In the recession of 2008-2009, when stock market was falling and most people were selling their stocks, the all-time greatest investor was buying stocks. According to the Warren Buffet, the best time to buy stocks is when nobody wants to buy them. He looks at the bear market as the opportunity to buy great businesses at bargain prices. In the bull market, when almost all stock market investors buy stocks, he sells his worst-performing stocks at good prices and waits for the bear market to add more money in his well-performing stocks.
Warren Buffett is the third richest person in this world. He has earned all his money by investing in the stock market. His net-worth is about $47 billion. He has pledged to donate 99% of all his money.Warreninvests his money in the stock market for the long-term (at least 10 year). 90% of the stock market investors try to make quick money that is the reason they lose their money in the stock market.
Why you should read this book?
You should read this book to know when warren buy his stocks and how he chooses these stocks. What qualities he looks in the stocks before buying them. In this book, you will find additional information about the 17 companies that Warren Buffett has identified as the best stocks for the long-term. You would learn that Warren Buffett’s key to success is that he knows how to identify strong stocks and he does not buy these stocks in the bull market. Instead he sells some stocks in the bull market. Then he waits to take full advantage of the inevitable crash of the stock market that occurs every 5-6 years.
In the market crash, the stock prices of the strong companies also fall down, this is the time whenWarrensteps in and buys these stocks at bargain prices. Then he holds these stocks for 3-4 years before seeing any major profit. As the economy starts to improve, the stock prices of these strong companies increase more quickly than other stocks.
The Golden Opportunity
In 2008-09 the stock prices of these companies were selling at the lowest price-to-earning ratios since eighties. Would you like to know about some of these strong stocks that Warren Buffett is buying for his personal portfolio and for Berkshire Hathaway. Before revealing these stocks, I want you to tell you about one major quality that Warren looks in stocks before buying them. It is the consistency in the earning per share.
Consistency in the earning
According to Warren, you should not invest in the stocks that are not able to produce consistent earnings in the long-term. For example let’s look at the earning per share of Coca Cola and Ford Motor Company.
Earning per share
Year Coca Cola Ford Motor Company
2011 3.85 2.00
2010 3.49 1.66
2009 2.93 0.86
2008 3.02 -6.50
2007 2.57 -1.43
2006 2.37 -6.72
2005 2.17 0.86
2004 2.06 1.59
2003 1.95 0.35
2002 1.65 0.19
2001 1.60 -2.95
From 2001 to 2011, Coca-Cola increased its earnings by 140%, from $1.60 to $3.85. The total earning per share during this period is $27.52. Now let’s look at Ford Motor Company, from 2001 to 2011, Ford has showed a very erratic earning history. It has lost a total $10,10 during this ten year period. Now according to you which of these two companies do you think will make you richer in the next 10 years? Is it Coca-Cola or Ford Motor Company?
Note: you can predict the future earnings only with the companies that has produced consistent and stable earnings in the last 10 years. Valuations should not be done only by looking at earning per share but you should also look at price-to-book ratio, dividends and other ratios that you will find in this book.
Some of the top holdings of the Warren Buffett’s stock Portfolio
1. Coca Cola
Founded in 1886
Sales $46.2 billion (2011)
Net Earnings $8.76 billion
Per share earnings $3.85
Average Annual per share earning growth 9.18%
Average Annual Book Value growth 12.32%
As of 2011, Berkshire owns 200 million shares of Coca Cola.Warren has invested $1.299 billion in this stock. He paid $6.50 per share price on average. Currently Coca-Cola is trading at $69. You should read this book to understand why and when Warren decided to buy this stock and what qualities he looked in this stocks before buying it.
2. Wells Fargo
Founded in 1852
Net Earnings $15.5 billion
Per share earnings $2.85
Average Annual per share earning growth 11.15%
Average Annual Book Value growth 11.19%
As of 2011, Berkshire owns 358,936,125 shares of Wells Fargo.Warren has invested approximately $8 billion in this stock. He has paid $22.32 per share price on average. Currently Well Fargo is trading at $31.
3. American Express Company
Founded in 1850
Revenue $30.2 billion (2011)
Net Earnings $4.85 billion
Per share earnings $4.05
Average Annual Per Share Earning growth 12.2%
As of 2011, Berkshire owns 151,610,700 shares of American Express.Warren has invested approximately $1.28 billion in this stock. He has paid $8.44 per share price on average. Currently American Express is trading at $53.
4. Proctor & Gamble
Revenue $82 billion (2011)
Net Earnings $11.9 billion
Per share earnings $3.98
Average Annual Per Share Earning growth 9.82%
Average Annual Book Value growth 18.7%
As of 2011, Berkshire owns 72,391,036 shares of Proctor & Gamble.Warren has invested approximately $464 million in this stock. He has paid $6.40 per share price on average. Currently Proctor & Gamble is trading at $61.
5. Wall-Mart Stores, Inc.
Founded in 1962
Employees Over 2 million
Revenue $421 billion (2011)
Net Earnings $15.3 billion
Per share earnings $4.45
Average Annual Per Share Earning growth 11.49%
Average Annual Book Value growth 11.19%
As of 2011, Berkshire owns 39,037,142 shares of Wall-Mart stock.Warren has invested approximately $1.89 billion in this stock. He has paid $48 per share price on average. Currently Wall-Mart stock is trading at $61.
Final Thoughts on this Book
This is the best book you can read if you want to know where the World’s greatest Investor, Warren Buffett is investing his money and why? You would enjoy the detailed examination of Warren’s stock portfolio. By reading this book you would know more about how to choose good stocks? What are the characteristics of good companies? How to value these companies given their current market price? Using this information, you will surely be able to find attractive investments and make money in the stock market. Best of Luck!
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