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A profitable stock!

Berkshire Hathaway Inc Class B is profitable and its stock $BRK.B is profitable for a longer time than 5 years.

You can invest today, and it is impossible to lose.

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5 Trade Ideas for Monday: Ambarella, Berkshire, CBOE, Conoco and Regeneron

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

Ambarella, Ticker: $AMBA

Ambarella, $AMBA, comes into the week testing resistance. It has a RSI in the bullish zone and a MACD positive and rising. look for a push over resistance to participate…..

Berkshire Hathaway, Ticker: $BRK/B

Berkshire Hathaway, $BRK/B, comes into the week approaching resistance. it has a RSI rising in the bullish zone with the MACD positive and crossing up. Look for a push through resistance to participate…..

Cboe Global Markets, Ticker: $CBOE

Cboe Global Markets, $CBOE, comes into the week moving up towards the all-time high. It has a RSI in the bullish zone with the MACD level and positive. Look for a new all-time high to participate…..

ConocoPhillips, Ticker: $COP

ConocoPhillips, $COP, comes into the week at resistance. It has a RSI rising toward the bullish zone with the MACD crossed up. look for a push over resistance to participate…..

Regeneron Pharmaceuticals, Ticker: $REGN

Regeneron Pharmaceuticals, $REGN, comes into the week bouncing to resistance. It has a RSI rising to the midline with the MACD curing to cross up. Look for a push over resistance to participate…..

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with the May options expiration in the books, saw equity markets showed strength with the major indexes moving to higher highs.

Elsewhere look for Gold to continue its pullback in consolidation while Crude Oil consolidates in a broad range. The US Dollar Index continues to drift to the upside while US Treasuries pullback in their consolidation. The Shanghai Composite and Emerging Markets look to continue their consolidation as well.

The Volatility Index looks to remain low and stable making the path easier for equity markets to the upside. Their charts look strong, especially on the longer timeframe. On the shorter timeframe both the QQQ and SPY have reconfirmed their uptrends. The IWM, however, remains mired in a consolidation range. Use this information as you prepare for the coming week and trad’em well.

#$AMBA #$BRK.B #$CBOE #$COP #$REGN

5 Trade Ideas for Monday: Baker Hughes, Berkshire Hathaway, Alphabet, Hess and Humana

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

Baker Hughes, Ticker: $BKR

Baker Hughes, $BKR, comes into the week rising to resistance. It has a RSI rising at the midline with the MACD moving higher. Look for a push through resistance to participate…..

Berkshire Hathaway, Ticker: $BRK/B

Berkshire Hathaway, $BRK/B, comes into the week at resistance. It has a RSI in the bullish zone with the MACD positive and moving higher. Look for a push over resistance to participate…..

Alphabet, Ticker: $GOOGL

Alphabet, $GOOGL, comes into the week after breaking resistance higher. It has a RSI rising in the bullish zone with the MACD positive and rising. Look for continuation to participate…..

Hess, Ticker: $HES

Hess, $HES, comes into the week approaching resistance. It has a RSI rising into the bullish zone with the MACD positive and moving higher. Look for a push over resistance to participate…..

Humana, Ticker: $HUM

Humana, $HUM, comes into the week at resistance. It has a RSI rising in the bullish zone with the MACD positive and crossing up. Look for a push over resistance to participate…..

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which heading into August Options Expiry, saw equity markets responded to the inflation data with strong moves to the upside and their first intermediate term higher highs since the all-time highs.

Elsewhere look for Gold to consolidate while Crude Oil continues the downtrend. The US Dollar Index continues the pullback in the uptrend while US Treasuries consolidate in their downtrend. The Shanghai Composite looks ready for a short term move higher while Emerging Markets may also be reversing higher.

The Volatility Index looks to continue to move lower in the normal range making the path easier for equity markets to the upside. Their charts look strong, especially on the longer timeframe. On the shorter timeframe momentum is starting to get a bit hot so the SPY, IWM and QQQ may be ready for a pause. Use this information as you prepare for the coming week and trad’em well.

