Do You Hold More Cash Than Warren Buffett?

http://seekingalpha.com/article/892681-do-you-hold-more-cash-than-warren-buffett?source=yahoo

The following table outlines the level of cash on Berkshire's consolidated balance sheet compared to other assets:

Quarter Ending 6/12 (in billions): Cash: $ 40.7; Long-term Investments: $135.4; Total Assets: $411.3

Year Ending 12/11 (in billions): Cash: $ 37.2; Long-term Investments: $125.1; Total Assets: $392.6

Year Ending 12/10 (in billions): Cash: $ 38.2; Long-term Investments: $117.4; Total Assets: $372.2

Year Ending 12/09 (in billions): Cash: $ 30.5; Long-term Investments: $126.3; Total Assets: $297.1

Source: Yahoo Finance

From the table above, the amount of cash compared to the company's investment portfolio (calculated as l-t investments + cash) fluctuated between 19% and 23%, while the amount of cash compared to total assets has maintained a 9% to 10% range.

Where does Berkshire invest its cash? According to the 2011 Annual Report, cash equivalents consist of funds invested in U.S. Treasury Bills, money market accounts, demand deposits and other investments with a maturity of three months or less when purchased.

Most investors use a plain vanilla money market fund to store cash. Prior to the financial meltdown of 2008, money market funds were considered a "safe" investment where $1.00 invested would be worth $1.00 in perpetuity. But, during the meltdown, a money market provider "broke the buck" and the NAV was worth less than $1.00, creating a loss of capital if investors were to sell. On Sept 17, 2008, the Primary Fund, one of the originators of the money market fund concept, announced a freeze on all distributions for up to 7-days as its NAV fell below $1.00 with the write-down of Lehman Bros debt assets to zero. The first case of a money market fund breaking the buck occurred in 1994, when Community Bankers U.S. Government Money Market Fund was liquidated at $0.94 cents because of large losses in derivatives.

From the recent Globe and Mail article about Buffett's cash holdings (I highlighted the last paragraph as meaningful for those who use money or fund managers):

"The option theory of cash is something Mr. Buffett does not tend to get into when he is up on stage at his annual investor meeting, dishing out his homespun take on life and investing. That's probably because Mr. Buffett views himself as a teacher, and he wants to reach a broad audience", Ms. Schroeder says.

"Generally speaking, he likes to keep concepts simple," Ms. Schroeder says. "He says, 'I like to have all that cash around because you can use it.'"

However, it is a lesson that Ms. Schroeder said she wishes more people would learn. For many investors, there is a sense that holding cash is a cop-out. Investors who see their fund managers holding a lot of cash tend to think that they are not getting their money's worth, which is wrong, she says.

"If investors would realize that what they are paying for is someone to have the expertise to know when to buy a call option called cash, and move in and out of that, then perhaps there might be more value placed on that service."

The question remains: do you have more cash than Buffett as a percentage of assets? Using a Broad Asset Diversification Model, cash is given its rightful place next to the other asset classes for all portfolio analysis.

While the percentage of cash should vary based on an individual's risk profile and investment goals, Berkshire holds sufficient cash to achieve the goal of being able to meaningfully capitalize on potential value-priced opportunities.

Do you?

