The week’s top value investing story comes via collegeanalysts.com and it deals with Warren Buffett mentioning he has been buying either Wells Fargo (WFC) or American Express (AXP). I would put my money on Wells Fargo. At one point during the year, Wells Fargo traded at about 8 times normalized earnings. Also, Buffett is very high on its CEO Mr. John G. Stumpf and if I am not mistaken quoted him in the latest Berkshire Hathaway letter. Finally, I believe Buffett has increased his holdings in Wells Fargo, but I have to look into that. Now without further to do, here are the weeks top value investing news.

Is Buffett Buying American Express (AXP)?

On CNBC last week, Buffett revealed he is buying more stock in either American Express or Wells Fargo. Here is the argument for the former.

The Natural Contrarian’s Way to Get Poor Quick

Scott Fraser calls himself The Natural Contrarian and a proven master of contrarian strategies. The only contrary thing about this type of investing and marketing is that it goes against all investing basics. Let’s see how this contrarian technique holds up against the logical contrarian

The “Missing” Berkshire Hathaway Letters (1969-1976)

There is a conspicuous gap between the last Buffett Partnership letter, written in 1969, and the first Berkshire Hathaway letter posted on the company’s website, written in 1978. This article unearths some of these missing letters.

New High Yield Dividend Stock: DCP Midstream Partners LP (DPM)

Looking through the 52 week stock lows the other day for some ideas for a new stock purchase I came across a couple of natural gas pipeline companies that had come down in price over the past few months. I looked over several other pipeline companies and found that most were down over the past six months, some were down over 40% so far this year. Here’s what if found…

The Day the Newspapers Died

Jeff Matthews considers last Saturday the day that newspapers died. If you have been considering newspaper stocks, be sure to think about this post first.

Besides being free, the best feature has to be the ability to click on a row of data and being able to chart the data with a click. This is definitely a step in the right direction as Gurufocus tries to become more than a “Guru Holdings ” website. As with most product releases, I expect for the new feature to be buggy. Nevertheless, the ability to see 10 years of financial data and ratios for free is worth sticking around as management fixes the bugs.

Disclaimer: I do not own Gurufocus.com

One part of the big loses, which the article highlights, comes from being to early in sectors where macroeconomic forces were against them. I know Bill Miller invested in housing related stocks just as the bubble was bursting. Pzena made a couple presentations on Fannie-Mae and Freddie Mac. Whitman has been in the middle of the thunderstorm as he continues to invest bond insurers. Even the contrarian maestro himself David Dreman has been burned by Washington Mutual. Now, Jeremy DeGroot, chief investment officer at Litman/Gregory made brings up an interesting point which I had not thought of:

“There’s a fine line between stubbornness and discipline”

Could it be that these so called “gurus” are to stubborn to admit they were wrong in the first place and have lost millions of dollars in assets?

Did Martin Whitman continue to invest in MBIA due to his much publicized war against Bill Ackman?

I have no clue what goes on in their minds, but some of their bets are questionable. Personally, I have been burned by investing in financials. American Insurance Group (AIG) appeared like the ultimate bargain as it traded at low valuation ratios. Ultimately, the stocks price lagged as management continued to announce more capital would be needed (after it said everything is fine) due to write offs,etc.. Stubbornly, I held on as I convinced myself the numbers do not lie. Finally, I sold and have not regretted that decision.

Richard Pzena aknowledges there are “not the best of times” but continue to be optimistic about the future

“But this is a once-in-a-lifetime opportunity for valuations, for all financials. When we look back historically, we will be writing about the irrational panic of 2007 and 2008.”

It may be a once in a lifetime opportunity, but at the same time Pzena has lost a ton of money in one year. Its tempting to jump into financials but it appears there is are more write offs/downs to come. I am in the Bruze Burkowitz camp in which he continues to say ” I have no idea what is on their (finiancials) balance sheet, and I am not sure the CEO/CFO’s know what they hold.” If I had to invest in financials, USB and WFC appear to be the only one’s that have avoided the mess.

