How Warren Buffett Made His Fortune

A genius for spotting opportunity and growth potential spark wealth

Most investors are familiar with Warren Buffet, who is the man in command at Berkshire Hathaway (BRK.A,BRK.B). Buffett is one of the most successful investors of all time, with a net worth placing him somewhere in the top three richest people in the world. His partner in crime was Charlie Munger, who has worked with him for the past 50 years. While most investors are familiar with the story of Berkshire Hathaway, few seem to know how exactly Buffett made his first millions, that catapulted him to Berkshire Hathaway and the companies and stocks he owns through it.

Buffett started several investment partnerships in 1956 with approximately $105,000 in investor money, after his former employe, Graham-Newmann investment partnership, was liquidated. Buffett had put an initial $700 of his own money, which ballooned to a stake worth $20 million by the time he liquidated his investment partnership in 1969. The assets under management had grown to $100 million by that time. The Berkshire Hathaway annual letters to investors have been inspired by Buffett’s annual and semi-annual letters to his limited partners.

Per the Buffett Partners agreement, Buffett as the General Partner received a cut of the profits. For every percentage point gain above 6% in a given year, Buffett collected 25% of the gains. The Buffett Partnership Limited (BPL) was essentially a hedge fund, which pooled investor’s money and invested them at the discretion of the fund manager. Buffett never had a losing year during the thirteen years he ran the partnership, and he also managed to add new investors along the way. In addition, he reinvested any gains he made as a general partner back into the partnership.

Buffett invested in the following types of companies at the partnership: generally undervalued securities, work-outs and control situations. Work-outs included stocks whose financial results depend on corporate actions rather than supply and demand factors created by buyers and sellers. Control situations include occasions where BPL either controlled the company or took a sufficiently large position that allowed it to influence policies of the company.

After the BPL was liquidated, Buffett received shares in Berkshire Hathaway, as well as shares in companies which ultimately merged in Berkshire. And the rest is history.

The lesson to be learned from this exercise is that in order to become rich, Warren Buffett had a scalable business model, with a substantial amount of leverage. Unfortunately, BPL was mostly a one-man operation, although the turnaround expert he employed with Dempster Mill Manufacturing company is a rare situation where he employed others. He did exchange ideas with several of his value investing friends however.

Buffetted: Why the world’s greatest investor changed his strategy

Warren Buffett’s latest annual letter to shareholders demonstrates once again that the world’s greatest investor marches to his own drummer.

The letter, published Friday, shows that Mr. Buffett’s flagship company,Berkshire Hathaway Inc., continues to hold a highly concentrated portfolio. About 64 per cent of its holdings are in only five stocks.

Mr. Buffett has held a concentrated portfolio throughout his illustrious career, making a mockery of the modern portfolio theory taught in universities around the world, which holds that wide diversification among hundreds of stocks is desirable.

But while Mr. Buffett has always believed in the benefits of holding highly concentrated portfolios, his opinion about what kind of stocks to invest in has evolved over the years. Investors who want to emulate the Oracle of Omaha should ponder the lessons of his career.

Mr. Buffett’s current policy is to buy great companies at reasonable prices. His portfolio is focused on market leaders, such as Coca-Cola, American Express and Wells Fargo, that he has held for years. Once he invests in a great company, he says he wouldn’t care whether the markets were to close for the next three years. He buys and holds as if he were the owner; he never buys and sells as a trader.

Mr. Buffett’s recent deal to buy H.J. Heinz Co. is a perfect fit for his philosophy. In many ways, the ketchup maker is like Coca-Cola. Both have intergenerational customer captivity – an extremely rare thing – forged out of habits built up while consumers are children. For these stocks the best strategy is to buy and hold – you never sell, as their intrinsic value is always one step ahead of the stock price.

Stock Market Crash: Is Your Asset Allocation Right?

If we have a stock market crash, is your asset allocation right to protect your portfolio from large losses? Many investors mistakenly believe that because they are “long term investors” they shouldn’t concern themselves with “short term” returns. They are wrong!

Stock Market Crashes

Stock market crashes and secular bear markets are a reality of investing in stocks. The result of either will be determined by your asset allocation. If you are not prepared by having the right asset allocation for the current circumstances and valuation; your portfolio can be destroyed for years to come.

If you have a 50% loss and a 50% gain you are not at break even. You have lost 25% of your portfolio! Volatility is one of the most underestimated killers of portfolio performance. If you don’t have a clear understanding of this concept read my post “Portfolio Volatility and the Impact on Performance”.

Get Your Asset Allocation Right!

Once you understand the importance of capital preservation; how do you get your asset allocation right? This is the secret only value investors seem to know: Price Matters!

The public has been taught by the financial media to choose a fixed strategic asset allocation. But does this make sense? Should you buy the same amount of an asset when its price is expensive as when the price is a bargain?

Purchasing investment assets at prices below their fundamental or intrinsic value greatly improves the probability of above average returns. When you require a margin of safety you have created a margin for errors in your analysis, or unforeseen events that could affect your investment.

This means you can lower your investment risk by implementing a tactical asset allocation strategy. You should never have an asset allocation that can wreck your portfolio for years to come. That may mean being less aggressive than you have been in the past. It also may mean putting more emphasis on cash in your portfolio.

Watch For Warning Signs

Watch for warning signs long before a stock market crash. Fundamental analysis of company financial statements and current market valuations should provide warnings of over valued securities. If you can’t find many stocks that meet your margin of safety requirement, that is a warning sign.

Also pay attention to sentiment indicators. Keep in mind the public usually hates stocks when they are bargains and loves them when they are over valued. Be a contrarian thinker when it comes to getting your asset allocation right.

You now have several investment concepts to help you avoid the next stock market crash. There are always warning signs; remember, price matters.

It’s critical to limit losses in a stock market crash because you can grow your capital from a higher base. Then, when most are panic selling you will be buying at prices you know favor above average returns.

