tag:blogger.com,1999:blog-69224007867077612602024-03-12T22:33:44.143-04:00The Investments BlogApplying Newton's Fourth LawAdamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comBlogger1055125tag:blogger.com,1999:blog-6922400786707761260.post-86970059168399763182019-12-05T09:53:00.000-05:002019-12-05T09:53:10.276-05:00Buffett on RepurchasesFrom the Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="http://berkshirehathaway.com/letters/2018ltr.pdf">letter</a> released earlier this year:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...repurchases should be price-sensitive: Blindly buying an overpriced stock is value destructive, a fact lost on many promotional or ever-optimistic CEOs.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">When a company says that it contemplates repurchases, it's vital that all shareholder-partners be given the
information they need to make an intelligent estimate of value. Providing that information is what Charlie and I try to
do in this report. We do not want a partner to sell shares back to the company because he or she has been misled or
inadequately informed.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Some sellers, however, may disagree with our calculation of value and others may have found investments
that they consider more attractive than Berkshire shares. Some of that second group will be right: There are
unquestionably many stocks that will deliver far greater gains than ours.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In addition, certain shareholders will simply decide it's time for them or their families to become net
consumers rather than continuing to build capital. Charlie and I have no current interest in joining that group. Perhaps
we will become big spenders in our old age."</span></i><br />
<br />
Warren Buffett also <a href="https://www.cnbc.com/video/2019/05/06/watch-cnbcs-full-interview-with-warren-buffett-charlie-munger-and-bill-gates.html">said the following</a> in an interview on CNBC back in May:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"Repurchases can be the dumbest thing in the world or the smartest thing in the world. and I've seen both but they're just -- repurchases by the company are just like purchases to us, they're dumb a one price and smart at another price. And I like it when companies -- I like it when we're invested in companies where they understand that. Many companies just repurchase and repurchase, you know, it's the thing to do..."
</span></i><br />
<br />
What's an intelligent action at one price becomes stupid at some higher price. Any conversation over whether repurchasing shares makes sense should begin with whether or not the stock is in fact cheap.<br />
<br />
Estimate per share intrinsic value, judge how that value is likely to change over time, then buy at a nice discount to that value.<br />
<br />
Repurchases generally won't make sense when value -- within a range -- cannot be judged with enough confidence. Some businesses have inherent durable advantages while others have extremely difficult to understand prospects.<br />
<br />
Beyond that it's assessing how such an action compares to existing well understood alternative uses of that capital.<br />
<br />
For example, if internal investments critical to future competitiveness are neglected -- in order to buy what looks like an inexpensive stock -- long-term shareholders will likely not be served well.<br />
<br />
Share repurchases work when <i>truly excess capital</i> is used to buy shares at a clear discount and when alternative uses are correctly judged inferior.<br />
<br />
Seems obvious enough, at least at first, yet corporate repurchase behavior too often reinforces the impression that it's rather less than obvious.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-4780955180891139062019-06-04T12:14:00.000-04:002019-11-13T15:45:19.615-05:00Charlie Munger: 2019 Daily Journal MeetingSome things Charlie Munger had to say at the Daily Journal (<a href="http://finance.yahoo.com/q?s=djco&ql=1">DJCO</a>) <a href="https://www.youtube.com/watch?v=X1Oi3esiry8">meeting</a> earlier this year:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>Now...we've done better than average. And now there's a question, why has that happened? Why has that happened? And the answer is pretty simple. We tried to do less. We never had the illusion we could just hire a bunch of bright young people and they would know more than anybody about canned soup and aerospace and utilities and so on and so on and so on. We never had that dream. We never thought we could get really useful information on all subjects like Jim Cramer pretends to have. (laughter) We always realized that if we worked very hard we can find a few things where we were right. And that a few things were enough.</i></span><br />
<br />
and<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>...take the modern world where people are trying to teach you how to come in and trade actively in stocks. Well I regard that as roughly equivalent to trying to induce a bunch of young people to start off on heroin. It is really stupid...And then there are people on the TV, another wonderful place, and they say, "I have this book that will teach you how to make 300 percent a year. All you have to do is pay for shipping and I will mail it to you!" (laughter) How likely is it that a person who suddenly found a way to make 300 percent a year would be trying to sell books on the internet to you! (laughter) It's ridiculous.</i></span><br />
<br />
Yet, somehow, apparently enough individuals will continue to behave as if they can get an edge by buying into what's being promoted -- whether in the form of a book, website, tv show or otherwise. If so, they're taking the promoter(s) advice -- someone who usually benefits one way or another by getting as many folks as possible to pay attention to that advice -- over that of Charlie Munger who's sound opinion is offered with no gain in mind.<br />
<br />
And we're talking about Charlie Munger here.<br />
<br />
The word wisdom shouldn't be thrown around carelessly though, in his case, it's the first word that comes to mind.<br />
<br />
And that wisdom applies far beyond the relatively narrow world of investing.<br />
<br />
More than a few capable investors exist in the world but, with Charlie Munger, we're not simply talking about a capable investor.<br />
<br />
In other words, the much deserved praise and admiration that's come his way over the years still, to me, understates his broader significance.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">No position in DJCO</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-67426956401130634402019-04-01T09:52:00.000-04:002019-12-05T09:26:01.693-05:00Buffett on ExpensesFrom the latest Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="http://www.berkshirehathaway.com/letters/2018ltr.pdf">letter</a>:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...managements sometimes assert that their company's stock-based compensation shouldn't be counted as an expense. (What else could it be – a </span><span style="font-family: "times" , "times new roman" , serif;">gift</span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"> from shareholders?) And restructuring expenses? Well, maybe last year's exact rearrangement won't recur. But restructurings of one sort or another are common in business –
Berkshire has gone down that road dozens of times, and our shareholders have always borne the costs of doing so.
</span></i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>Abraham Lincoln once posed the question: 'If you call a dog's tail a leg, how many legs does it have?' and then answered his own query: 'Four, because calling a tail a leg doesn't make it one.' Abe would have felt lonely on Wall Street.
</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>Charlie and I do contend that our acquisition-related amortization expenses of $1.4 billion...are not a true economic cost. We add back such amortization 'costs' to GAAP earnings when we are evaluating both private businesses and marketable stocks.
</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In contrast, Berkshire's $8.4 billion depreciation charge understates our true economic cost. In fact, we need to spend </span><span style="font-family: "times" , "times new roman" , serif;">more</span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"> than this sum annually to simply remain competitive in our many operations. Beyond those 'maintenance' capital expenditures, we spend large sums in pursuit of growth. Overall, Berkshire invested a record
$14.5 billion last year in plant, equipment and other fixed assets, with 89% of that spent in America.</span></i></span><br />
<br />
The practice of ignoring real costs like stock-based compensation is the practice of deliberately making what's inherently challenging -- the investing process -- even more so.<br />
<br />
Unfortunately it remains a not uncommon practice especially for businesses that rely heavily upon stock-based compensation.<br />
<br />
Those who use earnings per share (reported or estimated) that exclude these real costs as a basis for calculating intrinsic value end up, all else equal, with an inflated assessment that value.<br />
<br />
This conscious distortion may be a great way to <u>feel</u> better in the near term but it's an even better way to transfer wealth to strangers (the exiting shareholders) while, as a bonus I guess, taking on additional risk that need not be taken.<br />
<br />
Now it's possible that, because a particular business has rapidly improving prospects, such a "gift" may be masked by the rapid increase to intrinsic business value. Yet the "gift" is still real even if buried inside the bigger story. It seems rather obvious that a more wise approach would be to admit a higher premium is being paid -- and in some cases no doubt a justifiable premium -- than to pretend the current earnings are higher than reality.<br />
<br />
Premium prices built upon inflated earnings can, in fact, function as a gift to exiting shareholders.<br />
<br />
Nothing wrong with generosity but I think it's fair to say there's better ways to go about being charitable.<br />
<br />
Attempting to understand why what should be relatively informed individuals -- investors, analysts, and managements -- would accept such an alternative reality is worth the effort. There are, of course, underlying social and psychological factors at work here.<br />
<br />
Those factors may not always be obvious or measurable but they're real and potent.<br />
<br />
Adam<br />
<br />
<span style="font-family: Times, Times New Roman, serif;">Long position in BRKb</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-4039157909693036292019-02-15T15:11:00.000-05:002019-02-15T15:13:34.098-05:00Berkshire Hathaway 4th Quarter 2018 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012319002221/0000950123-19-002221-index.htm">4th Quarter 13F-HR</a> was recently released. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="https://theinvestmentsblog.blogspot.com/2018/11/berkshire-hathaway-3rd-quarter-2018-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318011885/0000950123-18-011885-index.htm">3rd Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>New Positions</b></i><br />
Red Hat (<a href="http://finance.yahoo.com/q?s=rht&ql=1">RHT</a>)<br />
Suncor (<a href="http://finance.yahoo.com/q?s=su&ql=1">SU</a>)<br />
StoneCo (<a href="http://finance.yahoo.com/q?s=stne&ql=1">STNE</a>)<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Bank of America (<a href="http://finance.yahoo.com/q?s=bac&ql=1">BAC</a>)<br />
US Bancorp (<a href="http://finance.yahoo.com/q?s=usb&ql=1">USB</a>)<br />
JP Morgan Chase (<a href="http://finance.yahoo.com/q?s=jpm&ql=1">JPM</a>)<br />
Bank of NY Mellon (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>)<br />
General Motors (<a href="http://finance.yahoo.com/q?s=gm&ql=1">GM</a>)<br />
PNC Financial (<a href="http://finance.yahoo.com/q?s=pnc&ql=1">PNC</a>)<br />
Travelers (<a href="http://finance.yahoo.com/q?s=trv&ql=1">TRV</a>)<br />
<br />
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>)</span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>)</span><br />
<span style="font-family: inherit;">Southwest (<a href="http://finance.yahoo.com/q?s=luv&ql=1">LUV</a>)</span><br />
<span style="font-family: inherit;">Charter (<a href="http://finance.yahoo.com/q?s=chtr&ql=1">CHTR</a>)</span><br />
<span style="font-family: inherit;">United Continental (<a href="http://finance.yahoo.com/q?s=ual&ql=1">UAL</a>)</span><br />
Phillips 66 (<a href="http://finance.yahoo.com/q?s=psx&ql=1">PSX</a>)<br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<span style="font-family: inherit;"><br /></span><b><i>Sold Positions</i></b><br />
Oracle (<a href="http://finance.yahoo.com/q?s=orcl&ql=1">ORCL</a>)<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (mostly Apple).**<br />
<br />
<span style="font-family: inherit;">1. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 39.4 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">2.</span> Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 22.1 bil.</span><br />
<span style="font-family: inherit;">3. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 19.7 bil.</span><br />
<span style="font-family: inherit;">4. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 18.9 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">5. </span><span style="font-family: inherit;">American Express (</span><a href="http://finance.yahoo.com/q?s=axp&ql=1" style="font-family: inherit;">AXP</a><span style="font-family: inherit;">) = $ 14.5 bil.</span></span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 377,000 employees (26 at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
Page A-1, near the end of the <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>, has a complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, AAPL, AXP, USB, WFC, BAC, and JPM established at much lower than recent market prices.</span><span style="font-family: "times" , "times new roman" , serif;"> </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">* Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514618002756/0001085146-18-002756-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> -- in some cases contributing to a mismatch between what's reported in the annual letter and the end of year 13F -- while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** All values shown are based upon the last trading day of the 4th quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-37866487848494886652019-01-17T09:34:00.000-05:002019-01-17T09:34:27.237-05:00John "Jack" Bogle...<a href="https://www.forbes.com/sites/rickferri/2019/01/16/the-worth-of-a-man-a-tribute-to-john-c-bogle/#5f37061b6451">will be missed</a>.<br />
<br />
Warren Buffett once <a href="http://www.berkshirehathaway.com/letters/2016ltr.pdf">explained</a> the significance of Jack Bogle's contribution this way:<br />
<br />
<i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in <a href="http://fortune.com/2017/02/25/warren-buffett-scorches-the-hedge-funds/">our bet</a>, less than nothing – of added value.</i><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me."</i></span><br />
<br />
Separately, in <a href="https://buffett.cnbc.com/video/2017/05/06/morning-session---2017-berkshire-hathaway-annual-meeting.html">a tribute to Mr. Bogle</a>, Buffett also said:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"Jack Bogle has probably done more for the American investor than any man in the country. (Applause)</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>And Jack, would you stand up? There he is." (Applause)
</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"I estimate that Jack, at a minimum, has saved — left in the pockets of investors, without hurting them overall in terms of performance at all — gross performance — he's put tens and tens and tens of billions into their pockets. And those numbers are going to be hundreds and hundreds of billions over time."
