Tuesday, October 28, 2008

Buffett’s Value Investing Style Good For Malaysia

Investors should be long-term oriented and focused on what stocks they buy

WORLD famous stock market guru, Warren Buffett, made headlines when he bought substantial stakes in technology and services giant General Electric Co (GE) and financial heavyweight Goldman Sachs Group.

Just when everyone else was pulling out their investments from Wall Street, Buffett stepped in to inject some US$8bil in these two companies via his investment company Berkshire Hathaway Inc.

Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well,” he once said.

But is Buffett’s value investing style suitable for the Malaysian equity market and investors?

"Yes, it provides great opportunities to buy now if you are buying for long-term,” said Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose, adding that the current stock pricing “is irrational” due to the heavy selldown by foreign funds.

He said investors should hold good stocks for “as long as possible” as stock investment was about investing in a company’s management and market strategy.

Jupiter Securities Sdn Bhd executive director of operations Tan Chee Siong said Buffet was very careful with his investments and rarely found stocks that met his requirements.

The five main criteria Buffett uses for stock selection are earnings versus growth, high return on equity, minimal debts, strength of management and simple business model.

Buffett’s strategy was more of a “concentration of a few solid stocks” in a few industries that he could understand, Tan noted.

However, he cautioned that the local bourse, as an emerging market, could be more volatile and that market sentiment could easily be influenced by many external factors.

“We must remember that if we talk about investment in the local equity market, the duration should be shorter and we need to take profit whenever there are signs of big changes in market trend and our economic performance,” he said.

Meanwhile, Aseambankers head of research Vincent Khoo said investors should generally hold on to three principles — “be long-term oriented, only buy what you can afford and be focused in what you buy.”

He said investors should hold on to good stocks for as long as possible.

“Blue chip stocks, for example, can ride through bad times and will recover over time,” he said.

Being among the most successful and trusted investors’, Buffett’s investment in GE and Goldman Sachs restored some investor confidence on Wall Street.

Buffett, who is also known as “The Oracle of Omaha”, is an astute long-term investor and has always investigated the underlying fundamentals of a company, rather than market sentiment.

He has always determined the intrinsic value of a business and paid a good price for it. He believes price is what you pay, value is what you get.

Being prudent, Buffett is said to never invest in any business that he could not understand, a principle that paid off when he escaped the dotcom market crash.

His investment principle is simple— always analyse a company’s annual reports to check its fundamentals and know what you are investing in.

Buffett, who is chairman of Berkshire Hathaway, the most expensive stock on Wall Street, said in a letter to shareholders last year that Berkshire was seeking to invest in companies with favourable long-term prospects and competitive advantage in a stable industry.

To him, “if a business does well, the stock eventually follows.”

One of his most successful investments was PetroChina.

Buffett bought a stake in the Chinese oil and gas firm for an initial sum of US$500mil and later sold it for US$3.5 bil.

He has also made successful investments in companies such as Coca-Cola, American Express and Gillette.

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