#$BKR #$BRK.B #$googl #$HES #$HUM

5 Trade Ideas for Monday: Berkshire Hathaway, CME, Costco, Gilead and Weyerhaeuser

5 Trade ideas excerpted from the detailed analysis and plan for premium subscribers:

Berkshire Hathaway, Ticker: $BRK/B

Berkshire Hathaway, $BRK/B, comes into the week at resistance. It has RSI rising towards the midline with the MACD climbing but negative. Look for a move over resistance to participate…..

CME Group, Ticker: $CME

CME Group, $CME, comes into the week heading to resistance. It has a RSI rising towards the bullish zone with the MACD positive and moving higher. Look for a push through resistance to participate…..

Costco, Ticker: $COST

Costco, $COST, comes into the week approaching the 200 day SMA. It has a RSI rising in the bullish zone with the MACD positive and moving higher. Look for continuation to participate…..

Gilead Sciences, Ticker: $GILD

Gilead Sciences, $GILD, comes into the week at resistance. It has a RSI level over the midline with the MACD positive and rising. Look for a push over resistance to participate…..

Weyerhaeuser, Ticker: $WY

Weyerhaeuser, $WY, comes into the week moving higher towards resistance. The RSI is rising at the midline with the MACD crossed up and moving higher. Look for a push over resistance to participate…..

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After reviewing over 1,000 charts, I have found some good setups for the week. These were selected and should be viewed in the context of the broad Market Macro picture reviewed Friday which with the first week of the 3rd Quarter in the books, saw equity markets showed strength with a multi-day move to the upside.

Elsewhere look for Gold to continue its pullback while Crude Oil continues its short term drop. The US Dollar Index continues to race to the upside while US Treasuries continue their downtrend. The Shanghai Composite looks to pause in its uptrend while Emerging Markets continue to trend lower.

The Volatility Index looks to remain slightly elevated but moving lower making the path easier for equity markets to the upside. Their charts look promising but not yet trustworthy on the shorter timeframe. On the longer timeframe the IWM, the QQQ and the SPY all remain in consolidation at key retracement levels. Use this information as you prepare for the coming week and trad’em well.

#$BRK.B #$CME #$COST #$GILD #$WY

4 Trade Ideas for Berkshire Hathaway: Bonus Idea

Berkshire Hathaway, $BRK.B, made a low in March and held there for several months before ramping higher. It peaked in September and pulled back to the 200 day SMA. Since then, it has made a higher high and drifted lower to the 50 day SMA. Now it is rounding back higher. The price action suggests a Deep Crab harmonic, with a Potential Reversal Zone at 277.

The RSI is rising back in the bullish zone with the MACD turning to cross up and remaining positive. There is resistance above at 230 and 234. Support lower comes at 221 and 217 then 212.50 and 209. Short interest is low at 1%. The stock does not pay a dividend. The company is expected to report earnings next on February 22nd.

The January options chain shows biggest open interest at 220 on the put side but large also at 225 and 210 and 205. On the call side it is much bigger and spread from 220 to 250. The February chain is just starting to build and light on the put side. on the call side it has big open interest at 250 and sizeable at 240 as well. The March chain is the first to cover the earnings report. It shows biggest open interest at the 210 put strike and is big at 220 and 190 as well. On the call side open interest is big from 210 to 230.

Berkshire Hathaway, Ticker: $BRK.B

Trade Idea 1: Buy the stock on a move over 228 with a stop at 220.

Trade Idea 2: Buy the stock on a move over 228 and add a February 220/210 Put Spread ($2.70) while selling the March 245 Calls ($2.72).

Trade Idea 3: Buy the February/March 235 Call Calendar ($2.45) and sell the February 210 Puts ($1.70).

Trade Idea 4: Buy the March 210/235/250 Call Spread Risk Reversal for 50 cents.

