CaptainJJack

Buffett's Holdings Outperforming in Q4

I believe the market values of the banks will fluctuate a lot, and we should expect to see prices fall for a while.

But, for me, there is a difference between market fluctuation and risk. Real risk is actually losing money, and the ONLY way you deal with this is not to overpay.

For example, anyone who bought at the 1999 top ACTUALLY lost money.

I deal will market fluctuations differently. Here the issue is psychology and the fact that humans are hard wired to sell when the market bottoms and buy at market tops. The issue is not the value of my portfolio, it is how disciplined I am.

Most investors due far worse than either the pros or the overall market because they tend to buy at market tops and sell at market bottoms. Even a little of this kind of trading will KILL your overall returns.

As Graham pointed out often, it is relatively easy for a disciplined individual investor to consistently achieve adequate (i.e. market plus some nominal amount) returns, but it is very, very difficult to achieve superior (defined as > market + 5%, annually) returns.


On Nov 18 12:17 PM Crude Oil Trader wrote:

> I admit, even though I am a day trader I am sitting on some BRK.B
> in my Roth IRA and have been surprised it has held up as well as
> it has. My concern is the collapse of Wells Fargo and Bank of America
> taking the fund down. SP 500 @ 1130 is an area of great concern for
> all of these names.

Buffett's Holdings Outperforming in Q4

I have owned BRK for years, now, and I am amazed at how few people understand it.

Many, many years ago, conglomerates were all the rage. The sale was that you got "top managers" to oversee the business and allocate capital. Since "management skills" were guided more by the financial results than process results, you did not need to have industry experts, the argument went, you just needed people with discipline.

The reality was much different. They performed well, initially, as management skills and discipline really do make a difference, but it wasn't long before things fell apart.

First, there was a tendency to centralize, and this created massive bureaucracy and decisions often became political more than analytical, especially since the founder was usually charismatic and tended toward empire building.

Secondly, and related, overhead and "home office" staffs and costs skyrocketed.

Third, in order to keep the party going, they had to keep buying at ever higher prices.

Wall Street started to figure out, that the investor could do his/her own capital allocation without all this, and that conglomerates were adding nothing. They were, in effect closed end mutual funds with far higher costs.

But. what if you could hire one of the world's greatest capital allocators for $100,000/year, and he was so sure of his own skills, he put virtually ever dime he had into the deal.

What if, instead of having a huge bureaucracy, you had a "home office" consisting of 18 people.

What if the person almost never over paid for a business or a CEO to run the business ( the main exception being Conoco).

What if the person managed the businesses with far more discipline than any other manager you know -- again for $100,000/year, e.g. sitting on $50 Billion in very low yielding cash even when it clearly hurt.

I own Buffet's stock because it is by far the lowest cost mutual fund I can buy, and that he manages businesses as though he personally owns them.

For the most part, he does.

What Buffett's Burlington Northern Buy Really Means

I picked up the wrong numbers in calculating Warren's cost basis.

He owned 22,5% ( thought he owned a lot more), before the bid.

So, I am now guessing his basis is in the mid 90/share.

What Buffett's Burlington Northern Buy Really Means

I agree with this analysis. I own BRK, and, fortuitously, I own BNI, as well, so I am biased.

While the deal was valued at $44 Billion, Buffet's cost was less than $100/share. He already owned a substantial block of BNI. I am guessing his cost basis in the mid $80s.

I think this is a bet on the West, including Mexico, more than a bet on the US, and it is clearly a bet on efficiency

I like it when someone with Warren's skill set owns the whole company. He runs his companies for the benefit of the shareholder, and he is especially careful when it comes to capital expenditures, requiring managements to show how they make sense in light of future CASH earnings.

And, he never allows them to take on inordinate debt when times are good.

Intrinsic Value and Warren Buffett's BNSF Purchase

Warren already owned a substantial block of BNI before he made his $100/share bid. I am guessing his cost basis, overall, is in the mid 80s.

For that he gets to own the whole company. Paying a premium to control the whole deal is VERY common.

I own BRK and BNI, and I think this was a very, very good deal long term.

In the short run, I see it as okay, but not great. Since I've owned both BNI and BRK for years, I can wait

Riding the Rails: Why BNI Was Berkshire's Best Bet - And Vintage Buffett

Overpaid? Chinese Railroads?

I own BNI, and while I bought it at $74 - 80, I sure looked at it when it was over $100, and oil was at $130.

BNI has a relatively high P/B, at around 2.5, but the Chinese railroads have P/B north of 30! And, I would argue there is more than a little political risk involved.

As for Buffet being too old and past his prime, let's see, there are the Goldman warrants, the Preferreds he did with GE and Harley. There is the Wrigley deal, the Mars deal, and the rail car deal (I forgot the name of the family that sold to him) -- all in the last year.

I also own BRK. I don't think he's lost it.


On Nov 04 12:10 AM Mark Anthony wrote:

> My comment is Warren Buffet has good big picture view, bad timing
> and bad pricing. Every one in the world has known for two years that
> Warren Buffett loves railways. He openly talked about it more than
> two years ago. So why why he picks a time to pay nearly the higest
> price? Way over-paid.
>
> If he likes railway, Chinese railways are way much better play. The
> capacity of China's railways transportation is stretched tot he extreme.
> Whole America's railway system has excessive capacity that is idled.
>
>
> If he likes commodity and transportation play, he should be buying
> coal mines, and he should be buying dry bulk shippers. Both sectors
> are dirt cheap compare with railways.
>
> seekingalpha.com/autho...
>
> I am afraid Warren Buffett is getting too old to calculate relative
> valuations correctly. There are so many good under-valued assets
> around at dirt cheap price. Railway will be the last thing I will
> pick up. It's going to be good, but just not as good as other things.

Crude Oil: Bull or Bear?

I agree.

This is a business issue, and I have never seen any oil company even suggest that opening new areas for drilling would make a significant difference in our oil dependence.

Of course they advocate for more areas to drill because it is in their self interest to do so.

But, there is a WORLD of difference between saying that more available land will make a significant difference to the oil companies future compared to making a significant difference in the US dependence on foreign oil.

Moreover, when it comes to natural gas, a more enlightened policy allowing more TIME to drill on already leased lands is probably far more important than opening new areas

Boone Pickens has it about right. We SHOULD allow more areas to be drilled, but that will not come close to solving our oil dependence.

Conservation, encouraging the use of natural gas in transportation (although, given that natural gas is such a WONDERFUL source for heating and cooling, I hope this is temporary), and alternative energy where possible are the things that will make a difference.

Opening up new areas for drilling will help, of course, but the effects are PUNY in comparison. The world uses 1 billion barrels over oil roughly every 12 DAYS, the US uses 1 billion barrels every 1.5 to 2 months.

The BEST case for ANWAR, is 15 billion barrels, and no other area is close to ANWAR in terms of availability in the nearer term -- which is why it is at the top of the list for the oil companies.


On Jul 19 08:09 AM redbaron wrote:

> One other thought, It is not the Interior Dept that needs to decide
> to drill here, and now. It is the oil companies. The oil companies
> will drill where they have, 1) the best chances of success, 2) the
> least cost, and 3) the most favorable access to transportation and
> marketing. This is not a political decsion, it is an economic one.

Berkshire Hathaway's (Warren Buffett) Portfolio Update: Q4 2008

As someone who owns BRK, my biggest concern had been that BRK's ROE was falling, and it was getting to a level, at around 12%, that as an investment, even Warren Buffet would not want to own it.

The problem had been the enormous cash balance; often it was $50 billion or more, and it was earning much less than 5%, after tax. Worse businesses in BRK tend to generate a lot of cash -- so the problem seemed to be getting worse.

Even though BRK has not performed well, recently, I believe that the moves he is making well set up BRK VERY well in the future.

As for the sales of PG and JNJ, it would not surprise me to find out later, he looked at his ability to get such great deals in the bond/preferred space caused him to lighten up on stocks -- especially stocks that have similar risk characteristics to his new bonds; that is, lower downside risk but lower upside.

Of course, I am speculating like everyone else, but I see NOTHING in these latest moves to cause me to think, like Kass Berkowiz (sp?) and Cramer, that Buffet is losing his touch.

Finally, I have to believe that a company with a balance sheet like BRK is a great stock to own over the next few years, especially if things do not improve soon, as I fear.

On Buffett-Back Riding

I have owned BRK for years, and while I did not follow Buffet into GE and GS, I would have done the deals, and I still think they will work.

What I look for is high ROE with low P/E's; i.e. good stocks at cheap prices.

I believe the ROE is the single biggest test of competitive advantage, and if the ROE is consistently high for long periods of time, there is a reason for it. I think GE and GS would fit that bill today, as would GE.

However, there are three things that are SIGNIFICANTLY different from the eras where Buffet made great picks:

1. The credit system is not functioning, and even strong companies can get killed if they cannot get financing. This is a system that may be permanently damaged, and it threatens GE, GS, WFC, USB, and AMEX.

2. The crisis is global, and it is occurring across all asset classes. It is the most serious crisis in my lifetime, and it will last for as long as it takes to get in the financial system leverage down.

3. The role of government has gone from a passive, referee to an active investor with objectives that include a lot more than getting a good return.

We are in uncharted waters, and Buffet is basically making the bet that things will work out. He has the staying power to make that bet work, but it is certainly not without significant risk.

Burlington Northern Santa Fe: What's Buffett's Strategy?

I own both BRK.A and BNI. BNI is not a company Buffet would normally buy because it is so capital intensive. Buffet likes companies that have low capital and low R&D because he measures success of an investment against what he, as an owner has to put into it --i.e. he looks at ROE.

So, why BNI? I think he sees that the monopoly margins that are now built into the division of the country's rail infrastructure into five railroads means that BNI can more than cover its capital costs.

Further, there is more to the rail story than just energy efficiency. Look at the side of any long haul truck on the highway, and you see advertisements for owner operators.

The trucking industry is not able to keep enough truckers, and there has been a big labor shortage developing. This is more than just finding someone to drive a truck; they want someone who will drive HIS OWN truck for them.