Jan 182018

I am quoted in the Washington Post: “Warren Buffett’s Berkshire Hathaway had an amazing 2017.  2018 isn’t looking too bad, either.”

“I would not be surprised to see both Jain and Abel joining vice chairman Charlie Munger and chairman Warren Buffett on the stage at the upcoming May 5 meeting, not only answering shareholder questions, but also eating See’s Candies’ peanut brittle and drinking Cokes,” said David Kass, a finance professor at the University of Maryland.


 Posted by at 10:40 pm
Jan 102018

Warren Buffett (87) and Charlie Munger (94) were interviewed for one hour at 8:00 a.m. today on CNBC.  The highlights were:

(1) Greg Abel (55) and Ajit Jain (66) have been added to Berkshire Hathaway’s board of directors.   Greg Abel will be Vice Chairman – Non-Insurance Business Operations, and Ajit Jain will be Vice Chairman – Insurance Operations.  Buffett said this will give each of them the experience of supervising businesses.  There will be one CEO after Buffett is no longer there, presumably Abel or Jain in the near future. But 4 years from now it could be someone else.

(2)  Stocks are not richly valued at current interest rates.  Interest rates act like gravity.  Berkshire is a net buyer of equities.  Equities are the place to be.  Bonds paying 2% are selling for 50 times earnings with no growth.  Corporations are earning 15% on assets.

(3) Tax law increases corporate earning power by about 20%.  Buffett says the tax law is very favorable for Berkshire shareholders. Since Berkshire’s tax rate drops from 35% to 21%, it will now keep 79% of pre-tax profits vs. 65% before. This 14% increase in the share of its pre-tax profits that it retains, represents an increase of about 20% in its after-tax profits.  Furthermore, Berkshire’s deferred tax liabilities are similarly reduced on its unrealized capital gains of $100 billion.  For example, if Berkshire realized capital gains in 2017, it would have paid a 35% tax.  Now Berkshire would pay only 21%

(4) The 21% corporate tax rate was not baked into stock prices.

(5) Both Buffett and Munger would have voted for the tax bill.

(6) Bitcoin will have a bad ending.  Buffett would buy 5-year puts on cryptocurrencies.

(7) Buffett likes Apple and has been buying its shares (at least through September 30 — last SEC 13F report).  The market for iPhones is not yet saturated.  (Berkshire is one of the largest shareholders of Apple.)

(8) GE is a “big, strong company” and Berkshire would buy it at the right price.

(9) Berkshire owns about $100 billion in U.S. Treasury Bills, representing over 5% of the total U.S. Treasury Bills outstanding.

(10) Charlie Munger is happy with Abel and Jain.  Share prices are not crazy with bonds at 3%. There is a bubble in bitcoin and in venture capital (too much money).

(Note:  This blog post has been published by Value Walk.)


 Posted by at 10:13 am
Jan 082018

I am quoted in a Kiplinger article: “Warren Buffett: Why Index Funds Trump Hedge Funds”

Buffett has long been a critic of excessive fees, notes David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who studies Buffett and is a Berkshire shareholder.

“Buffett said at a recent Berkshire annual meeting, when he asked a hedge fund manager why he charges  ‘2 and 20,’ the response was ‘because I can’t get “3 and 30,” Kass says.

“Warren Buffett has recommended that when he is no longer here, his wife should invest 90% of her money in a low-cost S&P 500 index fund such as that offered by Vanguard. The other 10% would be invested in Treasuries to provide liquidity,” Kass says.

“In order for hedge funds to justify their ‘2 and 20’ fee structures, their rates of return after fees must exceed what any investor can earn from a low-cost S&P 500 index fund,” Kass says. “Their fee structures makes this extremely difficult to achieve over time.”
 Posted by at 4:43 pm
Jan 032018

I am quoted in Smith Brain Trust (Robert H. Smith School of Business, University of Maryland) on “Top Five Stocks to Watch in 2018”.


Bet on Berkshire, Apple, Wells Fargo, BofA and Kraft Heinz

SMITH BRAIN TRUST – 2017 was a pretty happy year for stock investors, and David Kass says he expects 2018 to be rosy as well.

