– Munger talked about the embedded options in the public notice papers he bought for Daily Journal… Phoenix public notice paper generated “thousands of percent” return for Daily Journal
– “Many of you people are here because you’re investment groupies, not Daily Journal shareholders.”
– “I don’t think anyone on the board or management of General Motors had one shred of guilt for destroying 100% of the equity of the greatest company in America.”
– “It’s hard to predict which comfortable two company duopolies will become ghastly competitive miasmas.”
– Munger on ratings agencies: they were selling opinions, not guarantees. But in front of a jury the internal emails will cause trouble.
– Munger, quoting Buffett “I’m waiting for a list of business that we declined because it was morally beneath us.”
– On why other CEOs can’t copy the Berkshire Hathaway (BRK.A) operating model: “They came to power at 58 and they’re gone at 63.” (more…)
Archives of “berkshire hathaway” tag
rssBuffett quote on EBITDA.-Really Great !
“We’ll (Berkshire Hathaway [BRK.A][BRK.B]) never buy a company when the managers talk about EBITDA. There are more frauds talking about EBITDA. That term has never appeared in the annual reports of companies like Walmart (WMT), General Electric (GE) or Microsoft(MSFT). The fraudsters are trying to con you or they’re trying to con themselves. Interest and taxes are real expenses. Depreciation is the worst kind of expense: You buy an asset first and then pay a deduction, and you don’t get the tax benefit until you start making money. We have found that many of the crooks look like crooks. They are usually people that tell you things that are too good to be true. They have a smell about them.”
Top 25 All-Time Warren Buffett Quotes
When reading Berkshire Hathaway’s annual letters or hearing him speak, one can always take away a few great quotes from value investor extraordinaire Warren Buffett. It should come as no surprise that he is so good at dishing out words of wisdom. After all, he is known as the Oracle of Omaha. We thought it would be prudent to assemble some of his best advice in one cohesive post.
1. “Rule No.1: Never lose money. Rule No.2: Never forget rule No.1”
2. “In a bull market, one must avoid the error of the preening duck that quacks boastfully after a torrential rainstorm, thinking that its paddling skills have caused it to rise in the world. A right-thinking duck would instead compare its position after the downpour to that of the other ducks on the pond.”
3. “The fact that people will be full of greed, fear or folly is predictable. The sequence is not predictable.”
4. “Be fearful when others are greedy. Be greedy when others are fearful.” (more…)
Index Investing Unmasked: 96% Of Stocks Are Garbage
Warren Buffett released his annual letter over the weekend, in which he praised Jack Bogle as his “hero” for promoting index investing. The irony is that investors would have been better off buying Berkshire shares. Over the last 10 years, Berkshire stock is up 139% while the S&P 500 is up 71%. The real question is why Buffett just doesn’t tout his own stock rather than promote index investing. He tries to explain himself:
“Charlie and I prefer to see Berkshire shares sell in a fairly narrow range around intrinsic value, neither wishing them to sell at an unwarranted high price – it’s no fun having owners who are disappointed with their purchases – nor one too low.”
Buffett is doing something every skilled salesman does: managing expectations. Buffett’s own performance is compared against the S&P 500, and what better way to win that game than by putting a floor under the Berkshire price with the promise of share buybacks and then putting a ceiling on the stock by promoting index investing? The real secret is Buffett is talking his book by not talking it: Rather than tell investors to buy Berkshire at any price, he tells people to invest passively through an index, which leads to the very market inefficiencies that he profits from.
The great appeal of index investing is its low fees, but like buying a cheap pair of shoes that falls apart after 6 months, investors will find that index investing is the most expensive thing they ever did. Vanguard promotes its rock bottom expense ratios, but what is not published is market impact costs that are incurred when the fund rebalances. Since these rebalances are often announced ahead of time, they are extremely vulnerable to front running. Christophe Bernard, PhD Senior Scientist at Winton Capital Management, estimates that front running costs index investors 0.20% per year. That’s 4 times the official expense ratio of Vanguard’s S&P 500 ETF.