Warren Buffett Timeline

• August 30, 1930: Warren Edward Buffett is born to his parents, Howard and Leila Buffett, in Nebraska.
• 1941: At eleven years old, Warren buys his first stock. He purchases 6 shares of Cities Service preferred stock [3 shares for himself, 3 for his sister, Doris], at a cost of $38 per share. The company falls to $27 but shortly climbs back to $40. Warren & Doris sell their stock. Almost immediately, it shoots up to over $200 per share.
• 1943: Warren declares to a friend of the family that he will be a millionaire by the time he turns thirty, or "[I'll] jump off the tallest building in Omaha."
• 1945: Warren is making $175 monthly delivering Washington Post newspapers. At fourteen years old, he invests $1,200 of his savings into 40 acres of farmland.
• 1947: In his senior year of high school, Warren and a friend purchase a used pinball machine at a cost of $25. Buffett begins to think about the potential profit, and places it in a nearby Barber Shop. Within months, he owns three machines in three different locations. The business is sold later in the year for $1,200 to a War Veteran.
• 1947: Warren has earned over $5,000 delivering newspapers. His father presses him to attend college, a suggestion Warren does not take well. Nevertheless, that year, he enrolls as a freshman at the Wharton School of Finance and Commerce in Pennsylvania. Buffett hates it, complaining he knows more than the teachers.
• 1949: Classmates return to find that Warren is no longer enrolled at Wharton. He has transferred to the University of Nebraska.
• 1949: Warren is enrolled in classes, but has already begun his life. He is offered a job at J.C. Penny's after college, but turns it down. He graduates from college in only three years by taking his last three credits over the summer. His savings have reached $9,800.
• 1950: Buffett applies for admission to Harvard Business School and is turned down. He eventually enrolls at Columbia after learning that Ben Graham and David Dodd, two well-known security analysts, are professors.
• 1951: Warren discovers Graham is on the Board of GEICO insurance. He takes a train to Washington, D.C., and knocks on the door of its headquarters until a janitor lets him in. After asking if anyone is working, he find a man on the sixth floor, who ends up being high up in the company. They talk for hours while Warren questions him on the business and insurance in general. [Buffett now owns GEICO entirely].
• 1951: Buffett graduates and wants to go to work on Wall Street. Both his father [Howard] and mentor [Graham] urge him not to. Warren offers to work for Ben Graham for free but Graham refuses.
• 1951: Warren returns home and begins dating Susan Thompson.
• 1951: Buffett purchases a Texaco station as a side investment. It doesn't work out as well as he hopes. Meanwhile, he is working as a stockbroker
• 1951: Buffett takes a Dale Carnegie public speaking course. Using what he learnt, he began to teach a night class at the University of Nebraska, "Investment Principles". The students were twice his age [he was only 21 at the time].
• April, 1952: Warren and Susie get married. They rent an apartment for $65 a month, and have their first child, also Susie.
• 1954: Ben Graham calls Warren and offers him a job at his partnership. Buffett's starting salary is $12,000 a year.
• 1956: Graham retires and folds up his partnership. Since leaving college six years earlier, Warren's personal savings have grown from $9,800 to over $140,000.
• 1956: The Buffett family returns home to Omaha. On May 1, Warren created Buffett Associates, Ltd. Seven family members and friends put in a total of $105,000. Buffett himself invested only $100. He was now running his own partnership, and would never again work for anyone else. Over the course of the year, he opened two additional partnership, eventually bringing the number under his management to three. Years later, they would all be consolidated into one.
  • 1957: Buffett adds two more partnerships to his collection. He is now managing five investment partnerships from his home.
  • 1957: With Susan about to have her third child, Warren purchases a five-bedroom, stucco house on Farnam street. It cost $31,500.
  • 1958: The third year of the partnership completed, Buffett doubles the partner's money.
  • 1959: Warren is introduced to Charlie Munger, who will eventually become the Vice Chairman of Berkshire Hathaway, and an integral part of the company's success. The two get along immediately.
  • 1960: Warren asks one of his partners, a doctor, to find ten other doctors who will be willing to invest $10,000 each into his partnership. Eventually, eleven doctors agreed to invest.
  • 1961: With the partnerships now worth millions, Buffett made his first $1 million dollar investment in a windmill manufacturing company.
  • 1962: Buffett returns to New York with Susie for a few weeks to raise capital from his old acquaintances. During the trip, he picks up a few partners and several hundred thousand dollars.
  • 1962: The Buffett Partnership, which had begun with $105,000, was now worth $7.2 million. Warren and Susie personally own over $1 million of the assets. Buffett merges all of the partnerships into one entity known simply as Buffett Partnerships, Ltd. The operations are moved to Kiewit plaza, a functional but less-than-grand office, where they remain to this day. The minimum investment is raised from $25,000 to $100,000.
