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General Body Meeting 02-29-12. Welcome. News Updates. General News. Warren Buffett’s Investment Letter. Succession An unknown successor (and two backups) has been chosen Mistakes Berkshire Hathaway has underperformed the market over the last couple years

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warren buffett s investment letter
Warren Buffett’s Investment Letter
  • Succession
    • An unknown successor (and two backups) has been chosen
  • Mistakes
    • Berkshire Hathaway has underperformed the market over the last couple years
    • Energy Future Holdings – a Texas natural gas utility
  • Gold
    • Avoid it
    • Focus on productive assets
warren buffett s investment letter1
Warren Buffett’s Investment Letter
  • Stock buybacks
    • Justification for why he wants IBM stocks to “languish”
  • Inflation risks
    • Bonds are risky
  • Buffett Rule
retirement of bill weldon
Retirement of Bill Weldon
  • CEO of Johnson & Johnson
  • Replaced by Alex Gorksy
    • Previously VP and Head of J&J medical devices and diagnostic business
  • J&J had issued over 30 recalls since late 2009
  • Regulators now oversee control of operations at three plants linked to problems
retirement of bill weldon1
Retirement of Bill Weldon
  • Recalls included Adult Tylenol, Benadryl, Zyrtec, and Motrin
  • Also: HIV medicine Prezista and Epilepsy pill Topamax
  • Weldon will continue to serve as Chairman
slide12

Sprint Board vetoed $8 billion merger with MetroPCS

  • 9.3 million more customers for Sprint
  • Airwaves for faster Wireless service

Share Performance

  • 42% decrease in share price in past 12 months
  • Sprint CEO Dan Hesse already approved Merger
two minute drill
Two Minute Drill

Guest Lecturer:

Zachary Peskin

Following the News

Topic:

following the news
Following the News
  • Television
  • Radio
  • Traditional News
  • Financial Blogs
  • Twitter
  • Books
  • Bloomberg Terminal
traditional news
Traditional News
  • WSJ
  • Financial Times
  • Reuters
  • Barrons
  • New York Times
  • AFP
  • AP
financial blogs
Financial Blogs
  • The Big Picture - http://www.ritholtz.com/blog/
  • Calculated Risk - http://www.calculatedriskblog.com/
  • MACROFUGE - http://macrofugue.com/
  • VariantPerception - http://blog.variantperception.com/
  • DealBook - http://dealbook.nytimes.com/
  • DealBreaker - http://dealbreaker.com/
twitter
Twitter
  • @FT
  • @BloombergFX
  • @BloombergRates
  • @TheEconomist
  • @WSJ
  • @B_Eichengreen
  • @gregmankiwblog
  • @dealbook
  • @WSJDealJournal
  • @BloombergNews
  • @PIMCO
  • @nytimeseconomix
  • @BloombergNow
  • @BW
  • @tomkeene
  • @MarketWatch
  • @ZipperTheory
  • @ConvertBond
  • @JamesGRickards
results
Results
  • Roughly 40% loss in two weeks
sears holdings1
Sears Holdings

What in the world is going on?

sears holdings2
Sears Holdings
  • Earnings Recap
    • Expectations: $0.67
    • Earnings: $0.54
      • 19% Earnings Miss

“Our poor financial results in 2011, culminating in a very poor fourth quarter, underscore the need to accelerate the transformation of Sears Holdings…own 95% of Sears Canada, which also experienced very poor results, and included a change in management in mid-year.”

sears holdings spinoff
Sears Holdings Spinoff
  • CIT Group
    • Primary lender of Sears that extends credit to buy inventory, operate stores
    • Cut funding from Sears for line of credit
  • Liquidity Concerns
    • These liquidity concerns led to rapid decrease in stock price earlier in year
sears holdings spinoff1
Sears Holdings Spinoff
  • Hardware and Sears Outlet stores
    • Specializes in Sears’ core strengths of Appliances and Hardware
      • Craftsmen tool line
      • Kenmore appliance lines
sears holdings liquidation
Sears Holdings Liquidation
  • Raised $270 million from sale of 11 stores
    • Averages $24.5 million per store
    • Owns 3500 stores
    • Suggests a liquidation value above Book Value
      • Somewhere roughly around $70
sears holdings liquidation1
Sears Holdings Liquidation
  • Accounted for $250 million of $270 million sale
sears holdings3
Sears Holdings
  • Theories
    • Is Sears going to be taken over by Private Equity
      • Premium over book value prices shares around $70-$80 range
    • Short Squeeze?
      • A short squeeze shouldn’t be this large…
      • Volume indicates that Quant programs may be hunting for stop limits and pushing up prices
sears holdings4
Sears Holdings
  • What to do?
    • Monitoring each day
    • Hold tight and stick true to thesis
    • If being taken over, cut losses and run
portfolio review
Portfolio Review
  • Short term rally provides us an opportunity to analyze our holdings
    • Take advantage and lock in profits
    • Restructure portfolio and free up assets for other opportunities
hewlett packard hpq
Hewlett Packard [HPQ]

