I truly doubt Buffett likes GM. The amount bought clearly indicates it was either Todd Combs or Ted Weschler who bought the stock for Berkshire, and Buffett doesn't intervene in their decisions.
Buffett himself likely has a strong aversion for U.S. based airlines and auto makers, based various statements he made in the last few years.
BlackBerry: Where There Is Smoke There Is Fire [View article]
"Finally, where there is fire there is smoke. So far we only see the smoke and not the fire. We know there is a fire somewhere but we can't see it at the moment."
Now, that's a conveniently circular argument. Basically what you're saying is, the shares are up because when something is moving, there must be a reason for the move, therefore there's a reason for them to be up.
And by the way, the quip goes, "Where there's smoke, there's fire". The way you said it doesn't even make the case you're trying to make, circular as it is.
Why P/E Doesn't Mean Netflix Is Overpriced [View article]
> In 2012 Amazon (AMZN) had a P/E above 900 and yet the stock appreciated during that same time period by over 50%, not bad for a horribly overpriced stock.
That's right - buying shares in the hope that an even greater fool will buy them from you at a yet higher price is a sound investment strategy.
McDonald's (MCD) lackluster February sales report is a fresh sign the real economy where people eat fast food and earn less than $24/hour is still sluggish, despite the upbeat jobs report and a soaring Dow. While the numbers exceeded Wall Street expectations, sales at MickeyD's U.S. restaurants open at least a year were flat, suggesting MCD - and a big chunk of the economy - are stuck in neutral. [View news story]
I agree with Sirvasq. Has McD been losing market share to home dining? To upscale dining? To other fast-food chains?
Is there an established correlation between wealth and the number of Big Macs sold, or is this yet another attempt to take an isolated number and try to deduce the health of the entire economy from it?
Ted and Todd manage, in aggregate, less than $10 billion in assets, while Warren is sitting on some $70 billion in cash.
Buffett commented recently that he would have had no trouble generating annual returns above 30% if he were managing a much smaller amount, since these opportunities are only present in companies well below the size he was looking for. I believe him. But then, if he knows how to make such gains, why overlook them just because of their size? In time, and when repeated, even a billion here and a billion there add up to a significant amount.
In the time it takes Buffett to hunt down one $20 billion elephant, he could have bagged twenty $1 billion gazelles, each with better profitability ratios and growth potential than the elusive elephant. The aggregate would add far more to Berkshire's bottom line than the one elephant would.
Buffett likes to talk about his virtual punch card, proclaiming an investor should limit himself to 20 or so purchases in a lifetime. Yes, that is great advice for a small investor, or even for one who runs a $200 million partnership. But when you run a $200 billion conglomerate, perhaps it behoves you to use a slightly bigger punch card, I would think.
It's not like there's any overhead in owning 300 companies instead of 80. Berkshire's headquarters doesn't get involved in the operation of the businesses it owns. This is purely a mental weakness on Buffett's part. Four ounces of pretzel crumbs is just as nutritious as a four-ounce pretzel, but you don't get the satisfaction of biting into the crusty pastry. As Berkshire shareholders, I think this culinary satisfaction is costing us a lot of money.
Berkshire Hathaway Still Trades At A Slight Discount To Intrinsic Value [View article]
Great article! You are one of the few analysts who actually understands Berkshire and Buffett.
That said, I can't see Buffett going anywhere near AIG, mostly due to the complexity of their books and their reluctance to walk away from a bad underwriting deal. Without carefully analysing AIG's massive off-balance derivative book, there is no way of telling whether the company trades at 60% or at 160% of real-life, marked-to-market value.
And that's a bad thing? If you learned anything at all from the works of Benjamin Graham, it's that a decline in the price of a business you consider buying is a good thing.
While I wish Mr. Buffett a long, healthy life, I would welcome any decline in the stock price, as I'm sure he, too, would.
How Warren Buffett Could Become An Even Better Investor [View article]
> You'll notice that Mr. Buffett always invests for cash flow (and I do the same). He gets direct use of the cash, not the investors.
I don't understand this statement. Are you saying that Warren Buffett is pilfering funds from Berkshire Hathaway? If not, how is _he_, and not investors, "get direct use of the cash"? Other than a token $100k salary, his only compensation is his share of Berkshire, as an investor, just like you or me.
Dividends tend to make people with your level of business acumen happy, but not anyone who really understands how the business operates. You should probably stick to REITs. Or to baseball cards.
The recently-launched Forensic Accounting ETF (FLAG) attempts to overcome shortcomings in the S&P 500 (SPY) by weighting stocks according to earnings quality, says its creator John Del Vecchio. Those stocks with the largest market caps are thus not necessarily those with the largest influence over the fund. Additionally, companies with aggressive accounting are excluded from the ETF. [View news story]
FLAG's second largest holding is Chesapeake Energy - the same company that has been in the news lately for having a board of directors who encourages the CEO to borrow money from the company (over one billion dollars!) for buying oil wells and competing with the company he's running.
Interesting choice for an ETF claiming to specialize in honest accounting.
Short Charter: Chapter 11 Is Coming [View article]
An impressive analysis, even if it suffers from a very unprofessional tone. You sound more like a preacher or a used car dealer than an impartial analyst reporting his findings. Why the passion? Why the hatred? Many assets are mispriced, often grossly so. That's a good thing - it gives us an opportunity to benefit from those valuation errors.
However, what is sorely missing from this analysis (other than a neutral, professional tone) is a discussion about the one key element of the financial statements that would tell us whether the company is really making money or not - depreciation.
Charter writes off about $1.7B a year in asset depreciation. Some of that is purely an accounting convention required by GAAP, but some of it is the actual drop in the value of fixed assets, a drop that would, at some point, have to be replenished by a capital investment. This $1.7B makes up almost the entire difference between the (positive) cashflow and the (negative) earnings. Determining how much of it is a real drop in asset value is key to figuring out whether the company is making money or just liquidating its assets by postponing the replacement of depreciated property. Without such key information, the analysis is meaningless.
Evaluating Buffett's Decision To Buy Heinz At That Price [View article]
> if the value of the preferred or common shares fall, does the dividend payments matter any more?
Of course it does. As long as the company can service its preferreds, if you hold them until they're called, it makes no difference what the stock sells for.
Berkshire isn't interested in flipping those shares for a profit.They bought them to collect the $720 million a year in dividends, which they'll get no matter how well the company does -- as long as it stays in business.
The fundamentals matter in the sense that a bankrupt company stops paying dividends. Your comment doesn't give the impression that you've analyzed many deals involving convertibles or preferred stock.
Evaluating Buffett's Decision To Buy Heinz At That Price [View article]
As others here have pointed out, the author completely ignores the structure of the deal.
Bond- and preferred shares holders aren't too concerned about valuations. The only relevant question is whether or not Heinz will be able to continue paying the 9% preferred dividend. Seeing as Heinz is in no risk of liquidating, I'd say that income stream is as good as guaranteed.
So, even if for the sake of argument, you assume the common stock is totally worthless, Berkshire's investment still yields a consistent 6% on the _entire_ $12 billion invested (66%x9%), which is better than having that cash continue sitting in 0.2% T-bills.
Buffett Is Not Buying Heinz - He Is 3G's Banker [View article]
> He did not take common on Ge, Gs, Bac, that is why this is different. There is simply no proof that the common is a rider.
That's true, but considering that the common is only 34% of the deal, I'd say it's clear that it wasn't Buffett's primary goal here. Remember, he never owned shares of Heinz, even when it traded at $60. Why would he suddenly have an appetite for the shares at $72? That's not how he operates.
Sure, the author doesn't have any proof of Buffett's intentions, but based on the facts we have now, I think we can agree the title is, in some sense as a minimum, 66% right...
Buffett Likes GM, Should You? [View article]
Buffett himself likely has a strong aversion for U.S. based airlines and auto makers, based various statements he made in the last few years.
BlackBerry: Where There Is Smoke There Is Fire [View article]
Now, that's a conveniently circular argument. Basically what you're saying is, the shares are up because when something is moving, there must be a reason for the move, therefore there's a reason for them to be up.
And by the way, the quip goes, "Where there's smoke, there's fire". The way you said it doesn't even make the case you're trying to make, circular as it is.
Why P/E Doesn't Mean Netflix Is Overpriced [View article]
That's right - buying shares in the hope that an even greater fool will buy them from you at a yet higher price is a sound investment strategy.
McDonald's (MCD) lackluster February sales report is a fresh sign the real economy where people eat fast food and earn less than $24/hour is still sluggish, despite the upbeat jobs report and a soaring Dow. While the numbers exceeded Wall Street expectations, sales at MickeyD's U.S. restaurants open at least a year were flat, suggesting MCD - and a big chunk of the economy - are stuck in neutral. [View news story]
Is there an established correlation between wealth and the number of Big Macs sold, or is this yet another attempt to take an isolated number and try to deduce the health of the entire economy from it?
Berkshire Hathaway Is A Sell [View article]
Me? I never claimed I could find any; it was Buffett who made the claim, and I'm inclined to take him at his word on that.
Berkshire Hathaway Is A Sell [View article]
Ted and Todd manage, in aggregate, less than $10 billion in assets, while Warren is sitting on some $70 billion in cash.