From arborinvestmentplanner.com

Here’s Why Warren Buffett Keeps Buying Wells Fargo

To start this off right, I’d like to point out that Warren Buffett is extremely optimistic about the future of America. “Tomorrow’s always uncertain,” he mentions while on CNBC this morning. “But the future, the longer future, is always very certain. And that’s what you have to keep your eye on.”

It’s this very attitude that allows Mister Buffett to continue building astronomical stakes in businesses that he feels are worthy through the best of times and the worst of times. But how does Warren Buffett choose these particular companies to begin with? Let’s look at Wells Fargo, and find the evidence in this stock which he continues purchasing the most.

Wells Fargo
Wells Fargo has entered into Warren Buffett’s portfolio way back in the 1990s, and it is a great representation of his philosophy of long term investing. Plus, you can see a steady trend of continual buying of this stock since the first quarter of 2009. From that point until the present day, Berkshire Hathaway has bought 1 million 119,940,333 shares of Wells Fargo. This has brought the total position up to more than 422 million shares in all.

Warren Buffett made three very important moves in his portfolio during 2011, and Wells Fargo was one of them, along with Bank of America and IBM purchases. He provides shell holders several different reasons why this was important during his annual letter: “the banking industry is back on its feet, and Wells Fargo is prospering. Its earnings are strong, its assets solid and its capital at record levels.”

Wells Fargo is also extremely large – since it currently serves about one out of every three households in the United States of America from its 12,000 ATMs, it’s 9000 branches and their website. They are also prominent in 35 different countries. This company is also the first in market value of its common stock out of all of the United States banks, and the fourth in assets.

Even though Warren Buffett requires a high ROI from a bank, he also insists that the return on investment be gained in a conservative manner. This is great, because Wells Fargo has a very well maintained and controlled operating environment. It has excellent ground rules in place to manage credit risk, and they monitor their loan portfolio performance very closely. It also has set ranges for its interest rates and market risks in its liabilities and assets, while it is able to fuel growth with ample capital levels and liquidity.

In addition, Wells Fargo will continue to remove nonperforming loans from its assets. During the third quarter of 2012, loans that were 90 days past due or more totaled in the amount of $1.5 billion. This is down a half $1 billion from the $2 billion at the end of 2011.

Book Review: 'The Warren Buffett Portfolio'

Books on Warren Buffett dominate the bookshelves at the investment section of bookstores. Among the sea of Warren Buffett books, Robert G. Hagstrom's name stands out. He has written three books: "The Warren Buffett Way," "The Warren Buffett Portfolio" and "The Essential Buffett."

According to Hagstrom, his second book, "The Warren Buffett Portfolio," is meant to be a companion, not a sequel, to "The Warren Buffett Way." He claimed he unwittingly passed lightly over two important areas: portfolio management and intellectual fortitude in The Warren Buffett Way. TheWarren Buffett Way gives the reader tools to pick common stocks wisely, and The Warren Buffett Portfolio shows you how to organize them into a focus portfolio and provides the intellectual framework for managing it.

I introduce readers to Hagstrom's second book The Warren Buffett Portfolio.

Takeaways from The Warren Buffett Portfolio

- Focus Investing: Choose a few stocks that are likely to produce above-average returns over the long haul, concentrate the bulk of your investments in those stocks and have the fortitude to hold steady during any short-term market gyrations.

- Phil Fisher was known for his focus portfolios; he always said he preferred owning a small number of outstanding companies that he understood well to owning a large number of average ones, many of which he understood poorly.

- Using the tenets of the Warren Buffett Way, choose a few (10 to 15) outstanding companies that have achieved above-average returns in the past and that you believe have a high probability of continuing their past strong performance into the future. Allocate your investment funds proportionately, placing the biggest bets on the highest-probability events. As long as things don't deteriorate, leave the portfolio largely intact for at least five years (longer is better), and teach yourself to ride through the bumps of price volatility with equanimity.

- Buffett has a different definition of risk: the possibility of harm or injury. And that is a factor of the "intrinsic value risk" of the business, not the price behavior of the stock. The real risk, Buffett says, is whether after-tax returns from an investment "will give him [an investor] at least as much purchasing power as he had to begin with, plus a modest rate of interest on that initial stake."

- The optimal portfolio is a focus portfolio that stresses big bets on high-probability events, as opposed to equally weighted bets on a mixed bag of probabilities.

- Measure management this way: 1) Review annual reports from a few years back, paying special attention to what management said then about strategies for the future. 2) Compare those plans to today's results: How fully were they realized? 3) Compare the strategies of a few years ago to this year's strategies and ideas: How has the thinking changed? 4) Compare the annual reports of the company you are interested in with reports from similar companies in the same industry. It is not always easy to find exact duplicates, but even relative performance comparison can yield insights.

- Stock prices disengage from the intrinsic value of a business for various reasons, including psychological overreaction as well as economic misjudgment. Focus investors are perfectly positioned to take advantage of this mispricing. But, to the degree they incorporate macroeconomic or stock market predictions inside their model, focus investors will diminish their competitive advantage.

- For Buffett, investing is a series of "business" pitches and, to achieve above-average performance, he must wait until a business comes across the strike zone in the "best" cell. Buffett believes investors too often swing at bad pitches, and their performance suffers. Perhaps it is not that investors are unable to recognize a good pitch — a good business — when they see one; maybe the difficulty lies in the fact that investors can't resist swinging the bat.

From gurufocus.com

Related Books

The Warren Buffett Portfolio: Mastering the Power of the Focus Investment Strategy

The Warren Buffett Stock Portfolio: Warren Buffett Stock Picks: Why and When He Is Investing in Them

How big a portfolio do I need to live on dividends in retirement?

How much does one need to invest before one’s dividends pay for basic monthly expenses in retirement? I realize there are a lot of variables, but this is a very general question.

