Tag Archives: Lectures

Lecture 11: Balance Sheet Analysis and How to Learn Accounting

This lecture focuses on the balance sheet and how to spot warnings.

Go here to download the lecture: http://www.scribd.com/doc/69296625/Lecture-11-Balance-Sheet-Analysis-Duff-Phelps-ROE-vs-ROC

The Professor and Great Investor (“GI”) in this 11th lecture recommends two books to learn how to read a financial statement.

(1.) The First book is Ben Graham’s: Interpretation of Financial Statements (Basic)

http://www.amazon.com/Interpretation-Financial-Statements-Benjamin-Graham/dp/0887309135/ref=sr_1_1?=books&ie=UTF8&qid=1318951113&sr=1-1

(2.) The second book is Thornton O’Glove’s Quality of Earnings which has good case studies (recommended).

http://www.amazon.com/Quality-Earnings-Thornton-L-Oglove/dp/0684863758/ref=sr_1_1?s=books&ie=UTF8&qid=1318951199&sr=1-1

You need an intermediate level of accounting knowledge to be firmly grounded.  You can take classes at a community college or you can read beginning and intermediate accounting textbooks, but you must have the particular text’s student guide to work the accounting problems or else you will not grasp all the concepts.

The two best books (I have found) for corporate finance and financial statement analysis are:

(1.)  Analysis for Financial Management by Robert C. Higgins (Corporate Finance)

http://www.amazon.com/Analysis-Financial-Management-subscription-card/dp/007325858X/ref=pd_rhf_se_p_t_1

The Student Guide for your review and preview is here:

http://highered.mcgraw-hill.com/sites/0073382310/student_view0/powerpoint_presentations.html

  1. Financial Statement Analysis and Security Analysis by
    Stephen N. Penman is excellent though the acronyms I found difficult at first.  This text will help you understand how to value growth–a critical part of investing. Make sure you have the edition that corresponds to the Student Guide so you can study the problem sets found here:

http://highered.mcgraw-hill.com/sites/0073379662/student_view0/chapter4/

Once you have mastered those texts you can find case studies and further review here:

Financial Shenanigans: How to Detect Accounting Gimmicks & Frauds in Financial Reports (3rd. Edition) by Howard Shillit

http://www.amazon.com/Financial-Shenanigans-Accounting-Gimmicks-Reports/dp/0071703071/ref=sr_1_2?ie=UTF8&qid=1318951047&sr=8-2

You can also go to short-seller blogs that have many examples of their work for you to study.

An Australian Hedge Fund manager who has been uncovering Chinese Frauds and whom you can learn from is here: http://www.brontecapital.com/  (an excellent blog).

Off Wall Street Consulting, Inc. provides samples of their research here: http://www.offwallstreet.com/research.html

I recommend that you download their reports and also download the 10-Ks or annual reports of the companies mentioned in their research reports (and year corresponding to the date of the research report).  Try to critique their research; can you follow the analysis from reading the financial statements yourself?

You will be learning from skilled professionals with a track record.  Yes, it is work to download 10-Ks, research reports, and then read several thousands of pages, but you will learn more than sitting in an MBA classroom on how to value businesses.

You will know the strengths and weaknesses of financial statements, how to spot frauds and how to convert accounting numbers into useful information to find bargains or avoid blow-ups. Not bad for a few hundred dollars and a few months in deep study.

Lecture 10: Analyzing Moody’s and Using Buffett’s Purchase of Coke as a Comparable

The art of investment has one characteristic that is not generally appreciated. A credible, if unspectacular, result can be achieved by the lay investor with a minimum of effort and capability; but to improve this easily attainable standard requires much application and more than a trace of wisdom.  — Ben Graham, The Intelligent Investor.

It’s not supposed to be easy. Anyone who finds it easy is stupid. – Charlie Munger.

