Category Archives: Warren Buffett

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.

Lessons From Warren Buffett: There’s No Set Formula for Knowing Whether the Market, or a Company, is Undervalued or Overvalued

Warren Buffett places a strong emphasis on a company’s intrinsic value in determining whether the company should be purchased in whole or in part. Whether a company is undervalued or overvalued is at the heart of knowing whether it is a good investment. The same applies to the stock market as a whole.

So, is there a straightforward formula that you can use to determine valuation? Not according to Warren Buffett.

“It’s not reducible to any formula where you can actually put in the variables perfectly,” Warren Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “It’s just not quite as simple as having one or two formulas and, then, saying the market is undervalued or overvalued, or a company is undervalued or overvalued.”

As he noted, you can have a formula, but the hard part is knowing what variables to put in.

Warren Buffett’s full explanation on determining valuation

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.

Lessons From Warren Buffett: Investing Doesn’t Need to Be Complicated, but It Needs This Essential Element

You don’t have to be a genius to be an investor, is something that Warren Buffett has said many times. However, there are things that he thinks are core qualities of successful investors.

So, what is it that Warren Buffett thinks is essential? Discipline.

“What we do is not a complicated business.” Buffett explained at the 2018 Berkshire Hathaway Annual Meeting. “It’s got to be a disciplined business, but it doesn’t require a super IQ, or anything of that sort.”

Buffett’s full explanation on being a disciplined investor

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: If You Want to Be a Good Investor Try Running a Lousy Business for a While

There is no one that wants to have a lousy business, but as Warren Buffett points out, you certainly learn a lot of lessons from it. Among the things you learn are “how awful it is, and how little you can do about it, and how IQ does not solve the problem…”

As Buffett noted: “I really think if you want to be a good evaluator of businesses, an investor, you really ought to figure out a way, without too much personal damage, to run a lousy business for a while,” Buffett explained at the 2017 Berkshire Hathaway Annual Meeting. “I think you learn a whole lot more about business by actually struggling with a terrible business for a couple of years than you learn by getting into a very good one where the business itself is so good that you can’t mess it up.”

Buffett’s full explanation about learning from running a lousy business

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.

Lessons From Warren Buffett: Here’s What to Pay Attention To

The Dow is up 200 points, or it is down 150 points, when you turn on the nightly news the overall stock market’s gyrations are what gets attention. Is it what you should be paying attention to?

Not if you want to invest like Warren Buffett.

“Charlie and I don’t think about the market. And Ben (Graham) didn’t very much. I think he made a mistake to occasionally try and place a value on it,” Buffett explained at the 1999 Berkshire Hathaway annual meeting. “We look at individual businesses, and we don’t think of stocks as little items that wiggle around on the paper and have charts attached to them. We think of them as parts of businesses.”

Buffett’s full explanation on focusing on individual companies rather than the market

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.

Lessons From Warren Buffett: You Can Go Broke Short Selling

A company’s stock price goes up and up, seemingly disassociated from any meaningful metrics of valuation. So, should you short it?

It may be tempting, but Warren Buffett advises against it.

“Short selling, it’s an interesting item to study because it’s, I mean, it’s ruined a lot of people. It’s the sort of thing that you can go broke doing,” Buffett explained at the 2001 Berkshire Hathaway Annual Meeting. “Being short where your loss is unlimited is quite different than being long something that you’ve already paid for. And it’s tempting. You see way more stocks that are dramatically overvalued in your career than you will see stocks that are dramatically undervalued.”

Buffett’s full explanation on short selling

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.

Berkshire Hathaway Cancels “Woodstock for Capitalists” for 2021

(BRK.A), (BRK.B)

The 2021 Berkshire Hathaway Inc. Annual Meeting of Shareholders will be held on May 1, 2021. Unfortunately, we do not currently believe it will be safe at that time to hold a meeting with nearly 40,000 attendees as we last did in 2019. Therefore, the format for the 2021 meeting will be very similar to the virtual meeting that we held earlier this year including worldwide streaming provided by Yahoo.

