I’m poring over the just-release 2014 annual letter to Berkshire Hathaway shareholders today and, as usual, I’m finding nuggets of wisdom on every single page.
One really interesting bit I wanted to pass on concerns a crucial benefit that their conglomerate structure offers. In countering the idea that Berkshire should break itself up or spin off some businesses to “unlock shareholder value”, Warren Buffett explains a key advantage that his collection of companies offers – beyond the obvious ability to self-fund.
He reminds his shareholders that being able to channel capital across opportunities and be willing to walk away from a dying industry is critical to the corporation’s longevity. He laments the twenty years between 1965 and 1985 that he allowed the legacy New England textile assets to decay before finally pulling the plug. He talks about the conflicts that a more singularly-focused corporation might have when its central line of business goes into secular decline.
One of the heralded virtues of capitalism is that it efficiently allocates funds. The argument is that markets will direct investment to promising businesses and deny it to those destined to wither. That is true: With all its excesses, market-driven allocation of capital is usually far superior to any alternative. Nevertheless, there are often obstacles to the rational movement of capital. As those 1954 Berkshire minutes made clear, capital withdrawals within the textile industry that should have been obvious were delayed for decades because of the vain hopes and self-interest of managements. Indeed, I myself delayed abandoning our obsolete textile mills for far too long. A CEO with capital employed in a declining operation seldom elects to massively redeploy that capital into unrelated activities. A move of that kind would usually require that long-time associates be fired and mistakes be admitted. Moreover, it’s unlikely that CEO would be the manager you would wish to handle the redeployment job even if he or she was inclined to undertake it…
…At Berkshire, we can – without incurring taxes or much in the way of other costs – move huge sums from businesses that have limited opportunities for incremental investment to other sectors with greater promise. Moreover, we are free of historical biases created by lifelong association with a given industry and are not subject to pressures from colleagues having a vested interest in maintaining the status quo. That’s important: If horses had controlled investment decisions, there would have been no auto industry.
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27 February 2015 - 10:30 am
No doubt readers have set aside a few hours this coming Saturday to digest Warren Buffett’s annual letter to Berkshire Hathaway shareholders, which this year weighs in at a record 20,000 words.
It is the Golden Anniversary edition, with musings not just on the past year but also on what the next 50 might hold. We are promised a little reminiscing, too — which prompted us to look back to the time when Mr Buffett assumed control of an ailing New England textile manufacturer and set out on his most extraordinary journey.
Fifty years ago, the Omaha oracle was running an investment fund, the Buffett Parternship, for which Berkshire was just the latest in a number of positions. The annual letter covering 1965 is recognisably Buffett; you can tell from the LBJ joke at the very beginning.
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25 February 2015 - 19:28 pm
Warren Buffett may detail succession plan in letter
Warren Buffett will celebrate the 50th anniversary of Berkshire Hathaway with an extra-large letter to investors on Saturday. It will be around 20,000 words, rather than the usual 14,000.
Bloomberg details what might be included from the 84-year old CEO:
- Buffett could use the letter to help shareholders understand what returns are possible in the decades ahead.
- He may outline a succession plan
- He could spell out the model for acquisitions ” The idea is to make Berkshire the buyer of choice for people who want to sell to a long-term owner.”
01 February 2015 - 23:50 pm
Investors awaiting Warren Buffett’s annual letter will get three for the price of one this year. The founder of Berkshire Hathaway is planning a special “golden anniversary” publication, marking 50 years since he took a controlling stake in the company.
Mr Buffett and his business partner, Charlie Munger, are independently writing their views of Berkshire’s extraordinary journey during the past five decades — and what they expect for the next five. Neither is changing a word of the other’s commentary. Readers will be able to compare the two sets of reflections and predictions, in addition to the regular annual letter.
By writing about the next 50 years, the two men, who have a combined age of 175, will be attempting to shape the future of Berkshire — and their legacy — amid an intensifying debate about what this unusual company will look like when they are gone.