Presentation
Apparently, Bud had an offer to have the Four Filters published but the publisher wanted to make changes that bud was not too fond of and so Bud decided to publish the book himself. Upon receiving the package, I was a bit surprised as to how the book was presented. It looks like a college research paper which has its positives and negatives. The negatives, the obvious being it does not look professional. In addition, it does not fit in very well if I set it in my library. I found several small errors but nothing too big that will take the value of the book to zero. On the other hand, the material was easy to read with Bud using regular 12 pt. Times New Roman Font. The tables of contents were clearly laid out in the beginning and were followed throughout the book. Overall, I liked the presentation. Although it the book might not look too good in my library, Bud’s willingness to stand up for his work more than makes up for the minor nuisances. Plus, I will take a. easy to read book that is not published over a published book that I have to squint my eyes to read the pages any day. Overall grade on presentation B-.

Content
Now for the meat of the book, the content. Regular readers of Value Investing will nothing new hear. Throughout the book, bud points out Warren Buffett and Charlie Munger’s “Four Filter” system that will eliminate inferior investments and filter out quality investments that will provide both good returns with little downside. The four filters as mentioned in the book are
1. An understandable business
2. Competitive Advantage
3. First Class Management
4. Available At Bargain Prices

Filled with numerous quotes and historical references Bud makes his case on how the four filter system came about and how Warren Buffett are implementing it today. I found several new quotes in the book that I have not seen such as Charlie Munger calling EBITDA “Bullshit Earnings” and Bud’s S.O.A.P process on how to evaluate management. It is obvious Bud did his homework. Nevertheless, a novice investor looking to start out on the right foot will benefit from Bud’s work. The quotes were approved by Warren Buffett and are integrated well into the book. I will try not to give away too much from the book, but Bud does a heck of a job in analyzing Kraft using the four filter system. The book could have been further expanded by adding more examples of the four filter system and possibly expanding certain chapters such as the chapter on management. Overall Grade, B. Nothing unique but the implementation of quotes was great and author did due his due diligence.

Readability

Bud’s style of writing is easy to read and no one should have a problem implementing the four filters. Bud went straight to the point and made his ideas very clear. Overall, A.

Commentary
As mentioned above the book will not be a huge eye opener to someone who constantly reads material on value investing. The book will get someone started in value investing on the right foot. If the book would have been published it would make a nice addition to a value investing library, but given the circumstances it loses a bit of value. Overall I give it 7.5 out of 10. I find it hard paying $40 for a book that is not professionaly published and its content is not really an eye opener.

The book and audio CD are available through Bud’s website http://www.frips.com/. Bud Labitan can be contacted at
budlabitan@aol.com

1.- Setting the record straight on Buffett and Deriaviatives-Why is Buffett so often misrepresented on his famous “financial weapons of mass destruction” comments?

2.- Is Value Dead? – Francis Chou’s funds have suffered a severe beating lately, but he isn’t calling in the coroners. Now is the time for bargains, says the star value manager, and he insists he knows exactly where they are.

3.- Buffett proclaims his ignorance -The most surprising thing about Warren Buffett is that he can still surprise. After all, more ink has likely been spilled dissecting Buffett’s strategies than those of any other investor. Buffett became the world’s richest person while displaying both integrity and wit.

4.- Still at war, David Einhorn weighs in – David Einhorn, president of Greenlight Capital, discusses his long-running battle with Allied Capital and his new book, ‘Fooling Some of the People All of the Time.’

5.- Another attack on Eddie – I read an article called “Sears majesty to hedge-fund dust” at the behest of a reader on the gurufocus message boards, and I have to say it is one of the most uninformed and incomplete articles I’ve ever read.

