WARREN BUFFETT’S ADVICEFOR2015

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When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever. ”

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CONTENTS

P a g E 0 4 Warren Buffett Becomes 3rd-Richest as Berkshire Hits Record High

P a g E 0 7 2 Handy Warren Buffett Tips For The Current Rout In Oil Stocks

P a g E 1 0 Identifying Moats Like Warren Buffett

P a g E 1 2 Warren Buffett: Europe’s The Next great Investment Destination

P a g E 1 5 Buffett: Invest In Wonderful Businesses at Fair Prices

P a g E 1 6 Buffett’s 3 Biggest Mistakes; Takeaways for Investors

P a g E 1 9 Buffett’s Cashing Out Of Oil For $3.7 Billion

P a g E 2 1 Buffett’s Intentionally Bad advice?

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Warren Buffett Becomes 3rd-richest as Berkshire hits record high

the oracle of omaha, Warren Buffett had officially became the third richest person in the world on friday, 5 december 2014 as shares in Berkshire hathaway hit a record high. Both classes of Berkshire shares (class a and B) have risen by close to 30 percent since the beginning of this year.

Berkshire acquisition spreeIn the second half of 2014, Berkshire Hathaway has been on an acquisition spree. In October, the company announced that it would buy Van Tuyl Group, the largest closely held US automotive dealer for an undisclosed amount. More recently, the company agreed to buy Durecell Batteries from Procter & Gamble for US$4.7 billion. Earlier this year, Berkshire bought a US TV station from Graham Holdings after holding shares in the company for more than 40 years.

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Source: FactSet. Chart comparing the returns of Berkshire Class B shares (Blue) and the returns of S&P 500 (Green)

Aside from pure acquisitions, Berkshire has plans to provide US$3 billion to Burger King Worldwide Inc. as the fast food chain plans to take over Tim Hortons Inc. Berkshire is expected to earn 9 percent annual interest on this financing deal should it go through.

a fortressIn an email on Friday, Warren Buffett’s biographer, Andrew Kilpatrick said that “the all-time closing high stock price today (Friday, 5 December 2014) is due to a widening appreciation of what Berkshire really is, a fortress.” No doubt, shareholders’ appreciation of the company’s investment philosophy has widened.

A recent case study made by Berkshire’s US$26.5 billion purchase of railroad BNSF attests to this same philosophy. The investment was made during the height of the Great Recession of 2008/2009. It is now on track to pay itself by the end of this year. The railroad business has been buoyed by an onshore oil boom as it paid more than US$15 billion in dividends to Berkshire as at 30 September 2014.

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expansion in singaporeSeparately, Berkshire’s business insurance unit has received a license to sell insurance in Singapore. This is part of the company’s push into the Asian insurance space. The company has been hiring higher-level executives from AIG and others to help it expand in the commercial insurance space in Asia. Warren Buffett was quoted as saying that Berkshire intends to “build a very, very significant commercial insurance operation over time. That operation will operate with better underwriting results than competitors”.

According to a statement from Berkshire Hathaway Specialty Insurance, the unit will offer commercial property, casualty, financial lines, marine, energy and construction coverage in Singapore. The business unit intends to distinguish itself from other insurance providers with higher coverage limits as well as the backing of one of the strongest balance sheets in the world.

If a business does well, the stock eventually follows.”“

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The oil and gas industry has been rife with uncertainty in the last six months with oil prices looking like this:

handy Warren Buffetttips for the current rout in oil stocks

it is in these episodes of uncertainty that the timeless principles of investing maestro Warren Buffett might stand out.

a couple of his tips in particular could come in handy as the impact of falling oil prices has been felt within the shores of singapore. share prices of companies such as jack-up rig provider ezion, and rig builders keppel corporation limited and sembcorp marine ltd, have fallen in excess of 27 percent since the start of 2014.

Source: Nasdaq

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With that in mind, here are a couple of Buffett’s tips to note, starting with:

Buffett first penned the words “so if you wait for the robins, spring will be over” during the depths of the Great Financial Crisis of 2008-09. Much like the crisis before, the deep uncertainty in oil prices now would likely test the courage of investors who are interested in oil and gas stocks.

Some investors may be tempted to “wait and see”. Others may be waiting for “oil prices to stabilize”. But remember Buffett’s words: If uncertainty is the one thing that is holding you back from studying oil and gas companies – well, maybe it shouldn’t be.

Instead of waiting for the cloud of uncertainty to clear on the oil and gas sector, this might be the right moment to actually start sifting through the rubble of fallen share prices in search of a bargain priced company.

