Berkshire Hathaway

[maniac]

Hope Lawrence A Cunningham will do another compilation of his letters soon.

http://www.amazon.com/The-Essays-Warren-...en+buffett

[a74henry]

Warren Buffet seems to wait for the right time to buy stakes in companies that he likes. He probably avoided stocks that are popular with the mass.

Hence, his purchase of the newspaper counters when others are not paying attention to them. Applied to our local context today, many are paying attention to SPH. My criteria failed.

Is SPH providing immediacy, ease of access, reliability, comprehensiveness and low cost to its readers?

How successful is SPH charging for online content?

SPH delivers comprehensive and reliable information to our communities and has a sensible Internet strategy.

[D123]

I thought this was a fun read - one attendee's summary of the shareholder meeting last weekend.

http://jeffmatthewsisnotmakingthisup.blo...haway.html

[greengiraffe]

http://www.businessday.com.au/business/t...2j2vz.html

The perilous cult of Buffett
Date
May 6, 2013 - 3:10PM
Comments 5
John Addis
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Warren Buffett goes out of his way to prove his fallibility. Photo: AP
Last Friday and Saturday, Warren Buffett hosted his insurance-to-ice cream conglomerate's annual general meeting.

Known as Woodstock for capitalists, the two-day jamboree has all the elements of a religious festival, with devotees basking in the reflected glow of their guru.

There's something stomach-churning and perhaps, in an investing sense, costly, about such veneration.

This year, up to 40,000 followers attended the jamboree, visiting the sites of religious significance: a barbecue at Nebraska Furniture Mart; an exclusive shareholder shopping day at Borsheim Jewelers; a NetJets tour.

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True believers can get even closer to God in the most intimate way by wearing the exclusive $5 Fruit of the Loom “Berky Boxers” featuring a motif of Buffett and Charlie Munger, Vice Chairman of Berkshire Hathaway, themselves.

But for an overwhelmingly reverential experience, nothing beats a slab of meat, a serving of chips and a root beer at Gorat's, Buffett's favourite steakhouse and the closest value investors get to an ashram.

I've never been to Omaha and have no plans to do so (although I have attended Munger's Wesco meeting). I hate crowds and there's nothing that investors get from the meeting not available online, except the experience of being there, which, of course, is the point.

Omaha is to investors what Lourdes is to Catholics. The very act of attending inducts you into the cult and confirms the extent of your belief, whether you like it or not.

Which is of course where the danger lies. In adopting a guru, one abdicates a sense of autonomy and self-reliance, skills crucial to investing success.

This isn't Buffett's fault. In fact, he goes out of his way to prove his fallibility.

This year Buffett called on hedge fund manager Douglas Kass, who has been shorting Berkshire stock, to make the case against the company.

By all accounts he failed, thus reaffirming the mythology of Buffett's munificence in the eyes of his followers.

The cult of Buffett is so entrenched that its most vociferous critic is Buffett himself, who regularly administers large doses of self-reproach for poor decisions.

Such hero worship is dangerous, dispensing as it does with the one thing all successful investors need: scepticism.

The idea that there is one true way, one path to riches, sign-posted by a pair of octogenarians with a fondness for peanut brittle, is one that Buffett and Munger themselves would be first to reject.

To be a successful investor you need to think independently and correctly, a phrase Buffett regularly trots out. That means the last thing you should do is join the cult of Buffett.

This article contains general investment advice only (under AFSL 282288).

John Addis is a director at Intelligent Investor and doesn't own either Berkshire Hathaway A or B shares. BusinessDay readers can enjoy a free trial offer to Intelligent Investor Share Advisor, including access to 17 current Buy recommendations. For more Intelligent Investor articles click here.

[AlphaQuant]

2013 newsletter is out. Enjoy the read!

http://www.berkshirehathaway.com/letters/2013ltr.pdf

PS: For those impatient to read thru the whole thing - fastforward to pages 18-20 for what i think is the gist.

[SpeedingBullet]

Great read!

LOL'd at this part:

In the GAAP-compliant figures we show on page 29, amortization charges of $648 million for the companies included in this section are deducted as expenses. We would call about 20% of these “real,” the rest not. This difference has become significant because of the many acquisitions we have made. It will almost certainly rise further as we acquire more companies.

Eventually, of course, the non-real charges disappear when the assets to which they’re related become fully amortized. But this usually takes 15 years and – alas – it will be my successor whose reported earnings get the benefit of their expiration.

Every dime of depreciation expense we report, however, is a real cost. And that’s true at almost all other companies as well. When Wall Streeters tout EBITDA as a valuation guide, button your wallet.

