A reader forwarded me the link to an excellent web-site with an index of all the questions ever asked of Buffett in public.
Thanks Nick for organizing this resource
Also, do not forget the many fine posts on psychology, investing and learning http://www.simoleonsense.com/ and www.greenbackd.com
Thanks to all the advice offered by other readers, this person landed a job at a multi-billion dollar fund. I received this letter:
I am more than happy to share my experience – it obviously may not be very useful as each person has a different background/personality but I hope the general rules that I have learned the hard way will prove useful to some.
With that said, here is a summary of my key recruiting pointers:
1. Email + Call + Meet professionals in the industry – one of my coworkers speaks barely passable English, works under the often-shunned H1B1 visa, and as the appearance of sluggish slacker. First impression would tell you that he would be the last person in the labor force to land an analyst role at a top investment management firm. At least that’s what I assumed. Then one day I was discussing the gloomy job market in finance with him and he mentioned in passing that he had emailed about 100 professionals before finding someone in his Alumni network willing to talk to him. He has a master’s in financial engineering from UCLA and guess what his teammates are doing? Looking for jobs. He commented, “of course you can’t find a job if you just submit your resume, come on, who’s going to look at 500 resumes?” I took a similar approach after having failed miserably with mass-emailing resumes and catchy cover letters. It’s an approach that worked for me and my coworker and we aren’t the brightest or the most experienced so perhaps it will work even better for others who are brighter/more qualified.
2. Research the firm + the role – while it’s obvious that you should research the firm that you are interviewing for, it’s less apparent that you must research the role. Often times the role description will be a bunch of mumble jumble so I have found it helpful to learn about the position from someone in the department before the interview if possible. This is hard to do in most cases so the next best alternative is to write down what interviewers tell you and rapidly build up your knowledge during the interview. I have found that especially when interviewing with more senior people, they are much more interested in your knowledge about the role than your skills and intelligence.
3. Leverage recruiters – I tailored my linked-in profile to the investment management/hedge fund industry. My hunch is that recruiters heavily leverage LinkedIn to find candidates and big companies often use recruiters to screen candidates. Therefore, recruiters can be your best friends in getting a job if you are open to them, respect them, and seek their advice. My recruiter gave me a list of common questions that the firm was known to ask and it sure is a lot easier going into a test knowing most of the questions. Also, it’s helpful to have someone who already has a relationship with the firm and knows all the do’s and don’ts to follow-up on your behalf.
4. Be aware and mindful of interview taboos – I went into one important interview (for me at least) with a cup of coffee and found out later that it was a big taboo because it makes you look like a tool. If you are like me, this kind of stuff is not obvious so make sure to google interview don’ts before you go in.
5. Be open-minded – I went into interviews originally with the mindset that I just want to do investment research, I don’t want to build pretty power points or do grunt work. This prevented me from passing up many good opportunities. Then one day I realized that I was too damn closed-minded and decided to not jump to conclusions and try to get every interview I can. If it worked, then great, and if not, then I got free practice.
6. Be realistic – in the end, I’ve learned that unless you have certain experiences/credentials/connections, some jobs are simply not for you. For example, hedge fund managers will not talk to you if you don’t have sell-side experience. It boggles my mind why 100+ hours, adderall-charged work weeks spent making Powerpoints prettier and building simple spreadsheets translates to business acumen or investing prowess but reality says otherwise and reality must be respected. As an aside, I feel that many of the seemingly meaningless hurdles designed into the corporate ladder is because the managers had to go through the same hurdles so unless you’re a genius, why should you be granted a shortcut? The answer seems to be either play their game or do it on your own, which I think is vastly more preferable if you have the gumption.
I hope this is helpful. Keep in mind that what I have described above is what I found to be useful in landing a corporate job and I suppose does not apply to someone who wants to start his/her own fund. If I had to boil what I have learned down to one sentence, it would be: respect reality and act accordingly.
Please feel free to share the above/parts of the above with your readers in any way that you see fit. I only wish to remain anonymous.
p.s. I found this blog on Charlie Munger, check it out! http://mungerisms.blogspot.com/
His talk starts at the 18:30 mark. Note his comments on fin. models and the Fed. http://cfapodcast.smartpros.com/web/live_events/Annual/Montier/index.html
His recent article at www.gmo.com discussing this lecture The Flaws of Finance
“To invest successfully, you need not understand beta, efficient markets, modern portfolio theory, option pricing or emerging markets. You may, in fact, be better off knowing nothing of these. That, of course, is not the prevailing view at most business schools, whose finance curriculum tends to be dominated by such subjects. In our view, though, investment students need only two well-taught courses – How to Value a Business, and How to Think About Market Prices.”
