VIC: 4/14 A-ha Questions

Now, our a-ha questions from Chapter 5 are

* Timeless:
Does CEO execute timeless principles to do business? Can biz model, value proposition last very long or foreever?

* Margin of Safety on investment principal and earning:
Does the company have enough margin of safety to protect principal?
Does the biz generate enough earning to have margin of safety? What happen if some biz units do not work out as expected?

* Keep it simple
Is the biz model simple to understand or execute? Can my spouse or kids understand it?

* Watch words & actions
Did this CEO complete or act on the promises he said in the annual report or press releases two years ago?

* Fail at where you are the best
How did this company or CEO fail at what he/she is the best?

* Learn to ask questions
How can I learn to ask questions in all things I learn?

Now, you have seen my questions. Will you gain the most by starting now to ask questions? What you read can be yours if you practice on it.

I put the above in our Blog below. Post your questions Now!!!

Minutes: VIC ( Value Investment Club) Meeting 4/14 Tue (1)

Dear all,

Thank you for joining our meeting on Tue. Special thanks to those who stayed after the meeting and also provide several excellent ideas to improve our meeting format and provide more benefits to club members.

Some proposals are as follows.
* Change our a-has to questions and ask those questions in everyday life. Volunteers will also share in the next meeting as to how those a-ha questions can be applied to some due diligence effort.
* Arrange a field trip to visit companies of club member. ( Please let me know if you are interested in arranging one.)
* Provide double blinded annual report which company names or crucial executive names removed. Then check if the company is worth investing.

Power of being a Consumer Monopoly: Passing Along Rising Costs Lifts Kraft, Wrigley

Passing Along Rising Costs
Lifts Kraft, Wrigley

Meat Glut Chops
Tyson's Earnings

By JULIE JARGON and LAUREN ETTER
July 29, 2008; Page B1

Passing along higher costs to consumers helped Kraft Foods Inc. and Wm. Wrigley Jr. Co. post strong second-quarter results, but Tyson Foods Inc.'s profit suffered because it couldn't raise chicken prices enough to offset high feed costs.

Food companies of all kinds have been hit by rising fuel and ingredients costs. But while some manufacturers of packaged food have been able to protect their profits by raising prices, an oversupply of meat and poultry has made it harder for meat companies like Tyson to do the same.

In June, the average U.S. retail price of cereals and bakery products was up 10.4% from a year earlier, compared with a 2.9% increase for meat, poultry, fish and eggs, according to the Bureau of Labor Statistics.

"There's no oversupply of Oreos, so the packaged-food companies have been able to offset enough inflation to post profit growth," said Edward Jones analyst Matt Arnold.

In addition, Kraft, one of the world's biggest food companies, and gum maker Wrigley have benefited from sales in overseas markets where local currencies are strong against the dollar.

Monday, Kraft said its second-quarter net income rose 3.5% to $732 million, or 48 cents a share. Revenue rose 21% to $11.2 billion.

The company's chief executive, Irene Rosenfeld, said in an interview that she expected to see a significant decline in sales volume in the quarter, but volume fell just 1% despite a 7% increase in the company's prices.

Ms. Rosenfeld, who is midway through a three-year turnaround plan at Kraft that includes cost-cutting and developing premium-priced products, said the company will continue to increase its marketing spending and boost prices.

"The best thing we can do is make necessary investments in the value of our brands so that we can price away costs as they come up," she added.

Meanwhile, the Chicago-area company, whose products include Oreo cookies, Oscar Mayer hot dogs and Kraft cheese, raised its guidance for net organic revenue growth this year to 6% from 5%, due to price increases. It also raised its 2008 target for earnings, excluding items, to at least $1.92 a share, up from $1.90.

Wrigley said second-quarter net rose 14% to $194 million, or 70 cents a share. Sales also rose 14% to $1.57 billion. The Chicago company, which makes Juicy Fruit and Orbit brand gums, attributed more than half its sales gain to strong foreign currencies, with the rest coming from higher-priced products and increased shipments in Asia. In North America, where sales were up 5%, Wrigley's volume declined by about 5% because of higher prices.

