Qualiport

[ May 3, 2000 ]

Buffett Speaks

By Bruce Jackson (TMF Googly)

There's been some great articles recently written here at the Fool, some of which are very appropriate to the Qualiport's investment philosophy.

Warren Buffett...

...is the doyen of all growth and value investors. Put simply, he is quite possibly the best long-term investor of them all. His investment philosophy is also very simple -- he looks to buy, at reasonable prices, quality companies with predictable earnings and sustainable long-term competitive advantages.

Unfortunately for us mere mortals, this far easier said than done. Off the top of my head, I can't think of any suitable companies. One like Manchester United (LSE: MNU) -- a company in which I already personally own shares -- passes most tests, but is arguably not selling at a reasonable price. But, that's just my opinion, and others may argue convincingly that Man Utd. doesn't have predictable earnings and long-term sustainable competitive advantages. I'd still think they were wrong.

Last weekend, Warren Buffett's company Berkshire Hathaway (NYSE: BRK.A) held its Annual General Meeting, long dubbed "Woodstock for Capitalists." I think it's safe to assume there were none of the troubles which marred London on May Day in usually sleepy Omaha, Nebraska.

As usual, Buffett spoke a hell of a lot of sense during the 6 hours of questioning from shareholders. Whitney Tilson covered the meeting for the Fool. I urge you to check out the full article, found by clicking here.

Special Situation Investing

Back in February, I posed this question.

"IF, and that's a BIG IF, we can find a company which MAY rise by 20% in the next 3 to 6 months, AND we invest a small portion of the Qualiport's cash, we will be maximising returns."

I subsequently went on to explain my thinking, using a real-life real-cash example from my personal portfolio. I saw this as very much a test case. On Friday I'll update the progress of my first SS (special situation) investing foray. I'm a little hooked! Perhaps the Qualiport would be better off going for really deep value companies, in the style of Pyad.

Unilever (LSE: ULVR)

Overnight, our branded consumer goods company made an £11.8 billion offer to buy Bestfoods (NYSE: BFO). Stuart Watson sums up the situation in this excellent Fool's Eye View. His concluding comments are very telling;

"On balance Unilever looks as if it would be a better investment were it to take over Bestfoods but the underlying problem of low growth still remains. Over the long term it is difficult to see Unilever doing that much better than a plain old index tracker."

We're well and truly aware that Unilever are a boring company, although their recent acquisition spree (actual and intended) potentially puts them into the "positively exciting" category. Those who follow the daily movement of their shares may be thinking otherwise -- Unilever shares dropped 8%, presumably because the market thought they were prepared to pay too much for Bestfoods, or were getting increasingly desperate to buy some additional sales.

Could Unilever become a special situation investment? At about 350p, they trade on a 2000 forecast price to earnings ratio (P/E) of 12. Perhaps they're not quite there yet. But the downside already looks to be restricted.

Buy & Hold

Last Friday Maynard wrote an excellent Fool's Eye View titled "Querying the Long-Term Buy and Hold". From that article:

"What's needed for a quintessential long-term growth stock is plenty of future revenue growth and a sustainable business advantage to keep the competition at bay. Great examples of growth stocks from yesteryear are Coca-Cola (NYSE: KO.) and Microsoft (Nasdaq: MSFT). But businesses in this league are few and far between."

He concludes the article by saying:

"Perhaps, then, the long-term buy and hold strategy should be the exception, rather than the rule."

You know -- I think he's right. So few companies fit the really long-term buy and hold criteria, that's it's very difficult to identify them. When you also consider that it only makes economic sense to buy these companies when they trade at reasonable valuations, you can see how opportunities are few and far between. Buffett again, from last weekend's Berkshire Hathaway Annual General Meeting:

"Forty-five years ago, I had lots of ideas and no money. Today, I have a lot of money but no ideas."

However, to give us private (and therefore smaller) investors some hope, he also said of Berkshire Hathaway:

"Given our size, we see a few good things [to invest in]. If we were smaller, then we'd see lots of good things."

See anything recently? Perhaps we're looking in the wrong places.

Qualiport Discussion Board

Following on from last Friday's Qualiport article, this comment has created quite a bit of feedback to the Qualiport discussion board:

"Having said that, it is not completely inconceivable that your microwave oven will be connected to the Internet. Send it an e-mail just as you're leaving work and tell it to start cooking that roast dinner you stoked it with before leaving for work that morning."

That was about as futuristic as I get. But there's lots more Fools out there with some excellent thoughts on what our wired houses of the future may do for us. Join in the fun as Fools look for potential Qualiport companies with sustainable competitive advantages. There's those three key words again. They just keep on popping up.

See you Friday, and don't have nightmares about your portfolio.

Related Links

• Notes from Buffett -- Woodstock For Capitalists
• Querying the Long-Term Buy and Hold
• Unilever Gets Greedy
• Qualiport discussion board