> Warren Buffett Blog: August 2016

Wednesday, August 31, 2016

Housing has recovered slow but is getting stronger as of late

I would say that housing came back very late after the panic in 2008 and ‘09, and it’s starting to … it has showed continuing growth and momentum. But it didn’t come back as fast as I initially thought it would. And it’s been getting progressively stronger, particularly in the last year. That continues to this day. 

Household formations fall off a lot in recessions. People double up and move in with their in-laws, but eventually hormones win out. [laughter] And our population growth translates into new housing starts. Now, the one trend is people are moving more from living in single-family housing into rental. Sixty-two and a fraction percent now are in owner-occupied homes as opposed to rental. So there was more of an apartment development going on but now it’s translated to pretty good housing statistics, and we’re in a lot of areas that touch on that. We’re seeing a lot of strength there.

Tuesday, August 30, 2016

I still love reading books specially good political books

I’m going to turn 86 -- I don’t read as well as I used to in terms of speed or anything like that. You slow down some on that. My children used to say I was a book with legs. I like reading biographies ... I love reading good political books, starting with ‘The Making of the President’ back in 1960 [by Theodore White]. I can’t get enough of them. There’s just a huge pile next to this chair I sit in, and my wife claims that the books are breeding. At night while we’re sleeping, she says, these damn books breed.

Thursday, August 25, 2016

Newspaper business is in trouble

I still love newspapers. You’re talking to the last guy in the world. Someday you’ll come out and interview me, and you’ll see a guy with a landline phone, reading a print newspaper. [But]  newspapers are going to go downhill.

Most newspapers, the transition to the internet so far hasn’t worked in digital. The revenues don’t come in. There are a couple of exceptions for national newspapers -- The Wall Street Journal and The New York Times are in a different category. That doesn’t mean it necessarily works brilliantly for them, but they are a different business than a local newspaper. But local newspapers continue to decline at a very significant rate. And even with the economy improving, circulation goes down, advertising goes down, and it goes down in prosperous cities, it goes down in areas that are having urban troubles, it goes down in small towns – that’s what amazes me. A town of 10 or 20,000, where there’s no local TV station obviously, and really there’s nothing on the internet that tells you what’s going on in a town like that, but the circulation just goes down every month. And when circulation goes down, advertising is gonna go down, and what used to be a virtuous circle turns into a vicious circle.

Tuesday, August 23, 2016

I am more optimistic of human nature than before

On the Giving Pledge where Buffett with Bill Gates persuaded billionaires to give away half of their fortunes to charity

I would say it’s been far more successful than I originally expected. I hoped we’d get about 50 people [so far, there are more than 155 pledgers]. I’ve called lots and lots of people, most of whom we didn’t know prior, and we’ve asked a lot of people to pledge half or more of their net worth, and I’ve been surprised by how many we’ve gotten. There are now pledgers in 17 countries. I never envisioned it would go beyond the US. I’ve met some terrific people and overall it’s made me feel very good about human nature.

“Now, some say they couldn’t possibly give half of a billion dollars away and, as I’ve mentioned a couple times, I think I’m going to write a book on how to live on half a billion dollars! I feel they need all the help they could get if they get down to a half-billion [and consider that distressing]! But overall I feel better about human nature than I did before.”

Monday, August 22, 2016

Innovation and Productivity gains will continue to make America great

There’s two things that make it better: innovation and productivity, which are interlocked in certain ways. When you think of it, all of the products that you and I are using to make our lives better weren’t even around 30 years ago. It’s pretty extraordinary. 

And if you go back 100 years, every time I get in the dental chair, I think to myself, if this was 100 years ago, they’d be pouring whiskey down me and holding my arms. Now, I sit there and daydream about other stuff. So anything that improves experiences – what people want to do with the 24 hours in the day that they have. And secondly, what really counts is gains in productivity. If you go back 100 years … the farms around where I live here were producing 30 bushels of corn per acre. Now they’re producing 160 bushels of corn per acre. Well, that’s dramatic, and of course they take less people to do it as well, so, just up and down the line, you look at how many man-hours it takes to produce an auto now compared to 50 years ago. So, productivity – that’s the way the human race improves.

