In his 1996 Letter To Shareholders of Berkshire Hathaway, Warren Buffett offered investors some pretty rational advice. I'll take you through it, but let's paraphrase his first words of caution: If you aren't going to own individual stocks, buy index funds—not Wall Street's mutual funds. Considering that most of Wall Street's mutual fund managers lose to the markets in the long-term, and if you don't want to own individual stocks, that's pretty sage advice from the Sage Of Omaha.

Continue Reading Buffett's Timeless Advice To Stock Investors ››

I don't like to write about the stock market. Why? It's simple—whatever I write on Sunday night may very well be outdated by Monday's lunch. It is much easier, safer, and more comfortable to buy stocks in wonderful businesses and ignore the stock market than it is to trade stocks, analyze what the gamblers are doing, and try to predict the direction of the markets.

Continue Reading Have You Been Swimming Naked? ››

I like to think that I'm doing some good here on the blog. Your emails, comments, and return visits have led me to believe that. That said, I don't think that I am a "guru" and that everyone else is wrong. My point on this site is simple: you can invest like Warren Buffett. Still, you don't have to. And some people clearly don't want to.

Yesterday, I got a comment that brought me back to 1999.

Continue Reading Amylin II. Excuse The Sarcasm. ››

$6.22 billion. That's what Wall Street is pricing Amylin Pharmaceuticals (AMLN) at these days. If you are a fan of Efficient Market Theory (Buffett isn't), then you believe that the company is worth that much. You'd also have to believe that the company was fairly valued at $5 back in 1998 and that the value of the business has grown eightfold in the past ten years. Me? I see things a bit differently.

Continue Reading Waiting To Exhale: Amylin Pharmaceuticals ››

Buy stocks as if you were buying the entire business. That has been a cornerstone of Warren Buffett's investment philosophy for more than fifty years. Sure, he's traded stocks and engaged in arbitrage. Still, his largest long-term gains have come from owning wonderful businesses, regardless of whether or not the stock market told him so.

Continue Reading Watching The Stock Market ››

By now, you have determined what your desired rate of return is. Personally, I like to use 15%. At that rate, my money will double approximately every 5 years. Why 15%? Considering that I have to find the companies, analyze them, say "no" to most of them, and patiently wait on the sidelines until an opportunity comes along, 15% is the minimum annual return I want to justify the work that I have put in.

Continue Reading Calculating The Value Of A Business - Part IV ››

In Part I, we looked at Shareholder Equity as the first step in calculating the intrinsic value of a company. Then, we looked at Buffett's owner earnings and further explored intrinsic value in Part II. When you buy stock, you are buying a piece of a business—usually, a small piece. You are essentially becoming a silent partner in that business.

Continue Reading Calculating The Value Of A Business - Part III ››

Barring any major happenings that require a post, this will be my last weekend message. I will no longer post a "Random Thought Saturday", opting instead to post a Random Thought "Whenever". F Wall Street has more than exceeded my expectations, and I have to scale back a bit.

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In Part I, we looked at Shareholder Equity as the first step in calculating the value of a company. Shareholder Equity essentially tells us how much our company is worth if it shut down operations, sold off its assets, paid its debts, and distributed the cash to the shareholders. Though Shareholder Equity tells us the "wind up" value of the company, we do not expect our company to, well, wind up its operations.

Thus, we need to know its intrinsic value—our company's value as an ongoing business. Once again, as always, we turn to Warren Buffett for advice.

Continue Reading Calculating The Value Of A Business - Part II ››

The Greater Fool Theory is a belief that you can buy a stock at any price and sell it to some other, bigger fool for a profit. In times of ever-increasing markets, this theory often shows itself to be true. Still, reality must come crashing down at some point. It always does. And that is precisely when great fools lose tons of money, and great investors come to life.

Continue Reading Calculating The Value Of A Business - Part I ››

Throughout 1988 and 1989, Warren Buffett acquired more than $1 billion of Coca-Cola (KO) stock. At the time, Wall Street thought he was downright crazy. After all, Wall Street scrutinized the purchase and deduced that Buffett has paid way too much for earnings and the stock price was high—having run up 18% a year for eight years.

In 1988, Wall Street said Coca-Cola was a bad stock to buy. Warren Buffett thought it was a wonderful business to own. The results speak for themselves; so, let's look at the reasoning behind Warren Buffett's most famous purchase.

Continue Reading Buffett. Coca-Cola. 1988. Now I Get It. ››

Perhaps one of the most important, and least used, numbers on Wall Street is CROIC—Cash Return On Invested Capital. A Google search for "earnings in investing" brings up some 7 million results. "CROIC in investing" brings up 47, of which 5 belong to F Wall Street (probably six after this post).

As I promised Oliver on July 13th, let's explore CROIC for a minute.

Continue Reading What The Heck Is CROIC? ››

Earnings. The Golden Child of Wall Street. You can't talk about a "growing" company unless you qualify your rant with a discussion of earnings. In fact, earnings are the basis of nearly every one of Wall Street's tests to determine whether a company is healthy and whether or not it belongs in your portfolio.

F Wall Street...and their earnings.

Continue Reading The Importance Of Earnings ››

In Part 1, shortly after my brother, Ben Ponzio, won a World Series of Poker bracelet, I decided to draw a comparison between poker and investing. In reality, the similarities are scary. If you are great and one, you can (and should) be absolutely great at the other. The traits of a successful, long-term poker player and those of a successful long-term investor are almost identical.

