This seminar by Prem C. Jain takes a look at how Warren Buffett really invests. Prem Jain extracts Warren Buffett’s wisdom from his writings, Berkshire Hathaway financial statements, and his letters to shareholders and partners in his partnership firms‐thousands of pages written over the last fifty years. Jain uncovers the key elements of Buffett’s approach that every investor should be aware of.

Contrary to popular belief, Warren Buffett is not a pure value investor, but a unique thinker who combines the principles of both value and growth investing strategies. You’ll also discover why understanding CEOs is more important than studying financial metrics; and why you need an appropriate psychological temperament to be a successful investor.

Date: 4th August 2010
Time: 1pm – 2pm
Venue: SGX Auditorium
Price: $10
Registration and lunch from 12pm

You can register at this link here.

Prem C. Jain is the McDonough Professor of Accounting and Finance at the McDonough School of Business, Georgetown University, in Washington, D.C. He has previously taught at the Wharton School of the University of Pennsylvania and the Freeman School of Business at Tulane University. His research has been published in many prestigious finance and accounting journals including the Journal of Finance and the Journal of Accounting Research. Jain received a doctorate from the University of Florida and a master’s degree in applied economics from the University of Rochester. He is also a CPA in the state of Florida.

Back in May 2009, a group of the richest people in the US gathered for a secret meeting of billionaires.The event was organised by Bill Gates and Warren Buffett, and hosted by David Rockefeller. The other attendees include Oprah Winfrey, Eli and Edythe Broad, Ted Turner, Chuck Feeney, Michael Bloomberg, George Soros, Julian Robertson, John and Tashia Morgridge and Pete Peterson.

The topic of discussion was not on any economic rescue or world domination, but on philanthropy. The full details of that meeting wasn’t made available then, but details have now came out in a recent feature by Fortune magazine.

Gates and Buffett wanted to start what can be called the biggest fundraising drive in history by getting billionaires to pledge a certain portion of their wealth to charity during their lifetimes or at deaths. The bar was set at 50% of their wealth so that it would be easier to get people to join the cause. (!)

Rockefeller Letter Fortune

Warren Buffett himself has personally pledged 99% of his wealth to be given away to charity. He humbly states that while his donation is large in absolute dollar terms, it is less than what most other people give.

“Measured by dollars, this commitment is large. In a comparative sense, though, many individuals give more to others every day. Millions of people who regularly contribute to churches, schools, and other organizations thereby relinquish the use of funds that would otherwise benefit their own families. The dollars these people drop into a collection plate or give to United Way mean forgone movies, dinners out, or other personal pleasures. In contrast, my family and I will give up nothing we need or want by fulfilling this 99% pledge.”

“Were we to use more than 1% of my claim checks on ourselves, neither our happiness nor our well-being would be enhanced. In contrast, that remaining 99% can have a huge effect on the health and welfare of others. That reality sets an obvious course for me and my family: Keep all we can conceivably need and distribute the rest to society, for its needs.”

While most of us will not be able to pledge 99% of our wealth (at least when we are alive anyway) to charity, why not lend out some of our money for a worthy cause? You can start from as low as US$25 by helping to microfinance people in poorer countries. And it’s not even a donation but a loan.

Warren Buffett also shares his thoughts on possessions:

“Some material things make my life more enjoyable; many, however, would not. I like having an expensive private plane, but owning a half-dozen homes would be a burden. Too often, a vast collection of possessions ends up possessing its owner. The asset I most value, aside from health, is interesting, diverse, and long-standing friends.”

Do we really own our possessions, or are our possessions owning us instead? Buying a house means decades of work (and our time) just to pay it off.

Our most precious asset is really our time. For those of us who can’t really afford to give monetarily, we can choose to give it in time. Be it in mentoring or companionship, it is sometimes worth much more to the person receiving.

What are you doing with your time today?

Warren Buffet was recently interviewed on CNBC about his thoughts on Goldman Sachs and the state of the U.S. economic recovery.

