’s style of invest is amalgamation of these two legendry investors along with his own genius.
The following are some questions to determine what business to buy, based on the book Buffettology by Mary Buffett:
1. Is the company in an industry with good economics, i.e., not an industry competing on price. Does the company have a consumer monopoly or brand name that commands loyalty? Can any company with an abundance of resources compete successfully with the company?
2. Are the Owner Earnings on an upward trend with good and consistent margins?
3. Is the debt-to-equity ratio low or is the earnings-to-debt ratio high, i.e. can the company repay debt even in years when earnings are lower than average?
4. Does the company have high and consistent Returns on Invested Capital?
5. Does the company retain earnings for growth?
6. The business should not have high maintenance cost of operations, high capital expenditure or investment cash outflow. This is not the same as investing to expand capacity.
7. Does the company reinvest earnings in good business opportunities? Does management have a good track record of profiting from these investments?
8. Is the company free to adjust prices for inflation?
9. Buffett also concentrates when to buy. He does not want to invest in businesses with indiscernible value. He will wait for market corrections or downturns to buy solid businesses at reasonable prices, since stock market downturns present buying opportunities.
He is known for being conservative when speculation is rampant in the market and being aggressive when others are fearing for their capital. This contrarian strategy is what led Buffett's company through the Internet boom and bust without significant damage, although critics have also noted that it may have led Berkshire to miss out on potential opportunities during the same period.
One of the biggest questions in investing is – when to sell? Buffets’s preferred holding period is forever, but recently he has sold stocks in few companies for e.g. PetroChina. I personally believe that one should sell their investment for one of these reasons only.
• Fundamental shift in economics or strategy of the business
• Health or Education related expenses
• Liquidity concerns (assuming you exhausted all credit opportunities)
• Better investment opportunity
Also, it is very important to keep tax consequences in mind when one does that (learned that after taking Tax Class from Professor Yetman).
In summary I believe value style of investing demands emotional discipline, understanding of core business and above all patience.
Here is a quote I think reflects mentality some of so called “Investment Houses”
We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'
Warren Buffett
I know that in very near future, some of you will get to meet one the best investor of all time - Mr. Warren Buffett. I was fortunate enough to be part of Omaha trip last year and it was one of the best experiences of my life. Ever since, meeting Oracle of Omaha (and riding with him on front sit in his car), I have been studying his life work and his style of investing. Buffet’s investing style is heavily influenced by two legends of investing world
1. Benjamin Graham: Buffet’s mentor and one of biggest proponent of “Value Investing”
2. Philips Fisher: “One of the great investors of all time” according to Morningstar
I wanted to share some thoughts with you about Value investing and Warren Buffet’s approach.
Who is a value investor?
The value investor, perhaps more than any other type of investor, is more concerned with the business and its fundamentals than other influences on the stock’s price. Fundamentals, such as earnings growth, dividends, cash flow, and book value are more important than market factors on the stock’s price or chart patterns (Remember Professor Barber’s comments on this?). Value investors are also “buy and hold” investors who are with a company for the long term. If the fundamentals are sound, but the stock’s price is below its obvious value, the value investor knows this is a likely investment candidate. The market has incorrectly valued the stock. When the market corrects that mistake, the stock’s price should experience a nice rise.
Here are some of the criteria I use to find “Value Stock”
• A Price Earnings Ratio (P/E) in the bottom 10 percent of its sector.
• A PEG of less than one. A PEG of less than one may indicate the stock is undervalued.
• A Debt to Equity Ratio of less than one.
• Strong earnings growth over an extended period. A realistic number might be in the 6% - 8% range over 7 to 10 years.
• A Price to Book ratio of one or less.
• Don’t pay more that 60% to 70% of the stock’s intrinsic per share price
• Above average growth on ROE for last five year
As mentioned earlier, one of the biggest challenges in Value investing is to understand the business model itself. Phil Fisher came up with a series of questions that helps to evaluate a company for investment perspective. These questions should be asked to key suppliers, customers and competitors.
1. Does the company have products or services with sufficient market potential to make possible a sizable increase in sales for at least several years?
2. Does the management have a determination to continue to develop products or processes that will further increase total sales potentials when the growth potentials of currently attractive product lines have largely been exploited?