You’re correct that there are a lot of variables, but let’s do some very rough math. We’ll assume you’re retiring today, and for simplicity we’ll ignore taxes (which may not be a big factor anyway, thanks to the dividend tax credit. For more on this my Yield Hog column from this week).

Let’s further assume that your investment portfolio yields 3.75 per cent, calculated as total annual dividends divided by total market value. I didn’t pull this number out of a hat; it’s the yield of my Strategy Lab model dividend portfolio.

Could you construct a portfolio with a higher yield? Absolutely. But in my opinion a diversified portfolio of stocks yielding 3.75 per cent is easily achievable without taking on excessive risk.

Now, we need to determine what your basic expenses would be in retirement, keeping in mind that a lot of costs – raising kids and paying the mortgage, for example – may well be behind you. Let’s assume you can get by on $50,000 for basic expenses such as food, property taxes, clothing, transportation and utilities. Granted, this doesn’t leave room for lavish Mediterranean cruises or a new Lexus every few years, but you won’t be eating cat food, either.

My family of four, for example, lives comfortably on less than that. I know this because I have tracked our expenses for the past several years. I recommend you do the same; it’s the only way to know how much money is actually going out the door. One of the easiest ways to track your spending is to keep all of your bank and credit card statements, and then review them each year to see how much you’ve spent.

Now the question is, how much capital do you need in order to generate that $50,000 in annual income, assuming a yield of 3.75 per cent? The answer is: $50,000/0.0375, or $1.33-million.

Think you could get by on $40,000? You’d need a portfolio of $40,000/0.0375, or about $1.07-million. If you assume a higher dividend yield of, say, 4 per cent, you’d need a portfolio of $40,000/0.04, or $1-million.

You can play around with different scenarios on your own. The general formula is X/Y = Z, where X is your annual expenses, Y is the portfolio yield expressed as a decimal, and Z is the required portfolio value. As long as you know two of those numbers, you can solve for the third.

What about inflation? Well, if you own stocks that raise their dividends regularly, as many pipelines, utilities, banks and consumer companies do, your income will grow and protect you from rising prices.

Bear in mind that most investment professionals recommend that you also allocate a portion of your portfolio to bonds or guaranteed investment certificates. When the stock market takes a dive, you’ll be glad you have them.

Remember, too, that you may well have other sources of income in retirement, including the Canada Pension Plan, Old Age Security, registered savings and, if you’re fortunate, a company pension as well. So you probably won’t have to rely on dividends for all of your spending needs. But having some dividend income in retirement will certainly help.

There are a lot of moving parts here, and this analysis is general in nature and not meant to be taken as specific investment advice. A good financial planner can put together a comprehensive plan that addresses your specific situation.

From theglobeandmail.com

3 Big, Safe Dividend Stocks for the Beginning Investor

Whether you're new to investing or have been at it for a lifetime, you need to understand the business models of the companies you invest in, because understanding how a company makes money will significantly reduce your overall investing risk.

In that spirit, today we'll look at three companies with straightforward business models, strong dividends, and a knack for longevity. Because what good is a great dividend if the company's not going to be around long enough to pay it out?

Without further ado, then, here are three big, safe dividend stocks for the beginning investor, along with the reasons for my personal favorite at the end:

1. Boeing (NYSE: BA  )
727. 737. 747. 787. At first glance, they're just numbers, but upon reflection they're so much more. You've heard them uttered or read about them your whole life. They represent what Boeing is all about: airliners. Boeing is the most successful company in the history of aviation, and indeed is the very essence of American aviation. This is a company that has endured its share of economic ups and downs, just like any other big company that's been around for nearly 100 years, but is still at the top of its game.

From a dividend investor's perspective:

• I normally look for dividend yields of around 3% -- an arbitrary threshold, but one I feel separates the wheat from the chaff. Boeing pays 2.5% -- under our threshold, but close enough to enjoy consideration as one of our dividend stocks, especially given what a rock-solid industrial giant it is.
• I like to see dividend-payout ratios of 50% or less: As a rule of thumb, the lower the percentage, the more sustainable it is. At 30%, Boeing's falls well below our 50% mark, which argues well for its longevity.

Boeing's five-year average dividend yield is 2.7%, which bodes well for the longevity of the current 2.5%. But most critically, the orders for aircraft just keep coming, with airlines around the world placing orders in record numbers. On Sept. 6, the company reached a milestone: order No. 500 for its next-generation 737 aircraft, the workhorse of the fleet in airlines everywhere.

2. Johnson & Johnson (NYSE: JNJ  )
Johnson's Baby Shampoo. Tylenol. Band-Aid. Listerine. Brands that are burned into your memory from childhood, and likely still have a significant presence in your life. J&J has been around since 1886, and just like Boeing, has seen its share of ups and downs, including an embarrassing string of product recalls lately. But the company has a new CEO, Alex Gorsky, who is tasked with turning the company around with a strategy focusing on the rehabilitation of the consumer-products division. Given J&J's stable of iconic brands, it's a good one.

From a dividend investor's perspective:

• I said I look for a 3% yield on our dividend stocks. At 3.6%, J&J easily makes the grade, as does, to its credit, rival Pfizer (NYSE: PFE  ) , which pays out an identical 3.6%.
• At 74%, J&J's payout ratio is steeper than I like, but not frighteningly so. Pfizer comes in at a better, but not game-changing, 62% on this metric.

J&J has a five-year average dividend yield of 3.1%, which argues fairly well for the sustainability of the current 3.6%. While having a rough go of it right now, this company will be rehabilitated. In the end, J&J has too much brand strength and too much money in the bank -- $16.9 billion -- to go away anytime soon. And its wide-ranging consumer and medical-professional product lines make it a safer bet in the long run than strictly pharmaceutical-focused Pfizer.

The World's Most Powerful Hedge Fund Manager Tells Investors How They Should Set Up Their Portfolios

Hedge fund god Ray Dalio, who runs Bridgewater Associates, is widely considered to be the most successful hedge fund manager in the world.