“Your goal as an investor should simply be to purchase, at a rational price, a part interest in an easily-understandable business whose earnings are virtually certain to be materially higher five, ten and twenty years from now. Over time, you will find only a few companies that meet these standards – so when you see one that qualifies, you should buy a meaningful amount of stock. You must also resist the temptation to stray from your guidelines: If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes. Put together a portfolio of companies whose aggregate earnings march upward over the years, and so also will the portfolio’s market value.” (1996 Chairman’s Letter–Warren Buffett
Many weeks ago I mentioned and posted a book on using clean (taking out the “dirty” stuff like one-time accruals) surplus accountinghttp://wp.me/p1PgpH-Fx
The gist of the method is to use clean surplus accounting to calculate the company’s true return on equity that makes it easily comparable to other companies. Then invest (at the right price) in companies with better than average ROEs than the market’s average ROE (13%) if you want to outperform an index of stocks.
Obviously, if a company sports a relatively consistent ROE above 15% without too much debt, then the company probably operates with competitive advantages.
For those who wish to learn more: You can listen to radio segments http://www.buffettandbeyond.com/radio.html of the promoter of “Buffett and Beyond.” Yes, a bit promotional, but the concept the Professor is explaining is sound.
For a list of companies that fit the investment parameters go here: Parameters_for_Investing_the_Buffett_and_Beyond_way
A consolidation of past articles: Clean surplus article
If you have a method that makes sense, you know how it works, and you have confidence in its LONG RUN performance, then you are better off than 99.9% of all investors in the market.
I am not promoting the above method as THE best way to invest, just suggesting that you develop your own investment philosophy and method that YOU believe in. This post is just an example of how you might go about developing your method.
Posted in Accounting, Risk Management, Search Strategies, Valuation Techniques
Tagged Buffett and Beyond, Clean Surplus
A reader alerted me that this blog has no link to Buffett’s original partnership letters. For shame, here they are:
Links to each original letter: http://www.rbcpa.com/WEB_letters/WEB_Letters_pre_berkshireTURNEDOFF.html
Newly typed Consolidated Letters for easier reading (suggested for ease of study)Complete_Buffett_partnership_letters-1957-70_in Sections
Readings and Videos in Economics
http://www.libertyclassroom.com/
Video on Boone Pickens discussing Natural Gas: http://martinkronicle.com/2012/05/02/boone-pickens-pickens-plan-natural/
Developing skills and understanding your own foibles–Trader and Stock Blogs http://www.brettsteenbarger.com/trader_development.htm Search for topics of interest. Often trading blogs focus on the psychological aspects of trading since traders make many more discrete decisions than long-term investors, thus trading blogs can be of use to understanding how we make decisions under pressure and uncertainty.
Recent CNBC Munger Interview http://video.cnbc.com/gallery/?video=3000088395
Podcast on Steve Case’s book, The Indomitable Investor. Why people on main street do not understand how Wall Street works. His main point, “Bad investors think of ways to make money and good investors think of ways not to lose money.” http://martinkronicle.com/2012/04/02/steve-sears-indomitable-investor/
www.greenbackd.com is back posting with great articles on Greenblatt’s Magic Formula and more.
Artemis Capital Management LLC is pleased to present “Volatility at World’s End: Two Decades of Movement in Markets” a unique visualization of implied and realized stock market volatility from 1990 to 2011. The video was originally shown as part of Christopher Cole’s speech at the 2012 Global Derivatives and Risk Management Conference in Barcelona Spain on April 17th.
The movement of stock prices has been an obsession for generations of speculators and traders. On a higher level mathematicians believe that modern markets are an extension of the same fractal beauty found in nature. Visualized these stock markets may take the shape of a turbulent ocean with waves made of human hopes, dreams, greed, and fear. Merging the world of high-finance and high-art Artemis Capital Management LLC is proud to present a creative visualization of stock market volatility over the last two decades.
