Warren Buffett Questions: The Good and the Bad

0

Warren Buffett Questions: The Good and the Bad

I’m going to comment on three articles written before Warren Buffett’s party.  I am not picking on these because they are dumb.  I am picking on them because they are brighter than most, but still don’t get Warren Buffett.

Copying Warren Buffett harder for investors today

A Look Back At Warren Buffett’s Best and Worst Oil & Gas Investments

Berkshire Hathaway Warren BuffettWarren Buffett is perhaps best known for his large investments in some of the world's most recognizable brands, companies like Coca-Cola, American Express and Apple. Q1 2020 hedge fund letters, conferences and more Companies that fit into this bracket seem to fall squarely within his circle of competence. They sell a product that's easy to Read More


No individual investor can copy Buffett in full, unless he buys Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), which isn’t the worst idea around.  These two articles explain why almost no one can copy Warren Buffett:

In general, it is far better to follow the principles that Buffett has espoused — value investing, than to try to mimic Buffett himself.  Warren Buffett is so big that he can’t look at the little opportunities that you and I can look at.  So take advantage of your small size, and buy some of the illiquid companies that Buffett can’t touch, because they don’t move the needle.

That said, if I were in the shoes of Todd Combs or Ted Weschler, I would create a “small cap bucket” for odd names that you know are cheap, but you only want to get at your level.  You don’t want to waste a lot of time on this, but you do want to take advantage of your insights, at least to the level that DFA does.

Buffett’s Bear: 5 Questions Doug Kass Should Ask

I think Doug Kass will have better questions than these, but they are simple enough that I can answer them in my imitation of Buffett’s voice:

1) Why the lackluster returns?

Charlie Munger & I have often said our stock was overvalued.  We recently initiated a buyback, because we no longer thought so.  Since then, performance has been adequate.

But we don’t manage for market returns.  We manage the company to compound the net worth.  We can’t control the capitalization that outside investor might assign the company, so we focus on what we can control.

2) Why shouldn’t Berkshire break-up?

There are real financing advantages to being part of Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B).  We have chosen firms that will do well in good times and bad and have conservatively financed them.  Further, one of our advantages is that those who sell companies to us know that the culture of the company will be preserved.  That gives us an advantage in acquiring firms that most of private equity does not have.  It makes us eclectic, but it is a good eclectic.

3) Is the stock market overvalued?

We don’t pay much attention to that, but we won’t overpay for investments, and we are not finding much attractive at present.  We just try to grow the net worth of our company.

4) Is Geico moving fast enough?

GEICO has done exceptionally well over the years, underwrites very well, and is one of the lowest cost operators  in personal insurance.  Speed is not what we are concerned with; we are more concerned about the quality of what we do rather than taking chances, as we believe some of the industry is regarding close monitoring of policyholder behavior.  If it truly works, our managers at GEICO will adopt it.

5) Is Berkshire’s business model preventing success?

I empower my managers to make all manner of decisions to enhance the value of the company.  This is not a weakness; they help me make money in good times and in bad times.  The stock market has had a hard run of late; please revisit what we do after the next correction in the market.

(I hope Doug Kass has better questions than these…)

Berkshire Annual Meeting: 5 Questions for Warren Buffett

1) Come on, Warren Buffett, isn’t it Ajit?

This isn’t obvious.  We have many excellent managers.  Ajit’s underwriting skills are considerable, as well as his general management skills.  He would do well to succeed me, but there may be others who are better.

2) About that H.J. Heinz Company (NYSE:HNZ) deal…?

Heinz was an excellent deal for us, and we would do more of them.  We have an excellent partner managing the investment, and if it does well, we have a disproportionate amount of the upside in the deal.  If it does middlingly, we do well also.

3) How does the economy look to Berkshire?

Really, we don’t care much about the economy in the short-run.  We are building a business to exist over the long-term.  We are bulls on America; no one has ever won in the long haul being bearish on America.

4) About those new stakes in Goldman Sachs Group, Inc. (NYSE:GS) and General Electric Company (NYSE:GE)?

We have expressed our desires to be long-term holders of Goldman Sachs.  As for General Electric, we admire the company.  Who doesn’t?  That said, we will manage our stakes relative to our long-term expectations of their value.

5) Is your Twitter account due diligence?

We only buy companies where there is no competition, and where we think there is value and sustainable competitive advantage.  We created a Twitter account for me so that we could communicate with those who follow our company.

=-==-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

I’m sure Buffett would sound better.  That said, even though it is the Wall Street Journal’s reporters, there are better questions to ask.  Hopefully Doug Kass will ask some of them.  That said, Berkshire Hathaway is well thought out.  I think a question that would surprise Buffett would be unlikely.  And if it did surprise Warren Buffett, Charlie would give an adequate terse answer.

By David Merkel, CFA of Aleph Blog

Previous articleWhitney Tilson: Berkshire Hathaway Worth Close to $200k a Share
Next articleMalaysia Elections: Should BN Be Given Another Chance?
David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website RealMoney.com. Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.