The Wisdom of Warren Buffet

* This is a re-post from another blog but I thought I would post it for my readers!

I spent 6 hours last week in Omaha with Warren Buffett. As I walked into the meeting I was pleasantly surprised to find Mr. Buffett dressed more like a scroungy sophomore chemistry student than the greatest investor of all time. It was an open Q&A session with some of my colleagues and me for about 3 hours.

Going into the meeting, I was thinking that I would receive a great deal of advice about investing and how to quantify intrinsic value. I figured he'd tell us all about "Mr. Market" and how his favorite holding period is forever. Then I figured we'd get around to his bet on the Euro or his belief that the market is irrational and ineffecient. Or perhaps the second richest man in the world would, I don't know, talk about money?

Total time spent talking about any of the above: Zero. Zilch. Nada.

Let's get to what he DID talk about. As a big fan of "Top" lists, I've compiled the "Top 5" things (prioritized) I learned from Warren Buffett that day:

1. Be Grateful -

There are roughly 6 Billion people in the world. Imagine the worlds biggest lottery where every one of those 6 Billion people was required to draw a ticket. Printed on each ticket were the circumstances in which they would be required to live for the rest of their lives.

Printed on each ticket were the following items:

- Sex
- Race
- Place of Birth (Country, State, City, etc.)
- Type of Government
- Parents names, income levels & occupations
- IQ (a normal distribution, with a 66% chance of your IQ being 100 & a standard deviation of 20)
- Weight, height, eye color, hair color, etc.
- Personality traits, temperment, wit, sense of humor
- Health risks

If you are reading this blog right now, I'm guessing the ticket you drew when you were born wasn't too bad. The probability of you drawing a ticket that has the favorable circumstances you are in right now is incredibly small (say, 1 in 6 billion). The probability of you being born as your prefereable sex, in the United States, with an average IQ, good health and supportive parents is miniscule.

Warren spent about an hour talking about how grateful we should all be for the circumstances we were born into and for the generous ticket we've been offered in life. He said that we should not take it for granted or think that it is the product of something we did - we just drew a lucky ticket. (He also pointed out that his skill of "allocating capital" would be useless if he would have been born in poverty in Bangladesh.)

2. Be Ethical & Fair

Continuing on the analogy above, consider this scenario:

Imagine that you were selected as the one person (out of 6 Billion) to create the systems of the world. This includes the type of government, social programs, tax systems, military systems, job markets, laws, regulations, etc.

The only catch was this: You had to come up with systems that you believed were fair and that you wanted to live with, before you were allowed to look at your ticket.

When Warren talked about this it made me reconsider the definition of ethical behavior - what type of system would you create if you didn't know what ticket you had drawn? Would you take a different position on some of the programs you are for or against if you were surrounded by a different set of circumstances?

3. Be Trustworthy

This may be a minor point that Mr. Buffett was trying to make, but he told a simple story that affected me greatly. He told of the Founder of the Nebraska Furniture Mart, one of his companies, and how she came from a poor Jewish family and couldn't read, write or speak English. She was had survived the Holocaust, spent 16 years bringing her family to the U.S. (at $50 per person), and grew the Nebraska Furniture Mart from a $500 initial investment to do $350 Million annually from a single location in Omaha.

Update: A friend of hers told Warren at one point that the way she evaluated people was simple: She simply asked herself, "Would they hide me?" What a great way to judge your instincts about whether to trust someone or not.

4. Invest in Your Circle of Competence

Warren talked at length about investing within your circle of competence. This applies as much to entrepreneurship as it does to investing in public securities. One thing that continually amazes me is how much discipline Warren has in never letting himself get excited about a deal that he doesn't understand. He understands his weaknesses, limitations, and the types of businesses that he gets.

He said that it is crucial that people clearly recognize what they don't understand, and place their effort and energy on businesses or career paths that allow them to bet big on themselves doing something that they do understand. He said that it's "not so important how big the circle is, but it's important that you know where the perimeter is, and when you're outside of it."

