Mar 032018

Warren Buffett was interviewed on CNBC on February 26, 2018 from 6:00 a.m. – 9:00 a.m ET., primarily to discuss his annual Letter to Shareholders that was released on February 24.

The highlights of this interview were:

(1) Berkshire Hathaway’s net worth increased by $65.3 billion in 2017, partially as a result of a $29 billion increase from the corporate tax changes of 2017.  Berkshire’s unrealized capital gains of about $100 billion will now be taxed at 21% rather than 35% when these securities are sold in the future (resulting in a saving of $14 billion).

(2) Tax reform provides a huge tailwind to businesses.  Berkshire’s future profits will be taxed at 21% instead of 35%.

(3) Starting in 2018, Berkshire will have to report unrealized capital gains (and losses) on its $170 billion common stock portfolio on its income statement instead of its balance sheet.  Therefore, net income will be further distorted (in addition to realized capital gains and valuations of derivatives).  Investors should focus on Berkshire’s operating earnings instead.

(4) At current interest rates, one should choose equities over bonds.

(5) Berkshire was a net buyer of equities over the past year.

(6) Berkshire has not recently acquired a large company because of the takeover premium (about 25%) that it would have to pay over very high current market prices.

(7) Buffett prefers to repurchase Berkshire’s shares rather than paying a cash dividend. He will currently buy back shares if they are selling for less than 120% of book value.  He may increase that threshold to 125% or 127% in the future.  If Berkshire pays a cash dividend there will be an implied promise to continue to pay a dividend every year.  (Berkshire currently sells for about 143% of book value.)

(8) Owning shares of Berkshire is like a having savings account.

(9) GE made many mistakes including “insurance reserving” for long term care insurance.

(10) With respect to Wells Fargo, Buffett has confidence in CEO Tim Sloan.  Wells Fargo had terrible incentives.

(11) He criticized using leverage to buy stock.  People who borrow risk what they have and need for what they do not need (“get rich quick vs. getting rich slowly”).

(12) He was wrong on IBM but he likes Apple.

(13) His effort with Jeff Bezos and Jamie Dimon with respect to health care is aimed at cutting costs without reducing quality.

(14) The airline industry is more competitive than railroads. “I would not rule out owning an airline”. Berkshire owns up to 10% of the four major airlines (American, Delta, Southwest, and United).

(15) The 10 year U.S. Treasury has recently gone from a yield of 2.4% to 2.9%.  However, businesses are earning a return on equity of 12%.

(16) Over time we want  more international trade.

(17) Buffett recommends the earned income tax credit (EITC).

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

 Posted by at 10:28 pm
Feb 262018

I was interviewed on BNN TV (Business News Network – Canada) on February 26, 2018 at 8:40 a.m. ET on Warren Buffett’s Letter To Shareholders.

Highlights of my interview:

(1) Warren Buffett has not made a major purchase recently because stocks are near all-time highs and he would have to pay a 25% premium over current market prices to acquire a company.  He will pay only a “sensible purchase price”.  Berkshire has $116 billion in cash and Buffett will participate in only friendly deals.  However, Berkshire has been a net buyer of common stocks over the past year.

(2) At current interest rates, Warren Buffett thinks stocks are more attractive than bonds.  Buffett is optimistic and expects stocks to rally over the next 1 – 2 years.  But if the market should decline, then he is prepared to pounce and acquire a whole company or more.

(3) Warren Buffett and Charlie Munger are in charge of allocating capital and they (primarily Buffett) will decide on major purchases.  Buffett’s portfolio managers, Todd Combs and Ted Weschler, manage part of Berkshire’s common stock portfolio.

(4) In the near future, Berkshire could once again go partners with 3G Capital of Brazil in acquiring another food company such as their joint effort with H.J.Heinz (2013) and then Kraft (2015) (now Kraft Heinz).  Berkshire has been the financing partner and 3G Capital the operating partner.  Since Berkshire’s last large acquisition was Precision Castparts (aircraft parts manufacturer) which closed in January 2016, Buffett might acquire another manufacturing company, or an electric utility, or another business in the same industries as its current 60 businesses are in.  He will look for a well run business, with good growth prospects, at a sensible purchase price.


 Posted by at 11:35 am
Feb 242018

Berkshire Hathaway released Warren Buffett’s 2017 Letter to Shareholders at 8:00 a.m. today.

