Top 5 Stocks George Soros and Warren Buffett Both Own

George Soros and Warren Buffett are two of the world’s most successful investors. While Buffett holds stocks for the long term, Soros is more likely to trade in and out of positions with greater frequency.

Both of their viewpoints overlap on eight stocks. The largest positions they hold in common are: Walmart (WMT), Kraft (KFT), DirecTV (DTV), DaVita (DVA) and Johnson & Johnson (JNJ).


Walmart (WMT)
Warren Buffett owns 46,708,142 shares of WMT, valued as $3.3 billion as of June 30, 2012, which accounts for 4.4% of his equity portfolio. George Soros owns 4,831,800 shares of WMT, valued as $337 million as of June 30, 2012, which accounts for 4.9% of his equity portfolio.

Walmart Stores Inc. is the world’s largest retailer. Walmart Inc. has a market cap of $243.99 billion; its shares were traded at around $72.59 with a P/E ratio of 15.4 and P/S ratio of 0.6. The dividend yield of Walmart stocks is 2.2%. Walmart Inc. had an annual average earnings growth of 11.3% over the past 10 years. GuruFocus rated Walmart the business predictability rank of 5-star.

Walmart in its second quarter reported earnings per share increased 10.1% from the previous quarter, and revenue increased 6.4%, with its fourth consecutive quarter of positive comp sales. Net sales at Walmart International grew 6.4%. The company raised and narrowed its full-year EPS guidance to a range of $4.83 to $4.93 from its previous range of $4.72 to $4.92.

Kraft (KFT)
Warren Buffett owns 58,826,390 shares of KFT, valued as $2.3 billion as of June 30, 2012, which accounts for 3.1% of his equity portfolio. George Soros owns 361,000 shares of KFT, valued as $14 million as of June 30, 2012, which accounts for 0.2% of his equity portfolio.

Kraft Foods Inc. is the largest branded food and beverage company headquartered in the U.S. Kraft Foods Inc. has a market cap of $74.3 billion; its shares were traded at around $41.9 with a P/E ratio of 17.5 and P/S ratio of 1.4. The dividend yield of Kraft Foods Inc. stocks is 2.8%. Kraft Foods Inc. had an annual average earnings growth of 0.4% over the past 10 years.

On August 14, Kraft’s board approved the spin-off of its North American grocery business and declared a pro-rata distribution of shares of its holding company, Kraft Foods Group Inc., to Kraft Foods Inc. common stock shareholders. The spin-off will be complete on October 1. On that date, shareholders of Kraft Foods Inc. will receive one share of Kraft Foods Group common stock for every three shares of Kraft Foods Inc. common stock they hold.

Buffett sold almost 20 million shares of his Kraft stake in the second quarter, but said on Bloomberg in July that he will wait to see what each new company sells for, and will need more information to decide which he would invest in.

How to Play the Market: Irving Kahn

No two recoveries are alike. When I came to Wall Street in 1928, I thought the market was crazy. It hit the brakes in ’29. You have to be careful to distinguish between one recovery and the other. You stick to value, to Benjamin Graham, the man who wrote the bible for the market. It’s a mistake to believe you can do more, I warn you. John Maynard Keynes was one of the most famous economists in history. He was a genius, but he failed as a macro investor. It was hard to believe at the time. But when he became a bottom-up value guy, well, he became very successful. With value investing, you don’t have to bend the truth to accommodate periods with derivatives and manias. Value investing will almost always be right.

I’ve seen a lot of recoveries. I saw crash, recovery, World War II. A lot of economic decline and recovery. What’s different about this time is the huge amount of quote-unquote information. So many people watch financial TV—at bars, in the barber shop. This superfluity of information, all this static in the air.

There’s a huge number of people trading for themselves. You couldn’t do this before 1975, when commissions were fixed by law. It’s a hyperactivity that I never saw in the ’40s, ’50s, and ’60s. A commission used to cost you a hell of a lot; you couldn’t buy and sell the same thing 16 times a day.