As always, we might want to start with the strongest oil and gas companies around, and work our way from there.

But HOLD ON there, partner! Before you dip your toes into the uncertain waters, keep another Buffett quote in mind:

“Never test the depth of the water with both feet”

The cloud of uncertainty around oil prices alone is not enough reason to go “all-in” into oil and gas companies. As Buffett quips, jumping into unknown waters with both feet could leave you, the private investor, sinking deeper into uncertain waters.

That is especially true if we are new to the industry and may not know the ins and outs of the business of oil and gas. History has shown that oil prices can remain low for long periods of time, therefore deciding on a strict allocation of your own cash for oil and gas stocks may be the more prudent move.

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Furthermore, as my colleague Stanley wrote, it is much more important to pick good companies with prudent management teams than it is to bet on the direction of oil prices alone.The bottom line is, pick good companies first.

foolish take aWayWith uncertainty, often comes opportunity. The overlying investing theme would be for the Foolish investor to recognize uncertain scenarios, and act with discipline in deploying funds. If we can do that, we might find ourselves owning winning companies at bargain prices.

Do you have another Warren Buffett quote which you think is apt for the current rout in oil stocks and oil prices? Sound off below, and Fool on!

It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price. ”

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the legend behind value investing is well-known for identifying great companies from mediocre ones.

this, is done through the identification of moats when you analyse companies.

a moat is essentially something that endorses a value standpoint of a company that is so strong, that you don’t have to worry about it not being able to generate economic returns for the forseeable future.

This something is also essentially a deterrence from competitors to copy, emulate and unintentionally creates a barrier to competiton from other companies.

There are basically a heavy fistful of moats that we look at day in day out at Shares Investment whenever stocks are discussed in the office, pantries, and even over drinks.

Let’s kick this moat-tion (pun intended) off with the first one that we see around us, but not able to touch physically.

the poWer of Brands as a moatA brand is a powerful intangible asset if it creates the effect of continued recognition, in the form of repeat customers, and even warrant a certain range of pricing for the company’s products.It is even more powerful, if it’s weaved into a habitual behaviour.

A classic example would be Coca Cola, where the merits of the product creates consumer loyalty.Coca Cola essentially makes you more thirsty than before you drank it.

However, it is the ability of it to couple a brand association to a certain image and perceived value of its brand, and create lasting repeat customer purchases.

Coca Cola easily competes with more than a dozen cheaper, generic equivalents out there in the market, but still manages to charge 20 – 30 percent more than such brands.

identifying moatslike Warren Buffett

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Why is that? That’s because consumers identify with the value that they associate Coca Cola with, and continues to purchase their favourite brand.

When a Brand does not add Value; no moat to talk aboutJust to be clear, a brand, by itself, does not confer competitive advantages of any sort.Brands only create a value if they increase the willingness of a customer to pay for that particular product.

Essentially, Brands only add value and can be seen as a moat if it stems the willingness of consumers to pay for a brand in the habit of using the product, have an emotional connection (perceived association) to it, or believes that it confers a certain level of social status.

si takeawayIt is quite easy to identify a brand.

The tougher part is when you are looking at a company with this trait, you’ve got to ask yourself the question if it warrants a real classification of a moat, like what was discussed above.

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following billionaire investor Warren Buffett’s exclusive interview with fox Business news, the 84-year-old philanthropist acquired a controlling stake in detlev louis motorrad-Vertriebs (dlmV) for a little more than 400 million euros (us$456 million).

the investment looks to be a continuance of Berkshire’s long-touted growth philosophy, that is, to make a modest number of substantial investments in firms it believes will generate great returns.

dlmV acquisition a door opener?DLMV is a motorcycle accessories retailer. The company is a family-owned business and adds on to Buffett’s automotive portfolio. Although the motorcycle apparel retailer might not be a large business, Buffett explained that the current regulatory and legal protection for overseas investors is favourable in Germany and Europe in general.

Warren Buffett: europe’s the next great inVestment destination

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In addition, Buffet told Handelsblatt newspaper in an interview earlier this week that the market in Germany now looks very attractive largely because of its population dynamics as well as an increasing purchasing power amongst its population. Perhaps importantly, the stronger US dollar has allowed for the acquisition to proceed for a substantially lower price tag.Exuding confidence over the latest acquisition, Buffett said, “There is nothing like a deal to get people’s attention. This is smaller than (we) would normally do, but it is a door opener. I like the fact that we have cracked the code in Germany”.

extension of Berkshire’s automotive pushIt should be noted that the DLMV acquisition appears to be an expansion of Buffett’s romance with the automotive industry. Back in October 2014, Buffett’s Berkshire Hathaway acquired the Van Tuyl group’s dealerships for an estimated US$4 billion. The acquisition then was touted as the biggest acquisition by far in automotive retail history.