Finally, in support of valueinvestingnews.com, I have added a button on top of each post that makes it easy to vote for my articles. If you are a blogger, please add it to your site. It takes less than 5 minutes and helps support a great site (its free!). George at fat pitch financials has a post illustrating the steps needed to install the button.

First the link: Francis Chou
The article brings up an interesting point, a good amount of value investors are lagging the market. The first person that comes to mind is Bill Miller and I believe he is down 19%. Ouch. According to their first quarter shareholder letter, Dodge and Cox is down almost 12% (S&P 500 was down a little over 9%). There are various other value firms who are under performing the market. Have they lost their touch or is it a sign of the times? I believe it’s the latter. One thing about contrarian-value investors is we are usually early to the party and leave early as well. We hate crowds.Just about every “guru” underestimated the magnitude of the housing/credit crisis and their performance reflects it. Mohnish Pabrai and Bill Miller come to mind.

Value investing is a proven strategy that will continue to work in the future. Unfortunately, many of the value investors missed the commodity train and are lagging. In the 90’s, most value investors avoided technology and lagged behind growth and technology funds. Now, not only did they miss the commodity boom, but were early in financials. A double whammy. So what now? Start cherry picking bargains. As the article states, just about every retail business is undervalued. As a matter of fact, Chou mentions Office Depot. Sounds familiar? Not to brag but…… I I wrote about Office Depot wayyyy back on February 24. Anyone reading this blog at the time could have researched the company, watch the stock plummet 20% after “worst than expected earnings”, and buy the stock at $10.xx. The stock is still a bargain and any positive comment made about the economy will push the stock higher.

A particular quote by Chou caught my attention in which he states:

“Look at our long-term record. We have always bounced back.”

Value Investing always bounces back. America always bounces back. It is a matter of being patient and ignoring the current headlines. Andrewc left an interesting comment on a recent post (Gurus Loading Up On Healthcare Stocks) in which he states:

I like seeing how the “gurus” picks are completely different than what the media is buzzing about. All last summer the funds managers were guying natural gas when the talking heads said that was dead money. Now, with gas prices going through the roof and TV programs talking constantly about rising oil prices, you see very few new positions in the energy. They don’t follow the momentum- they already had there positions and are enjoying big profits. And while CNBC and others hype up CHK and others, the gurus quietly move to others areas of value, like Healthcare. Watching when the experts enter and exit positions keep me from getting caught in the herd.

In summary, that’s what contrarian-value investing is all about.
1. Go against the crowd.
2. Wait for crowd to realize they made a mistake
3. Sell to crowd at a significantly higher price

As stated in my response, years from now CNBC will be flashing headlines dealing with financials and retailers. As usual, here is a classic Ben Graham quote that helps out when the headlines news is causing doubt in security analyses

“You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.”

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

Value Investors were left disappointed as they felt the last edition of Security Analysis, authored by Cottle, Murray, and Block, had very little “Graham and Dodd” left in it. Even the first edition of Security Analysis receives criticism for being published in an era where bargain were plentiful due to the Great Depression. Thus, Value Investor’s are left with the 2nd,3rd and 4th editions of Security Analysis to satisfy their Graham and Doddism. Nevertheless, I am impressed with the lineup McGraw-Hill has selected for the 75th Anniversary edition which will include a forward by Warren Buffett. This lineup might rival that of the 1927 New York Yankees, arguably the greatest baseball team ever assembled which included names like Ruth, Gehrig, Cobs, Koenig, Meusel, Lazzeri. So who will step up to the plate? (pun intended)……

• Seth Klarman, presindent of Boston’s The Baupost Group and author of a really expensive book.
• Bruce Greenwald, Professor of Finance and Asset Management at Colombia’s Business School and author of Value Investing: From Graham to Buffett and Beyond
• J. Ezra Merkin, Gabriel Capital Group
• Bruce Berkowitz, Fairholme Capital Management
  
• Glenn Greenberg, Chieftain Capital Management
• David Abrams, Abrams Capital Management
• Thomas Russo, Gardner Russo & Gardner, will write about global value investing

One of the criticisms of Security Analysis has always been that the style of writing is very vague. I agree. But, included in the list of authors and is not mentioned above is Roger Lowenstein author of Buffett: The Making of an American Capitalist, which in my opinion is the best Warren Buffett biography around.

