TonyCinTX

What's Buffett's Ideology?

Buffett's ideology is pretty simple; he invests in many things that he believes have a high probability of success. Over the decades, two things have happened.

First, although at core he remains a "value" investor, experience, losses, and successes which he had avoided have refined his ability to judge value, and see what is important. He summarizes this in every annual letter to shareholders.

Second, with wealth and backing, he has found new opportunities unavailable to him as a younger man, simply because a guy with billions can solve thorny problems which cannot be solved by a guy with a few million.

I don't understand this obsession with Buffett's "ideology." How many times must he elucidate it? He says he often knows within ten minutes whether he is interested in an investment or not. What can he possibly be looking at in ten minutes?

I will tell you: Who is buying the product and why? What are the margins? Where is the protection? Who is the competition? Why *this* company instead of them? What makes this company special, protected, or the most certain to succeed?

It isn't rocket science. If anything, I'd say the one thing Buffett has that other investors do not is self-discipline. Buffett can sit on forty billion dollars for a *year* without feeling compelled to *do* something with it. What Buffett has is the ability to wait, and wait, and wait, and still recognize and execute quickly when he sees an insanely low risk/reward ratio.

99.9% of investment managers are not willing to tell their clients, "We didn't see anything worth doing this year. Not one darn thing. So we sat on your money. Maybe next year!"

Buffett is so willing, and quite explicitly.

Why Is Everybody Selling as Buffett Is Loading Up?

birder: BRK-B is $4650 a share. Plebian shareholders can get such a good deal. Half my portfolio is BRK-B, and it is on track or ahead of schedule for a compounded 10.7% annual return for the last five years.

Buffett takes a mere $100,000 annual salary and no stock options or anything else. 99.99999% of his billions comes from his share of Berkshire. BRK-B is directly tied to the price of BRK-A (1/30th of a share of BRK-A). That means his interests are directly aligned with those of his shareholders, he doesn't make any money unless you do.

So the average shareholder can indeed get exactly the same deal as Buffett, he uses the power of bulk buying and big deals to benefit all of us. I think it is hilarious how many pundits out there are constantly telling us how to invest like Buffett, or what the next Berkshire Hathaway is, when the original is still available and still delivering exactly what he has always delivered; the best business analysis, investment and negotiation brain on the planet.

Buffett's Big Bet: The Real Value of the Berkshire Investment in Goldman Sachs

Half my portfolio is BRK.B. It has been on a 10.7% annualized, compounded growth rate for the last 5 years, and that is what I and other holders are looking for. Sloppy math like this overstates the case, but there is no question in my mind that Goldman Sachs, Constellation Energy, and Buffett's recent $500M in many "smaller" real estate buys are all great investments that fit his model. If BRK.B does better than 10.7% I am of course happy, but I am not disappointed if it does not. As for buying like Buffett: Why not just buy BRK-B? At $4400 it isn't terrible, and you get 100% of the benefit of Buffett's leverage and negotiating power. Remember, Buffett's salary is only $100K, he has engineered Berkshire so he doesn't make money unless the stock price goes up. That's how it should be.

There Are Still Good Investments Out There

Buffett got the same terms as anybody with $5B to invest, $20B in reserves and a triple A+ credit rating.

I am not being facetious; Buffett's bargaining position includes the ability to completely solve the $5B cash crunch problem GS has, in a way a guy with $1M or $100M or even $1B cannot.

The rules weren't different for Buffett; there are a spectrum of deals to be made at each level, including his, and he has made good deals at every level for 50 years and advanced to new levels.

A guy with $10K can't build a factory, a guy with a $1M factory can't really go public, a guy with $10M can't really dictate to his suppliers, because he isn't buying enough from them to completely solve any problem of theirs. Walmart dictates to THEIR suppliers because they can completely solve the problem of sales and distribution. Buffett is not playing by any different rules than Microsoft, Walmart, P&G or even Goldman Sachs.

The rule is simple, the bigger the problem you solve, the more power you have. Ultimately, this is just the discount for purchasing in bulk quantities; I guarantee you if I pay cash up front for an entire year's output from any factory, I am going to get a far, far more favorable unit price than buying one off the shelf at Sears. Because I eliminated a hundred costs, man-years of effort and all uncertainty, not to mention creating efficiency through planned purchases of raw materials, simplified product handling, etc.