Things weren't so rosy for Tyson, which warned that its U.S. chicken business will take longer than expected to recover from high feed costs. Tyson's net for the fiscal third quarter ended June 28 plunged 92% to $9 million, or 3 cents, as revenue rose 3.5% to $6.8 billion. An operating loss of $44 million in Tyson's chicken business largely offset profits at the Springdale, Ark., company's beef and pork businesses.

Dick Bond, Tyson's CEO, told investors that he expected the company's corn and soybean costs to be about $550 million higher this year than last. So far, Tyson says, it hasn't been able to pass along the higher costs to consumers, but Mr. Bond warned that higher prices are on the horizon.

"The consumer really hasn't felt the $6 and $7 grain markets yet, either on beef, pork or chicken," he said. "We are going to see the effects of that coming through at some point in time."

Visa (V) Maket Cap: $68B PE(F) 32

Biz Summary:

Biz: Global electronic payment system

Market: Consumer, financial institution and government

Product: 3 business operations: a) transaction processing service; b) product platforms and c) payment network management.

1	Consumer Monopoly	Yes
2	Predictable, expanding Earning	Earning Growth 19%(yoy)
3	Conservatively Financed	Cash=$5.6B; Debt =112m
4	Higher ROE> 12%	25% (only a year)
5	Retaining its Earning	Yes
6	Spending on current operation	Operating Margin =35
7	Reinvest wisely	Yes
8	Priced to inflation	No
9	Retained Earning increase market value	Think so

Income Statement(From Etrade)

	2004	2005	2006	2007
Revenue	2429	2665	2948	3590
OP Expensive	1999	2212	2218	5039
OP Income	430	453	730	(1449)
All in Million

Who else invest and perform similar to Warren

The following is the lists provided by Soumen during our 5/13/2008 Meeting. Enjoy!

Remember to share what you find under this topic.


FAIRHOLME FUND: Bruce Berkowitz
LEUCADIA (LUK)
Longleaf Partners (LLPFX): Mason Hawking
Third Avenue Value (TAVFX): Marty Whitman
Sears Holdings: Eddie Lampert
Templeton Dragon Fund Inc (Public, NYSE:TDF)

Meeting on 4/9

We generated many new ideas ( also action items) in this meeting. With our progress, we should be able to locate some good candidates for value investment. As usual, those who are on the "To" list attended the meeting.

Meeting Summary:
* A-has:
Excellent biz investment is hard to find.

* New Ideas:
- find better service airline ( or better quality companies in a specific industry)
- Find great 20, wait for them to drop and then buy.
- how to differentiate the impact of the company value decent ( differentiate rational vs irrational reasons)
- Study the failures of Warren Buffet investment
- Identify New great 20.

* Action:
- Find great 20 together
Every one of us will study a company he/she likes and bring the company #s to the meeting and share. We will together study/decide if it's a great 20.

Please share your thought at our BLOG. http://viclub.blogspot.com/
Many Warren Buffet related articles and biz analysis 101 to download at
http://groups.google.com/group/value-investment-club/files

Announcement: Next Meeting
Date: 4/22, Tuesday
Time: 12pm
Place: 1630 Oakland Rd, A105, San Jose CA

Home work:
1. Please read ch 16 to ch 20
2. Be available to share your A-has, new ideas or actions which you will take.
3. Bring a "potential" great 20 deal to the meeting.

Copy Warren Buffett and Beat the Pros

From Soumen referral, http://www.fool.com/investing/value/2007/11/26/copy-warren-buffett-and-beat-the-pros.aspx

Copy Warren Buffett and Beat the Pros

By Sham Gad November 26, 2007

Any doubts regarding Warren Buffett's mastery of investing can now be laid to rest. A recent study by two professors should confirm that Buffett is one heck of an investor -- possibly the greatest of all time. It showed that merely mimicking Buffett's purchases after he made them delivered almost twice the return of the S&P 500 Index during the past three decades.

According to Profs. Gerald Martin and John Puthenpurackal's study, "Imitation Is the Sincerest Form of Flattery," investors would have earned an average annual return of 24.6% for 30 years, simply by buying what Buffett bought. Better yet, this annual rate of return came from buying the stocks after Buffett had disclosed them in regulatory filings.

