Below is our list of the top 10 ‘interesting’ insider trades for the week of 15/08/2009. These are companies that have been selected by the buyingvalue filter application. Read more about our value filters here. The companies selected are those that have cleared the first filter in the last 7 days and are the highest ranked filter 2. See here for more about the current selection criteria.
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The following are a compilation of interesting US recession facts I have collected by examining the DOW indicies between 1929 and now. All facts are compiled as a result of data drawn from yahoo finance and the use of the wikipedia page List of Recessions in the United States.
The longest US recession took 84 months to run its course (Depression of 1807)
The shortest US recession took just 6 months (Recession of 1980).
The average recession/ depression lasts 20 months.
Don’t get me wrong I am a huge fan of Warren Buffett and both his personal and Berkshire Hathaway investing track records speak for themselves as one of the most solid and consistent in recent investing history. I can’t help but wonder though if Buffett’s rising celebrity status doesn’t have a negative effect for true long term Berkshire Hathaway investors. Hardly a day goes by without some sighting, comment, or mention of Buffett in the news. Over the past year I have seen:
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Numerous TV interviews with Buffett.
A Warren Buffett cartoon featuring his voice work.
I am willing to concede that company insiders know more about their businesses than I could ever learn about it by reading financial statements. This is why I use insider trading as part of my assessment critieria. The fact that all company insiders are not created equal should come as no surprise- who would you trust to know more about a business, the chief accountant or the janitor?
So what are the best job titles when it comes to insider trading? To give my analysis on this let me first set a few ground rules:
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Below is our list of the top 10 ‘interesting’ insider trades for the week of 07/08/2009. These are companies that have been selected by my filter application. Read more about our value filters here. The companies selected are those that have cleared the first filter in the last 7 days and are the highest ranked filter 2.
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As a new service for readers we are now offering free stock analysis. None of that automated technical analysis you see on other sites, and no one is going to contact you about purchasing services after you submit, I am talking about straight forward free fundamental analysis.
All you have to do is provide the company name, ticker symbol and we will do the rest. Submit the stock you would like analyzed here and once a week we will select one reader’s request to perform free stock analysis. Sorry we can’t process more than one at the current time!
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Benjamin Graham often wrote of distinguishing the difference between investing and speculating. Fannie Mae, in its current state, sits in the speculating bucket. Investing has to fun though, sometimes it is interesting to window shop, so lets look.
Evaluation based on Buffet’s Criteria
When looking at a business I often ask myself what other investors would think? So lets apply Buffett’s criteria and see if we can’t look at it through his eyes.
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In the previous article we started a discussion on boring companies. I argued that the reason so many elite investors like boring companies is due to the consistent and sustained profits these businesses often have. I then went on to detail how boring companies have deep moats that keep competition at bay, produce limited time use products that force the customer to be repeat customers, and always produce staple products that are consistently required by consumers regardless of any current economic conditions.
To remind us again of the definition provided from our first article on boring companies:
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Both value and long term investors talk about how much they like boring businesses. We like these businesses so much because, if run correctly, they are able to reliably generate a consistent source of long term revenue. Consistency and reliability are the key terms here as these businesses can be trusted to year in and year out be steady bedrock stocks to hold.
Boring companies are described by professional investors as being “unsexy” but often no further definition is provided; let me present my own definition in the hopes of leading you to sustainable long term returns in your portfolio.
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The practice of prebooking sales involves a business going out and contacting its regular customers and requesting that they purchase the inventory they are forecast to purchase in the next quarter now.
An example: Company A always buys 500 widgets from our sample business every quarter at a fixed cost of $5 per widget. In order to show boosted sales in Q4 of the year Company A is convinced to purchase 1000 widgets at $4 today, accept deliver of the first 500 now, and the second set of 500 during the following quarter.
The net effect of this over the short term is that our company has massively increased its sales- at least on paper. Over the long term though it has the opposite effect; unless Company A’s needs suddenly increase they are going to cancel their order in the following quarter.
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The reality of investing is that the further you are removed from managing your money, the further removed you will ultimately find yourself from the profits you are trying to reach. Every additional person you involve in making a financial decision will demand to be compensated- no one works for free.
Lets look a simple example; you buy some mutual funds though your broker.
An innocent enough activity, but who all is involved with this transaction and do they profit at your expense? Well there is:
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An efficient businesses is agile; not burdened by the overhead of paying for components that don’t add any value to the bottom line. The more lean and efficient a business the more options that business has open to it in terms of controlling its future.
If a business is able to produce a product for $1 and sell it for $5 while its competitor can produce the same product for $3 this efficient business has two wonderful options:
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Driving the competitor out of business by pushing retail lower say to $2. The business is still profiting meanwhile its competition is loosing massive amounts of capital if it wants to stay competitive.
To understand a balance sheet requires that we understand every line item, what each means, and how it can be manipulated. Today we are going to look at the line item for Goodwill.
Goodwill Definition
Goodwill is one of the most commonly misunderstood line items in the balance sheet, I once met a junior investor who thought that Goodwill was the amount of money that the company had donated to charitable organizations. This unfortunately is not the case, goodwill, simply put, is the byproduct of two companies merging.
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Does the market price of a stock play a significant role in your decision to buy, or not buy shares in a company? For me the answer to this question has always been no, I look at rate of return and give almost no credence to stock price. If I invest $100K in a company it is of little interest to me if I get 5 stock or 500 stock in this company as long as I see a return on my initial investment. I have a good friend who will only buy a stock if it is trading for under $5. Are there advantages to his system?
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Today Bernie Madoff was sentenced to 125 years in prison. To send him off here are a few tips for Madoff on going to prison, bullet points are borrowed from a prison blog Top 10 prison survival
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Keep your mouth shut
Shouldn’t be a problem Madoff ran his scam for years before he was eventually caught. In fact the folklore around Madoff was that if an investor cornered him at a public function and pushed him to talk about their investment that he would pickup the phone and have their investment canceled.
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