</i></span><br />
<br />
Fortunately, Jack Bogle's wisdom remains available to all in the form of the many interviews, articles, and books he has written over the years.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-22522113228588505162019-01-09T10:36:00.000-05:002019-01-09T10:36:00.467-05:00Quotes of 2018Here's a collection of quotes said or written at some point during 2018.<br />
<br />
<a href="https://theinvestmentsblog.blogspot.com/2018/04/buffett-when-non-random-rules-combine.html">Warren Buffett: When a Non-Random Rule & Random Fluctuations "Swamp the Truly Important"</a><br />
<i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">"...I would prefer to turn immediately to discussing Berkshire's operations. But...I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire's net income figures and very often mislead commentators and investors.<br /><br />The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line. Berkshire owns $170 billion of marketable stocks (not including our shares of Kraft Heinz), and the value of these holdings can easily swing by $10 billion or more within a quarterly reporting period. Including gyrations of that magnitude in reported net income will swamp the truly important numbers that describe our operating performance. For analytical purposes, Berkshire's 'bottom-line' will be useless.<br /><br />The new rule compounds the communication problems we have long had in dealing with the realized gains (or losses) that accounting rules compel us to include in our net income. In past quarterly and annual press releases, we have regularly warned you not to pay attention to these realized gains, because they – just like our unrealized gains – fluctuate randomly.<br /><br />That's largely because we sell securities when that seems the intelligent thing to do, not because we are trying to influence earnings in any way. As a result, we sometimes have reported substantial realized gains for a period when our portfolio, overall, performed poorly (or the converse)." - Warren Buffett</i><br />
<i style="font-family: "helvetica neue", arial, helvetica, sans-serif;"><br /></i>
<a href="https://theinvestmentsblog.blogspot.com/2018/06/jeff-bezos-on-high-standards.html">Jeff Bezos on High Standards</a><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"High standards are contagious. Bring a new person onto a high standards team, and they'll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread...I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn't have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are low or non-existent, and certainly not world class. It's critical to be open to that likelihood." - Jeff Bezos</i></span><br />
<br />
<a href="https://theinvestmentsblog.blogspot.com/2018/10/berkshire-2018-meeting-highlights-part.html">Berkshire 2018 Meeting Highlights - Part II</a><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...I have here a New York Times of March 12th, 1942. I'm a little behind on my reading. (Laughter)</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And if you go back to that time, that — it was about, what? Just about three months since we got involved in a war which we were losing at that point.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The newspaper headlines were filled with bad news from the Pacific...I'd like you to imagine that at that time you had invested $10,000</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">. </span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And you put that money in an index fund — we didn't have index funds then — but you, in effect, bought the S&P 500...[or]...Let's say you'd taken that $10,000 and you'd listened to the prophets of doom and gloom around you, and you'll get that constantly throughout your life. And instead, you'd used the $10,000 to buy gold...</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And you could look at it...</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But it didn't produce anything. It was never going to produce anything...So </span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">if you decided to go with a nonproductive asset — gold — instead of a productive asset, which actually was earning more money and reinvesting and paying dividends and maybe purchasing stock — whatever it might be — you would now have over 100 times the value of what you would have had with a nonproductive asset.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In other words, for every dollar you had made in American business, you'd have less than a penny by — of gain — by buying in this store of value, which people tell you to run to every time you get scared by the headlines or something of the sort." - Warren Buffett</span></i><br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...the one thing we know is we think that long-term bonds are a terrible investment, and we — at current rates or anything close to current rates...it's almost ridiculous when you think about it. Because here the Federal Reserve Board is telling you we want 2 percent a year inflation. And the very long bond is not much more than 3 percent. And of course, if you're an individual, then you pay tax on it. You're going to have some income taxes to pay.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And let's say it brings your after-tax return down to 2 1/2 percent. So the Federal Reserve is telling you that they're going to do whatever's in their power to make sure that you don't get more than a half a percent a year of inflation-adjusted income...I think I would stick with productive businesses, or productive — certain other productive assets — by far.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But what the bond market does in the next year, you know — you’ve got trillions of dollars in the hands of people that are trying to guess which maturity would be the best to own and all that sort of thing. And we do not bring anything to that game that would allow us to think that we’ve got an edge. - Warren Buffett</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...it really wasn't fair for our monetary authorities to reduce the savings rates, paid mostly to our old people with savings accounts, as much as they did. But they probably had to do it to fight the Great Recession, appropriately.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But it clearly wasn't fair. And the conditions were weird. In my whole lifetime, it's only happened once that interest rates went down so low and stayed low for a long time...</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And it benefited the people in this room enormously because it drove asset prices up, including the price of Berkshire Hathaway stock. So we're all a bunch of undeserving people..." </span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">- Charlie Munger</span></i><br />
<div>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i></div>
Happy New Year,<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="https://theinvestmentsblog.blogspot.com/2018/01/quotes-of-2017.html">Quotes of 2017</a> </span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-78871371925916342842018-11-16T09:27:00.000-05:002019-02-15T14:59:34.316-05:00Berkshire Hathaway 3rd Quarter 2018 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318011885/0000950123-18-011885-index.htm">3rd Quarter 13F-HR</a> was recently released. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="https://theinvestmentsblog.blogspot.com/2018/08/berkshire-hathaway-2nd-quarter-2018-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318008866/0000950123-18-008866-index.htm">2nd Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>New Positions</b></i><br />
JP Morgan Chase (<a href="http://finance.yahoo.com/q?s=jpm&ql=1">JPM</a>)<br />
Oracle (<a href="http://finance.yahoo.com/q?s=orcl&ql=1">ORCL</a>)<br />
PNC Financial (<a href="http://finance.yahoo.com/q?s=pnc&ql=1">PNC</a>)<br />
Travelers (<a href="http://finance.yahoo.com/q?s=trv&ql=1">TRV</a>)<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>)<br />
Bank of America (<a href="http://finance.yahoo.com/q?s=bac&ql=1">BAC</a>)<br />
US Bancorp (<a href="http://finance.yahoo.com/q?s=usb&ql=1">USB</a>)<br />
Goldman Sachs (<a href="http://finance.yahoo.com/q?s=gs&ql=1">GS</a>)<br />
Bank of NY Mellon (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>)<br />
Delta Air Lines (<a href="http://finance.yahoo.com/q?s=dal&ql=1">DAL</a>)<br />
General Motors (<a href="http://finance.yahoo.com/q?s=gm&ql=1">GM</a>)<br />
<br />
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>)</span><br />
<span style="font-family: inherit;">Southwest (<a href="http://finance.yahoo.com/q?s=luv&ql=1">LUV</a>)</span><br />
<span style="font-family: inherit;">Charter (<a href="http://finance.yahoo.com/q?s=chtr&ql=1">CHTR</a>)</span><br />
<span style="font-family: inherit;">United Continental (<a href="http://finance.yahoo.com/q?s=ual&ql=1">UAL</a>)</span><br />
American Airlines (<a href="http://finance.yahoo.com/q?s=aal&ql=1">AAL</a>)<br />
Phillips 66 (<a href="http://finance.yahoo.com/q?s=psx&ql=1">PSX</a>)<br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<span style="font-family: inherit;"><br /></span><b><i>Sold Positions</i></b><br />
Walmart (<a href="http://finance.yahoo.com/q?s=wmt&ql=1">WMT</a>)<br />
Sanofi (<a href="http://finance.yahoo.com/q?s=sny&ql=1">SNY</a>)<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (mostly Apple).**<br />
<br />
<span style="font-family: inherit;">1. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 57.0 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">2.</span> Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 25.8 bil.</span><br />
<span style="font-family: inherit;">3. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 23.3 bil.</span><br />
<span style="font-family: inherit;">4. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 18.5 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">5. </span><span style="font-family: inherit;">Kraft Heinz (</span><a href="http://finance.yahoo.com/q?s=khc&ql=1" style="font-family: inherit;">KHC</a><span style="font-family: inherit;">) = $ 17.9 bil.</span></span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 377,000 employees (26 at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
Page A-1, near the end of the <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>, has a complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, AAPL, USB, WFC, BAC, JPM, and KO established at much lower than recent market prices.</span><span style="font-family: "times" , "times new roman" , serif;"> </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">* Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514618002756/0001085146-18-002756-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> -- in some cases contributing to a mismatch between what's reported in the annual letter and the end of year 13F -- while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** All values shown are based upon the last trading day of the 3rd quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-77391153996701862402018-10-02T08:36:00.000-04:002019-01-09T10:36:37.818-05:00Berkshire 2018 Meeting Highlights - Part IIFrom the Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://buffett.cnbc.com/video/2018/05/05/morning-session--2018-berkshire-hathaway-annual-meeting.html">shareholder meeting</a> earlier this year:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Warren Buffett: "...I have here a New York Times of March 12th, 1942. I'm a little behind on my reading. (Laughter)</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And if you go back to that time, that — it was about, what? Just about three months since we got involved in a war which we were losing at that point.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">The newspaper headlines were filled with bad news from the Pacific...I'd like you to imagine that at that time you had invested $10,000. And you put that money in an index fund — we didn't have index funds then — but you, in effect, bought the S&P 500...[or]...Let's say you'd taken that $10,000 and you'd listened to the prophets of doom and gloom around you, and you'll get that constantly throughout your life. And instead, you'd used the $10,000 to buy gold.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Now for your $10,000 you would have been able to buy about 300 ounces of gold. And while the businesses were reinvesting in more plants, and new inventions came along, you would go down every year in your — look in your safe deposit box — and you'd have your 300 ounces of gold.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And you could look at it, and you could fondle it, and you could — I mean, whatever you wanted to do with it. (Laughter)
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But it didn't produce anything. It was never going to produce anything...So if you decided to go with a nonproductive asset — gold — instead of a productive asset, which actually was earning more money and reinvesting and paying dividends and maybe purchasing stock — whatever it might be — you would now have over 100 times the value of what you would have had with a nonproductive asset.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In other words, for every dollar you had made in American business, you'd have less than a penny by — of gain — by buying in this store of value, which people tell you to run to every time you get scared by the headlines or something of the sort."</span></i><br />
<br />
Later in the meeting, Warren Buffett and Charlie Munger had this to say about long-term bonds relative to productive assets:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Warren Buffett: "...the one thing we know is we think that long-term bonds are a terrible investment, and we — at current rates or anything close to current rates...it's almost ridiculous when you think about it. Because here the Federal Reserve Board is telling you we want 2 percent a year inflation. And the very long bond is not much more than 3 percent. And of course, if you're an individual, then you pay tax on it. You're going to have some income taxes to pay.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And let's say it brings your after-tax return down to 2 1/2 percent. So the Federal Reserve is telling you that they're going to do whatever's in their power to make sure that you don't get more than a half a percent a year of inflation-adjusted income...I think I would stick with productive businesses, or productive — certain other productive assets — by far.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But what the bond market does in the next year, you know — you’ve got trillions of dollars in the hands of people that are trying to guess which maturity would be the best to own and all that sort of thing. And we do not bring anything to that game that would allow us to think that we’ve got an edge.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Charlie?"</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Charlie Munger: "Well, it really wasn't fair for our monetary authorities to reduce the savings rates, paid mostly to our old people with savings accounts, as much as they did. But they probably had to do it to fight the Great Recession, appropriately.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But it clearly wasn't fair. And the conditions were weird. In my whole lifetime, it's only happened once that interest rates went down so low and stayed low for a long time.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">And it was quite unfair to a lot of people. And it benefited the people in this room enormously because it drove asset prices up, including the price of Berkshire Hathaway stock. So we're all a bunch of undeserving people — (laughter) — and I hope that we continue to be so."</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">(Laughter)
</span></i><br />
<br />
Some might have a difficult time internalizing the fact that owning a piece of a public company should be viewed as similar to the ownership of productive assets that generally aren't traded publicly (e.g. 100% private ownership of a restaurant, small factory, or farm). The second by second quotations during market hours, at least in part, have a tendency to distract the partial owner from the bigger picture.<br />
<br />
It shouldn't but often does.<br />
<br />
So they end up buying/selling too much.<br />
<br />
What should be advantage -- the ability to conveniently deploy and free up capital -- becomes disadvantage.<br />
<br />
Getting beyond this is just one small step -- but an important one.<br />
<br />
<span style="font-family: inherit;">There are practical differences and considerations, of course. Naturally, owning a very small part of a business means you can't much influence the direction of the company (whether excess capital should be distributed or allocated, new market opportunities, location considerations, competitive threats, technology shifts, etc.). So a quality board and management team will usually matter enormously. </span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Yet, otherwise, Buffett <a href="http://theinvestmentsblog.blogspot.com/2012/02/bufett-on-productive-assets.html">has on</a> <a href="http://theinvestmentsblog.blogspot.com/2014/03/buffett-on-farms-real-estate-and-stocks.html">prior</a> <a href="http://theinvestmentsblog.blogspot.com/2014/05/farms-real-estate-and-stocks-part-ii.html">occasions</a> made the point that a stock ownership of a publicly-traded company should be thought of the same way as the sole ownership of something like a rental property or a business.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">How much cash (compared to understood alternatives) that a productive asset likely produces over the very long haul relative to the cash to be invested -- whether or not publicly traded, whether or not owned outright -- is what ultimately matters.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">No such consideration is necessary for the nonproductive asset.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">It produces nothing and never will.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Adam
</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recent market prices</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">Related post:</span><br />
<a href="http://theinvestmentsblog.blogspot.com/2018/08/berkshire-2018-meeting-highlights-part-i.html" style="font-family: times, "times new roman", serif;">Buffett: Berkshire 2018 Meeting Highlights - Part I</a><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line:& </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span></span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-7644275457504787672018-08-16T08:51:00.000-04:002018-11-16T08:51:57.753-05:00Berkshire Hathaway 2nd Quarter 2018 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318008866/0000950123-18-008866-index.htm">2nd Quarter 13F-HR</a> was released this past Tuesday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2018/05/berkshire-hathaway-1st-quarter-2018-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318005732/0000950123-18-005732-index.htm">1st Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>)<br />
US Bancorp (<a href="http://finance.yahoo.com/q?s=usb&ql=1">USB</a>)<br />
Bank of NY Mellon (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>)<br />
Delta Air Lines (<a href="http://finance.yahoo.com/q?s=dal&ql=1">DAL</a>)<br />
Goldman Sachs (<a href="http://finance.yahoo.com/q?s=gs&ql=1">GS</a>)<br />
Southwest (<a href="http://finance.yahoo.com/q?s=luv&ql=1">LUV</a>)<br />
General Motors (<a href="http://finance.yahoo.com/q?s=gm&ql=1">GM</a>)<br />
Teva (<a href="http://finance.yahoo.com/q?s=teva&ql=1">TEVA</a>)<br />
Liberty Global (<a href="http://finance.yahoo.com/q?s=lbtya&ql=1">LBTYA</a>)<br />
<br />
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>)</span><br />
<span style="font-family: inherit;">Phillips 66 (<a href="http://finance.yahoo.com/q?s=psx&ql=1">PSX</a>)</span><br />
<span style="font-family: inherit;">Charter (<a href="http://finance.yahoo.com/q?s=chtr&ql=1">CHTR</a>)</span><br />
<span style="font-family: inherit;">United Continental (<a href="http://finance.yahoo.com/q?s=ual&ql=1">UAL</a>)</span><br />
American Airlines (<a href="http://finance.yahoo.com/q?s=aal&ql=1">AAL</a>)<br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<span style="font-family: inherit;"><br /></span><b><i>Sold Positions</i></b><br />
Monsanto (Company <a href="https://www.businesswire.com/news/home/20180607005617/en/Bayer-Closes-Monsanto-Acquisition">acquired/no longer traded</a> on NYSE)<br />
Verisk (<a href="http://finance.yahoo.com/q?s=vrsk&ql=1">VRSK</a>)<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (mostly Apple).**<br />
<br />
<span style="font-family: inherit;">1. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 46.6 bil.</span><br />
<span style="font-family: inherit;">2. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 25.1 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">3. </span><span style="font-family: inherit;">Kraft Heinz (</span><a href="http://finance.yahoo.com/q?s=khc&ql=1" style="font-family: inherit;">KHC</a><span style="font-family: inherit;">) = $ 20.5 bil.</span></span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">4.</span> Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 19.1 bil.</span><br />
<span style="font-family: inherit;">5. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 17.5 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 377,000 employees (26 at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
Page A-1, near the end of the <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>, has a complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, AAPL, USB, WFC, BAC, and KO established at much lower than recent market prices.</span><span style="font-family: "times" , "times new roman" , serif;"> </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;"><br /></span></span>
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;">* Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514618002153/0001085146-18-002153-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> -- in some cases contributing to a mismatch between what's reported in the annual letter and the end of year 13F -- while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included.</span></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;">** All values shown are based upon the last trading day of the 2nd quarter.</span></span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-8402618620259176832018-08-07T11:34:00.000-04:002018-08-09T10:33:15.940-04:00Berkshire 2018 Meeting Highlights - Part IThe following question was asked by Jack Ciesielski -- an accounting expert and Berkshire investor -- during Berkshire Hathaway's (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) most recent <a href="https://buffett.cnbc.com/video/2018/05/05/morning-session--2018-berkshire-hathaway-annual-meeting.html">shareholder meeting</a>:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"Mr. Buffett, in this year's shareholder letter you have harsh words for the new accounting rule that requires companies to use market value accounting for their investment holdings.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">'For analytical purposes,' you said, 'Berkshire’s bottom-line will be useless.' </span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I'd like to argue with you about that. Shouldn't a company’s earnings report cite everything that happened to, and within, a company during an accounting period?"</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<span style="font-family: inherit;">The response...</span><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Warren Buffett: "Well...we've got $170 billion of partly-owned companies, which we intend to own for decades, and which we expect to become worth more money over time, and where we reflect the market value in our balance sheet, does it make sense to, every quarter, mark those up and down through the income account, when at the same time we own businesses that have become worth far more money...take GEICO...we bought half the company for $50 million, roughly — do we want to be marking that up every quarter to the value — and having it run through the income account?