Please use the link below to read this lecture on Moody’s.  You will learn how a great investor used Buffett’s purchase of Coke in 1988 to make a case for buying Moody’s in 2000 at a high multiple (21) of earnings.

http://www.scribd.com/doc/69137839/Lecture-10-Moody-s-Corporation-Example

Note how this Great Investor is focused on quality companies. You will not learn in business school his creative comparison of two companies at different times and in different industries.

Lecture 9: A Great Investor Discusses Investing in Retailers and ANN

This lecture is a supplement to Lecture 5 found here: http://csinvesting.org/2011/09/13/lecture-5-a-value-investor-in-retail-discusses-anf-aeos-aro/

Note the speaker’s limited circle of competence and how differently retailers are analyzed from Wall Street consensus. Retailers can offer opportunity due to their volatile stock prices.

If you have the stomach and can take a two-year horizon while taking a business like approach, then you will enjoy this speaker’s thoughts.

Lecture 9: http://www.scribd.com/doc/68793236/Lecture-9-a-Great-Investor-Discusses-Investing-in-Retailers-and-ANN

There are several links in the above document which will help you review the companies discussed in the lecture.

Lecture 8: LEAPS

If you take the time to understand LEAPS (long-dated options) and combine this tool with your search for bargains, you can craft specific risk reward investments with 100% to 1,000% upside. In certain situations, you can design much better risk and reward outcome than investing in stock.  When LEAPS work well, they can becoming addictive, so portion control is critical.

The Professor looks at options/LEAPS in a unique way.

Go here: http://www.scribd.com/doc/68687870/Lecture-8-on-LEAPS

Lecture 7: Student Investment Presentations, Magic Formula, and Review

This lecture will give you insights into how a great investor assesses companies and investment problems.

As I mention in the 48-page document below, there is gold here.

http://www.scribd.com/doc/68221298/Lecture-7-Student-Investment-Presentation-Magic-Formula-Review

Your comments, questions and criticisms are always welcome.

Happy Columbus Day!

A Great Investor Discusses his Approach and Philosophy

Another in a series of lectures given over several years by an investor whom Warren Buffett called, “The Ted Williams of Investing.” I heard this from a secondary source, so take it with a grain of salt. But, regardless, this lecture will give you insight into an intelligent investor.

http://www.scribd.com/doc/67802194/GI-2004-Lecture-Discusses-Approach-and-Philosophy

A Great Investor Lecture 2007: An Investor Evolves

I will be posting a series of lectures by an outstanding investor who evolved from a deep cyclical value investor to buying good business at the proper prices.

You will learn from someone who began as a securities analyst, then ran a hedge fund, and finally invests as an independent investor.

Go here for the link to the 28-page document:

http://www.scribd.com/doc/67676334/Great-Investor-Lecture-on-Mar-27-2007

I would be interested in your thoughts.

Lecture 7: Students Grilled on their Investment Presentations

OK!  Back to the grind of the classroom. Sit in on these business school MBA’s giving their investing presentations to a Great Investor (“GI”).  The point is to learn how investors approach valuation problems.

The presentations are here:

http://www.scribd.com/doc/65856144/Students-Grilled-on-Their-Presentations-and-Review-of-Course

As a follow-up, the GI speaks about presenting an investment idea to a professional investor. Present simply and quickly.

http://www.scribd.com/doc/65856342/Class-Notes-5-Review-of-Valuation-Exercises-and-How-to-Present-an-Idea

Those lectures should serve as a review for the prior lectures 1-6.

 

Greenwald Investing Process

The links below connect to lecture notes on An Investment Process.  Think through how these notes can help you.  I suggest glancing at them, then reading the books suggested in the first link. Once you have read the two books, come back to these notes. The second link (Gabelli) has a link in the document that will take you to a video of Greenwald’s lecture. Read, listen and then reread his lecture.

http://www.scribd.com/doc/65528340/Greenwald-VI-Process-Foundation     62 pages (1999)

http://www.scribd.com/doc/65530349/Greenwald-2005-IP-Gabelli-in-London  40 pages

http://www.scribd.com/doc/65530485/Principles-of-VI  17 pages

http://www.scribd.com/doc/65530893/Overview-of-VI    24 pages

http://www.scribd.com/doc/65531201/Valuing-Growth-Managing-Risk    35 pages

Let me know if the above is enlightening………..

