Sep 232017

At a recent celebration of the 100th Anniversary of Forbes Magazine, Warren Buffett predicted that the Dow Jones Industrial Average (DJIA) will reach 1,000,000 in 100 years.  Since the DJIA is currently at 22,350, this would require a compounded annual return of 3.9% over this time period.

If the DJIA will reach 1,000,000 in 100 years, then how long will it take for Warren Buffett’s Berkshire Hathaway (class A) shares to reach $1,000,000?  At their closing price of $273,139 on September 22, 2017, these shares will reach this target price in 16 years if Berkshire matches its compounded annual gain in its price per share of 8.5% that it has achieved over the past 10 years.  If its growth rate matches that of the S&P 500 with dividends included over the past 50 years of 9.7%, Berkshire will reach $1,000,000 in 14 years.

Berkshire’s compounded growth rate in share price over its 52 year history has equaled 20.8% per annum.  Since this performance has more than doubled that of the S&P 500 over this time period, it is not unreasonable for Berkshire to continue to outperform this index and reach $1,000,000 per share sooner.

Berkshire Hathaway’s assets are largely comprised of over 90 largely autonomously managed companies in numerous industries.  Its businesses are well-managed as is its portfolio of common stocks. With $100 billion in cash on its balance sheet and generating over $1 billion in free cash flow per month, Berkshire is likely to make major additions to both its stable of companies as well as its common stock portfolio. These additional investments will provide a steady source of growth in earnings as well as to its share price over time.

Warren Buffett’s magic number of 1,000,000 will be achieved for Berkshire’s common stock long before it is attained for the DJIA.

(Note:  Berkshire Hathaway class B shares closed on September 22, 2017 at $181.86.  Since they are valued at 1/1,500 of each class A share, their price when Berkshire class A shares reach $1,000,000 would be $666.67 per class B share.)

 Posted by at 6:47 pm
Sep 192017

I am quoted in the Washington Post with respect to upcoming changes in monetary policy at the Federal Reserve.

“The stock market has essentially been expecting this for a while,” said David Kass, a professor of finance at the University of Maryland. “It will be a gradual unwind of the Fed balance sheet and has been incorporated into current prices.”

Kass said that so far, the Federal Reserve has straddled a careful line and fulfilled its twin goals of price stability and maximum employment. Now the central bank wants to begin easing back and let the economy run on its own.

“In terms of interest rates, the goal is to get back to a level before quantitative easing,” said Kass, referring to the Fed’s strategy of buying government bonds, which helped keep interest rates low. Kass said he expected interest rates to gradually rise to around 3 percent. Rates are between 1 and 1.25 percent currently.

 Posted by at 6:49 pm
Sep 172017

I am quoted in a Morning Consult article about a poll for the Bloomberg Global Business Forum that indicates U.S. support for free trade in the Trump era.

“Even one basic economics class shows that free trade is a way to maximize consumer welfare for all,” David Kass, professor of finance at the University of Maryland School of Business, said in a phone interview Friday. “There are always winners and losers, of course. But I think the majority of people have seen the benefits of free trade over recent years and decades.”

But American consumers are still likely to favor free trade since it largely leads to lower prices, according to Kass.

Americans “are able to purchase goods from other countries that may be less expensive than those produced here,” he said. “This would result in increased purchasing power for the consumer and an increase in standard of living.”

 Posted by at 12:21 pm
Sep 082017

I am quoted in a Washington Post article about Amazon seeking a second headquarters in North America.

But some say opening a sprawling new headquarters could help the tech giant win over local lawmakers.

“It would create a very favorable political environment wherever they located, such that the congressmen and senators where they locate would be supportive of the company if issues came up in Congress with antitrust,” said David Kass, a professor of finance at the University of Maryland. He added that if Amazon were to choose a location represented by both Democrats and Republicans, “they would be creating friends in Congress in both parties.”

He added that the Washington area, where Bezos recently bought a $23 million house, could be a likely contender. The area has a highly educated population and a growing pool of young workers. Plus, he said, keeping Amazon’s headquarters in the United States could help ease relations with the president, who has in the past been critical of the company.

“Amazon would be scoring many points with the president by saying, ‘Look, we are creating 50,000 American jobs,’” Kass said. “I think the president would appreciate that.”

 Posted by at 8:55 pm
Aug 302017

Warren Buffett was interviewed on Fox Business and asked about Berkshire Hathaway’s current cash position of about $100 billion.  He responded:

(1) “There will be periods when stocks go down a lot and we will be buying.”

(2) He also mentioned that there are one million shareholders of Berkshire Hathaway.

(3) Warren Buffett also predicted that there would likely be a tax cut in 2017.

 Posted by at 6:31 pm
Aug 302017

Warren Buffett was interviewed on CNBC today.  He discussed several specific Berkshire Hathaway investments:

(1) Apple:  Berkshire owns 2 1/2% of Apple’s shares.  Initially one of Buffett’s portfolio managers (Todd Combs or Ted Weschler) bought 10 million shares of Apple (during the first quarter of 2016).  Warren Buffett subsequently purchased many more shares (during the first quarter of 2017).  During the second quarter of 2017, Combs or Weschler sold 2/3 of his stake in Apple to free up funds for other investments.  (They each manage $11 billion).  At the same time, Buffett bought more shares of Apple than Combs or Weschler sold.

(2) IBM:  Buffett has more confidence in Apple than in IBM.

(3) Bank of America:  Berkshire just converted its warrants into 700 million shares of Bank of America common stock and plans to hold those shares for a long time.

(4) Wells Fargo: This is still a good long-term investment.  Its problems will be corrected.

(5) Kraft Heinz: Retailers such as Amazon/Whole Foods are becoming stronger relative to the food companies.  Specific brands will succeed through advertising (such as Berkshire owned Duracell batteries).  Kraft Heinz will not be acquiring Mondelez nor Unilever.  Berkshire/3G Capital will not engage in hostile takeovers.  It is hard to fight retailers with mergers. What matters is the strength of individual brands.

 Posted by at 11:50 am
Aug 302017

Today is Warren Buffett’s 87th birthday.  Happy Birthday, Mr. Buffett!

This blog was launched 7 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 at 11:00 a.m. EST today.)


 Posted by at 10:21 am
Aug 292017

Berkshire Hathaway exercised its Bank of America warrants to purchase 700 million shares at $7.14 per share.  These shares have a current market value of about $16.5 billion.  Berkshire’s initial cost in August 2011 was $5 billion (6% preferred stock plus warrants to purchase 700 million shares at $7.14).  Berkshire’s $5 billion investment has resulted in a profit of about $13 billion ($11.5 billion capital gains in Bank of America common stock, plus $1.8 billion in Bank of America preferred stock dividends).  Its return of 28% per annum includes its compounded annual rate of return of 22% on Bank of America common stock plus its 6% annual dividend on Bank of America preferred stock.

 Posted by at 5:26 pm