The highlights were:

(1) Berkshire’s $65 billion gain in net worth or book value in 2017 resulted from a $36 billion gain from operations and a $29 billion gain from the cut in corporate income taxes in December.  As a result, Berkshire’s price to book value currently equals 1.44.  (Berkshire class A shares closed at $304,020 on Friday, February 23 and its book value equals $211,750 per share.)   Buffett has previously said he would buy back shares if this ratio was below 1.20.
(2) As a result of new accounting rules going into effect in 2018, Berkshire would have to report changes in the market value (unrealized gains and losses) of its $170 billion stock portfolio every quarter as part of its net income. Buffett argues this will only introduce more confusion.  Instead investors should look only at changes in operating income.
(3) There are four building blocks to add value to Berkshire: –1. large stand alone acquisitions,  — 2 bolt-on acquisitions — 3. internal growth and –4. investment earnings from stock and bond portfolio.  With respect to acquisitions, Berkshire will make a large purchase only at “a sensible purchase price”..  Since stocks are at all-time highs, Berkshire will be patient and wait for a future buying opportunity at more attractive prices..
(4) Acquisitions that were made in 2017 include Pilot Flying J, and bolt-ons including real estate brokerages, and an addition to Precision Castparts.
(5) Buffett discussed how insurance is the engine that has powered Berkshire’s growth and the role of float (premiums that are invested before claims need to be paid).
(6) Non-insurance business delivered $20 billion in pre-tax income in 2017 vs. about 19 billion in 2016 — an increase of about 5%. The largest businesses being BNSF (railroad) and Berkshire Hathaway Energy. Other large businesses include Clayton Homes, International Metalworking Companies, Lubrizol, Marmon, and Precision Castparts whose earnings were approximately unchanged from 2016.
(7) Berkshire’s cash position increased to $116 billion (cash and Treasury Bills) at year end 2017, an increase of about $30 billion or 35% from $86 billion in 2016.
(8) Berkshire’s 5 largest common stock positions were:  Wells Fargo, Apple, Bank of America, Coca-Cola and American Express.(not counting Kraft Heinz — Berkshire is part of a control group  — therefore, Berkshire must account for this investment on the “equity” method.
(9) Portfolio managers Todd Combs and Ted Weschler each manage $12 billion (up from $10 billion last year).
(10) Buffett provides an extensive discussion of how his $1 million bet (for charity) in a passive low-cost S&P 500 fund outperformed hedge funds (with average fees of 2 1/2% of assets over a ten year period).
(11) At current interest rates stocks are less risky than bonds, especially over long time horizons.  Bonds yielding 1% are selling for 100 times earnings (vs. 20 times earnings for stocks with growth potential).
(12) Finally, Buffett mentions the promotions of Ajit Jain and Greg Abel to Berkshire’s board and the titles of Vice Chairman.. There was no discussion of succession plans.

(Note:  This blog post has been published by and ValueWalk.)


 Posted by at 10:38 am
Feb 232018

I am quoted in a Wall Street Journal article: “Playing With $100 Billion, Warren Buffett Is Giant Trader of U.S. Treasury Bills”.

“He’s aware that [Berkshire’s cash] is not earning a high rate of return for shareholders,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business and a Berkshire shareholder. “Paying out a special cash dividend, a one-time dividend at the discretion of management, makes some sense.”

 Posted by at 6:55 am
Feb 222018

I am quoted in this CNBC article: “Warren Buffett’s partner Charlie Munger reveals how much of an impact luck has on success”.

Fellow Omaha-native Buffett has also touted the critical role luck has played in his life and told MBA students at the University of Maryland in 2013 that winning the “ovarian lottery” helped determine his success.

“Warren Buffett has stressed the importance of luck in his life, focusing not only on where he was born but also when,” David Kass, a clinical professor of finance for the Robert H. Smith School of Business at the University of Maryland, told CNBC last year.

 Posted by at 6:30 pm
Feb 172018

Berkshire Hathaway’s 2017 Annual Report to shareholders will be
posted on the Internet on Saturday, February 24, 2018, at approximately 8:00 a.m. eastern time
where it can be accessed at The Annual Report will include
Warren Buffett’s annual letter to shareholders as well as information about Berkshire’s financial
position and results of operations.  Concurrent with the posting of the Annual Report, Berkshire
will also issue an earnings release.

 Posted by at 3:50 pm
Feb 142018

In an SEC 13F filing after the market closed today, Berkshire Hathaway (Warren Buffett) reported the following major changes to its common stock portfolio during the fourth quarter of 2017:


(1) Apple – An additional $5.3 billion stake of 31.2 million shares (or additional 23.3% stake) resulting in a total position valued at $28 billion on December 31, 2017.

(2) Bank of New York – An additional 21% stake of 10.6 million shares or $570 million.

(3) Teva – New position of $358 million.

(4) Monsanto – An additional 32% stake of 2.8 million shares or $330 million.


(1) IBM – A reduction of 35 million shares or $5.4 billion representing a 94.5% reduction in its stake.

(2) General Motors – A reduction of 10 million shares or $410 million representing a 17% reduction in its stake.


As of December 31, 2017, Berkshire Hathaway’s top five common stock holdings by market value (representing 62.4% of its portfolio) were:

(1) Apple – $28.0 billion

(2) Wells Fargo – $27.8 billion

(3) Kraft Heinz – $25.3 billion

(4) Bank of America –  $20.0 billion

(5) Coca Cola – $18.4 billion



 Posted by at 5:53 pm
Feb 082018

I am quoted in the Washington Post:

“There is a lot of concern in the rising yield in the 10-year Treasury note,” said David Kass, professor of finance at the University of Maryland. “As it approaches 3 percent, concerns about inflation and competition for stocks by fixed income securities are increasing.”



 Posted by at 1:09 pm