He recently sat down with CNBC's Maria Bartiromo to discuss a variety of topics at the Council on Foreign Relations and he had some advice for the average investor. 

During the hour-long discussion, Bartiromo asked Dalio about portfolio allocation in terms of gold versus equity versus real estate and other asset classes.

Here's his advice that we've transcribed: (emphasis ours) 

First, Dalio explains what you need to think about when setting up a portfolio.  The key here is asset allocation. 

"So I think I'm going to answer it in the following way that I think that is the right way for people to look at it. It's the way I look at it. I think that the first thing is you should have a strategic asset allocation mix that assumes that you don't know what the future is going to hold.  And I think most people should..." 

In other words, if you're thinking of "beating" the market, as though it's a game, you're probably going to lose.

"In other words, let's say, I play the game of betting against others. So it's like I'm going on the poker table and if I'm smarter, and I know how difficult that game is, so very few winners.  And like if I'm not engrossed in it and if we're not engrossed in it, I'd be worrying about it and I do worry about it when I am engrossed in it.  So the average investor and most people should not be playing that game.  They're going to lose at the poker table."

This is why Dalio emphasizes the importance of a balanced portfolio, especially in terms of risk.  

"So what that means, they should have a properly balanced portfolio.  Now the most important thing is that is that they balance... They make a mistake in terms of dollars invested and with a bias with what's done well in the past and they don't realize that risk.  They should balance it in terms of risk.  

"Let's say stocks have twice the volatility, more than twice the volatility, of bonds and when they own a portfolio and structure a portfolio that way they tend to have concentrated risks. And I think what they need to do.  I would recommend reading, read, on the subject of risk parity, read on our website, we have an explanation on how to balance risk, but they key thing is that there are basically four economic environments.  There are two main drivers of asset class returns-- inflation and growth." 

Here simplifies how inflation and growth affect the prices of asset classes based. 

"Assets all price based on, you could look at the pricing of asset classes and calculate what the discounted growth rate is and what the discounted inflation rate is. And what causes assets to move is surprises to that.  So when growth is faster-than-expected, stocks go up.  When growth is slower-than-expected, stocks go down.  When inflation is higher-than-expected, bonds go down.  When inflation is lower-than-expected, bonds go up.  OK. 

Dalio says it's important for the average investor to understand inflation and growth and their effects.  That's why he suggests having four different portfolios to achieve balance.  

"What I'm trying to say is that for the average investor, what I would encourage them to do is to understand that there's inflation and growth. It can go higher and lower and to have four different portfolios essentially that make up your entire portfolio that gets you balanced.  Because in every generation, there is some period of time, there's a ruinous asset class, that will destroy wealth and you don't know which one that will be in your life time. So the best thing you can do is have a portfolio that is immune, that is well diversified.  That is what we call an all-weather portfolio.  That means you don't have a concentration in that asset class that's going to annihilate you and you don't know which one it is...

Again, the reason you should have a balanced portfolio is you don't know what the future holds, says Dalio.  

"Well, I'm saying based on the notion that you don't know which one it is. And therefore,..when you say 'which should it be today?' It should be balanced today like it is in the future and it should have that mix of assets.  And now you get into a whole conversation...But you need to achieve balance..."

From businessinsider.com

Warren Buffett Earning 39% Dividend Yield From Coca-Cola?

Warren Buffett is currently earning a 39% dividend yield on his shares of Coca-Cola (NYSE: KO).

It seems impossible. If you or I were to buy the shares today, we'd earn a yield of just 1.3%.

But Buffett first added the shares to Berkshire Hathaway's (NYSE: BRK-B) portfolio back in 1988. Despite being a mature business even back then, the stock has earned roughly 1,800% on Berkshire's original investment. Meanwhile, Berkshire's yield on cost (the amount of dividends earned as a percentage of the original investment) is 39% per year thanks to Coke's steady dividend growth.

What's behind this? After all, Coke had been around for more than a century before Buffett invested. How is it that some companies can continue to grow -- and raise dividends -- seemingly forever?

It's an advantage that I call a "legal monopoly."

The few businesses that have this advantage are among the richest companies in the world. And they only seem to get richer with every passing year -- much to the enjoyment of their investors.

Many companies have operated with this advantage for decades, without a peep from the government.

That's because this isn't a monopoly in the traditional sense. Most monopolies attract attention (and regulation) because they keep other businesses from competing. They tilt the odds so far in favor of one company that no one else can even do business.

But the legal monopoly I'm talking about doesn't keep other businesses from competing -- it simply helps a company to continue growing and generating billions in profits for its investors... almost no matter what.

Take a look at what Coke has done during the past decade. And remember, the company was founded in the 1880s. The results below come after more than a century in business.

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

Buffett Has Success with Walmart

By Swagato Chakravorty

Monday, July 23rd, 2012

The Oracle is at it again.

Back in 2009, Warren Buffett bought 17,892,342 shares of Walmart (NYSE: WMT) stock at around $50 per share. That was in the third quarter.

In the fourth, he bought another 1,200,500 for around $52.50. Finally, he bought 7,671,000 shares for $61 in early 2012, almost precisely before Walmart stock jumped to $72.31.

This year alone, Walmart’s stock has risen by 21 percent so far, making Buffett look, as usual, eerily prescient.

Walmart has done fairly well, increasing revenue each year over the past ten years to hit $447 billion in the fiscal year 2012. Every year since 1974, Walmart has increased its dividend, and this year is no different—the board increased it to $1.59 per share.

According to Nasdaq, GuruFocus had estimated Walmart’s value in 2011 to be $78, with an assumption of 10 percent EPS growth and 3 percent terminal growth over the coming decade.

Currently, Walmart is trading at slightly over $71.

