Mario Gabelli talks at the 2019 Gabelli Annual Meeting. He talks about why Warren Buffett isn’t buying business, paying a lower tax rate in 2018 and much more.
Mario Gabelli: 2019 Gabelli Annual Meeting – Fundamental Research
Q1 hedge fund letters, conference, scoops etc
Transcript
It's not very complicated what is the first T that we're talking about we did these last year tariffs but what's the second T. Doug touched a 10 year bond last year. We thought inflation was gonna pick up and amidst the 10 year in October was 323 this year right now it's 330 to 38.
So when you're looking at the present value of the future stream of earnings the question we all ask is What is the multiple that we're paying for a company's cash flow today. And is it sustainable five years from now. So when you think about like Warren Buffett why is he not buying businesses as opposed to buying liquid investments like alphabet like Google and Amazon and Apple. Is it because he's worried about the maintenance of that multiple. What if the 10 year goes back to three point three percent. So those are the elements that we look at. And then Howard and I will touch about technology what's the impact of technology creative destruction was what Schumpeter talked about. We talk about creative innovation. What impact does technology have on our holdings. The classic and easy example The easy example was a newspaper we owned a newspaper company that was a unique franchise. 20 years ago we'd be paying 20 times cash flow. Today you're paying four times. A good example would be Gwinnett. Someone worked to get net here for a long time so I directed that comment to her.
And then obviously taxes. How many in this room think that paying a lower tax rate in 2018 than they did in 2016 based on the salt? the inability to deduct state local taxes as an example. We have a philosophy of paying less paying later for you. Our returns also should know the tax impact for taxable clients. Obviously if your tax deferred. That's not an element but if you're paying today 20 percent long term capital gain plus a three point eight percent surcharge plus you live in California to pay twelve point seven percent non deductible you're paying thirty five percent or more if you have a W-2 income like you run a business you're paying thirty seven percent down from thirty nine point OD and then you're paying a two point three percent medical surcharge. I'm going to make you feel good about taxes but however the tax part that's most interesting to us is the taxes on corporations. Will they increase in 2021 based on a landslide victory for the Democrats. Will it go back from twenty one to twenty five before we think about that. Let's think about what the numbers are. First of all the biggest significance for taxes. Is that what's not seen and what the press doesn't talk about. Some people talk about financial illiterates in terms of those that comment on it. The tax rate in the United States for a long period of time was global. What does that mean that if you owned a business and you operate in the United States and you had operations in Hong Kong where the tax rates 50 to Dubai would zero or in Ireland would in England which is. 18 to 22 percent depending when you had to pay the tax at the 35 percent corporate rate but you didn't have to pay the cash on the difference between what you paid the local economy until you repaid it created the cash today that has gone to a territorial tax which means wherever you are located you don't have to pay that extra a total tax when you come back. The rate has dropped obviously from thirty five to twenty one. So when you're seeing these earnings reported in our analysts look at them and they come in quarterly. You have all of the bobbing and weaving for things like BEATGLTI and I don't want to get into those details but that's simply understood is that confusing. We'll be clearer that the third part is that if I'm a doctor or a dentist or a farmer and I want to buy a new farm tractor as I did recently I can take 100 hundred percent write off a new one.
Is that good or bad then what do we do with the cash flow.
What are the companies doing with the cash flow that they put more money into the defined benefits defined contributions. Yeah. Because until September of 2018 they were able to take a deduction at the 36 percent rate based on the tax rate before the 35 percent rate. So we see a lot of benefits a cash flow this year. Obviously some of the portfolios in the pension plans had a mark to market challenge with the market down as much as it did. So we talk about the 40s. However after recently the questions that everyone has been asking us.
