Mar 032014
 

These are some highlights from a 3-hour interview of Warren Buffett on CNBC from 6:00 a.m. – 9:00 a.m. eastern time on March 3, 2014.  In addition, Todd Combs, Ted Weschler, and Tracy Britt Cool appeared together for 30 minutes.

(1) Warren Buffett (WB):  3G Capital and Berkshire would like to do another acquisition (similar to H.J. Heinz).  “I think we will.”

(2) WB likes IBM’s share buyback, but would like to see revenues pick up.  The CEO (Virginia Rometty) will be judged 5 years from now.  Berkshire bought a few more shares this year.

(3) WB has donated 160,000 class A shares to the Gates Foundation with a current market value of $27 billion.  According to Forbes Magazine, Warren Buffett is the 4th richest person in the world with a net worth of $58 billion.  Bill Gates is first ($76 billion).  (Note:  If WB had not donated $27 billion, his net worth would be $85 billion and he would be the richest person in the world.)

(4) WB:  Bitcoin is not a currency since it is not a means of exchange or a store of value.  He would not be surprised if Bitcoin was not around in 10 – 20 years.

(5) WB: Todd Combs and Ted Weschler will be with Berkshire forever.  They are the kind you would want your daughter to marry.  They each are managing over $7 billion.  (Note: Berkshire’s portfolio equals $115 billion.)  They evaluate businesses.  They are business analysts.  They possess soundness and brilliance.  They dream about things that have not yet happened.  They also think about the downside.  They have already made Berkshire billions.  WB is not looking for a third portfolio manager.

Ted has also helped out by negotiating a deal with Media General and the Rescap bankruptcy.  Todd negotiated with Phillips 66 (exchange of Phillips 66 stock and cash for a chemical operation — this was WB’s idea, but Todd successfully implemented it.)  They are each earning less than they would if they were running hedge funds.  Todd and Ted “smashed” Buffett’s performance.  Todd, Ted, and Tracy possess intellect and character.  WB reads 500 pages per day (annual reports, etc.)  (as do Todd and Ted).  Knowledge compounds.  WB read Bank of America annual reports for 50 years.  Ted does not meet or talk to management.  He reads annual reports, transcripts, 10K’s and 10Q’s.  When he identifies a good investment, he waits for the right price.

Todd and Ted have an 80-20 compensation arrangement (each earns 20% of their salary based on the performance of the other.)  If they were to add another “partner”, Todd would choose Lou Simpson, Tom Bancroft, or Meryl Witmer (on Berkshire’s Board of Directors).  Ted would choose David Tepper.

Ted has been following the dialysis industry for 30 years (Berkshire has a large stake in kidney dialysis company DaVita.)  He would invest in a health care company if it offered the best quality of care, saves money for payers, has a high return on capital, has predictable growth, strong management, and will be more valuable in 5 years.

(6) WB: Coca-Cola has wonderful brands and its unit sales are increasing.  Carbonated soft drinks comprise 1/4 of liquids sold in the U.S.

(7) WB: The U.S. economy (GDP) should grow at least by 2%/year and with a 1% growth in population, there will be an increase of 20% in per capita output in a generation.

(8) WB: Why sell stocks today because of Ukraine?  The stock market rose throughout World War II.  In time of war one should own assets such as houses, land, or securities.  Money will be worth less.

 

 Posted by at 8:58 pm

Quotes From Warren Buffett’s Letter to Berkshire Shareholders – February 28, 2014

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Mar 012014
 

These are some quotes from Warren Buffett’s annual Letter to Shareholders dated February 28, 2014 and posted on Berkshire’s web site March 1:

(1) “Berkshire’s intrinsic value far exceeds its book value.”  Berkshire will aggressively purchase its shares if the stock price drops below 120% of book value.  (Note: At the Friday, February 28, 2014 closing price of $173,708 for Berkshire class A, and at its yearend 2013 book value of $134,973, Berkshire’s price equals 129% of book value.)

(2) “With the Heinz purchase… we created a partnership template that may be used by Berkshire in future acquisitions”

(3) “Mid-American is one of our “Powerhouse Five” .. large non-insurance businesses that include BNSF, Iscar, Lubrizol, and Marmon.”

(4) “In a year in which most equity managers found it impossible to outperform the S&P 500 (Note: S&P 500 up 32% in 2013), both Todd Combs and Ted Weschler handily did so…I must again confess that their investments outperformed mine.”

(5) “Berkshire increased its ownership interest last year in each of its “Big Four” investments – American Express, Coca-Cola, IBM, and Wells Fargo.  We  purchased additional shares of Wells Fargo (increasing our ownership to 9.2% versus 8.7% at yearend 2012) and IBM (6.3% versus 6.0%).  Meanwhile, stock repurchases at Coca-Cola and American Express raised our percentage ownership. …The four companies possess excellent businesses and are run by managers who are both talented and shareholder-oriented.  At Berkshire, we much prefer owning a non-controlling but substantial portion of a wonderful company to owning 100% of a so-so business; it’s better to have a partial interest in the Hope diamond than to own all of a rhinestone….The earnings that these four companies retain are often used for repurchases of their own stock.. as well as for funding business opportunities…All that leads us to expect that the per-share earnings of these four companies will grow substantially over time.”

(6) “Indeed, who has ever benefited during the past 237 years by betting against America?”

(7) “We can buy 700 million shares of Bank of America at any time prior to September 2021 for $5 billion.  At yearend these shares were worth $10.9 billion.  We are likely to purchase the shares just before expiration of our option.  In the meantime, it is important for you to realize that Bank of America is, in effect, our fifth largest equity investment and one we value highly.”

(8) “Put 10% of the cash (in a trust for his wife) in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.)  I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.”

(9) “Last year they (Berkshire’s small staff) dealt with the 40 universities (selected from 200 applicants) who sent students to Omaha for a Q&A day with me.”  (Note: The University of Maryland was one of the 40 universities.)

The entire Letter to Shareholders is available at:

http://www.berkshirehathaway.com/letters/2013ltr.pdf

 

 

 

 

 

 

 Posted by at 6:18 pm