After revealing his diagnosis with stage one cancer, Warren Buffett says he feels great and “as if I were in my normal excellent health and my energy level is one hundred percent”. Whitney Tilson, T2 Partners, and Carly Fiorina, former Hewlett-Packard CEO, discuss Buffett’s health and its impact on Berkshire Hathaway’s succession plan.
How Warren Buffett Uses Discount Rates To Value Stocks
Warren Buffett has never detailed the process he uses to value the businesses he acquires for Berkshire Hathaway. However, over the years, he has provided some limited insight into his methods. Q3 2020 hedge fund letters, conferences and more Based on these comments, it is widely assumed that Buffett uses a discount cash flow model Read More
also in our headlines, legendary investor, warren buffett business closing to the public he’s been diagnosed with stage one prostate cancer. he said the good news is that i’ve been told by my doctors that my condition is not remotely life threatening or even diliing in anyway. i received my diagnosis last wednesday. i then had a cat scan and a bone scan on thursday followed by an mri. buffet said he feels great. this sass if he was in his normal excellent health. his energy level is 100%. he also says he plans to begin a course of radiation treatment in july. his doctors he says are very comfortable with him pushing that off not doing it right away. in fact he said if he wanted to push it off later they would have been fine with that as well. the timing of that two month treatment he said was chosen to keep from interfering with previous commitments he made including travel. buffet said his doctors have no qualms about delaying that treatment and he says elves great. in his annual let buffet said the board had chosen a successor. they had not named that person. buffet said there’s no change in that succession plan. joining us right now to talk more about warren buffett and berkshire hathaway is whitney tilson and our guest host this morning for the entire show is carly fiorina. she’s the new chair of good 360 an online donation marketplace that connects corporation donations with nonprofits. whitney, let’s start off quickly talking about berkshire hathaway, because you do have a pretty large position in berkshire hathaway. it’s a mid-teen position in your portfolio? yes, it is. what did you think of this news last night? of course,immediately, we thought of him personally. our hearts went out to him and as we kept reading the press release we were very relieved to hear that he’s feeling great and the prognosis is great, there’s no other cancer in his body. we did a quick google search anthony. this is medically speaking a complete non-event. we saw the stock sell up a little bit last night. what do you think? buffet is 81. he’s not going to live forever. it remind people of the succession issue which concerns a lot of people, doesn’t concern us at all, but warren buffett is irreplaceable. he’s one-of-a-kind. no combination of successors is ever going to be able to fully replace someone like buffet. but that said this isn’t news to us. we knew this before the announcement yesterday. we didn’t need a reminder. in fact, we knew all of these factors as we were adding to our largest position just in recent weeks. so, you know, it’s quite a remarkable thing. being reminded that in the investing world, using your brain and actually applying logic is a huge advantage and not responding to the whims of the market and people, you know, other investors overreacting to something that’s really emotional but has no absolutely bearing on berkshire hathaway’s value or where the sto will go in the next few years. that’s what we care about as investors. you said a lot of people are worried abou succession but you’re not. why not? most importantly if you look at an actuarial table, it’s highly likely buffet will manage berkshire for the next five years, maybe ten years and today or yesterday’s announcement doesn’t change that at all. that’s number. when we value berkshire hathaway we don’t include any warren buffett premium. we take the cash in investment, put a pre-tax multiple on the operating earnings of the business that berkshire owns. we come up with almost $180,000 per share and the stock is trading a little under 120 pre-market. you have 50% upside in one of the world’s greatest, safest businesses and the business is going gang busters. i’ll remind you all the news and turmoil by steve jobs’ illness and he passed away six months ago, apple stock is up 65% since then. what matters is the underlying performance of the business. we have talked about corporate gonks from this perspective. whitney just mentioned steve jobs. when i spoke to buffet last night i asked why are you putting this out if it’s not life threatening. he said his criteria would be if you’re hospitalized or incapacitated it’s important to let shareholders know. but because of the c word, the cancer word it has a lot of different connotations to people. warren buffett did a lot of right things. as cancer survivor myself i