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Elsewhere look for Gold to continue its short term uptrend while Crude Oil works slowly higher. The US Dollar Index continues to look better to the downside while US Treasuries pullback in their downtrend. The Shanghai Composite looks to consolidate in a broad range over long term support while Emerging Markets trend higher.

The Volatility Index looks to drop slowly making the path easier for equity markets to the upside. Their charts look strong, especially on the longer timeframe, with the IWM and QQQ marching higher and the SPY in consolidation. On the shorter timeframe both the QQQ and SPY are resetting momentum measures with the IWM driving higher. Use this information as you prepare for the coming week and trad’em well.

#$BRK.B

What Does Value Investing Actually mean?

By Sid el Mehdi Lembirik, Managing Partner, Lembirik Group

“Value investing” is one of the most overused and misunderstood terms in the investment business. The long-term success of true value investors such as Warren Buffett, Charlie Munger, Walter Schloss, Bill Ruane, … enticed many charlatans to label themselves value investors in order to attract assets to manage. Value investing is used as a marketing tool instead of an investment philosophy, there are even day traders who call themselves value investors!

Is Value Investing Past Its Prime?

Many have little or nothing to do with the philosophy of investing originally introduced by Benjamin Graham. Academics define value investing as buying securities with the lowest price to earnings ratio (PE) while growth investing as buying securities with the highest PE. The problem with this approach is that a security can have a high PE (growth stock according to conventional wisdom) when earnings are not growing at all or dropping. PE ratio by itself is no indication of how cheap a stock is, as it can be distorted by a one-time gain or loss in earnings.

The cornerstone of value investing is not about low multiples, but rather, it’s about the concept of margin of safety as Benjamin Graham noted in his book The Intelligent Investor. “Confronted with a challenge to distill the secret of sound investment into three words, we venture the motto, Margin of Safety”.

The Buffett Series - What is Value Investing?

When it comes to any purchase we make, it can be a piece of furniture, clothing or a stock we want to pay for less than the asking price. That difference between the price tag and the price we buy at is the margin of safety. It protects the investor from errors of calculations and serves as a buffer in avoiding permanent capital loss. After all, value investing is about limiting capital loss versus striving for spectacular gains.

Warren Buffett explains it this way “You don’t try to buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry 30,000 pounds, but you only drive 10,000 pound trucks across it. And that same principle works in investing”.

To be a value investor, one has to think long-term, be disciplined, understands the wisdom of a value approach and always seek a margin of safety. Unfortunately, these value pretenders violate all these principles by overpaying for securities, following the herd mentality while engaging in a short-term approach.

Yet, during bull markets, as we are witnessing now, the rising tide lifts most ships. Most investment strategies seem profitable and mistakes are not costly. Investors succumb to euphoria. This is the time when undervalued securities get scarce causing people to question the soundness of value investing, labeling it as “dead”.

The true test of an investment philosophy is during a market downturn. Securities that have performed well in a bull market are usually those for which investors have had the highest expectations. When these expectations are not met, the securities, which typically have no margin of safety, can plummet. As Warren Buffett said, “Only when the tide goes out, you discover who’s been swimming naked”.

Seth Klarman – Value Investing Doesn't Apply Only To U.S. ...

By Sid el Mehdi Lembirik, Managing Partner, Lembirik Group

#$BRK.a #$BRK.B #$SPY #$^gspc

The Biggest Lie In The Investment Business

By LoicLeMener

The idea of excessive diversification is madness” - Charlie Munger

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The famous investment saying that “diversification is the only free lunch” might, in a sense, be the biggest lie in the investment industry. There are no free lunches; beware of anyone who offers you one. When it comes to investing, some managers (particularly mutual fund managers) pitch a diversified portfolio that eliminates single stock risk while simultaneously delivering outperformance. But such a portfolio rarely fulfills its promise.

