BLOG: Why Someone Like Warren Buffett Would Consider a Stock Like VUL

Warren Buffett KU-crop,flipValue investing – that’s what Warren Buffett, the “Oracle of Omaha”, has adhered to over the 60-plus years of his very successful business career. Considered the most successful investor of the 20th century, Buffett is said to be the only businessman who has made his wealth through stocks, or investing in stocks – if I remember correctly.

But of course, there’s a lot of literature that you can find online about Buffett, and his investing strategies as well as formulas. I am not to start writing about all of those here really. There’s already enough about him already out there.

I am just interested in exploring some of these tenets, his ethos, when selecting stocks to invest in or companies to buy (basically, he uses these guidelines when buying companies – but I am definitely sure that these guidelines may give us pointers when buying stocks).

But then again, just a disclaimer to those “experts” who may say – in an infinitesimal chance that they may happen to be reading this article now – that what I am writing about is a load of crap: I am no expert, nor have the financial education background to support what I am about to write now. So, if you feel you are an expert and don’t really need to be wasting your time reading this, then by all means, close this window or browser. I have no objections whatsoever (not that I could object anyway). You even have every right to ridicule this, come to that.

But that doesn’t mean that this piece will have no substance. For those who may be curious to know what the heck I am talking about, stick for a bit. I would make sure that you will be able to pick up something here that may be worth pondering on when deciding your next investing strategy.

So back to my topic.

They say there are 12 tenets (see this article and this article) that Warren Buffett and his long-time business partner and friend Charles Munger consider when investing in a company, or buying a company.

This article, meanwhile, makes it into six principles. Basically, there’s this book titled The Warren Buffett Way, and definitely you can get all these principles from there. This article, a review of that book, presents the simplified, basic principles that guide Buffett’s decisions in buying businesses or making investments. This is another good article that summarizes Buffett’s investing investment principles.

Here’s the thing. There are just a few pointers that you need to consider when buying stocks – as per Warren Buffett. Of course, that’s the generalization. According to him, intelligent investing is not complex, but that it doesn’t mean it is easy as well.

So for them, there are just four basic things to consider:

1. They should be able to understand the business

2. A business has to have some intrinsic characteristics that would give it a durable competitive advantage

3. The business should have a management in place with a lot of integrity and talent

4. And a price that makes sense

Four very simple things to consider.

Now why the heck would I mention VUL in my title? First and foremost, VUL is Vulcan Industrial and Mining Corporation, a publicly listed company in the Philippine Stock Exchange (PSE) that is involved in finding, developing, and producing mineral properties. The company has been participating in oil exploration projects and is part of two consortiums that have petroleum contracts.

VUL used to have a subsidiary, Vulcan Materials Corporation (VMC), which is primarily engaged in the quarrying, crushing and marketing of rock aggregates. On 18 December 2012, the company sold all its shares in VMC to Anglo Philippine Holdings Corporation (PSE: APO).

NBSNow, as of 29 May 2013, at the company’s Annual Stockholders’ Meeting, the following points have been approved by the stockholders:

1. The change in corporate name from “Vulcan Industrial & Mining Corporation” to “National Book Store Retail Corporation” or such other name acceptable to the SEC as the Board may determine

2. The change in the Corporation’s Primary Purpose from “mining and oil exploration” to retail

3. The relegation of “mining and oil exploration” to the Secondary Purpose clause

4. The sale and transfer of all or a portion of the Corporation’s mining and oil exploration assets

There were other items approved by the stockholders during the meeting, but I highlighted the above because they are the main reasons why I think someone like Warren Buffett would invest in a company like VUL.

So definitely, VUL or Vulcan will now be called National Book Store Retail Corporation. Of course, there are other items above that would require approval, perhaps, from SEC. For instance, the name, as pointed out in item number one: “acceptable to the SEC as the Board may determine”.

Anyway, I do believe that it will be accepted eventually. And will be changed accordingly.

In fact, this may be considered a backdoor listing move by National Bookstore to avoid, I think, the time and expense of engaging in an initial public offering (IPO). [According to Investopedia, in an IPO, the issuer obtains the assistance of an underwriting firm, which helps it determine what type of security to issue (common or preferred), the best offering price and the time to bring it to market.]

The Philippines’ stock market is having a bullish run over these past two years, and is forecast to grow even higher as the global investing community begins to take notice of the country’s capital market. Therefore, I think, this may be one of the reasons that National Bookstore decided to do this strategy with VUL.

Anyway, I am veering from my topic. So: National Bookstore. Finally. Is. A. Public. Company.

Of course, someone super-rich like Buffett could just go on and buy a company like National Bookstore in a Philippines – if they want to. Or, if National Bookstore was selling at the time. Apparently there may have been no offers or feelings out. And now that the capital market is hot, that’s when National Bookstore decided to do a reverse IPO.

