> Warren Buffett Blog: March 2016

Monday, March 28, 2016

Sometimes even sound investing ideas can lead to big troubles

My former boss, Ben Graham, made an observation 50 or so years ago to me that it really stuck in my mind and now I've seen evidence of it.

He said, 'You can get in a whole lot more trouble in investing with a sound premise than with a false premise.'

If you have some premise that the moon is made of green cheese or something, it's ridiculous on its face. If you come out with a premise that common stocks have done better than bonds, [it] became the underlying bulwark for the [1928-1929] bubble. People thought stocks were starting to be wonderful and they forgot the limitations of the original premise. So after a while, the original premise, which becomes sort of the impetus for what later turns out to be a bubble is forgotten and the price action takes over.

Now, we saw the same thing in housing. It’s a totally sound premise that houses will become worth more over time because the dollar becomes worth less.

And since 66% or 67% of the people want to own their own home and because you can borrow money on it and you're dreaming of buying a home, if you really believe that houses are going to go up in value, you buy one as soon as you can. And that’s a very sound premise. It’s related, of course, though, to houses selling at something like replacement price and not far outstripping inflation.

So this sound premise that it’s a good idea to buy a house this year because it’s probably going to cost more next year and you’re going to want a home, and the fact that you can finance it gets distorted over time if housing prices are going up 10 percent a year and inflation is a couple percent a year. Soon the price action – or at some point the price action takes over, and you want to buy three houses and five houses and you want to buy it with nothing down and you want to agree to payments that you can’t make and all of that sort of thing, because it doesn’t make any difference: It’ s going to be worth more next year.

And lender feels the same way. It really doesn’t make a difference if it’s a liar’s loan or you know what I mean? Because even if they have to take it over, it's going to be worth more next year. And once that gathers momentum and it gets reinforced by price action and the original premise is forgotten, which it was in 1929.

The Internet was the same thing. The Internet was going to change our lives. But it didn't mean that every company was worth $50 billion that could dream up a prospectus.

And the price action becomes so important to people that it takes over the — it takes over their minds, and because housing was the largest single asset, around $22 trillion or something like that, not above household wealth of $50 trillion or $60 trillion or something like that in the United States. Such a huge asset. So understandable to the public – they might not understand stocks, they might not understand tulip bulbs, but they understood houses and they wanted to buy one anyway and the financing, and you could leverage up to the sky, it created a bubble like we’ve never seen."

Monday, March 21, 2016

Warren Buffett on Investing vs Speculating or Gambling

Speculation, I would define as much more focused on the price action of the stock, particularly that you, or the index future, or something of the sort. Because you are not really — you are counting on — for whatever factors, because you think quarterly earnings are going to be up or it's going to split, or whatever it may be, or increase the dividend — but you are not looking to the asset itself.

When I buy a stock, I don't care if they close the stock market tomorrow for a couple of years because I'm looking to the business — Coca-Cola, or whatever it may be — to produce returns for me in the future from the business.

Now, if I care if whether the stock market is soap tomorrow, then to some extent I'm speculating because I'm thinking about whether the price is going to go up tomorrow or not. I don't know whether the price is going to go up.

Tuesday, March 15, 2016

Warren Buffett likes his Dayang suits

Warren Buffett loves his 'Made in China' suits. Dayang has long been patronised by Warren Buffett, who professed in 2009 that all his suits were made in China. His love of Dayang began in 2007 during a visit to the country. So impressed was he with their custom-made suits that he threw out "all his other suits", which included some from Italian fashion house Ermenegildo Zegna. Buffett, who prefers single-breasted suits, once revealed in an interview that he likes Dayang suits because they don't "crease and, you could wear them day after day and they look like they just came back from the cleaners".

Monday, March 14, 2016

Warren Buffett company Dairy Queen adding more locations in Massachusetts

DQ lovers in Massachusetts may rejoice, because Dairy Queen, the brand with the homespun image, is expanding in the MA and Boston market.

The company, owned by Warren Buffett’s Berkshire Hathaway Inc., said it will add 60 franchises to its repertoire of 33 in Massachusetts over the next five years, part of a US expansion effort that will build dozens of new “quick-service restaurants” in a state that loves its dairy.