5. Do What You Love

Perhaps the reason that we've heard this a million times is that it's true. Warren talked at length about how excited he is to wake up in the morning and to do what he loves. He talked about how important it is to have the freedom in your life to paint your own canvas any way that you like. He said that many people talk about how they are going to just work at a high-paying job "for a little while" and then go do what they love - he equated that to "saving up sex for old age." He said to "never do something that doesn't excite you or that you dislike."

Not the advice you'd expect from somebody worth over $40 Billion?

I only hope that as I gain success throughout my career that I can mirror the image of humility, charity, intelligence, optimism and justice that Warren Buffett represents.

the stocks

coal...
PCX at 55 :) WTF
aci
fcl
mee but take quick scalps and only get it when its wwwwaayyyyyyy over sold. if you dont have a perrfect entry your fUCCKED.


steel
NUE looks nice for a bounce!!!!
MT nice divergence below 200 though overhead resistance at 80
AKS trade like MEE
SID

OIH
-------
EXH totally decimated wtf? news?
NBR
NE
WFT
TDW

BJS
CAM
ESV
RDC
TDW

WEEKLY ANALYSIS

Ready to take advantage of short-squeeze?

I continue to favor buying the Energy/Commodity complex at current levels as the Weekly Support zones on many stocks in the group come into play. Below is a Weekly chart of the Dow Jones Coal Index (DJUSCL) explaining why I like this zone for buying. Note its correction is looking very oversold (weekly stochastics) after price action formed a Reversal bar last week off its 50-week sma off a 2-year uptrend line in the 50%-62% retracement zone. At the very least, I suspect prices will stabilize in this zone and would refrain from aggressively Shorting and start nibbling on the Long side for a bounce.

The OIH is holding at key support marked by the 62% retracement and a 2-year uptrend line around 175/180 area, and a similar case can be made for steel stocks!!!!

THE SECTORS

Airlines, Casinos, Housing, Banks, Brokers, Trucking, Retail and Semis were among Tuesday's laggards.

Leadership came mostly from an oversold Energy complex, led by a bounce in Coal, Natural Gas, Oil Services, Gold, and Steel stocks.

stocks for thursday! will commodities continue?? :)

sii: just bounced off 200, but closed right below 10 ma @ 72. gets over buy it!..next res. @ 75
hal: sellers couldnt drive price to touch 200ma @ 41.5 closed above 10ma @ 44.24, res. @ 48
wft: formed ascending triangle on top of 200ma @ 36.93, closed at high end of triangle, res.@42
ne: crossed above 10 ma @ 49.44 next resistance is 200ma @ 53.80
nbr: 200 day ma is @ 34.43 and 10 ma is at 34.12. if it clears these go long!

gg,nem,abx, aem: gold stocks are also in rally mode. look to buy 1 minute macd/signal crossovers :)

ts: has been accumulated at 200 ma51.20 over the last 3 days.. if it gets above 52.04, buy 1 minute macd/signal crossovers

Wed Aug 13th

Opening Indications
	Fair Value	Current	vs Fair Value
S&P 500 Futures	1290.0	1286.4	-3.6
Nasdaq 100 Futures	1946.0	1942.2	-3.8

08:06 ET Futures suggest a lower open for the stock market, slipping as disappointing earnings from Deere (DE) hit the wires. Shares of Deere are down 9% in premarket after the company reported quarterly earnings of $1.32 per share, which missed expectations by four cents. In other earnings news, Applied Materials (AMAT) and NVIDIA (NVDA) topped estimates, which is helping the Nasdaq outperform on a relative basis. In merger and acquisition news, CVS (CVS) is buying Long Drug Stores (LEG) from $71.50, or $2.9 billion, which represents a 32% premium to yesterday's closing level. Futures are likely to go on the move upon the release July retail sales and the import price index at 8:30 ET. Crude prices are up 0.3% to $113.36 per barrel ahead of the government's weekly energy data at 10:35 ET.