chose to be very transparent. i think he did the right thing. this kind of thing will leak out eventual when he starts going to daily radiation, people will comment on the change in his schedule. i think this is much more reassuring to shareholders to know the whole story right upfront and while a diagnosis of cancer is always frightening this is truly the most curable form of cancer there so. he has caught it at the very earliest stages, so i think this announcement should be very reassuring to shareholders, actually. whitney, doug cass has a point. doug, he has a love/hate relationship with berkshire. he points out that, you know, not this latest news, perhaps with the stage one prostate cancer but the mortality of mr. buffet and the suck seg of mr. buffet which has been in all of our mind for the past couple of years that the price to book on berkshire has reflebed, it’s 16 which is averaged over the last couple of decades. there’s something to that that there’s concern that there won’t be another guy like buffet ever again running berkshire. these guys are great but maybe he is truly irreplaceable. we are quite open that about the irreplaceability. i think the pan that he’s laid out and the number of incredible people and managers that are in place to replace him on the operating side, he’s already identified two people on the investing side, two great managers. but i think,ou know, he’ll be — he can’t be fully replaced by 90% or 95% replaced sure. that’s a question of what’s already in stock price. as doug points out an incredible businesslike birk shier should be trading at one and a half times anyway and it’s trading at 15 times book and giving you and opportunity in our view to own the stock. it’s safe, cheap and rapidly growing. we can’t find anything out there in the investing world that offers this much of an attractive risk/reward equation. doug’s other point is that you’re not going see someone who is able to come up with a great deal that warren buffett has been able to come especially when things were happening in 2008. preferred shares he was able to get. he was able to do that because he’s warren buffett. absolutely. no successor will have the same sort ofwhite knight ability as a buffet investment carries and no successor can pull the trigger that quickly and make attractive investments. buffet’s ability to act quick sleigh huge advantage particularly when financing companies that are in a crisis and need capital quickly. so no question that that will — it won’t go away completely but it won’t be as big a source of value as it is today. so that’s one of elements of buffet’s irreplaceability. when we value berkshire we assume zero value as to any fush value and we get a stock that’s a $65 today. among the names that are speculated about in terms of succession shrone you prefer over. no. i haven’t gotten a chance to know all of the operating managers super well. and this is one area where i completely trust buffet. as charlie munger joked a couple of years ago he said do you really think warren buffett who has made so many great decisions over 50 years and made all of you here in the audience rich in many cases do you think he’s going to screw up the most important final decision of his career. did the focal situation give you any pause? it was troubling to see a guy go off the rates like that. it’s very sobering for any high-profile person to see how a lifetime of build urge reputation and then a five minute brain freeze or one day brain freeze you can destroy everything. you can lose your reputation, our job, your career, et cetera. so, it was as buffet said, it was inexpliable and inexcusable. but he was never was the successor. he never was. that’s what buffett said. there’s a deep bench at berkshire. carly, you brought this up. you had experience with cancer. no cancer is the same. being in a very public position and disclosing this is not easy. it’s not easy but certainly the right thing to do on mr. buffett’s part. the truth is the unknown is always more frightening than the known. the more people know, certainly the patient themselves the more they know. but the more people who depend upon them know, i think the better. you know when all of this was going on with steve jobs it was an overhang on stock. how ill is he. what’s the roger no sis, et cetera. i think looking back the board may have chosen to do that differently. i think it’s interesting what whitney just said. what does it say about your morkts. our average investor holds the stock for four months, not exactly long term. what does you want say about the market when warren buffett’s unique and irreplaceability revolves around his ability to make logical decisions, unswayed by the ups and downs of the market. that’s a paraphrase of what whitney said. it’s too bad that that’s so unique. making logical designates not swayed by the detail i ups and downs of the market. seems common sense. it seems that’s how you make money over the long term. carly will be with us for the rest of the program. whitney thank you for joining