“We go where the consumers want our products,” said Jim Kerr, a vice president at International Dairy Queen, based in Minneapolis. “I think it’s safe to say, there’s going to be a blizzard of Dairy Queens there.”

Friday, March 11, 2016

Clayton homes not involved in predatory lending

Although other lenders have come and gone, Clayton steadfastly financed home buyers throughout the panic days of 2008-2009, even financing dealers who did not sell our homes. The funds Berkshire supplied to Goldman Sachs and General Electric at that time produced headlines; the funds Berkshire quietly delivered to Clayton both made home ownership possible for thousands of families and kept many non-Clayton dealers alive.

Berkshire’s retail outlets, employing simple language and large type, consistently inform home buyers of alternative sources for financing – most of it coming from local banks – and always secure acknowledgments from customers that this information has been received and read. Buffett actually included a copy of the actual form Clayton uses at the back of the Annual Report.

In contrast to the risky mortgage practices that took place during the subprime crises that caused the Great Recession – where “(1) an originator in, say, California would make loans and (2) promptly sell them to an investment or commercial bank in, say, New York, which would package many mortgages to serve as collateral for a dizzyingly complicated array of mortgage-backed securities to be (3) sold to unwitting institutions around the world” – Clayton holds every single mortgage is originates (other than those that qualify for a government guarantee). Consequently, Berkshire must live with the pain it would cause itself if it grants bad credit (which dwarfs the profit it would record from the original sale of the home).

Clayton’s mortgage practices have been continuously reviewed and examined by the Federal Trade Commission, the Department of Housing and Urban Development, and the Consumer Financial Protection Bureau, as well as by dozens of states. During the past two years, various federal and state authorities (from 25 states) examined and reviewed Clayton and its mortgages on 65 occasions. The result? Berkshire’s total fines during this period were $38,200 and our refunds to customers $704,678.

Clayton only had to foreclose on 2.64% of its manufactured-home mortgages last year and 95.4% of its borrowers were current on their payments at year-end.

Wednesday, March 9, 2016

Warren Buffett 2015 Share Holder letter released in 2016

To the Shareholders of Berkshire Hathaway Inc.

Berkshire’s gain in net worth during 2015 was $15.4 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 51 years (that is, since present management took over)......................................

Get the full letter released this year 2016 by clicking here.

If the link does not work copy paste this to your web browser. http://www.berkshirehathaway.com/letters/2015ltr.pdf

Monday, March 7, 2016

Do NOT bet against USA says Warren Buffett

Today’s politicians need not shed tears for tomorrow’s children.

Indeed, most of today’s children are doing well. All families in my upper middle-class neighborhood regularly enjoy a living standard better than that achieved by John D. Rockefeller Sr. at the time of my birth. His unparalleled fortune couldn’t buy what we now take for granted, whether the field is – to name just a few – transportation, entertainment, communication or medical services. Rockefeller certainly had power and fame; he could not, however, live as well as my neighbors now do.

Though the pie to be shared by the next generation will be far larger than today’s, how it will be divided will remain fiercely contentious. Just as is now the case, there will be struggles for the increased output of goods and services between those people in their productive years and retirees, between the healthy and the infirm, between the inheritors and the Horatio Algers, between investors and workers and, in particular, between those with talents that are valued highly by the marketplace and the equally decent hard-working Americans who lack the skills the market prizes. Clashes of that sort have forever been with us – and will forever continue. Congress will be the battlefield; money and votes will be the weapons. Lobbying will remain a growth industry.

The good news, however, is that even members of the “losing” sides will almost certainly enjoy – as they should – far more goods and services in the future than they have in the past. The quality of their increased bounty will also dramatically improve. Nothing rivals the market system in producing what people want – nor, even more so, in delivering what people don’t yet know they want. My parents, when young, could not envision a television set, nor did I, in my 50s, think I needed a personal computer. Both products, once people saw what they could do, quickly revolutionized their lives. I now spend ten hours a week playing bridge online. And, as I write this letter, “search” is invaluable to me. (I’m not ready for Tinder, however.)

For 240 years it’s been a terrible mistake to bet against America, and now is no time to start. America’s golden goose of commerce and innovation will continue to lay more and larger eggs. America’s social security promises will be honored and perhaps made more generous. And, yes, America’s kids will live far better than their parents did.