If you have been following the blog throughout the year, I can easily slice the year in half and show the public two different ways of managing an investment portfolio.

1st half

The first half of the year was almost 100% automated with stocks chosen from the magic formula website. The only prerequisite that I required was that a company have a healthy balance sheet and some earnings. Sprinkle in a couple of non-magic formula stocks and WHALA! we have a portfolio that was ahead of the S&P 500 by a couple of percentage points.

2nd half

I had more time on my hands so I made a decision to move to a more researched and focused portfolio.Keep in mind this is at the exact time markets are selling off. I made big bets and lost big. I will go into details in another post, but to keep it short and simple, I made big bets and lost big.

WHY!!!!

Why did I lose big? The stocks appeared cheap. One of the lessons I have learned this year that will stick with me for the rest of my investment career can be best described by Warren Buffett’s obesity quote:

You don’t need to know if a person weights 250 or 400 pounds to see that they are fat- Warren Buffett

I see this happening all over the  blogosphere. A blogger finds a stock, reads a couple of 10-Q’s, 10-K’s, conference call,etc… The blogger then does a DCF trying to pinpoint growth and discount rates. The stock plummets and then he/she is left scratching his/her head as to why the stock is falling considering the amount of analysis in the growth and discount rates used.  The analysis and growth rates are sometimes right, but sometimes if one in fact looks up and away from the DCF models, one will notice the stock is indeed a fat pitch or not. Below Batman and Robin explain what I mean.

Charlie Munger (Berkshire Hathaway’s vice chairman) said, “Warren talks about these discounted cash flows. I’ve never seen him do one.”

“It’s true,” replied Buffett. “If (the value of a company) doesn’t just scream out at you, it’s too close.”

Without a doubt Warren Buffett and Charlie Munger have provided some of the most memorable quotes in the investing arena. Not too far behind the dynamic duo are the late John Templeton and the contrarian maestro himself David Dreman. Below are four memorable quotes David Dreman has enlightened the world with.

1. “Psychology is probably the most important factor in the market – and one that is least understood.”
2. “I paraphrase Lord Rothschild: ‘The time to buy is when there’s blood on the streets.’”
3. “One of the big problems with growth investing is that we can’t estimate earnings very well. I really want to buy growth at value prices. I always look at trailing earnings when I judge stocks.”
4. “If you have good stocks and you really know them, you’ll make money if you’re patient over three years or more.”

It’s pretty hard to argue with any of the above quotes. All four quotes are only part of the solution in outperforming the market. Number four in particular is something most investors (including myself) lack, patience.  In a world where everything moves at a fast pace, its tough waiting for value stocks to rebound. Ultimately, its the patient investor who is able to wait out the storm who benefits the most when contrarian stocks rebound.

1. NBR Extended Interview with Warren Buffett

NBR anchor Susie Gharib talks with Berkshire Hathaway chairman and CEO Warren Buffett at his company’s 2008 shareholders’ meeting in Omaha, Nebraska. This extended interview is a web exclusive.

2. Exclusive Interview With Warren Buffett and Bill Gates

EXCLUSIVE: Warren Buffett and Bill Gates reveal their thoughts to FOX Business on the Microsoft-Yahoo fallout, the state of the economy and where they are looking to invest next

3. LIVE BLOG: Warren Buffett’s Q&A With Shareholders (Part 2)

THIS IS A LIVE BLOG OF THE QUESTION-AND-ANSWER SESSION BEING HELD BY WARREN BUFFETT AND CHARLIE MUNGER AT THE BERKSHIRE HATHAWAY ANNUAL SHAREHOLDERS MEETING IN OMAHA. MOST RECENT DISPATCHES WILL APPEAR AT THE TOP. ALL TIMES ARE CENTRAL.

4. LIVE BLOG ARCHIVE: Buffettstock ’08 Annual Shareholders Meeting (Part One)

THIS IS THE FIRST HALF OF THE BERKSHIRE HATHAWAY ANNUAL SHAREHOLDERS MEETING AT THE QWEST ARENA IN OMAHA, NEBRASKA ON SATURDAY, MAY 3, 2008 AS LIVE-BLOGGED ON WARREN BUFFETT WATCH. ALL TIMES ARE CENTRAL.

5. 2008 Wesco Shareholder Meeting: Detailed Notes

Wesco Annual Meeting, May 7, 2008
Notes courtesy of Peter Boodell

Billy you have a book that has had great reviews from fellow Value Investors and everyday people, why do you think the book has been a great success?

The book has been a success because 1) It is Short 2) Its specific with formulas and filters 3) Duplicable, Everything in the book can be duplicated if the reader has the self discipline and desire to do it.After chapter 3,the book more than pays for itself in true value investor form.