You say you feel a recovery? Your feelings don’t count. The economy, the market: They don’t care about your feelings. Leave your feelings out of it. Buy the out-of-favor, the unpopular. Nobody can predict the market. Take that premise to heart and look to invest in dollar bills selling for 50¢. If you’re going to do your own research and investing, think value. Think downside risk. Think total return, with dividends tiding you over. We’re in a period of extraordinarily low rates—be careful with fixed income. Stay away from options. Look for securities to hold for three to five years with downside protection. You hope you’re in a recovery, but you don’t know for certain. The recovery could stall. Protect yourself. — As told to Roben Farzad 

Kahn, chairman of investment firm Kahn Brothers Group, was born in 1905.

From businessweek.com

Every Investor Should Memorize The New Rules For Asset Allocation

Asset allocation is the centerpiece of any investment plan, whether it's for an individual or an organization.

People typically set their asset allocation based on traditional assumptions -- many of which may be badly out of date in today's unusual financial environment.

Here are four examples of how today's extreme conditions are rewriting the rules of asset allocation:

1. Don't count on time being the solution to stock volatility

Financial consultants have traditionally pitched the idea that while the stock market may have extreme ups and downs from year to year, that this type of volatility tends to smooth out over the long term. However, with the S&P 500 hovering at around 1,400 as of early August, it was still below its level of 12 years earlier.

When it comes to stocks, time doesn't heal all wounds. This means that people can't be so complacent about their risk levels or return assumptions, even if they have several years to go before retirement.

2. Bond yields almost guarantee lower-than-average returns

It used to be that you could count on bonds for a solid 6 percent or so a year, simply because of their income yields. Now, with 10-year bonds yielding less than 2 percent, historical return assumptions need to be radically rethought. True, interest rates might rise, but the nature of bonds is that their principal value usually falls when interest rates rise. This makes it virtually impossible for conventional bonds to get back to their historical return levels over the foreseeable future. The return assumptions embedded in many asset allocation programs -- and retirement savings assumptions -- need to be reworked.

3. Savings account rates provide stability, but little else

Savings account rates, along with rates on similar cash-related vehicles such as money market accounts, have taken an even deeper hit than bond yields. The good news is that unlike bonds, savings and money market accounts cannot decline in value, so savings account rates can benefit right away if interest rates rise. The bad news is that, in the meantime, don't expect cash accounts to provide you with much of anything except stability.

4. Diversification does not guarantee safety

Diversification is a sound principle -- spreading your money around into different types of investments can reduce your risk. However, it does not eliminate risk, and in an increasingly interdependent world, there may be a diminishing benefit to diversification.

For example, foreign stocks were once hailed as a way to diversify away from exposure to the U.S. economy. Back when international trade was a much smaller portion of the global economy, individual economies were much less interdependent. Today, though, international trade and finance have grown to a level where most major economies often rise and fall together -- as was clearly demonstrated in 2008. The lesson is that diversification might help smooth out routine fluctuations, but under extreme conditions your risk level is likely to depend very much on the overall economic exposure of your holdings.

In the past, asset allocation principles have often been used to put a portfolio on a form of auto-pilot: The thinking was that if you followed the rules, you'd end up with a normal rate of return over the long run. Now that so many market norms have broken down, it may be time to rethink this auto-pilot approach.

From money-rates.com

5 Criteria for Elite Dividend Stocks

As investors in Dividend Growth Stocks, we want to limit our purchases to only the very best stocks. Our first step is to look at published lists of dividend companies such as S&P 500 Dividend Aristocrats, US Broad Dividend Achievers™ Index and The U.S. Dividend Champions.

These lists are used to narrow the population of all publicly traded companies down to the very best dividend stocks. When these lists are combined, as I did with the Stock Ideas list, it is still a large and daunting collection of over 200 unique companies. So, how do we find the Elite companies on this list?