Along with Walmart’s return to market prominence, Berkshire Hathaway’s (NYSE: BRK.A) stocks have steadily risen by more than 10 percent this year. Each stock now costs $125,321, and that represents a record high in 16 months.

As recently as May 4, Berkshire stated that its net revenues were at $3.2 billion, which makes this a third straight year of such increases. Plus, operating earnings were $2.7 billion, a great improvement over last year’s equivalent-period earnings of $1.6 billion.

Berkshire benefits from Buffett’s visionary guidance. The man has repeatedly shown confidence in America and the American market.

Speaking to CNBC, he expressed his belief in a resurgence within the housing market, as well as indications that investors are seeking safer ground as the American economy continues to shrink for the present.

From wealthdaily.com

7 Lessons I’ve Learned As A Dividend Investor

I often hear from newbie investors who are overwhelmed by the prospect of managing their own money. There are so many complex investing products, opinions and strategies flying around that they don’t know where to begin, so they end up hiring someone else to look after their cash.

That’s unfortunate.

The truth is that no individual could possibly keep up with – let alone understand – all the arcane financial products out there. But here’s the good news: You don’t have to. Nor do you have to know which way the market is heading (news flash: nobody does) to be a successful investor. In fact, the more you can tune out the noise, the better off you’ll be. As a dividend investor, I’ve found that sticking to a few simple rules is all it takes. Here are seven that I consider to be among the most important.

1. Think like an owner, not a trader

Too many people see the stock market as a casino where the goal is to flip their shares for a quick buck. Good luck with that. A better approach – both for your portfolio and your stomach – is to think of yourself as an owner who participates in the rising profits of the business. Instead of obsessing about short-term market gyrations, your main concern as an owner should be that the company’s earnings – and hence, dividends – are gradually growing. If they are, the stock price will eventually follow.

2. Remember the 10-year rule

Here’s one of my favourite Warren Buffett quotes: “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.” Consider how many people would have avoided flame-outs such as Yellow Media or Research In Motion if they’d only heeded Mr. Buffett’s advice. If you can’t be highly confident that a company will be thriving a decade from now, the stock is too risky to buy today.

3. Watch dividends, not stock prices

One of the best things I did as an investor was set up a spreadsheet to track my dividends. Now, if a company raises its dividend or I buy more shares, I just enter the information into the spreadsheet and the little box that calculates my annual dividend income automatically updates. Watching that number grow makes it a lot easier to stay calm on days when the market tanks.

A Diversified Approach To International Dividends

Any investor that understands the merits of asset allocation also understands the importance of including an international allocation in their portfolio. The concept is that in "normal" times there is always a market somewhere in the world rallying. To meet my set international allocation, I have focused on the following areas within my portfolio:

I. International Fund in my 401(k)

My 401(k) offers an international equity fund. This fund seeks an investment return that approximates as closely as practicable, before expenses, the performance of the MSCI EAFE Index. The Fund will typically attempt to invest in the securities comprising the Index in the same proportions as they are represented in the Index. When compared to other options in my 401(k), this fund has slightly under-performed. 10-Year Return: 4.0%

II. International Exchange Traded Funds (ETF)

I hold several ETFs with a large international exposure. Many of these are held in my High-Yield portfolio, where a higher than normal level of volatility is expected. Below are several funds that I currently hold with international exposure of 50% or more:

- WisdomTree Emerging Markets Income (DEM) | 100% International | Yield: 4.5%

- EV Dividend Income Fund (ETG) | 51% International | Yield: 9.3%

- Clough Global Equity (GLQ) | 50% International | Yield: 9.6%

- Nuveen Global Value Opportunity (JGV) | 63% International | Yield: 9.0%

III. Individual International Dividend Stocks

It was my desire to have international representation within my income investments, so I first looked to identify good non-U.S. dividend individual stocks that had an ADR trading on a U.S. stock exchange. To identify these stocks I used the International Dividend Achievers™ list. 

To become eligible for inclusion, a company must be incorporated outside of the United States. The companies must be have an American Depository Receipt or common stock trading on NYSE, NASDAQ or AMEX. Companies must have paid increasing regular annual dividends for five or more consecutive years. What I found is that most companies outside the U.S. follow a different dividend model. Here are some of the differences:

- Many Foreign Companies Pay Dividends Based on a Percent of Earnings

This produces a very erratic cash stream. Consider GlaxoSmithKline Plc(GSK). Its ADR paid $0.543 in Nov/11, $0.821 in Feb/12 and $0.549 in May/12.

- Many Foreign Companies Only Pay Dividends Annually

I need more feedback than this. I would hate to wait a full year before learning a company plans to slash its dividend. Examples of annual dividends includeStatoil ASA (STO), Siemens AG (SI) and Sanofi-Aventis SA (SNY).

- Most Foreign Companies Pay Dividends in Their Local Currency

Most Canadian companies pay quarterly consistent dividends, similar to companies in the U.S. However, they pay the dividends in Canadian dollars, so the currency risk is with the U.S. investor. 

There is probably much less fluctuation between the U.S. and Canadian dollars than most other currencies. However, it exists. Consider the last five dividends on Canadian National Railway Company (CNI): Apr/11 $0.334, Jul/11 $0.336, Oct/08 $0.311, Jan/12 $0.318 and Apr/12 $0.375. In Canadian dollars, the dividend was $0.325 for the first three periods, then increased to $0.375 in the last two periods.

IV. U.S. Based Stocks With Significant International Exposure

One way to gain international expose without any of the problems listed above, is to hold blue-chip, U.S. based corporations with large foreign operations. These multinationals pay quarterly dividends and generally assume the currency risk. Below are several large companies that derive more than 50% of their revenue outside the U.S.: 

  

Colgate-Palmolive Company (CL) is a major consumer products company markets oral, personal and household care and pet nutrition products in more than 200 countries and territories.