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">That becomes an appraisal process. There's nothing wrong with doing that, in terms of evaluation. But in terms of — and you can call it gain in net asset value or loss in net asset value — that's what a closed-end investment fund, or an open-investment fund would do.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">But to run that through an income account — if I looked at our 60 or 70 businesses...and every quarter we marked those to market, we would have, obviously, a great many, in certain cases, where over time we’d have them at 10 times what we paid, but how quarter-by-quarter we should mark those up and run it through the income account, where 99 percent of investors probably look at net income as being meaningful, in terms of what has been produced from operations during the year, I think would be — well, I can say it would be enormously deceptive.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I mean, in the first quarter of this year — you saw the figures earlier — where we had the best what I would call operating earnings in our history, and our securities went — were down six billion, or whatever it was, to keep running that through the income account every day you would say that we might have made on Friday, we probably made 2 1/2 billion dollars. Well, if you have investors and commentators and analysts and everybody else working off those net income numbers and trying to project earnings for quarters, and earnings for future years, to the penny, I think you're doing a great disservice by running those through the income account.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I think it's fine to have marketable securities on the balance sheet — the information available as to their market value — but we have businesses there — if we — we never would do it — but if we were to sell half, we’ll say, of the BNSF railroad, we would receive more than we carried — carried for them — we would turn — we could turn it into a marketable security and it would look like we made a ton of money overnight. Or if we were to appraise it, you know, appraise it every three months and write it up and down, A, it could lead to all kinds of manipulation, but B, and it would just lead to the average — to any investor— being totally confused.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I don't want to receive data in that manner and therefore I don't want to send it out in that manner.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Charlie?"
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">CHARLIE MUNGER: "Well, to me it's obvious that the change in valuation should be noted, and it is and always has been — it goes right into the net worth figures.
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">So the questioner doesn't understand his own profession. (Laughter and applause)
</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I’m not supposed to talk that way but it slips out once in a while." (Laughter)
</span></i><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Here's a <a href="http://theinvestmentsblog.blogspot.com/2018/04/buffett-when-non-random-rules-combine.html">prior post</a> covering what Buffett had to say in the shareholder letter about the consequences of this new accounting rule.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">As a direct result of the rule Berkshire's most recent earnings, as one might expect, produced headlines like:</span><br />
<br />
- <a href="https://www.ft.com/content/e9167002-97f7-11e8-9702-5946bae86e6d">Berkshire Hathaway posts surge in profits</a><br />
- <a href="https://www.foxbusiness.com/markets/warren-buffetts-berkshire-hathaway-profit-soars-in-second-quarter">Warren Buffett’s Berkshire Hathaway profit soars in second quarter</a><br />
<br />
These articles do attempt to explain what's behind such a substantial increase in quarterly earnings. Still, the new rule has real potential for misunderstanding.<br />
<br />
To invest well one needs to understand accounting and the rules do necessarily change over time.<br />
<br />
Yet that doesn't mean changes -- even if well-intended -- should make it more difficult for the investor to draw meaningful conclusions. That doesn't mean those who otherwise are rather familiar with <i>Generally Accepted Accounting Principles (GAAP)</i> should need to keep up with changes that don't seem to add much value or, worse yet, create confusion.<br />
<br />
The investing process is already difficult enough without such confusion.<br />
<br />
Berkshire's operating earnings did indeed improve but much of it comes down to the new accounting rule -- a rule that's just as certain the produce future headlines like <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"massive decline in profits"</span></i> the next time, inevitably, the market (or a specific stock in the portfolio) happens to drop dramatically.<br />
<br />
Buffett <a href="http://berkshirehathaway.com/news/aug0418.pdf">explained</a> the latest results this way:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"In 2018, due to a change in Generally Accepted Accounting Principles (“GAAP”), we are now required to include the changes in unrealized gains/losses of our equity security investments as a component of investment gains/losses in our earnings statements. In the table above, investment gains/losses in 2018 include a gain of approximately $4.5 billion in the second quarter and a loss of approximately $1.7 billion in the first six months of 2018 due to changes during the second quarter of 2018 and changes during the first six months of 2018 in the unrealized gains/losses of equity security investments held at June 30, 2018. In 2017 and in prior years, while changes in unrealized gains/losses were reflected in our shareholders’ equity, they were not included in our earnings statements. Accordingly, the following statement which has been included in each of Berkshire’s earnings releases for many years along with some additional comments (additional comments underlined) is even more important when analyzing Berkshire’s periodic results. <b>The amount of investment gains/losses in any given quarter is usually meaningless <u>and delivers figures for net earnings per share that can be misleading to investors who have little or no knowledge of accounting rules</u></b><u>.</u>"
</span></i><br />
<br />
Note that Buffett is clarifying the numbers -- primarily by isolating short-term fluctuations <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"in unrealized gains/losses of our equity security investments"</span></i> from the operating earnings -- so investors understand that the headline net earnings, due to the new rule, are far greater than what he considers the more meaningful but much lower Berkshire operating earnings. In other words, if in a future quarter he emphasizes that operating earnings are actually higher than the net earnings number it won't be because -- and unfortunately, this is too often the case -- he's trying to paint a rosier than reality picture.<br />
<br />
History more than suggests that such behavior would be, to say the very least, unusual for Berkshire.<br />
<br />
The goal here simply seems to be trying to communicate a number that's as meaningful as possible for investors.<br />
<br />
Accounting is very useful but has its limits.<br />
<br />
<i><span style="font-family: "arial" , "helvetica" , sans-serif;">"...you have to know accounting. It's the language of practical business life. It was a very useful thing to deliver to civilization...But you have to know enough about it to understand its limitations—because although accounting is the starting place, it's only a crude approximation. And it's not very hard to understand its limitations." - Charlie Munger <a href="https://old.ycombinator.com/munger.html">at USC Business School</a> in 1994</span></i><br />
<br />
Confusion, at best, seems the most likely outcome that this new rule is going to produce.<br />
<br />
Some of the limitations of accounting are inherent.<br />
<br />
Others are not.<br />
<br />
Adam
<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recent market prices</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Related post:</span><br />
<a href="http://theinvestmentsblog.blogspot.com/2018/04/buffett-when-non-random-rules-combine.html" style="font-family: times, "times new roman", serif;">Buffett: When a Non-Random Rule & Random Fluctuations "Swamp the Truly Important"</a><span style="font-family: "times" , "times new roman" , serif;"> </span><br />
<span style="font-family: times, "times new roman", serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line:& </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-38242607025915542562018-06-30T10:52:00.001-04:002018-07-20T09:34:04.781-04:00Jeff Bezos on High StandardsFrom the most recent Amazon (<a href="http://finance.yahoo.com/q?s=amzn">AMZN</a>) shareholder <a href="https://www.sec.gov/Archives/edgar/data/1018724/000119312518121161/0001193125-18-121161-index.htm">letter</a>:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"High standards are contagious. Bring a new person onto a high standards team, and they'll quickly adapt. The opposite is also true. If low standards prevail, those too will quickly spread...I believe high standards are domain specific, and that you have to learn high standards separately in every arena of interest. When I started Amazon, I had high standards on inventing, on customer care, and (thankfully) on hiring. But I didn't have high standards on operational process: how to keep fixed problems fixed, how to eliminate defects at the root, how to inspect processes, and much more. I had to learn and develop high standards on all of that (my colleagues were my tutors).
</i></span><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>Understanding this point is important because it keeps you humble. You can consider yourself a person of high standards in general and still have debilitating blind spots. There can be whole arenas of endeavor where you may not even know that your standards are low or non-existent, and certainly not world class. It's critical to be open to that likelihood."</i></span><br />
<br />
A similar thing seems relevant to the world of investing.<br />
<br />
I think it's fair to say that some seem more than willing to offer their views on just about every investment in every industry. Well, those willing to opine on most anything in the universe appear unaware of what Jeff Bezos is saying above. Such behavior, when on display, usually warrants a healthy dose of skepticism. The opinionator may use all the right terminology, have a solid understanding of the macro factors, and may even know quite a bit about lots of businesses across many industries.<br />
<br />
At least enough to sound impressive.<br />
<br />
Yet it doesn't necessarily follow that they'll sufficiently understand those businesses well enough to justify putting capital at risk. If someone, for example, were capable of evaluating the prospects of a particular technology business, it does not automatically mean they'll also understand how to capably judge the prospects of a steel producer.<br />
<br />
Necessarily, there'll be different competitive dynamics, different industry-specific opportunities and challenges, and the things to consider and understand in depth just goes on and on.<br />
<br />
Behaving otherwise lacks the kind of wise humility that Jeff Bezos refers to in his letter.<br />
<br />
Low levels of humility can prove more than somewhat correlated with low returns (or worse). In fact, when combined with early investing success overconfidence may lead to increasingly spectacular and costly failures. In other words, for the overconfident investor, the longer a series of early wins happens to be likely means bigger more expensive mistakes at a later time.*<br />
<br />
Hubris and investing don't mix.<br />
<br />
The reality is that even very talented individuals often have <span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif; font-style: italic;">"debilitating blind spots"</span>.<br />
<br />
High levels of competence and prior accomplishment, however impressive, do not automatically provide an exemption.<br />
<br />
Worse yet, there's a tendency to think blind spots are <a href="https://en.wikipedia.org/wiki/Bias_blind_spot">someone else's problem</a>.<br />
<br />
In fact, there's some <a href="https://www.ncbi.nlm.nih.gov/pubmed?term=west%20stanovich%20meserve">evidence</a> this may especially be applicable to highly <a href="https://www.fool.com/investing/general/2014/05/30/so-you-think-youre-rational.aspx">capable individuals</a>.<br />
<br />
Those who think they have somehow developed some kind of blind spot immunity run the risk of being (or becoming) a latent or blatant liability.<br />
<br />
That such a liability hasn't explicitly revealed itself just yet doesn't prove its nonexistence.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">No position in AMZN</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;">* It's worth noting here, as an aside, that t</span>he relationship between risk and reward <a href="http://theinvestmentsblog.blogspot.com/2014/09/howard-marks-on-risk.html">is</a> <a href="http://theinvestmentsblog.blogspot.com/2013/06/risk-and-reward-revisited.html">frequently</a> <a href="http://theinvestmentsblog.blogspot.com/2013/04/buffett-on-risk-and-reward.html">misunderstood</a>. The risk/reward relationship is vastly more confounding than the prevailing view -- that there inevitably must be a positive correlation between the two -- would suggest.</span><br />
---<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-22167106890902291172018-05-16T09:28:00.000-04:002018-08-16T08:35:00.729-04:00Berkshire Hathaway 1st Quarter 2018 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318005732/0000950123-18-005732-index.htm">1st Quarter 13F-HR</a> was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2018/02/berkshire-hathaway-4th-quarter-2017-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318002390/0000950123-18-002390-index.htm">4th Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b>**</i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>): 74.2 mil. shares bought (45% incr.); stake=$ 40.2 bil.<br />
US Bancorp (<a href="http://finance.yahoo.com/q?s=usb&ql=1">USB</a>): 3.8 mil. shares (4% incr.); stake=$ 4.6 bil.<br />
Bank of NY Mellon (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>): 1.4 mil. shares (2% incr.); stake=$ 3.2 bil.<br />
Delta Air Lines (<a href="http://finance.yahoo.com/q?s=dal&ql=1">DAL</a>): 489,000 shares (< 1% incr.); stake=$ 2.9 bil.<br />
Monsanto (<a href="http://finance.yahoo.com/q?s=mon&ql=1">MON</a>): 7.3 mil. shares (62% incr.); stake=$ 2.2 bil.<br />
<br />
I generally include above only those positions that were worth at least $ 1 billion at the end of the 1st quarter.<br />
<br />
Berkshire also roughly doubled its stake in Teva (<a href="http://finance.yahoo.com/q?s=teva&ql=1">TEVA</a>) but it remains a relatively small position (i.e. below $ 1 billion).<br />
<br />
In a portfolio this size a position that's less than $ 1 billion doesn't really move the needle much.<br />
<br />
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>): 1.7 mil. shares sold (<1% decr.); stake=$ 23.9 bil.</span><br />
<span style="font-family: inherit;">Phillips 66 (<a href="http://finance.yahoo.com/q?s=psx&ql=1">PSX</a>): 35.0 mil. shares (43% decr.); stake=$ 4.4 bil.</span><br />
<span style="font-family: inherit;">Charter (<a href="http://finance.yahoo.com/q?s=chtr&ql=1">CHTR</a>): 267,000 shares (3% decr.); stake=$ 2.6 bil.</span><br />
<span style="font-family: inherit;">United Continental (<a href="http://finance.yahoo.com/q?s=ual&ql=1">UAL</a>): 506,000 shares (2% decr.); stake=$ 1.9 bil.</span><br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Other small positions that were to an extent reduced further in size this past quarter include Liberty</span> Global (<a href="http://finance.yahoo.com/q?s=lbtya&ql=1">LBTYA</a>), <span style="font-family: inherit;">Sanofi</span> (<a href="http://finance.yahoo.com/q?s=sny&ql=1">SNY</a>), and Verisk (<a href="http://finance.yahoo.com/q?s=vrsk&ql=1">VRSK</a>).<br />
<span style="font-family: inherit;"><br /></span>
<b><i>Sold Positions</i></b><br />
IBM (<a href="http://finance.yahoo.com/q?s=ibm&ql=1">IBM</a>)<br />
Graham Holdings (<a href="http://finance.yahoo.com/q?s=ghc&ql=1">GHC</a>)<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (mostly Apple).<br />
<br />
<span style="font-family: inherit;">1. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 40.2 bil.</span><br />
<span style="font-family: inherit;">2. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 23.9 bil.</span><br />
<span style="font-family: inherit;"><span style="font-family: inherit;">3.</span> Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 20.4 bil.</span><br />
<span style="font-family: inherit;">4. </span><span style="font-family: inherit;">Kraft Heinz (</span><a href="http://finance.yahoo.com/q?s=khc&ql=1" style="font-family: inherit;">KHC</a><span style="font-family: inherit;">) = $ 20.3 bil.</span><br />
<span style="font-family: inherit;">5. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 17.4 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 377,000 employees (26 at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
Page A-1, near the end of the <a href="http://berkshirehathaway.com/2017ar/2017ar.pdf">annual report</a>, has a complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, AAPL, USB, WFC, BAC, and KO established at much lower than recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">Also, long position in IBM established slightly above recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">* All values shown are based upon the last trading day of the 1st quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514618001522/0001085146-18-001522-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> -- in some cases contributing to a mismatch between what's reported in the annual letter and the end of year 13F -- while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-58114452220391866392018-04-23T09:31:00.000-04:002019-04-01T09:53:22.584-04:00When a Non-Random Rule & Random Fluctuations "Swamp the Truly Important"From Warren Buffett's latest Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="http://berkshirehathaway.com/letters/2017ltr.pdf">shareholder letter</a>:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"...I would prefer to turn immediately to discussing Berkshire's operations. But...I must first tell you about a new accounting rule – a generally accepted accounting principle (GAAP) – that in future quarterly and annual reports will severely distort Berkshire's net income figures and very often mislead commentators and investors.