In 2009, I devised additional criteria to apply to the Stock Ideas list in an effort to eliminate all but the Elite Dividend Stocks. Here is the additional criteria that I came up with, along with the companies that met the criteria:

I. A Long Track Record Of Consecutive Dividend Increases

Aristocrats and Champions have increased their dividends for 25 consecutive years, while Achievers have done so for 10 years. The quickest way to narrow the list down was only include companies with 35 or more years of consecutive dividend increases. This reduced the number of companies to 65.

II. Ability To Generate Positive Free Cash Flows 

To have cash available for dividends, a company must have cash left over after paying the operating expenses and normal capital expenditures. For this I looked for companies that had positive free cash flow for the last 10 years.

III. Free Cash Flow Sufficient To Pay The Dividend 

Free cash flow can be positive, but still not enough to cover an increasing dividend. To ensure adequate coverage, I screened for companies with a 60% or less Free Cash Flow payout ratio.

IV. Low Debt 

Dividends paid out of Free Cash Flow must compete for other needs of the business such as interest and debt payments. Lower debt and interest requirements make available more cash for dividend payments. For this item, I eliminated all companies that had a debt to total capital percent in excess of 35%.

V. Low Risk

An Elite Dividend company should provide a superior return without subjecting your investment to undue risk. For this item, I limited the companies to those with a risk # less than 1.5.

From dividend-growth-stocks.com

There’s Warren Buffett — and then there’s the rest of us

Investing isn’t rocket science, but behaving in a disciplined way while managing risk for decades on end is, as the record shows, absolutely exceptional

I don’t know how to put this but … Warren Buffett is awesome, and you and me, we almost certainly are not. A new study aiming to get at the source of the legendary investor’s outperformance demonstrates that his approach, which turned a dollar in 1976 into $1,500 today, is relatively simple: Use modest, cheap leverage to buy high-quality, cheap and safe shares. What Buffett has done but the rest of us will find difficult is twofold. He didn’t just figure out what works and stick to it.

Decades ahead of his many acolytes, he put himself in a position where he was able to stick with it year after year after year. Berkshire Hathaway, Buffett’s investment vehicle, has produced a Sharpe ratio, a measure of risk-adjusted return, of 0.76 over the past 35 years, double that of the stock market as a whole. “Looking at all U.S. stocks from 1926 to 2011 that have been traded for more than 30 years, we find that Berkshire Hathaway has the highest Sharpe ratio among all. Similarly, Berkshire has a higher Sharpe ratio than all U.S. mutual funds that have been around for more than 30 years,” Andrea Frazzini, David Kabiller and Lasse Pedersen of AQR Capital management and Lasse Pedersen of NYU wrote in a paper.

It’s not only amazing that’s he’s thrashed the competition, it is also a huge lesson in investing that he has done so while recording a Sharpe far lower than many investment managers claim to be able to achieve. The takeaway, besides the obvious point of not swallowing too much marketing blather, is that investment isn’t rocket science, but rather the steady application of simple but really hard to follow principles. Even more amazingly, using a couple of other performance metrics the authors maintain that Buffett’s alpha, or outperformance, isn’t actually statistically significant.

BUFFETT’S WAY

Buffett appears to select investments based on three main criteria. First off, they are safe, meaning they don’t exhibit a lot of volatility compared to the market.

Second, they are value stocks, cheap at the market with a low price-to-book ratio.

Finally, they are high quality, profitable companies which are stable, growing and with high payout ratios.

To this portfolio of cheap, safe, high quality stocks Buffett adds leverage, which serves to increase returns but also increase losses. The authors estimate that Buffett employs leverage of about 1.6-1, not massive but an amount which, if controlled and risk managed, has added massively to his returns over the years.

The interesting thing here is how he obtains that leverage. About a third of it comes from his privately-owned stable of insurance companies within Berkshire. Not only did Berkshire have a AAA rating through much of the period studied, it was able to use the insurance float, premiums paid in to his companies, as cheap funding. A bit more than a third of Berkshire liabilities consist of this type of financing, which has a cost less than T-bills.