79.4% 2011 Foreign Sales | Yield: 2.4%

McDonald's Corporation (MCD) is the largest fast-food restaurant company in the world, with about 33,500 restaurants in 119 countries.

68.4% 2011 Foreign Sales | Yield: 3.2%

Abbott Laboratories (ABT) is a diversified life science company that is planning to split into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals.

58.8% 2011 Foreign Sales | Yield: 3.2%

Johnson & Johnson ( JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.

55.5% 2011 Foreign Sales | Yield: 3.6%

PepsiCo, Inc. (PEP) is a major international producer of branded beverage and snack food products. 50.2% 2011 Foreign Sales | Yield: 3.0%

Conclusion

In the past, I had concluded that income investing and international securities didn't mix very well for all the reasons listed above. My plan was to focus on U.S. equities for my dividend income portfolio and use my 401(k) to ensure an adequate international allocation.

Going forward, I will still use my 401(k) for the majority of my international allocation. However, as I find funds with international holdings that pay a stable/growing dividend, I will include them in one of my income portfolios. Also, I plan to add a few more international stocks, but will limit my holdings due to the instability of their dividends.

I am always looking for ways to improve my portfolio, without significantly increasing the risk. 

From dividend-growth-stocks.com

Warren Buffett's Stocks with the Most Insider Buying

It is a widely known investing axiom that insiders sell their companies' stocks for any number of reasons, but they buy for only one reason - they think the stocks are going to go up. Because Warren Buffett 's stock-picking abilities helped make him one of the world's wealthiest men, checking into his portfolio for companies with heavy insider buying can be a good place to start research on worthwhile stocks.

The stocks in Buffett's portfolio with most active insider buying are: The Coca-Cola Company ( KO ), Gannett Co. Inc. ( GCI ), General Electric Company ( GE ) and The Washington Post Company ( WPO ).

Coca-Cola Company ( KO )

Warren Buffett owned 200 million shares of Coca-Cola at the end of the first quarter, making it almost 20% of his portfolio. He has never sold a share of the company.

Coke had three insider buys in the second quarter: Three directors bought shares. The largest purchase was of more than $20.3 million worth of shares by Director Barry Diller in April. As Diller's purchase price averaged about $77 per share, investors can buy the stock cheaper at its Tuesday price of $75.25 per share after a 0.67% increase for the day.

Six insiders also sold shares of the company in the second quarter.

Two days before Diller and another director bought shares, Coke announced that it was seeking approval for a 2-for-1 stock split. Coke's chairman was pushing for the split, the 11 th in its 92-year history and its first in the last 16 years. Shareholders will vote on the split July 10.

"Our recommended two-for-one stock split reflects the Board of Directors' continued confidence in the long-term growth and financial performance of our Company," said Muhtar Kent, chairman and CEO of TheCoca-Cola Company. "Our system's 2020 Vision to double our revenues over this decade provides a clear roadmap for creating value for our consumers, customers, bottling partners and shareowners. A stock split reflects our desire to share value with an ever-growing number of people and organizations around the world."

Coke also announced in the first quarter its 50 th consecutive annual dividend increase, giving shareholders an 8.5 percent raise from 47 to 51 cents per share per quarter.

Gannett Co. Inc. ( GCI )

Buffett owns 1,740,231 shares of Gannett Co. Inc. as of March 31, 2012, making it a mere 0.035% of his portfolio.

It tied with General Electric Co. ( GE ) for the second-most insider buys in his portfolio, with one director making two purchases of 20,000 shares in the second quarter. Gannett trades for $14.04 Tuesday after a 6.3% jump. Multiple newspaper companies' stocks advanced on Tuesday after News Corp. announced the potential spin-off of its publishing entities.

In its first quarter results released April 16, Gannett announced earnings per share of $0.28 compared to $0.37 per share in the prior-year quarter. Net operating revenues were down 2.6% over the prior year in publishing advertising and publishing circulation, but increased in its digital and broadcasting segments.

Gannett's focus on establishing digital content and advertising platforms that will generate growth was evidenced in a 13 percent increase of digital revenue growth in its Publishing segment.

Regarding future plans, the company is expecting 2% to 4% annual revenue growth and greater earnings growth by 2015, and plans to return more than $1.3 billion to shareholders by 2015.

"In addition, our new all-access subscription model has been rolled out in 38 markets and is progressing as anticipated," Gannett's president and CEO Gracia Martore said at a presentation to media and entertainment analysts in New York on Thursday. "New ventures like Digital Marketing Services and the USA TODAY Sports Media Group that leverage and extend our brands and assets are gaining traction and delivering results. We are confident in our strategy and our ability to achieve sustainable revenue growth while maintaining a strong balance sheet and generating increasing shareholder value."

The company also increased its revenue 150 percent to $0.80 per share annually and purchased approximately 2.4 million shares for $35.5 million during the quarter.

3 Key Measures To Improve Your Portfolio With Every Purchase

Everytime I make a new investment I am looking to improve my overall portfolio. There are 3 key measures that I look at in which a dividend growth stock purchase may improve my investment portfolio. A new buy may improve my portfolio by increasing overall diversification, increasing my current dividend yield or by increasing my dividend growth rate. Every single time I make an investment I look to improve the portfolio by at least one of these metrics. If a purchase helps me in more then one metric then it is even better. 

Increase Portfolio Diversification

Diversification involves reducing risk by investing in a variety of assets. For your overall financial picture this will involve investing in different assets such as stocks, bonds and real estate. For dividend growth stock investing, diversification involves investing in companies from different industries. You may want to invest in companies from the oil industry, retail industry or restaurant industry. There are many industries available to invest in which will aide us in our attempt to diversify our dividend growth stock portfolio.

When I look to make an investment I always look to see what industry the company operates in. Then I look over my portfolio to determine if I already have investments in that particular industry. If I do, how much of my portfolio does that industry make up. I don’t want to have all my stock investments be from one or two particular industries. For me the more industries I can invest in the more diverse my portfolio is. With higher diversification my portfolio will have less risk. This is because not all industries will be affected the same way by different market conditions. If the oil industry is really suffering, my oil stocks may be going down. However, my stocks from other industries may still be doing alright or even wonderful.