You can watch the full interview in two parts below. If you prefer reading, the transcript can be found here.

I am sure all of us frequently read in the newspapers about motor insurance premiums having to go up because of ever increasing claims. And how insurance companies are making losses from their motor insurance portfolio.

Have you ever wondered why so many of them are still around despite (supposedly) making losses year after year?

I don’t for one second doubt the part on increasing motor claims, but that only reflects half the story. The profitability of a general insurance company depends heavily on two factors:

1. Their underwriting loss/profit (difference between premiums and claims plus expenses)
2. Their investment loss/profit

What most people fail to appreciate is that an underwriting loss is expected and perfectly normal in the course of business. A good insurance company would be able to remain profitable even in the face of underwriting losses.

This is something that Warren Buffett has bought up repeatedly many times in his annual letters to his shareholders. I have reproduced below the section that deals with this subject from his latest letter which was published last Saturday (The entire letter can be found here).

Note: Property-casualty insurance would be similar to what we call General Insurance in Singapore. It refers to the class of insurance that covers motor, home, property, etc. The other class of insurance is Life Insurance.

Extracted from Warren Buffett’s 2010 letter to Berkshire’s Shareholders on 2009 Performance

Our property-casualty (P/C) insurance business has been the engine behind Berkshire’s growth and will continue to be. It has worked wonders for us. We carry our P/C companies on our books at $15.5 billion more than their net tangible assets, an amount lodged in our “Goodwill” account. These companies, however, are worth far more than their carrying value – and the following look at the economic model of the P/C industry will tell you why.

Insurers receive premiums upfront and pay claims later. In extreme cases, such as those arising from certain workers’ compensation accidents, payments can stretch over decades. This collect-now, pay-later model leaves us holding large sums – money we call float” – that will eventually go to others. Meanwhile, we get to invest this float for Berkshire’s benefit. Though individual policies and claims come and go, the amount of float we hold remains remarkably stable in relation to premium volume. Consequently, as our business grows, so does our float.

If premiums exceed the total of expenses and eventual losses, we register an underwriting profit that adds to the investment income produced from the float. This combination allows us to enjoy the use of free money – and, better yet, get paid for holding it. Alas, the hope of this happy result attracts intense competition, so vigorous in most years as to cause the P/C industry as a whole to operate at a significant underwriting loss. This loss, in effect, is what the industry pays to hold its float. Usually this cost is fairly low, but in some catastrophe-ridden years the cost from underwriting losses more than eats up the income derived from use of float.

In my perhaps biased view, Berkshire has the best large insurance operation in the world. And I will absolutely state that we have the best managers. Our float has grown from $16 million in 1967, when we entered the business, to $62 billion at the end of 2009. Moreover, we have now operated at an underwriting profit for seven consecutive years. I believe it likely that we will continue to underwrite profitably in most – though certainly not all – future years. If we do so, our float will be cost-free, much as if someone deposited $62 billion with us that we could invest for our own benefit without the payment of interest.

Let me emphasize again that cost-free float is not a result to be expected for the P/C industry as a whole: In most years, premiums have been inadequate to cover claims plus expenses.

Consequently, the industry’s overall return on tangible equity has for many decades fallen far short of that achieved by the S&P 500. Outstanding economics exist at Berkshire only because we have some outstanding managers running some unusual businesses. Our insurance CEOs deserve your thanks, having added many billions of dollars to Berkshire’s value. It’s a pleasure for me to tell you about these all-stars.

Charlie Munger is the vice-chairman of Berkshire Hathaway Corporation and long time partner of Warren Buffett.

Usually, Charlie doesn’t say much in public but there are times he does. A couple of days ago, he wrote a parable about how a nation called Basicland went from riches to ruins. He relates our financial markets as one big casino which attracted highly talented engineers.

Charlie gives a pessimistic view on the future of America’s economy. This view is in contrast to the optimistic view of Warren Buffett.

You can read Charlie’s parable here:

Basically, It’s Over – A parable about how one nation came to financial ruin.