Aug 312019

I am extensively quoted in this CNBC article:

Warren Buffett, now 89, on a lifelong success factor that few other billionaires are willing to credit

Luck’s role in success

Many successes start with luck.

“Having the good luck to win the ‘ovarian lottery’ is a major determinant in success in life in general — and in business in particular,” Professor David Kass told CNBC. The clinical professor of finance for the Robert H. Smith School of Business at the University of Maryland was the first to publish the Buffett “ovarian lottery” comments, based on notes he took at a 2013 graduate student event where Buffett spoke.

Luck may seem like the least tangible, least controllable success factor. After all, what can one do about luck? But there’s a perfect example from Buffett’s business history that Kass shared with CNBC, showing how those who believe in luck are also on the lookout for luck when it delivers an opportunity into their lap:

When Buffett was a 20-year-old MBA student at Columbia University, he learned that the investor who was his role model and hero, Professor Benjamin Graham, was the Chairman of the Board of GEICO. Since Buffett was interested in anything that Graham was interested in, he took a train to Washington from New York (1950), arriving on a Saturday morning. Without calling or writing ahead of time, Buffett was very lucky that one employee was there, Lorimar Davidson, who spent four hours explaining both insurance and GEICO to Buffett. Buffett immediately grasped that GEICO would have an enduring competitive advantage. (Davidson subsequently became CEO of GEICO.) Insurance later became the primary business and building block of Berkshire Hathaway.

“Warren Buffett has stressed the importance of luck in his life, focusing not only on where he was born but also when. His primary skill of allocation of capital has worked well for him in the United States and in his lifetime,” Kass said.

Buffett’s view of his own lucky draw is reflected in this key section from Professor Kass’ notes:

“Just imagine that it is 24 hours before you are born. A genie comes and says to you in the womb, ’You look like an extraordinarily responsible, intelligent, potential human being. [You’re] going to emerge in 24 hours and it is an enormous responsibility I am going to assign to you — determination of the political, economic and social system into which you are going to emerge. You set the rules, any political system, democracy, parliamentary, anything you wish — you can set the economic structure, communistic, capitalistic, set anything in motion, and I guarantee you that when you emerge, this world will exist for you, your children and grandchildren. What’s the catch? One catch — just before you emerge, you have to go through a huge bucket with 7 billion slips, one for each human. Dip your hand in and that is what you get …”

For entrepreneurs who hope to have as much luck for as long as Buffett has had it, Kass said the lesson is to be humble about your own contributions and the contributions from others upon which you depend. “Appreciating the contributions of the teachers we have had and the people before us who have assisted us is a critical attribute of luck and lasting business success,” he said.

That’s a practical philosophy wrapped in an overlooked birthday gift worth practicing every day of the year for those seeking success in either of Buffett’s sweet spots — running businesses or making stock investments — or any walk of life.

 Posted by at 7:57 am
Aug 212019

Brian Moynihan, CEO of Bank of America, was interviewed on CNBC this morning.  These are the highlights:

(1) The “inverted yield curve” last week was an indication of a “flight to quality” as (foreign) investors purchased U.S. Treasuries in order to receive a positive yield.

(2) The U.S consumer is doing well — spending more and making more.

(3) The odds of a recession are low in the near future.

(4) Resolving the trade war will take a long time.  It is resulting in capital spending declining.  To offset this, we need to resolve the U.S budget, approve USMCA, and resolve Brexit.

(5) The U.S. consumer economy is as big as the entire China economy.  The world needs U.S. growth.  The Federal Reserve will base its decisions on data. Current data do not indicate that some action is needed.

(6) The U.S. economy will grow at 2.3% in 2019 which is very good.

(7) Bank of America is buying back $7.25 billion of its stock every quarter.  If its stock price goes down, then that results in buying back more shares.


 Posted by at 9:24 am
Aug 162019

David Rubenstein was interviewed on CNBC this morning.  These are the highlights:

(1) We can have a deal with China within 4 months (by December 15?).

(2) We had an inverted yield curve for “10 minutes”.  In 2007 we had an inverted yield curve for 3 months. Recessions follow inverted yield curves by 300 – 500 days.

(3) Presidents tend to not get re-elected when a recession precedes the election.  Only McKinley was re-elected in a recession.

(4) Markets do not like uncertainty. If a deal is reached with China adding certainty to the economic outlook, the markets will respond well.

(5) A deal can be reached with China on (a) China purchasing more from the U.S. (agricultural products), (b) U.S. firms can gain increased access to China and intellectual property being addressed, but (c) China’s 2025 goals with government support of AI and high-tech businesses will not be included in a deal.

(6) Recessions have occurred every 7 years on average in the U.S.  We have gone 10 years since the last recession. We will eventually have another recession.