Kass, a professor of finance at the University of Maryland’s Robert H. Smith of Business, says he expects the S&P 500 and the overall stock market to climb another 10 to 15 percent this year. “And the major impetus to the increase,” he says, “is really the corporate income tax cut that will be going into effect, beginning in January, as well as the economies around the world continue to recover and as economic growth expands in the United States.”

“I expect interest rates in this country to rise only gradually,” he says, with two or three quarter-point increases over the course of the year. Investors, having long anticipated those interest rate increases, have already largely factored the impact of higher interest rates into their pricing of equities, he adds.

“Interest rates are near historically low levels and will remain relatively low, even with these increases,” Kass says. “The overall background will remain very favorable for stocks, as it was for 2017.”

Kass has closely followed the financial markets for over 50 years, and Warren Buffett’s investments and philosophy for more than 35 years. Kass says the stocks he likes in 2018 are the same ones he liked in 2017. “Like Warren Buffett, I have a long time horizon, and I’m focused on the long term when I consider investments,” he says.

Here are his top five stock picks for 2018:

Berkshire Hathaway. The Omaha-based conglomerate led by Buffett should be “a very major beneficiary” of the new 21 percent corporate income tax rate, approved by Congress last year. Berkshire had been paying an effective tax rate of 27.5 percent. “Plus they have common stock investments with large unrealized capital gains that they will be able to sell in 2018 or later at a lower corporate income tax rate, which reduces their deferred tax liabilities” Kass adds. The tax cut alone might add another 10 percent to the price of Berkshire Hathaway in 2018.”

Apple. Kass says he continues to recommend Apple, despite periodic hand-wringing in the market about the company’s outlook. “Apple has established a subscription model,” Kass says. “People who buy their iPhones tend to trade up to the latest, most up-to-date models, roughly every 2.5 years. And they also sign up for the latest apps.” The Cupertino, Calif.-based company functions as both a consumer and a technology company, Kass says. “It’s a perfect blend of both.” Apple’s stock price is reasonably valued at current prices, he says, around $170 this week. Berkshire owned about $21 billion of Apple’s shares as of Sept. 30.

Wells Fargo and Bank of America. Rising interest rates and lower corporate tax rates are good news for the financial sector. “With rising interest rates, banks in general should see their profits increase in 2018, as well as subsequent to 2018,” Kass says. He has his eye on the San Francisco-based Wells Fargo and Charlotte, NC-based Bank of America — both among Berkshire’s top five holdings. Berkshire was holding about $25 billion in shares of Wells Fargo and $17 billion of Bank of America as of Sept. 30. Wells Fargo, in particular, appears poised for a good year. It had been subject to a higher tax rate than some of its peers in the financial sector as well as its peers in the broader economy, so the new lower corporate tax rate is very welcome news for that financial institution. “I would recommend both of those banks at current (stock) prices,” Kass says.

Kraft Heinz. The food giant that makes Heinz ketchup and Kraft cheeses is 25 percent owned by Berkshire Hathaway and 25 percent owned by Brazilian private equity group 3G Capital. “Kraft Heinz has made a major food acquisition every two years for the past four years,” Kass says. (H. J. Heinz was acquired in 2013 and Kraft was acquired in 2015.)  “Their model is to buy an undermanaged food company and run it more efficiently, reducing costs and trying to grow the company, and substantially increasing profits in the process. I expect Kraft Heinz to make a large food acquisition in 2018.” The acquisition, he says, is likely to boost the share price of the Chicago-based Kraft Heinz.

(Note:  This blog post has been published by Seeking Alpha and Value Walk.)

 Posted by at 11:27 am
Dec 252017

In a Roger Lowenstein interview of Warren Buffett from the Washington Post:

“There are basically two kinds of assets,” elaborated Warren Buffett, who was in his office and not buying bitcoin the day I called. “One you look to the stream of income it will produce; the other you hope like hell that someone will pay you more for it.” The second type is inherently speculative; it includes gold, although gold at least has value as jewelry. It most definitely includes bitcoin.

What do you think they will do when it goes down? “I will say this,” Buffett added, “it will come to a bad ending.”