Lecture 6: A Dying Industry, Danny Devito and Rodney Dangerfield.

Link

This link has lecture 6:http://www.scribd.com/doc/65083826/Lecture-6-an-Investor-Speaks-of-Investing-in-a-Dying-Industry, where an investor describes his search and valuation of several video store companies in a “dying industry.” The firms are HLWY, MOVI and BBI.

But before going there, let’s remind ourselves about how we will become better investors.  Any business school or CFA program will teach you investment theory. For free MBA finances courses, books and lectures go here: http://pages.stern.nyu.edu/~adamodar/ and for specific finance subjects and much more go to: www.khanacademy.org. Who needs an MBA or CFA? (I’m kidding!)

I hope to bring as much practical application to investing to help us learn. Your diligent study of principles, case studies and actual investing will be the key to your success. Track carefully what you do and don’t do! Ten to twelve years of intensive application will put you in the experienced category. Start now. As an example of practicality vs. theoretical knowledge, who would you rather invest with: Rodney Dangerfield or the PhD. Economist in this video? Go here for three minutes: http://www.youtube.com/watch?v=YlVDGmjz7eM&NR=1

You may think that video is a satire, but I went to a Yale Business School Seminar in investing in Cuba several years ago.  Investing in Cuba? What is the crucial question?  What would your cost of capital have to be to invest in a country where contracts can be broken at any time for any reason without any recourse? Oh, and Cuba is in arrears on ALL its trade debt. Your turn.

Back to Lecture 6: Investing in a Dying Industry. Before reading this lecture, I recommend that you hear the speech by Danny Devito (yes, the round, little actor) discuss a dying  industry, The Wire & Cable Industry. Danny Devito, “Larry the Liquidator,” says, “Amen, amen, and amen… Because I just heard a prayer, and you always say “Amen” after you hear a prayer. You just heard a prayer for the dead.  This company is dead. I didn’t kill it. It was dead when I got here……………..(an excellent twelve minute video) http://www.youtube.com/watch?v=p7rvupKipmY. Even experienced investors will enjoy this clip.

You either invest in assets or franchises. In Lecture 6 the investments discussed fall into the asset category. Since asset type investments typically cannot grow profitably (the company’s new investments cannot exceed their cost of capital), therefore you need to buy assets well below the assets’ earnings power.  However, an asset in a dead industry (Berkshire Hathaway’s textile division) will have at most scrap to zero value. Buffett said he had to pay to have Berkshire’s textile machinery (looms)removed when he closed operations.

Greenwald speaks about buying cheap, obscure and forlorn: http://www.youtube.com/watch?v=YRWhEMEhVwI&feature=related

Further Greenwald discussion on investing: http://www.youtube.com/watch?v=xOn4VUrVZdw&feature=related

Successful investors have the ability to understand the strategic strengths and weaknesses of the businesses they analyze. These investors understand the barriers to entry or lack thereof of the industries they study.  As a preview, two books: Competition Demystified, A Radically Simplified Approach to Business Strategy by Bruce C. Greenwald and The Curse of the Mogul, What is Wrong with the World’s Leading Media Companies by Bruce C. Greenwald and Jonathan A. Knee are recommended, especially Competition Demystified—an underrated book.

After reading Lecture 6, you would enjoy this article: Why Content Isn’t King: How Netflix became America’s biggest video service—much to the astonishment of media executives and investors

By Jonathan A. Knee at http://www.theatlantic.com/magazine/archive/2011/07/why-content-isn-8217-t-king/8551/

In 2011, five years after Lecture 6 was given, we know the history and future of the Video Industry. But there are lessons in how to approach industry analysis from a disciplined perspective with strategic logic.  I am getting ahead of my readers here (anybody out there?), but we will come back to strategic analysis many times.