Who is he?
(basically the same, just more personal detail)
How can he benefit me as a financial
What is his
perspective on investing?
portfolios (.pdf format - Adobe Acrobat necessary to read)
How we are swimming in
a sinking US dollar.
His stock picks
What articles has he published on
problems in the workplace (.pdf format)
correcting, and disciplining employees
An inside look
at a peer evaluation system
Examples of Websites created,
maintained, and promoted:
Romania's #1 site about HIV
(Logo by LJ LaBrie)
Global Assistance for Medical Equipment, Kosovo (Logo by LJ LaBrie)
Romania's #3 site in its market
segment (Logo by LJ LaBrie)
How my investment techniques compare to those of Warren
Buffett, Part 2
by Laurent J. LaBrie, MSBA, MSBME
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Apologies to the expert
Going against the flow
Staying with the well established
My technique is to invest in well established companies, not in IPOs
(Initial Public Offerings). You can often make a lot of money in the
first few days but rarely does the stock continue that way. The company
is not running a charity and wants to make the most money for the
company, not for the investor. This usually manifests itself in two
phenomena, 1. The company CEO usually times the IPO for the moment that
their company is the most profitable. 2. The CEO polishes up and
publicizes the company and seeks the best price that they can. The good
news is at its best and already accounted for in the price. As Warren
Buffett writes, "Managements that say or imply during a public offering
that their stock is undervalued are usually being economical with the
truth or uneconomical with their existing shareholders' money: Owners
[stockholders] unfairly lose if their managers deliberately sell assets
for 80 cents that in fact are worth $1." p. 33
I seek value and
I agree with him that companies can be both growth and value, i.e.
"growth at a reasonable price." For over a decade, I've been using a
proprietary computer program that calculates value based on net worth,
earnings power, and growth. Stocks below this calculated value are then
evaluated further. This contrasts with John Burr Williams equation for
value in his book The Theory of Investment Value. His idea, as
Buffett condenses it, was "that the value of any stock, bond or business
today is determined by the cash inflows and outflows--discounted at an
appropriate interest rate--that can be expected to occur during the
remaining life of the asset."
Perhaps I don't understand it or am fuzzy in my thinking, but I think
that earnings is more important than cash flow at valuing an
investment. If one person earns $100,000 and spends $90,000 in rich
living, I don't think he is ten times better off than someone who earns
$10,000 and doesn't spend a thing. The first person may have greater
potential if one can get him off his spending habit, but that may prove
more challenging than getting the second person to find a better job.
Buffett may do this in practice, as he writes, "Put together a portfolio
of companies who aggregate earnings march upward over the years, and so
also will the portfolio's market value." p. 94.
And these earnings that concern us are the unmanipulated ones, not the
often used "earnings before depreciation, interest, and taxes (EBDIT)."
If you don't have a line in your budget for auto depreciation, you will
soon find yourself without wheels. Consider EBDIT and you will be
without a factory or office.
Share buy-backs are positive indicators~~sometimes
I look for companies that are adding to company value by buying back
"In the 1980s and early 1990s, share buy-backs were uncommon and
Buffett credited managers who recognized that the purchase of a share
priced at $1 but with a value of $2 would rarely be inferior to any
other use of corporate funds. Alas, as often happens, the imitators
stepped in and now you frequently see companies paying $2 to buy back
shares worth $1. These value-destroying share repurchases often are
intended to prop up a sagging share price or to offset the simultaneous
issuing of stock under stock options exercised at much lower prices." p.
Indeed, you often have companies buying back stock while insiders are
selling. This is rather extreme self-service. Why would a director have
his company buying shares while he is selling? If one is doing it, the
case can be made that he just wants to diversify his portfolio, but
when many are doing it in mass, it looks rather odd that the company
should want those shares. It is likely to be a proping up of the stock
while the insiders get out from under it. It is likely to spell
problems in the future, and I normally would not buy into such a
- I am not a day-trader as I think that is speculating or
gambling, not owning companies and financing growth. "If you aren't
willing to own a stock for ten years, don't even think about owning it
for ten minutes." Buffett p. 94.
- In contrast with what I understand of Buffett, I tend to
avoid companies that create a lot of "goodwill" through fancy accounting
tactics, although he agrees that "goodwill amortization charges are
usually spurious." p. 210
- I like management which attacks costs as vigorously when
profits are at record levels as when they are under pressure.
- I like companies which stick with what they understand and
let their abilities, not their egos, determine what they attempt. As
Thomas J. Watson Sr, of IBM said, "I'm no genius. I'm smart in
spots--but I stay around those spots."
- Although I hope to in the future, I presently don't usually
hold for years on end. If you spread my investment reputation around
and get your family and friends involved, I will have the opportunity
to manage a lot of money. Then I will have a chance to know all the
leaders of a company intimately and take over entire companies like
Warren Buffett does. Then you and I will be able to keep
semi-permanent positions, lead companies, and allocate resources
efficiently as he does.
I agree with Ben Graham's idea that "In the short run, the market is
like a voting machine but in the long run it is like a weighing
machine." p. 65. I try to buy a heavy company that is unpopular at the
polls, and sell popular companies that are losing weight. Sometimes, I
will sell a security before it is overvalued because I find a better
I further agree with his statement, "Consciously paying more for a
stock than its calculated value--In the hope that it can soon be sold
for a still-higher price--should be labeled speculation (which is
neither illegal, immoral nor--in our view--financially fattening)." p.
86 Until the price rises, you are relying on a ponzi scheme of hoping
between now and then that you will keep finding more buyers that are
less intelligent than are the sellers.
Keep in mind that these people are hoping to act like the man with an
ailing horse. Visiting the vet, he said: 'Can you help me? Sometimes
my horse walks just fine and sometimes he limps." The vet's reply was
pointed: "No problem--when he's walking fine, sell him." We want to buy
thoroughbreds, not a horse that may someday walk like Secretariat.
Conclusion and charge
Professionals will try to tell you the market is no place for the small
fry like us. We disagree and have shown for 30 years that this is the
perfect place for David to beat Goliath. As opposed to in the Bible, on
Wall Street, Goliaths are always getting beaten by Davids but there are
too many Davids for the media to cover, so they choose the Goliaths
like Enron, WorldCom, etc. The problem is that when an individual
manages his portfolio, he is too emotionally engaged like the others in
the game. If you buy when everyone else is buying, the price will be
high. If you are emotionally detached from your portfolio by having
someone else manage it for you, you will do much better. "A recent
study by researchers at Carnegie Mellon, Stanford and the University of
Iowa found that people with stroke- or disease-induced damage to the
emotional areas of the brain outperformed those with undamaged brains
in an investment game, because emotions didn't get in the way of their
market calls." (Fortune "A meditation on risk" October 3, 2005
We engineers probably have some brain damage that makes us want to
computerize everything. If you have the stomach to go against the
current and stand against the crowd, can risk being at parties at the
peak of the dot-com boom and getting laughed at for not having any
Internet stocks, then please contact me at the address below.
Laurent J. LaBrie, MSBA, MSBME
Write me at if you would
like to discuss my managing your portfolio. Minimum $100,000.