Continue Reading Investing And Poker, Be Great At Both (Part 2) ››

You can't argue Warren Buffett's past. The man is an investing genius and has made millions upon millions of dollars for his investors over his 50+ year investing career. As he continues to discuss his retirement, make plans to pass on his fortune, and search for a replacement, one must wonder whether or not Berkshire Hathaway (BRK.A) is a buy today.

Continue Reading Is there value in Berkshire Hathaway? ››

Okay. I gave you Johnson & Johnson. I analyzed the less-than-stellar 0.89% average annual return Coca-Cola has provided investors from 1996 to 2006. I've even talked about how easy investing should be if we follow Warren Buffett's lessons. Still, you have asked for something more exciting—a smaller company offering the potential for a ton of growth.

So, here it is.

Continue Reading American Eagle Outstanding ››

One thing that Wall Street wants you to believe is that you have to get your money into the markets today—or you are never going to retire the way you hope to. Why? How else will they get you to buy their investments today?

In reality, you have time. You absolutely have to start saving money today, but you do not need to get it into the markets just because you have it. Let me explain:

Continue Reading Let Me Tell You About Patience ››

It is not easy running a new blog. Being just 17 posts young, F Wall Street has had more than 28,000 hits, has been reprinted on Yahoo! Finance, is quoted on CNBC's Buffett Watch, and more. Of course, there aren't enough posts to satisfy everyone's curiosity or interest, so I have been getting a ton of emails from visitors.

I'll continue responding to emails, but I would like to post my answers to some of the common questions people have from the contact page.

Continue Reading To Answer Your Questions... ››

Conventional wisdom on Wall Street says that you should definitely reinvest any dividends you get. Then again, look how well Wall Street's conventional wisdom has done for you over the years.

If you are blindly speculating in stocks or putting money into Wall Street's mutual funds, reinvesting your dividends may very well be the only thing that saves your portfolio. But, if you are buying wonderful businesses at a discount, reinvesting suddenly becomes silly. After all, Warren Buffett doesn't do it. He's pretty smart, right?

Continue Reading Should I Reinvest Dividends? WWWD? ››

If you bought Coca-Cola (ticker: KO) on January 2, 1996 and held it through December 29, 2006, you would have had a 10% gain, or about 0.92% average annual return for ten years (when factoring in dividends). Sure, you would have had some big ups and downs, but stock prices generally follow value in the long run. Knowing that, investors could have avoided a lackluster return with just a few minutes of work.

Continue Reading Coca-Cola, Ten Years and Still No Growth ››

Back in May, Todd over at ValuePlays threw out a challenge to his visitors—explain why Buffett is no longer investing 10%, 20%, or more of Berkshire's assets into any one company, like he did with Coca-Cola in 1988. With all due respect to Mr. Buffett's track record, Todd has a valid point—Berkshire Hathaway isn't buying massive stakes in relation to his company's size.

Does this mean we should be diversifying too—buying less of each company...and more companies? Does Buffett finally see that value in Wall Street's "diversification" advice?

Continue Reading Is Buffett Losing His Edge? ››

On June 17, 2007, my brother won a World Series of Poker bracelet, nearly $600,000, and a spot in poker history. As my family and I watched the final table online (thanks to Bluff Magazine), I could not help but think about the amazing similarities between poker (in this case, Texas Hold'em) and investing.

Continue Reading Investing And Poker, Be Great At Both ››

Investing isn't all that difficult—at least, it doesn't have to be. With the universe of investment opportunities available at the click of a mouse, why bother to try and invest in companies or in ways that you do not easily understand?

Continue Reading Investing Made Simple by Warren Buffett ››

Tim wanted a little clarification on how I came up with a value for JNJ's future cash of $201.7 billion using Excel^® (See the full valuation here). The following is a semi-intermediate discussion for Excel^® users.

Continue Reading Buying Johnson & Johnson, Part II ››

It's the 4th of July here in the U.S. I figured a post about holidays and how they affect your investments—or wonderful businesses—would be appropriate. After all, we invest because we want our retirement to be "Independence Day" every day—a celebration of financial independence.

So here goes: The fact that the market is closed on a Wednesday has absolutely no effect on the value of a business. No matter what the gamblers do tomorrow or Friday, your business is operating the same.

No go eat a hot dog and play in the pool. Happy 4th of July!

Let's face it—there is risk in everything you do. From driving a car to eating at a restaurant, from walking down a flight of stairs to shaking someone's hand, you are risking your life every second of every day. Why? Hey, you can't control everything and you have to take some chances in life.

What are we to do? Go agoraphobic and confine ourselves to our homes? Not quite—the building could collapse, germs could creep under the door. Where is all this going? Right here: The more risk you take in life, the more likely you are to die. Maybe not the first time...but definitely the last. The same is true in investing.

Continue Reading Risk Versus Reward ››

You can't argue Jim Cramer's past success. The guy is a stock picking/gambling guru and he's hot on Research In Motion (ticker: RIMM). So much so, in fact, that he told his viewing public to buy it after Thursday night's earnings report. Why not? The stock ran up some 20% on Friday following giant earnings.

Let's take a look at RIMM's business to see if it is a wonderful company to own...or just a hot stock for now.

Continue Reading Research In Motion Analysis ››