  • 1962: Buffett consults Munger on Dempster, the windmill manufacturing company. Munger recommends Harry Bottle to Warren; a move that would turn out to be very profitable. Bottle cut costs, laid off workers, and caused the company to generate cash.
  • 1962: Warren discovers a textile manufacturing firm, Berkshire Hathaway, that is selling for under $8 per share. He begins to buy the stock.
  • 1963: Buffett sells Dempster for 3x the amount he invested [The almost worthless company had built a portfolio of stocks worth over $2 million alone during the time of Buffett's investment].
  • 1963: The Buffett partnerships becomes the largest shareholder of Berkshire Hathaway.
  • 1964: Due to a fraud scandal, American Express shares fall to $35. While the world is selling the stock, Buffett begins to buy shares en masse.
  • 1965: Warren's father, Howard, dies.
  • 1965: Buffett begins to purchase shares in Walt Disney Co. after meeting with Walt personally. Warren invested $4 million [which was equal to around 5% of the company].
  • 1965: The American Express shares which were purchased shortly before are selling for more than double the price Warren paid for the them.
  • 1965: Buffett arranges a business coup - taking control of Berkshire Hathaway at the board meeting and naming a new President, Ken Chace, to run the company.
  • 1966: Warren's personal investment in the partnership reaches $6,849,936.
  • 1967: Berkshire pays out its first and only dividend of 10 cents.
  • 1967: In October, Warren writes to his partners and tells them he finds no bargains in the roaring stock market of the '60s. His partnership is now worth $65 million.
  • 1967: Buffett is worth, personally, more than $10 million. He briefly considers leaving investing and pursuing other interests.
  • 1967: American Express hits over $180 per share, making the partnership $20 million in profit on a $13 million investment.
  • 1967: Berkshire Hathaway acquires National Indemnity insurance at Buffett's direction. It pays $8.6 million.
  • 1968: The Buffett Partnership earns more than $40 million, bringing the total value to $104 million.
  • 1969: Following his most successful year, Buffett closes the partnership and liquidates its assets to his partners. Among the assets paid out are shares of Berkshire Hathaway. Warren's personal stake now stands at $25 million. He is only 39 years old.
  • 1970: The Buffett Partnership is now completely dissolved and divested of its assets. Warren now owns 29% of the stock outstanding in Berkshire Hathaway. He names himself chairman and begins writing the annual letter to shareholders.
  • 1970: Berkshire makes $45,000 from textile operations, and $4.7 million in insurance, banking, and investments. Warren's side investments are making more than the actual company itself.
  • 1971: Warren [at his wife's request], purchases a $150,000 summer home at Laguna Beach.
  • 1973: Stock prices begin to drop; Warren is euphoric. At his direction, Berkshire issues notes at 8%.
  • 1973: Berkshire begins to acquire stock in the Washington Post Company.
  • 1974: Due to falling stock prices, the value of Berkshire's stock portfolio began to fall. Warren's personal wealth was cut by over 50%.
  • 1974: The SEC opens a formal investigation into Warren Buffett and one of Berkshire's mergers. Nothing ever comes of it.
  • • 1977: Berkshire indirectly purchases the Buffalo Evening News for $32.5 million. He would later be brought up on antitrust charges by a competing paper.
    • 1977: Susie leaves Warren, although not officially divorcing him. Warren is crushed.
    • 1978: Susie introduces Warren to Astrid, who eventually moves in with him.
    • 1979: Berkshire trades at $290 per share. Warren's personal fortune is approximately $140 million, but he was living solely on a salary of $50,000 per year.
    • 1979: Berkshire begins to acquire stock in ABC.
    • 1981: Munger and Buffett create the Berkshire Charitable Contribution plan, allowing each shareholder to donate some of the company's profits to his or her personal charities.
    • 1983: Berkshire ends the year with $1.3 billion in its corporate stock portfolio.
    • 1983: Berkshire begins the year at $775 per share, and ends at $1,310. Warren's personal net worth is $620 million. He makes the Forbes list for the first time.
    • 1983: Buffett purchases Nebraska Furniture Mart for $60 million. It turns out to be one of his best investments yet.
    • 1985: Buffett finally shuts down the Berkshire textile mills after years of sustaining it. He refuses to allow it to drain capital from shareholders.
    • 1985: Warren helps orchestrate the merger between ABC and Cap Cities. He is forced to leave the Board of the Washington Post [Federal legislation prohibited him sitting on the Boards of both Capital Cities and Kay Graham's Washington Post.
    • 1985: Buffett purchases Scott & Fetzer for Berkshire's collection of businesses. It costs around $315 million, and boasts such products as Kirby vacuums and the World Book Encyclopedia.
    • 1986: Berkshire breaks $3,000 per share.
    • 1987: In the immediate crash and aftermath of October, Berkshire loses 25% of its value, dropping from $4,230 per share to around $3,170. The day of the crash, Buffett loses $342 million personally.
    • 1988: Buffett begins buying stock in Coca-Cola, eventually purchasing up to 7 percent of the company for $1.02 billion. It will turn out to be one of Berkshire's most lucrative investments.
    • 1989: Berkshire rises from $4,800 per share to over $8,000. Warren now has a personal fortune of $3.8 billion.

