> Warren Buffett Blog: May 2016

Monday, May 30, 2016

Spending more time thinking allows you to be more successful in the long run

Warren Buffett spends 80% of his time reading in a typical week. Asked for advice on how to get so smart, he held up a sheet of investing related documents and said, “Read 500 pages like this every day. That’s how knowledge builds up, like compound interest.”

“I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions, than most people in business.” 

Wednesday, May 25, 2016

Canada's Warren Buffett is betting big on stocks falling

If Warren Buffet and Charlie Munger are eternal optimists, Prem Watsa (Oracle of Canada) is steadfast in his bleakness. He famously made inspired and lucrative "big short" derivative bets against US housing in 2008 that netted the company billions. Daniel Acker

Toronto in time may become the next Omaha. For years, Prem Watsa, the chairman of Canadian insurance group Fairfax Financial, has been heralded as that nation's version of Warren Buffett.

Now he's on the back-foot as his ultra bearish bets drain billions in profits and blemish what was once a spectacular 30-year performance.

Watsa believes the current market is comparable to the time of the Great Depression when there was a false recovery in stocks that preceded another crash. He bought puts on the S&P 500 which so far have cost the company more than $US2 billion.

Watsa has had a large bet, again through derivatives, that a deflationary spiral will take hold in the major developed economies. The threat of deflation is alive and well and so far these contracts are only modestly profitable. They've cost around $US650 million yet may net a profit of more than $US100 billion.

Some investors are losing patience, but Watsa isn't budging. Watsa is also becoming increasingly disturbed about the run up in house prices in Canada's largest cities, a situation that is highly analogous to Australia.

"He couldn't believe that so many young people are mortgaging their future on these property prices. This is something Australia will have to deal with in the next 10 years," says Nathan Bell a value investor who visited Omaha to attend the recent Berkshire shareholder meeting. On the experience itself, Bell revealed his disappointment at the many wasted audience questions and the apparent refusal of Buffett to answer some of the tougher questions, such as an insight into his losing position in IBM.

"Everything else is working all right but as an investor you want to know what's not working," he says. The most interesting point to come out of the AGM, Bell says, was Buffett's admission that low interest rates are prompting him to pay more for some businesses. The $US37 billion he forked out for jet engine parts maker Precision Castparts was such a big amount because interest rates were so low.

This, Bell suggests, should make other investors recognize the reality of low interest rates which force investors to either take more risk than they otherwise would, or to place a higher premium on quality businesses when returns are harder to come by.

"A lot people think value investing is about buying a low P/E stock. But Buffett always says growth is just a part of value – they are joined at the hip."

The best proponents of "value investing" are constantly redefining the discipline. High flying tech stocks like Facebook and Google might look expensive, and therefore unappealing to value investors, but Bell says they are "coming around to how dominant these businesses are and how they can continue to grow".

"We may be in a situation where, rather than trying to pay 14 or 15 times for an average business, you may be better off paying 20 times for wonderful businesses."

Monday, May 23, 2016

Hedge Funds are losing to Index Funds

There’s been far, far, far more money made by people in Wall Street through salesmanship abilities than through investment abilities,” Buffett said, citing a simple Vanguard Group index fund that tracks the S&P 500 index of large American companies. He said that fund has beat a group of costlier hedge funds over time.

“Now that may sound like a terrible result for hedge funds, but it’s not a terrible result for the hedge fund managers,” Buffett said to laughter at the event held in Omaha.

During the financial crisis, Buffett bet the asset management company Protege Partners $1 million that the S&P 500 will outperform a portfolio of hedge funds over the 10 years through 2017. Buffett said Saturday the index fund is beating the hedge funds by nearly 44 percentage points over 8 years.

It is not the first time Buffett has delivered the message. In his annual letter to shareholders two years ago, Buffett said he has ordered most of the money he is not giving away at his death to be placed in an index fund.

“You just have to sit back and let American industry do its job for you,” Buffett said.

Buffett said the cost of consulting and management fees, as well as commissions, eat up investment returns for the wealthy individuals, endowment funds and public pensions that use hedge funds.

Vice Chairman Charlie Munger, who was seated next to Buffett, offered that some people who have given their savings to Berkshire and some other investors have done well. But, he said, finding such investors is “like looking for a needle in a haystack.”

Wednesday, May 18, 2016

Dan Gilbert is bidding for Yahoo and how it is linked to Berkshire

Warren Buffett could finance fellow billionaire Dan Gilbert's bid to buy Yahoo, but Buffett said he's not planning to be an equity partner in the deal, according to CNBC.
Yahoo CEO Mayer
"I'm an enormous admirer of Dan and what he has accomplished in Quicken Loans,” Buffett told CNBC, the cable network reported today. ”Yahoo is not the type of thing I'd ever be an equity partner in. I don't know the business and wouldn't know how to evaluate it, but if Dan needed financing, with proper terms and protections, we would be a possible financing help."

Reuters today reported that Gilbert and Buffett are among investors vying for Yahoo's Internet assets. And the Financial Times reported a letter co-signed by Buffett and Gilbert expressed interest in the internet group and said Buffett's company, Berkshire Hathaway, was ready to provide debt financing for the deal.

The group of investors is in the second round of bidding in an auction of Yahoo's assets, according to Reuters and Bloomberg News.

Monday, May 16, 2016

Warren Buffett buys APPLE shares

Warren Buffett’s Berkshire Hathaway Inc. took a new stake in Apple Inc. in the first quarter, a move that comes as the technology giant’s shares have been battered amid a slowdown in iPhone sales.

The legendary investor’s firm reported owning 9.81 million shares of Apple  as of March 31, 2016 valued at approximately $1.07 billion. 

Berkshire acquired its position at an average price of about $109 a share. It's worth noting, though, that Buffett's position in Apple is still relatively small compared to Berkshire's top holdings- most notably Kraft Heinz, Wells Fargo, Coca-Cola, IBM, American Express and Phillips 66. 

Berkshire, which for years had avoided technology stocks, also increased its position in International Business Machines Corp. IBM, +0.53%  by 198,853 shares. He first bought IBM stock in 2011, making an investment worth more than $10 billion.

Wednesday, May 4, 2016

America is already great | Donald Trump is wrong on that

There's no need to 'make America great again.' America is greater than it's ever been. This country works. And it works in a way that blows the mind. In the 20th century, the Dow went from 16 to 11,400. And we had two World Wars and a Great Depression. And we're just starting. Your children are going to live better than you if we elect three bad presidents in a row.

Monday, May 2, 2016

DOW would rocket up to 100,000 if the Fed has zero interest rates for an extended period of time

If the government absolutely said interest rates are going to be zero for 50 years, the Dow would be at 100,000. 

If you had zero interest rates and you knew you were going to have them forever, stocks should sell at, you know, 100 times earnings or 200 times earnings.