Volatility at World’s End: Two Decades of Movement in Markets is a depiction of real stock market volatility using trading data from 1990 to 2011. The visuals are designed from S&P 500 index option data replicating the implied volatility wave (or variance swap curve) extending to an expiration of one year. The front of the volatility wave contains the same data used to calculate the CBOE VIX index. The movement of this wave demonstrates changing trader expectations of the future stock market volatility. As the wave moves through time the expected (or implied) volatility surface transforms into a realized volatility surface derived from historical S&P 500 index movement. The transition represents what professional traders call “volatility arbitrage”. The color variation in the volatility waves show the volatility-of-volatility or internal movement of the wave. The track underneath the volatility wave represents underlying S&P 500 index prices.
Volatility at World’s End: Two Decades of Movement in Markets VIDEO (5 minutes) http://www.artemiscm.com/research/volitility-at-worlds-end-two-decades-of-movement-in-markets/
I grouped several presentations from the Omaha May 6 and 7th Value Investors Conference for easier readingOmaha Value Conference Presentations May 2012.
I suggest that when you read the notes and see the name of a company–then try to download that company’s financials and value it. Compare your analysis and valuation with the presentations below. Learn why your analysis differs from the presenter. Note Robotti’s presentation on Enerflex, Ltd. and N3’s presentation on SPN. Try your hand at valuing those companies BEFORE you read their analysis.
http://www.marketfolly.com/2012/05/notes-from-value-investing-congress.html
Also Graham and Doddesville Letter from CIMA: http://www.grahamanddoddsville.net/ or Spring 2012
His talk starts at the 18:30 mark. Note his comments on fin. models and the Fed. http://cfapodcast.smartpros.com/web/live_events/Annual/Montier/index.html
Posted in Economics & Politics, Investing Gurus, Valuation Techniques
Tagged Gold, Howard Buffett
I highly recommend that you go to the links below to read the PDF of this book. But the PDF lacks many of the graphs and tables so essential to the book. The point is to help you with the cases while you order the book–highly recommended–only about $11 to $15. One of the best books on analyzing businesses that I have stumbled upon. Ironically, the book never became popular like Good to Great and other Pop Management books. Go here for the PDF of the book: Competition_Demystified__A_
Radically_Simplified_Approach_to_Business_Strategy
For a book review and link to Amazon’s reviews go here:
http://www.amazon.com/books-used-books-textbooks/b/ref=topnav_storetab_b?ie=UTF8&node=283155
Yesterday, the case on Ethyl Corporation was provided http://wp.me/p1PgpH-J3. This is a case on managing a declining business (Lead-based Gasoline became outlawed). For more understanding and background I added an investor’s perspective on Ethyl here: Robotti Mention of Ethyl (See page 25)
The above article also has good analysis of Spin-offs. An excellent read. Thanks to a reader’s heads up!
A reader from Norway: May I ask a couple of more questions please?
I stumbled upon Joel Greenblatt’s book, You Can Be a Stock Market Genius, and became hooked. My author search led me to Columbia’s GBS where he was teaching a class. I hopped on the train to 125th street in NYC and sat in on his classes. He graciously allowed in 1999 for auditors to sit in like Ben Graham allowed back in the 1940s and 50s. In fact, there were more non-students than graduate students in Graham’s classes. I already had worked on Wall Street—useless for understanding how businesses worked or how to value them—but I had started companies so my background was applicable.
I would approach the material in the same way like learning how to fly a plane or develop any skill. You learn the theory, you practice in controlled situations (case studies) then you apply what you have learned in the market and then reflect on what you did right or wrong. Read voraciously from many sources.
There are no secrets. You need to be comfortable with uncertainty and limited knowledge. You have to work hard to find and value businesses. Not all businesses are able to be valued by you, so walk away; be selective. Investing is doing, so apply your knowledge to the opportunities in front of you (or wait for tomorrow for better ones to tumble at your feet). Investing is a solo activity. The key moment was realizing no guru can show you the way; you will have to think for yourself and apply the principles to the world around you. I don’t visit investment conferences anymore because I don’t want to hear other people’s ideas; I prefer to spend time uncovering my own. Time is precious, thus choices have to be made. You can’t watch other investors, mimic them or just copy; you have to be unique in your own way in seeking bargains. You have to be your own analyst. Yes, you should listen to others like: https://www.lmcm.com/OwnWords.asp?f=Sam_Peters_LMCMs_Philosophy_Process.wmv&d=869180 but time is better spent reading your own pile of 10-Ks.