They took an ailing New England textile business and turned it into one of the most successful investment vehicles in history, through a combination of acquisitions in insurance and other industries and a portfolio of equity investments in American icons such as Coca-Cola, McDonald’s and American Express. Over the past generation, as shareholders at other companies have demanded a focus on a core business, Berkshire has only diversified more. >> Read More
07 December 2014 - 8:50 am
Friday’s close of Berkshire Hathaway shares at record highs has seen Warren Buffet become the world’s second richest person
The shares have soared 27% this year as the dozens of operating businesses the 84-year-old chairman bought over the past five decades churned out record profit.
Buffett biographer Andrew Kilpatrick said in an e-mail yesterday
The all-time closing high stock price today is due to a widening appreciation of what Berkshire really is, a fortress.
With about $60 billion in cash at the company he could make a whopper of an acquisition at any moment.
Berkshire’s shares have traded strongly since August after a rally that followed the release of the company’s annual report, in which Buffett wrote that the company’s actual worth has been rising faster than suggested by metrics such as book value. Since that milestone, the shares have climbed another 13% elevating Buffett’s fortune to $73.7 billion, $300 million more than Mexico’s Carlos Slim >> Read More
13 November 2014 - 18:19 pm
Buffett is going into the battery business.
Berkshire Hathaway, the company run by billionaire investor Warren Buffett, has agreed to buy the Duracell battery business from Procter & Gamble.
Mr Buffett said:
I have always been impressed by Duracell, as a consumer and as a long-term investor in P&G and Gillette.
01 November 2014 - 15:31 pm
Help me out here…
Why do you check your stocks twice a day but your cholesterol twice a decade? The former is killing your emotions and the latter is killing you.
Why do companies still provide paper receipts? My grandma discovered email 15 years ago.
Why do companies limit the number of sick days employees can take? If you can’t trust me when I say I have bronchitis, you shouldn’t trust me to be your employee.
Why is 2008′s 35% market crash so memorable, but 2013′s 33% rally so forgettable?Answer this and you’ll be a better investor.
Why is it so much easier to fool yourself than other people? It is amazing to watch smart investors convince themselves of something that clearly isn’t true. >> Read More
24 September 2014 - 21:18 pm
I really liked this piece by Matt DiLallo on why gold is so hated by Warren Buffett. He provides the juicy details, but I’ll give you the quick and dirty rundown:
- Gold is an unproductive asset.
- Gold is valuable largely because people believe it’s valuable.
It’s not that Buffett is an ideologue or just on some anti gold rampage. I think there are some logical and great lessons to be learned here:
- We build wealth by increasing our own production. That is, we become more valuable to others within society when we do things that they find valuable. This is why society rewards great innovators and people who tend to work hard.
- Betting on commodities like gold is often a bearish bet against human productivity and innovation. When you buy a block of gold you are essentially buying an insurance asset whose value will increase if the value of dollars collapses or falls. In other words, you are betting directly against the ability of US workers to produce and maintain the value of the dollar.
- Betting on gold is largely a bet on faith. That is, you are betting on the idea that someone else will believe gold is more valuable in the future. Although gold is valuable to some degree as a commodity there is also a substantial portion of the population who wants to own gold because it is viewed as money or protection against paper money. I’ve referred to this in the past as a “faith put”, a premium in the price that inflates its value due to sheer faith.
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14 August 2014 - 20:36 pm
Above is Daily Chart of BRK
Founded by Mr Buffett in the 1960s, Berkshire has amassed more than 70 businesses since as the well-known investor uses the cash generated by his insurance businesses to buy other companies as well as invest in equities.
Despite the company’s acquisitive nature, Standard & Poor’s lifted its outlook on Berkshire earlier this summer to ‘stable’ from ‘negative’ as it affirmed the company’s ‘AA’ rating.
The company’s A shares, which carry the vast majority of Berkshire’s voting rights, have advanced 12 per cent this year, outpacing the broader S&P 500.
Berkshire’s B shares, which were launched in 1996, also reached a record high on Thursday, rising 0.7 per cent to $133.98.
Last week I stumbled across this excellent video about Graham which includes old clips from his investment classes as well as some of his former students (including Warren Buffett, Rob Brandes and Irving Kahn) giving interviews about the effect the legendary investor had on them: