http://www.berkshirehathaway.com/letters/2013ltr.pdf
Try these for size:-
"Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough
estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every
investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
If you instead focus on the prospective price change of a contemplated purchase, you are speculating.
There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I
am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first
toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that
a given asset has appreciated in the recent past is never a reason to buy it.
With my two small investments, I thought only of what the properties would produce and cared not at all
about their daily valuations. Games are won by players who focus on the playing field – not by those
whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock
prices, give it a try on weekdays.
Forming macro opinions or listening to the macro or market predictions of others is a waste of time.
Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear
TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s
scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth”).
My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market
might do in the years immediately following – 1987 and 1994 – was of no importance to me in making
those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the
chatter, corn would keep growing in Nebraska and students would flock to NYU."
And further:-
"Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners
cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest
rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet,
important to consider acting upon their comments.
Those people who can sit quietly for decades when they own a farm or apartment house too often become
frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an
implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the
unqualified benefit it should be to a curse."
" I learned most of the thoughts in this investment discussion from Ben’s (Graham) book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase."
I’m certainly no Warren Buffett, but I can say that Graham’s book was transformational for my investing fortunes as well!
In other matters, I decided to have a look at Pinnacle Technology over the weekend. Although when I say have a look, it didn’t take very long.
I noticed that the Director’s had recently stumped up a large amount of cash in an equity issue to raise further funds for general working capital. In other words the company was rapidly running out of money.
I’ve come across this micro-cap before, but for various reasons I’ve never been tempted to purchase any shares. Anyway I got to the highlights of their 2013 financial year released in February, and read this:-
“Despite the trading loss, recurring and renewable revenues* increased to 85%”.
That sounds impressive, but then comes this:-
“*Note: Recurring and renewable revenues relate to customers who have entered into ongoing or fixed term contracts with the group to supply services for a duration exceeding 1 month.”
I’m not an accountant, but is that some sort of accounting joke or am I missing something here?
Since when did recurring revenue become anything that exceeds one month? In fact anything less than a year can't be classified as recurring can it?
Here's a scenario. Two people decide to join a Leisure Centre, one pays the full year's membership of £600 (let's say) and the other pays in monthly instalments of £50 per month for 12 months. Great the Leisure Centre can book customer two to recurring revenue because they've signed a contract for 12 months, but not customer one because it was a one off fee?
Maybe I'm just being a bit thick, but I'll still leave this one alone thanks very much.
The share price rose 24% on Friday and maybe there is something I don’t know, but I’m afraid that statement alone says to me “not with a barge pole”. Incidentally the company made a loss of £2.4m in 2013, although I know somebody made a tentative bid for the company in the not too distant past (was it COMS?). Anyway, perhaps a potential suitor is giving it the once over again given Friday’s price action. Definitely not one for me though.
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