Buffett Buys from the m100...

05/06/2005 12:00 am EST

Focus:

Mark Taguchi

President, Marketocracy Research

Within its online community of 70,000 investors, Marketocracy offers a variety of investor clubs, with one of the most popular being devoted to "students" of Warren Buffett. Here, some of the top performers from the Marketocracy system highlight their "Buffett buys."

"For almost five years we have been tracking and evaluating the investment decisions of our members," notes Mark Taguchi  of Marketocracy. "Each month, we rank and select the m100, chosen on long-term track records and short-term performance. It takes great investing skill to be selected for the m100. I recently talked to three m100 members in the Warren Buffett Club to find out how he has influenced and inspired their approach to investing. Here’s what they had to say.

"Richard Hawkins is not just an m100 member but has been in our top ten. He’s a research scientist in pharmacology and physiology that got started investing in the 1980s. His cumulative returns since inception of his virtual portfolio in August 2000 is 23.45% annualized vs. a 4.23% loss in the S&P 500. Hawkins notes, ‘Standing on the shoulders of such giants as Ben Graham and Warren Buffett, I look for investments based on price to valuation ratios, debt loads, composition of assets to liabilities, and growth in terms of return on shareholder’s equity. Although these days it is almost impossible to find one stock, let alone a portfolio of stocks, that meet all of Graham’s classic criteria, judgments can be made about relative valuations to buy shares when there is a reasonable margin of safety. One of my current holdings is Devon Energy (DVN NYSE). This company is in an industry with a very strong demand and an unstable supply situation, particularly with regards to domestic natural gas supplies. Management seems aligned with shareholder interests, avoiding excessive executive options and using cash to reduce debt and repurchase shares, which were at a discount to valuation."

"David Harris has seen cumulative returns since his fund’s inception in August 2001 of 20.34% annualized vs. a loss of .13% in the S&P 500. As a Franciscan focused on non-possession, his goal as an investor is to make and give away as much money as he can, making a positive difference like Warren Buffett. He notes, ‘Buffett, along with Benjamin Graham, have had a profound effect upon my life.’ Buffett has three broad criteria: price, lasting value, and good management. My top pick now is MFC Bancorp (MXBIF NASDAQ), a merchant bank in Canada that operates primarily in Europe and East Asia. It is small, with equity of only $225 million, but very predatory. Like Berkshire, it buys significantly undervalued assets to unlock the underlying value. Unlike Berkshire, it can be purchased at 8 times earnings. It has had a significant increase in net assets, spun-off 20% of its assets to shareholders during the year, and made significant acquisitions. Its valuation is discounted to about 1/3 fair value."

"Kai Petainen is manager of the Trading Lab at the University of Michigan Ross School of Business. Since inception in March 2003, his fund’s cumulative returns are 60.05% annualized vs. a 13.8% gain in the S&P 500. He notes, "When it comes to value investing and following a Warren Buffet-style approach, one requires a bit of time and discipline. I use academic research and apply that to screening for factors involving value, quality, momentum, and smart money. I also note that in a value style discipline such as that followed by Buffett, a stock needs a catalyst to move, such as new coverage from analysts, berating earnings estimates, being added to an index, a possible acquisition, insider transactions, increased dividends, etc. Some stocks that currently illustrate Buffett's style are Shiloh Industries (SHLO NASDAQ) in involved in auto parts & equipment, Tessco Technologies (TESS NADSAQ), which is involved in electronic equipment manufacturing, and American Financial Group (AFG NYSE), which is involved in multi-line insurance."

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