Additional information regarding the 2021 meeting will be included in Berkshire’s 2020 Annual Report currently scheduled to be posted to the Internet on February 27, 2021 and in its proxy statement which will be posted on the internet in mid-March 2021.

We hope that the 2021 meeting will be the last time that shareholders are unable to attend in person. We look forward to 2022 when we expect to again host shareholders in Omaha at our usual large gala aka “Woodstock for Capitalists”.

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.

Commentary: Buffett Casts His Vote with Dominion Energy Assets Acquisition

(BRK.A), (BRK.B)

With Berkshire Hathaway’s $9.7 billion agreement to acquire Dominion Energy’s natural gas transmission and storage business, Warren Buffett has engaged in a strategy that is familiar to Buffet watchers—the choice between owning a part of a company through equities, or the acquisition of whole companies. It’s a choice that Buffett that has made for almost six decades based on which valuation he judges to be cheaper.

At this year’s annual meeting, Buffett revealed that he had bought relatively few stocks at a time when the market’s plunge had many seeing a rare buying opportunity. Buffett thought differently, and his sale of Berkshire’s entire commercial airline portfolio due to what he felt would be long term profitability issues for United, Delta, American, and Southwest, reflected that perspective.

Now, Buffett has found something he likes. It is an acquisition that makes Berkshire Hathaway a giant in natural gas distribution, vaulting it from carrying 8% of the nation’s natural gas to 18%.

The acquisition adds to one of Berkshire’s core businesses, Berkshire Hathaway Energy, which will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; and 50% of Iroquois Gas Transmission System. Additionally, Berkshire will acquire 25% of Cove Point LNG – an LNG export, import and storage facility in Maryland.

The acquisition includes over 7,700 miles of natural gas transmission lines, with approximately 20.8 billion cubic feet per day of transportation capacity and 900 billion cubic feet of operated natural gas storage with 364 billion cubic feet of company-owned working storage capacity, and partial ownership of a liquefied natural gas export, import and storage facility.

Demand for natural gas has risen from 4,917,152 million cubic feet in 1949 to 31,014,345 million cubic feet in 2019, according to the U.S. Energy Information Administration. And with the retirement of more and more coal-fired generating plants, natural gas is a key replacement. Even with the enormous growth of wind and solar, new gas-fired plants are being constructed as backup generation for when the winds are calm and the skies are cloudy.

By making this acquisition, Buffett adds key assets to Berkshire Hathaway Energy that will guarantee a pay-off not just in the short term, but for decades to come. And that’s exactly what Buffet likes, putting money to work for decades to come.

This is not to say that Buffett won’t return to buying equities, but for now, he has voted with his dollars that the better deal in the near term is the acquisition of a whole company.

© 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 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.

Warren Buffett Nabs Natural Gas Assets from Dominion Energy

(BRK.A), (BRK.B)

Warren Buffett has finally used his famed “elephant gun” on a key addition to Berkshire Hathaway Energy.

Berkshire Hathaway Energy has executed a definitive agreement to acquire Dominion Energy’s natural gas transmission and storage business.

The assets include over 7,700 miles of natural gas transmission lines, with approximately 20.8 billion cubic feet per day of transportation capacity and 900 billion cubic feet of operated natural gas storage with 364 billion cubic feet of company-owned working storage capacity, and partial ownership of a liquefied natural gas export, import and storage facility.

The transaction has an enterprise value of approximately $9.7 billion.

“I admire Tom Farrell for his exceptional leadership across the energy industry as well as within Dominion Energy,” said Warren Buffett, chairman of Berkshire Hathaway. “We are very proud to be adding such a great portfolio of natural gas assets to our already strong energy business.”

As part of the transaction, Berkshire Hathaway Energy will acquire 100% of Dominion Energy Transmission, Questar Pipeline and Carolina Gas Transmission; and 50% of Iroquois Gas Transmission System.

The agreement does not include acquisition of the Atlantic Coast Pipeline.