(7) U.S economy is currently in good shape.  He does not see a recession in the near future.

(8) Although the U.S. has low interest rates, Europe and Japan have negative interest rates.


 Posted by at 8:07 am
Aug 142019

In an SEC 13F filing released after the market closed today, Berkshire Hathaway revealed an 11% increase ($100 million) in its stake in Amazon during the second quarter of 2019.  This stake is now valued at about $1 billion.  (Todd Combs or Ted Weschler)

No other major changes were made to Berkshire’s portfolio during the second quarter.  Other changes included a 3% increase in its Bank of America holding (Warren Buffett) , as well as a 2% increase in its stake in U.S. Bancorp (Warren Buffett).  It also reduced its stake in Charter Communications by 5% (Todd Combs or Ted Weschler).

The total value of Berkshire’s portfolio equaled $208 billion as of June 30, as compared to $199 billion on March 31.  Its portfolio consisted of 47 stocks.  The top 5 holdings by market value on June 30 were:

(1) Apple — $49.4 billion (Primarily Warren Buffett)

(2) Bank of America — $26.9 billion  (Warren Buffett)

(3) Coca Cola — $20.4 billion (Warren Buffett)

(4) Wells Fargo — $19.4 billion (Warren Buffett)

(5) American Express — $18.7 billion (Warren Buffett)

 Posted by at 4:47 pm
Aug 142019

I am quoted in The Washington Post on whether an inverted yield curve signals an upcoming recession.

David Kass, a finance professor at the University of Maryland, cautioned that the yield curve may not be an accurate predictor of a recession under current conditions. Kass said several recessions in the past few decades have been preceded by Federal Reserve interest rate increases.

That is not the case currently.

Kass said negative bond yields in Europe, in which investors receive nothing for their money, may be pushing investors into U.S. Treasurys.

“Foreign investors may be buying long-term U.S. Treasurys in order to earn a positive return,” Kass said. “This would exert downward pressure on the yield of long-term U.S. Treasury securities.”

 Posted by at 1:59 pm
Aug 092019

I am quoted in the Washington Post:

“The Dow Jones industrial average, if one goes back to its inception in 1896 and up to the present, has earned 5.6 percent per year on the capital gains of the stocks,” said David Kass, professor of finance at the University of Maryland.

Kass then added another important point: If the dividends those stocks pay to you for owning the stock were used to buy more of the same stock (known as dividend reinvestment), the annual return/gain on the Dow would climb to 10.3 percent per year. That’s a lot. 

If $1,000 were invested in the Dow Jones industrial average at its inception in 1896 (123 years ago), it would be worth $172.5 million today, Kass said

The lesson here is twofold: First, stay in the market because you never know when stocks hit their bottom and rebound. Even Warren Buffett doesn’t know. But they always rebound eventually. Since 1965, the value of the S&P 500 with dividends included has declined in only 11 of the 54 years, or just 20 percent of the time, Kass said. It has gone up in 80 percent of those years.

Sometimes the stock market goes down and stays down for a while. But that’s pretty rare. On only one occasion since 1965, Kass said, has the S&P 500 declined three years in a row. That was between 2000 through 2002, otherwise known as the popping of the dot com bubble.

When my colleague said the Dow was at the same spot in late July of 2019 as it was in January of 2018, he wasn’t including the 2.5 percent or so annual dividend yield that you earn on the Dow. Over many years, as Kass points out, dividend reinvestments supercharge your stock returns.

 Posted by at 4:46 pm
Aug 052019

Every U.S. recession since World War II was preceded by the Federal Reserve raising interest rates too far, too fast, from much higher levels than those of today.  The Great Recession of 2007-09 was also caused by too much debt in the housing sector.

However, we have not had a trade war since the 1930’s that contributed to the Great Depression. The trade war today could lead to a major U.S. recession in the near future.

 Posted by at 3:26 pm
Aug 032019

Berkshire Hathaway released its second quarter earnings report this morning.

The highlights were:

(1) Berkshire Hathaway’s operating earnings declined by 11% during the second quarter, primarily as a result of a 63% decline from insurance underwriting.

(2) Berkshire’s cash position increased to $122 billion from $114 billion at the end of the first quarter.

(3) Berkshire currently holds $200 billion in equities.

(4) Berkshire Hathaway reduced its equity securities in “Commercial, industrial, and other” by about $1.5 billion (cost basis) during the second quarter.  Its SEC Form 13F will be released after the market closes on August 14 and will reveal what changes were made to its equity portfolio during the second quarter.

(5) Berkshire Hathaway purchased only $440 million of its shares during the second quarter.

 Posted by at 9:28 am