Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage by Mary Buffett & David Clark

When I first started to invest seriously I knew very little but started to access different article and forums to learn whatever I could. I found very quickly that forums/groups had limited benefits (I deal with this in other past posts and will in future posts), One of the things I did learn was the different books that I should acquire and read.

One of the first books pertaining to investing that I acquired was Warren Buffett and the Interpretation of Financial Statements: The Search for the Company with a Durable Competitive Advantage. This book was co-authored by Warren Buffett’s former daughter-in-law and one of his avid followers.

This books breaks down the different financial documents that are used by public companies to explain the current condition of the company. They also explain what conditions and criteria Warren Buffett uses to evaluate these businesses and how he determines which ones he decides to invest in and which ones he doesn’t. This is definitely one that you need in your library.

Pump & Dump

I haven’t been investing for very long but one thing that I find hard to understand is what is the purpose of just posting a message, Tweet, or post mentioning a specific ticker/company without explaining the underlying fundamentals to detail why you’re recommending this stock. All I see is people sending out message that a certain stock is “hot” or other such hyperbole.

The one stock that comes to mind is $TQQQ (ProShares UltraPro QQQ). Around September 2, 2020 I saw someone continually post on a FB group that if people weren’t investing in this stock they were missing out on a “runaway train”. That piqued my interest. I check out the chart and saw that it took a major DIP at the beginning of September. I also saw that it didn’t pay dividends so that stock held no interest for me. But I’m not an expert so I replied to the original poster asking him why he was recommending that particular stock. I felt is was a legitimate question but what I got in response to my question from the poster was a mocking and ridiculing response telling me that I had no business investing if I couldn’t read a chart.

It then occurred to me that the best defense from con-artists is a strong offense. He never answered my question. It also occurred to me that maybe this was someone who had bought a large number of shares at the high end in August and didn’t want to take a loss or wait for the stock to turnaround (depending on how long that would take) and was trying to pump up the stock in the beginner investors groups on FB. Maybe if he could get the knowledgeable newbies to invest in large enough numbers then he could, at best, recoup his losses or, at worse, minimize his losses.

I wrote the poster off as a someone not to be trusted and moved on. A few days later I was notified that some others have posted replied to the original message. To a person each one stated that they had followed the original poster’s recommendation and had bought shares and were now taking major losses. It’s unfortunate that these people took losses on their investments but there’s a lesson to be learned here. You can’t swing a dead cat on the internet without encountering someone recommending a stock investment. But the key is to understand WHY they are recommending that particular stock. Even someone like Jim Cramer will give you details of why he recommends that you either buy or sell a specific stock. He doesn’t just tell you to buy XYZ.

If you are a newbie to investing like me then you should approach each recommendation with extreme caution. Ask yourself some questions like –

  1. Why is this person recommending this stock?
  2. Who is the person that is making this recommendation? What do I know about him?
  3. Does the stock being recommended fit into my investment strategy?
  4. Does the person giving the recommendation give enough information where I can use to find additional information?

To me the 2 key questions are #1 & #2. I find a lot of stocks being thrown around on Twitter but the problem there is the usernames are not the poster’s real name, with minor exceptions. I can’t check them out anywhere to find out who they are or uncover their agenda. I know of Jim Cramer so when I see a recommendation from him I know what is the basis of the recommendation. But when someone who uses a name on Twitter such as “Dividend Hunter”, how the hell am I supposed to know who they are? This also hold true for those on Twitter who are there to sell their investment e-books, But that’s for another post.

But things are a bit different on FB. Normally, people there use a full name and not some ambiguous handle/username. You can at least check out their FB profile to find out the basics about them. You still have to ask probing questions and determine the poster’s motivation. But joining investment groups on FB has its own issues. Again, a topic for another time.

The Money Game

As as newbie investor (I just got seriously started this year) I make a point of finding books and articles that are informative and allow me to learn more about investing. One such book is The Money Game by Adam Smith.

I came across this book and got interested because it deals with Wall Street and how it functions. It details stories about people making money on Wall Street. A way to learn is to understand how others have made their money on Wall Street and then try to apply certain aspects of their strategy to our own.

All Data Is Transferred

moving van clipart

About 2 weeks ago I initiated the transfer of my account from Robinhood over to TD Ameritrade. The majority of the account transfer was completed within the week. But I was still lacking the detail information for my stock purchases that were completed on Robinhood. It’s difficult to track how well your stocks are doing when the cost information is missing from the position listings.

Well, I checked my record information on TD Ameritrade and found that the details were finally transferred over from Robinhood. The information seems to be complete. And my Robinhood account, although still active, is listed as restricted but will no stocks listed and a zero cash balance. At some point I expect I will no longer be able to log into my Robinhood account.

Where Can You Learn from The Experts?