3 Simple Investing Lessons From Peter Lynch

By John Reeves |
September 17, 2012 

Peter Lynch put together one of the greatest investing track records of all time, while serving as the portfolio manager of Fidelity's Magellan Fund. An ordinary investor who put $1,000 in the fund on the day Lynch took over would have had roughly $28,000 by the time Lynch stepped down 13 years later.

Despite those truly remarkable returns, Lynch was a passionate believer in the notion that the normal investor can pick stocks better than the average Wall Street professional. In fact, he argued that the retail investor had numerous advantages that might allow him or her to outperform both the experts and the market in general.

You need to do certain things
Lynch did not say, however, that it would be easy for retail investors to outperform. He believed they could do the job very well, but that they had to do certain things. Below are three simple lessons from Lynch that will assist ordinary investors in their quest to beat the market:

1. Do the work. Peter Lynch is very well known, of course, for recommending that investors "buy what they know." According to this principle, investors may want to invest in that busy restaurant on the corner that always seems crowded on Friday night.

Perhaps less well-known about Lynch is that he expected investors to understand their businesses before putting their money in them. In his classic book One Up On Wall Street, he recommended that you should "never invest in any company before you've done the homework on the company's earnings prospects, financial condition, competitive position, plans for expansion, and so forth."

2. Use your edge. Lynch strongly believed that everyone has an edge that can allow them to outperform the experts. The key is to utilize your edge by investing in companies or industries that you understand well.

He recommended that individuals identify three to five companies that they could know very well. You could study them; lecture on them; and understand their stories intimately. Ultimately, Lynch felt that ordinary folks need to discover their personal edge, whether it's a profession or hobby or even something else, like being a parent.

3. Be patient. Being patient and investing for the long term should be the simplest investing lesson of all. Sadly, it's one of those things that is easier said than done. In 1960, the average holding period for a stock was eight years; nowadays, it's just four months.

Lynch often said that he had no idea what the market would do in one or two years. But he was confident about what stocks would do 10, 20, or 30 years from now. He truly believed that time was on the side of the retail investor, and that's why he was an enthusiastic proponent of long-term investing.

Simple is as simple doesPeter Lynch once said, "The simpler it is, the better I like it." In a world of faster trading and ever-increasing flows of information, keeping it simple might be the ultimate edge for the ordinary investor. Always remember, though, that simple doesn't necessarily mean easy. I know I have to work a lot harder on all three of those "simple" lessons mentioned above.

_Alice lạc vào xử sở thần tiên, LEWIS CARROLL

“Làm ơn cho tôi biết tôi phải đi theo hướng nào?”
 “Cái đó còn tùy thuộc bạn muốn đi đâu nữa cơ,” chú mèo trả lời.
 “Tôi không cần biết nơi nào_” Alice nói.
“Vậy thì bạn đi đường nào cũng có khác gì đâu,” chú Mèo trả lời.

Fun Ways to Teach Kids About Money

By Daniel Bortz | U.S.News & World Report LP

Teaching your kids about money should start as early as possible. "As soon as your child starts asking for things, I think it's time for them to understand that things cost money," says Anton Simunovic, founder of ThreeJars.com, a website dedicated to teaching kids about money management.

Starting to feel a little less anxious? Here are six more ideas for making money fun for kids:

Use cash. Showing kids purchases with a credit card won't do much good, the Gallos say. "Don't [buy items] on credit cards or with checks, because that's completely abstract," says Eileen Gallo. "Let your kids hold the money and see the money leaving their hands."

A fun way to accomplish this with young children is to deposit coins in a parking meter. "Let kids put the coins in," says Eileen Gallo. "That way, they get to see what money is and that you get something for it. And when kids are 3 or 4, they love putting the coins in the meter."