Thursday, August 18, 2016

Extremely proud of Dorris Buffett generosity with money and time

I’ve always said I like to give away money wholesale and she likes to give away money retail. Every individual to her is special. If she picks up a little kid who has dental problems, her reaction is: ‘What dentist can see that kid?’ If I pick up a kid, all I’m thinking is: ‘Who can I hand him off to before he pees!’ I mean, she is genuinely interested in a guy who’s had his pickup truck stolen or whatever it may be. Through no fault of their own, they’ve been handed a bum deal in their life. And I empathize with those people, but I’m not going to spend my days working with them. I’m too selfish for that, and I enjoy what I do.
Warren Buffett with his sister Dorris
My dad would have admired enormously what she’s doing. He would admire her more than what I’ve done — and I do, too. She gives money of her own and takes down her net worth every year by giving money away, and she really does want to die at zero. And on top of that, she gives all this time and energizes other people.

I have never done any philanthropy that has changed my way of living or my family’s, and Doris has. 

I’ve given up nothing. I mean, I gave away earlier this month $3 billion worth of stock. I made an annual distribution to a lot of foundations. That stock has no utility to me. None. It can’t make my life happier. It can’t make my physical condition better. It can’t entertain me and it can’t do anything for my children. Having those stock certificates going to someone else who can buy vaccines or maybe teach people how to use small plots of land better in Africa and open up educational opportunities allowing for women to plan their families has enormous facility to others but hasn’t taken anything away from me. No question it does a lot of good. But there are no wishes I’ve had in life that I’ve given up in order to help someone else. I’ve given away something that has no meaning.

But Doris is giving time, and time is the scarcest commodity. No matter who you are, you have 24 hours a day, and when you give time up you’re giving up something important. So if you were keeping a scorecard in life, you’d give her a higher score than me. If a person puts five or 10 dollars in the collection plate and that makes a difference whether they eat out or not, that’s giving something up. There’s nothing wrong with what I do, but if you’re judging the quality of our giving, Doris wins.

Wednesday, August 17, 2016

Todays children being born in the US are the luckiest ever so far

Humans have developed weapons that could wipe out all of humanity. 

Aside from the problem of weapons of mass destruction, which unfortunately is going to be with us forever, aside from that, the luckiest person born in history is the baby being born in the United States today.

It's an election year, and candidates can't stop speaking about our country's problems (which, of course, only they can solve),

As a result of this negative drumbeat, many Americans now believe that their children will not live as well as they themselves do. That view is dead wrong: The babies being born in America today are the luckiest crop in history.

Tuesday, August 16, 2016

Warren Buffett buys more Apple shares

The Oracle of Omaha Warren Buffett upped his stake in Apple by 61% in the second quarter of this year 2016. Berkshire Hathaway filed documents indicating that it upped its shareholding in the tech giant to 15.8 million shares, up from 9.8 million in the first quarter of 2016. Although they have rallied over the last month, Apple’s share price during Buffett’s buying spree dropped 12%.

Warren Buffett cut his number of shares in Wal-Mart Stores to 40.2 million shares from 55.2 million the prior quarter. Wal-Mart’s share price rose nearly 7% over that period.

Phillips 66
He also increased his bullish bet on oil prices going up in the longer term, raising his stake in oil company Phillips 66 to 78.8 million from 75.6 million. Phillips 66’s shares dropped 8% in the second quarter.

However, he cut his interest in fracking, reducing his interest in Canadian oil sands group Suncor Energy to 22 million from around 30 million. Suncor’s shares were down 0.3% over the course of that period.

Wednesday, August 10, 2016

Donald Trump should release his tax returns

Donald Trump isn’t going to release his tax returns just because virtually every presidential candidate has done so since 1969 — but would he respond to Warren Buffett's request ?

At a Hillary Clinton event in Omaha, Nebraska, on Monday, Berkshire Hathaway chair Warren Buffett made Trump an offer — “an offer I hope he can’t refuse.” Last week, Trump campaign chair Paul Manafort said his boss will not be releasing his tax returns — though, “It has nothing to do with Russia, it has nothing to do with any country other than the United States and his normal tax auditing process.”

Trump often claims that he can’t release the documents because his taxes are under audit, but Buffett explained that’s yet another thing the candidate made up. “I’ve got news for him, I’m under audit, too. I would be delighted to meet him any time, any place before the election,” Buffett said.

“I’ll bring my tax return. He can bring his tax return. Nobody is going to arrest us. There are no rules against showing your tax returns and just let[ting] people ask questions about the items that are on there,” Buffett continued. “I will meet him in Omaha, or Mar-a-Lago, or he can pick the place.”

