FT Interview with Warren Buffett

[MaraMan]

If you Google "‘I’m having more fun than any 88-year-old in the world’" you should be able to by-pass the FT pay wall.

MM

[Dod101]

Thanks for that. Your suggestion re Goggle worked fine. Nothing much new in the article and I do wonder about sitting on so much cash. Not many companies would have management with the self discipline not to spend it on something silly and I think if I were a shareholder I would be anxious for a dividend.

Dod

[Lootman]

if I were a shareholder I would be anxious for a dividend.

I believe that most BRK shareholders actually do not want a dividend. There are two reasons for this. The first is that a dividend creates a tax event and BRK is considered a very tax-efficient investment precisely because it defers any and all tax liabilities until a time of your choosing, unlike most funds and collectives which are mandated (both in the US and the UK) to pay out income. And in the US collectives also have to pay out realised capital gains which, again, BRK does not have to.

Secondly most BRK investors think that WB can invest capital better than they can themselves.

That said, I have read more than once that when WB eventually passes away or resigns, that BRK likely will adopt a policy of paying dividends.

[SalvorHardin]

if I were a shareholder I would be anxious for a dividend.

I believe that most BRK shareholders actually do not want a dividend. There are two reasons for this. The first is that a dividend creates a tax event and BRK is considered a very tax-efficient investment precisely because it defers any and all tax liabilities until a time of your choosing, unlike most funds and collectives which are mandated (both in the US and the UK) to pay out income. And in the US collectives also have to pay out realised capital gains which, again, BRK does not have to.

Secondly most BRK investors think that WB can invest capital better than they can themselves.

That said, I have read more than once that when WB eventually passes away or resigns, that BRK likely will adopt a policy of paying dividends.

Yes on all counts. The double taxation of dividends paid to private investors is a major deterrent for many people - this increases the popularity of buybacks.

That said many of us would like a much more aggressive share buyback policy than last year's $1.3 billion. It's not as if the shares are overpriced

[hiriskpaul]

That said, I have read more than once that when WB eventually passes away or resigns, that BRK likely will adopt a policy of paying dividends.

Then long may he stay in place! If they start paying dividends, I will sell. If they want to distribute cash that's fine, but they should do it via share buybacks.

[AsleepInYorkshire]

Thanks for that. Your suggestion re Goggle worked fine. Nothing much new in the article and I do wonder about sitting on so much cash. Not many companies would have management with the self discipline not to spend it on something silly and I think if I were a shareholder I would be anxious for a dividend.

Dod

I prefer to think that BH isn't sitting on cash. More that its keeping it's powder dry. Eventually the market will offer up a "little" nugget. And at that time BH will be able to buy it. One good buy is all it takes. I'm not sure that a buyback is quite the answer currently. That would be a short term answer yes. But it would not allow BH to sit and wait patiently for that next buy. And patience will pay off in my opinion.

AiY

[AsleepInYorkshire]

I prefer to think that BH isn't sitting on cash. More that its keeping it's powder dry. Eventually the market will offer up a "little" nugget. And at that time BH will be able to buy it. One good buy is all it takes. I'm not sure that a buyback is quite the answer currently. That would be a short term answer yes. But it would not allow BH to sit and wait patiently for that next buy. And patience will pay off in my opinion.

AiY

I've reflected on this post. It occurred to me that my opinion on what BH does with it's cash is of little importance.

But it may be far more interesting to understand what Warren Buffett has to say on the subject.

http://www.berkshirehathaway.com/ownman.pdf

In June 1996, Berkshire’s Chairman, Warren E. Buffett, issued a booklet entitled “An Owner’s Manual*” to Berkshire’s Class A and Class B shareholders. The purpose of the manual was to explain Berkshire’s broad economic principles of operation. An updated version is reproduced on this and the following pages.

OWNER-RELATED BUSINESS PRINCIPLES

At the time of the Blue Chip merger in 1983, I set down 13 owner-related business principles that I thought would help new shareholders understand our managerial approach. As is appropriate for “principles,” all 13 remain alive and well today, and they are stated here in italics.

