Tag Archives: Warren Buffett

Lessons From Warren Buffett: Business Schools Have Taught a Lot of Nonsense About Investing

When it comes to teaching investing, Warren Buffett is less than impressed with what business schools teach on the subject.

For Buffett, it is all about knowing how to value a business, and the more esoteric the financial theory, the more it seems to drift from the basic task of determining valuations.

“I think they’ve taught to students a lot of nonsense about investments,” Warren Buffett said at the 2012 Berkshire Hathaway Annual Meeting. “I mean, it is astounding to me how the schools have focused on sort of one fad after another in finance theory, and it’s usually been very mathematically based.”

Buffett’s full explanation on how business schools teach about investing

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Highlights of Warren Buffett’s Annual Letter to Shareholders

(BRK.A), (BRK.B)

On February 27, 2021, Berkshire Hathaway released Warren Buffett’s annual Letter to the Shareholders of Berkshire Hathaway. The 13 page letter detailed the current state of the company with a particular emphasis on its growing stake in Apple.

Here a few of the letters highlights:

Berkshire’s Performance in 2020

Despite operating earnings dropping 9%, Berkshire’s per-share intrinsic value increased by both retaining earnings and repurchasing about 5% of outstanding shares.

Portfolio of Marketable Securities

Berkshire’s holdings of marketable stocks at yearend was worth $281 billion.

A Huge Swing and a Miss

Berkshire took a $11 billion write-down on its 2016 purchase of Precision Castparts, which Buffett blamed on his being “simply too optimistic about PCC’s normalized profit potential.”

On Bonds

“…bonds are not the place to be these days. Can you believe that the income recently available from a 10-year U.S. Treasury bond – the yield was 0.93% at yearend – had fallen 94% from the 15.8% yield available in September 1981? In certain large and important countries, such as Germany and Japan, investors earn a negative return on trillions of dollars of sovereign debt. Fixed-income investors worldwide – whether pension funds, insurance companies or retirees – face a bleak future.”

Last Year’s Share Buybacks

In 2020, Berkshire repurchased the equivalent of 80,998 “A” shares, spending $24.7 billion.

The Buybacks Have Continued

“Berkshire has repurchased more shares since yearend and is likely to further reduce its share count in the future.”

Berkshire’s Stake in Apple

At the beginning of 2020, Berkshire owned 5.2% of Apple stock at a cost basis of $36 billion. Regular dividends have averaged about $775 million annually, and in 2020 the company pocketed an additional $11 billion by selling a small portion of its position.

Buffett wrote that thanks to Apple’s own share buybacks that “Despite that sale – voila! – Berkshire now owns 5.4% of Apple.”

Buffett notes that the increased ownership stake was costless to Berkshire. He also notes that Berkshire shareholders increased their Apple stake even more. “Because we also repurchased Berkshire shares during the 2 1⁄2 years, you now indirectly own a full 10% more of Apple’s assets and future earnings than you did in July 2018.”

“The math of repurchases grinds away slowly, but can be powerful over time. The process offers a simple way for investors to own an ever-expanding portion of exceptional businesses.

And as a sultry Mae West assured us: ‘Too much of a good thing can be . . . wonderful.'”

Fixed Assets

“Berkshire owns American-based property, plant and equipment – the sort of assets that make up the ‘business infrastructure’ of our country – with a GAAP valuation exceeding the amount owned by any other U.S. company. Berkshire’s depreciated cost of these domestic “fixed assets” is $154 billion. Next in line on this list is AT&T, with property, plant and equipment of $127 billion.”

BNSF Railway

Since its acquisition in 2010, Berkshire has earned $41.8 billion in total dividends from BNSF.

Berkshire Hathaway Energy

BHE’s “$18 billion commitment to rework and expand a substantial portion of the outdated grid that now transmits electricity throughout the West. BHE began this project in 2006 and expects it to be completed by 2030…”

On the Prospects for the United States

“…there has been no incubator for unleashing human potential like America. Despite some severe interruptions, our country’s economic progress has been breathtaking. Beyond that, we retain our constitutional aspiration of becoming ‘a more perfect union.’ Progress on that front has been slow, uneven and often discouraging. We have, however, moved forward and will continue to do so. Our unwavering conclusion: Never bet against America.”

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell a stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: We Like Haystacks Not Needles

When it comes to finding companies to invest in, Warren Buffett likes opportunities that are so clear and obvious that they practically jump right out and grab you. He doesn’t want to have to dive deep into analyzing a company before it becomes clear that it is a good investment.

“We’re not looking for needles in haystacks or anything of the sort,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “You know, we like haystacks, not needles, basically, and we want it to shout at us.”

Buffett’s full explanation on finding companies worth investing in

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Why Index Funds Are Good for a Certain Type of Investor

Investing is not just about return, it is also about peace of mind, and Warren Buffett sees the value of index funds, such as those tracking the S&P 500, in accomplishing that goal, especially for inexperienced investors that might be prone to worry, or easily convinced by others to take on risky investments.

“What is the best investment, meaning one that there would be less worry of any kind connected with and less people coming around and saying, ‘Why don’t you sell this and do something else?’ and all those things,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. It is even an investment he would recommend for his wife after she inherits his assets, not that she would be selling her Berkshire Hathaway stock. “The object is not to maximize. It doesn’t make any difference whether the amount she gets doubles or triples or anything of the sort. The important thing is that she never worries about money the rest of her life.”

Speaking of money and worry, Buffett tells the story of his elderly aunt.