[felixleong]

Some Thoughts About Investing

Investment is most intelligent when it is most businesslike.
— The Intelligent Investor by Benjamin Graham

It is fitting to have a Ben Graham quote open this discussion because I owe so much of what I know about investing to him. I will talk more about Ben a bit later, and I will even sooner talk about common stocks. But let me first tell you about two small non-stock investments that I made long ago. Though neither changed my net worth by much, they are instructive. This tale begins in Nebraska. From 1973 to 1981, the Midwest experienced an explosion in farm prices, caused by a widespread belief that runaway inflation was coming and fueled by the lending policies of small rural banks. Then the bubble burst, bringing price declines of 50% or more that devastated both leveraged farmers and their lenders. Five times as many Iowa and Nebraska banks failed in that bubble’s aftermath than in our recent Great Recession.

In 1986, I purchased a 400-acre farm, located 50 miles north of Omaha, from the FDIC. It cost me
$280,000, considerably less than what a failed bank had lent against the farm a few years earlier. I knew nothing about operating a farm. But I have a son who loves farming and I learned from him both how many bushels of corn and soybeans the farm would produce and what the operating expenses would be. From these estimates, I calculated the normalized return from the farm to then be about 10%. I also thought it was likely that productivity would improve over time and that crop prices would move higher as well. Both expectations proved out.

I needed no unusual knowledge or intelligence to conclude that the investment had no downside and
potentially had substantial upside. There would, of course, be the occasional bad crop and prices would sometimes disappoint. But so what? There would be some unusually good years as well, and I would never be under any pressure to sell the property. Now, 28 years later, the farm has tripled its earnings and is worth five times or more what I paid. I still know nothing about farming and recently made just my second visit to the farm.

In 1993, I made another small investment. Larry Silverstein, Salomon’s landlord when I was the
company’s CEO, told me about a New York retail property adjacent to NYU that the Resolution Trust Corp. was selling. Again, a bubble had popped – this one involving commercial real estate – and the RTC had been created to dispose of the assets of failed savings institutions whose optimistic lending practices had fueled the folly.

Here, too, the analysis was simple. As had been the case with the farm, the unleveraged current yield from the property was about 10%. But the property had been undermanaged by the RTC, and its income would increase when several vacant stores were leased. Even more important, the largest tenant – who occupied around 20% of the project’s space – was paying rent of about $5 per foot, whereas other tenants averaged $70. The expiration of this bargain lease in nine years was certain to provide a major boost to earnings. The property’s location was also superb: NYU wasn’t going anywhere.

I joined a small group, including Larry and my friend Fred Rose, that purchased the parcel. Fred was an experienced, high-grade real estate investor who, with his family, would manage the property. And manage it they did. As old leases expired, earnings tripled. Annual distributions now exceed 35% of our original equity investment. Moreover, our original mortgage was refinanced in 1996 and again in 1999, moves that allowed several special distributions totaling more than 150% of what we had invested. I’ve yet to view the property.

Income from both the farm and the NYU real estate will probably increase in the decades to come. Though the gains won’t be dramatic, the two investments will be solid and satisfactory holdings for my lifetime and, subsequently, for my children and grandchildren.

I tell these tales to illustrate certain fundamentals of investing: You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.” Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake. If you instead focus on the prospective price change of a contemplated purchase, you are speculating.

There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.

With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. Games are won by players who focus on the playing field – not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.

Forming macro opinions or listening to the macro or market predictions of others is a waste of time.
Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)

My two purchases were made in 1986 and 1993. What the economy, interest rates, or the stock market might do in the years immediately following – 1987 and 1994 – was of no importance to me in making those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.
There is one major difference between my two small investments and an investment in stocks. Stocks
provide you minute-to-minute valuations for your holdings whereas I have yet to see a quotation for either my farm or the New York real estate.

It should be an enormous advantage for investors in stocks to have those wildly fluctuating valuations
placed on their holdings – and for some investors, it is. After all, if a moody fellow with a farm bordering my property yelled out a price every day to me at which he would either buy my farm or sell me his – and those prices varied widely over short periods of time depending on his mental state – how in the world could I be other than benefited by his erratic behavior? If his daily shout-out was ridiculously low, and I had some spare cash, I would buy his farm. If the number he yelled was absurdly high, I could either sell to him or just go on farming.

Owners of stocks, however, too often let the capricious and often irrational behavior of their fellow owners cause them to behave irrationally as well. Because there is so much chatter about markets, the economy, interest rates, price behavior of stocks, etc., some investors believe it is important to listen to pundits – and, worse yet, important to consider acting upon their comments.

Those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of “Don’t just sit there, do something.” For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.