Source: FactSet Fundamentals, chart comparing Berkshire Hathaway Class B shares (Blue) with the S&P 500 index (Green)

We note that in the aftermath of the Van Tuyl acquisition, Berkshire Hathaway’s Class B shares has grown over 8.5 percent to its recent close of about US$148 (1 October 2014 close of $136.62). The stock is currently still outperforming its oft-used benchmark, the S&P 500 as can be seen in the chart above. It is little wonder that analysts have given Berkshire BUY calls even though the stock is currently near multi-year highs.

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Source: FactSet Fundamentals

The addition of DLMV to Buffett’s portfolio thus seems like a logical one and could mark the next step in Buffett’s push into Europe and the automotive industry as a whole.

Big money flowing into europe? should you too?Apart from Warren Buffett, George Soros and Robert Shiller are also successful investors that are moving their funds from the US to parts of Europe. This comes at a time when the Euro has fallen more than against the Dollar over the past year.

Should retail investors follow big money? Certainly, retail investors will find it hard to fork out 400 million Euros for a company. Perhaps what retail investors can do is to invest in European ETFs. In a separate article written by Zacks Research, the research house recommends three specific ETFs that are likely to “continue leading the European space in the months ahead.”

These three ETFs are:WisdomTree Europe Hedged Equity Index FundiShares MSCI EMU Index FundiShares Currency Hedged MSCI Germany ETF

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Buffett: inVest in Wonderful Businesses at fair prices

in Buffett’s latest letter to the shareholders of his prized company, Berkshire hathaway, the billionaire legend revealed his mistakes-filled journey as an investor.

however, he explained that those mistakes are what made him realise short-term bargains were attractive investments but the “wrong foundation” to “build a large and enduring enterprise.”

The billionaire magnate used his own company’s acquisition holdings as concrete examples of successful long-term investments. Buffett always has strong interest in simple but wonderful businesses that are priced fairly. These are normally the companies that will guarantee unceasing and increasing profits over a long span of time.

A clear example is See’s Candy, known for its boxed chocolates and most importantly for Buffett, a “broad and durable competitive advantage that gave it significant pricing power.”

Buffett expected See’s Candy to “gush cash for decades to come.” True enough, See’s Candy earned Berkshire Hathaway almost $1.9 billion since the acquisition, at a mere cost of $25 million and an extra $40 million over the years.

Buffett mentioned he owed most of his success to his vice-chairman, Charles Munger, a friend and partner since 56 years ago. Munger gave his partner an important “architectural blueprint” that was simple: Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices.

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in his most recent letter to Berkshire hathaway shareholders, billionaire investor, Warren Buffett revealed the three biggest setbacks that he had in his career when he started off with Buffett partnership ltd. (Bpl).

here are those setbacks as well as key takeaways that we, as retail investors, can bring home.

Berkshire hathaWay’s historyCase study: His first “monumentally stupid decision” was holding onto shares of Berkshire (then owned by Seabury Stanton) when he had the chance to sell for a price 50 percent higher than what he purchased for. Buffett offered $11.50 per share (he bought his initial stake at $7.50) to Stanton when the latter approached to buyback those shares. Stanton agreed but when Buffett received Stanton’s letter, it was lowered to $11.375.

Buffett was “irritated” and “aggressively” bought more shares, probably in a fit of anger. Buffett Partnership (BPL) owned 39 percent of the company and took over in May 1965, spending “more than 25 percent of BPL’s capital invested in a terrible business.” He finally decided to close the textile operations after 20 years of fruitless stubbornness.

Key takeaway: Evidently, the cause of his mistake was getting agitated at Stanton’s “chiseling”

Buffett’s 3 Biggest mistakes; takeaWaysfor inVestors

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of the deal. “Through Seabury’s and my childish behavior - after all, what was an eighth of a point to either of us?” Seems like the lesson cost Buffett quite a bit but taught us that emotions should not get in the way of an investment opportunity, at least one that guarantees a 50 percent profit.

nico deal? not so muchCase study: Following his first mistake, Buffett went on to commit a second mistake and what he deemed as a “colossal” mistake and the most costly in his career. A long-time friend and the owner of National Indemnity Company (NICO), Jack Ringwalt wanted to sell Buffett an excellent insurance business. However, instead of buying it under BPL, Berkshire became the holding company.

