Charlie Munger: Ajit Jain or Greg Abel Would Make an Outstanding CEO

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Feb 282015
 

In Berkshire Hathaway’s 50th Anniversary (under Warren Buffett’s management) letter to shareholders, Charlie Munger stated that either Ajit Jain or Greg Abel would make an outstanding CEO to eventually succeed Warren Buffett.

I was interviewed on CNBC Asia Squawk Box (March 1) on this issue:

http://video.cnbc.com/gallery/?video=3000358209&play=1

I am also quoted in four (4) articles in the Omaha World Herald on a possible successor to Warren Buffett.  In one article:

“But Berkshire’s next CEO will be more than that, Munger said, citing Berkshire insurance chief Ajit Jain and Berkshire Energy CEO Greg Abel as two executives who “are proven performers who would probably be underdescribed as ‘world-class.’ ”

Munger’s listing the two by name raised speculation that Jain and Abel are the most likely people to be named CEO if necessary today. The fact that Matt Rose, executive chairman of BNSF Railway, is not mentioned in the report and that Buffett pointed out the railroad’s problems also brought some attention.

“Buffett’s explicit criticism of BNSF raises the question about its CEO, Matt Rose,” said David Kass, a business professor at the University of Maryland. “It cannot be considered a positive note for Rose’s chances.”

The entire article is available at:

In a second article:
“I think the finalists are Jain and Abel,” said David Kass, a University of Maryland business professor and Berkshire shareholder.
The entire article is available at:
In a third article:

“David Kass, a business professor at the University of Maryland and Berkshire shareholder, said Buffett appears to be attempting to motivate BNSF with his multiple mentions of Union Pacific, a former stock holding of Berkshire with a headquarters about two dozen blocks from Buffett’s office.

“He might be attempting to stimulate the competitive juices at BNSF,” Kass said. “But it does raise the question of how much the service problems were weather-related and how much they were a result of bad managerial decisions.”

 The entire article is available at:
In the fourth article:
David Kass, business professor at the University of Maryland:

“The overall message from Buffett and Munger is that Berkshire is fine and will be just fine without them.”

“I’m sure it is Buffett’s honest belief that he has set up a firewall with $20 billion in cash. When Wall Street’s checks were all bouncing a few years ago, the only banker left was Berkshire.”

The entire article is available at:

http://www.omaha.com/money/refreshing-puzzling-analysts-weigh-in-on-berkshire-hathaway-letter/article_3f178e83-0a76-5d05-ba7d-f72be44c9a76.html

 

 Posted by at 5:30 pm

Berkshire to Release 2014 Annual Report on February 28, 2015

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Feb 262015
 

Berkshire Hathaway Inc.’s 2014 Annual Report to the shareholders will be posted on the Internet on Saturday February 28, 2015, at approximately 8:00 a.m. eastern time where it can be accessed atwww.berkshirehathaway.com. The Annual Report will include Warren Buffett’s annual letter to shareholders as well as comments from Mr. Buffett and Charlie Munger regarding Berkshire’s past 50 years and their expectations for the next 50 years. Also included in the Annual Report will be 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 8:46 pm

Berkshire Buys German Motorcycle Apparel and Accessories Company

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Feb 202015
 

The Financial Times reported today that Berkshire Hathaway is acquiring Devlet Louis Motorradvertriebs, a German (Hamburg) based retailer of motorcycle apparel and accessories for about $450 million.  Warren Buffett, looking for investment opportunities in Europe, stated “we have cracked the code in Germany”.

Louis is a family business that will remain a standalone subsidiary of Berkshire, overseen by one of Mr. Buffett’s portfolio managers, Ted Weschler.  Louis has 71 stores in Germany and Austria, and also sells through catalog and e-commerce.  It has gross revenues of $300 million and 1,600 employees.  Therefore, Berkshire is paying 1.5 times sales for this business.

This is Berkshire’s second exposure to the motorcycle business.  In February, 2009 it lent $300 million to Harley Davidson at a 15% interest rate at the peak of the financial crisis.  Harley Davidson repaid this loan in February, 2014.