SEC protection against naked short selling ends now. Rumors from short sellers regarding WB, WM, LEH, GS, JPM, etc., will resume. XLF should drop back into the teens and lead the broad market lower. The SEC would like to make these changes permanent but it will be at least 2 weeks before they draft anything up. Since this protection was put in place, Bank of America (BAC) is up 81%, Lehman (LEH) is up 41%, and J.P. Morgan (JPM) is up 32%. What will happen during this interim period? A final assault on the banks.

2. Consumer credit card use began to fizzle in June and probably continued into July and August. Read up on the American Express (AXP) conference call for details. Accounts 30 days past due are up 60%, and 65% of banks have raised the standards to access credit. This could be the next and last shoe to drop in the credit crisis. 2007 began the subprime mortgage meltdown, 2008 has been marked by sinking valuations of prime mortgages, and the theme of 2009 might be credit card debt.

3. J.P. Morgan issued a statement saying that trading conditions have substantially deteriorated since June. This will effect those financial leaders who have yet to be clobbered, like Goldman Sachs (GS). Ken Heebner, an investor who reportedly trades similarly to Goldman, suffered his worst month managing the CGM Focus Fund in July as he, and probably Goldman as well, expected oil to continue up to $200 a barrel. The other dark side of institutional trading has been caused by Merrill Lynch's (MER) decision to sell their mortgage backed securities for 22 cents on the dollar to Lone Star. Now all financial firms face further write-downs on this lower than expected valuation.

4. Further write-downs means more capital raising which means shareholder dilution. It will be another year before real estate bottoms so any hope for eventual write-ups is far, far, away.

With the market now overbought, these negative financial issues present the rationale for a sell-off but it will only be for the short term. The recent market strength was a precursor to a much stronger rally later this fall. Long term, conditions have definitely improved. A stable dollar combined with declining oil will pave the way for foreign investment in US equities. This powerful money flow will provide a boost to fall seasonality that we predict will push the S&P 500 back above 1,400.

opening indications and high volume stocks from yesterday...

Opening Indications
	Fair Value	Current	vs Fair Value
S&P 500 Futures	1306.0	1304.2	-1.8
Nasdaq 100 Futures	1946.0	1947.0	+1.0

08:05 ET Futures suggest a muted open as a drop in oil prices helps to offset negative news out of the financial sector. UBS (UBS) reported its fourth straight quarterly loss and is separating its business divisions into three independent units. JPMorgan (JPM) disclosed in a regulatory filing that trading conditions have deteriorated compared to the second quarter, noting that spreads on mortgage-backed securities have widened, causing losses of $1.5 billion quarter-to-date. Morgan Stanley (MS) said it is going to repurchase $4.5 billion in auction rate securities, but New York Attorney General said the move is "too little, too late," according to media reports. Morgan Stanley was downgraded to A1 from Aa3 at Moody's. With regard to oil, prices are down 0.8% to $113.58 per barrel as the dollar climbs 0.3% and Russia says it is ending its current military operation against Georgia.

gps -retail
kss
hd
ldk
au
bzh
cqp
low
tgt
pir
bby

AGU at key support level. IPI setting up big short sqeeze day!

UA looks like a good short here close to 200 day MA

LTM - SHORT RALLY IN DOWNTREND

BIG - strong sector/possible cup and handle breakout / short sqeeze

BIG - strong sector/possible cup and handle breakout / short sqeeze

my basket stocks

amr cal dal luv

gg aem abx

ubs bac mer leh jpm

xom bp cvx su pbr

fnm fre

lvs mgm byd byi igt

gps aeo jwn ltd tjx chs anf aro bke dds jcp kss

Barrons says energy stocks too cheap to ignore...