<br />
<br />
The new rule says that the net change in unrealized investment gains and losses in stocks we hold must be included in all net income figures we report to you. That requirement will produce some truly wild and capricious swings in our GAAP bottom-line. Berkshire owns $170 billion of marketable stocks (not including our shares of Kraft Heinz), and the value of these holdings can easily swing by $10 billion or more within a quarterly reporting period. Including gyrations of that magnitude in reported net income will swamp the truly important numbers that describe our operating performance. For analytical purposes, Berkshire's 'bottom-line' will be useless.<br />
<br />
The new rule compounds the communication problems we have long had in dealing with the realized gains (or losses) that accounting rules compel us to include in our net income. In past quarterly and annual press releases, we have regularly warned you not to pay attention to these realized gains, because they – just like our unrealized gains – fluctuate randomly.<br />
<br />
That's largely because we sell securities when that seems the intelligent thing to do, not because we are trying to influence earnings in any way. As a result, we sometimes have reported substantial realized gains for a period when our portfolio, overall, performed poorly (or the converse)."</i></span><br />
<br />
Upon reading this it immediately reminded me of something Charlie Munger once said at a Wesco shareholder <a href="http://theinvestmentsblog.blogspot.com/2009/05/wesco-shareholder-meeting-2009.html">meeting</a>:<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"Anyone with an engineering frame of mind will look at [accounting standards] and want to throw up in the aisle. And go ahead if you want to. It will be a memorable moment for all of us."</i></span><br />
<br />
Charlie's been pretty tough on the accounting profession in the past.<br />
<br />
Here's a <a href="http://theinvestmentsblog.blogspot.com/2009/07/munger-on-accounting.html">few</a> <a href="http://theinvestmentsblog.blogspot.com/2010/10/munger-on-accountants.html">additional</a> <a href="http://theinvestmentsblog.blogspot.com/2011/07/munger-on-accountants-and-high-speed.html">examples</a>.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recently prevailing market prices. No position i</span><span style="font-family: "times" , "times new roman" , serif;">n <a href="http://finance.yahoo.com/q?s=khc">KHC</a>.</span><br />
---<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-40800062350376349432018-03-26T10:05:00.000-04:002018-04-20T10:30:28.572-04:00Equity "Coupons"What Warren Buffett had to say about bonds and stocks in an <a href="https://www.cnbc.com/2018/02/26/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box-today.html">interview</a> on CNBC late last month:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...if you buy a 30-year government bond, it has a whole bunch of coupons attached...And the coupon says 3%, or whatever it may say. And you know that's what you're going to get between now and 30 years from now. And then they're going to give you the money back. What is a stock? A stock is the same sort of thing. It has a bunch of coupons. It's just they haven't printed the numbers on them yet. And it's your job as an investor to print those numbers on it. If those numbers say 10% and most American businesses earn over 10% on tangible equity. If they say 10%, that bond is worth a hell of a lot more money than a bond that says 3% on it. But if that government bond goes to 10%, it changes the value of this equity bond that, in effect, you're buying...when you buy an interest in...anything, you are buying something that, over time, is going to return cash to you...And those are the coupons. And it's...your job as an investor to decide what you think those coupons will be because that's what you're buying. And you're buying the discounted value. And the higher the yardstick goes, and the yardstick is government bonds, the less attractive these...look. That's just fundamental economics. So in 1982 or '83, when the long government bond got to 15%, a company that was earning 15% on equity was worth no more than book value under those circumstances because you could buy a 30-year strip of bonds and guarantee yourself for 15% a year. And a business that earned 12%, it was a sub-par business then. But a business that earns 12% when the government bond is 3% is one hell of a business now. And that's why they sell for very fancy prices."</span></i><br />
<br />
An emphasis on stock prices -- how they'll change over short or even more extended time horizons -- is best thought of as <i>speculation</i> (if not <a href="http://theinvestmentsblog.blogspot.com/2011/07/buffett-on-gambling-and-speculation.html">pure gambling</a>). There's nothing inherently wrong with speculation, of course, it just has less in common with investing than some seem to think.<br />
<br />
If, instead, the emphasis is on what the "coupons" will look like long-term it's possible, if not easy, for a present valuation, within a narrow enough range, to be estimated. From there prevailing market prices can be compared to estimated value. Sensible <i>investment</i> decisions can then be made.<br />
(Based upon, best case, inescapably imperfect but meaningful assumptions.)<br />
<br />
Two or more informed investors will rarely agree, at least not in a precise way, on the intrinsic value of an investment. It's not about being right; it's about being right enough within an acceptable range.<br />
<br />
Judging what the equity "coupons" are likely to be over a long time frame is challenging enough. Predicting interest rates is, if not impossible, nearly so. The discount paid to a conservative estimate of value can, only up to a point, protect the investor from errors, unknowns, and the unknowable.<br />
<br />
Margin of safety always comes into play; deciding what it should be is necessarily investment specific.<br />
<br />
Stretch assumptions and investing well just aren't compatible.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-13008180021567192622018-02-15T09:48:00.001-05:002018-08-16T08:33:09.713-04:00Berkshire Hathaway 4th Quarter 2017 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012318002390/0000950123-18-002390-index.htm">4th Quarter 13F-HR</a> was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2017/11/berkshire-hathaway-3rd-quarter-2017-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317010896/0000950123-17-010896-index.htm">3rd Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b>**</i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>): 31.2 mil. shares bought (23% incr.); stake = $ 28.0 bil.<br />
US Bancorp (<a href="http://finance.yahoo.com/q?s=usb&ql=1">USB</a>): 2.0 mil. shares (2% incr.); stake = $ 4.7 bil.<br />
Bank of New York Mellon (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>): 10.6 mil. shares (21% incr.); stake = $ 3.3 bil.<br />
Monsanto (<a href="http://finance.yahoo.com/q?s=mon&ql=1">MON</a>): 2.8 mil. shares (31% incr.); stake = $ 1.4 bil.<br />
<br />
<b><i>New Position</i></b><br />
Teva (<a href="http://finance.yahoo.com/q?s=teva&ql=1">TEVA</a>): 18.9 mil. shares; stake = $ 357.7 mil.<br />
<br />
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>): 6.0 mil. shares sold (1% decr.); stake = $ 27.8 bil.</span><br />
<span style="font-family: inherit;">American Airlines (<a href="http://finance.yahoo.com/q?s=aal&ql=1">AAL</a>): 1.0 mil. shares (2% decr.); stake = $ 2.4 bil.</span><br />
<div>
<span style="font-family: inherit;">General Motors (<a href="http://finance.yahoo.com/q?s=gm&ql=1">GM</a>): 10.0 mil. shares (16% decr.); stake = $ 2.0 bil.</span></div>
<span style="font-family: inherit;">IBM (<a href="http://finance.yahoo.com/q?s=ibm&ql=1">IBM</a>): 35.0 mil. shares (94% decr.); stake = $ 314.2 mil.</span><br />
<span style="font-family: inherit;">Sanofi</span> (<a href="http://finance.yahoo.com/q?s=sny&ql=1">SNY</a>): 27.4 thous. shares (<1% decr.); stake = $ 166.8 mil.<br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (primarily Apple).<br />
<br />
<span style="font-family: inherit;">1. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 28.0 bil.</span><br />
<span style="font-family: inherit;">2. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 27.8 bil.</span><br />
<span style="font-family: inherit;">3. </span><span style="font-family: inherit;">Kraft Heinz (</span><a href="http://finance.yahoo.com/q?s=khc&ql=1" style="font-family: inherit;">KHC</a><span style="font-family: inherit;">) = $ 25.3 bil.</span><br />
<span style="font-family: inherit;">4.</span> Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 20.0 bil.<br />
<span style="font-family: inherit;">5. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 18.4 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 367,000 employees (25 at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
See page 116 of the <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a> for a more complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, AAPL, USB, WFC, BAC, and KO established at much lower than recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">Also, long position in IBM established near recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">* All values shown are based upon the last trading day of the 4th quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514618000878/0001085146-18-000878-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> -- in some cases contributing to a mismatch between what's reported in the annual letter and the end of year 13F -- while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-28753163532282813732018-01-11T09:56:00.001-05:002019-01-09T10:08:43.273-05:00Quotes of 2017Here's a collection of quotes said or written at some point during 2017.<br />
<br />
<a href="http://theinvestmentsblog.blogspot.com/2017/03/buffett-innovators-imitators-swarming.html">Innovators, Imitators, & the Swarming Incompetents</a><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">...the great majority of [investment] managers who attempt to over-perform will fail. The probability is also very high that the person soliciting your funds will not be the exception who does well. Bill Ruane...said it well: 'In investment management, the progression is from the innovators to the imitators to the swarming incompetents.'</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Further complicating the search for the rare high-fee manager who is worth his or her pay is the fact that some investment professionals, just as some amateurs, will be lucky over short periods. If 1,000 managers make a market prediction at the beginning of a year, it's very likely that the calls of at least one will be correct for nine consecutive years. Of course, 1,000 monkeys would be just as likely to produce a seemingly all-wise prophet. But there would remain a difference: The lucky monkey would not find people standing in line to invest with him."</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"> - Warren Buffett</span></i><br />
<br />
<a href="http://theinvestmentsblog.blogspot.com/2017/04/buffett-on-bogle.html">Buffett on Bogle</a><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"</span></i><i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">If a statue is ever erected to honor the person who has done the most for American investors, the hands-down choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds. In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have promised their investors large rewards while delivering them nothing – or, as in <a href="http://fortune.com/2017/02/25/warren-buffett-scorches-the-hedge-funds/">our bet</a>, less than nothing – of added value.</i><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">In his early years, Jack was frequently mocked by the investment-management industry. Today, however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their savings than they otherwise would have earned. He is a hero to them and to me.</i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">" - Warren Buffett</span></i><br />
<br />
<a href="http://theinvestmentsblog.blogspot.com/2017/09/warren-buffett-on-american-business.html">Buffett on American Business</a><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"</i></span><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">American business – and consequently a basket of stocks – is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics – that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: 'We spend a lot of time looking for systemic risk; in truth, however, it tends to find us.'</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"> - Warren Buffett</span></i><br />
<span style="font-family: inherit;"><br /><a href="http://theinvestmentsblog.blogspot.com/2017/12/munger-destroying-bad-ideas.html">Destroying Bad Ideas - Part II</a></span><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"...</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">I've done so many dumb things that I'm very busy destroying bad ideas because I keep having them. So it's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea because...I think it's my duty to destroy old ideas. I know so many people whose main problem of life, is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. There's an old German folk saying...'We're too soon old and we're too late smart.' That's everybody's problem. And the reason we're too late smart is that the stupid ideas we...already have, we can't get rid of!.</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">..i</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">n most fields you want to get rid of your old ideas. And it's a good habit, and it gives you a big advantage in the competitive game of life since other people are so very bad at it. What happens is, as you spout ideas out, what you're doing is you're pounding them in. And so you get these ideas and then you start agitating and saying them and so forth. And of course, the person you're really convincing is you who already had the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much time telling the world what I think about how the federal reserve system should behave and so forth is I know that I'm just pounding the ideas into my own head when I think I'm telling the other people how to run things. So I think you have to have mental habits that -- I don't like it when young people get violently convinced on every damn cause or something. They think they know everything. Some 17 year old who wants to tell the whole world what should be done about abortion or foreign policy...or something. All he's doing when he or she spouts about what he deeply believes is pounding the ideas he already has in, which is a very dumb idea when you're just starting and have a lot to learn.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">So it's very important that habit of getting rid of the dumb ideas. One of things I do is pat myself on the back every time I get rid of a dumb idea. You could say, 'could you really reinforce your own good behavior?' Yeah, you can. When other people won't praise you, you can praise yourself. I have a big system of patting myself on the back. Every time I get rid of a much beloved idea I pat myself on the back. Sometime several times. And I recommend the same mental habit to all of you. The price we pay for [not] being able to accept a new idea is just awesomely large." </span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">- Charlie Munger</span></i><br />
<br />
Happy New Year,<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/01/quotes-of-2016.html">Quotes of 2016</a> </span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: The opinions found here should never be considered specific individualized investment advice and never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-52271904841323312412017-12-26T13:08:00.000-05:002018-02-06T10:16:23.872-05:00Destroying Bad Ideas - Part IICharlie Munger <a href="https://www.tilsonfunds.com/wscmtg06notes.pdf">has talked about</a> the importance of routinely ridding oneself of the ideas -- often inferior yet, due to various biases and misjudgments, still favored -- that inevitably accumulate over time.<br />
<br />
<a href="http://theinvestmentsblog.blogspot.com/2017/10/destroying-bad-ideas.html">Destroying Bad Ideas - Part I</a><br />
<br />
The problem is it's all too easy to do just the opposite -- to seek information that <a href="https://en.wikipedia.org/wiki/Confirmation_bias">confirms</a> what one already believes to be correct. In other words, after becoming enamored with a particular worldview, most don't enjoy later admitting that the 'story' they've long believed -- especially when previously embraced with enthusiasm and vigorously defended -- was far from perfect!<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things." - Charlie Munger at the 2006 Wesco <a href="https://www.tilsonfunds.com/wscmtg06notes.pdf">Annual Meeting</a></span></i><br />