There are so many conflicting opinions in the investment business, it’s tough to separate the signal from the noise. I’ve developed a three-part model for myself that my highest conviction ideas seem to follow:

It’s a rational idea (i.e., it makes logical sense). When Charlie Munger was asked why he and Buffett have been so successful, he responded, “We’re rational.” While that may be an obviously desired trait, many people let biases and emotion affect their opinions. If you can truly think through why 1 + 2 = 3, you might be onto something.

It’s seconded by other investors. There are many brilliant investors out there. I look for strategies that have been used by several of the most successful investors in history.

It aligns with academic evidence that supports the idea.

If all three of these items are in agreement, you can feel fairly confident that you have something with the potential to be successful.

The Logic of a Concentrated Portfolio

If financial markets are mostly “efficient,” as many academics claim, opportunities to outperform should be hard to find. A “great” idea in the world of investing is akin to a miner finding gold; it’s infrequent and takes skilled and relentless pursuit. The best way to develop a great idea is to have an informational edge, meaning you know more about a company (in the case of a stock) then the people selling the stock to you. In this case, your competitors have stepped over a nugget of gold without realizing it. Given limits on people’s time, memory and intellect, no single person can come up with an abundant amount of great ideas at any one time.

Put yourself in the shoes of a fund manager. You are paid millions (if not tens of millions) of dollars to beat the market. You log hundreds of hours of analysis to get to know your best ideas and have conviction in them…and then you’re going to turn around and put 2% of your fund into your best idea? That means the manager is putting 98% of the fund in less-than-best ideas.

This point is so simple that it’s almost embarrassing to bring up. If you have fund manager A who spreads his capital across 30 stocks and fund manager B who spreads his capital across 100 stocks, fund manager B is challenged to come up with more than three times the number of good ideas as fund manager A. If you believe that high conviction ideas are rare, this is a very tall task. It’s also extremely unlikely that fund manager B’s 97th best idea is anywhere close to fund manager A’s 25th best idea.

In short, if you want your portfolio manager to outperform while also finding you a lot great ideas such that you can be very diversified, you’re just asking for too much.

What the “Greats” Say About a Concentrated Portfolio

Many great investors over the decades have used a concentrated approach to outperform. Rather than casting a wide net and investing in a large number of companies about which they have only average knowledge, concentrated investors scour the market for the rare company that they understand and can offer a wonderful risk/return tradeoff. Concentrated investors may only find one or two of these prime investments per year, and when they do, they bet big.

Bill Nygren of Oakmark pointed out in 2014 that the average stock mutual fund holds 121 stocks. Wow – do some people really think they can have a competitive edge on 121 stocks? Recalling a panel discussion in which a manager proposed heavy diversification as a guarantee against any single mistake hurting the portfolio, Nygren wrote, “My response was not well-received: ‘If mistakes don’t matter, doesn’t that mean successes don’t matter either?’ They are ‘closet indexing’ with the goal of not underperforming by enough to get fired.”

Compare this to the philosophy of one of the best portfolio managers in the business, Allan Mecham, who typically has most of his portfolio in his top 10 ideas. He said, “We buy stocks the way we buy toilet paper: high quality, on sale, and in bulk sizes.” When he says in bulk size, he means it. Allan often has more than 20% of his portfolio in his best ideas. In a sense, he’s setting a low bar for himself. He has said, "If I find two new ideas a year, that's phenomenal." Find two phenomenal ideas a year, keep them on average for 5 years so you have a 10-stock-or-so portfolio over time and set yourself up for success.

This “two ideas a year” resonates with the Berkshire Hathaway model as well. Charlie Munger explains: “If you look at Berkshire and you take out 100 decisions, which is 2 a year, the success of Berkshire came from two decisions a year over 50 years…we may have beaten the indexes but we didn’t do it having big portfolios of securities.”