3. How effective are the company's research and development efforts in relation to its size?
4. Does the company have an above-average sales organization?
5. Does the company have a worthwhile profit margin?
6. What is the company doing to maintain or improve profit margins?
7. Does the company have outstanding labor and personnel relations?
8. Does the company have outstanding executive relations?
9. Does the company have depth to its management?
10. How good are the company's cost analysis and accounting controls?
11. Are there other aspects of the business, somewhat peculiar to the industry involved, which will give the investor important clues as to how outstanding the company may be in relation to its competition?
12. Does the company have a short-range or long-range outlook in regard to profits?
13. In the foreseeable future will the growth of the company require sufficient equity financing so that the larger number of shares then outstanding will largely cancel the existing stockholder's benefit from this anticipated growth?
14. Does the management talk freely to investors about its affairs when things are going well but "clam up" when troubles and disappointments occur?
15. Does the company have a management of unquestionable integrity?
I strongly believe the Buffett’s style of invest is amalgamation of these two legendry investors along with his own genius.
The following are some questions to determine what business to buy, based on the book Buffettology by Mary Buffett:
1. Is the company in an industry with good economics, i.e., not an industry competing on price. Does the company have a consumer monopoly or brand name that commands loyalty? Can any company with an abundance of resources compete successfully with the company?
2. Are the Owner Earnings on an upward trend with good and consistent margins?
3. Is the debt-to-equity ratio low or is the earnings-to-debt ratio high, i.e. can the company repay debt even in years when earnings are lower than average?
4. Does the company have high and consistent Returns on Invested Capital?
5. Does the company retain earnings for growth?
6. The business should not have high maintenance cost of operations, high capital expenditure or investment cash outflow. This is not the same as investing to expand capacity.
7. Does the company reinvest earnings in good business opportunities? Does management have a good track record of profiting from these investments?
8. Is the company free to adjust prices for inflation?
9. Buffett also concentrates when to buy. He does not want to invest in businesses with indiscernible value. He will wait for market corrections or downturns to buy solid businesses at reasonable prices, since stock market downturns present buying opportunities.
He is known for being conservative when speculation is rampant in the market and being aggressive when others are fearing for their capital. This contrarian strategy is what led Buffett's company through the Internet boom and bust without significant damage, although critics have also noted that it may have led Berkshire to miss out on potential opportunities during the same period.
One of the biggest questions in investing is – when to sell? Buffets’s preferred holding period is forever, but recently he has sold stocks in few companies for e.g. PetroChina. I personally believe that one should sell their investment for one of these reasons only.
• Fundamental shift in economics or strategy of the business
• Health or Education related expenses
• Liquidity concerns (assuming you exhausted all credit opportunities)
• Better investment opportunity
Also, it is very important to keep tax consequences in mind when one does that (learned that after taking Tax Class from Professor Yetman).
In summary I believe value style of investing demands emotional discipline, understanding of core business and above all patience.
Here is a quote I think reflects mentality some of so called “Investment Houses”
We believe that according the name 'investors' to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a 'romantic.'
Warren Buffett
Monday, February 4, 2008
Congratulations Bay Area WP Finance Assoc. Officers
We are thrilled to announce the officers of the inaugural GSM Bay Area Finance Association! We have 11 great candidates on our team, and we can't wait to start working with the Daytime and Sacramento programs to create new friendships, opportunity, and learning for all GSM students.
Congratulations to our inaugural leadership team!
GSM Bay Area Finance Association 2008 Officers:
Co-Presidents
Juliet Hodder, 3rd year
Amit Shah, 2nd year
Co-VP's Events
Alex Flores, 2nd year
Soyen Shih, 1st year
Lucie von Scheliha, 1st year
Co-VP's Finance
Damien Mar Chong, 2nd year
Ahmed Aly, 1st year
Co-VP's Communications
Sekhar Varanasi, 2nd year
Faris Fyzee, 1st year
Co-VP's External Relations
Daniel Zizmor, 2nd year
Ashok Shivarudraiah, 1st year
Congratulations to our inaugural leadership team!
GSM Bay Area Finance Association 2008 Officers:
Co-Presidents
Juliet Hodder, 3rd year
Amit Shah, 2nd year
Co-VP's Events
Alex Flores, 2nd year
Soyen Shih, 1st year
Lucie von Scheliha, 1st year
Co-VP's Finance
Damien Mar Chong, 2nd year
Ahmed Aly, 1st year
Co-VP's Communications
Sekhar Varanasi, 2nd year
Faris Fyzee, 1st year
Co-VP's External Relations
Daniel Zizmor, 2nd year
Ashok Shivarudraiah, 1st year
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