Utilize a piggy bank for the 21st century. A traditional one-slit piggy bank doesn't teach kids much about money management, says Susan Beacham, CEO and cofounder of Money Savvy Generation in Lake Bluff, Ill., a company that helps parents and educators teach children to make good money choices. "A lot of times, piggy banks make kids very distrustful," she says. "If kids can't see through it, they don't trust that the money is in there." So Beacham developed the Money Savvy Pig, a see-through piggy bank with four slots: save, spend, donate, and invest. With the Money Savvy Pig, kids learn that money isn't just accumulated to buy things.

Take advantage of the Web. The Internet is full of age-specific money games for kids. Just last year, PNC Bank and Sesame Street teamed up to create fun videos and games that teach kids about money. Many children will find it easy and exciting to learn about money from Elmo and his friends.

Pearl recommends Doughmain.com, which has an array of child-friendly tools and games centered on money.

A number of banks also have online tools for kids. Investment management firm T. Rowe Price offers The Great Piggy Bank Adventure which uses a talking piggy bank to guide children through various financial lessons.

Let them play games. Beacham says games are an excellent tool for approaching the topic of money with kids. "Games become something you can use to open the discussion, so it's not always you preaching about money," she says. Grade-school children can play Planet Orange at OrangeKids.com. In the game, kids travel through the planets by completing certain jobs to earn money for gas.

MassMutual, a financial advisory group based in Springfield, Mass., developed Save! The Game, an app for the iPad and iPhone that teaches kids the difference between wants and needs--a critical financial lesson, says Pearl.

Also, don't disregard old-fashioned board games. The Game of Life, for example, teaches kids about the various expenses they'll encounter from college to retirement. Another favorite is the Allowance Game, in which kids go around the board doing chores and collecting an allowance, then spend their earnings on the things they want.

However, Simunovic of ThreeJars.com expressed one concern: "I'm not a huge believer that games are going to teach our kids a whole lot about the way money is used in the real world."

Empower them to manage their own money. Let your child play an active role in how money is used by offering them an allowance. But consistency is important: Many parents promise an allowance to their kids but don't deliver. If parents forget to pay the allowance, children learn that money promises can be broken. Beacham says this can potentially lead the child to think somewhere down the road, "Hmm, maybe I don't have to pay my credit-card bill on time this month."

Pearl adds that while an allowance can be tied to certain household chores, it shouldn't be used to discourage bad behavior (i.e., for every day you don't kick your brother, I'll give you $1).

Encourage them to give back. Giving to charity is fun for kids because they are instinctual givers, says Beacham. In addition to having your child donate money (to a charity of their choice), make philanthropy more enjoyable by getting the whole family involved. Volunteer together at the local soup kitchen or participate in a fundraiser at the neighborhood park.

Above all, don't be afraid to talk to your kids about money. Says Godfrey: "Our kids see us handling money every day, but we often forget to talk to them about what we're doing."

If You Can’t Stomach 50% Declines In Your Investment You Will Get The Mediocre Returns You Deserve

Charlie Munger BBC Interview During The Financial Crisis

Buffet Vs. Soros: Investment Strategies

By James Kerin | Investopedia – 6 hours ago

In the short run, investment success can be accomplished in a myriad of ways. Speculators and day traders often deliver extraordinary high rates of return, sometimes within a few hours. Generating a superior rate of return consistently over a further time horizon, however, requires a masterful understanding of the market mechanisms and a definitive investment strategy. Two such market players fit the bill: Warren Buffet and George Soros.

Warren Buffet
Known as "the Oracle of Omaha," Warren Buffet made his first investment at the tender age of 11. In his early 20s, the young prodigy would study at Columbia University, under the father of value investing and his personal mentor, Benjamin Graham. Graham argued that every security had an intrinsic value that was independent of its market price, instilling in Buffett the knowledge with which he would build his conglomerate empire. Shortly after graduating he formed "Buffett Partnership" and never looked back. Over time, the firm evolved into "Berkshire Hathaway," with a market capitalization over $200 billion. Each stock share is valued at near $130,000, as Buffet refuses to perform a stock split on his company's ownership shares.

Warren Buffet is a value investor. He is constantly on the lookout for investment opportunities where he can exploit price imbalances over an extended time horizon. 

