Intelligent Investor Club

In a few hours time, we will be celebrating Chinese New Year here in Singapore. So, I will be taking a break today and won’t be reading any of Warren Buffett’s letter. Instead, here’s an interesting piece of news for you.

Recently, Berkshire disclosed that they had 1.02 million shares of Minnetonka, Minnesota-based UnitedHealth, the largest U.S. health insurance company, as of 31 Dec 06.

This represents less than 1 percent of UnitedHealth’s outstanding shares. Since Berkshire’s filing for the previous quarter with the Securities and Exchange Commission had no holdings of UnitedHealth, this means that the acquisition was quite recent.

This purchase came despite the fact that the company was being investigated by SEC for backdated stock options and they have not reported financial results since the first quarter of 2006.

Technorati Tags: warren buffett, benjamin graham, unitedhealth

For once in a long time, we have interest rates going on an uptrend simultaneously in USA, Europe and Japan. Even in Singapore where I am, the inter-bank rates have gone up by a couple of percent in the past year.

Commodity prices are high, inflation is up and the central banks are trying to remove liquidity from the monetary system.

A high interest rate is bad for equities in two ways. One is the increased cost in borrowing for companies. The second is the lower valuation of equities (using a discounted cashflow model) due to the higher interest rate.

When interest rates are going up, it is also bad news for bonds.

For these reasons, I am very overweight in money market funds at the moment. I am looking to move some of it to bonds once there are signs of a stop in rate hikes.

For the Buffett-like investor, the movement of interest rates is another form of noise. There might be buying opportunities for stocks of companies with good fundamentals.

Tags: warren buffett

Just a short update on some news before I finish up my review on the seminar.

Buffett cut Berkshire’s foreign-currency forward contracts to US$16.5 billion in September from US$21.5 billion in June.

The company had US$926 million in pre-tax currency losses in the first half, but managed a profit of US$29 million in gains in the third quarter, even as the US dollar strengthened against the euro, yen and British pound. What currency could he have been holding?

For the record, he managed US$2.96 billion of foreign-exchange gains from 2002 to 2004.