<br />
So, instead, way too much energy is spent defending the flawed outlook while, at the same time, continuing to seek 'proof' of being 'right all along'.<br />
<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"The first principle is that you must not fool yourself -- and you are the easiest person to fool." - <a href="http://calteches.library.caltech.edu/51/2/CargoCult.htm">Richard Feynman</a></i></span><br />
<br />
Preferred views of reality have a more than decent chance of being riddled with defects. It's expecting that as the norm then attempting to be just a bit less wrong over time. This makes necessary an <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"ability to destroy your ideas rapidly" </span></i>which is, well, more than challenging enough.<br />
<br />
Developing, as a reliable mental habit, the capacity to get rid of subpar ideas d<span style="font-family: inherit;">epends on humility more so than brilliance</span>.<br />
<br />
With the above in mind consider what Charlie Munger said at the Daily Journal (<a href="http://finance.yahoo.com/q?s=djco&ql=1">DJCO</a>) <a href="https://www.youtube.com/watch?v=BLctqhNClqY">meeting</a> earlier this year.<br />
<br />
Munger, at the meeting, was asked which one of his ideas he found to be most difficult to destroy.<br />
<br />
His answer:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"Well I've done so many dumb things that I'm very busy destroying bad ideas because I keep having them. So it's hard for me to just single out one from such a multitude. But I actually like it when I destroy a bad idea because...I think it's my duty to destroy old ideas. I know so many people whose main problem of life, is that the old ideas displace the entry of new ideas that are better. That is the absolute standard outcome in life. There's an old German folk saying...'We're too soon old and we're too late smart.' That's everybody's problem. And the reason we're too late smart is that the stupid ideas we...already have, we can't get rid of!.</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">..i</span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">n most fields you want to get rid of your old ideas. And it's a good habit, and it gives you a big advantage in the competitive game of life since other people are so very bad at it. What happens is, as you spout ideas out, what you're doing is you're pounding them in. And so you get these ideas and then you start agitating and saying them and so forth. And of course, the person you're really convincing is you who already had the ideas. You're just pounding them in harder and harder. One of the reasons I don't spend much time telling the world what I think about how the federal reserve system should behave and so forth is I know that I'm just pounding the ideas into my own head when I think I'm telling the other people how to run things. So I think you have to have mental habits that -- I don't like it when young people get violently convinced on every damn cause or something. They think they know everything. Some 17 year old who wants to tell the whole world what should be done about abortion or foreign policy...or something. All he's doing when he or she spouts about what he deeply believes is pounding the ideas he already has in, which is a very dumb idea when you're just starting and have a lot to learn.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">So it's very important that habit of getting rid of the dumb ideas. One of things I do is pat myself on the back every time I get rid of a dumb idea. You could say, 'could you really reinforce your own good behavior?' Yeah, you can. When other people won't praise you, you can praise yourself. I have a big system of patting myself on the back. Every time I get rid of a much beloved idea I pat myself on the back. Sometime several times. And I recommend the same mental habit to all of you. The price we pay for [not] being able to accept a new idea is just awesomely large. Indeed a lot of people die because they can't get new ideas through their head."</span></i><br />
<br />
Charlie Munger's known for <a href="https://www.fool.com/investing/general/2007/12/13/charlie-mungers-10-rules-for-investment-success.aspx">saying</a>: <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"I have nothing to add."</span></i><br />
<br />
Well, it seems best to behave the same way when something as wise as the above is said.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">No position in DJCO</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">Related posts:</span></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/10/destroying-bad-ideas.html">Destorying Bad Ideas - Part I</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/07/buffett-munger-investing-blunders.html">Investing Blunders</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/10/buffett-200-billion-dollar-blunder.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's $ 200 Billion Blunder</span></a><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-1609885395595225992017-11-15T10:19:00.000-05:002018-08-16T08:33:36.618-04:00Berkshire Hathaway 3rd Quarter 2017 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317010896/0000950123-17-010896-index.htm">3rd Quarter 13F-HR</a> was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2017/08/berkshire-hathaway-2nd-quarter-2017-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317007953/0000950123-17-007953-index.htm">2nd Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>): 3.9 mil. shares bought (3% incr.); stake = $ 20.7 bil.<br />
Monsanto (<a href="http://finance.yahoo.com/q?s=mon&ql=1">MON</a>): 832 thous. shares (10% incr.); stake = $ 1.1 bil.<br />
<br />
I generally include above only those positions that were worth at least $ 1 billion at the end of the 3rd quarter. In a portfolio this size -- more than $ 310 billion (equities, fixed income, cash, and other investments including Kraft Heinz: <a href="http://finance.yahoo.com/q?s=khc&ql=1">KHC</a> at end of quarter market value) according to the <a href="https://www.sec.gov/Archives/edgar/data/1067983/000119312517332829/0001193125-17-332829-index.htm">latest available filing</a> with roughly half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.<br />
<br />
Synchrony Financial (<a href="http://finance.yahoo.com/q?s=syf&ql=1">SYF</a>) is the only positions added to worth less than $ 1 billion.<br />
<br />
<b><i>New Position</i></b><br />
Bank of America (<a href="http://finance.yahoo.com/q?s=bac&ql=1">BAC</a>): 679 mil. shares; stake = $ 17.2 bil.<br />
<br />
The new position in BofA common stock is the direct result of warrants that <a href="https://www.cnbc.com/2017/08/29/berkshire-hathaway-bofa-shares-paper-profit-of-about-12-billion.html">were</a> <a href="http://newsroom.bankofamerica.com/press-releases/corporate-and-financial-news/berkshire-hathaway-exercises-warrants-acquire-bank-ameri">exercised</a> by Berkshire in August of this year. It's now one of Berkshire's top five equity holdings.<br />
<br />
From the latest <a href="http://berkshirehathaway.com/qtrly/3rdqtr17.pdf">Berkshire 10-Q</a>:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">In 2011, we acquired 50,000 shares of 6% Non-Cumulative Perpetual Preferred Stock of Bank of America Corporation (“BAC”) with a
liquidation value of $100,000 per share (“BAC Preferred”) and warrants to purchase up to 700,000,000 shares of common stock of BAC (“BAC
Warrants”) at $7.142857 per share (up to $5 billion in the aggregate). On August 24, 2017, we exercised all of our BAC Warrants and acquired
700,000,000 shares of BAC common stock. We also surrendered substantially all of our BAC Preferred as payment of the $5 billion cost to
exercise the BAC Warrants and acquire the BAC common stock.</span></i><br />
<br />
The 679 million shares of BofA common stock held by Berkshire at the end of the 3rd quarter is somewhat less than the 700 million shares acquired on August 24th. The remaining shares are <a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514617002458/0001085146-17-002458-index.htm">reported</a> separately.<br />
<div>
<br /></div>
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>): 3.8 mil. shares sold (<1% decr.); stake = $ 25.6 bil.</span><br />
<span style="font-family: inherit;">IBM (<a href="http://finance.yahoo.com/q?s=ibm&ql=1">IBM</a>): 17.1 mil. shares (31% decr.); stake = $ 5.4 bil.</span><br />
<span style="font-family: inherit;">Charter (<a href="http://finance.yahoo.com/q?s=chtr&ql=1">CHTR</a>): 954 thous. shares (10% decr.); stake = $ 3.1 bil.</span><br />
<br />
<span style="font-family: inherit;">Berkshire <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they may need to sell some of their Wells Fargo shares from time to time to keep the ownership stake below 10%.</span><br />
<br />
No other positions valued at more than $ 1 billion were partially sold off during the quarter.<br />
<br />
<b><i>Sold Positions</i></b><br />
WABCO (<a href="http://finance.yahoo.com/q?s=wbc&ql">WBC</a>)<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br />
<span style="font-family: inherit;">Also, Todd Combs and Ted Weschler are re</span>sponsible for part of the Berkshire equity portfolio. So some of the changes -- especially those involving smaller positions -- will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (primarily IBM and Apple).<br />
<br />
<span style="font-family: inherit;">1. Wells Fargo (</span><a href="http://finance.yahoo.com/q?s=wfc" style="font-family: inherit;">WFC</a><span style="font-family: inherit;">) = $ 25.6 bil.</span><br />
<span style="font-family: inherit;">2. </span><span style="font-family: inherit;">Kraft Heinz (</span><a href="http://finance.yahoo.com/q?s=khc&ql=1" style="font-family: inherit;">KHC</a><span style="font-family: inherit;">) = $ 25.3 bil.</span><br />
<span style="font-family: inherit;">3. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 20.7 bil.</span><br />
<span style="font-family: inherit;">4. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 18.0 bil.</span><br />
<span style="font-family: inherit;">5. Bank of America (<a href="http://finance.yahoo.com/q?s=bac">BAC</a>) = $ 17.2 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 367,000 employees (25 being at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
See page 116 of the <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a> for a more complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, WFC, AAPL, KO, and BAC established at much lower than recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">Also, long position in IBM established somewhat above recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">* All values shown are based upon the last trading day of the 3rd quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514617002458/0001085146-17-002458-index.htm" style="font-family: Times, "Times New Roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> while </span><span style="font-family: "times" , "times new roman" , serif;">i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares and warrants, when applicable, are not included in the Berkshire 13F.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-89589474398377459482017-10-31T10:04:00.000-04:002018-02-06T10:15:36.606-05:00Destroying Bad Ideas - Part IBack in 2010, Warren Buffett <a href="https://www.cnbc.com/id/39710609">said</a> that the biggest mistake he ever made had cost $ 200 billion. The mistake he was referring to was the initial purchase of Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka&ql=1">BRKa</a>) more than 50 years ago.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren't any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave up. As instead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now... This is $200 billion.... Because the genius here thought he could run a textile business."</span></i><br />
<br />
One thing to keep in mind is that the cost of that mistake keeps getting bigger. It was a $ 200 billion mistake in 2010 when Berkshire was less than half its current value. As Berkshire increases in value the compounded cost of that mistake grows along with it.<br />
<br />
The non-gift that keeps on not giving.<br />
<br />
Now imagine if Buffett didn't learn from such an outcome. What if his original ways of thinking about business and investing over time didn't change much? In other words, instead of learning from this misjudgment, he continued to try and prove that he was 'right all along' -- to himself and to others -- about the textile business. If the fact that textiles, as a business, would prove to be terrible over time seems obvious now, well, lots of things <a href="https://en.wikipedia.org/wiki/Hindsight_bias">appear to be obvious after the fact</a>.<br />
<br />
The mistake itself can't be undone, of course, but the flawed thinking that led to such a mistake can certainly be discarded and replaced with something better.<br />
<br />
A willingness to destroy the bad ideas -- even those previously thought to be brilliant -- is necessary in order to make room for fresh ways of thinking. Unfortunately, too often energy is expended doing just the opposite. The desire to have been 'right all along' prevents the better ideas from dislodging the inferior ones.<br />
<br />
It's about developing, over time, the right kind mental habits. It requires enough smarts and self-confidence tempered by humility. It means that even what seem like the most genius ways of thinking need to be reevaluated from time to time. It's basically learning to enjoy being wrong about something without doing excessive damage to the psyche.<br />
<br />
A couple of questions come to mind:<br />
<br />
What cherished ideas being held onto today -- in business and beyond -- should be jettisoned in favor of better ones?<br />
<br />
What ideas might come along down the road that'll deserve a similar fate?<br />
<br />
When new evidence comes along that challenges an existing model, it's probably time to change the model. Yet some, instead, prefer to creatively convince themselves that the contravening evidence actually fits the existing model.<br />
<br />
It's certainly easier to just ignore when something comes along that conflicts with a long held, assumed to be correct, way of looking at the world.<br />
<br />
It's also a great way to feel at ease about being less right.<br />
<br />
Better to get in the habit of challenging assumptions -- and the models that are built upon those assumptions -- early and often.<br />
<br />
Expect new information to come along now and again that will demand an altered worldview.<br />
<br />
By all means discount that new information if feeling better via the illusion of being right takes priority over veracity.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recent market prices</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Related posts:</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/07/buffett-munger-investing-blunders.html">Investing Blunders</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/10/buffett-200-billion-dollar-blunder.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's $ 200 Billion Blunder</span></a><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-61092256282357580292017-09-29T09:53:00.001-04:002018-07-20T08:38:55.009-04:00Buffett on American BusinessFrom the Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="http://www.berkshirehathaway.com/letters/2016ltr.pdf">shareholder letter</a> released earlier this year:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"Our efforts to materially increase the normalized earnings of Berkshire will be aided – as they have been
throughout our managerial tenure – by America's economic dynamism. One word sums up our country's
achievements: miraculous. From a standing start 240 years ago – a span of time less than triple my days on
earth – Americans have combined human ingenuity, a market system, a tide of talented and ambitious
immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">You need not be an economist to understand how well our system has worked. Just look around you.
See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive
factories, the great medical centers, the talent-filled universities, you name it – they all represent a net gain for
Americans from the barren lands, primitive structures and meager output of 1776."</span></i><br />
<br />
And later Warren Buffett writes that...<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"American business – and consequently a basket of stocks – is virtually certain to be worth far more in
the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that.
Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the
nonsense they peddle.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Many companies, of course, will fall behind, and some will fail. Winnowing of that sort is a product of
market dynamism. Moreover, the years ahead will occasionally deliver major market declines – even panics –
that will affect virtually all stocks. No one can tell you when these traumas will occur – not me, not Charlie, not
economists, not the media. Meg McConnell of the New York Fed aptly described the reality of panics: 'We
spend a lot of time looking for systemic risk; in truth, however, it tends to find us.'</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">During such scary periods, you should never forget two things: First, widespread fear is your friend as
an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be
unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a
collection of large, conservatively-financed American businesses will almost certainly do well."</span></i><br />
<br />
So, essentially, those with a long investing horizon who view favorably the equity markets hitting new highs have it backwards.<br />
<br />
Buying stocks when they sell near their full intrinsic per-share value -- or, worse yet, above a conservative estimate of that value -- simply increase their risk of loss and reduce forward returns.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"We hear it all the time: 'Riskier investments produce higher returns' and 'If you want to make more money, take more risk.'</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Both of these formulations are terrible. <b>In brief, if riskier investments could be counted on to produce higher returns, they wouldn't be riskier.</b></span></i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>" - Howard Marks in his <a href="https://www.oaktreecapital.com/docs/default-source/memos/2014-09-03-risk-revisited.pdf">memo: Risk Revisited</a></i></span><br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"</span></i><i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">If you buy a dollar bill for 60 cents, it's riskier than if you buy a dollar bill for 40 cents, but the expectation of reward is greater in the latter case. The greater the potential for reward in the value portfolio, the less risk there is."</i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i> - Warren Buffett in <a href="http://www.tilsonfunds.com/superinvestors.html">The Superinvestors of Graham-and-Doddsville</a></i></span><br />
<div>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span></div>
Prevailing wisdom may <a href="http://theinvestmentsblog.blogspot.com/2014/09/howard-marks-on-risk.html">suggest otherwise</a> but, at least for investors, risk and reward <a href="http://theinvestmentsblog.blogspot.com/2013/06/risk-and-reward-revisited.html">need not</a> <a href="http://theinvestmentsblog.blogspot.com/2013/04/buffett-on-risk-and-reward.html">be positively correlated</a>.<br />
<br />
Frequently misunderstood and underutilized.<br />
<br />
American businesses, in the long run, will likely do just fine and their long-term owners have a relatively uncomplicated way to tilt the relation between risk and reward in their favor.<br />
<br />
Those who, by and large, are investing with eye toward many years down the road should be hoping that stocks get cheap again.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recent market prices</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-17134923142617597772017-08-15T10:52:00.000-04:002018-05-16T08:24:09.542-04:00Berkshire Hathaway 2nd Quarter 2017 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317007953/0000950123-17-007953-index.htm">2nd Quarter 13F-HR</a> was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2017/05/berkshire-hathaway-1st-quarter-2017-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317005259/0000950123-17-005259-index.htm">1st Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>): 835 thous. shares bought (<1% incr.); stake = $ 18.8 bil.<br />
Bank of New York (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>): 17.2 mil. shares (52% incr.); stake = $ 2.6 bil.<br />
General Motors (<a href="http://finance.yahoo.com/q?s=gm&ql=1">GM</a>): 10.0 mil. shares (20% incr.); stake = $ 2.1 bil.<br />
Lib. SiriusXM (<a href="http://finance.yahoo.com/q?s=lsxmk&ql=1">LSXMK</a>): 8.8 mil. shares (39% incr.); stake = $ 1.3 bil.<br />
<div>
<br /></div>
I generally include above only those positions that were worth at least $ 1 billion at the end of the 2nd quarter. In a portfolio this size -- ~$ 307 billion (equities, fixed income, cash, and other investments including Kraft Heinz: <a href="http://finance.yahoo.com/q?s=khc&ql=1">KHC</a> at end of quarter market value) according to the <a href="https://www.sec.gov/Archives/edgar/data/1067983/000119312517248832/0001193125-17-248832-index.htm">latest available filing</a> with just about half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.<br />
<br />
Liberty SiriusXM (<a href="http://finance.yahoo.com/q?s=lsxma&ql=1">LSXMA</a>) is the only position added to worth less than $ 1 billion.<br />
<br />
<b><i>New Positions</i></b><br />
STORE Capital (<a href="http://finance.yahoo.com/q?s=stor&ql=1">STOR</a>): 18.6 mil. shares; stake = $ 418 mil.<br />
Synchrony Financial (<a href="http://finance.yahoo.com/q?s=syf&ql=1">SYF</a>): 17.5 mil. shares; stake = $ 521 mil.<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br /></div>
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc&ql=1">WFC</a>): 11.7 mil. shares sold (2% decr.); stake = $ 25.9 bil.</span><br />
<span style="font-family: inherit;">IBM (<a href="http://finance.yahoo.com/q?s=ibm&ql=1">IBM</a>): 10.5 mil. shares (16% decr.); stake = $ 8.3 bil.</span><br />
<span style="font-family: inherit;">Delta Airlines (<a href="http://finance.yahoo.com/q?s=dal&ql=1">DAL</a>): 1.9 mil. shares (3% decr.); stake = $ 2.9 bil.</span><br />
<span style="font-family: inherit;">American Airlines (<a href="http://finance.yahoo.com/q?s=aal&ql=1">AAL</a>): 2.3 mil. shares (4% decr.); stake = $ 2.4 bil.</span><br />
United Airlines (<a href="http://finance.yahoo.com/q?s=ual&ql=1">UAL</a>): 740 thous. shares (2% decr.); stake = $ 2.1 bil.<br />
<br />
<span style="font-family: inherit;">Warren Buffett <a href="http://www.cnbc.com/2017/05/04/warren-buffett-has-revalued-ibm-downward-cites-big-strong-competitors.html">previously said</a> that Berkshire had been selling its IBM shares during the 1st and 2nd quarter.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Berkshire also had <a href="http://berkshirehathaway.com/news/apr1217.pdf">previously announced</a> they will need to sell some of their Wells Fargo shares to keep the ownership stake below 10%.</span><br />
<br />
No other positions valued at more than $ 1 billion were partially sold off during the quarter. Reduced position worth less than $ 1 billion included Sirius XM (<a href="http://finance.yahoo.com/q?s=siri&ql=1">SIRI</a>) and WABCO Holdings (<a href="http://finance.yahoo.com/q?s=wbc&ql=1">WBC</a>).<br />
<br />
<b><i>Sold Positions</i></b><br />
General Electric (<a href="http://finance.yahoo.com/q?s=ge&ql">GE</a>)<br />
<br />
<span style="font-family: inherit;">Todd Combs and Ted Weschler are re</span>sponsible for an increasingly large number of the <i>moves</i> in the Berkshire equity portfolio. These days, any changes involving smaller positions will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire Hathaway's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (primarily IBM and Apple).<br />
<br />
<span style="font-family: inherit;">1. Kraft Heinz (<a href="http://finance.yahoo.com/q?s=khc&ql=1">KHC</a>) = $ 27.9 bil.</span><br />
<span style="font-family: inherit;">2. Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc">WFC</a>) = $ 25.9 bil.</span><br />
<span style="font-family: inherit;">3. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 18.8 bil.</span><br />
<span style="font-family: inherit;">4. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 17.9 bil.</span><br />
<span style="font-family: inherit;">5. American Express (<a href="http://finance.yahoo.com/q?s=axp">AXP</a>) = $ 12.8 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 367,000 employees (25 being at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
See page 116 of the <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a> for a more complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, WFC, AAPL, KO, and AXP established at much lower than recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">Also, long position in IBM established somewhat above recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">* All values shown are based upon the last trading day of the 2nd quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514617001904/0001085146-17-001904-index.htm" style="font-family: times, "times new roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> while i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares (<a href="http://finance.yahoo.com/news/warren-buffetts-invisible-top-holding-222133336.html">along with</a> <a href="http://www.cnbc.com/2014/09/25/why-buffett-is-always-betting-big-on-bank-stocks.html">valuable</a> <a href="http://www.fool.com/investing/general/2015/03/19/how-warren-buffett-wins-from-bank-of-americas-capi.aspx">warrants</a>, where applicable, as explained in <a href="http://berkshirehathaway.com/letters/2013ltr.pdf">the</a> <a href="http://berkshirehathaway.com/letters/2014ltr.pdf">recent</a> <a href="http://berkshirehathaway.com/letters/2015ltr.pdf">letters</a>) are not included in the Berkshire 13F.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-27235271633353207592017-07-31T23:12:00.000-04:002017-08-02T15:44:42.544-04:00Investing BlundersWarren Buffett once <a href="https://www.cnbc.com/id/39710609">said</a> the following about his decision to purchase Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) back in 1964:<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"I had now committed a major amount of money to a terrible business. And Berkshire Hathaway became the base for everything pretty much that I've done since. So in 1967, when a good insurance company came along, I bought it for Berkshire Hathaway. I really should— should have bought it for a new entity.</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Because Berkshire Hathaway was carrying this anchor, all these textile assets. So initially, it was all textile assets that weren't any good. And then, gradually, we built more things on to it. But always, we were carrying this anchor. And for 20 years, I fought the textile business before I gave </span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">up. As i</span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">nstead of putting that money into the textile business originally, we just started out with the insurance company, Berkshire would be worth twice as much as it is now...</span></i></span><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">This is $200 billion. You can</i></span><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">— you can figure that... </span></i><i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">Because the genius here thought he could run a textile business."</span></i><br />
<br />
<a href="http://theinvestmentsblog.blogspot.com/2010/10/buffett-200-billion-dollar-blunder.html">Buffett's $ 200 Billion Blunder</a><br />
<br />
Berkshire's textile operations were <a href="http://www.berkshirehathaway.com/letters/1985.html">shut down</a> in 1985.<br />
<br />
The above is from an interview with Becky Quick of CNBC that happened back in 2010. This <a href="https://www.cnbc.com/2017/05/09/full-transcript-billionaire-investor-warren-buffett-speaks-with-cnbc-percent-u2019s-becky-quick-on-percent-u201csquawk-box-percent-u201d.html">past May</a> she sat down for an interview with Warren Buffett, Charlie Munger, and Bill Gates. During the latter part of this interview she asked what they thought were the <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"worst trades"</span></i> they've made in the past. Buffett, understandably considering the scale of the error, brought up Berkshire again.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">QUICK: "...Warren has talked about his worst trades in the past. And Warren, I believe you said it was Berkshire Hathaway itself that was your worst trade."</span></i><br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">BUFFETT: "Yeah, but I have plenty of other competitors...there are three companies [that] came together for Berkshire, actually. Diversified Retailing and Blue Chip Stamps were two others. And the base companies of both of the other two totally failed, disappeared. So we're three for three in terms of our building blocks. And we thought they were okay at the time, didn't we, Charlie?"</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">MUNGER: "Well, we bought them so cheaply, that we could return more money than we paid. And then we took the money and bought these other companies. So it wasn't as though we lost big chunks of money. It's just that it was such a dumb way to do business. Scrambling around with those unfashionable dying businesses, Textile Mills in New England. The power costs in the south...were 60% lower than they were in New England... What kind of an idiot would go into textiles in New England?"</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">BUFFETT: "The guy on your right."</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">MUNGER: "Yeah."</span></i><br />
<br />
<span style="font-family: inherit;">Later Charlie Munger said the following when asked a similar question:</span><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">MUNGER: "I made a tech company investment. And we damn near went broke and we hovered on the edge of a precipice for about three or four years. And it was agony. And it was a lot of money to me at the time. Now, we scrambled out of it with a pretty good profit. But it wasn't the world's smartest investment. And it took a lot of intelligent scrambling to rectify the situation. And I'm not looking to repeat the dumb decisions that got me there."</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">BUFFETT: "We'll find new ones."</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">QUICK: "Yeah."</span></i><br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><br /></span></i>
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">MUNGER: "Yeah, we will."</span></i><br />
<br />
I'd quibble with the terminology <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"worst trades"</span></i> since neither Buffett or Munger really engage in trading activities or, at least, have not done so for a very long time.<br />
<br />
Those who invest know -- or, one way or another, likely will come to know -- that mistakes are nearly inevitable. The question is how costly they are allowed to become and whether what's learned along the way is effectively put to use.<br />
<br />
Some expend an awful lot of energy trying to prove to the world, and convincing themselves, that they're right. The process (of convincing) itself can serve to reinforce and solidify ideas -- whether flawed or otherwise -- possibly leading to a calcified world view that's increasingly less willing consider alternatives.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"The first principle is that you must not fool yourself -- and you are the easiest person to fool." - <a href="http://calteches.library.caltech.edu/3043/1/CargoCult.pdf">Richard Feynman</a></span></i><br />
<br />
Sometimes -- or, possibly, often -- it'd have been better redirecting that effort towards the exploration of whether a particularly favored idea deserves such a status.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"To kill an error is as good a service as, and sometimes even better than, the establishing of a new truth or fact." - <a href="https://www.goodreads.com/quotes/808100-to-kill-an-error-is-as-good-a-service-as">Charles Darwin</a></span></i><br />
<br />
Ideas, even those most favored (especially those most favored?), should be viewed more skeptically and challenged relentlessly. Easier said.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"If others examined themselves attentively, as I do, they would find themselves, as I do, full of inanity and nonsense. Get rid of it I cannot without getting rid of myself. We are all steeped in it, one as much as another; but those who are aware of it are a little better off -- though I don't know." - <a href="https://www.nytimes.com/2014/02/28/opinion/brooks-ease-and-ardor.html">Michel de Montaigne</a></span></i><br />
<br />
Some healthy doubt can be a very useful thing.<br />
<br />
An attitude that, to me, has a good chance of being applicable beyond the world of investing.<br />
<br />
Though I don't know.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb established at much lower than recent market prices</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Related post:</span><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/10/buffett-200-billion-dollar-blunder.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's $ 200 Billion Blunder</span></a><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-69228468008055748152017-06-30T11:39:00.000-04:002018-01-11T09:53:34.708-05:00Compound Returns, Compound Costs...<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"Hedge funds (so-called; actually concentrated investment accounts which offer a wide variety of strategies) manage about $2.8 trillion of assets, at a cost equal to at least 3% of assets per year (300 basis points, an informed guess), generating some $84 billion in annual fees." - John Bogle in a <a href="http://www.q-group.org/wp-content/uploads/2016/04/Q-Group-4-18-16-full_Bogle.pdf">speech</a> last year</i></span><br />
<br />
Bogle's <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"informed guess"</span></i> is, of course, primarily driven by the <a href="http://www.investopedia.com/terms/t/two_and_twenty.asp">2 and 20</a> compensation structure common to hedge funds.