Monday, August 8, 2016

Closing of all CDS Credit Default Swap positions

Warren Buffett just took another step to simplify Berkshire Hathaway Inc.’s derivatives.

The company paid $195 million in July to wind down the last contract in which Omaha, Nebraska-based Berkshire provided protection against losses on bonds, according to a regulatory filing Friday that didn’t identify the counterparty. As of June 30, 2016 the maximum risk on that credit-default agreement was about $7.8 billion.

Buffett labeled derivatives “financial weapons of mass destruction” in 2003, but went ahead and entered a number of the contracts in the following years. The billionaire has argued that agreements he made were attractive because they gave him money up front that he could invest. Berkshire’s derivatives also differed from contracts that brought down other financial institutions during the 2008 credit crisis, because he had less onerous collateral requirements.

“That was a very interesting chapter for Berkshire and its shareholders and it looks like that chapter is winding down.” said David Rolfe, chief investment officer at Wedgewood Partners, a Berkshire investor that oversees about $7.8 billion.

Berkshire’s last credit derivative had such a long potential lifespan that it could’ve continued under the next chief executive officer. Buffett may have been thinking, “why even bother someone with that?” Rolfe said.

Buffett, 85, has told shareholders to look past the fluctuations from derivatives and focus instead on the underlying earnings for Berkshire’s dozens of businesses, from railroad BNSF to ice-cream chain Dairy Queen. On Friday, the company reported that operating earnings climbed 18 percent to $4.61 billion in the second quarter, driven by gains at insurance and manufacturing businesses.

The contract covered in the July agreement was written in 2008 and related to municipal debt issues with maturities from 2019 to 2054, according to regulatory filings. Buffett didn’t respond to a request for comment outside normal business hours.

For years, the billionaire has been winding down derivatives or letting them expire. In 2012, he struck a deal to terminate contracts linked to municipal bonds. Others tied to corporate debt expired the following year.

Concerns about derivatives holdings could prove inconvenient during market crises -- times when Berkshire has typically used its financial strength to seize opportunities and make lots of money.

“When you have to mark these contracts to market in a downturn like 2008, it gives the appearance that Berkshire’s fortress balance sheet is weakened,” said Richard Cook at Cook & Bynum Capital Management, which oversees about $350 million including Berkshire shares. “I would prefer Buffett to have as much flexibility as possible when the tide rolls out.”

Berkshire still has some derivatives tied to the performance of stock indexes. Potential liabilities on those agreements have narrowed in recent years as markets rallied. Liabilities on the equity index puts -- which expire between June 2018 and early 2026 -- stood at about $4.4 billion at the end of the second quarter.

Some of Berkshire’s energy businesses also use derivatives to hedge fuel costs. But Buffett has been downplaying the role the contracts will play at his company when he’s no longer around.

“I don’t think there’ll be much of a derivatives book” under a new CEO, he said at Berkshire’s annual shareholder meeting in 2012. “There are a few operating businesses that will have minor positions.”

Wednesday, August 3, 2016

How Warren Buffett used cashflow to get rich

Warren Buffett’s company Berkshire Hathaway (really just a legal entity that owns other companies) is a very unique business. And no, it’s not because “Warren Buffett buys cheap stocks, value stocks, Buffett’s a great guy blah blah blah”. It’s because of Warren Buffett’s investment model. Buffett’s true buy and hold strategy works something like this.

Start off with $200,000 in 1950 (Buffett’s dad was a Congressman in the 1940’s/50’s). Buy a company (let’s call it Company A). Use the cashflow from that Company A to buy shares in another attractive company (let’s call this Company B). Eventually have enough cash from Company A to buy all of Company B. Use the newly combined cashflow to buy shares in Company C. Eventually have enough cash from Company A and Company B to buy all of Company C. Repeat this process with Companies D, E, F, G, and so on.

Thus, Berkshire Hathaway is a Buy and Hold Machine. That’s why Buffett’s biography is called The Snowball. Your investments will snowball as you own more and more companies. The mechanisms of this investment strategy are real slick. The cash generated from businesses goes into investing in other businesses, which increases the cash flow, which allows for more businesses to be bought, which generates even larger cash flows. And the cycle repeats itself.

via modestmoney

Monday, August 1, 2016

Public company vs Private company

I've had an interesting transformation on that. I originally would have preferred that Berkshire Hathaway be a private company. And over the years, my view on that has changed 180 degrees. I enjoy being a public company now.

I like the fact that people put their trust in us, and we treat them like partners and they feel like partners.