Value Investing

10 Highlights of Warren Buffett on CNBC – January 10, 2018

Warren Buffett (87) and Charlie Munger (94) were interviewed for one hour at 8:00 a.m. today on CNBC. The highlights were:

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Warren Buffett

(1) Greg Abel (55) and Ajit Jain (66) have been added to Berkshire Hathaway’s board of directors. Greg Abel will be Vice Chairman – Non-Insurance Business Operations, and Ajit Jain will be Vice Chairman – Insurance Operations. Buffett said this will give each of them the experience of supervising businesses. There will be one CEO after Buffett is no longer there, presumably Abel or Jain in the near future. But 4 years from now it could be someone else.

(2) Stocks not richly valued at current interest rates. Interest rates act like gravity. Berkshire is a net buyer of equities. Equities are the place to be. Bonds paying 2% are selling for 50 times earnings with no growth. Corporations are earning 15% on assets.

(3) Tax law increases corporate earning power by about 20%. Buffett says the tax law is very favorable for Berkshire shareholders. Since Berkshire’s tax rate drops from 35% to 21%, it will now keep 79% of pre-tax profits vs. 65% before. This 14% increase in the share of its profits that it retains, represents an increase of about 20% in its after-tax profits. Furthermore, Berkshire’s deferred tax liabilities are similarly reduced on its unrealized capital gains of $100 billion. For example, if Berkshire realized capital gains in 2017, it would have paid a 35% tax. Now Berkshire would pay only 21%

(4) The 21% corporate tax rate was not baked into stock prices.

(5) Both Buffett and Munger would have voted for the tax bill.

(6) Bitcoin will have a bad ending. Buffett would buy 5-year puts on cryptocurrencies.

(7) Buffett likes Apple and has been buying its shares (at least through September 30 — last SEC 13F report). The market for iPhones is not yet saturated. (Berkshire is one of the largest shareholders of Apple.)

(8) GE is a “big, strong company” and Berkshire would buy it at the right price.

(9) Berkshire owns about $100 billion in U.S. Treasury Bills, representing over 5% of the total U.S. Treasury Bills outstanding.

(10) Charlie Munger is happy with Abel and Jain. Share prices are not crazy with bonds at 3%. There is a bubble in bitcoin and in venture capital (too much money).