Buffet is an arbitrageur who is known to instruct his followers to "be fearful when others are greedy, and be greedy when others are fearful." Much of his success can be attributed to Graham's three cardinal rules: invest with a margin of safety, profit from volatility and know yourself. As such, Warren Buffet has the ability to suppress his emotion and execute these rules in the face of economic fluctuations. 

George Soros
Another 21st century financial titan, George Soros was born in Budapest in 1930, fleeing the country after WWII to escape communism. Fittingly, Soros subscribes to the concept of "reflexivity" social theory, adopting a "a set of ideas that seeks to explain how a feedback mechanism can skew how participants in a market value assets on that market."

Graduating from the London School of Economics some years later, Soros would go on to create the Quantum Fund. Managing this fund from 1973 to 2011, Soros returned roughly 20% to investors annually. The Quantum Fund decided to shut down based on "new financial regulations requiring hedge funds to register with the Securities and Exchange Commission." Soros continues to take an active role in the administration of Soros Fund Management, another hedge fund he founded.

Where Buffett seeks out a firm's intrinsic value and waits for the market to adjust accordingly over time, Soros relies on short-term volatility and highly leveraged transactions. In short, Soros is a speculator. The fundamentals of a prospective investment, while important at times, play a minor role in his decision-making.

In fact, in the early 1990s, Soros made a multi-billion dollar bet that the British pound would significantly depreciate in value over the course of a single day of trading. In essence, he was directly battling the British central banking system in its attempt to keep the pound artificially competitive in foreign exchange markets. Soros, of course, made a tidy $1 billion off the deal. As a result, we know him today as the man "who broke the bank of England."

The Bottom Line
Warren Buffett and George Soros are contemporary examples of the some of the most brilliant minds in the history of investing. While they employ markedly different investing strategies, both men have achieved great success. Investors can learn much from even a basic understanding of their investment strategies and techniques.

Marry Buffett in Singapore - Is value investing still relevant?

Check out this great MSN video - Is value investing still relevant?

Invest in What You Know

By Ser Jing Chong - September 5, 2012 | Tickers: BWLD, CMG, GOOG, MCD, PNRA | 0 Comments

‘Invest in What You Know’ is one of the great ideas that the legendary fund manager Peter Lynch has given to the individual investor. There is a common behavioural bias for people to invest predominantly in stocks listed in their home countries because they feel more familiar with it. By taking note of products and services you use every day, you can increase your chances of finding good investment ideas within your home country and make the best out of this ‘familiarity bias’.

When you use Google (NASDAQ: GOOG) to search for whatever you are trying to find out on the internet, you might marvel at how intuitive and relevant the search responses are as compared with other search engines. Dig a little deeper and you might realise Google is a great company with solid financials and really interesting future projects that might have as-yet-un-thought-of benefits for society such as the self-driven car. You can then ask yourself if Google will be a suitable place for your investment dollars -this in essence is how ‘Invest in What You Know’ can be put into practice.

I invest in the US stock market even though I live in Singapore because I recognise that great investment opportunities are not limited by geography. So, when I had the rare opportunity to travel to Washington DC, I made it a point to visit USA-only restaurant stocks that I was already invested or interested in to try and obtain a first-hand experience of what it feels like to dine in there.

I depend on Motley Fool’s discussion boards for my ‘scuttle butt’ research on Panera Bread (NASDAQ: PNRA) and since I was invested, I had to visit one in DC. After finding one and ordering a beef sandwich, I took note of the pricing of their sandwiches and how it actually tasted. The décor looked inviting and there was a healthy flow of people at lunch time – nice! It felt to me like Panera was a ‘Starbucks for Sandwiches’ which is a plus for me. The sandwiches are comparatively priced with other sandwich chains I saw in Washington DC, tasted great and portions were enough to fill a hungry stomach. I know this is anecdotal as I only managed to visit one restaurant but the evidence I saw first-hand corroborated with the general opinion of what the community at Motley Fool had described to me. I like it!