<br />
<br />
In a prior <a href="http://theinvestmentsblog.blogspot.com/2017/04/buffett-on-bogle.html">post</a>, I wrote what "<i>if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) current portfolio...?"</i><br />
<br />
Well, 3 percent of Berkshire's <a href="http://berkshirehathaway.com/qtrly/1stqtr17.pdf">now roughly $ 300 billion of cash and investments</a> would increase Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) expenses by ~ $ 9 billion which would naturally hurt shareholders by reducing intrinsic value -- materially so if this were to become an ongoing annual expense.* For many reasons such a fee structure would never exist at Berkshire, of course, but it's worth considering carefully how much less valuable Berkshire would be today if 1) Buffett had been draining those kind of fees out of the company all these years and 2) how much it would hurt investors going forward. If those kind of fees were charged in the past, Berkshire would in fact be a rather much smaller company and it's capacity to invest (not just in common stocks but also things like the capital intensive businesses Berkshire owns outright) would be a fraction of its current capability. Going forrward, if for some reason Berkshire started paying the $ 9 billion in fees -- fees likely to increase over time as the portfolio grows -- the impact would be substantial. Consider that Berkshire's <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">invested roughly $ 13 billion</a> in property, plant and equipment last year. Much of it to build and maintain things like the railroad, utilities, and energy infrastructure. Useful stuff. Well, that $ 9 billion in hypothetical fees would sure chew up a substantial chunk of Berkshire's $ 13 billion capital expenditure budget.<br />
<br />
It's compounding returns pitted against what Bogle <a href="https://www.vanguard.com/bogle_site/sp20051003.htm">calls</a> <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"the tyranny of compounding costs"</span></i>.<br />
<br />
These annual Berkshire capital expenditures -- assuming they're intelligently implemented -- aren't just a likely future benefit Berkshire's continuing shareholders, they're potentially of substantial benefit more generally. In 2015, Buffett <a href="http://www.berkshirehathaway.com/letters/2015ltr.pdf">wrote that</a> 86 percent of their property, plant and equipment budget was <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"deployed in the United States."</span></i><br />
<br />
If this kind of high fee structure is detrimental to Berkshire shareholders -- never mind the possible adverse societal impact caused by high fees draining capital that could have been used to upgrade infrastructure -- why wouldn't this similarly apply to anyone managing lots of capital and charging high fees?<br />
<br />
That question, at least for me, answers itself. The justification is usually that the money manager is so exceptional that the fees are fully justified. So that means, apparently, there's a large army of money managers so talented that <a href="http://theinvestmentsblog.blogspot.com/2016/10/bogle-buffett-on-frictional-costs.html">they deserve compensation</a> orders of magnitude greater than Mr. Buffett.<br />
<br />
The money doesn't completely disappear, of course. The high fees being charged naturally get invested and spent somewhere but effective investment needs for good ideas to get backed by sufficient financial scale and real patience. Yet, at least relative to the Berkshire model, what could have been concentrated long-term investment seems, instead, destined to become rather diffuse and impatient while producing fewer things of lasting value.<br />
<br />
<i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"We have two [investment] managers at Berkshire. They each manage $9 billion for us. They both ran hedge funds before. If they had a 2/20 arrangement with Berkshire, which is not uncommon in the hedge fund world, they would be getting $180 million annually each merely for breathing." - Warren Buffett at <a href="https://www.fool.com/investing/general/2016/05/11/warren-buffetts-13-greatest-quotes-from-berkshire.aspx">last year's</a> <a href="http://theinvestmentsblog.blogspot.com/2016/10/bogle-buffett-on-frictional-costs.html">Berkshire Annual Meeting</a></span></i><br />
<br />
Buffett, in any case, based on long-term track record is easily among the best -- if not the best -- at investing exceptionally well yet charging others little for it. I wouldn't expect his extraordinarily low compensation (considering the size of the job and the performance) to become the norm but it would seem a more reasonable equilibrium could exist between the two extremes.<br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>"The way to wealth, it turns out, is to avoid the high-cost, high-turnover, opportunistic marketing modalities that characterize today's financial service system and rely on the magic of compounding returns. While the interests of the business are served by the aphorism 'Don't just stand there. Do something!' the interests of investors are served by an approach that is its diametrical opposite: 'Don't do something. Just stand there!'" - John Bogle in <a href="http://www.cnbc.com/2014/01/31/-advice-for-a-rocky-market-follow-ben-franklin.html">a commentary</a> on CNBC</i></span><br />
<br />
When high fees are tolerated <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"the magic of compounding returns"</span></i> becomes something much less magical via <i><span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;">"the tyranny of compounding costs"</span></i>.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb eastablished at much lower than recent market prices</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Related posts:</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/04/buffett-on-bogle.html">Buffett on Bogle</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/03/buffett-innovators-imitators-swarming.html"><span style="font-family: "times" , "times new roman" , serif;">Innovators, Imitators, & the Swarming Incompetents</span></a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2016/10/bogle-buffett-on-frictional-costs.html">Bogle & Buffett on Frictional Costs</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2016/09/buffett-on-active-investing.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett on Active Investing</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2016/06/john-bogle-arithmetic-quants-vs.html">John Bogle: Arithmetic Quants vs Algorithmic Quants</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2015/07/hedge-fund-risk-reward.html"><span style="font-family: "times" , "times new roman" , serif;">Hedge Funds: Balancing Risk & Reward?</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2015/04/mutual-fund-performance.html">Index Funds vs Actively Managed Funds</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2015/02/john-bogle-on-active-management.html">John Bogle on Investor Returns</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2015/02/buffetts-hedge-fund-bet.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's Hedge Fund Bet</span></a><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/10/john-bogle-on-relentless-rules-of_17.html"><span style="font-family: "times" , "times new roman" , serif;">John Bogle's "Relentless Rules of Humble Arithmetic", Part II</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/10/index-funds-vs-individual-stocks.html">Index Fund Investing Revisited</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/09/howard-marks-on-risk.html">Howard Marks on Risk</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/06/charlie-munger-on-complex-models-hedge.html"><span style="font-family: "times" , "times new roman" , serif;">Charlie Munger on Complexity, Hedge Funds, and Pension Funds</span></a><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/05/why-do-so-many-investors-underperform.html"><span style="font-family: "times" , "times new roman" , serif;">Why Do So Many Investors Underperform?</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/04/funds-outperform-fund-investors.html">When Mutual Funds Outperform Their Investors</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/01/bogle-on-relentless-rules-of-humble.html"><span style="font-family: "times" , "times new roman" , serif;">John Bogle's "Relentless Rules of Humble Arithmetic"</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2013/07/investor-overconfidence-and-investment.html">Investor Overconfidence Revisited</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2013/06/newtons-fourth-law.html"><span style="font-family: "times" , "times new roman" , serif;">Newton's Fourth Law</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2013/05/investor-overconfidence.html">Investor Overconfidence</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/10/chasing-rearview-mirror-performance.html">Chasing "Rearview-Mirror Performance"</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2012/10/why-index-funds-make-sense-for-so-many.html"><span style="font-family: "times" , "times new roman" , serif;">Index Fund Investing</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/09/investor-are-often-their-own-worst.html">Investors Are Often Their Own Worst Enemies, Part II</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/09/investors-can-be-their-own-worst-enemy.html">Investors Are Often Their Own Worst Enemies</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/04/illusion-of-skill.html">The Illusion of Skill</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/03/buffetts-bet-against-hedge-funds-part.html">Buffett's Bet Against Hedge Funds, Part II</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2012/03/buffett-seizes-lead-in-wager-that.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's Bet Against Hedge Funds</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/01/illusion-of-control.html">The Illusion of Control</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/06/invisible-foot-revisited-spy-vti-brka.html">Buffett, Bogle, and the "Invisible Foot" Revisited</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/05/if-buffett-was-paid-like-hedge-fund.html">If Buffett Were Paid Like a Hedge Fund Manager - Part II</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/05/what-if-buffett-was-paid-like-hedge.html">If Buffett Were Paid Like a Hedge Fund Manager</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/03/buffett-and-bogle-on-invisible-foot.html">Buffett, Bogle, and the Invisible Foot</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/12/munger-on-overconfidence.html" style="font-family: times, "times new roman", serif;">Charlie Munger on LTCM & Overconfidence</a><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/04/nothing-but-costs_29.html" style="font-family: times, "times new roman", serif;">"Nothing But Costs"</a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2010/02/history-and-classics.html">Bogle: History and the Classics</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2009/07/when-genius-failedagain_20.html" style="font-family: times, "times new roman", serif;">When Genius Failed...Again</a><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">* For Berkshire, even as large as it is, ~ $ 9 billion of additional costs would be a real hit to the company's earning power. If those fees were to actually become an ongoing cost it'd basically be a wealth transfer to Buffett but the intrinsic value of Berkshire -- of which Buffett is the largest shareholder -- would be materially reduced. In many ways it'd be like moving his wealth from one pocket to another while hurting all the other shareholders (and, somewhat weirdly, even himself). Buffett's wealth has come about <i>alongside his investors</i> instead of <i>from his investors</i>. For too many that's just not the case. Best case it's usually a bit of both.</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-49416991246056518332017-05-16T09:25:00.001-04:002018-05-16T08:24:35.993-04:00Berkshire Hathaway 1st Quarter 2017 13F-HRThe Berkshire Hathaway (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317005259/0000950123-17-005259-index.htm">1st Quarter 13F-HR</a> was released yesterday. Below is a summary of the changes that were made to the Berkshire equity portfolio during that quarter.<br />
(For a convenient comparison, here's a <a href="http://theinvestmentsblog.blogspot.com/2017/02/berkshire-hathaway-4th-quarter-2016-13f.html">post</a> from last quarter that summarizes Berkshire's <a href="https://www.sec.gov/Archives/edgar/data/1067983/000095012317002417/0000950123-17-002417-index.htm">4th Quarter 13F-HR</a>.)<br />
<br />
There was both some buying and selling during the quarter. Here's a quick summary of the changes:*<br />
<br />
<i><b>Added to Existing Positions</b></i><br />
Apple (<a href="http://finance.yahoo.com/q?s=aapl&ql=1">AAPL</a>): 72 mil. shares (125% incr.); stake = $ 18.6 bil.<br />
Southwest (<a href="http://finance.yahoo.com/q?s=luv&ql=1">LUV</a>): 4.5 mil. shares (10%); stake = $ 2.6 bil.<br />
American Airlines (<a href="http://finance.yahoo.com/q?s=aal&ql=1">AAL</a>): 3.7 mil. shares (8%); stake = $ 2.1 bil.<br />
Bank of New York (<a href="http://finance.yahoo.com/q?s=bk&ql=1">BK</a>): 11.3 mil. shares (52%); stake = $ 1.6 bil.<br />
<div>
<br /></div>
I generally include above only those positions that were worth at least $ 1 billion at the end of the 1st quarter. In a portfolio this size -- more than $ 301 billion (equities, fixed income, cash, and other investments including Kraft Heinz: <a href="http://finance.yahoo.com/q?s=khc&ql=1">KHC</a> at end of quarter market value) according to the <a href="https://www.sec.gov/Archives/edgar/data/1067983/000119312517160889/0001193125-17-160889-index.htm">latest available filing</a> with roughly half made up of common stocks** -- a position that's less than $ 1 billion doesn't really move the needle much.<br />
<br />
Positions that were added worth less than $ 1 billion include Sirius XM (<a href="http://finance.yahoo.com/q?s=siri&ql=1">SIRI</a>) and Liberty SiriusXM Group (<a href="http://finance.yahoo.com/q?s=lsxma&ql=1">LSXMA</a>, <a href="http://finance.yahoo.com/q?s=lsxmk&ql=1">LSXMK</a>).<br />
<br />
<b><i>New Positions</i></b><br />
There were no entirely new positions added during the quarter.<br />
<br />
Warren Buffett <a href="http://www.cnbc.com/2016/11/14/buffetts-berkshire-takes-stakes-in-four-major-airlines.html">previously mentioned</a> that Berkshire had purchased shares of Southwest Airlines during the 4th quarter.<br />
<br />
Berkshire's latest 13F-HR filing did not indicate any activity was kept confidential.<br />
<div>
<div>
<br />
Occasionally, the SEC allows Berkshire to keep certain moves in the portfolio confidential. The permission is granted by the SEC when a case can be made that the disclosure may cause buyers to drive up the price before Berkshire makes its additional purchases.</div>
<br /></div>
<div>
<span style="font-family: inherit;"><i><b>Reduced Positions</b></i></span><br />
<span style="font-family: inherit;">IBM (<a href="http://finance.yahoo.com/q?s=ibm&ql=1">IBM</a>): 16.7 mil. shares (20% decr.); stake = $ 11.2 bil.</span><br />
<span style="font-family: inherit;">Delta Airlines (<a href="http://finance.yahoo.com/q?s=dal&ql=1">DAL</a>): 5.0 mil. shares (8% decr.); stake = $ 2.5 bil.</span><br />
<br />
<span style="font-family: inherit;">That 20% decrease in IBM shares naturally only reflects what was sold in the 1st quarter. Warren Buffett <a href="http://www.cnbc.com/2017/05/04/warren-buffett-has-revalued-ibm-downward-cites-big-strong-competitors.html">previously mentioned</a> that Berkshire had, in total, sold roughly a third of its shares in IBM during the 1st and 2nd quarter.</span><br />
<span style="font-family: inherit;"><i><b><br /></b></i></span>
No other positions valued at more than $ 1 billion were partially sold off during the quarter. The only reduced position worth less than $ 1 billion was WABCO Holdings (<a href="http://finance.yahoo.com/q?s=wbc&ql=1">WBC</a>).<br />
<br />
<b><i>Sold Positions</i></b><br />
Twenty-First Century Fox (<a href="http://finance.yahoo.com/q?s=foxa&ql">FOXA</a>)<br />
<br />
<span style="font-family: inherit;">Todd Combs and Ted Weschler are re</span>sponsible for an increasingly large number of the <i>moves</i> in the Berkshire equity portfolio. These days, any changes involving smaller positions will generally be the work of the two portfolio managers.</div>
<span style="font-style: italic;"><span style="font-style: normal;"><br /></span></span><i><b>Top Five Holdings</b></i><br />
After the changes, Berkshire Hathaway's portfolio of equity securities remains mostly made up of financial, consumer, and technology stocks (primarily IBM and Apple).<br />
<br />
<span style="font-family: inherit;">1. Kraft Heinz (<a href="http://finance.yahoo.com/q?s=khc&ql=1">KHC</a>) = $ 29.6 bil.</span><br />
<span style="font-family: inherit;">2. Wells Fargo (<a href="http://finance.yahoo.com/q?s=wfc">WFC</a>) = $ 26.7 bil.</span><br />
<span style="font-family: inherit;">3. Apple (<a href="http://finance.yahoo.com/q?s=aapl">AAPL</a>) = $ 18.6 bil.</span><br />
<span style="font-family: inherit;">4. Coca-Cola (<a href="http://finance.yahoo.com/q?s=ko">KO</a>) = $ 17.0 bil.</span><br />
<span style="font-family: inherit;">5. American Express (<a href="http://finance.yahoo.com/q?s=axp">AXP</a>) = $ 12.0 bil.</span><br />
<br />
As is almost always the case it's a very concentrated portfolio. The top five often represent 60-70 percent and, at times, even more of the equity portfolio. In addition, Berkshire also owns equity securities listed on exchanges outside the U.S., plus fixed maturity securities, cash and cash equivalents, and other investments.<br />
<br />
The portfolio excludes all the operating businesses that Berkshire owns outright with ~ 367,000 employees (25 being at headquarters) according to the latest available <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a>.<br />
<br />
Here are some examples of Berkshire's non-insurance businesses:<br />
<br />
MidAmerican Energy, Burlington Northern Santa Fe, McLane Company, The Marmon Group, Shaw Industries, Benjamin Moore, Johns Manville, Acme Building, MiTek, Fruit of the Loom, Russell Athletic Apparel, NetJets, Nebraska Furniture Mart, See's Candies, Dairy Queen, The Pampered Chef, Business Wire, Iscar, Lubrizol, Berkshire Hathaway Automotive, Oriental Trading Company, Precision Castparts, and Duracell.<br />
(Among others.)<br />
<br />
<span style="font-family: inherit;">In addition to the above businesses and investment portfolio, Berkshire's large insurance operation (</span>BH Reinsurance, General Re, GEICO etc.) has historically been rather profitable while providing plenty of "float" for their investments.<br />
<br />
See page 116 of the <a href="http://berkshirehathaway.com/2016ar/2016ar.pdf">annual report</a> for a more complete listing of Berkshire's businesses.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long positions in BRKb, WFC, AAPL, KO, and AXP established at much lower than recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">Also, long position in IBM established somewhat above recent market prices. </span><span style="font-family: "times" , "times new roman" , serif;">(In each case compared to average cost basis.)</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span><span style="font-family: "times" , "times new roman" , serif;">* All values shown are based upon the last trading day of the 1st quarter.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">** Berkshire Hathaway's holdings of ADRs are included in the 13F. What is <a href="http://www.sec.gov/divisions/investment/13ffaq.htm">not included</a> are shares listed on exchanges outside the United States. The status of those shares, if a large enough position, are updated in the annual letter. So the only way any of the stocks listed on exchanges outside the U.S. will show up in the 13F is if Berkshire buys the ADR. </span><span style="font-family: "times" , "times new roman" , serif;">Also, certain equity holdings are reported </span><a href="https://www.sec.gov/Archives/edgar/data/1004244/000108514617001380/0001085146-17-001380-index.htm" style="font-family: times, "times new roman", serif;">separately</a><span style="font-family: "times" , "times new roman" , serif;"> while i</span><span style="font-family: "times" , "times new roman" , serif;">nvestments in things like preferred shares (<a href="http://finance.yahoo.com/news/warren-buffetts-invisible-top-holding-222133336.html">along with</a> <a href="http://www.cnbc.com/2014/09/25/why-buffett-is-always-betting-big-on-bank-stocks.html">valuable</a> <a href="http://www.fool.com/investing/general/2015/03/19/how-warren-buffett-wins-from-bank-of-americas-capi.aspx">warrants</a>, where applicable, as explained in <a href="http://berkshirehathaway.com/letters/2013ltr.pdf">the</a> <a href="http://berkshirehathaway.com/letters/2014ltr.pdf">recent</a> <a href="http://berkshirehathaway.com/letters/2015ltr.pdf">letters</a>) are not included in the Berkshire 13F.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">---</span><br />
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.comtag:blogger.com,1999:blog-6922400786707761260.post-56132837201206487392017-04-28T11:49:00.002-04:002018-01-11T09:52:58.197-05:00Buffett on Bogle<i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">"If a statue is ever erected to honor the person who has done the most for American investors, the hands-down
choice should be Jack Bogle. For decades, Jack has urged investors to invest in ultra-low-cost index funds.
In his crusade, he amassed only a tiny percentage of the wealth that has typically flowed to managers who have
promised their investors large rewards while delivering them nothing – or, as in <a href="http://fortune.com/2017/02/25/warren-buffett-scorches-the-hedge-funds/">our bet</a>, less than nothing – of
added value.</i><br />
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i><br /></i></span>
<span style="font-family: "helvetica neue" , "arial" , "helvetica" , sans-serif;"><i>In his early years, Jack was frequently mocked by the investment-management industry. Today,
however, he has the satisfaction of knowing that he helped millions of investors realize far better returns on their
savings than they otherwise would have earned. He is a hero to them and to me." </i></span><i style="font-family: "helvetica neue", arial, helvetica, sans-serif;">- From Warren Buffett's <a href="http://www.berkshirehathaway.com/letters/2016ltr.pdf">latest letter</a></i><br />
<br />
John Bogle, in a <a href="http://www.q-group.org/wp-content/uploads/2016/04/Q-Group-4-18-16-full_Bogle.pdf">speech</a> last year, noted that:<br />
<br />
- Hedge funds, in total, managed at the time something like $2.8 trillion in assets<br />
- Investors in such funds pay out to their managers ~ 3 percent per annum -- what he calls an "informed guess" -- or roughly like $ 84 billion (yes...billion) in fees per year<br />
- Vanguard manages ~$3 trillion in assets -- nearly the same amount as all hedge funds combined -- with two thirds being index funds.<br />
- The cost of managing the ~ $2 trillion of index fund assets = .08 percent of assets per annum = ~ $ 1.6 billion<br />
<br />
Quite a difference in costs even after normalizing the $ 2.8 trillion to the size of the index fund asset base. The compounded impact of these extra costs for investors over the long haul is hardly small.<br />
<br />
In fact, even a traditional actively managed mutual fund that charges something like "only" 1 percent per annum is an order of magnitude more costly than the typical index fund. Imagine two investors. Both have $ 100k to invest and a 35 year investment horizon. Each have portfolios excluding fees that produce a 6 percent annual return over those 35 years. The only difference is one of the investors is paying 1 percent in annual fees while the other has .08 percent in annual fees.<br />
<br />
So how much more wealth would the low fee paying investor have at the end of the 35 year investment horizon?<br />
<br />
~ $ 200k<br />
<br />
What's worth noting is that here we have someone who's accomplished great success through active investing (Buffett) with high respect and admiration for the person (Bogle) who has been encouraging investors to avoid such an approach for decades.<br />
<br />
To understand why this seemingly inherent conflict might exist just consider the frictional costs -- <a href="http://theinvestmentsblog.blogspot.com/2011/05/what-if-buffett-was-paid-like-hedge.html">or lack thereof</a> -- inherent to Buffett's approach. Now, imagine if Buffett charged investors something like the 3% in annual fees to manage Berkshire Hathaway's (<a href="http://finance.yahoo.com/q?s=brka">BRKa</a>) current portfolio -- <a href="http://www.berkshirehathaway.com/2016ar/2016ar.pdf">~ $ 276 billion of cash and investments</a> at the end of 2016 -- <a href="http://time.com/money/4707693/warren-buffett-salary-personal-security-berkshire-hathaway/">instead of the</a> <a href="http://www.newsmax.com/Finance/StreetTalk/BuffettRetains100-000SalaryAfterFaultingPayExcesses/2011/03/11/id/389182/">$ 100,000 salary plus security costs</a>?*<br />
<br />
Berkshire would instantly become a very different and very much less valuable investment -- more than $ 8 billion in additional costs tends to do that -- but that'll have to be a subject for another day.<br />
<br />
<span style="font-family: inherit;">High fees or not, it's just not easy to figure out who'll be able to produce -- </span>over many years/decades and many investing environments -- <span style="font-family: inherit;">satisfactory or better results.</span><br />
<span style="font-family: inherit;"><br /></span>
<span style="font-family: inherit;">Add in the high fees and an already difficult task becomes even tougher.</span><br />
<br />
When it comes to investing -- and often well beyond the world of investing -- it's tough to beat the wisdom of Bogle and Buffett.<br />
<br />
Adam<br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Long position in BRKb eastablished at much lower than recent market prices</span><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">Related posts:</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2017/03/buffett-innovators-imitators-swarming.html"><span style="font-family: "times" , "times new roman" , serif;">Innovators, Imitators, & the Swarming Incompetents</span></a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2016/10/bogle-buffett-on-frictional-costs.html">Bogle & Buffett on Frictional Costs</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2016/09/buffett-on-active-investing.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett on Active Investing</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2016/06/john-bogle-arithmetic-quants-vs.html">John Bogle: Arithmetic Quants vs Algorithmic Quants</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2015/07/hedge-fund-risk-reward.html"><span style="font-family: "times" , "times new roman" , serif;">Hedge Funds: Balancing Risk & Reward?</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2015/04/mutual-fund-performance.html">Index Funds vs Actively Managed Funds</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2015/02/john-bogle-on-active-management.html">John Bogle on Investor Returns</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2015/02/buffetts-hedge-fund-bet.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's Hedge Fund Bet</span></a><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/10/john-bogle-on-relentless-rules-of_17.html"><span style="font-family: "times" , "times new roman" , serif;">John Bogle's "Relentless Rules of Humble Arithmetic", Part II</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/10/index-funds-vs-individual-stocks.html">Index Fund Investing Revisited</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/09/howard-marks-on-risk.html">Howard Marks on Risk</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/06/charlie-munger-on-complex-models-hedge.html"><span style="font-family: "times" , "times new roman" , serif;">Charlie Munger on Complexity, Hedge Funds, and Pension Funds</span></a><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/05/why-do-so-many-investors-underperform.html"><span style="font-family: "times" , "times new roman" , serif;">Why Do So Many Investors Underperform?</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2014/04/funds-outperform-fund-investors.html">When Mutual Funds Outperform Their Investors</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2014/01/bogle-on-relentless-rules-of-humble.html"><span style="font-family: "times" , "times new roman" , serif;">John Bogle's "Relentless Rules of Humble Arithmetic"</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2013/07/investor-overconfidence-and-investment.html">Investor Overconfidence Revisited</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2013/06/newtons-fourth-law.html"><span style="font-family: "times" , "times new roman" , serif;">Newton's Fourth Law</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2013/05/investor-overconfidence.html">Investor Overconfidence</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/10/chasing-rearview-mirror-performance.html">Chasing "Rearview-Mirror Performance"</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2012/10/why-index-funds-make-sense-for-so-many.html"><span style="font-family: "times" , "times new roman" , serif;">Index Fund Investing</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/09/investor-are-often-their-own-worst.html">Investors Are Often Their Own Worst Enemies, Part II</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/09/investors-can-be-their-own-worst-enemy.html">Investors Are Often Their Own Worst Enemies</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/04/illusion-of-skill.html">The Illusion of Skill</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/03/buffetts-bet-against-hedge-funds-part.html">Buffett's Bet Against Hedge Funds, Part II</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2012/03/buffett-seizes-lead-in-wager-that.html"><span style="font-family: "times" , "times new roman" , serif;">Buffett's Bet Against Hedge Funds</span></a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2012/01/illusion-of-control.html">The Illusion of Control</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/06/invisible-foot-revisited-spy-vti-brka.html">Buffett, Bogle, and the "Invisible Foot" Revisited</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/05/if-buffett-was-paid-like-hedge-fund.html">If Buffett Were Paid Like a Hedge Fund Manager - Part II</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/05/what-if-buffett-was-paid-like-hedge.html">If Buffett Were Paid Like a Hedge Fund Manager</a></span><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2011/03/buffett-and-bogle-on-invisible-foot.html">Buffett, Bogle, and the Invisible Foot</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/12/munger-on-overconfidence.html" style="font-family: times, "times new roman", serif;">Charlie Munger on LTCM & Overconfidence</a><br />
<a href="http://theinvestmentsblog.blogspot.com/2010/04/nothing-but-costs_29.html" style="font-family: times, "times new roman", serif;">"Nothing But Costs"</a><br />
<span style="font-family: "times" , "times new roman" , serif;"><a href="http://theinvestmentsblog.blogspot.com/2010/02/history-and-classics.html">Bogle: History and the Classics</a></span><br />
<a href="http://theinvestmentsblog.blogspot.com/2009/07/when-genius-failedagain_20.html" style="font-family: times, "times new roman", serif;">When Genius Failed...Again</a><br />
<br />
<span style="font-family: "times" , "times new roman" , serif;">* Otherwise, Buffett generally receives no <a href="http://www.newsmax.com/Finance/StreetTalk/BuffettRetains100-000SalaryAfterFaultingPayExcesses/2011/03/11/id/389182/">stock options, stock grants or bonuses</a>. Keep in mind that Buffett's $ 100,000 salary covers not only his investment portfolio responsibilities, but also finding and buying new businesses outright, and making sure the many businesses Berkshire already </span><a href="http://www.berkshirehathaway.com/subs/sublinks.html" style="font-family: times, "times new roman", serif;">owns outright</a><span style="font-family: "times" , "times new roman" , serif;"> (which combined have 367,000 employees according to the latest </span><a href="http://www.berkshirehathaway.com/2016ar/2016ar.pdf" style="font-family: times, "times new roman", serif;">annual report</a><span style="font-family: "times" , "times new roman" , serif;">) are run effectively by honest and capable people (among other things).</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">This site does not provide investing recommendations as that comes down to individual circumstances. Instead, it is for generalized informational, educational, and entertainment purposes. </span><span style="font-family: "times" , "times new roman" , serif;">Visitors should always do their own research and consult, as needed, with a financial adviser that's familiar with the individual circumstances before making any investment decisions. Bottom line: </span><span style="font-family: "times" , "times new roman" , serif;">The opinions found here should never be considered specific individualized investment advice and</span><span style="font-family: "times" , "times new roman" , serif;"> never a recommendation to buy or sell anything.</span><br />
<span style="font-family: "times" , "times new roman" , serif; font-size: xx-small;">(6)</span>Adamhttp://www.blogger.com/profile/17138698203368796947noreply@blogger.com