Increase Portfolio Dividend Yield

Another way I may look to improve my portfolio is by investing in stocks that will help increase my portfolio dividend yield. One of the goals of dividend growth stock investing involves bringing in dividend income. If I can increase my overall portfolio dividend yield then I am increasing the income that I am being paid by my companies.

For example, if I have a portfolio of dividend growth stocks that is worth $10,000 and I expect to receive about $350 in dividend income this year then my portfolio dividend yield is 3.5% (350 divided by 10,000). Now when I am looking at new investments I know that if I invest in any stock currently yielding higher then 3.5% it will raise my overall portfolio yield. If I decide to invest in a company that is currently yielding 5% then I will increase my portfolio yield. Let’s say I invest $1,000 in a company yielding 5%. I will expect this company to pay me $50 in dividend income this year. My new portfolio dividend yield will increase to 3.64% (400 income dividend by 11,000 portfolio). This is good because on the whole my portfolio is earning me more income for each dollar invested.

How He Got Rich - The Forgotten Billionaire J. Paul Getty?

He's one of America's greatest success stories. But despite being the world's richest man during his time, J. Paul Getty is almost forgotten today.

The wealth Getty amassed is almost unimaginable. At one time, his estimated worth was roughly 1/900th of the entire U.S. economy. Today that would equate to $160 billion -- four times Warren Buffett's net worth.

Getty got his start in the windswept oil fields of Oklahoma. In 1914, at the age of 21, he became a wildcatter, searching for oil in some of the most unforgiving land in the country.

By the time he was 23, Getty had earned his first million (although $1 million in 1916 would be worth about $20 million today).

But J. Paul Getty was not just an oilman. And while he did make a fortune drilling for oil, he also made a fortune in a completely different place -- Wall Street.

Consider the story of Tide Water Associated Oil Co. Getty first bought the shares in 1932, in the middle of The Great Depression. The Dow had dropped from a high of 380 in 1929... all the way down to 40 -- a fall of nearly 90% in three years. Investors had dumped everything. No one was buying stocks.

Getty first bought shares of Tide Water at just $2.12 per share. Five years later, they traded above $20. And this is just one example of his success. Some stocks he owned grew to 100 times the value he originally bought them for.

7 Dividend Stocks For A Confident And Secure Future

Are you confident and secure in your investing process? It is my firm belief that most investors will lose money in the stock market over their lifetime. It is not that the market is a bad place to invest your money, but left unchecked the psychology of the market will lead you to do just the opposite of what you should to be doing.

The great investors know this. Consider Warren Buffett's famous quote, 'We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful'. How do we overcome our natural instincts to sell when we should be buying?

Confidence

First, we must follow a process we are 100% confident in. Doubt is the gateway to destructive behavior. Many approaches have proven successful over time. I have chosen income investing, primarily through individual Dividend Growth Stocks. How do we become so confident in a process that we are willing to trust our life's savings to as the world crumbles around us?

Experience

Confidence comes from knowledge and experience. We must study our approach and understand the process. It is easy for me to watch stock prices crater knowing that it is not only providing an excellent entry point for future capital appreciation, but also higher current yields that will grow each year as the companies continue to raise their dividends. Knowing how it works is good, but comfort in the process comes from having been there before and experiencing the gains after coming out of a downturn.

Quality

Finally, the most important step is selecting great investments. For me, those are good solid dividend companies that have a proven track record of increasing their dividends and the financial ability to continue doing so in the future. 

Below are seven companies that are leaders in their industry and have increased dividends for more than 30 consecutive years for your consideration:

Lowe's Companies, Inc. (LOW) sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada. The company has paid a cash dividend to shareholders every year since 1961 and has increased its dividend payments for 50 consecutive years. Yield: 2.3%

Wal-Mart Stores, Inc. (WMT) is the largest retailer in North America,Wal-Mart operates a chain of discount department stores, wholesale clubs, and combination discount stores and supermarkets. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 38 consecutive years. Yield: 2.3%

Cash Just May Be Your Riskiest Investment

Quantitative easing (QE), it is such a benign sounding term. It is somewhat relaxing rolling off your lips. Unfortunately, this rose has thorns. QE in simple terms is the government printing money and buying financial assets (e.g. bonds, etc.) in an effort to stimulate the economy. A side effect of QE is higher prices of the financial assets bought, which in turn lowers their yield.

Stocks surged last Wednesday in anticipation that the Federal Reserve is considering a new economic stimulus in the form of quantitative easing. In addition to another round of QE (QE3?), some investors are speculating that the Fed could extend its program of swapping short-term bonds for long-term bonds in an effort to to hold down yields on 10-year and 30-year bonds.

Lower yields on debt instruments is not the only side effect of QE. Another and more serious side effect is the devaluation of our currency. Printing fake money to solve real problems has never succeed. Germany, Yugoslavia, and many others, have provided textbook examples of the futility of such an exercise - it always ends in a financial disaster!

If the the U.S. Government is monetizing the debt, the dollar will continue to fall against strong currencies and assets with real intrinsic value such as commodities. Two things you don't want to be holding when the government starts printing money are:

1. Debt (someone owing you)

2. Cash

As more dollars are created, the the ones already in circulation are worth less, and if you hold debt, you will be paid back with devalued dollars. As a side note, it is to your advantage to owe cash since you will be the one paying it back with dollars that are worth less. So what can you do?

If you believe it is just a bump in the road, then a more focused concentration on quality multinationals such as these may be the best solution:

The Coca-Cola Company (KO) | Yield: 2.7%

The Coca-Cola Company is the world's largest soft drink company with a sizable fruit juice business. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 50 consecutive years. 

McDonald's Corporation (MCD) | Yield: 3.2%

McDonald's Corporation is the largest fast-food restaurant company in the world, with about 33,500 restaurants in 119 countries. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 36 consecutive years. 

Abbott Laboratories (ABT) | Yield: 3.3%

Abbott Laboratories is a diversified life science company that is planning to split into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 40 consecutive years. 

Johnson & Johnson (JNJ) | Yield: 3.4%

Johnson & Johnson is a leader in the pharmaceutical, medical device and consumer products industries. The company has paid a cash dividend to shareholders every year since 1944 and has increased its dividend payments for 50 consecutive years. 

The Procter & Gamble Company (PG) | Yield: 3.6%

The Procter & Gamble Company is a leading consumer products company that markets household and personal care products in more than 180 countries. The company has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 55 consecutive years. 

What are the lessons of Anne Scheiber's story

In the depths of the depression, when she was already 38 years old and earning only a little more than $3,000 a year, Anne Scheiber invested a major portion of her life savings in stocks. She entrusted the money to the youngest of her four brothers, Bernard, who was getting started at 22 as a Wall Street broker. He did well picking issues for her as the market drifted upward in 1933 and '34. But his firm did not. It went bust suddenly, and Anne lost all her money.

"She was bitter with my father for the rest of her life," recalls Bernard's son Laurence, 41, a New York financial services salesman. "In fact, she got more bitter the older and richer she got."

Some of her anger at her broker brother seems understandable. After all, she had accumulated the money penny by penny for years by skipping meals, wearing clothes until they frayed and even walking to work in the rain to save bus fare. You might expect her to have turned against the very idea of investing as well. But not Anne; not for a minute. She rededicated herself to her saving and investing regimen with such a vengeance that it consumed her life--while also rewarding her with astonishing wealth. Although she never married, never even had a sweetheart, she did have one love: investing.

In 1944, 10 years after her big loss, she started fresh with a $5,000 account at Merrill Lynch Pierce Fenner & Beane and slowly built the nest egg up to $20 million by the time she died last January, loveless and alone at 101. It's now worth $22 million.

Few investors, including the best-known professionals of our age, have matched her record. Her return works out to 22.1% a year, above the performance of Vanguard's venerable John Neff (13.9%), better than pioneering securities analyst Benjamin Graham (17.4%), and just below Warren Buffett (22.7%) and Fidelity Magellan's Peter Lynch (29.2%). What's more, Anne's basic time-tested investing style can easily be adopted by any small investor. It relies on dedication more than dazzling financial analysis, faith in major companies more than a flair for prescient stock picking, and patience more than the pursuit of immediate profits. 

What are the lessons of Anne Scheiber's story? Here are eight investing tips--plus two concluding thoughts.

1. Invest in leading brands. Anne called them franchise names, by which she meant leading companies that created products she admired. For example, she owned Bristol-Myers, Allied Chemical and Coca-Cola. She also followed her instincts on untested companies. "When Pepsi-Cola came along, she tried it," says Fay, "and then bought PepsiCo when it was the new kid on the block."

2. Favor firms with growing earnings. Anne tended to ignore a stock's price-to-earnings ratio. Instead, she focused on the company's ability to increase profits. She reasoned that stocks are overpriced sometimes and underpriced others but it all works out in the end if the company's income rises year after year.

3. Capitalize on your interests. Anne always enjoyed movies. So she turned that pleasure into one of her investing themes by devouring Variety in search of the best entertainment companies. She scored big with Columbia, Paramount and Loews, as well as Capital Cities Broadcasting.

4. Invest in small bites. In addition to adding diversity to her portfolio, that rule automatically caused her to pick up extra shares when prices were low and avoid going overboard when prices were high.

5. Reinvest your dividends. It's the same principle as playing with the house's money in gambling, with this advantage--it's a sure moneymaker in long-term investing

6. Never sell. Or at least, never sell a stock you believe in. "For a long time in the rotten bear market of the '70s, many of her drug stocks were down, some by as much as 50%" says Fay. "But she hung on because she believed in them. She didn't panic in the crash of '87 either. She thought the general market had gotten overpriced, plus she was convinced her stocks would come back."

7. Keep informed. Anne went to all of her companies' New York City shareholder meetings. Rain, sleet or shine, she would walk over from her rent-stabilized, $450-a-month studio apartment in her trademark black coat and hat, buttonhole the CEO and demand answers, just as she did when she was an auditor. Then she would compare her notes with what the Merrill analysts were saying. Fay adds, however, that she also attended the meetings for the freebies. "Even when she had millions, she'd show up with a bag," confirms a relative. "If there was food served, she'd fill the bag and live on it for days."

8. Save with tax-exempt bonds. They provided more safety than stocks and cut her tax bill. When she died, she had 60% in stocks, 30% in bonds and 10% in cash.

In addition to those investing ideas, Anne's life also illustrates two other lessons worth considering, especially if you hope to end up with more than enough money as she did:

9. Give something back. Her $22 million gift to Yeshiva, plus an extra $100,000 she gave to an Israeli educational group, will help countless young women realize their full potential for years to come. Yeshiva's president Norman Lamm says: "Anne Scheiber lived to be 101 years old, but here at Yeshiva University her vision and legacy will live forever." One of her relatives who wasn't left a cent, New York City bank officer Dolly Acheson, adds that the Yeshiva gift gave her a "feeling of redemption." As she puts it: "At least in the end all that money went to a very good cause."

10. And finally, enjoy your money. As intelligent as Anne Scheiber was, she failed miserably on this one. She died without one real friend; she didn't get even one phone call during her last five years of life. Says her former broker Fay: "At some level, a recluse like her must get some psychic reward to keep going on that way. But to you and me, her life was terrible. A big day for her was walking down to the Merrill Lynch vault near Wall Street to visit her stock certificates. She did that a lot."

From money.cnn.com