Category: Warren Buffett

Lessons From Warren Buffett: You Have to Hit a Few Shots in the Woods from Time to Time

Post author By David Mazor
Post date July 17, 2021

Investors can spend a lot of time rehashing the mistakes they’ve made, be it the money they have lost, or just from imagining the money they could have made if they had done something differently. However, Warren Buffett points out that “You know, if every shot you hit in golf was a hole-in-one…the game would soon lose interest. So you have to hit a few in the woods occasionally just to make it a little more interesting.”

Now, Buffett is not really preaching that you should go out and deliberately make mistakes, and he has tried hard to learn from his own, including the investments he didn’t make.

“Well, the mistakes we made, and we made them, some of them big time, are of two kinds. One is when we didn’t invest at all in something that we understood that was cheap, maybe because we weren’t even working hard enough at looking at the whole list, or because, for one reason or another, we just didn’t, we didn’t take action,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “And the second was starting in on something that could have been a very large investment and not maximizing it. Charlie (Munger) is a huge believer in the idea that you don’t sit around sucking your thumb when you can, when something comes along that should be done that you pour into it.”

Hear Buffett’s full explanation

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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.

Tags Value Investing, Warren Buffett

Lessons From Warren Buffett Value Investing Warren Buffett

Lessons From Warren Buffett: Asset Allocation Formulas are Pure Nonsense

Post author By David Mazor
Post date June 13, 2021

Rebalancing your portfolio is something that is constantly preached by the financial industry, and if you don’t do it yourself, they are happy to create an account or a fund that does it for you automatically. However, Warren Buffett scoffs at the whole concept and sees it to be more about marketing than good investing.

“The idea that you have, you know, you say, ‘I’ve got 60 percent in stocks and 40 percent in bonds,’ and then have a big announcement, now we’re moving it to 65/35, as some strategists or whatever they call them in Wall Street do. I mean, that has to be pure nonsense,” Warren Buffett said at the 2004 Berkshire Hathaway Annual Meeting. “What you ought to do is have (as) your default position is always short-term instruments. And whenever you see anything intelligent to do, you should do it. And you shouldn’t be trying to match up with some goal like that. . . . But so much of what you see when you talk about asset allocation, it’s just merchandising. It’s a way to make you think that if you don’t know how to determine whether it should be 60/40 or 65/35, that you need these people. And you don’t need them at all in investing.”

Hear Buffett’s full explanation

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Tags Value Investing, Warren Buffett

Lessons From Warren Buffett Value Investing Warren Buffett

Lessons From Warren Buffett: The Difference Between an Investor and a Speculator

Post author By David Mazor
Post date May 30, 2021

There is a big difference between investing and speculating (gambling), but if you ask a lot of people what that difference is they won’t be able to tell you in a clear, succinct way. Thankfully, Warren Buffett did just that.

“If you’re an investor, you’re looking at what the asset is going to do,” Warren Buffett said at the 1997 Berkshire Hathaway Annual Meeting. “If you’re a speculator, you’re primarily focusing on what the price of the object is going to do independent of the business. . .”

For Buffett, the bottom line is simple: “Investment is putting out money to get more money back later on from the asset. And not by selling it to somebody else, but by what the asset, itself, will produce.”

Warren Buffett on the Investor and the Speculator

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Tags Value Investing, Warren Buffett

Lessons From Warren Buffett Value Investing Warren Buffett

Lessons From Warren Buffett: It’s Not the Bathtub That’s the Key Factor

Post author By David Mazor
Post date May 22, 2021

In 2011, in the heart of the Great Recession, Warren Buffett had the bold idea to make a $5 billion investment in Bank of America at a time when investing in banks looked extraordinarily risky. Buffett admits it was a moment of inspiration that came to him while he was sitting in his bathtub. Over the years, his Bank of America investment paid off handsomely, bringing him over $22 billion. However, Buffett is quick to note that it’s not the bathtub that is the key factor. It was the decades of knowledge he accumulated on the banking industry that enabled a moment of inspiration.

“It was mentioned how I got the idea about buying the Bank of America, or making an offer to Bank of America on a preferred stock, when I was in the bathtub, which is true. But the bathtub really was not the key factor,” Warren Buffett said at the 2013 Berkshire Hathaway Annual Meeting. “The truth is I read a book more than 50 years ago called Biography of a Bank. It was a great book, about A.P. Giannini and the history of the bank. And I have followed the Bank of America, and I’ve followed other banks, you know, for 50 years.”

Buffett’s full explanation on learning about an industry

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Tags Value Investing, Warren Buffett

Warren Buffett

Highlights of Warren Buffett’s Annual Letter to Shareholders

Post author By David Mazor
Post date February 27, 2021

(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.”

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.

Tags Warren Buffett

Warren Buffett

Berkshire Hathaway Cancels “Woodstock for Capitalists” for 2021

Post author By David Mazor
Post date December 3, 2020

(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”.

Tags Warren Buffett

Acquisitions Berkshire Hathaway Energy Commentary Warren Buffett

Commentary: Buffett Casts His Vote with Dominion Energy Assets Acquisition

Post author By David Mazor
Post date July 6, 2020

(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.

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.

Tags Berkshire Hathaway Energy, Commentary, Warren Buffett

Acquisitions Berkshire Hathaway Energy Warren Buffett

Warren Buffett Nabs Natural Gas Assets from Dominion Energy

Post author By David Mazor
Post date July 6, 2020

(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.”

Tags Berkshire Hathaway Energy, Warren Buffett

Commentary Warren Buffett

Commentary: Buffett Affirms Berkshire’s 3 Pillars Stand Strong

Post author By David Mazor
Post date May 10, 2020

(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.

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.

Tags Commentary, Warren Buffett

Charlie Munger Warren Buffett

Don’t Expect 5 Hours of Q&A at Berkshire Hathaway’s Virtual Annual Meeting

Post author By David Mazor
Post date April 30, 2020

(BRK.A), (BRK.B)

Warren Buffett’s and Charlie Munger’s legendary five hours of Q&A at the Berkshire Hathaway annual meeting has come to an end. In fact, Munger will not even be taking questions at this year’s virtual event to be held on Saturday, having been replaced by Greg Abel, Berkshire’s Vice Chairman-Non-Insurance Operations.

Also the lengthy Q&A that in recent years has combined shareholder questions from the meeting floor, emailed questions, and questions from journalists, has been simplified and reduced.

In a statement, the company announced:

Warren Buffett, Berkshire’s CEO and Greg Abel, Berkshire’s Vice Chairman-Non-Insurance Operations will be physically present at the meeting. However, the other Berkshire directors will not be attending the meeting. In addition to the formal business to be conducted at the meeting, Mr. Buffett and Mr. Abel will respond to shareholder questions that were submitted to three journalists (Becky Quick, Carol Loomis and Andrew Ross Sorkin). Ms. Quick will ask those questions that the journalists decide are the most interesting and important. Mr. Buffett and Mr. Abel will have no prior knowledge of what questions will be asked, but they will not discuss politics or specific investment holdings.

The 2020 Annual Shareholders Meeting on Saturday May 2, 2020 will formally begin at 3:45 p.m. central time. As previously announced, we will not be able to allow shareholders to physically attend the meeting. However, the meeting will be streamed live on the Internet by Yahoo with a pre-meeting show beginning at 3:00 p.m. central time and can be accessed at https://finance.yahoo.com/brklivestream.

Tags Charlie Munger, Greg Abel, Warren Buffett