 

 

 Posted by at 8:06 am

The Buffett Effect: Market Response to Berkshire’s Portfolio Changes

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Feb 182015
 

After the market closed on February 17, 2015, Berkshire Hathaway (BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending December 31, 2014.  This report revealed numerous changes to Berkshire’s portfolio.  The three largest were:

(1) Warren Buffett sold his $4 billion investment in Exxon Mobil (XOM),

(2) Mr. Buffett added $1 billion (+9%) to his holding in International Business Machines (IBM) ($12 billion), and

(3) Warren Buffett and/or Todd Combs (Fortune Magazine October 27, 2014) added about $800 million to their position in Deere (DE) ($1.5 billion).

So how did these stocks perform on their first day of trading (February 18, 2015) after release of Berkshire’s 13F filing?

(1) XOM declined by 2.19% ($91.01 – $2.04)

(2) IBM rose by 0.76% ($162.19 + $1.23)

(3) DE rose by 3.15% ($92.75 + $2.83)

These large percentage changes in prices occurred in a relatively stable overall market on February 18, with the S&P 500 declining 0.03% and the Dow Jones Industrial Average closing lower by 0.10%.

Thus the “Warren Buffett Effect” of investors closely following the Oracle of Omaha’s transactions appears to be significant.  (It is important to note, however, that either Mr. Buffett or one of his portfolio managers, Todd Combs, purchased the additional shares of DE.)

 

 

 

 Posted by at 6:07 pm

Big Changes to Berkshire’s Portfolio in Fourth Quarter 2014

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Feb 172015
 

After the market closed on February 17, 2015, Berkshire Hathaway (BRK.A, BRK.B) reported its equity holdings of U.S. based companies in its SEC 13F filing for the quarter ending December 31, 2014.  This report revealed numerous changes to Berkshire’s portfolio.  The three largest were:

(1) Warren Buffett sold his $4 billion investment in Exxon Mobil (XOM),

(2) Mr. Buffett added $1 billion (+9%) to his holding in International Business Machines (IBM) ($12 billion), and

(3) Warren Buffett and/or Todd Combs (Fortune Magazine October 27, 2014) added about $800 million to their position in Deere (DE) ($1.5 billion).

Berkshire also added to its stakes in Charter Communications (CHTR), DaVita Healthcare (DVA), DirecTV (DTV), General Motors (GM), Liberty Global (LBTY), MasterCard (MA), Phillips 66 (PSX), Precision Castparts (PCP), Suncor Energy (SU), Viacom (VIAB), and Visa (V).  It initiated investments in Restaurant Brands International (QSR) and Twenty First Century Fox (FOXA).

There were also reductions in Bank of New York Mellon (BK) and National Oilwell Varco (NOV).  Berkshire eliminated its holdings in Conoco Phillips (COP) and Express Scripts (ESRX).

Berkshire’s 13F filing for the fourth quarter of 2014 is available at:

http://www.sec.gov/Archives/edgar/data/1067983/000095012315002961/xslForm13F_X01/form13fInfoTable.xml

 Posted by at 5:09 pm

U.S. News & World Report: 10 Consumer Stocks

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Feb 112015
 

I am quoted twice (General Motors and Johnson & Johnson) in a U.S. News & World Report article recommending 10 consumer stocks:

General Motors (GM). By all accounts, GM has cruised away from its government bailout in a stronger position, with higher-than-expected earnings for the fourth quarter of 2014 and improved management. “Although GM is still in the process of settling claims relating to defective ignition switches, its outlook is bright, since there’s a pent-up demand for new cars,” says David Kass, clinical associate professor of finance at the University of Maryland’s Robert H. Smith School of Business. “The average age of cars on the road now exceeds the historical average, so they’re likely to be replaced by new vehicles in the near future.”

Johnson & Johnson (JNJ). It turns out this company didn’t need a Band-Aid approach after several major recalls of over-the-counter products. “JNJ is a very well-managed and well-diversified company in pharmaceuticals and consumer products, including over-the-counter drugs and health care items,” Kass says, adding that in December 2012, CEO Alex Gorsky came in “and has turned this company around. Its outlook is very bright, and it currently pays a 3 percent dividend.”

