1. Business Investors Group Intro Slides_22 Aug 2015

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.”


What

How

Why


The Why: Financial Independence


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


The How: Move From Being (just) a Consumer to an Owner


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?


• “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.


‘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”


http://video.cnbc.com/gallery/?video=3000403717



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


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


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.


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.


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.


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%


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.”


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

http://www.oxforddictionaries.com/definition/english/ditch

http://www.oxforddictionaries.com/definition/english/castle

http://www.oxforddictionaries.com/definition/english/fort

http://www.oxforddictionaries.com/definition/english/defence

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.”


Businesses We Will Cover in Future Sessions


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


http://www.bloomberg.com/

http://www.cnbc.com/world/?region=world

http://www.economist.com/

http://www.nytimes.com/

http://rogermontgomery.com/

http://www.magellangroup.com.au/

http://dripinvesting.org/Tools/Tools.htm

Thank You


1. Business Investors Group Intro Slides_22 Aug 2015

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