Don't cry for Buffett, though. The company through which he made his investments, Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), generated an even higher return of 27.7% per year! Compare that to the S&P's very respectable 12.8% return in the same period. In an industry where three out of four mutual fund managers fail to beat the market, you could have crushed Wall Street by more than 11%!

To really bring the point home, $10,000 compounded at 24.6% for 30 years becomes more than $7 million. In the words of Mohnish Pabrai, "[a] monkey would have beaten the pants off the S&P 500 by following Warren's buying and selling."

Nothing fancy
Buffett's investing philosophy, as the investing world knows, is to bet big on simple, wide-moat businesses. Over the past three decades, the study showed that an average of 73% of Berkshire's equity portfolio was invested in just 5 stocks. As Buffett has often said, and the study seems to confirm, "Diversification is an excuse for ignorance."

Buffett's home runs include Washington Post in 1973, turning an $11 million investment into $1.3 billion by the end of 2006. Wesco Financial (NYSE: WSC), run by Buffett's longtime friend and business partner Charlie Munger, was also a smash hit, having returned nearly 200 times its investment over the past 31 years. More recent examples of Buffett's success include USG (NYSE: USG) and PetroChina (NYSE: PTR).

Never too late to start
Berkshire's most recent regulatory filing showed that the company purchased roughly 14 million shares of used-car dealer CarMax (NYSE: KMX). Earlier this year, Buffett began scooping up Burlington Northern Sante Fe (NYSE: BNI), subsequently accumulating at least 15% of the company. It's no secret that some Berkshire investments are made by Lou Simpson over at GEICO Insurance, an accomplished investor in his own right. Buffett has repeatedly said that Simpson could go out on his own and earn multiples of his current salary, but chooses to stay at GEICO.

It might be wishful thinking to assume that Berkshire can compound its returns at rates remotely close to those of the past 30 years. A victim of its own fantastic returns, it must deploy far more capital than during its salad days. Yet I believe that Berkshire can still beat the market's annual rate of return for years to come. Fortunately for us, in investing, it pays to be a copycat.

Meeting on 3/25

Dear club members,

We had another very good discussion on past Tuesday. Those who are on the "To" list attended the meeting. We also missed some of you who couldn't join us due to spring break vacation. Look forward to seeing all of us together to elevate to the next level through our bi-weekly meetings and BLOG communications.

Meeting Summary:
* A-has:
compounding ( Te)
power of compounding through tax saving, consumer monopoly, predictable earning ( Josh)
how much biz can make money (Greg)

* New Ideas:
From Greg,
Here’s an idea for fun – since we are calling our group Value Investing Club why don’t we use the acronym VIC and come up with a stylized logo? Maybe even a cartoon character called “Vic” who looks like Warren Buffet.

Can all memebers provide your inputs on our next meeting?

Questions:
- where can we find cash-flow investment? ( Hubert)
- How to find a strong "compounding" company? ( Te)
- How can I differentiate consumer monopoly vs commodity types of biz? ( Jeff)

* Action:
- Share Buffets articles. Soumen sent me 6 excellent articles about Buffet after the meetin. Thank you Soumen for your contribution to the club!!
- Sharing of biz evaluation tools: Greg has provided three tools: basics of buying a biz, a sample of biz appraisal, eval spreadsheet. Thank you Greg for your contribution.

For more details. Please check the BLOG. You will also see a google group invitation to get those files.

Announcement: Next Meeting
Date: 4/8, Tuesday
Time: 12pm
Place: 1630 Oakland Rd, A105, San Jose CA

Home work:
1. Please read ch 11 to ch 15
2. Be available to share your A-has, new ideas or actions which you will take.
3. Bring the deals you like to discuss to the meeting.

Cheers,

Josh

Book 1: Buffettology

Buffettology

The book we've chosen to study from March to June is
Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The Worlds (Paperback)

You can buy this book from local book stores or at amazon.com
http://www.amazon.com/Buffettology-Previously-Unexplained-Techniques-Buffett/dp/068484821X/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1203467850&sr=8-1

Meeting Format

Meeting Format:

At every meeting, we share

* A-has: surprising insights; things might not be open to you before; things open up for future possibilities. Sharing of your a-has will help you and others.
* New ideas: new vision and possibilities you can see now.
* Actions: actions to take so we can achieve our goals.
* Deal info: deals you like or deals you like the group to discuss
* Questions: asking question is one of most powerful ways to have breakthroughs.