In his latest research, finance professor Hendrik Bessembinder discovered that 58% of stocks don’t even outperform a Treasury bill. This study was based on 26,000 stocks from 1926 to 2015. Just 4% of stocks accounted for all of the $31.8 trillion in gains during this period. That means 96% of stocks were complete garbage. Even worse, shares of unprofitable companies outperform their profitable counterparts, which is why you have a marketplace that is dominated by Twitters and Teslas.
Index investing means buying a box of garbage stocks sprinkled with a few hope and glamour stocks whose price gains are solely a result of underperforming fund managers grasping for quarterly bonuses and retail investors juicing up their portfolios in a doomed attempt to catch up on their retirement targets.
While mom and pop buy a Vanguard index with their $500,000 and get front run all day by proprietary traders, the capitalist televangelist Warren Buffett will continue to actively trade billions while preaching the miracle of buy and hold investing.
Life's Unanswered Questions
Help me out here…
Why do you check your stocks twice a day but your cholesterol twice a decade? The former is killing your emotions and the latter is killing you.
Why do companies still provide paper receipts? My grandma discovered email 15 years ago.
Why do companies limit the number of sick days employees can take? If you can’t trust me when I say I have bronchitis, you shouldn’t trust me to be your employee.
Why is 2008’s 35% market crash so memorable, but 2013’s 33% rally so forgettable?Answer this and you’ll be a better investor.
Why is it so much easier to fool yourself than other people? It is amazing to watch smart investors convince themselves of something that clearly isn’t true. (more…)
Mr.Warren Buffett :Buy and Hold -Failed
From the wires today:
“OMAHA, Neb. (AP) — Warren Buffett’s company reported a 40 percent drop in second-quarter profit Friday because the improvement at Berkshire Hathaway Inc.’s operating companies couldn’t overcome $1.4 billion in paper losses on derivative contracts. Berkshire’s strong performances from its railroad, insurance and manufacturing businesses was overshadowed by the plummeting value of the Omaha company’s derivatives — many of which are tied to the value of four major stock markets.”
From Buffett himself in 2002:
“The derivatives genie is now well out of the bottle, and these instruments will almost certainly multiply in variety and number until some event makes their toxicity clear. Central banks and governments have so far found no effective way to control, or even monitor, the risks posed by these contracts. In my view, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”
From Bloomberg recently:
“Buffett’s well known for his criticism of derivatives. Yet Berkshire in recent years has become a big player, with some $60 billion in derivatives contracts. Under any new derivatives regulation, Berkshire would be likely to have to produce collateral for new derivatives contracts it writes. This would limit the attractiveness of new derivatives deals for Buffett, who has boasted that Berkshire rarely does a deal that calls for it to produce collateral. But that’s not why Buffett has been pushing back against the financial reform bill in the Senate. Instead, Buffett says he’s concerned that the legislation would impose collateral requirements on existing contracts — which he says would be illegal. Sen. Ben Nelson, D-Neb., made the same case this week as he defected from the Democrats backing the financial reform bill. Whatever his logic, pushing back on derivatives reform has the interesting side effect of aligning Buffett, with his sterling reputation, with the widely derided Wall Street banks.”
Buy and hold? Buying strong businesses? Derivatives are weapons of mass destruction? Bailouts of many of the components of BRKA? Does anyone have the cajones to criticize Buffett? There has to be at least one emasculated weenie out there who will come on here and tell me that I can’t criticize America’s wealthiest just because he is rich. Right?
The Buffett myth is just that — a myth. If not for the fall 2008 bailouts, he would be on the senior circuit revising history along with Greenspan. Why my stark view on this lovely sunny morning in beautiful Southern California? Cause no matter how many books populate Amazon, all preaching about how you can become the next Buffett, they are all disingenuous fairy tales.