This one bad decision caused BPL to lose over $100 billion to legacy shareholders of Berkshire, which otherwise belonged to Buffett and his partners. In some sense, his second and biggest mistake was the result of his first: not selling his Berkshire Hathaway shares to Stanton because of a mere $0.125 less than promised.

But I’ve made lots of dumb decisions. That’s part of the game. ”“

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Key takeaway: Arguably, the second mistake would not have occurred if the first did not happen in the first place. However, it was on Buffett’s part that he decided to buy it under Berkshire, though the legendary investor himself could not explain why. “I’ve had 48 years… and I’ve yet to come up with a good answer. I simply made a colossal mistake.”

A key takeaway that we can bring home from this case study is how as investors we should not let underserving parties into our investing profits. One such way investors tend to let “people in” is through margin trading or “borrowing to invest”. Such methods actually lower the yield of our returns.

cash: oxygen for BusinessCase study: Buffett made another huge mistake in 1993 when he bought Dexter Shoe, what seemed to be a lucrative deal because of its “terrific record” and “competitive strengths.” However, it seemed that the competitive strengths were soon overwhelmed by even stronger foreign players.Undoubtedly, mistakes are inevitable in the investing world but Buffett’s mistake did not lie in judging the wrong business; he bought Dexter with Berkshire Class-A shares.

Buffett used 1.6 percent of his highly-valued Berkshire Class-A shares to buy a “so-so business” for $433 million and that “irreparably destroys value.” The previous owner of Dexter Shoe essentially earned over $5 billion (the price of 1.6 percent Berkshire Class-A shares at the time of the 2014 letter) because of Buffett’s optimism in the shoe maker.

Key takeaway: Buffett gives a valuable advice: “The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.” As such, it is clear that the safest bet is to use cash to buy shares, especially if you are not sure if you are clearly in the position of strength. In another note by Buffett, he uses the analogy of oxygen to describe how important cash is to any business.

The quote directly from his most recent letter:At a healthy business, cash is sometimes thought of as something to be minimized – as an unproductive asset that acts as a drag on such markers as return on equity. Cash, though, is to a business as oxygen is to an individual: never thought about when it is present, the only thing in mind when it is absent.

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Billionaire investing extraordinaire, Warren Buffett appeared on cnBc earlier last week on monday after the release of his Berkshire letter. Buffett revealed that his company had recently let go of all of their exxon mobil shares, giving Berkshire hathaway a surge of liquidity of approximately $3.7 billion.

exxon is still greatBerkshire first had a holding of 41.1 million shares in Exxon back in 2013 when the stocks cost an average of $90.86. When Buffett decided to sell their entire holdings in September 2014, Exxon was priced at about $93.27 per share. The sales generated about $3.7 billion in liquidity for Berkshire.

Despite Berkshire’s move, Buffett still thinks that Exxon is a “wonderful company.” However, it was obvious that the entire oil industry had been hit by dipping oil prices for the past year. Buffett also commented that company “might have other uses for the money,” hinting at possible acquisitions, which is clear in his recent entrance into the European market.

iBm oVer exxon?Shortly after Berkshire’s sales of its Exxon holding, there were reports that the former increased its stake in International Business Machine (IBM). Berkshire now has 77 million shares, 9.2 percent more than before and maintains its position as the biggest holder in the computer company. This surprised many because IBM has not been doing very well recently.

Buffett’s cashing out of oil for $3.7 Billion

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Buffett explained his company’s decision with IBM’s steady price on the market right now, which provides some convenience if they want to sell it any time. IBM released its forecast for 2015 earlier in January this year, predicting an increase in operating earnings per share. However, it is not clear if Buffett thinks that IBM will perform better this year.

For retail investors who are highly influenced by Buffett, it might be a fairly good move to sell any Exxon shares that you currently hold. While it is not very risky to keep your holding because Exxon is still making money, the slumping oil prices do not seem to be hiking back up any time soon. Is IBM really a good company to invest right now? At least the Berkshire legend thinks so.

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.’ ”

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Warren Buffett, the “oracle of omaha” is indeed a ‘prophet’ among many investors, professional and amateur alike. in particular, Buffett’s annual letter to Berkshire shareholders have always been highly valued by the industry.

there were inherently good advice and insights into what investors can plan for in the coming year in his 50th annual letter, but dr ian dogan (phd in financial economics) from insider monkey spotted an intentional, bad advice from the legendary investor.