I then thought about the international expansion opportunities of Panera, particularly in Asia. Using its pricing of sandwiches as a gauge, I noted that if that particular Panera was uprooted directly into Singapore, it might face a tough time because of pricing issues. The sandwiches in Starbucks were priced almost the same in USA and Singapore after conversion of currencies and they cost slightly more than a normal meal here. If I were to do so with Panera, the price of their sandwiches would be more than 2 times more expensive than what a typical Singaporean would pay for a normal meal - bear in mind that Singapore has one of the highest standards of living in Asia. Thus, I now know one important point to look out for if Panera wants to expand in Asia – pricing of their sandwiches or other food concepts it might want to try out.

My next stop was Chipotle Mexican Grill (NYSE: CMG). I like the financials shown by the company but was not as familiar with it as I was with Panera. When I saw a Chipotle along the streets, I went in for a bite and was greeted with the biggest burrito I ever saw. I now come to appreciate Chipotle’s operating style – a few excellent choices in a few categories. It looked very streamlined and efficient and probably resulted in Chipotle having lower foodcosts than other fast-casual restaurant operators; I made a note to check on that later. I was also very excited when I got introduced to Chipotle’s Asian food concept: Shophouse Southeast Asian Kitchen (courtesy of new friends I made in Washington DC - Kyle and Sarah, thank you!). The food tasted authentic and delicious and more importantly, it was prepared and served in a similar manner to Chipotle’s Mexican food restaurants – a few excellent choices in a few categories. I thought it was great that Chipotle might have another avenue for growth in Shophouse. However, after further investigation, I found out that Chipotle has only opened one Shophouse so far and plans to open only one more in 2012. Shophouse is still in the testing phase for Chipotle and management is still unsure of whether they will pursue the expansion of Shophouse aggressively.

This brought me to a corollary of ‘Invest in What You Know’ – that is, any attractive new product or service’s ability to fuel growth in a company is in direct relation to the proportion of overall sales that the new product or service is contributing. For Chipotle, which operates 1316 restaurants (from its latest quarterly filing), the number of potential Shophouse restaurants that management is looking at would not add any meaningful numbers to Chipotle’s sales and bottom line results in the next few years. Thus, any growth in Chipotle would have to come from its Mexican Grill restaurants.

I also checked out Chipotle’s average food costs over FY 2009, 2010 and 2011 as a percentage of its revenue and found out that it compares very favourably with other fast-food and fast-casual restaurant operators. The table below shows these percentages. Chipotle’s numbers are even more remarkable given that they have a ‘Food with Integrity’ philosophy where they insist on having almost all of the food used in their restaurants to be organically grown. This increases their food costs as organic food generally costs more than conventionally farmed food. Knowing Chipotle’s philosophy and from my experience at their restaurant, I have a newfound appreciation for their operating style and am even more convinced now of Chipotle’s management’s capabilities.

Restaurant	Food Costs as Percentage of Revenue
Chipotle Mexican Grill	31.6%
Buffalo Wild Wings (NASDAQ: BWLD)	26.5%
Macdonald’s (NYSE: MCD)	33.3%
Panera Bread	29.0%

Table 1 – Food cost as percentage of revenue for different restaurant operators

My trip to USA has allowed me to know two of my favourite restaurants better and even though I already knew of their financial strengths before I observed them in person, you can also employ the same mindset and inquisitive spirit in products and services that you know are commonly being used and consumed. Who knows, you might be able to discover your next super-stock, just like how Peter Lynch found Hanes when he observed his wife buying their Leggs brand stockings and marvelling at its quality. Have fun investigating!

P.S: After Peter Lynch bought Hanes’ stock, it appreciated by 600% before getting acquired!

http://supermarketer.vn/ebook-clickbank/?aid=hieu819&bid=8d9b9102

3 Simple Ways to Stay Sane in the Market

By Michael Lewis | (The Motley Fool) 

I don't blame investors who are fleeing the equity markets. With the daily ups and downs, it is downright maddening to be a participant. After you've done your research, consulted your advisor, and prayed to any array of deities, your prized investment pick takes a 10% hit in a day because of a tepid earnings release. So, all that considered, why would you want to be in the markets? The reason is simple: Investing in companies, in the long run, remains one of the best -- if not the best -- use of your non-essential capital. The key is to know how to view your investments, as well as the market at large. These easy-to-use tips will keep you from throwing your computer out the window the next time the market takes a dive.

1. Turn off your TV

I don't have cable. Not because I am trying to be trendy and going "unplugged," but because if I had access to all the news/infotainment channels, I'd watch them. And no matter the discipline I've cultivated over the years regarding the information pipeline, if I have the telly tuned to Mad Money long enough, I start to listen.

