Lull period

I am currently digesting a book, titled the Warren Buffet philosophy of investment by elena chirkova. To be frank,  I read a fair share of Warren Buffet books, his quotes, and advice on the internet by Buffet wannabes on how they can emulate him and achieve his results. (Buffet trackers, dodgy people proclaiming they can beat his returns)

I will do a write-up on this book in due course. However,  some afterthoughts as follows.

1) Mere mortals do not have the count to infinity time horizon as Buffet as. They are constrained by capital, transaction costs and immediate expenses to follow up. They don't have the stature and negotiation power of Buffet, to bargain for convertible bonds, to limit his risk exposure while holding an option to convert to shares. (think Baml).

2) This book has an interesting critique on mathematical finance and valuation models. Although Buffet is a proponent of financial ratios, he shuns overly complex mathematical valuation models, which models had unrealistic assumptions and blindly following them led to disastrous consequences. Especially on Black scholes model leading to failure of LCTM and 2008 GFC.

http://www.bbc.com/news/magazine-17866646

https://www.google.com.sg/amp/s/amp.theguardian.com/science/2012/feb/12/black-scholes-equation-credit-crunch

I am in strong agreement in this point. Fcfe, ddm assumes things will stay the same in the next 3-5 years. But a lot can change with this era of disruptive technologies, general uncertainty and instability. Even discount rate and risk free rate can vary, less to say projected earnings, cash flow as well as sensitivity analysis projecting highly varied estimate of stock intrinsic value.

3) My method of using the quantitive to support the qualitative, is like a sanity check. My assumptions (which are quite numerous) will lead to estimate of intrinsic value, and financial ratios check on the financial health and prospects of the company. But ultimately, estimates are estimates and no can truly predict the future.

4) Buffet long and hold forever has its merits. You save on transaction costs, have access to consistent dividend income, and theoretically is at an unlosable position since you already bought it at a discount and the risk is much reduced.

However, compared with Peter lynch on what is already low can go lower, this book also illustrates how Buffet made investment mistakes as per mere mortals made.

Buying and selling Disney too soon (which turned out to be a hundred bagger)
Buying furniture company and selling them at a loss when they is change in investment moats (entrant of cheaper Chinese competitors)
Buying of textile firm Berkshire Hathaway, and forced to restructure it into a investment holding company

People glamorise over the incredible results one can achieve, because of a lack of understanding on how the ground situation is like. Buffet is an ordinary man whom has extraordinary success. But misguided people propped him to a mythological status and use his words to justify their actions. (As per the ongoing familee squabble in Singapore)

4) Buffet Market valuation ratios
Price per earnings ratio
Tobin q
Dividend per price
Market capitalisation per GDP. Strong preference .buy at 70-80%. Sell at 200%.

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