Westie
26-11-2004, 02:36 PM
Ok, there's a thread on technical analysis on here so I guess a thread on value investing won't harm. So lets start with a nice little article I picked up earlier on in the year on where Buffett invests his money when he doesn't have his Berkshire hat on. Might surprise some, saw someone post something on a thread here saying Buffett doesn't do turnarounds. That so????
The Profitable Hobby of Warren Buffett
Tuesday July 6, 12:30 pm ET
By James Altucher, Special to RealMoney.com
Yesterday, a little-noticed event took place, and it wasn't even mentioned in the financial media. A small, $11 million market-cap, over-the-counter company called Laser Mortgage (LSMM:OTC BB) announced that stockholders of record as of July 5 would receive a dividend of 86 cents per share. The stock closed at 84 cents Friday. This distribution represents the dissolution of the company.
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Why is this interesting? Over the past several years, one of the company's largest shareholders was Warren Buffett. No, not Berkshire Hathaway (NYSE:BRKa - News), but Buffett in one of the few dalliances he takes with his personal portfolio.
Although it represents only a small portion of Buffett's overall net worth (0.25%, according to him), his personal portfolio over the past 10 years sheds some interesting light on his views on investing. With more than $30 billion that needs to be put to work, Berkshire Hathaway is too big for Buffett to get into the type of situations he loved when he was running his hedge fund from 1957 to 1969.
These "Workout" situations, as Buffett called them at the time, often represented up to 50% of the profits in his fund, depending on the year, and were heavily influenced by the writings and teachings of Buffett's mentor Ben Graham. In most cases, they were small companies, trading below liquidation value, or where Buffett thought liquidation was in the works or, in some cases, had already been announced. When Buffett expanded his repertoire to buying growing companies above their breakup value, he likened the Graham-Dodd approach to buying "cigar butts -- you can pick them off the ground and smoke one more puff, but that's about it."
I'll take a look at a few trades in his personal portfolio over the past decade. For all of these trades, it's impossible to know all of the details because Buffett never discusses them and is only obligated to file his ownership when it exceeds 5% of the company. However, we can still pick through the SEC filings and news reports on the companies and try to examine what happened, when and why.
Laser Mortgage
This company was a mortgage-backed real estate investment trust that quickly got into trouble in 1999 and 2000 when interest rates spiked up. It used heavy leverage and made very concentrated bets that backfired horribly when mortgage lenders defaulted, causing it to mark down book value significantly.
Because of these defaults and markdowns, investors lost faith in management's ability to value its portfolio correctly, and the stock soon plunged below book value. In October 2000, management threw up its hands and announced it was looking into a possible liquidation of its portfolio and ultimate distribution of proceeds to shareholders.
Buffett began acquiring stock most likely in early 2000, when the stock was trading around $4 and book value was around $4.51. On April 13, 2001, Buffett filed a Schedule 13G with the SEC stating that he owned 979,000 shares, or about 6.98% of the company.
On April 25, 2001, Laser's board of directors approved the liquidation and dissolution of the company, immediately approving an initial distribution of $3 per share. In 2003, it made another distribution of 50 cents, and yesterday, holders of the stock became entitled to the final 86-cent distribution. I'm not sure when -- or if -- Buffett exited the stock.
JDN Realty
This REIT owned 15 million square feet of shopping centers. The company attempted to anchor each of its shopping centers with a "value" tenant, such as Wal-Mart (NYSE:
The Profitable Hobby of Warren Buffett
Tuesday July 6, 12:30 pm ET
By James Altucher, Special to RealMoney.com
Yesterday, a little-noticed event took place, and it wasn't even mentioned in the financial media. A small, $11 million market-cap, over-the-counter company called Laser Mortgage (LSMM:OTC BB) announced that stockholders of record as of July 5 would receive a dividend of 86 cents per share. The stock closed at 84 cents Friday. This distribution represents the dissolution of the company.
ADVERTISEMENT
Why is this interesting? Over the past several years, one of the company's largest shareholders was Warren Buffett. No, not Berkshire Hathaway (NYSE:BRKa - News), but Buffett in one of the few dalliances he takes with his personal portfolio.
Although it represents only a small portion of Buffett's overall net worth (0.25%, according to him), his personal portfolio over the past 10 years sheds some interesting light on his views on investing. With more than $30 billion that needs to be put to work, Berkshire Hathaway is too big for Buffett to get into the type of situations he loved when he was running his hedge fund from 1957 to 1969.
These "Workout" situations, as Buffett called them at the time, often represented up to 50% of the profits in his fund, depending on the year, and were heavily influenced by the writings and teachings of Buffett's mentor Ben Graham. In most cases, they were small companies, trading below liquidation value, or where Buffett thought liquidation was in the works or, in some cases, had already been announced. When Buffett expanded his repertoire to buying growing companies above their breakup value, he likened the Graham-Dodd approach to buying "cigar butts -- you can pick them off the ground and smoke one more puff, but that's about it."
I'll take a look at a few trades in his personal portfolio over the past decade. For all of these trades, it's impossible to know all of the details because Buffett never discusses them and is only obligated to file his ownership when it exceeds 5% of the company. However, we can still pick through the SEC filings and news reports on the companies and try to examine what happened, when and why.
Laser Mortgage
This company was a mortgage-backed real estate investment trust that quickly got into trouble in 1999 and 2000 when interest rates spiked up. It used heavy leverage and made very concentrated bets that backfired horribly when mortgage lenders defaulted, causing it to mark down book value significantly.
Because of these defaults and markdowns, investors lost faith in management's ability to value its portfolio correctly, and the stock soon plunged below book value. In October 2000, management threw up its hands and announced it was looking into a possible liquidation of its portfolio and ultimate distribution of proceeds to shareholders.
Buffett began acquiring stock most likely in early 2000, when the stock was trading around $4 and book value was around $4.51. On April 13, 2001, Buffett filed a Schedule 13G with the SEC stating that he owned 979,000 shares, or about 6.98% of the company.
On April 25, 2001, Laser's board of directors approved the liquidation and dissolution of the company, immediately approving an initial distribution of $3 per share. In 2003, it made another distribution of 50 cents, and yesterday, holders of the stock became entitled to the final 86-cent distribution. I'm not sure when -- or if -- Buffett exited the stock.
JDN Realty
This REIT owned 15 million square feet of shopping centers. The company attempted to anchor each of its shopping centers with a "value" tenant, such as Wal-Mart (NYSE: