Jan 312017
 

Warren Buffett and Bill Gates were interviewed on the Charlie Rose Show on January 27, 2017.

During this interview, Warren Buffett revealed:

(1) “We’ve, net, bought $12 billion of common stocks since the election”.  This represents a substantial increase in the pace of purchases by Buffett.  During the first nine months of 2016, Berkshire Hathaway bought only $5.2 billion (and sold or redeemed about $20 billion) of stocks.  In all of 2015, Berkshire bought only $10 billion of equity securities.  Warren Buffett will likely reveal which stocks he invested in during the fourth quarter of 2016 when Berkshire releases its SEC 13F filing on February 14.

(2) Buffett also mentioned that Berkshire’s investment in the shares of American Airlines, Delta Air Lines, Southwest Airlines, and United Continental Holdings during the third quarter was “in large part” his decision.

 

 

 Posted by at 1:17 pm
Jan 312017
 

These are 10 highlights of “Becoming Warren Buffett” which was broadcast on HBO on January 30, 2017 from 10:00 p.m. – 11:30 p.m. EST.

(1) Warren Buffett considers himself to be very lucky by winning the “ovarian lottery” with 40:1 odds against being born in the United States (August 30, 1930), and 80:1 odds against being born in the U.S and being male (“sky is the limit”career opportunities).

(2) He was also very lucky to marry Susan Buffett (major “turning point” in his life.)

(3) “Compounding” is the 8th Wonder of the World.  By waiting until late in life (2006 at age 76) to begin donating over 99% of his wealth, compounding has resulted in a substantially larger amount to give back to society.  As of 2016, Warren Buffett has already contributed $24 billion to charities (primarily to the Bill and Melinda Gates Foundation) and his remaining wealth to be contributed to charities in the future is valued at over $63 billion.

(4) Using a baseball analogy from Ted Williams, Warren Buffett will swing at a pitch (invest in a stock/company) only if it is in his “sweet spot” (high probability of success).  Even though Berkshire Hathaway is highly liquid ($85 billion in cash), Buffett is very patient.  Berkshire Hathaway’s shareholders are long-term investors who generally plan to hold their shares “for a lifetime”.

(5) Buffett has simple tastes and is living in the same house since 1958.  “Money is a scorecard.”  Investing is a level playing field where everyone else can read the same thing that he reads.  Buffett spends 5 – 6 hours a day reading and is very competitive.

(6) Both Warren Buffett and Bill Gates (Microsoft) attribute the same word to their success … “focus”.

(7) Before meeting Charlie Munger, Warren Buffett invested in “fair companies at wonderful prices”.  Munger taught Buffett to invest in “wonderful companies at fair prices.”

(8) Ben Graham (Columbia University) taught Warren Buffett:  “Rule 1 – Never Lose Money”, and “Rule 2 – Never Forget Rule 1”.

(9) In 1991, Warren Buffett saved Salomon Brothers from bankruptcy after a Treasury Bond trading scandal by making the case to Treasury Secretary Nick Brady that not only would 8,000 jobs be lost at Salomon, but its failure could “take Wall Street with it”.

(10) Warren Buffett’s ambition in life is to be a teacher.  The right job for each person is the one you would pick if you did not need a job.

 

 Posted by at 12:30 am
Jan 272017
 

I am quoted in a Kiplinger’s article: “3 Reasons (Other Than Warren Buffett) to Buy Berkshire Stock”

Conditions are ripe for Berkshire’s so-called Powerhouse Six non-insurance businesses to perform well in 2017, says David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who studies Buffett and is a Berkshire shareholder.

“The ‘Powerhouse Six,’ which consists of its BNSF railroad [Burlington Northern Santa Fe], Berkshire Hathaway Energy, Marmon, Lubrizol, IMC and Precision Castparts, represent the bulk of its non-insurance earnings,” Kass says. “BNSF results should improve in 2017 with increasing rail volumes. Manufacturing operations should also improve along with the energy sector and the improving economy in 2017.”

 

 Posted by at 9:45 am
Jan 192017
 

I am quoted in a University of Maryland Smith Brain Trust article, “In Era of Trump, Investors Grapple with Tweet Risk”:

When President-elect Donald Trump took to Twitter to criticize Lockheed Martin for the price tag on the F-35 fighter jet, he sent the defense contractor’s shares into a minor tailspin. A similar thing happened weeks earlier, when he tweeted a rebuke of Boeing for the price of the new Air Force One.

With the Oval Office soon to be occupied by a Tweet-prolific commander-in-chief, investors are grappling with a new market force: Tweet risk. It’s what happens when Trump unleashes a seemingly out-of-the-blue Twitter takedown and investors react.

The initial impact looks dire and swift – a sudden 2 or 3 percent drop in a company’s share price. For a company the size of Lockheed Martin or Boeing, the drop amounts to billions in market value.

But the impact observed thus far largely has been fleeting, says David Kass, clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business. “Within a relatively short period of time, a week or two, these stocks have recovered and actually moved higher,” he says.

There are plenty of examples. In addition to Boeing and Lockheed Martin, there was tweet-to-market fallout for General Motors, Toyota and Carrier parent United Technologies.

Seldom have U.S. presidents called out individual companies, as Trump has done since the election. John F. Kennedy memorably chastised U.S. Steel and the broader steel industry in April 1962 for dramatically raising prices, Kass recalls. Shares in the steel giant slumped for days, and dragged down much of the stock market. 

“Given Donald Trump’s track record of singling out companies, which hasn’t been done to this extent by any other president, companies should be a little more circumspect. They should be thinking about what their policies are, what their pricing practices are,” Kass says. “This certainly is highly unusual.”

Kass also recommends that companies make bigger, splashier announcements out of routine news that’s likely to earn Trump’s praise on Twitter. For example, U.S. hiring plans, expansions of U.S.-based factories or other U.S.-based investments. Some companies are already doing this, Kass says, citing Amazon’s recent announcement of its plan to create 100,000 new jobs in the U.S. in 2017, and Lockheed Martin’s announcement last week on Twitter, that it would add 1,800 new jobs in the U.S.

Most, if not all, of the publicly traded companies that have been singled out in Trump’s tweets have seen their shares fall, snap back and ultimately move higher. And that trend brings an opportunity for traders. 

“If I were a trader, I would wait for the 2 or 3 percent drop and buy at that bottom and wait for the stock to recover,”  Kass says. 

“Investors in general should have a long-term horizon, similar to Warren Buffett, of at least five to 10 years,” says Kass, who has closely followed Buffett’s investment philosophy for more than 35 years. “If you have a long-term horizon of at least five to 10 years, then none of these tweets should bother you. It’s just noise.”

 

 Posted by at 2:14 pm
Jan 132017
 

I am quoted in a Washington Post article about the advantages and disadvantages or rebalancing a portfolio.

David Kass, a professor of finance at the University of Maryland, said most professional investors like Warren Buffett do not rebalance, but it makes sense for the rest of us. Kass even recommends rebalancing for a local nonprofit, where he sits on the investment committee.

“For most people and nonprofit institutions, rebalancing makes sense as a control for risk,” Kass said, pointing out that the Dow Jones industrial average declined 55 percent between October 2007 and March 2009. Average investors may not have the stomach for that kind of drop, particularly those closing in on retirement.

“Each investor or institution has his or its degree of risk tolerance or risk aversion,” Kass said. “Even though a buy-and-hold strategy of investing in equities is likely to outperform a rebalancing strategy between stocks and bonds in the long run, risk is better controlled in the short run.”

“I personally do not rebalance,” he said. “Certainly, Warren Buffett does not. For most individuals and institutions, it’s a wise idea to basically control the amount of risk in the overall portfolio by setting targets for the percentage of your portfolio that you would want in equities, in debt securities or bonds, and in cash, certificates of deposit, Treasury notes and Treasury bills.”

 Posted by at 12:21 am