Warren Buffett seeks out this philosophy when he’s looking for portfolio managers as well. Speaking about his lieutenants Todd and Ted (who together manage billions of Berkshire’s money and at the time held only 14 stocks between the two of them), Buffett stated, “They’re smart, so they put their capital behind their best ideas. I wouldn’t care if they held a lot less.”

While two a year may be extreme (hence Berkshire’s and Mecham’s extremely good results), it is reasonable to assume that an individual trying to find 50 good ideas a year is at an extreme disadvantage.

The Academic Evidence

Many academic studies support the notion of concentrated investing:

A Harvard study from 1991 to 2005 of U.S. Equity manager’s “best ideas” beat their index by 7% 1

A 2003-2013 analysis of large and mid-cap U.S. managers holding fewer than 35 stocks outperformed their benchmark by 44%.2

Focused managers outperform their more broadly diversified counterparts by approximately 30 basis points per month, or roughly 4% 3

Harvard and MIT professor Randy Cohen sums up these findings by writing: “The poor overall performance of mutual fund managers in the past is not due to a lack of stock-picking ability, but rather to institutional factors that encourage them to over-diversify (emphasis added).”

What Cohen is saying is that most portfolio managers can find some good ideas and do tend to put more of their money behind those best ideas; however, due to “institutional factors” (meaning not being willing to concentrate so as to never underperform too much), they over-diversify and their non-best ideas weigh the portfolio down so much it ends up underperforming as a whole.

If It’s So Obvious, Why Don’t More People Do It?

The main issue that keeps concentrated investing from being more popular among managers is what’s called “benchmark risk.” This is the risk of underperforming your benchmark in any given year. The more different you look from your benchmark, the higher the chance you’ll deviate from it, and eventually you’re going to deviate in the wrong direction (i.e., underperform). Clients can tolerate many years of mediocre performance, but if you underperform significantly, even over a short period, a lot of your investors are going to get scarred and run.

Given the dynamic above, if you’re worried about a client firing you, you have to balance the risk of being wrong on a meaningful position versus the certainty of having most of your portfolio in your non-best ideas. I believe the industry routinely overweighs the latter.

Some people think concentrated investing is arrogant. But which is more arrogant? Thinking you can come up with 60 great ideas or thinking you can come up with a few a year? Of course, a mistake on a concentrated position is extremely visible, whereas with a diversified portfolio it’s more akin to “death by a thousand cuts.” This differentiation of optics matters a lot in the investment business.

Realities of Implementing

The hard part of this strategy is sticking with a portfolio manager who is underperforming (but then again, isn’t that the hard part of any strategy?). If you’re going to use concentrated managers, you must do your homework and have conviction in them that goes beyond recent performance numbers. You have to understand the “why” of what they’re doing and qualitatively assess the fund’s strategy during the inescapable “performance winters.”

Alternatively, let’s say you agree with the logic of concentrated investing but know you can’t emotionally handle having all your money in concentrated strategies. No problem. You could index 80% of your stocks and then have 20% of your funds in a concentrated strategy. That way, you’re paying a lot lower fees than a closet indexer, and in my opinion, have a higher chance of success.

You can also buy as many high-conviction managers as you want; however, the rarity of “great managers” follows the same logic as finding a great stock. You’re likely to only find a few managers in whom you have high conviction at any one time.

For me, an ideal equity portfolio looks like this: finding roughly five managers who all put their money in their top 10 ideas. That way you have a moderately concentrated 50-stock portfolio with five different teams trying to come up with two to three good ideas a year. This is admittedly extremely hard to find but striving for something close to it is worthwhile. For those willing to do their homework, in this era of very expensive indexes, this is a methodology worth considering.

Sources:

1 “Best Ideas” Randy Cohen, Chris Polk, and Bernhard Silli. October 19th, 2008

2 Alliance Bernstein 2Q, 2015 Capital Markets Outlook

3 Fund managers who take big bets” Klaas Baks, Jeff Busse, Clifton Green, Emory University, March 2006

This information is for general use with the public and is designed for informational or educational purposes only. It is not intended as investment advice and is not a recommendation for retirement savings. Lincoln Financial Advisors Corp. and its representatives do not provide legal or tax advice. You may want to consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.