Many people do not know you did not go the typical route to become financially independent,by that I mean you did not go to a university, get a corporate job,etc.. Yet, you are able to garnish outstanding returns on your investments in the stock market, what separates you from someone who goes the “usual” route?

I was an accounting major but we learned EMT (Efficient Market Theory) in school. It was very simple .Since 1993 I made 100% of my income from allocating capital in sports memorabilia ,tickets and stocks. When your wrong ,your family does not eat, you are not as quick to lose your capital.If you are not good at it, then you go broke and need to get a job. I was not great when I started but each year got better.

At what point in time in your investing career did value investing hit you?
I always believed in value investing , When you are using “eating money” or “scared money” you will not be reckless .If you are too reckless you need to get a job. 3 other guys I know started with me. All are now working for someone else except me.

Best piece advise you can give to someone starting out in the stock market?

Best advice for someone starting out is to read my book and follow it step by step. I parlayed $9,000 into a heck of a lot more and it was “virtually risk free” ironically.

What is the best book on investing you have read?
Warren Buffett will be angry but I loved Buffettology. Decide which stocks you want to own and decide which price to own it. The actual formula in Buffetology is flawed. My books formula is much better but the concept of Buffettology was great. I also liked Chapters 8 and 20 from The Intelligent Investor but do not recommend the rest of the book to a novice.

Your forum has had a tremendous growth in activity. It’s a place I visit once a day. Has the forum met your expectations? Any plans to expand it in the future into a complete website?

Yes after I was banned from Gurufocus I set out to create an environment that would have more posters and an intelligent dialogue that encourages dissent among “stock choices” but no personal attacks. In a capitalistic society the consumer will decide what is in he or she’s best interest. My partner Steven Walthall ( Doctor Options) will decide if and when he wants to do that. He is knowledgeable about computers ( and options) unlike me.lol

Any stocks you are looking at right now?

I am looking at all my bargain bin picks listed at the website but have bought heavily into Burlington Northern (BNI),especially between 77 and 79 over the past week or so.It is a no brainer.

Assuming you were forming an investing partnership and had to choose between Charlie Munger and Warren Buffett who would you choose?

Buffett no question,everyone lies to say Warren Buffett could make 40% on a million dollar portfolio. Warren Buffett could do it but no one else could. Charlie is smart too but Warren Buffett has made over 125 billion and Charlie admits that Warren Buffett is better at this than Charlie is.

Some people claim their value investors, but when everyone is selling everyone runs towards the same exit. What separates Warren Buffett, David Dreman, John Neff from the rest?

What separates Buffett is that he does not sell unless the fundamentals change. Dreman is a contrarian and a great investor and he was a voice of reason when I bought Altria (MO).But like Bill Miller and other “great gamblers” they take too many chances in my opinion. Buying Washington Mutual (WM) was a huge error. I am more like Buffett, I only own 5-7 stocks but those stocks have little downside risk .

You made a killing in Altria (MO), what did you see? What was your thought process? Can you go into that investment in detail?

When I bought Altria in 2000 and 2001 there was talk that smoking would become illegal in the US and the lawsuits that saw multi billion dollar verdicts that could bankrupt the company. My “theory” was that all the talk about smoking being illegal in this country was not valid and these lawsuits would be overturned on appeal. Would a country that was 6 trillion dollars in debt “bankrupt” the largest taxpayer to the US Treasury? Would the legal system be able to handle all the lawsuits that would surely flood the system? Even if this did happen Kraft was worth about what I paid for the entire company and International tobacco would be “basically” free. The 9.5% dividend yield was MORE than covering my debt service. Since 1957 18 of the top 20 performing S&P stocks were either pharmaceutical or consumer staples companies if reinvested dividends were factored in. This information and the low PE, High ROE and High Dividend yield (read past articles to “recap” how important these traits are) made me feel that with #1 US food company #2 Beer company and #1 cigarette producer with the discount price from averaging down provided a sufficient margin of safety. The “uncertainty” in this instance was actually more “imagined” than real.
For more info about real and imagined fear read this http://www.atfreeforum.com/billyticketswin/viewtopic.php?t=9&mforum=billyticketswin

Thanks for the interview Billy

William Spetrino Jr, a disciple of the great Warren Buffett has been managing money and been self employed for 22 years now. He has spent the last 22 years buying and selling assets with one major focus. To buy dollar bills for less than a dollar. He wrote his first book on becoming rich titled Consume Consume and Consume More: Spend More Work Less. His text while unconventional is one a few that takes an investor from point zero to millionaire status provided they do one thing :follow the program. He can be reached at ticketbill@aol.com and at his forum.

William Spetrino Jr owns stock in Burlington Northern Santa Fe (BNI) and Altria (MO)