The entire article is available at:

http://money.usnews.com/money/personal-finance/mutual-funds/articles/2015/02/11/10-consumer-stocks-to-put-on-your-shopping-list

(Note:  Berkshire Hathaway has investments in both GM and JNJ.)

 Posted by at 11:10 am

Berkshire Hathaway Is Third Largest Company in S&P 500 Index

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Feb 112015
 

Berkshire Hathaway (BRK.A, BRK.B) is the third largest company by market capitalization in the S&P 500 Index.  As of the market close on February 10, 2015, the top four companies are:

(1) Apple (AAPL) – $710 billion

(2) Exxon Mobil (XOM) – $382 billion

(3) Berkshire Hathaway – $370 billion

(4) Google (GOOGL) – $363 billion

http://www.wsj.com/articles/apple-the-700-billion-company-1423602877?

 

 Posted by at 7:40 am

Should You Buy Gold?

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Feb 052015
 

I am quoted in an AARP Magazine (February/March 2015) article discussing gold as an investment:

“Gold is an emotional investment, and not one that I would recommend for those approaching retirement or in retirement,” says David I. Kass, associate professor of finance at the University of Maryland, College Park. “The price of gold can drop as quickly as it can go up.”

Warren Buffett is also quoted in this article:

Billionaire Warren Buffett, one of the world’s most successful investors, has a more colorful argument against gold. In a letter to shareholders in 2011, the Oracle of Omaha said all the gold mined would amount to a 68-foot cube, the money equivalent of all the cropland in the U.S., 16 ExxonMobils and a trillion dollars in cash. “A century from now, the 400 million acres of farmland will have produced staggering amounts of corn, wheat, cotton, and other crops—and will continue to produce that valuable bounty, whatever the currency may be. ExxonMobil will probably have delivered trillions of dollars in dividends to its owners and will also hold assets worth many more trillions (and, remember, you get 16 Exxons),” he wrote. “The 170,000 tons of gold will be unchanged in size and still incapable of producing anything. You can fondle the cube, but it will not respond.”

The entire article is available at:

 
 Posted by at 9:24 pm

Highlights of Warren Buffett Interview on Fox Business – February 4, 2015

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Feb 042015
 

Warren Buffett was interviewed from Omaha by Liz Claman of Fox Business on February 4, 2015 from 3 p.m. – 4 p.m. EST.

These are some of the highlights:

(1) $10,000 invested in the Buffett Partnership in 1956 is today worth $170 million.

(2) This year’s Berkshire Hathaway annual meeting, celebrating the 50th anniversary of Berkshire, will attract a record number of shareholders exceeding 40,000.  Many CEO’s will be present, including those of companies Berkshire has invested in.

(3) With 30 year fixed mortgage rates below 4%, this is a good time to borrow to buy a home.

(4) Buffett would not buy U.S. Treasury bonds at this time. The 30 year bond could easily sell at 60 in the near future (60% of par).

(5) It will be difficult for the Federal Reserve to raise interest rates this year with interest rates in Europe close to zero.  A rate increase would exacerbate the problem with the dollar (raise the value of the dollar).

(6) The Keystone Pipeline should be passed and built.

(7) Berkshire is planning to buy a “small business” in Western Europe.

(8) Jack Byrne saved Geico in the mid-1970’s.  (Tony Nicely, CEO of Geico was also interviewed on this program.)

(9) Tony Nicely: Geico wants to insure Uber drivers and is licensed to do so in Maryland and Virginia and is applying to other states.

(10) Driverless cars will be introduced gradually and will reduce the cost of insurance since there will be fewer accidents.  Warren Buffett welcomes anything that leads to safer driving.

(11) Warren Buffett does not plan to sell Berkshire’s shares in Moody’s.  Moody’s will have to pay a fine but it is an excellent business.  (The Justice Department announced on Sunday that Moody’s is being investigated for awarding high ratings to risky mortgage backed securities (which contributed to the financial crisis).  (Standard & Poor’s just settled with the Federal Government and several states for payments totaling about $1.5 billion.)

 

 Posted by at 5:00 pm