Buffett commented recently that he would have had no trouble generating annual returns above 30% if he were managing a much smaller amount, since these opportunities are only present in companies well below the size he was looking for. I believe him. But then, if he knows how to make such gains, why overlook them just because of their size? In time, and when repeated, even a billion here and a billion there add up to a significant amount.
Berkshire Hathaway Is A Sell [View article]
Buffett likes to talk about his virtual punch card, proclaiming an investor should limit himself to 20 or so purchases in a lifetime. Yes, that is great advice for a small investor, or even for one who runs a $200 million partnership. But when you run a $200 billion conglomerate, perhaps it behoves you to use a slightly bigger punch card, I would think.
It's not like there's any overhead in owning 300 companies instead of 80. Berkshire's headquarters doesn't get involved in the operation of the businesses it owns. This is purely a mental weakness on Buffett's part. Four ounces of pretzel crumbs is just as nutritious as a four-ounce pretzel, but you don't get the satisfaction of biting into the crusty pastry. As Berkshire shareholders, I think this culinary satisfaction is costing us a lot of money.
Berkshire Hathaway Still Trades At A Slight Discount To Intrinsic Value [View article]
That said, I can't see Buffett going anywhere near AIG, mostly due to the complexity of their books and their reluctance to walk away from a bad underwriting deal. Without carefully analysing AIG's massive off-balance derivative book, there is no way of telling whether the company trades at 60% or at 160% of real-life, marked-to-market value.
Berkshire Hathaway Is A Sell [View article]
And that's a bad thing? If you learned anything at all from the works of Benjamin Graham, it's that a decline in the price of a business you consider buying is a good thing.
While I wish Mr. Buffett a long, healthy life, I would welcome any decline in the stock price, as I'm sure he, too, would.
How Warren Buffett Could Become An Even Better Investor [View article]
I don't understand this statement. Are you saying that Warren Buffett is pilfering funds from Berkshire Hathaway? If not, how is _he_, and not investors, "get direct use of the cash"? Other than a token $100k salary, his only compensation is his share of Berkshire, as an investor, just like you or me.
Dividends tend to make people with your level of business acumen happy, but not anyone who really understands how the business operates. You should probably stick to REITs. Or to baseball cards.
The recently-launched Forensic Accounting ETF (FLAG) attempts to overcome shortcomings in the S&P 500 (SPY) by weighting stocks according to earnings quality, says its creator John Del Vecchio. Those stocks with the largest market caps are thus not necessarily those with the largest influence over the fund. Additionally, companies with aggressive accounting are excluded from the ETF.
[View news story]
Interesting choice for an ETF claiming to specialize in honest accounting.
Short Charter: Chapter 11 Is Coming [View article]
However, what is sorely missing from this analysis (other than a neutral, professional tone) is a discussion about the one key element of the financial statements that would tell us whether the company is really making money or not - depreciation.
Charter writes off about $1.7B a year in asset depreciation. Some of that is purely an accounting convention required by GAAP, but some of it is the actual drop in the value of fixed assets, a drop that would, at some point, have to be replenished by a capital investment. This $1.7B makes up almost the entire difference between the (positive) cashflow and the (negative) earnings. Determining how much of it is a real drop in asset value is key to figuring out whether the company is making money or just liquidating its assets by postponing the replacement of depreciated property. Without such key information, the analysis is meaningless.
Evaluating Buffett's Decision To Buy Heinz At That Price [View article]
Of course it does. As long as the company can service its preferreds, if you hold them until they're called, it makes no difference what the stock sells for.
Berkshire isn't interested in flipping those shares for a profit.They bought them to collect the $720 million a year in dividends, which they'll get no matter how well the company does -- as long as it stays in business.
The fundamentals matter in the sense that a bankrupt company stops paying dividends. Your comment doesn't give the impression that you've analyzed many deals involving convertibles or preferred stock.
Evaluating Buffett's Decision To Buy Heinz At That Price [View article]
Bond- and preferred shares holders aren't too concerned about valuations. The only relevant question is whether or not Heinz will be able to continue paying the 9% preferred dividend. Seeing as Heinz is in no risk of liquidating, I'd say that income stream is as good as guaranteed.
So, even if for the sake of argument, you assume the common stock is totally worthless, Berkshire's investment still yields a consistent 6% on the _entire_ $12 billion invested (66%x9%), which is better than having that cash continue sitting in 0.2% T-bills.
Buffett Is Not Buying Heinz - He Is 3G's Banker [View article]
That's true, but considering that the common is only 34% of the deal, I'd say it's clear that it wasn't Buffett's primary goal here. Remember, he never owned shares of Heinz, even when it traded at $60. Why would he suddenly have an appetite for the shares at $72? That's not how he operates.
Sure, the author doesn't have any proof of Buffett's intentions, but based on the facts we have now, I think we can agree the title is, in some sense as a minimum, 66% right...