Warren Buffett Inteview Videos

US Economy and Merger Deals (at the Nebraska Furniture Mart)


Inflation and Money (at the Nebraska Furniture Mart)

A Few Strategies From World's Greatest Investor

By ZOSIMO T. LITERATUS
Zeitgeber LC, Investments Division

Almost always you can judge an investor by his actions. Recently, world's richest man Warren Buffett revealed some strategies from the way his company Bershire Hathaway (BH) behaves.

BREAKUP FEE

Aborted weddings may have somehow brought some profit for the surprised party should "breakup fee" has practiced in relationships. MidAmerican Holdings, an energy subsidiary of BH, received 19,897,322 shares in mid-December last year from France's Constellation Energy (ECF) after a deal inked in September soured. The deal provided a breakup fee, which includes 10 percent of its common stock should either party backs out.

As of February 7, BH has sold 5,066,215 shares of ECF for an average price of $27.04, a running windfall of $136,969,137. BH stake with ECF went down to 7.45 percent from 9.99 percent, with 14,831,107 shares remaining.

DOUBLE BALLOONS

Jewelry retailer Tiffany announced on February 13 that it took a double-balloon debt worth $250 million to some BH subsidiaries. The loan pays 10 percent per annum, with the first half due in eight years (2017) and the remaining half in 10 years (2019).

CONVERTIBLE CORPORATE BONDS

BH increased this its position in Swiss Re by 3 billion francs (about $2.6 billion) as it bought the reinsurer's bonds that pay 12 percent a year. After three years, they bonds may be converted into Swiss Re common shares at 25 francs a share.

OPTIONS

An option is a kind of stock insurance that protects the buyer from falling shares to go beyond certain cut off price in the market but contracting with the option seller to buy the same number of shares at the exercise day.

On 3 December 2008, BH sold an option to buy 2,325,000 shares of freight railroad Burlington Northern (BN) by January 30 for whatever market price. The base price was $83.85 a share or a total of $165.4 million. BN closed that day at $77.50, making BH a premium profit of $14.76 million.

Last January 30, BH kept its promise and bought similar number of shares for $75, or a total of $174.4 million. It took a price loss of $2.4 per share for repurchased shares, or a total of $5.58 million.

PNB-ABC Merger Can Be Profitable to Equity Investors

By Zosimo T. Literatus

Zeitgeber Investments Division

Under the merger plan approved by the respective boards of Philippine National Bank (PNB) and Allied Banking Corporation (ABC) last year, 140 shares in PNB are to be swapped for every single common share in ABC. Also approved was the exchange ratio of 30.73 PNB shares for every ABC preferred share. PNB shares are to be issued at P55 per share, making a total equity assumption of P 36.42 billion on its 2008 year-end equity level.

The stock however has fallen from a high of P38.50 in May last year to P13.75 as of January 30 in line with the drop in local share prices due to investor risk-averseness amid the global financial crisis.

Issued and outstanding ABC shares as of December 31, 2007 were 495,295 shares--50,000 preferred and 445,295 common. Its equivalent new PNB shares at swap rate of 140 PNB per ABC share would total to 69,341,300 shares.

The total ABC equity for 2007 year-end was reported at P 17.328 billion. This valued the ABC equity per share at P 34,985.21. A swap lot of 140 shares for PNB therefore must have an equity per share value of not more than P 249.89 to make sense. A lower PNB equity value would be to its shareholders advantage.

Within the same period, PNB has issued 662,245,916 shares at a par value of P 40. Its total equity was reported at P 30.12 billion. Its 2007 equity value per share stood at P 45.

Based on the 2007 figure alone, assuming that changes in their equities are about proportionate, PNB shareholders would be giving up P 7.700 worth of common shares (at P 55 per new PNB shares to be issued) for an ABC common share worth P 34,985.21. That's a windfall of paper profit for PNB shareholders and a loss for ABC shareholders.

This deal, which could increase the issued and outstanding common shares of PNB to a total of 731,587,216 shares, however dilutes the PNB shareholders by 10.47%. The dilution would plunge the PNB equity per share value to P 49.79, or 9.48 percent.