BUT, these are all just my assumptions. The four items above are true; you can read them from VUL’s disclosures. But all the reasons that I was thinking for this move were just my assumptions; I may be wrong. (Mostly wrong, I think. I don’t know why they did that anyway.)

But as I’ve said, now, National Bookstore is welcoming investors. In fact, they may have been considering this since last year.

Now, why consider?

According to the tenet, first and foremost, you should be able to understand the business. National Bookstore is the largest bookstore and offices supply store chain in the country. My generation grew up with National Bookstore. So did my parents’ generation. When it comes to school supplies – from preschool to primary or elementary school, to high school, to college/university – most of the stuff needed – books, textbooks, notebooks, and many others – are mostly bought from National Bookstore. (I said mostly because there are still a lot of Filipino kids who came from very humble beginnings. Such is a topic for another time).

Overall, as long as there is schooling/education (I doubt it will be abolished. What the heck.) in the Philippines, there will always be National Bookstore.

Next, once you’ve come over that, the next principle to consider is, “a business has to have some intrinsic characteristics that would give it a durable competitive advantage.”

I think I’ve just discussed that briefly. But let me elaborate more.

JFCConsider Jollibee. More than twenty years ago, I always look forward to Saturdays because that’s always the time we go to Jollibee. Every kid in the country knows Jollibee. In fact, I would say that as long as there’s a kid born in the country (Again, what the heck, do you see the country having a birth rate of less than one anytime soon???), Jollibee is just waiting to give them their first taste of it.

Now back to National Bookstore. I could only count in my one hand the other bookstores/school supply shop that I’ve been to because I need some items ASAP. One is Goodwill Bookstore, which, if you will trace the origins of National Bookstore, may be considered a “family”, though not in a business sense. The second is Booksale, which sells mostly second-hand books/magazines (they also have new editions of course, but they started as a second-hand bookseller, I believe at the time).

Now what may be considered National Bookstore’s intrinsic property? How about having more than 145 branches nationwide, for starters? And then they own Powerbooks, as well as Metrobooks in Hong Kong.

Basically, I think National Bookstore is the national bookstore of the Philippines.

Next tenet, the business should have a management in place with a lot of integrity and talent

National Bookstore was founded by José Ramos and Socorro C. Ramos. The company has been rebuilt a few times, and has survived World War II, a fire, and a big typhoon, come to think of it.

Over those challenging years and moments, the Ramoses were able to steer the company into where it is right now: the pinnacle of the bookstore industry in the Philippines.

At present, the company is being led by Mrs. Ramos’s son, Alfredo Ramos. You can dig him up online. I think I could say that he’s got great deal of integrity. Among others, he holds directorship in the following companies: Anglo Philippine Holdings Corporation (PSE: APO), Atlas Consolidated Mining and Development Corporation (PSE: AT), Shang Properties Inc. (PSE: SHNG), Philippine Seven Corporation (PSE: SEVN), United Paragon Mining Corporation (PSE: UPM), and The Philodrill Corporation (PSE: OV), and Vulcan Industrial & Mining (PSE: VUL). He is also involved with Atlas Publishing Group of Companies, Anvil Publishing, and Penta Capital Finance Corporation.

Finally, a price that makes sense.

Again, I am writing here in the assumption that VUL will now be called National Bookstore, and that it will eventually complete the sale and transfer of all or a portion of its mining and oil exploration assets. Therefore, I am writing here in the assumption that VUL will be trading soon as National Bookstore. I am not sure as to how that will affect the change of its ticker. Probably it will be changed to “NBS”. Which makes sense. It can be done anyway, the changing of the ticker code, as long as it’s been approved by proper regulatory bodies.

So, what I am basically saying is that, VUL is now National Bookstore. Or, let’s say, will be National Bookstore soon. Eventually.

As such, its current price of PhP1.56 as of 7 June 2013 is definitely very, very cheap (again, I am already considering the company here to be National Bookstore). Why? I am no expert, but considering the sales it will generate this year as more students enrol in our schools, and with the educational system now becoming 12 years (K-12) instead of the previous 10 years, the outlook for this company is definitely very bright. In fact, the price has gone down, so I was really glad because that just means I’d be able to buy more. (The local bourse has had a downtrend over the past few trading days. Also, VUL went down probably because of some deficit reported by the company – which I do not pay attention to. As VUL said, they got several instruments to utilize if they ever needed cash.)

So, going back to the title of this post, the above are the reasons why someone like Warren Buffett would consider a stock like VUL.

But that’s just what I think. As I’ve said, I am no expert. So I may be wrong.