In other words, he’s magnifying his returns using a cost of funding which is less than the short-term borrowing cost of the U.S. government. This helps to explain the power of his model of public shares held in a company which also owns and operates businesses.

So is Buffett principally a brilliant investor or a brilliant manager of companies? Looking at the question by comparing the performance of the publicly traded companies he held share in versus private companies held within Berkshire Hathaway, both do well, but public stocks do better. The secret of the private companies is that they allow for a stable, cheap form of funding with which he can leverage the investment.

WHAT ABOUT THE REST OF US?

Buffett has been great at managing a wide variety of risks; market risk, leverage risk and career risk. His concentration on value stocks in good companies with low volatility gives him the bones of a portfolio which will do well and won’t jump around too much. That’s important because he’s using leverage, which accentuates returns and volatility. Career risk might be the most important, or rather the part which separates Buffett from the chaff. As we saw in the last decade, using leverage is great until it isn’t. Because Buffett was the captain of his own ship, he never had to worry about redemptions, or about the possibility of being fired. “Buffett’s genius thus appears to be at least partly in recognizing early on, implicitly or explicitly, that these factors work, applying leverage without ever having to fire sale, and sticking to his principles,” the authors write. Investing isn’t rocket science, but behaving in a disciplined way while managing risk for decades on end is, as the record shows, absolutely exceptional.

© Thomson Reuters 2012

From business.financialpost.com

Warren Buffett's Two Investing Rules For Dividend Investors

We all like things presented in their simplest terms. Headlines like "Two simple steps to lose that unwanted weight" always grabs our attention, even if it is just to smile and say I wish it were true. I enjoy reading inspiring quotes. They often put life's issues in their simplest terms and in doses that are easy to swallow. 

From an investing perspective, some of my favorite quotes come from Warren Buffett. Most are immediately intuitive, such as these:

It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price.

Price is what you pay. Value is what you get.
- Warren Buffett

However, a few have caused me to stop and ponder their true meaning, or meanings. None more so than the following quote:

Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.
- Warren Buffett

My first reaction to anything I read is to take it literally as written. In this case, rule number one would prevent you from ever buying a stock. By definition, you buy stocks at market price, plus a commission, so the moment you buy the stock you have lost money (the cost of the commission). 

Obviously, Mr. Buffett didn't have such a literal view in mind when he made that statement. Like every investor, he has held stocks that have declined from where they were purchased. Instead, I think the true meaning of his statement are revealed in these quotes:

I. "I don't look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.

- Warren Buffett

The more complex an investment, the more likely it is to fail. There is something to be said for understanding what you are investing in and knowing what differentiates the company from its competitors. I believe the term Buffett uses is "moat". 

II. "A public-opinion poll is no substitute for thought. "
- Warren Buffett

Selecting an investment is a long-term proposition. It shouldn't be a flippant decision based on what the talking heads saying on today's market report. 

III. "I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
- Warren Buffett

Focus on quality, it is the only thing that endures over time. It is very unlikely that you will lose money, over the long haul, with blue-chip quality stocks with a proven advantage.


From dividend-growth-stocks.com

Soros Reveals Stake In Facebook

Hedge fund Soros Funds has filed his quarter 13-F report with the SEC.

According to the report, Soros completely dumped his stakes in Citigroup (420,000 shares), JP Morgan (701,400 shares) and Goldman Sachs (120,000 shares), leaving him with no position in any major financials at all.

He also got rid of minor stakes in Dell (3,100) and Intel (10,600).

As for going long, Soros revealed a a position in Facebook, having bought 341,000 shares.

From businessinsider.com

Warren Buffett Dumps Intel, But Reveals Two New Energy Positions

Berkshire Hathaway's latest 13-F filing is out. It includes any investment moves during the second quarter.

