Buffettfest The Woodstock Of Capitalism

Well it is that time of year again. The Woodstock of Finance or Buffettfest which is Berkshire Hathaway's $BRKA annual meeting. Unlike most shareholder annual meetings that seem to be rather boring Berkshire Hathaway's annual meeting is anything but. Over the years it has grown exponentially. Its like going to see your favorite rock band in concert but even better. The Rolling Stones Mick Jagger and Keith Richards don't have anything over Berkshire's Warren Buffett and Charlie Munger. In years past Buffett has strummed a few licks on his ukulele while up up on stage. He has even been seen on a $HOG- that's A Harley-Davidson in case your wondering.

This is basically a weekend long event where a legion of Berkshire loyalist(shareholders) make the annual trek to their Guru's headquarters and home town Omaha Nebraska. From what I am hearing through other news sources is that this year might be a bit somber instead of the usual financial lovefest that its been in years past. You see Berkshire shareholders are not use to loosing money and 2008 was one they would like to put behind them as would most investors.

What makes this so unique is that Buffet is unlike other CEO's of company's. For one he pays himself a low salary in comparison to most CEO's, and his interests have always been aligned with the shareholders of the company. Unlike many annual meetings where the board will make up excuses for short falls or spend half the time talking about electing board members, dolling out stock options or pay raises Buffett shoots straight from the hip. So for the better part of a day Buffett will field question after question. Also unlike other shareholder meetings Buffett and his finance-flower children will have a chance to have some fun and spend money like their on vacation.

The Buffettfest expects a record crowd of 35,000 people this year up from 32,000 last year. While Buffett is coming off his worst year ever, his popularity has rose to new heights. This might be because of the tough times we are in and who better to smooth things over than the Greatest Investor of all time The Guru of Value Investing Warren Buffett.

Below are a few good reads, so enjoy!

Berkshire Is Still A Brand Name New York Times

Buffett Fans Set For 'capitalist Woodstock' CNNMoney/Fortune

Here's the Story on Berkshire's Mungar WSJ Online

Invetors Flock To Capitlism 'Woodstock' After Buffett's Bad Year Barron's

Also check out the Ultimate 2009 Berkshire Hathaway Annual Meeting Guide @ Fat Pitch Financials

Concentrate On Value Part III - Debt/Equity Ratio

As I wrote in my previous two Post, Ignore the headlines and stick with the facts at hand, not the B.S. that is hyped in the media or the tips you hear at a party. Investing, although not so simple can be enjoyable and profitable if you approach it in the right manor. As mentioned in my previous two posts book value, free cash flow and return on equity are just some of the tools used to finding the right business to invest in. Another tool to help guide you is the debt/equity ratio which is simply liabilities divided by the stock holders equity. A simple example of this would be: Take your homes current market value, say it is $200,000 dollars and lets say you owe the bank $100,000 dollars, your debt-to equity ratio is 1.0 or 100 percent. Lets also take your neighbors home current value of $200,000 dollars and suppose he/she owes $150,000 dollars. The debt/equity ratio is $150,000/$200,000 3.0 or 300 percent. In this formula we are looking for low debt/equity ratio's. The lower the better. However keep in mind that some industry's will have higher figures than others. Also take note that this is how many company's finance their growth,however if the debt/equity ratio gets to be to high this could be a warning sign to get out or stay away altogether. Also let me reemphasize that you should never take just one of these methods all on its own. Choosing a stock using a combination of these methods can yield some profits for the patient investor with an eye for value.

Ignore The Headlines And Concentrate On Value Part II

As I said in my previous post concentrate on the fundamentals. We as investors are constantly bombarded with news via 24 hour news channels, the news paper and now that Ultra 24 hour news channel The Internet. Hey information is great and now we can receive more of it and at a faster speed than ever. As an astute investor one needs to turn off the hype and noise and concentrate on those fundamentals. I mentioned earlier terms such as book value and free cash flow, well their are other important things to look at when buying into a business. For example One of the most important profitability metrics is return on equity [or ROE for short]. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. If you think back to lesson three, you will remember that shareholder equity is equal to total assets minus total liabilities. It’s what the shareholders “own”. Shareholder equity is a creation of accounting that represents the assets created by the retained earnings of the business and the paid-in capital of the owners.

A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a company’s return on equity compared to its industry, the better. This should be obvious to even the less-than-astute investor If you owned a business that had a net worth [shareholder’s equity] of $100 million dollars and it made $5 million in profit, it would be earning 5% on your equity [$5 / $100 = .05, or 5%]. The higher you can get the “return” on your equity, in this case 5%, the better.

Some businesses that cosistantly have high returns on equity are Philip Morris International $PM w/59% ROE, Johnson & Johnson $JNJ w/30% ROE, and Coca Cola $KO w/28% ROE.

Return On Equity is another investment metric used by many famed Value Investors such as Warren Buffett, Bruce Berkowitz, Mohnish Pabrai and many other notabe investors.