Many value investors already have a copy of Security Analysis on their library. I think this edition will not be disappointed based on the lineup McGraw-Hill has assigned to update the book. The names listed above, and those not listed, are well known in their respected fields and bring years of practice to the table. I am especially looking forward to the forward by Warren Buffett. His introduction in The Intelligent Investor is a classic in my opinion and has set the bar high for his introduction in Security Analysis.

Below are the weeks top value investing news.

• Vitaliy Katsenelson Interview with Active Trader Magazine
  The question comes to mind – what do I know about trading? Absolutely nothing! This is exactly what I told David Bukey, the editor of the magazine, when he asked me for an interview. He assured me that he read my book and thought my (investing) message was very important to his readers. How can you say no to that?
• Buffett tips off MU crowd-Billionaire investor Warren Buffett takes part in a question-and-answer session with business college students during the “Emerging Issues and Trends in Real Estate” forum and educational conference yesterday at the Trulaske College of Business at the University of Missouri.
• Right Price Checklist: Business-Detailed checklist for evaluating the business then apply it to Best Buy.
• Warren Buffett Named ‘Manager’ of 2008 Boardroom All-Star Team-Warren Buffett ranks number one on Directorship magazine’s new list of the most admired board directors. Its Annual Survey of Exceptional Directors is compiled using “data from proxy firms, reader polls and governance experts.”
• Prof. Bruce Greenwald’s Talk on Value Investing-The talk, titled, “Value Investing Frameworks and Business Analytics” was delivered by Prof. Greenwald to an audience of 220 guests from the Indian investment community at Hotel Taj President in Mumbai On January 8.

Bears could not ask for more bad news, yet the market continues to hold its ground. On the other hand, the Fed will do anything to keep the economy from going into a deep recession and possible depression (Bear Sterns?). In addition, billions of dollars sits on the sidelines as sovereign wealth funds and now private equity scoop up bargains (Washington Mutual) at the expense of shareholder dilution. The truth is most, if not all, of the bad news is already priced into the stock market. Anyone shorting this market will have a tough time fighting the fed. Also, institutional buyers will start scooping up bargains. Famed value investor Bill Miller has already called an end to the credit crisis. Marty Whitman has sent a letter to shareholders stating “Its time to buy”.

Whether we have seen the market bottom remains to be seen. For the past two weeks the debate has been the focus of a value investing club that I belong to. One thing the club does agree on is 3-5 years from now, financial stocks will be worth more than than they are worth today. This is part of the reason a value trading forum has provided some of the best laughs. When it seemed as the world was coming to an end, traders provided the following headlines:

“ I’m not sure how much you know about trading, but when the stock gets beaten up too much and hits 52-wk low. Sometimes, it has what’s called “a deadcat bounce”.

“I shorted AIG at 47.30 today.(the same “value” investor would later post) “I cover AIG at 46.21 after hours here since I was sleeping. I should have put in a limit order below 46 to sell during the day. Oh well, I am learning after all”

“Shorted it today between forty-seven and forty-seven and a quarter.”
What happens next? The “value investor” switches his mind……
“I am not longer short this stock”

Again, this is coming from a value investing forum who model themselves after Warren Buffett, Ben Graham, etc. I guess they did not get the memo about Graham and Buffett not trading in and out of stocks. One Warren Buffett quote that I keep in mind when watching other investors trade constantly goes along the lines of:

“We believe that according the name ‘investors’ to institutions that trade actively is like calling someone who repeatedly engages in one-night stands a ‘romantic.”-Warren Buffett

Disclosure: I own shares of AIG through an investment club