A “flash crash” or some other extreme market fluctuation can’t hurt an investor any more than an erratic and mouthy neighbor can hurt my farm investment. Indeed, tumbling markets can be helpful to the true investor if he has cash available when prices get far out of line with values. A climate of fear is your friend when investing; a euphoric world is your enemy.

During the extraordinary financial panic that occurred late in 2008, I never gave a thought to selling my farm or New York real estate, even though a severe recession was clearly brewing. And, if I had owned 100% of a solid business with good long-term prospects, it would have been foolish for me to even consider dumping it. So why would I have sold my stocks that were small participations in wonderful businesses? True, any one of them might eventually disappoint, but as a group they were certain to do well. Could anyone really believe the earth was going to swallow up the incredible productive assets and unlimited human ingenuity existing in America?

When Charlie and I buy stocks – which we think of as small portions of businesses – our analysis is very similar to that which we use in buying entire businesses. We first have to decide whether we can sensibly estimate an earnings range for five years out, or more. If the answer is yes, we will buy the stock (or business) if it sells at a reasonable price in relation to the bottom boundary of our estimate. If, however, we lack the ability to estimate future earnings – which is usually the case – we simply move on to other prospects. In the 54 years we have worked together, we have never foregone an attractive purchase because of the macro or political environment, or the views of other people. In fact, these subjects never come up when we make decisions.

It’s vital, however, that we recognize the perimeter of our “circle of competence” and stay well inside of it. Even then, we will make some mistakes, both with stocks and businesses. But they will not be the disasters that occur, for example, when a long-rising market induces purchases that are based on anticipated price behavior and a desire to be where the action is.

Most investors, of course, have not made the study of business prospects a priority in their lives. If wise, they will conclude that they do not know enough about specific businesses to predict their future earning power. I have good news for these non-professionals: The typical investor doesn’t need this skill. In aggregate, American business has done wonderfully over time and will continue to do so (though, most assuredly, in unpredictable fits and starts). In the 20th Century, the Dow Jones Industrials index advanced from 66 to 11,497, paying a rising stream of dividends to boot. The 21st Century will witness further gains, almost certain to be substantial. The goal of the non-professional should not be to pick winners – neither he nor his “helpers” can do that – but should rather be to own a cross-section of businesses that in aggregate are bound to do well. A low-cost S&P 500 index fund will achieve this goal. That’s the “what” of investing for the non-professional. The “when” is also important. The main danger is that the timid or beginning investor will enter the market at a time of extreme exuberance and then become disillusioned when paper losses occur. (Remember the late Barton Biggs’ observation: “A bull market is like sex. It feels best just before it ends.”) The antidote to that kind of mistiming is for an investor to accumulate shares over a long period and never to sell when the news is bad and stocks are well off their highs. Following those rules, the “know-nothing” investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory
results. Indeed, the unsophisticated investor who is realistic about his shortcomings is likely to obtain better long term results than the knowledgeable professional who is blind to even a single weakness.
If “investors” frenetically bought and sold farmland to each other, neither the yields nor prices of their crops would be increased. The only consequence of such behavior would be decreases in the overall earnings realized by the farm-owning population because of the substantial costs it would incur as it sought advice and switched properties.

Nevertheless, both individuals and institutions will constantly be urged to be active by those who profit from giving advice or effecting transactions. The resulting frictional costs can be huge and, for investors in aggregate, devoid of benefit. So ignore the chatter, keep your costs minimal, and invest in stocks as you would in a farm. My money, I should add, is where my mouth is: What I advise here is essentially identical to certain instructions I’ve laid out in my will. One bequest provides that cash will be delivered to a trustee for my wife’s benefit. (I have to use cash for individual bequests, because all of my Berkshire shares will be fully distributed to certain philanthropic organizations over the ten years following the closing of my estate.) My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers.

And now back to Ben Graham. I learned most of the thoughts in this investment discussion from Ben’s book The Intelligent Investor, which I bought in 1949. My financial life changed with that purchase.

Before reading Ben’s book, I had wandered around the investing landscape, devouring everything written on the subject. Much of what I read fascinated me: I tried my hand at charting and at using market indicia to predict stock movements. I sat in brokerage offices watching the tape roll by, and I listened to commentators. All of this was fun, but I couldn’t shake the feeling that I wasn’t getting anywhere.

In contrast, Ben’s ideas were explained logically in elegant, easy-to-understand prose (without Greek
letters or complicated formulas). For me, the key points were laid out in what later editions labeled Chapters 8 and 20. (The original 1949 edition numbered its chapters differently.) These points guide my investing decisions today.

A couple of interesting sidelights about the book: Later editions included a postscript describing an
unnamed investment that was a bonanza for Ben. Ben made the purchase in 1948 when he was writing the first edition and – brace yourself – the mystery company was GEICO. If Ben had not recognized the special qualities of GEICO when it was still in its infancy, my future and Berkshire’s would have been far different.