As of Friday, February 6, closing price for the PNB common was P 13.75. This would be an excellent BUY price for PNB on the basis of its equity alone. The company's long-term profitability prospects and other important valuation criteria are not factored in this computation.

Ailing US Firms Get Premium on Stocks

The Congressional Oversight Panel uncovered on Friday, February 6, that the Bush administration overpaid its purchase of the stocks and other assets of the ailing Wall Street firms at the height of the American financial crisis last year. Looks like a windfall profit on security sales makes for managerial blunders. (Click here for details.)

Market chill makes dancing frenzy for the wise investor

By ZOSIMO T. LITERATUS
Zeitgeber LC, Investments Division

The drop in the share prices yesterday might be an alarming one but such plunge in market value was concentrated to only a few companies traded in the Philippine Stock Exchange with more than half of the listed stocks were simply left out in the cold without bidding movements.

In the Financials, only 12 of 29 companies (about 41 percent) suffered price drops, almost equally spread among banks and other financial institutions. Fourteen out of 47 Industrials take price plunges, representing almost 30 percent of those listed in the group.

Only eight of 36 holding companies suffered the cut in market prices, while the Properties dipped almost 24 percent.

Listed Service companies neither suffered more with only nine out of 38 companies (23.7 percent) got bid downward. Mining and oil companies took the cut in six of 26 (23 percent).

The 12.3% price plunge was an average that indicated certain companies took a bigger spiral in market displeasure.

But for investors who know the better companies among the many of lesser make, the spiral should find them waiting with a lot of cash to buy in. A few select companies are simply priced right now almost for a song. And a wise investor should know that it is time to sing. If Warren Buffett knows about this, he could dance with frenzy.

Share prices plunge 12.3%; trading halted temporarily

By KRISTINE JANE R. LIU

Business World

The Philippine stock market saw one of its worst days yesterday as share prices fell by a record 12.3%, triggered by investor fears that a global recession is inevitable.

The plunge — the biggest one-day percentage drop since the bourse was unified — forced officials to temporarily halt trading, also a first for the Philippine Stock Exchange (PSE).

The "circuit breaker rule" was imposed after the main index fell by 10%. The 15-minute breather did little to prevent further drops as the main index closed at 1,713.8, down 239.7 points. It was the biggest one-day point drop since February 2007.

The total value of all 241 firms listed on the PSE was P7.98 trillion at the start of the year. As of yesterday this was down to P4.75 trillion.

"Basically this is investor concern over the income of the country’s financial institutions. The effect of the global situation ... is being considered and [investors] are worried about our banking sector," said Harry G. Liu, president of Summit Securities, Inc. Check for details...

Central banks slashing rates as investors flee

By ANTHONY FAIOLA & NEIL IRWIN

MSNBC

Central banks around the world are moving to further slash interest rates as they seek to contain the damage from the bursting of the biggest credit bubble in history.

The Federal Reserve is poised to cut its benchmark rate for the second time in two weeks at a pivotal meeting in Washington on Wednesday, and the European Central Bank yesterday suggested that it would do the same next week. South Korea announced a dramatic rate cut yesterday, by three-fourths of a percentage point.

Governments worldwide have already approved massive bailouts and stimulus packages to halt financial meltdowns. But the trouble spots in the United States and abroad continue to multiply. Yesterday, there were growing signs that the U.S. Treasury Department was close to extending its $700 billion rescue program to cover the ailing auto industry.

Analysts said governments are trying to manage what has become the biggest threat to the global financial system -- a massive pullout by panicked investors from any holding they see as remotely risky. From consumers to multibillion-dollar hedge funds, investors are cashing out to cover losses or guard against further damage by moving into safe havens such as U.S. Treasurys.

Rate cuts, however, are not packing their usual punch. Normally, when central banks cut rates, it becomes cheaper for businesses and consumers to borrow money. But now, with banks and other financial institutions experiencing a severe crisis, lenders have been reluctant to extend credit at any price.

The pullback by investors, known as deleveraging, is extending massive losses on global stock markets; the Hong Kong stock market on Monday had its biggest one-day percentage drop since 1989, and Tokyo's Nikkei fell to its lowest level in 26 years. Check for details...