New positions include National Oilwell Varco (2,841,200 shares) and Phillips 66 (27,163,918 shares).

National Oilwell Varco supplies equipment to oil and gas drillers.

Phllips 66 is an oil refiner.

During the reporting period, Berkshire sold off all of its position in Intel (7,745,000 shares).

Other major moves include Bank of New York (raised to 18,719,515 shares from 5,607,466 shares), Viacom (raised to 6,813,200 shares from 1,591,670 shares), Ingersoll-Rand (lowered to 20,400 shares from 636,000 shares), Johnson & Johnson (lowered to 10,333,128 shares from 29,018,127 shares), and Sanofi-Aventis (lowered to 261,900 shares from 1,429,200 shares).

Read more: businessinsider.com

The Most Successful Email I Ever Wrote - Derek Sivers'

Below is an except from Derek Sivers' bestselling book, Anything You Want. Sivers founded online music store CDBaby, which he sold in 2008 for $22 million:

When you make a business, you’re making a little world where you control the laws. It doesn’t matter how things are done everywhere else. In your little world, you can make it like it should be.

When I first built CD Baby, every order resulted in an automated email that let the customer know when the CD was actually shipped. At first this note was just the normal “Your order has shipped today. Please let us know if it doesn’t arrive. Thank you for your business.”

After a few months, that felt really incongruent with my mission to make people smile. I knew could do better. So I took twenty minutes and wrote this goofy little thing:

Your CD has been gently taken from our CD Baby shelves with sterilized contamination-free gloves and placed onto a satin pillow.

A team of 50 employees inspected your CD and polished it to make sure it was in the best possible condition before mailing.

Our packing specialist from Japan lit a candle and a hush fell over the crowd as he put your CD into the best gold-lined box that money can buy.

We all had a wonderful celebration afterwards and the whole party marched down the street to the post office where the entire town of Portland waved “Bon Voyage!” to your package, on its way to you, in our private CD Baby jet on this day, Friday, June 6th.

I hope you had a wonderful time shopping at CD Baby. We sure did. Your picture is on our wall as “Customer of the Year.” We’re all exhausted but can’t wait for you to come back to CDBABY.COM!!

That one silly email, sent out with every order, has been so loved that if you search Google for “private CD Baby jet,” you’ll get almost twenty thousand results. Each one is somebody who got the email and loved it enough to post it on his website and tell all his friends.

That one goofy email created thousands of new customers.

When you’re thinking of how to make your business bigger, it’s tempting to try to think all the big thoughts and come up with world-changing massive-action plans.

But please know that it’s often the tiny details that really thrill people enough to make them tell all their friends about you.

From businessinsider.com

Related Books

Anything You Want

Mark Zuckerberg And Steve Jobs Have One Weird Trait In Common

Most successful founders of tech companies spread their wealth and invest in startups as angel investors.

But you rarely see stories about Facebook CEO Mark Zuckerberg doing so.

In fact, you don't see stories, period.

That's because he simply chooses not to invest in startups, we have heard from several people close to him.

Zuckerberg is running a site that serves nearly one billion people a month—about half of whom show up every day. This requires an enormous amount of focus.

You know whose name also never comes up in stories about angel investors?

Steve Jobs. Like Zuckerberg, Jobs was known for his singular focus on Apple—especially in the period after he sold Pixar to Disney, which happens to be when Apple began its iPhone-powered rise to the top.

Here's the simple math on why it's not in Zuckerberg's interest to play angel investor on the side.

He could easily invest $1 million in a startup, which might—might—sell for $100 million.

In return, Zuckerberg would devote some of his time and energy to helping that startup.

But for Zuckerberg, who is running a company that is already worth tens of billions of dollars, $100 million is a rounding error.

Instead, Zuckerberg is constantly heads down solving Facebook's problems—as any good CEO is.

From businessinsider.com

The Death of Buy and Hold Investing?