Additionally, the company will acquire 25% of Cove Point LNG – an LNG export, import and storage facility in Maryland. Dominion Energy will continue to own 50% of Cove Point, with Brookfield Asset Management continuing to own the remaining 25% share. Berkshire Hathaway Energy will operate the Cove Point facility once the transaction closes.

The Cove Point export terminal is one of only six LNG export facilities in the U.S.

“This premier natural gas transmission and storage business has been operated and managed in a best-in-class manner,” said Bill Fehrman, Berkshire Hathaway Energy’s president and CEO. “Acquiring this portfolio of natural gas assets considerably expands our company’s footprint in several Eastern and Western states as well as globally, increasing the market reach and diversity of Berkshire Hathaway Energy.”

“We are honored to be gaining a wonderful group of employees with a wealth of experience that will continue to provide high-quality service for our customers and partners. We look forward to welcoming them to the team,” said Greg Abel, Berkshire Hathaway’s vice chairman, non-insurance operations, and Berkshire Hathaway Energy chairman.

“We are fortunate Dominion Energy has entrusted us to preserve and build upon such a remarkable business that will allow Berkshire Hathaway Energy to add $9.7 billion in asset value to the portfolio that currently exceeds $100 billion.”

© 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.

Commentary: Buffett Affirms Berkshire’s 3 Pillars Stand Strong

(BRK.A), (BRK.B)

Berkshire Hathaway is so diversified that it’s impossible for it not to be impacted adversely by COVID-19. Automobile retailing through its Berkshire Hathaway Automotive network of dealerships, furniture retailing (Nebraska Furniture Mart, Jordan’s, Star Furniture, RC Willey Home Furnishings), and the See’s Candies retail stores, are just a few of its companies that are facing slumping revenues.

At the Berkshire Hathaway annual meeting held on May 2, Warren Buffett noted that the swift temporary closure of See’s retail stores in late-March left it with a huge inventory of Easter candy that will go unsold.

“…we were in the midst of our Easter season and Easter is a big sales period for See’s. And I don’t know whether we were halfway through, but we weren’t halfway through in terms of the volume is going to be delivered because it comes toward the end. And essentially we were shut down and we remain shut down. The malls that we’ve got 220 or so retail stores and we’ve got a lot of, Furniture Mart sells our candy. But the Furniture Mart’s closed down. And so See’s business stopped and it’s a very seasonal business to start with. So we have a lot of seasonal workers too that come in, particularly for the Christmas season. But we have a lot Easter candy, and Easter candy is kind of specialized too. So we won’t sell it. And we produced a good bit of it.”

Getting Nervous? Don’t Be

However, amidst the bad news was a key point that Buffett emphasized. The three main pillars of Berkshire Hathaway—its insurance, freight railroad, and energy business, are all strong and will continue to generate cash.

“Our three major businesses of insurance and the BNSF railroad, railroad and our energy business, those are our three largest by some margin. They’re in a reasonably decent position,” Buffett explained. “They will spend more than their depreciation. So some of the earnings will go, along with depreciation, will go toward increasing fixed assets. But basically these businesses will produce cash even though their earnings decline somewhat.”

Berkshire’s businesses are so strong because planning for the worst case scenario is at the heart of Buffett’s philosophy. Buffett explained that they even plan for more than one disaster.

“I mean, for example, in our insurance business, we could have the world’s, or the country’s, number one hurricane that it’s ever had, but that doesn’t preclude the fact that could have the biggest earthquake a month later. So we don’t prepare ourselves for a single problem. We prepare ourselves for problems that sometimes create their own momentum. I mean 2008 and 9, you didn’t see all the problems the first day, when what really kicked it off was when the Freddie and Fannie, the GSEs went into conservatorship in early September. And then when money market funds broke the buck… There are things to trip other things, and we take a very much a worst case scenario into mind that probably is a considerably worse case than most people do.”

And if that’s not enough to reassure you, don’t forget that Berkshire has $137 billion in cash.

© 2020 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway and BYD, 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.