This is a major contributor to market hysteria. The 24-hour news cycle, for all of its benefits, is incredibly detrimental to the financial world. There's no need to have all-day programming regarding the markets -- and the networks know that. That's why they have to resort to sub-optimal programming that borderlines sensationalism so that advertisers remain interested.

Luckily for you, you are ultimately in control of this info-overload. No matter how appealing the headline may be regarding your favorite company, just don't watch. Change the channel, or better yet, turn it off.

Earlier in the summer, toward the end of spring, investors and analysts were fleeing from mattress companies like Select Comfort (Nasdaq: SCSS  ) and Tempur-Pedic (NYSE:TPX  ) because of so-so demand reports repeatedly covered on CNBC, Bloomberg, and the like. Stock prices absolutely dissolved over the course of a few months, with the above-mentioned companies' market caps cut in half or more. What happened just two months later? Stellar earnings reports and increased demand. Select Comfort went from its June dip of under $20 per share to nearly $30 today. Tempur-Pedic climbed back up from its $23 low to above $30. Those who had listened to their TVs were urged to sell "before it's too late."

Takeaway: Your television is great for watching eccentric personalities decompose on reality shows, not as guidance for your hard-earned savings.

2. Read often, read thoroughly, read selectively

It is often said that Warren Buffett reads hundreds upon hundreds of annual reports every year. Now, you don't need to read that many, unless you are managing millions or billions of other people's money, but pay attention to the fact that he reads annual reports.

Buffett goes right to the source -- the SEC documents -- and reads the progress of a company over a series of years. He supplements this with daily newspaper reading to keep on top of the news.

You have been trained to pay attention to quarterly progress reports for a company. When you do this, you are taking in short-term trends that often arise from external factors beyond the control of the company in question.

Hit the zoom-out button.

For example: I have a bullish CAPScall on Wynn Resorts (Nasdaq: WYNN  ) . Since then, the company has dropped around 15%. The reason is softened demand and increased competition in the Macau gaming arena. Did 15% of Steve Wynn's masterfully created empire disappear over three months?

I don't think so.

Wynn himself is widely considered the best showrunner in all of the gaming industry. He's less volatile and political than Las Vegas Sands' Sheldon Adelson, and is very committed to a long-term plan. His method seems to have worked so far -- he runs six resorts in Vegas, three of them considered to be the cream of the crop. And he certainly wasn't the first guy in town. He was one of the first guys in Macau, where his company, on a longer time horizon than a single quarter, has made an absolute fortune.

I don't really care about the "softened demand" in the gaming industry or other players opening casinos in Macau. I have read Wynn's annual reports for years, and I have researched Wynn himself. I am confident it is a great company, and the most innovative in its space. As long as there are human beings, there will be those who want to play the stakes. I am happy to invest in the man who runs the best gaming shop around -- no matter what short-term trends and pundits say. Because over eight years, the company has returned over 14% annualized.

3. Be boring

If you invest in tomorrow's world-changing companies, you're going to be nervous today. Putting your money into a high-tech company isn't going to let you sleep better at night. You are far better off investing in easy-to-understand businesses with bulletproof revenue drivers.

Take a look at a company like Winmark (NYSE: WINA  ) . Winmark franchises a variety of secondhand stores , unloading the risk to the franchisee while collecting royalties. The company also provides small and mid-sized business leasing services. It's one of the least sexy companies I can think of -- and also one of my favorites. The stock has risen nearly 20% over the last year, and in recent years has been paying a respectable, sometimes chunky, dividend. To top things off, it is run by a man who has been in this exact business his whole life and knows precisely how to run it.

I can put my money in Winmark, knowing what the future holds for it. In boom times, the company will do well from its leasing end, as more people will be opening and expanding their businesses. In rougher times, the secondhand stores will outperform the retail sector, handing over extra royalties to the parent corporation. It's a stock that lets me sleep well on my Select Comfort mattress.

Carry on
By isolating yourself from incessant media, doing the right kind of homework, and sticking to basic businesses, you will find yourself less stressed out by the market's irrationality. More importantly, you will find your returns will be less volatile and more attractive than the vast majority of professionally managed funds.