Years ago, Warren Buffett remarked during a Berkshire Hathaway shareholder meeting that he and Charlie Munger weren't concerned about sharing their investment philosophy because when push came to shove, most people simply cannot resist the biological, primal urges that cause them to make foolish financial decisions; namely, buying when assets are appreciating and selling when asset prices are falling.

At the time, I thought it strange and, to be honest, doubted this assertion. In my younger days, I couldn't believe that people would work against their own long-term self-interest and spend decades working, then throw the money away on a security simply because the price was moving north, or sell their interest in a great business when the economy hit a rough patch. After all, I was able to not only be the first member of my family to graduate from college, but effectively retired at only 24 years old because my ownership in businesses and the income from my investment portfolio provided more than enough for me to spend my days reading, visiting family and friends, and studying finance. By spending my teenage years studying Rockefeller, Carnegie, Buffett, Graham, Munger, Lynch, and others, I saw first hand that the power of compound interest, when coupled with a collection of operating businesses, could set you free.

Now, at the very moment stocks are cheapest and my personal balance sheet and companies are breaking the bank to come up with every excess penny we can - to the point that I literally confiscated the coffee budget so I could buy additional shares of General Electric when they were at $6.00 each - I find that everyone from CNBC to investment newsletters, personal finance writers to professional investors are declaring that the buy and hold philosophy is dead. Evidence to the contrary is simply ignored. Consider a basic fact pointed out by Fortune Magazine recently: "If you'd bought a single share [of Johnson & Johnson] when the company went public in 1944 at its IPO price of $37.50 and had reinvested the dividends, you'd now have a bit over $900,000, a stunning annual return of 17.1%." On top of that, you'd be collecting somewhere around $34,200 per year in cash dividends! The article goes on to say, "Even if you hadn't reinvested the dividends, that single share would now be 2,500 shares as a result of splits, and you'd be collecting dividends of $4,500 a year from that $37.50 investment. If only Grandpa had bought 100 shares."

Five essentials of a successful investing framework

As a young analyst at Richardson Greenshields, I worked with a big guy with an unusual name, Pentti Karkkainen. After years as a highly regarded oil analyst, Pentti now plies his trade in Calgary at KERN Partners, a private equity firm he co-founded. I introduce him here because I’ve always liked his investment framework. The KERN team doesn’t just look at two commodities when making an energy investment, it looks at five – oil, gas, capital, time and people.

I’ve kept the notion of five commodities in mind, partly because of the elegance of Pentti’s presentation and partly because I wanted to adapt it to the process an individual investor goes through. What are their commodities, or essential elements of their investing framework?

My initial list had 10 items, but I forced myself to align it with Pentti’s five. Like his, the first two are raw materials. The other three are how to successfully extract them.


Time
The law of compounding is very powerful. If you invest $100,000 over 25 years and earn an annualized return of 5 per cent, the market value will grow to $338,636. Investors, whether they are private equity managers or disinterested amateurs, simply need to let the calendar work for them.


Risk
Like oil, risk can be messy, but it’s not a dirty word. Indeed, when combined with time, it’s the fuel that drives returns. Diversifying across the four basic risks – interest rate, credit, liquidity and ownership risk – is what investing is all about.

Notice I didn’t define risk as short-term volatility, as investors most certainly are doing today and the investment industry does all the time. Risk in its truest form is permanent loss of capital, but for investors who are properly diversified, it’s better defined as the possibility of not achieving their long-term return objectives. However you define it, using this commodity properly means embracing volatility, not avoiding it.

Road mapHaving an investment plan that sets out where you need to get to and how you’re going to get there, is the most basic of investing disciplines. (I hate to waste space on it because it seems so obvious, but far too many investors don’t have one.)

A good plan encompasses the crucial components of successful investing: a strategic asset mix, a process for rebalancing and managing cash flows (in and out) and a framework for assessing performance and costs. Without one, investors are ruled by the unexpected and irrational short term, rather than the more predictable long-term.