 Posted by at 11:31 am
Dec 182017

Berkshire Hathaway class A shares traded for $300,000 for the first time this morning. Berkshire class B shares traded at $200 for the first time (Berkshire A trades at 1500 times Berkshire B.)  $1,000 invested in Berkshire 52 years ago would be worth about $20 million today. The same amount invested in the S&P 500 would be worth about $130,000.
(Values were calculated using the compounded annual  gain of 20.8 percent from 1965-2017 for per-share market value of Berkshire, and the compounded annual gain of 9.7 percent from 1965-2017 in the S&P 500, with dividends included.)

 Posted by at 12:01 pm
Nov 142017

In its Form 13F filing released after the market closed today, Berkshire Hathaway reported that it sold approximately 30% of its stake in IBM (NYSE:IBM) for about $2.5 billion, and purchased an additional $600 million of Apple (NASDAQ:AAPL) during the third quarter of 2017.  The sale of 17 million shares of IBM were at an approximate price of $150 per share, which was below Berkshire’s average cost of $170 per share.

Berkshire also increased its positions in Monsanto (NYSE:MON) and Synchrony Financial (NYSE:SYF) by about $100 million each.

Berkshire also decreased its stake in Charter Communications (NASDAQ:CHTR) by about $300 million and Wells Fargo (NYSE:WFC) by about $175 million.

Berkshire’s five largest equity holdings as of September 30, 2017 were:

(1) Wells Fargo —           $25.6 billion

(2) Kraft Heinz —             $25.3 billion

(3) Apple   —                    $20.7 billion

(4) Coca Cola —              $18.0 billion

(5) Bank of America —    $17.2 billion




 Posted by at 6:24 pm
Nov 122017

Seeking Alpha has published my article and slides on “The Value Investing Strategies of Warren Buffett, Charlie Munger, Todd Combs, and Ted Weschler at Berkshire Hathaway”.


$1,000 invested in Berkshire Hathaway 52 years ago is now worth $18.5 million.  The same amount invested in the S&P 500 with dividends included would be worth $123,000.

Warren Buffett, Charlie Munger, Todd Combs, and Ted Weschler have consistently outperformed the S&P 500 over decades.

Todd Combs and Ted Weschler are largely compensated based on their outperformance of the S&P 500.

As demonstrated in the attached slides, the value investing approaches of Warren Buffett, Charlie Munger, Todd Combs and Ted Weschler have resulted in consistently outperforming the S&P 500 with dividends included over many decades. From 1965-2016, Berkshire Hathaway’s (NYSE:BRK.A) (NYSE:BRK.B) compounded annual gain in per share market value of 20.8% far exceeded the 9.7% compounded gain of the S&P 500 with dividends included.

Over the foreseeable future, Berkshire’s outperformance is very likely to continue. Todd Combs and Ted Weschler are in place and have been designated to run all of Berkshire’s investments after Warren Buffett is no longer at Berkshire. With Berkshire’s rapidly growing cash position of $109.3 billion as of September 30, 2017, substantial growth can be anticipated through the continued friendly acquisitions of companies as well as investments in equity securities.

Berkshire also is a more tax efficient investment than is the S&P 500. Since the S&P 500 pays dividends that are taxable and Berkshire does not pay dividends, Berkshire’s outperformance relative to the S&P 500 increases when calculated on an after-tax basis.

 Posted by at 5:50 pm
Nov 032017

After the market closed today, Berkshire Hathaway released its 10-Q for the third quarter of 2017.

Five highlights were:

(1) Berkshire’s operating earnings declined by 29% in the third quarter as a result of underwriting losses from three hurricanes.

(2) Berkshire had $109.3 billion in cash as of September 30, 2017.  Its price to book value ratio is 1.5, which is above Warren Buffett’s previously announced 1.2 threshold for its stock buybacks.

(3) Berkshire had a net additional investment of $5.9 billion in equities in “Banks, insurance and finance” during the third quarter of 2017.  ($5 billion for exercise of Bank of America (NYSE:BAC) warrant.)

(4) Berkshire decreased its equity investments in “Commercial, industrial, and other” by $2.25 billion based on cost.

(5) Berkshire apparently added 3 million shares of Apple (Nasdaq:AAPL) (+ $450 million).


(Note:  This blog post has been published by Investing.com and Value Walk.)


 Posted by at 8:25 pm