I saw several playing video games. They didn’t care who Joel Greenblatt was or what he was teaching. They were there to fill a requirement to get an MBA and a high paying job. I believe there course load is quite heavy so they might not have had the time to go more in depth into investing ideas and concepts. Again, if you want to be focused on investing, business school is not the place. You learn how to become a manager and you leave with a network. But I do not judge them. Many should not waste their time and talent on just investing. Many are not suitable to the lonely journey of investing.
I taped the lectures then sent the clips to India to be transcribed. I sat in on classes for five years (1999 to 2003). If you are diligent, you could have taken Greenblatt’s book, Stock Market Genius and recreate from SEC filings of all his past investments just as if you were in his classes. Joel reminds me of Columbo, the TV detective (https://www.lmcm.com/OwnWords.asp?f=Sam_Peters_LMCMs_Philosophy_Process.wmv&d=869180). Joel makes investing seem so simple, but there is a lot of experience, knowledge and skill behind his actions.
Go to www.magicformulainvesting.com and go to www.greenbackd.com to learn more.
Another reader asks:
I just finished Competition Demystified by Bruce Greenwald and it was an excellent book. This book has really opened my eyes and I can honestly say I have never approached investing from that point of view.
I try to understand the qualitative sources of competitive advantage so I can learn the company/industry. For example, I saw amazing share stability with title insurance companies stretching back 100 years, but cyclical and sometimes low profitability—why? Most of the value accrues to the sales agent in a title insurance transaction, but due to regulation and databases, there are only three or four national title insurers. The process helps you break apart the sources of profitability for companies. The more you can understand, the better you will be able to normalize earnings or determine sustainability of growth.
THANKS FOR THE QUESTIONS!
Notes from Buffett’s Shareholder Meeting:Berkshire_Hathaway_Annual_Meeting_Notes_2012 and Berkshire_Hathaway_Annual_Meeting_2012
How to write a research report by Buffett (GEICO):The_Security_I_Like_Best_Buffett_1951
Do not forget to read: www.marketfolly.com for interesting presentations.
www.greenbackd.com as several recent articles on the Magic Formula.
Posted in Competitive Analysis, Investing Careers
Tagged Greenbackd.com, Greenblatt, marketfolly.com
Even after seeing his Legg Mason portfolios devastated, Mr. Miller doesn’t consider the question, “Why do we need central banks?” After failure upon failure of central bank policies of ceaseless boom and bust, devaluation, ballooning debt, punititve interest rates–both too low and too high–what will cause the public to understand the futility of central financial planning?
Imagine if Miller had read Ludwig von Mises (www.mises.org) instead of quoting the Austrian Philosopher, Ludwig Wittgenstein, he would have an inkling of what caused the boom and bust that eviscerated his portfolios:cbm 2003 Version of Trade Cycle
I would rather invest with him: http://www.youtube.com/watch?v=tZnkql_Xkhc
http://prudent-speculation.blogspot.com/2012/05/in-france-49-is-lucky-number.html?
Price is what you pay. Value is what you get.–Warren Buffett
The issue with growth companies is always (1) whether the growth can be in fact be sustained into the future; and (2) whether those improved earnings have already been discounted at the time of purchase. All the evidence suggests that investors tend to overpay for growth. Our study suggests that paying more than 11 times five-year forward earnings for any kind of stock will be a unrewarding exercise; and that to beat the market convincingly lower ratings are still desirable. In the Templeton philosophy of investment, valuation is ultimately the constraint that limits any investor’s capacity for making consistent and repeatable gains. –page 165 of Templeton’s Way with Money by Jonathan Davis and Alasdair Nairn
Study Questions:
Read the Nintendo case:HBS Nintendo in Video Games Case Study
Then try the study questions:
A good book to study for these cases is Co-opetition by Adam Brandenburger and Barry Nalebuff: http://www.consulttci.com/Book_reviews/coopetition.html
If you can’t read the book, then see the slides:Nalebuff and Coopetition Slides and also:http://www.provenmodels.com/593/co-opetition/brandenburger-nalebuff
Ethyl Case Study:HBS_Ethyl Corporation in 1979_Case Study
Robert Robotti’s Investment Thesis on (page 25) :Robotti Mention of Ethyl
Study Question:
Austrian Economics or (Anti-Keynesian) Policy Works in Sweden
http://mjperry.blogspot.com/2012/05/anti-keynesian-supply-side-tax-and.html Surprise! Interference and coersion distorts price signals that impedes the efficient allocation of resources thus destroying wealth.
Posted in Competitive Analysis
Tagged baby video, Cooperation, Ethyl Corp., Nintendo, secret weapon, Sweden