But I do admire Warren Buffett, and have always considered his principles in making my investment moves. Investments, mind you, not speculations. And value investing at that. And definitely I just did a fundamental analysis here. (I’ve always said that I am a fundamentalist.)

I have to admit that I invested in VUL. And I followed Buffett’s four basic tenets above when I invested in the stock. But, I just showed VUL as an example. This is not an effort of promoting the company, but a simple analysis to emulate when considering your next investing move.

I also wrote this article because of one thing. I have always wanted to have a bookstore. When I was in my early teens, it was just a big house with my own library. But over the years, it has developed into something more, of course. To have a business. But with books. So, a bookstore. I don’t think I could set up one. So I just bought myself some shares in this company. Now, I already consider myself a part-owner of a bookstore.

ALSO of course, I shamelessly wrote this with all the mentions of Warren Buffett and value investing and such, because they help with the SEO! Imagine how many investors out there who would be searching for Warren Buffett online! Perhaps this article will help me land in the first page of the results; perhaps not. Either way, it’s worth trying. Do your own.

Email me with your violent reactions.

richard@phstocks.com

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4 thoughts on “BLOG: Why Someone Like Warren Buffett Would Consider a Stock Like VUL

  1. Hi Richard,

    Thank you for replying to my comment. My apologies. The term was supposedly “consumer-monopoly”. Meaning, it’s a company that has no competitors, I think, or perhaps at least it tries to be as far as I remember reading through essays about his Buffet’s criteria in picking stocks. I forgot the term because I was here at work while typing my reply.

    Anyway, I just found it very interesting that Warren Buffet has holdings here in the PH. I just questioned NBS as his choice since it has more competitors that offer products with prices much less than they do. And so far they have survived for 10 years, just like NBS, as another of Buffet’s criteria in picking a company.

    I just thought about it, looking at the consumers of NBS, there are competitors who are still existing because they have market shares of these consumers.

    But all-in-all, thinking that if Warren Buffet indeed came here to buy a company, I would be in awe because it means our market is so good. And if NBS gets in the market, I can also see a potential because of the confidence this company has in building branches in accessible areas nationwide.

    Thank you for the insight.

    • Blewcrush,

      Just a quick reply. Please don’t get me wrong. Buffett didn’t invest in VUL or NBS. I just wrote why someone like him, or those using his investment principles, would consider doing so.

      I repeat, he did not invest, okay?

      Richard

  2. hi richard. thank you for this insight. 🙂 this has been so surprising to me since I have been reading Buffet articles for some time and I wish I have his confidence. I’d have to say I agree in all angles of his principles in guiding him in his decision to get VUL which is already in NBS.

    I only have the question in my mind that, I thought he buys on companies that are quite monopolistic-product when it comes to business. And to my awareness came also Goodwill bookstore which addresses the same needs as the consumers of NBS have, though it is not as diverse as NBS when it comes to its products but is doing quite well in price competition. For instance, when I was in high school, we were required to purchase a pocketbook, “Jonathan Livingston Seagull” for our book report. NBS sold it at Php 120 or more I think. Goodwill sold it to me for only Php 80. Both sell them in brand new conditions. So as a member of the price-conscious consumer, which comprise majority of our country, I preferred to buy at the competitor bookstore.

    Just looking at it at a macro-economic perspective on how the business attracts the market.

    • Hey blewcrush,

      Thank you very much for your insightful comment. Wow, you managed to read through that 2,000-plus-word article huh. Many thanks.

      Well, just to make it clear, he did not buy VUL. I just sort of presented his basic tenets in selecting a company to invest in, and sort of tried to apply these ethos when deciding whether or not VUL (which will soon become National Bookstore) would be something worth investing in for a long time.

      I am not that sure about your point about Warren Buffett buying only companies with “monopolistic-product”. Do you mean he only buys companies that sort of have a monopoly in the market? Or do you mean he buys companies that don’t have that diverse lineup of products? It’d be great if you could elaborate on that just a little bit.

      Meanwhile, you got a point on Goodwill Bookstore having, at the time, a cheaper book. On the other hand, the fact that the number of Goodwill Bookstores are significantly less compared to NBS’s branches, that means more access, and convenience – most especially – for consumers. They won’t have to travel far and wide to find a Goodwill Bookstore when just around the block is a National Bookstore branch. Saves them time, effort, and money. I think you will only just resort to finding a Goodwill Bookstore if you can’t really find a product you’re looking for in National Bookstore.

      You are right in saying that majority of Pinoys are price-conscious. But I think when it comes to convenience, easy access to the products, as well as by being a one-stop-shop for all schooling or office supply needs, National Bookstore would indeed emerge, probably, a top choice when it comes to these matters.

      Having said that, I am not here to promote NBS. It’s just my opinion, and in response to your comment. Which I am very grateful for.

      Again, many thanks.

      Richard

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