> Warren Buffett Blog: July 2016

Wednesday, July 27, 2016

Companies should be more transparent in reporting earnings

Earnings guidance can lead to a lot of malpractice. I've seen guidance produce some bad results.

There's a lot of attempts to find a couple extra pennies someplace. There are ways to move earnings toward the end of a quarter, and sometimes even after the end of a quarter. 

Report two real numbers; this year versus last year. 

Jamie Dimon of JP Morgan

Jamie gave me a call ... probably a little more than a year ago and suggested we get together and see if we could come together on some general principles for corporate governance that might help show a pathway to the future.

Monday, July 25, 2016

Warren Buffett drops to 4th place on the World Billionaires Index

Warren Buffett is now the fourth-richest person in the world.

According to the Bloomberg Billionaires Index, Amazon CEO Jeff Bezos surpassed Berkshire Hathaway’s Warren Buffett to snag the number three spot behind Spain’s Amancio Ortega, the founder of the clothing retailer Zara, and Bill Gates, co-founder of Microsoft, and the world’s richest person. Both are worth $73 billion and $89 billion, respectively.

Bezos’s net worth was $65.05 billion on Thursday, which topped Buffett by $32 million on the Bloomberg Billionaires Index. 

Wednesday, July 20, 2016

Warren Buffett donates $2.2 billion

Warren Buffett donated about $2.2 billion of stock in his annual gift to the Bill & Melinda Gates Foundation, betting that risk-takers at the group will make breakthroughs in global health and US education even as they acknowledge that some efforts will be unsuccessful.

According to Bill Gates, "Some of the projects we fund will fail. We not only accept that, we expect it — because we think an essential role of philanthropy is to make bets on promising solutions that governments and businesses can't afford to make. As we learn which bets pay off, we have to adjust our strategies and share the results so everyone can benefit."

Buffett, 85, contributed 15 million class B shares of his Berkshire Hathaway stock to the foundation on Wednesday, according to a regulatory filing on Thursday. He made a pledge in 2006 to hand over a total that equates to 500 million shares, and each year he gives 5 per cent of the remaining total. Through last year, he donated more than $17 billion of stock to the foundation.

The annual sums have often climbed because of gains in the share price. While he is known for looking for a margin of safety with Berkshire's investments and often faults himself when his stock wagers sour, Buffett is more tolerant of bets going bad in philanthropy.

"If you succeed in everything you're doing in charity, you're attempting things that are too easy," the Berkshire chairman and chief executive officer said in 2011.

The Gates Foundation has donated more than $36 billion, including for projects that expand access to immunisations in developing countries and provide financial services to poor communities.

Bill Gates, the 60-year-old co-founder of Microsoft, has acknowledged it's been more difficult to make advances in US education than in improving mortality rates for children. Buffett also donated 1.5 million shares on Wednesday to the Susan Thompson Buffett Foundation, which is named after his first wife, who died in 2004. His three children's foundations received 1.05 million shares each this week. 

Monday, July 18, 2016

BYD auto stock prices rise on interest from Samsung

Shares of BYD, the Chinese battery supplier and automobile manufacturer backed by Warren Buffett’s Berkshire Hathaway, rose by 5% to their best close in Hong Kong since June 2015 on hopes that talks on cooperation with Samsung will bear fruit.

BYD confirmed in a statement that Samsung was considering the purchase of a stake via a planned domestic “A-share” secondary offering. The South Korean electronics giant’s interest “is primarily based on its confidence in the Company’s development prospects in the long term and future strategic cooperation with the Company in relation to electric vehicle components,” BYD said.  “Going forward, the parties will jointly seize opportunities in the rapid development of the global electric vehicles industry and promote sustainable development of the parties’ electric vehicles related businesses.”

A switch to battery-powered vehicles from fossil fuels, the spread of self-driving cars, and expanding Internet connectivity is expected to reshape the auto industry in the coming decade, many auto industry executives in China believe.

BYD’s chairman Wang Chuan-fu has helped BYD to make a mark as a producer of electric and hybrid electric vehicles. It set up an electric bus manufacturing plant in southern California in 2014 and has a contract to supply electric buses to Los Angeles County. In the past 2 years, its electric buses or cars have gone into service from Montevideo to Jakarta.

Wang, who was China’s richest man with a fortune of $5.8 billion in 2009, was worth $5.5 billion on the Forbes Real-Time Billionaire’s List today. In 2008 Warren Buffett’s Berkshire Hathaway bought a 10% stake in BYD.