If you’re like me then you are new to the investing you end up being on “intake”. Where you try to absorb as much information as possible. But from where? That’s the key question. I’ve been searching for different groups and forums to try to find someplace where I can find useful information. Unfortunately, they are very few reliable sources of good information.
I’ve joined a couple of groups on Facebook but the most discussion thread I see there are “I have $XXX to invest. Where should I invest it?” Wow! And then the replied come back with almost every conceivable stock ticker. But not single one with an explanation of what it was about that stock that made them pick it. Dumb!
And following certain “investors” on Twitter is no better. I’m starting to limit my follows to actual financial news outlets (i.e. Seeking Alpha. Marker Watch, The Street, etc). Most of the individual people seem to on Twitter just to sell you something. I know that there are no free lunches but you can’t even get the cutlery & place setting without paying for it. When you ask them about how they came about selecting a specific stock or series of stocks they have recommended, what you get back is “Buy my book”. Now, I’m a big proponent of buying books to learn from but I want to be able to vet the author and insure that they’re not just some snake oil salesman. That they really know what they’re talking about.
You can learn from reading:
Morningstar
Seeking Alpha

You can buy books from there guys:
Warren Buffett
Phil Town

And there are some good videos on YouTube that go through many of the fundamentals:
Learn To Invest

Just to name a few. One source of information that I am currently reviewing in order to subscribe is American Association of Individual Investors. The service sounds exclusive but it’s not. My initial review found that it’s a non-profit financial education company, that manages a real-money stock portfolio to show its members how to capitalize on the most promising academic research. It’s more on-hand than theory. They offer a free guide to profitable retirement planning. I’m still looking into them but it seems to be looking good and I am seriously going to consider subscribing to their service.

One of the key factors for me to follow someone on Twitter or to subscribe to their service or Youtube channel is that they don’t just throw a stock at you, they give you details of why and what details they were considering. Or they’re actually walking you through the calculations and analysis that they went through. You’re not left on your own. Jim Cramer is another good one to follow on YouTube; and YouTube allows you to replay a portion or the whole segment if you weren’t able to keep up with him initially.


What’s more important, stock price or dividend yield?

The answer to the question will depend on your investing strategy and your goal. Speaking for myself, I prioritize on dividend yield with an eye on stock price. Regardless of either one, the stability and longevity of the company is paramount. I’m the type of person that would have missed out of Tesla when it first came out. I don’t speculate/gamble with my money. My goal is to create an income stream from my investment where I can stop working (I am overdue to officially retire and I still work because I have bills to pay). Now, in order to reach that goal my strategy is to invest heavily in dividend stocks (those stocks that pay you cash dividend periodically). If the company hasn’t paid any dividend consistently for 5 years, I’m just not going to seriously consider investing my money with them. Am I missing out on some tremendous windfall profit? Probably. But then I’m missing out on all those tremendous jackpots because I don’t go to casinos, either.
When I look at a stock or fund I look to see what they are paying and how often. I then look at the stock price and determine if the stock price is worth paying to get that dividend. Again, this is a subjective determination for me. I don’t believe that there’s a right or wrong answer. Two people can look at a stable company that has been in business for a long time (i.e. Coca Cola or Intel) and based on the criteria I used, one person can decide that the stock price is worth it while the other one feels that it isn’t. Their choices based on their goals, strategy, and comfort zones.

I’ve come across a few stocks/funds that someone said was a great investment based on the dividend yield. The last one I encountered was YYY (Amplify ETF TR High Income ETF). The stock price is cheap at approx. $15/share. The dividend yield is at 10.39%. Very high. In the relationship to the share price this comes out to about $1.56/share. So for $1500 you can buy about 100 shares of this ETF and get $156 in dividends. Sounds great? To me the one factor that makes me pause is the Expense Ratio (both Gross & Net). It’s at 2.17%. I like my expense ratios below 0.10%. This is a deal-breaker.

In addition to dividend yields & payouts, and price shares I’m looking at expense ratios. I don’t want to invest in a fund with high dividend yields that end up being eaten up by fees. The dividend history and growth are also important to me. What about share price? Well, it is important in determining how many shares I can buy and the future acquisition plans going forward. If the share price drops it’s an opportunity to buy more (barring that all other factors remain basically the same) shares and collect even more dividends. If it goes up than the value of my shares increases and I still get to collect dividends.

What about Bonds.

As I said previously, I’m a novice investor who is still “learning the ropes” about investing. As I read and watch tutorial videos I learn what I am doing correctly, incorrectly, and how to improve my portfolio.
This last one if the important part. As I was reviewing some information about portfolio management, being a senior who is looking to finally reap what I sow, I was confronted with the analysis that my portfolio needed to be tweaked some more. I was informed that as I got older that I should be invested more in bonds in order to offset and protect my overall investment assets. My current portfolio is all stocks & stock funds. No bonds or bond funds. So, now I need to modify my investment strategy and look to invest more in the bond market without sacrificing my other holdings.

I’m seriously looking at VTIP and VTEB. Again, I prefer funds to individual holdings. Both seem to be good acquisitions; VTIP is trading at $50.92/share and at the high end of its 52 week range. The Distribution Yield for VTIP is 1.57% with an expense ratio of 0.05%. VTIP is rated as low risk along with a below average return rating.

VTEB is trading at $54.74 with the price being at it high end of the 52 week range, also. The Distribution Yield is a bit better at 2.15% while the expense ratio is at 0.06%. VTEB is rated as average risk with a rating of average for returns. Everything else being equal, in my mind, VTEB (Vanguard Tax-Exempt Bond Index Fund ETF Shares) seems to beat out VTIP (Vanguard Short-Term Inflation-Protected Securities Index Fund ETF). This insight is based on my criteria that I use to determine which funds to buy. It may not necessarily be what you would decide. Every investor has to make their own determination and this post just give a general outline of how I do mine.