-44.4%

Current Profit & Loss:

Recommendation:

HOLD

cisco systems csco
Cisco Systems [CSCO]

-17.3%

Current Profit & Loss:

Recommendation:

HOLD

johnson johnson jnj
Johnson & Johnson [JNJ]

2.5%

Current Profit & Loss:

Recommendation:

HOLD

las vegas sands lvs
Las Vegas Sands [LVS]

20.3%

Current Profit & Loss:

Recommendation:

HOLD

otter tail ottr
Otter Tail [OTTR]

-5.3%

Current Profit & Loss:

Recommendation:

HOLD

brinks company bco
Brinks Company [BCO]

12.3%

Current Profit & Loss:

Recommendation:

HOLD

archer daniels midland adm
Archer Daniels Midland [ADM]

-11.9%

Current Profit & Loss:

Recommendation:

HOLD

proctor gamble pg
Proctor & Gamble [PG]

10.1%

Current Profit & Loss:

Recommendation:

HOLD

philip morris international pm
Philip Morris International [PM]

104.2%

Current Profit & Loss:

Recommendation:

SELL

philip morris international pm1
Philip Morris International [PM]
  • Strong run in share prices over the last few weeks as markets have rallied
philip morris international pm2
Philip Morris International [PM]
  • Strong Overbought Signals
    • Williams %R – All time high
    • Relative Strength – All time high
philip morris international pm3
Philip Morris International [PM]

Original Thesis(Purchased November 2009)

  • Hedge against recession
    • Low beta
    • International exposure
  • Take advantage of international cigarette consumption trends
philip morris international pm5
Philip Morris International [PM]

Comparable Analysis illustrates a fair valuation on a fundamental basis

  • P/E is in line with industry
  • PEG is a bit high at 1.94

Steady cash flows have led to a steady rise as:

  • Strong International Growth
  • Various expansions into further geographic areas
philip morris international pm6
Philip Morris International [PM]
  • Despite this potential to growth…
    • Tobacco Industry has many externalities
      • Increases in Government Taxes
      • Competition from domestic manufacturers
  • China National Tobacco Corp
    • “boasts a virtual monopoly in the People's Republic of China, which accounts for roughly 30% of the world’s total consumption of cigarettes”
    • Potential for tighter restrictions on Philip Morris in China
philip morris international pm7
Philip Morris International [PM]

Overview

  • Technically is way overbought
    • RSI, Williams, and MACD at all time highs
  • Fundamentally is fairly valued
    • Fair evaluation leaves room to rise, but doesn’t speak to any undervaluation
  • Externalities pose risks in long run
    • Foreign regulations
    • Increased competition
philip morris international
Philip Morris International

Sell: $2,505.60

Portfolio Allocation: Roughly 5% of portfolio

Profit: 104.2%

visa v
Visa [V]

49.7%

Current Profit & Loss:

Recommendation:

HOLD

walt disney company dis
Walt Disney Company [DIS]

-1.9%

Current Profit & Loss:

Recommendation:

HOLD

telefonica tef
Telefonica [TEF]

-37.8%

Current Profit & Loss:

Recommendation:

HOLD

next era energy nee
Next Era Energy [NEE]

6.5%

Current Profit & Loss:

Recommendation:

HOLD

boardwalk pipeline bwp
Boardwalk Pipeline [BWP]

7.8%

Current Profit & Loss:

Recommendation:

HOLD

stock competition
Stock Competition
  • Investopedia Trading Simulator
    • $100,000 in Virtual Money
    • Full Trading Platform (Short Selling, Options)
    • Weekly Leaderboard Update
  • Game Name: MICC Stock Competition
  • Password: Cornell
stock competition2
Stock Competition
  • Mitch: 5.45%
brainteaser
Brainteaser

You wake up early one morning and find the light in your bedroom is broken!

You get dressed in the dark. Your sock drawer has socks of three different colors: red, whiteand blue. How many socks do you have to take out to be certain of having a matching pair?