Meeting on 3/11/2008

Dear all,

Thank you for joining us on the venture of mastering value investment in action. Your sharing and participation had made all of us a wonderful evening. People who are on the To list attended the meeting and people who are on the CC list were interested in joining but didn't get the chance to attend last night.

Below is the recordings of how we run the meeting, what we got and what will we do.

Meeting Format:
- At every meeting, we share
* A-has: surprising insights; things might not be open to you before; things open up for future possibilities. Sharing of your a-has will help you and others.
* New ideas: new vision and possibilities you can see now.
* Actions: actions to take so we can achieve our goals.
* Deal info: deals you like or deals you like the group to discuss
* Questions: asking question is one of most powerful ways to have breakthroughs.

Meeting Summary:
We together did many of the above last night. Highlights are
* A-has: Value of the business Vs value of the stock price ( Greg)
Focus on great business you love ( Cathy)
Intuition after many practices (Hubert)
What I will pay for a biz will depend on how much I can make. ( Josh)

* Octagon of Value Investor's Capabilities: Liquidity, Analysis, Intuition, Charm(personality), Negotiation, Creativity, Valuation, Control.
If you are a stock market investor, you usually only have analysis and liquidity (money). Many times, your analysis is limited by what is on the public domain. Sometime, professionals such as fund managers can get more info than you and put you on a disadvantageous situation.
However, if you are buying a business, you can exercise other tributes such as negotiation, creativity and charm. You can hone more skills to achieve more control.
( shared by Edwin. very insightful.)

* Action:
- start a BLOG.
- invite guest speakers
- come out with a deal with financials

Announcement:
- With votes from all attendees, we have decided our regular meeting will take place on every other Tuesday at noon from 12 to 1pm.
Please reserve your time on 3/25, 4/8, 4/22, 5/6, 5/20,....
- We will read 5 chapters per meeting. Please read chapter 6 to 10 by 3/25
- Club bylaw #1:
Confidentiality: All sharing from the group including people's name or business nature is for education purpose only and should not be discussed outside of the group.

Please let me know if I miss anything important. You can see my invitation to join our BLOG soon.

Cheers,

Josh Chen

Invitation

Invitation of Value Investment Club: Principles and Practice

Dear Friend,

Warren Buffett, through his value investment philosophy, has produced an annual average return of 21.5% from 1965-2005. Many people including me dream to achieve similar results. However, do we spend enough time to understand why and how he made his business decisions? If we can't practice those proven principles, our investment results may still be at the mercy of the stock market or luck.

What we will do
You are invited to join this Value Investment Study & Practice Club. These are what we are going to do
1. study one book about Buffet's investment principles
2. discuss and share what new insights we have (1/2 of the meeting time)
3. invest on some real deals by applying those principles. (1/2 of the meeting time.)

Book Study
The book we've chosen is
Buffettology: The Previously Unexplained Techniques That Have Made Warren Buffett The Worlds (Paperback)
You can buy this book from local book stores or at amazon.com
http://www.amazon.com/Buffettology-Previously-Unexplained-Techniques-Buffett/dp/068484821X/ref=pd_bbs_sr_1?ie=UTF8&s=books&qid=1203467850&sr=8-1

Investment Practice
In this club, we have located one adviser for business acquisition. We will invite business brokers who can bring business acquisition deals for us. You are also encouraged to bring your investment deals/examples so we can brainstorm and provide inputs as a group. If you know of someone who apply value investment in stock market, please invite them so we can add one more dimension of investment vehicles.

First Meeting:
It is tentatively scheduled as below. We plan to have our meetings every two weeks and will discuss the future schedule at the first meeting.
Date: 3/11, Tuesday
Time: 6pm
Place: 1630 Oakland Rd, A105, San Jose CA
Home work: please read through the first 5 chapters.

Objectives
We will invest in real deals and achieve the return we target.

RSVP
Please let me know if you are interested.
Thanks,

Josh Chen