Loic LeMener, CFA®, MBA, CFP® is a registered representative of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker-dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies CRN-1870472-081117. Opus Wealth Management is not an affiliate of Lincoln Financial Advisors Corp.

About the Author

Loic LeMener is the founder and President of Opus Wealth Management in Dallas, Texas, a boutique wealth management firm that specializes in personalized client solutions. Loic and his team provide their clients with a targeted needs evaluation to answer important questions that provide a better, more personalized experience. The team focuses on integrity and believes in the following “golden rule” – they won’t do anything for you that they would not do for themselves or their loved ones

Loic received his Masters in Business Administration from Southern Methodist University, studying Finance, Accounting and Portfolio Management. He also earned the Certified Financial Planner™ certification and the prestigious Chartered Financial Analyst® designation. In addition, he has been quoted in national publications such as Barron’s.

In his free time, Loic is a devout reader, with his favorite topic being “value investing.” His favorite investors are Warren Buffett, Ben Graham, Charlie Munger, Seth Klarman, Howard Marks, and Jeremy Grantham.

#$BRK.A #$BRK.B #$spy #$spx #$^dji #$^gspc #$^rut #$^ixic

Nelson’s Valuentum(ology) on Buffett

Best Ideas Newsletter portfolio holding Berkshire Hathaway is bumping against all-time highs, and frankly, we can’t be more pleased.

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2016

Mar 10, 2016

Free: Part I: Nelson’s Evaluation of Berkshire’s 2015 Annual Report The first of Nelson’s three-part evaluation of Berkshire Hathaway’s 2015 annual report.

Mar 23, 2016

Premium $: Part II: Nelson’s Evaluation of Berkshire’s 2015 Annual Report The second of Nelson’s three-part evaluation of Berkshire Hathaway’s 2015 annual report.

May 19, 2016

Premium $: Part III: Nelson’s Evaluation of Berkshire’s 2015 Annual Report The last of Nelson’s three-part evaluation of Berkshire’s 2015 Annual Report.

2015

Mar 27, 2015

Premium $: Part I: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter Notes from Valuentum’s Brian Nelson on Berkshire Hathaway’s newsletter. Part I.

Mar 27, 2015

Premium $: Part II: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter Notes from Valuentum’s Brian Nelson on Berkshire Hathaway’s newsletter. Part II.

Mar 27, 2015

Premium $: Part III: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter Notes from Valuentum’s Brian Nelson on Berkshire Hathaway’s newsletter. Part III.

Mar 28, 2015

Premium $: Part IV: Nelson’s Notes on Berkshire Hathaway’s 2014 Newsletter Notes from Valuentum’s Brian Nelson on Berkshire Hathaway’s newsletter. Part IV.

Want more of Nelson’s thoughts? Consider the Nelson Exclusive here.

Warren Buffett’s major common stock investments (as of date of 2015 Annual report): American Express (AXP), AT&T (T), Charter Communications (CHTR), Coca-Cola (KO), DaVita (DVA), Deere (DE), Goldman Sachs (GS), IBM (IBM), Moody’s (MCO), Phillips 66 (PSX), Procter & Gamble (PG), Sanofi (SNY), US Bancorp (USB), WalMart (WMT), Wells Fargo (WFC)

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This article or report and any links within are for information purposes only and should not be considered a solicitation to buy or sell any security. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this article and accepts no liability for how readers may choose to utilize the content. Assumptions, opinions, and estimates are based on our judgment as of the date of the article and are subject to change without notice. For more information about Valuentum and the products and services it offers, please contact us at [email protected].

#$brk.a #$brk.b #$t #$ko #$de #$ibm #$pg #$wmt