Mission:
“Share Knowledge, But Think Independently”
Copyright 2015 @HadiKaiman
“Life is like a snowball. The important thing is finding wet snow and a really long hill.”
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What
How
Why
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The Why: Financial Independence
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Investing vs. Speculation Investing Criteria
What Makes a Great Business
Good Businesses Examples
Bad Businesses Examples
Businesses We Will Cover in Future Sessions
Reading Sources
Contents
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The How: Move From Being (just) a Consumer to an Owner
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How This Group Will Work: Share Knowledge But Think Independently
• Nourish a network of partners with these characters: “intelligence, energy, and integrity”.
• Help each other by sharing:
Country knowledge (Six Flags, Keurig Green).
Industry knowledge (franchise, hardware tools, pharmaceuticals).
Real estate investing.
Tax rules (dividends, CGT, deductions).
Avoiding bad investments (as well as taking advantage).
Legal (Ombudsman, etc).
Superannuation: pros and cons.
Any suggestions?
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• “Investing is putting out money to be sure of getting more back later at an appropriate rate” (WB).
• ‘Goose with the golden eggs’ – we want to fatten up the goose so it can lay more bigger eggs.
• How do you know you’re not going to lose your invested money? Just like any business idea, stick
with your circle of competence – use data (qualitative & quantitative) to analyse and execute.
Once you’ve identified your best idea (or businesses), don’t overpay for them – “the stock market is there to serve you and not to instruct you” (WB).
Investing vs. Speculating
Investing Speculating
Focus on revenue & profit.
Focus on future price forecast.
Passive income. No income.
Businesses. Items/ collectibles.
Thorough analysis. Commentators.
Copyright 2015 @HadiKaiman
‘Don’t Overpay’ Case Study: The Walt Disney Company
Jim Cramer on Disney (5 Aug 2015): http://video.cnbc.com/gallery/?video=3000403717
DIS fell heavily from 5th Aug 2015 after announcing “some subscriber losses”
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Should I Sell Once My Investment Has Risen 50%; Why Hold Forever?
Buffett sold in 1967 for 50% profit
Buffett bought 5% of Disney in 1966
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If Buffett hadn’t sold, his 5% would be worth US$10B in 2015
If You Have a Golden Goose, The Ideal Holding Period is Forever
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The What: Buy Productive (cash-producing) Assets
Assets produce income and put money in your pocket. Anything that eats money while you sleep is not an asset.
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Okay, What About Buying Commodities Like Gold?
After 50 years, the farmland & ExxonMobils
would’ve produced $12T, on top of the
original $9.6T. -Farmland would’ve
produced $10 trillion. -Exxon would’ve earned
$2 trillion.
All the gold in the world (171,300 tonnes¹) fits into a cube with 20m (67ft) sides.
50 years later:
Gold still sitting there eating insurance and
storage costs.
Copyright 2015 @HadiKaiman
Productive vs. Non-Productive Asset: 1967- 2015
$35
$15
1 ounce Gold Berkshire Hathaway
1967: Gold vs Berkshire
Hi. My name is Gold. I
don’t do much. I just sit
here and pretty, but I’ll
protect you against
inflation.
We’re based in
Omaha but we’re
hungry for
businesses.
$1,000
$213,000
1 ounce Gold Berkshire Hathaway
2015: Gold vs Berkshire
Hi. I still weigh one ounce
(despite the storage &
insurance costs I’ve eaten
for 48 years). But I’m now
worth 29x.
We’ve never paid any
dividend. We keep
reinvesting the
money, and we’re
now worth 14,200x.
Copyright 2015 @HadiKaiman
My Ideal Portfolio: 10-15 Businesses Across 5-7 Industries
Portfolio %
Industry Trend Businesses
10% Technology/ Software Mobile/ wearable devices; cloud and cybersecurity.
Apple, IBM, SAP, Oracle etc.
5% Banking Mobile payment, rising housing. Wells Fargo, CBA, etc.
15% Consumer Products Rising emerging market consumers.
Unilever, P&G, Colgate-Palmolive etc.
10% Beverages/ Snacks/ Restaurants
Rising emerging market consumers.
Coca-Cola, Pepsico, McDonald’s, Kraft Heinz etc.
15% Industrial/ Construction
U.S. & China growth. Stanley Black & Decker etc.
15% Healthcare/ Pharma Ageing population, healthcare needs.
Pfizer, JNJ etc.
15% Entertainment Content
Rising global population (7B and growing)’s market for content.
Disney, Netflix etc.
15% Energy Ever growing demand for energy, esp for transport.
ExxonMobil, ConocoPhillips etc.
Total 100%
Copyright 2015 @HadiKaiman
Acquisition Criteria
1. Great economics with durable competitive advantage (moat).
Selling products that are eternal and not vulnerable to tech disruptions.
25+ straight years of increasing dividends (from increasing revenue).
2. Honest and able management.
Laser focus on shareholders’ returns (e.g. Exxon’s Lee Raymond vs. Disney’s Michael Eisner).
The ‘wolf pack leader’ of the industry works on widening its economic ‘moat’ everyday.
3. Selling at an attractive price.
P/E (Price to Earnings) ratio lower than 15-17x.
On charitable giving:
“Ultimately, this is our
shareholders’ money
we’re spending”.
On investing on U.S.
refineries: “I’m not a
U.S. company, and I
don’t make decisions
based on what’s good
for the U.S.”
Copyright 2015 @HadiKaiman
What Makes a Great Business: A Big Wide Moat.
• A moat can be: Low-cost (Wal-mart),
Brand effect (Tifanny’s & Co, Walt Disney),
High switching cost (Oracle, SAP),
Strong distribution capability (Coca-Cola, Costco).
• Strong moats allow businesses to secure: Bargaining power in securing raw materials
(McDonald’s).
Unlimited pricing power (See’s Candy, Disneyland).
Preferential treatment in emerging products (Coke with Monster Energy and Keurig Green).
• Businesses with narrow/narrowing moats: High competition (airlines, barbers, cafes).
Highly capital intensive (airlines, infrastructure).
Easily disrupted by technology (TV, Cabcharge).
‘Moat’ definition: A deep, wide ditch surrounding a castle, fort, or town, typically filled with water and intended as a defenceagainst attack Oxford Dictionaries). Copyright 2015 @HadiKaiman
A Wide Moat Can Protect You From Richard Branson on a Tank!
• Richard Branson: “Declaring a soft drink war on Coke was madness” • #1: ”We had effectively parked our tank on the lawn of the world’s largest soft drinks brand, and we weren’t quite prepared for the size or the ferocity of Coca-Cola’s response, which included a steep increase in their marketing budget and pressure on distributors not to work with us. “ • #2: "The other, more important, reason was the fact that we didn’t follow our own rules, which is a cardinal sin. Virgin only enters an industry when we think we can offer consumers something strikingly different that will disrupt the market, but there wasn’t really an opportunity to do that in the soft drinks sector. People were already getting a product that they liked, at a price they were happy to pay - Virgin Cola just wasn’t different enough.”
Copyright 2015 @HadiKaiman
Businesses We Will Cover in Future Sessions
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Reading Sources
• Bloomberg.
• CNBC (Jim Cramer).
• The Economist.
• New York Times.
• Roger Montgomery.
• Magellan Financial Group.
• Company 10K (annual report) and 10Q (quarterly report).
• Books on companies you’re interested in: Coca-Cola, ExxonMobil, Disney, Wal-Mart, Steve Jobs etc.
U.S. Dividend Champion
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Thank You
Copyright 2015 @HadiKaiman