Using Our Advantage

(Continuing on the wonderful compilation of Warren Buffett's sayings done by Bud Labitan called "The Warren Buffett Business Factors" but unfortunately the link I had recorded is broken.)

We bought all of our Washington Post Company holdings in mid-1973 at a price of not more than one-fourth of the then per-share business value of the enterprise. Calculating the price/value ratio required no unusual insights. Most security analysts, media brokers, and media executives would have estimated WPC’s intrinsic business value at $400 to $500 million just as we did. And its $100 million stock market valuation was published daily for all to see. Our advantage, was attitude: we had learned from Ben Graham that the key to successful investing was the purchase of shares in good businesses when market prices were at a large discount from underlying business values.

Through 1973 and 1974, WPC continued to do fine as a business, and intrinsic value grew. Nevertheless, by yearend 1974 our WPC holding showed a loss of about 25%, with market value at $8 million against our cost of $10.6 million. What we had thought ridiculously cheap a year earlier had become cheaper as the market, marked WPC stock down to well below 20 cents on the dollar of intrinsic value.

Through 1973 and 1974, WPC continued to do fine as a business, and intrinsic value grew. Nevertheless, by yearend 1974 our WPC holding showed a loss of about 25%, with market value at $8 million against our cost of $10.6 million. What we had thought ridiculously cheap a year earlier had become cheaper as the market, marked WPC stock down to well below 20 cents on the dollar of intrinsic value.

Berkshire will someday again have opportunities to deploy major amounts of cash in equity markets -- we are confident of that. But, as the song goes, "Who knows where or when?" Meanwhile, if anyone starts explaining to you what is going on in the truly-manic portions of this "enchanted" market, you might remember still another line of song: "Fools give you reasons, wise men never try."

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The market initially showed that Buffett was wrong!

Buffett's stake in Washington Post saw him losing as much as 25% of his stake. However, as a student of Ben Graham, Buffett used his advantage, his attitude , he knew he is right because his reasoning his right and that sometimes the manic Mr.Market might not agree with him.

"In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine."

"In the short-run, the market is a voting machine - reflecting a voter-registration test that requires only money, not intelligence or emotional stability - but in the long-run, the market is a weighing machine."

Time is the friend of the wonderful business, the enemy of the mediocre.

The wonderful business.... Washington Post Company, WPO , last traded at USD758.00.

Berkshire's total shares of 1,727,765 shares is now worth 1.309 BILLION.

Berkshire's initial share purchase, which carried an initial paper loss of over 25% or a lost of over 2 million dollars, was worth around 11 million. This 11 million dollars investment made in 1973 is now worth 1.309 billion some 33 years later!

And for those that's interested, this works to an annual compounded return of 15.58% over 33 years, which is very, very impressive. A good example of the wonderful business.

And this is a great example that if one is really dead sure of one's own reasoning, then one should never be affraid if Mr.Market reacts against one's stock investment. Remember, you are right because your own reasoning is right!

But... but... but...

And again, investing is never all that easy. It does get complicated at times.

And the main issue is simply, how dead sure is one's own reasonings?

Think about it.

We are never anywhere close to be the super investor that Warren Buffett is! And also the quality and the durable competitive advantage of our listed stocks is simply not as comparable to what Warren Buffett had invested in. Put it this way, the Washington Posts, the great Coca-cola's, the Gilletes, the H&R Blocks are not listed in our stock exchange. Here, we are very much subjected to stuff like earning cycles and even changes in the fortune cycle in which so-called good companies turning bad for one reason or another.

Hence, we are quite likely to make occassional mistakes in our stock investments, in regardless if whether the fault lies in our own stock selection method or not.

So forget this not. This 'right reasoning to stay invested' thingy is pretty darn complex and could be a deadly value destructor in our stock investments if we fail to accept that perhaps our own judgement could be faulty at times!!

So sometimes, if and when the market go against us, we just have to ask ourselves this question: "What if we are simply wrong?"