Monday, February 23, 2009

Buffet Urges Investors to Read Graham’s Chapters 8 and 20 in Times of Financial Crisis (but wait, there's more!)

UPDATE, The Berkshire Hathaway Arbitrage.
Original post:
Mr. Buffett's 2008 Letter to the Shareholders of Berkshire Hathaway will be released Saturday, February 28. We'll have commentary.
From Roseman Eruptions:
...According to Buffett, mentored by legendary investor Benjamin Graham (1894-1976), now is the optimal time to read or review The Intelligent Investor, published by Graham in the 1930s.

Buffett was recently quoted suggesting investors should read chapters 8 and 20 – especially useful in the midst of the worst financial crisis in 75 years.

Nobody is immune to losses in this market. Even the great Buffett is taking big hits. And he’s still a “buy and hold” investor sitting on a vast portfolio of global investments that have remained a fixture in Berkshire Hathaway for years, if not decades.

Still, timing is everything. An investor in Berkshire Hathaway since 1998 has not earned a profit. That should change soon as the Mother of all bear markets draws to a conclusion before the year is through.

From Humble Student of the Markets, some net-net working cap and net cash names:

Deep value plays

As S&P 500 earnings have started their collapse (see articles here and here), there has been a debate about whether this market constitutes good value. From a bottom up basis, however, I am seeing values that I haven’t seen in a long time.
Screening on net-net working capital
Using the free data from the Yahoo! finance website, I wrote a program that screened an investment universe that is roughly equivalent to the Russell 3000 members. The test is: stocks that trade below net-net working capital (current assets less all liabilities and preferred) and has positive trailing 12 month earnings. The net-net working capital requirement is a classic Ben Graham deep value criteria. The earnings test represents an additional margin of safety of corporate viability.

I got 39 names. Even if I threw out the microcaps (market cap below $100 million), I still got 13 stocks that passed the test:
Adaptec Inc (ADPT), Cynosure Inc (CYNO), Fuqi International Inc (FUQI), Horsehead Holding Corp (ZINC), Ingram Micro Inc (IM), Movado Group Inc (MOV), Olympic Steel Inc (ZEUS), PC Connection Inc (PCCC), Shoe Carnival Inc (SCVL), Skechers U.S.A. Inc (SKX), Tech Data Corp (TECD), Tecumseh Products Co (TECUA) and Volt Information Sciences Inc (VOL).
Stocks trading below net cash...MORE