One of the sharpest corrections ever in energy stocks, which has dragged shares of most large energy companies to below 10x next year's earnings, is a seldom-seen opportunity to make 25% or more on your money over the coming year, Barron's Andy Bary says.

Energy analyst David Kistler notes major independents like Anadarko (APC), Devon Energy (DVN) and XTO Energy (XTO) are trading at little more than half their net asset values, making their risk/reward excellent. Such firms are heavily focused on North American E&P, which shields them from much of the geo-political turmoil multinational peers have suffered in Venezuela, Russia and Nigeria. APC and DVN are also prime takeover targets at current prices.

Investors worry the oil majors (ExxonMobil (XOM), Chevron (CVX), BP (BP), ConocoPhillips (COP)) are being hurt by largely undisclosed production-sharing accords with nations in which they drill. Given high oil prices, the agreements - which limit producers' returns after recouping initial investments - are quickly putting the host countries in control. Barron's notes that for Exxon, only 20% of its output is subject to such accords, and thinks its problems and those of its peers have already been more than priced into its shares.

Lehman's Paul Cheng likes Chevron, which trades for just 6.6x 2008 earnings. He sees CVX boosting output by 4% in 2009 and 2010.

Suncor Energy (SU), the most prominent oil-sands play, trades for just 8.5x 2009 earnings. Bear in mind it consistently trades at a premium due to its enormous reserves that could last 100 years vs. 20-30 for other oil majors. XTO Energy (XTO) is another company whose historic premium has vaporized.

"Given such valuations, it seems tough to go wrong now with XTO or almost any major energy stock, even if energy prices fall a little further."

low fat/low calorie food alternatives

http://www.nhlbi.nih.gov/health/public/heart/obesity/lose_wt/lcal_fat.htm

LEVEL 2

I have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers. If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)The above is all IMO and DYOR!!!!!
Last edited by Captain Haddock; 27-08-2004 at 06:43 AM.

24-08-2004, 05:19 PM

richarjl
Rookie

Join Date: Mar 2004
Location: essex
Posts: 11

Quote:
Originally Posted by Captain Haddock
Hi richarjI have been trading UK sets for approx 3 years focusing on Level 2 to make short term trades/scalps. (I uses ADVFN's platform)Level 2 is crucial if you want to scalp the market and the way the order book behaves is very stock specific. Some books such as VOD do not give nearly as much information as a smaller stock such as ARM/RSA, and each must be treated differently when interpreting the screen.I wouldn't pay much attention to the total volume on each side, because as previously mentioned, this can be easily skewed to mislead. Although you can drop down the buy/sell orders box and select 1/2% to give you a better picture without wild orders.To get a good understanding I would suggest watching 3 or 4 different priced stocks on the level 2 screen when the markets moving. EG: OOM/AVZ/LLOY/RBS, these will give you an idea of how each behaves and the size of orders that flow through.I personally prefer to scalp stocks around the pound price level. This is because the resistance and support are much clearer due to the 0.25p increment moves and I find the order book's easier to read. Iceberg orders are easier to spot, computer placed trades are a giveaway on the thinner stocks too.Take ARM as an example yesterday, the selling was pretty much relentless all the way to the close, large icebergs orders were being placed directly onto the offer, they kept the selling in check though, rarely did they sweep the bid leaving only a few buyers. If you're looking to buy that sort of stock for a bounce, you need to see the bid being cleared leaving only a few orders left, this along with a spike down in the price. Then immediately I want to see big orders coming on the bid, maybe not bidding top price but showing some strength, I want to see more of these orders building up, then I'll hit the offer, forget about trying to bid for stock after a clear out like that you'll never get it (unless your wrong about the trade, then u dont want it anyway!). Ideally you'll want to see orders being pulled from the offer at various prices levels now and the bid building. If I see this and I see buyers hitting the offer in size, I'll quite often hit the bid again and double my position, set my stop just below the last low, and sit tight to see if Im right. At this point, the buyers will have driven the price up a bit and you will showing a small profit. This is the crucial moment. If large sell orders start to come onto the offer and are not immediately snapped up by buying, sell your position. This is an ominous sign and I want to see the sellers finished and the buyers hungry for stock, if thats not the case, bank the scalpers profit and get a buy ticket ready in case you want to get back in.(This scenario after some heavy selling is showing signs that the seller has finished his wave, they tend to get impatient when they have only a few shares left to fill and that is why you will quite often see the bid being wiped to finish the order.)Hope that makes some sense, drop me a mail: mark at daytradersolutions dot com if you need some clarification!

TRADE IDEAS FOR THURSDAY AUG 7th

dollar index usd has rallied up to its 200 day ma. pivotal day. if dollar falls gold stocks could pop hard. AEM AND GG, ABX ARE MY FAVORITES :)

LONG TGT 1/2 top bollinger band rounded down to even number: 81 ;)
OXY close:77.61,
support bolling band center line 77.25 STOP
support 200 day sma:77.17
SHORT TGT 75

LONG TGT 1/2 next bolling/even number 50
200 sma: 47.07 stop
CHK close: 46.33,
SHORT TGT 1.2 lower bollinger 44

200 SMA:39.44
LONG TARGET: 37
VLO close: 34.47
SHORT TARGET: 33

LONG TARGET: 20
TSO close: 17.76
SHORT TARGET: 16.25

LONG TARGET: 46
SUN close: 44.50
SHORT TARGET: 43

WATCH BIG FOR 34 BREAK OUT
stop 31.17

Trades for Wednesday....

SETUPS I LIKE FOR WEDNESDAY:
if the sector rotation continues... could get more short sqeeze action going on in retail/consumer discretionary and possibly refiners...

$$$ POSSIBLE BREAK OUT TRADE ON BIG$$$
short squeeze too.. short interest is at a whopping 46% of float and BIG also on its third attempt to break out of the allusive 34 level. (3rd times the charm?)
BIG stop 34, tgt 36


WNR stop 7, tgt 8 si = 31% float sold short

BKE stop 50, tgt 52, 53 si = 26.8 % float sold short

JCG stop 30, tgt 32,33 si = 26.5% float sold short

WM stop 5 tgt 6 si = 26% float sold short

LVS 41. stop, 48 stop, tgt 50 si = 20% float sold short

$$$honorable mention for SUN...$$$
alot of technicians in this chart. broke 50 ma to upside and retested successfully today.. might get nice follow through if refiners get a bounce.
SUN stop 42.50 tgt 45 si = 16% float sold short

STOCKS FOR TOMORROW

oil/coal stocks are finally breaking down to confirm the huge negative divergences on their charts.

If fed raises rates and dollar keeps going up and oil and gold keep going down, airliners could pop hard. will watch transports for a rally.
UPS FDX CAL DAL

and gold stocks could get hit hard again.
AU, NEM, AEM, ABX

ACE almost has filled the gap at 52.50 could be a good short at gap resistance.

GOOD SHORTS:
XOM
V
CLX
CXO
PBR
NEM
BHP
FDG
ANR
ACI
FCL
KOL
MT
RIO
TS
AKS
SID

I’m not expecting much interesting to happen ahead of tomorrow’s Fed meeting. Wake me when it’s 2:16 tomorrow afternoon…

After reviewing the hourly chart patterns...the indices fell early, steadied during mid-day but couldn’t break out, and then rolled over into the close, closing not far off the session lows.

It was a negative way to start the week, and certainly with the indices closing under their 4-week trendlines this does not bode well for the next few days. They could conceivably come down and test the July lows very easily.

nightly objective

I will post a review of the major Sectors focusing on Trend, Divergence, Pattern, support and resistance, volume analysis to try and identify high probability trades with at least a 3:1 R/R ratio.