…

Charlie and I cannot promise you results. But we can guarantee that your financial fortunes will move in lockstep with ours for whatever period of time you elect to be our partner. We have no interest in large salaries or options or other means of gaining an “edge” over you. We want to make money only when our partners do and in exactly the same proportion. Moreover, when I do something dumb, I want you to be able to derive some solace from the fact that my financial suffering is proportional to yours.

…

In recent years we have made a number of acquisitions. Though there will be dry years, we expect to make many more in the decades to come, and our hope is that they will be large. If these purchases approach the quality of those we have made in the past, Berkshire will be well served. The challenge for us is to generate ideas as rapidly as we generate cash. In this respect, a depressed stock market is likely to present us with significant advantages. For one thing, it tends to reduce the prices at which entire companies become available for purchase. Second, a depressed market makes it easier for our insurance companies to buy small pieces of wonderful businesses – including additional pieces of businesses we already own – at attractive prices. And third, some of those same wonderful businesses are consistent buyers of their own shares, which means that they, and we, gain from the cheaper prices at which they can buy. Overall, Berkshire and its long-term shareholders benefit from a sinking stock market much as a regular purchaser of food benefits from declining food prices. So when the market plummets – as it will from time to time – neither panic nor mourn. It’s good news for Berkshire.

AiY

[Gadgeisbackagain]

I think I agree with Warren.

The optimum time to buy Berkshire is after a market crash then let him work his magic on the recovery.

If you look at a chart of it in recent times then it is not outperforming a simple ETF or paying a dividend.
I like the look of his stock portfolio but don't like all the crappy businesses that come with it (jewellery shops, furniture retailing and all that stuff)


Gadge

[SalvorHardin]

If you look at a chart of it in recent times then it is not outperforming a simple ETF or paying a dividend.
I like the look of his stock portfolio but don't like all the crappy businesses that come with it (jewellery shops, furniture retailing and all that stuff)

The businesses you've listed are very small in the overall scheme of things. They were acquired over the years because of their moats when Berkshire was a lot smaller (so they were more significant back then). Many of them still have excellent moats (e.g. See's Candy, Nebraska Furniture Mart), whilst a few have had their moats breached or destroyed (Dexter Shoes, The Newspapers).

Berkshire owns several large companies who would be members of the S&P500 if they were separately listed (eight I think) and have pretty decent moats. These, not the stock portfolio, are the main drivers of Berkshire's performance (e.g. GEICO, General Re, MidAmerican Energy, Precision Castparts).

The Burlington Northern Santa Fe (BNSF) railroad is my pick of the subsidiaries as it has a superb moat (my largest shareholding is its equally well moated main competitor Union Pacific). If BNSF were quoted separately it would easily be worth over $100 billion (20% of Berkshire's market value) which is roughly twice the value of Berkshire's shareholding in Apple.

Berkshire's underperformance relative to the S&P500 in recent years is because it hasn't had much in the "FAANGs" (Apple is a fairly recent acquisition). IMHO going forward it will be close to the S&P500 without most of the price taking / weak moat businesses and without most of the IT and Telecoms sector.

[Dod101]

Like many such conglomerates in the past my feeling is that after Buffett and Munger are no longer with us BH may well be broken up, with the main constituents spun off. I do not think it has run out of steam so much as out of meaningful acquisitions and this sort of conglomerate has a more or less finite life whether we like it or not.

Either that or it is now down to organic growth only, much less exciting.

Dod

[Gadgeisbackagain]

<Berkshire's underperformance relative to the S&P500 in recent years is because it hasn't had much in the "FAANGs" (Apple is a fairly recent acquisition). IMHO going forward it will be close to the S&P500 without most of the price taking / weak moat businesses and without most of the IT and Telecoms sector.>

Agreed, I think his underperformance is due to him not understanding the changes that are happening in the world quick enough, possibly due to his age.

The growth patterns that are happening, to companies breaking the mould using new technology, have never before happened. NEVER!
Their huge growth is unprecedented. I don't think he gets that.