Warren Buffett Talks Markets, Healthcare, IBM, And Self-Driving Cars: The Key Quotes From Berkshire's "Pilgrimage"
With the 52nd Berkshire Hathaway annual meeting – dubbed the “Woodstock for Capitalists” which is “unique in corporate America, a celebration of the billionaire’s image and success” – now in the history books, all that’s left are the quotes and avuncular aphorisms.
While Buffett and Munger covered a wide variety of topics, some headlines made a particular splash, such as Buffett’s statement that markets have a “casino characteristic” and that people “still succumb to speculative impulses”, while ignoring that a far more narrow subset of people will also get bailed out by the government when the speculative impulses lead to massive losses. Speaking of hypocrisy, Buffett also slammed Wells Fargo, of which he is the biggest shareholder, for failing to stop its employees from engaging in the bank’s scandalous cross-selling practices, saying you cannot “incentivize bad behavior”, even as it was Buffett’s support of current management and board that was key to ensuring the re-election of the entire board last month.
None of this had an impact on the thousands of shareholders and “value investors” who conducted their latest annual “pilgirmage” to see and hear the 86-year-old Oracle of Omaha.
Hundreds of shareholders lined up early outside downtown Omaha’s CenturyLink Center for the meeting. Several said they got there nearly five hours before doors opened around 6:45 a.m.“Every year it seems I have to come earlier,” said Chris Tesari, a retired businessman from Pacific Palisades, California who said he arrived at 3:20 a.m. for his 21st meeting. “It’s a pilgrimage.”
While a full breakdown of the day’s main events can be found in the following link, for those pressed for time here is a summary of the key quotes and highlights, courtesy of Reuters:
ON OBAMACARE REPEAL
- “Medical costs are the tapeworm of American economic competitiveness.
- “Our health costs have gone up (incredibly) and will go up a lot more … that is a problem this society is having trouble with and is going to have more trouble with. It almost transcends (political party).
- “If you talk about the world competitiveness of American industry, (health costs are) the biggest single variable where we keep getting more and more out of whack with the rest of the world.
- “(The Obamacare repeal) is a huge tax cut for guys like me … either the deficit goes up or they get the taxes from someone else.”
ON BERKSHIRE’S DURABILITY
- “I can’t think of anything that can harm Berkshire in a material, permanent way except weapons of mass destruction.
- “If that ever happens, there’ll be more to worry about than the price of Berkshire.”
CHARLIE MUNGER ON PUERTO RICO (more…)
How two of history’s greatest investors deal with losses
It’s been a tough month for investors. As of yesterday, roughly half of the stocks in the S&P 500 have fallen into bear markets, with declines greater than 20%. International stock markets have fallen dramatically, with the losses accelerating on the heels of the latest Asian currency “event”.
We’ve seen stuff like this before. There is a worthwhile lesson in considering how a pair of history’s greatest investors have dealt with this kind of thing in the past.
On the surface, Warren Buffett and David Tepper don’t have a lot in common. One runs a diversified conglomerate and reinvests the insurance premiums into both long-term common stock positions and outright acquisitions of great companies. The other manages a hedge fund and aggressively trades in the markets each day.
But they have something in common that is worth considering today: Both Warren Buffett and David Tepper know that volatility is where returns come from and the losses of today set up the outsized gains of tomorrow. They’ve “lost” some money on the way to earning tons of it.
In the summer of 1998, there was a currency crisis that originated in the far east and eventually wound its way around the globe, culminating in the devaluation of the ruble and the blow-up / bailout of the first systemically risky hedge fund in history, Long Term Capital. Both Buffett and Tepper took quite a beating during this so-called “Asian Contagion” event.
As Nick Murray explains, Warren Buffett was down quite a bit that summer.
$6,200,000,000
A very large sum of money, wouldn’t you say? Now what, you ask, does it represent?
It is roughly how much Warren Buffett’s personal shareholdings in his Berkshire Hathaway, Inc. declined in value between July 17 and August 31, 1998. And now for the six billion dollar question. During those forty-five days, how much money did Warren Buffett lose in the stock market?
The answer is, of course, that he didn’t lose anything. Why? That’s simple: he didn’t sell.