> Warren Buffett Blog: September 2016

Monday, September 19, 2016

Buying more Phillips 66 shares

Warren Buffett's Berkshire Hathaway (BRKB) is still adding to his investments of Phillips 66 (PSX) shares. On the most recent filing with the US Securities and Exchange Commission, Berkshire Hathaway indicated that it had added some 1.01 million shares of Phillips 66.

The shares of the oil refiner were priced between 77.0824 and 77.3906.

Berkshire has been steadily building its Phillips 66 stake, adding to his now more-than-15% stake through much of this year.

Despite the turmoil that the energy industry is facing, Mr. Buffett keeps his hopes stacked to Phillips 66. In 2015, Mr. Buffett ended with a 11.8% stake in Phillips 66. The stake was again increased in May when Berkshire Hathaway added another 18 million shares amounting to $1.39 billion. The latest stake was bought at $77.86 per share making the total investment of around $6 million.

Thursday, September 8, 2016

Learnt my investment style from Benjamin Graham

I developed my investment strategy under Graham. I went to Columbia and learned from Graham.  With Graham’s approach, you cannot lose money over time.  It’s very quantitative in nature, and you have to do reasonably well.  On the other hand, it has less and less application as you get  into bigger and bigger companies with larger sums of money.  It’s better to buy wonderful businesses at fair prices than so-so businesses at low prices.

With the “cigar approach”, you can find a nasty cigar on the ground, with one puff left, can pick it up, light it and you get a free puff. You can keep doing this and get many free puffs. That’s one approach, that’s what I did. I looked for very cheap stocks quantitatively. After exposure to Fisher and Charlie, I started looking for better companies. Previously I was doing both. Now we are looking for good companies, not just cheap companies. Railroads are huge, and they will be good in 10 years, and 100 years from now. Burlington Northern is now earning $6 billion pre-tax, as compared to $3 billion a few years ago before we bought it.  Moving much towards Fisher now and less Ben Graham because we are working with larger sums. With smaller sums, we would be looking at better margins/cheaper stocks.

When I got out of school, I went through Moody’s manual page by page. Got to page 1433 and learned the good ones were in the back. Western insurance company in 1951 was earning $29.09 a share,  the year before $21.66.  The price of the stock had traded between 3 and 13 the previous 12 months.  The price was at 16 when I saw it, less than 1 x earnings.   A few years ago, in 2004, someone told me I should look at Korea.  I got a book from Citigroup which had 1 stock to a page. Describes all the publicly traded companies in Korea. Went through it and found about 20 companies (ex. Day-Han flower mills) it had book value, eps, and securities. Didn’t tell you anything about the share until you look at the price. Found about 20 like that in an afternoon and bought some of all of them, but didn’t know enough about all of them to load up on them. If you buy 20 stocks selling at 2 times earnings, you’re going to make money. That’s Ben Graham and you can make money doing this. 

If you’re working with bigger money, you have to do Fisher/Charlie style and buy big businesses. Berkshire now looks for large, very strong companies. Like Nebraska Furniture Mart – bought in 1983 and it’s probably earning 20 times as much now. Charlie told me – “You’re never going to disagree with me because you’re smart and I’m always right”.

Tuesday, September 6, 2016

People scarred from the 2008 - 2009 sell off still have not forgotten about it

What you’ve seen overall since 2008 and ‘09 – that was a wound to the American psyche. People were scared silly then … really we hadn’t had since the Great Depression. And you still see that in a lot of ways. 

But since the fall of 2009, we pretty much had 2 percent growth and people started talking sometimes about a double-dip recession; other times they talked about things accelerating. But if you really look at it … average it out, we’re showing 2 percent growth, which isn’t bad, but it does reflect I think still some … people that didn’t think the 2008 and ‘09 could happen, saw it happen and it scarred their attitudes for some period. Same thing happened in the Great Depression. 

People don’t get over that very quickly. When they started worrying about their money-market funds, and they start worrying about their jobs and they worry about the economy coming off the tracks, and banks and everything else, they don’t forget about that six months later.