Warren Buffett earned a compounded annual rate of return of 8.7% on his Laguna Beach home that he recently sold for $7.5 million and purchased for $150,000 in 1971.
I am quoted in a Washington Post article: “Larry Culp’s Long To-Do List To Fix GE“.
“Culp will need to decide whether to fix GE’s power division or scrap it. David Kass, a finance professor at the University of Maryland, thinks he should sell it because of its “substantial” underperformance.
“The remainder of GE can then be turned around,” Kass said. “GE should become a smaller company.”
Ten years ago (October 1, 2008), during the peak of the financial crisis, Warren Buffett announced that Berkshire Hathaway was investing $3 billion in an issue of General Electric preferred stock paying an annual dividend of 10%. These shares were redeemed by General Electric in 2011 for $3.3 billion plus accrued dividends, resulting in a $1.2 billion profit for Berkshire.
In this Jeff Bezos interview (1 hour and 9 minutes) the Amazon CEO quotes from Warren Buffett and explains why he bought the Washington Post which is now profitable and hiring additional staff by becoming a national and global newspaper via the Internet. Amazon located in Seattle, Washington so they could draw from the talent at Microsoft. They will announce the location of their second headquarters by the end of 2018. Amazon Web Services initiated cloud computing and it took seven years before anyone else entered this market resulting in its very large market share. Bezos was always an A+ student, was his high school’s valedictorian (class of 750 in Miami, Florida), and graduated summa cum laude from Princeton in 1982 where he majored in electrical engineering, physics, and computing.
Bezos is starting charities focusing on pre-school education in poor neighborhoods to minimize the probabilities of children being left behind, and is also donating $2 billion to fight homelessness.
Jeff Bezos owns 16 percent of Amazon which is approximately a $1 trillion company. He is the richest person in the world, worth $160 billion and “has created $840 billion in wealth for everyone else”. He gets eight hours of sleep every night, exercises regularly, and has his first meetings everyday with staff at 10:00 a.m. He is too tired at 5:00 p.m. to make major decisions. He “putters around” in the morning by reading newspapers and has breakfast with his children before they go to school. He previously worked for D.E. Shaw (investment management firm) in New York City where he met his wife Mackenzie Bezos who also graduated summa cum laude from Princeton.
Even though he had an excellent job with D.E. Shaw, he wanted to start a business selling books on the Internet. What people think about late in life are “errors of omission”, what people could have done but did not. He did not want this to be one opportunity that he did not pursue.
Warren Buffett has previously described Jeff Bezos as the best business person he has ever met.
Jeff Bezos was interviewed by David Rubenstein, co-founder and co-chief executive officer of the Carlyle Group.
In a Berkshire Hathaway news release on July 17, 2018, Berkshire’s Board of Directors announced an amendment to its share repurchase program. The earlier share repurchase program provided that the price paid for repurchases would not exceed a 20% premium over the then-current book value of such shares. Under the amended plan, share repurchases can be made at any time that both Warren Buffett and Charlie Munger believe that the repurchase price is below Berkshire’s intrinsic value, “conservatively determined”.
“The current policy whereby share repurchases will not be made if they would reduce the value of Berkshire’s consolidated cash, cash equivalents and U.S. treasury Bills holdings below $20 billion will continue. Berkshire will not initiate any share share repurchases under the amended program until it publicly releases its second quarter earnings, currently scheduled after the close of the markets on Friday, August 3, 2018.”
On August 30, during an interview on CNBC, Warren Buffett stated that “we’ve bought back a little” (shares of Berkshire Hathaway). Therefore, these shares were purchased between Monday, August 6 and Thursday, August 30 (Buffett: “We’re buying stocks this morning.”) Between August 6 and August 30, Berkshire Hathaway traded approximately between $310,000 and $315,000 per share (approximately a 45% premium to its June 30 book value of $217,677). A purchase price in this range implies that Buffett and Munger probably estimate that Berkshire’s intrinsic value is at least a 55% premium to its book value, or at least $335,000 per share, allowing for a “margin of safety”. On Friday, August 31, Berkshire closed at $315,800.
Warren Buffett was interviewed on CNBC on August 30, 2018, his 88th birthday.
The 5 highlights were:
(1) Stocks are currently more attractive than fixed income or real estate. Berkshire Hathaway is buying stocks every day including today.
(2) Buffett recently purchased additional shares of Apple. The value of an iPhone to the user far exceeds its cost of $1,000.
(3) Berkshire has recently bought back some of its shares since they were priced below their intrinsic value. (Note: This implies that Berkshire bought back its shares at about 1.4 times book value ($310,000). Therefore, Buffett and Munger estimate Berkshire’s intrinsic value to be at least 1.5 times book value ($330,000 —“margin of safety”). Berkshire closed at $315,800 on August 31.)
(4) Berkshire owns about 9 1/2% of each of the four major airlines and wishes to keep its stakes below 10% to avoid additional regulations. Otherwise, they would like to own 20% of each airline.
(5) Packaged food companies are not as attractive as they used to be. But they still earn high returns on tangible assets.
Today is Warren Buffett’s 88th birthday. Happy Birthday, Mr. Buffett!
This blog was launched 8 years ago today on the occasion of Warren Buffett’s 80th birthday. I hope it has been helpful to all who have visited this site.
(Note: Warren Buffett will be interviewed on CNBC from 11:00 – 11:15 a.m. EST today.)
According to the Economic Times, Paytm has confirmed Berkshire’s investment (about $300 million). Todd Combs will be joining its board of directors.
According to The Economic Times, Berkshire Hathaway is in talks to acquire a $300 million stake (3-4%) in India’s Paytm. Todd Combs is leading the transaction for Berkshire. If this deal is closed, it would represent Berkshire’s first direct investment in India.
In an SEC 13F filing after the market closed today, Berkshire Hathaway revealed major changes to its portfolio as of June 30, 2018.
The largest additions to its current holdings in its portfolio were:
(1) Apple (AAPL): + $2.5 billion (14 million shares or 5.2%)
(2) Delta Airlines (DAL) : + $500 million (10 million shares or 18.8%)
(3) Goldman Sachs (GS): + $500 million (2.3 million shares or 21%)
(4) U.S. Bancorp (USB): + $500 million (10 million shares or 10.8%)
(5) Southwest Airlines (LUV): + $465 million (9.3 million shares or 18.7%)
The largest subtractions from current holdings in its portfolio were:
(1) Phillips 66 (PSX): – $1.3 billion (11.5 million shares or 24%)
(2) Charter Communications (CHTR): – $200 million (700,000 shares or 8.7%)
Additions of less than $100 million were made in Bank of New York (BK), General Motors (GM), Liberty Global (LBTYA), Teva Pharmaceutical (TEVA), and Axalta Coating Systems (AXTA)
Reductions of less than $100 million were made in American Airlines (AAL), United Continental Holdings (UAL), and Wells Fargo (WFC) to maintain Berkshire’s stakes at less than 10% as these companies have bought back their shares.
There were no new investments added to its portfolio during the second quarter. Verisk Analytics (VRSK) ($30 million) was eliminated.
On behalf of the University of Maryland, I wish to express my gratitude for having the opportunity to accompany our undergraduate and graduate students on trips to Omaha for private meetings with Warren Buffett on May 23, 2005, March 11, 2011, November 15, 2013, and November 18, 2016. My notes from these meetings are available on my web page.