Buffett wrote in this year’s annual letter (page 19) that during the financial crisis in 2008 and 2009, many investors pulled their funds out of the market, thinking it was for the best.

This decision could have been based largely because of the “pundits who six years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit.” Of course, the banks and treasury bills were ‘foolproof’ because they ensured security and reliability during times of uncertainty and despair.

index funds not good enough for eVeryoneHowever, Buffett mentioned that the returns were so little that most of them could barely retire pleasantly. This would not have been the case if these investors “assured themselves of a

Buffett’s intentionallyBad adVice?

Source: Insider Monkey

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good income for life by simply buying a very low-cost index fund.” According to Buffett, these would give them a much more comfortable and worry-free flow of income.

Dogan dismissed this piece of advice and said that “simply buying a very low-cost index fund” is a bad move, at least for most investors that have the discipline and knowledge required to do much more. People that do not have knowledge and skills about investing should definitely head that advice, though.

Essentially, Warren Buffett himself did not invest in “very low-cost index funds” simply because the returns were way too little for someone who knows so much. Dogan said that many investors might not be as ‘smart’ as Buffett, but they are definitely well-informed enough to make smart decisions in selecting decent stock picks themselves.

Just by looking at Buffett’s portfolio of his top five picks in the US market, we will know that the reason of Berkshire Hathaway’s market capitalisation of over US$355 billion is not because of “very low-cost index funds.”

Buffett’s prized picks

1. Wells fargo (nyse:Wfc)More than US$25 billion invested, Wells Fargo takes up Buffett’s largest portion of his US portfolio. The first reason that one should look at is the nine other billionaires that are on board too. The banking giant has “returned nearly 19 percent over the last 52 weeks,” and “its earnings per share was US$1.02 for the fourth quarter.” With earnings and value this robust, it is no wonder so many billionaires have vested interest, including the Oracle of Omaha.

2. coca-cola (nyse:ko)Having vested interest since more than 25 years ago, Berkshire boasts US$17 billion of Coca-Cola’s shares. Other than being a huge fan of the sweetened soft drink, this is another business that Buffett always thinks is so excellent that even idiots can run it and be successful. According to Insider Monkey, Coca-Cola’s returns was about 11 percent over the last 52 weeks.

Source: http://www.thestreet.com/

Source: http://upperpeninsulabreakingnews.com/

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3. american express (nyse:axp)The next biggest piece of Buffett’s US portfolio is in American Express, a financial services corporation but more known for its credit card services. Berkshire’s holding, together with Ken Fisher and Mario Gabelli are the top three in AMEX (American Express). In the latest quarter, the earnings per share for AMEX was US$1.39, one cent more than expected.

4. international Business machines corp (nyse: iBm)Berkshire’s holdings in IBM might seem questionable, especially considering the share price’s ten percent decline since late 2013. Furthermore, Buffett has been increasing his stake in IBM and other notable Billionaires like Ken Griffin and David Harding are on board too, albeit smaller stakes. Another surprise is that Buffett is investing in technology, something he do not understand much about. Since Berkshire recently bought the shares, it is still early to judge its merit.

5. Wal-mart (nyse:Wmt)The two largest holders of the discount department stores chain are Warren Buffett and Bill Gates, according to Insider Monkey. It might just be a coincidence that two of the world’s top investors of all time have a piece of Wal-Mart. Or maybe, it is because of its impressive share price history. Nevertheless, Berkshire just recently increased its stake by 17 percent last year, hinting at Buffett’s faith in the slow-growing department giant.

Bad adVice, good intentionsSo, what was the reason for this intentional bad advice from the Oracle of Omaha? Dogan pointed out that Buffett did not think that many investors have the “discipline to stick to a strategy.” More importantly, Buffett’s highly disciplined strategy is not for every investor and he knew that very well. Essentially, Buffett “gave bad advice to disciplined investors”.

For investors who follow Buffett closely, it is clear that he does not intend to sell the stakes in his top five picks, at least not until very much later. If you believe in Buffett’s judgement, then you should definitely go through them and decide if investing in his top five picks or “very low-cost index funds” is better.

Source: http://www.bornrich.com/

Source: http://99bitcoins.com/

Source: http://www.diyphotography.net/

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Special Thanks

We would like to thank the following for their contributions to this E-Book:

• Motley Fool Singapore - 2 Handy Warren Buffett Tips For The Current Rout In Oil Stocks

• Shares Investment - Identifying Moats Like Warren Buffett