Wednesday, March 21, 2007

The Hardest problem in investing

You buy and the market immediately dips, the stock price may stay
below your buy point for years for no fault of the company.

It is possible that the World may go into recession
tomorrow, good companies will still deliver and grow value but
psychologically there will be pain. We have had a long bull run and we
may have a long bear run too. Being prepared for the inevitable will
make it less painful.

Here is what I use to help me stay the course.

1) The company must pay a dividend that can be reinvested at good
rates if prices fall. There must be no danger of cutting dividends.
There are some exceptions to this rule ex Brk-b and Infy.

2) Insiders are buying. Knowing that the Insiders have bought at
higher than market prices is fundamentally meaningless but
psychologically very comforting.

The above two tricks may help you stay the course. As an example in
Japan even in the long years of market stagnation, dividend reinvested
indices have given positive returns.
For example see
The high dividend stocks of japan have returned 7.5% while msci japan
(not msci japan value in the above link) has returned around 3% annualized total returns
for the last decade. Staying invested has beaten selling out and putting your money in the bank.

Monday, March 12, 2007

Singapore, Taiwan and Korea msci index comparisions

MSCI Korea: 10Yr returns: 13.09, P/E=15.88, P/B=2.26 Semiconductors=19.78% of Index
MSCI Taiwan: 10Yr returns: -1.58, P/E=20.17,/ P/B=3.24, Semiconductors =24% of index
MSCI Singapore: 10Yr returns: 2.83, P/E=19.9, P/B=2.83, Banks=35.17% of index

Based on a simplistic analysis of the above I would say that Korea is the best buy. Buffet seems to agree and has picked up some shares in the steel major POSCO which is 7.6% of the Korean index.

In Singapore you can buy the Lyxor Korea ETF , in the us you can buy EWY.

Disclaimer: I already own the Lyxor Korea ETF and am invested in a Singapore Index.
I am not sure if the numbers above include reinvested dividends. The P/E also seems to be different from other estimates I have seen, possibly because they may be using only annual figures and not TTM and also because the more bullish analysts usually mention forward P/E instead of trailing P/E.

Sunday, March 04, 2007

Know nothing about stocks? Then buy this hedge fund like stock.

Berkshire Hathaway (symbol BRK.B) is the best stock to buy if you know nothing about investing. Unlike a mutual fund manager; CEO Warren Buffett has no limits on what he can do. He runs the company like a fund holding investments in stocks and directly owning several companies like GEICO. His track record is exceptional and the shares (brk.b at US$3550) trade at a price/book of around 1.55 which I feel is cheap for its class and historical average. Morningstar rates it as trading below their buy point which is around 3900 USD per share.

Of late the stocks growth has slowed as Buffett has found few companies of adequate size to invest the 40 Billion US $ in cash he has lying around. However he remains confident of doing better than the broad markets over the next decade and sees no need to declare a
dividend or share buy back.

He has taken in a big way to international investing buying shares in Israel, China and recently Korea.

There is no chance that he will match his historic 21% rate of return but he should do better than broad markets. Note the advantages to US Tax sufferers,this stock pays no dividends to be taxed on and unlike a US mutual fund you only pay taxes when you sell the stocks.

As for valuations buffet himself uses book value to measure his performance, so a buy when price to book is below 2 and consider selling when price/book is greater than 3 is my opinion.

But hey! you decide for yourself, go read the annual letter from Buffett himself at

Another good source of information where you may post queries is the yahoo group

The yahoo finance link for class A shares is
The yahoo finance link for class B shares is

One class B share is 1/30th of a class A and so should trade at 1/30 of a class A share. For most ordinary folks the difference is not important you may buy any of these and get the same value for money.