“I had an Aunt Katie here in Omaha, who Charlie knew well, and worked for her husband, as did I. And she worked very hard all her life. And had lived in a house she’d paid, I think, I don’t know, $8,000 for at 45th and Hickory all her life. And because she was in Berkshire, she ended up, she lived to 97, she ended up with, you know, a few hundred million. And she would write me a letter every four or five months. And she said, ‘Dear Warren, you know, I hate to bother you. But am I going to run out of money?’ And… I would write her back. And I’d say, ‘Dear Katie, it’s a good question because, if you live 986 years, you’re going to run out of money.’”

Buffett’s full explanation on index funds

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: How to Evaluate the Quality of a Company’s Management

Companies need to provide quality goods or services, and they also good management that can chart a course to long term profitability. How can an investor evaluate the quality of the management? According to Warren Buffett, it all comes down to two things.

“Well, I think you judge management by two yardsticks,” Warren Buffett explained at the 1994 Berkshire Hathaway Annual Meeting. “One is how well they run the business, and I think you can learn a lot about that by reading about both what they’ve accomplished and what their competitors have accomplished, and seeing how they have allocated capital over time. You have to have some understanding of the hand they were dealt when they themselves got a chance to play the hand. But, if you understand something about the business they’re in, and you can’t understand it in every business, but you can find industries or companies where you can understand it, then you simply want to look at how well they have been doing in playing the hand, essentially, that’s been dealt with them. And then the second thing you want to figure out is how well that they treat their owners.”

Buffett’s full explanation on evaluating the quality of a company’s management

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: You Don’t Want to Get Into a Stupid Game Just Because It’s Available

If there is one thing Warren Buffett is clear about, it is that gambling type of behavior, whether it is in the stock market or just buying a lottery ticket, will lead an investor astray. And, as opportunities to speculate look ever more enticing, it’s most important to remember that just because you can gamble doesn’t mean that you should.

“People win lotteries every day, but there’s no reason to have that effect you at all. You shouldn’t be jealous about it,” Buffett said at the 2016 Berkshire Hathaway Annual Meeting. “If they want to do mathematically unsound things, and one of them occasionally gets lucky, and they put the one person on television, and the million that contributed to the winnings, with the big slice taken out for the state, you know, don’t get on, it’s nothing to worry about. Just, all you have to do is figure out what makes sense…When you buy a stock, you get yourself in the mental frame of mind that you’re buying a business, and if you don’t look at a quote on it for five years, that’s fine. You don’t get a quote on your farm every day or every week or every month. You don’t get it on your apartment house, if you own one. If you own a McDonald’s franchise, you don’t get a quote every day. You know, you want to look at your stocks as businesses, and think about their performance as businesses. Think about what you pay for them, as you would think about buying a business, and let the rest of the world go its own way. You don’t want to get into a stupid game just because it’s available.”

Buffett’s full explanation about lotteries and markets


See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: You Don’t Have to Do Exceptional Things to Get Exceptional Results

Investors often think that to be a great investor they need a complicated approach. It is as if they think that the more arcane their investment strategy is the more rewarding it will be. Warren Buffett disagrees.

“You don’t have to do exceptional things to get exceptional results,” Warren Buffett noted at the 1994 Berkshire Hathaway Annual Meeting. “And some people think that if you jump over a seven-foot bar that the ribbon they pin on you is going to be worth more money than if you step over a one-foot bar. And it just isn’t true in the investment world, at all.”

Buffett’s full explanation on keeping investing simple

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: There’s Nothing More Agonizing Than This

There is investing and then there is just plain gambling. It is something that Warren Buffett sees as almost inevitable for a certain type of investor. What type of investors are they? They are investors that always have their eyes on somebody else’s portfolio.

“There’s nothing more agonizing than to see your neighbor, who you think has an IQ about 30 points below you, getting richer than you are by buying stocks. And whether it’s internet stocks or whatever… and people succumb to it,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “If the market gets hot, new issues are doing well and people on leverage are doing well, a lot of people will be attracted to, not only speculation, but what I would call gambling.”

Buffett’s full explanation about speculation and markets

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: It Is a Waste of Time Having an Opinion About the Stock Market’s Direction

Turn on the financial news and you will see a steady stream of predictions as to the stock market’s overall direction. What is more routine at the beginning of the year than pundits predicting where the market will be at the end of the year? Will it hit a new high? Will it plummet? It clearly fascinates a lot of people, but not Warren Buffett, who sees those types of predictions as a waste of time.

“You may have trouble believing this, but Charlie and I never have an opinion about the market because it wouldn’t be any good and it might interfere with the opinions we have that are good,” Warren Buffett said at the 1994 Berkshire Hathaway Annual Meeting. “If we’re right about a business, if we think a business is attractive, it would be very foolish for us to not take action on that because we thought something about what the market was going to do, or anything of that sort. Because we just don’t know. And to give up something that you do know and that is profitable for something that you don’t know and won’t know because of that, it just doesn’t make any sense to us, and it doesn’t really make any difference to us.”

Buffett’s full explanation on investing and the direction of the stock market

See the complete Lessons From Warren Buffett series

© 2021 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

Lessons From Warren Buffett: Don’t Try and Sell to Buy Back Later at a Lower Price

You picked a winner and it’s shot up through the roof. Time to sell and buy back later at a lower price?

Warren Buffett and Charlie Munger advise against it.

“Generally speaking, trying to dance in and out of the companies you really love, on a long term basis, has not been a good idea for most investors” Charlie Munger explained at the 1999 Berkshire Hathaway Annual Meeting.

Warren Buffett concurred: “It’s pretty tough to do,” Buffett added. “You have to make two decisions right…you have to sell it right first, and then you have to buy it right later on….If you get in to a wonderful business, best thing to do is stick with it.”

Buffett and Munger’s full explanation on trying to sell and buy back

See the complete Lessons From Warren Buffett series

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.