The 1949 edition of the book also recommended a railroad stock that was then selling for $17 and earning about $10 per share. (One of the reasons I admired Ben was that he had the guts to use current examples, leaving himself open to sneers if he stumbled.) In part, that low valuation resulted from an accounting rule of the time that required the railroad to exclude from its reported earnings the substantial retained earnings of affiliates.

The recommended stock was Northern Pacific, and its most important affiliate was Chicago, Burlington and Quincy. These railroads are now important parts of BNSF (Burlington Northern Santa Fe), which is today fully owned by Berkshire. When I read the book, Northern Pacific had a market value of about $40 million. Now its successor (having added a great many properties, to be sure) earns that amount every four days. I can’t remember what I paid for that first copy of The Intelligent Investor. Whatever the cost, it would underscore the truth of Ben’s adage: Price is what you pay, value is what you get. Of all the investments I ever made, buying Ben’s book was the best (except for my purchase of two marriage licenses).

[kikababoo]

Just sharing an economist briefing article on BRK

http://www.economist.com/news/briefing/2...impressive

[MrValue]

Any buddies attending this year's AGM?
Going to be there for the first time...

[orangetea]

I think W.B lost it...

Somehow the values he preach and execute is becoming glaring.

===============
http://mobile.bloomberg.com/news/2014-05...hese-.html


Buffett Wants Tough Questions? How About These?
By Noah Buhayar
May 01, 2014 3:08 PM EDT 7 Comments
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Warren Buffett
Warren Buffett has long encouraged tough questions at Berkshire Hathaway Inc.’s annual meeting, and last year went as far as to bring in an investor who was betting on the stock’s decline.

Not so this year. Buffett, the company’s 83-year-old chairman and chief executive officer, struggled to find a bear for the gathering, which takes place May 3 at the CenturyLink Center in Omaha, Nebraska. “They must be in hibernation,” he told Bloomberg Television’s Betty Liu.

Instead, he asked Morningstar Inc.’s Greggory Warren to join two other analysts posing questions during a five-hour session with him and Vice Chairman Charles Munger, 90. The panel will alternate with journalists and shareholders.

If history is a guide, the Q&A will be informational and entertaining. Both executives are known for wit and wisdom. And while the event is supposed to inform shareholders about the company, the conversation often veers into other territory -- like Buffett’s musings on baseball and Paris Hilton.
To keep things focused on Berkshire, shareholders could ask these questions. They’re tough, just the way the CEO likes them:

1. Fund manager David Winters kicked up a storm in recent weeks by calling on you to vote against an executive-pay plan at Coca-Cola Co. Berkshire is the soft-drink maker’s biggest shareholder, and Winters said the compensation proposal violates many of your long-held principles about how companies should reward managers. After the plan passed on April 23, you said it was “excessive” and that you had abstained from voting.

How is Berkshire better off because you abstained and didn’t speak out beforehand about the Coca-Cola plan? How would you suggest shareholders deal with a similar proposal if one is made by Berkshire after you’re no longer running the company?

2. Berkshire joined Jorge Paulo Lemann’s 3G Capital in a $23.3 billion takeover of HJ Heinz Co. in June. The new managers have closed factories, cut thousands of jobs and engaged in belt-tightening around the office as part of a plan to boost margins. That contrasts with Berkshire’s practice of buying great businesses and leaving management alone.

Does the cost-cutting going on at Heinz tarnish the Berkshire brand? And are you applying any of the operating lessons you’re learning from 3G to Berkshire subsidiaries?

3. Berkshire’s railroad BNSF said in December that Matthew Rose was taking on the newly created role of executive chairman after 13 years as CEO. The company said he would work with managers over the next decade on long-term organizational planning and public policy. He was cited by Barclays Plc analyst Jay Gelb as one of the operating managers who could succeed you.
How has Rose’s job changed, and is he doing work that goes beyond the railroad? Whose idea was the title change?

4. Tracy Britt Cool, your 29-year-old financial assistant, has taken on more responsibility since you hired her in 2009. She’s the chairman of four Berkshire subsidiaries and was responsible for helping you pick the CEOs that run two of those companies.

Will she become chairman of any more Berkshire businesses, and, if so, which ones? How do you see her responsibilities changing under the next CEO?

5. For the first time under your leadership, Berkshire’s book value per share just failed to beat the gain of the Standard & Poor’s 500 Index over a five-year period. You’ve said that Berkshire’s growth will be slower going forward and that the company should outperform over future market cycles.

Apart from the stock market rally from 2009 through 2013, why did you fall short? And what kind of returns should investors expect of your successor?