Facebook Inc (NASDAQ:FB) has been pretty quiet as a company of late, what with Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL) taking their shares of headlines lately, in both positive and negative ways. On this Monday, however, CEO Mark Zuckerberg’s company is featured in several short items in the headlines.
Facebook Inc (FB): Iran Government Goes Social
Nasser Karimi of The Canberra Times (Australia) is reporting on what seems to be a rarity in politics nowadays – following through on a campaign promise. This story comes out of Iran, where newly minted President Dr. Hassan Rouhani, who promised during this presidential campaign that the government would increase its openness and transparency. And within days of Rouhani’s installation, it is reported that 15 Iranian ministers have now opened Facebook Inc (NASDAQ:FB) profile pages – on a social network that had been blocked in the country from the Iranian people – except for those who can gain access through a proxy server located outside the country.
Saeed Leilaz, a political analyst in Iran, boldly predicted that this is a step toward Internet accessibility. “Definitely filtering on Facebook will be lifted, and we will witness the elimination of filters (on the) Internet.”
Facebook and FISA Court: Let Us Spill More Beans!
In a more recent development with the court developed through the Foriegn Intelligence Surveillance Act (FISA), Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG) lawyers have joined other technology firms to petition the FISA court for permission to reveal more information about government requests for user information. This update was covered by Hayley Tsukayama of the Washington Post.
The idea behind the petition is to allow tech companies to reveal more information about the types of requests by government entities and from what government entities as well as the types of information requested. This, according to the tech firms, would allow for more transparency and increase consumer trust with the companies in the wake of the revelation of the National Security Administration (NSA) PRISM surveillance program. To this point, the FISA Act courts have only limited tech firms to release an aggregate report of the numbers of governmental requests without regards to the types of information or the scope of the requests.
Instagram to Launch Advertising Soon?
We suppose it was only a matter of time. Since Facebook Inc (NASDAQ:B) stepped in and bought Instagram last year, and knowing that Facebook has developed a robust and effective advertising network, there may have been some office pools started that suggested how long before Instagram would launch a Facebook-style advertising network. According to a story posted by Cassie Slane on BestTechie, the answer to the office pool will be revealed soon, as indications are that the company will start to roll out advertising in a small scope sometime in 2014, said Emily White, director of business operations for Instagram (who previously worked for Facebook).
“We want to make money in the long term, but we don’t have any short-term pressure,” White said to the Wall Street Journal. Instagram, to this point, has not generated any revenue for Facebook Inc (NASDAQ:FB).
If you are an investor in Facebook Inc (NASDAQ:FB) stock, like fund manager Stephen Mandel or Bill Miller, how would you digest all this information in terms of action on your investment?
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
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