His way of valuing companies means that he simply doesn't select them. He says that he does not understand technology or the companies involved in it but they are the main drivers in the marketplace. They can't be ignored by anyone looking to make a buck in the market. It is not just about the FANGS but all the other companies that are driving change and grabbing their opportunity.

But much as it did when he was a young man and realised that the old ways of Benjamin Graham were not correct any longer and to succeed he needed a new selection method, so the same thing has now happened to him. It has just taken everyone a loooooong time to realise that his returns are not what they once were and will never be again.

He only finally owns Amazon now that someone else bought it in Berkshire! A bit late to the party now mate....

Unless we have a massive market meltdown (the only time I would think about buying BRK, when he will do well on the way back up), it is inevitable IMHO that he will continue to slightly underperform until the baton passes to someone that gets what is happening in the World and acts accordingly for Berkshire.

He will never massively underperform though as the portfolio he owns is very strong but it is filled to the brim with companies that are "the market" really so you may just as well buy a Market index ETF. It won't come with any weird little jewelry or furniture companies in Nebraska either but of course, it will miss out on any refinancing or buyout deals that Warren may yet pull off.

Personally, I think you would do better, buying something as simple as MVOL which although filled with strong minimum volatile companies, includes a stronger tech selection than BRK so will most likely outperform BRK.

Gadge

[SentimentRules]

Bit of a problem with Buffets way for retail.

Have you ever noticed on many investments, the years of large drawdown before eventual return? He can afford to sit and wait. He can afford the sustained drawdown. Albeit some like tesco even tested his patience.

I've run a demo account on his way and the facts are simple. We can't invest in all he does. And if we choose ones he selects such as Tesco at 348p or whatever, we are in trouble.

He gets as many wrong as the rest of us. He just has the money to fight the prolonged errors.

His way was far more affective years ago. Different world now.

[Cookie]

It's easier to make a profit when trades and companies are relatively small. Now to have any effect on returns, he has to make trades in billions. Few companies are worth that in total, let alone a proportion of shares. Those meaningful deals become rarer the larger they are. Hence why the cash huge cash build up. When your restricted in your investments your effectively out of the market, your performance lags, but your reputation remains. People continue to invest as the investment hasn't gone bad, but the dead weight cash becomes a ball and chain

[YeeWo]

Berkshire's stodginess in Good Times will, IMHO, very probably be counterbalanced by a far less painful decline in a market rout!

[GoSeigen]

It's easier to make a profit when trades and companies are relatively small. Now to have any effect on returns, he has to make trades in billions. Few companies are worth that in total, let alone a proportion of shares. Those meaningful deals become rarer the larger they are. Hence why the cash huge cash build up. When youryou're restricted in your investments youryou're effectively out of the market, your performance lags, but your reputation remains. People continue to invest as the investment hasn't gone bad, but the dead weight cash becomes a ball and chain

Nothing to do with QE then?


GS

[Cookie]

It's easier to make a profit when trades and companies are relatively small. Now to have any effect on returns, he has to make trades in billions. Few companies are worth that in total, let alone a proportion of shares. Those meaningful deals become rarer the larger they are. Hence why the cash huge cash build up. When youryou're restricted in your investments youryou're effectively out of the market, your performance lags, but your reputation remains. People continue to invest as the investment hasn't gone bad, but the dead weight cash becomes a ball and chain

Nothing to do with QE then?


GS

Well, If you have not got a life that you have to be the grammer police, then there is probably a small person in there getting their panties in a twist about something, lets hear this great wisdom and get it over with!

[XFool]

It's easier to make a profit when trades and companies are relatively small. Now to have any effect on returns, he has to make trades in billions. Few companies are worth that in total, let alone a proportion of shares. Those meaningful deals become rarer the larger they are. Hence why the cash huge cash build up. When youryou're restricted in your investments youryou're effectively out of the market, your performance lags, but your reputation remains. People continue to invest as the investment hasn't gone bad, but the dead weight cash becomes a ball and chain

Nothing to do with QE then?

Well, If you have not got a life that you have to be the grammer police...

That's "grammar police"!

Sorry! I'll get me coat...

Perhaps this thread needs to be moved?