Wednesday, July 13, 2016

Warren Buffett buys more of IBM

Warren Buffett increased its stake in International Business Machines by 0.25% based on its latest 2016 Q1 filing. 

Berkshire Hathaway Inc bought 198,853 shares as the company’s stock rose 11.40% with the market. 

Berkshire held 81.23M shares of the computer manufacturing company at the end of 2016 Q1, valued at $12.30B, up from 81.03M at the end of the previous reported quarter. 

Monday, July 11, 2016

Berkshire made $150 million from loan to Harley Davidson

In 2009 during the market crisis, Berkshire Hathaway lent Wisconsin-based Harley-Davidson $303 million over five years by buying unsecured notes issued by the manufacturer — essentially, a loan. The maker of street bikes was in a cash crunch as the recession deepened.

The interest rate charged by Berkshire Chairman and Chief Executive Buffett was a juicy 15 percent. While the exact repayment terms and schedules aren’t known, on a yearly lump payment at a standard interest-and-principal paydown, the loan would have yielded Berkshire lending income of about $150 million when it was all over.

But what if Berkshire had insisted upon what Wall Street calls an “equity kicker”? That means shares in the company, maybe even preferred ones such as the ones Berkshire owns in Bank of America that come with a special dividend and the right to convert to common shares at an enormous profit on a later date.

While the prospect is worth considering, Buffett investors, scholars and stock market observers agree on one thing: Berkshire’s profit on the $300 million Harley-Davidson loan is high cotton.

“I do not believe Buffett is having any second thoughts in his arrangement with Harley-Davidson,” said David Kass, a Berkshire shareholder and business professor at the University of Maryland. “He is probably very pleased with his 15 percent loan, which he perceived as having very little risk.”

Thursday, July 7, 2016

Warren Buffett could increase his Wells Fargo Bank stake

Wells Fargo stock has dropped almost 15 percent this year, as large U.S. banks get pummeled by low interest rates and volatility related to lackluster oil prices, slowing Chinese growth and Brexit. Warren Buffett has often advised investors to "Be Greedy when others are Fearful". 

Now Buffett is potentially going to increase his stake in Wells Fargo. Berkshire has put in a request for the Federal Reserve approval to expand its stake in the San Francisco based Wells Fargo bank beyond 10%. Wells Fargo is already one of Buffett's four biggest equity holdings, and thanks to the bank's buybacks, his stake grew to 10% earlier this year, according to a March regulatory filing.

The requirement that investors seek Federal Reserve permission to to hold more than 10% of a financial institution is a provision of the Change in Bank Control Act, which is used by regulators to monitor activity between banks and non-financial institutions, and prevent acquisitions that might be harmful to customers or the general public.

"Berkshire is seeking permission to retain its current ownership position in Wells Fargo and to acquire additional shares of common stock of Wells Fargo," the Omaha, Neb.-based company said in an application to the Fed. "Berkshire does not have any specific transaction or dollar value in mind. And Berkshire does not have any present intention to acquire additional shares of common stock of Wells Fargo," according to the filing. The company said it nonetheless "routinely assesses market conditions and may decide to purchase additional shares," depending on the potential gain from such an investment.

Berkshire's application said that the company hasn't purchased stock in Wells Fargo since Oct. 21 and that it has no plans or proposals to merge, liquidate, or sell any portion of the bank or change its business strategy or corporate structure.

Tuesday, July 5, 2016

Warren Buffett almost never met Bill Gates

It was the summer of 1991 where a 35-year-old Bill Gates had an opportunity to meet the then 60 year old Warren Buffett. Bill Gates dismissed this opportunity initially describing Buffett as "some guy who moved money around for a living". Despite friends and family’s insistence, Gates wasn’t keen to drive a few hours to meet this Warren Buffett.

That friendship has changed the face of American philanthropy. Writing on his blog, Gates remembers his initial resistance and the phone conversation he had with his mother, Mary Gates, that changed his mind about meeting Buffett.

Gates writes:

    "In 1991, when my mother called me to come out to our vacation home on Hood Canal to meet a group of friends, including Warren, I didn’t want to go. I told her I was too busy at work. Warren would be interesting, my mother insisted. But I wasn’t convinced. “Look, he just buys and sells pieces of paper. That’s not real value added. I don’t think we’d have much in common,” I told her. Eventually, she persuaded me to go."

The Bill and Melinda Gates foundation now is an almost 40 billion endowment and Warren Buffett serves as a trustee.