The highlights of this interview were:
Concentration in hedge fund portfolios has been rising throughout the year and approached a record high during the third quarter. In fact, the only time concentration was higher was during the fourth quarter of 2018. Hedge Funds Are Highly Convicted But With Minimal Crowding According to Goldman Sachs' Hedge Fund Trend Monitor for the third Read More
(1) Berkshire Hathaway’s net worth increased by $65.3 billion in 2017, partially as a result of a $29 billion increase from the corporate tax changes of 2017. Berkshire’s unrealized capital gains of about $100 billion will now be taxed at 21% rather than 35% when these securities are sold in the future (resulting in a saving of $14 billion).
(2) Tax reform provides a huge tailwind to businesses. Berkshire’s future profits will be taxed at 21% instead of 35%.
(3) Starting in 2018, Berkshire will have to report unrealized capital gains (and losses) on its $170 billion common stock portfolio on its income statement instead of its balance sheet. Therefore, net income will be further distorted (in addition to realized capital gains and valuations of derivatives). Investors should focus on Berkshire’s operating earnings instead.
(4) At current interest rates, one should choose equities over bonds.
(5) Berkshire was a net buyer of equities over the past year.
(6) Berkshire has not recently acquired a large company because of the takeover premium (about 25%) that it would have to pay over very high current market prices.
(7) Buffett prefers to repurchase Berkshire’s shares rather than paying a cash dividend. He will currently buy back shares if they are selling for less than 120% of book value. He may increase that threshold to 125% or 127% in the future. If Berkshire pays a cash dividend there will be an implied promise to continue to pay a dividend every year. (Berkshire currently sells for about 150% of book value.)
(8) Owning shares of Berkshire is like a having savings account.
(9) GE made many mistakes including “insurance reserving” for long term care insurance.
(10) With respect to Wells Fargo, Buffett has confidence in CEO Tim Sloan. Wells Fargo had terrible incentives.
(11) He criticized using leverage to buy stock. People who borrow risk what they have and need for what they do not need (“get rich quick vs. getting rich slowly”).
(12) He was wrong on IBM but he likes Apple.
(13) His effort with Jeff Bezos and Jamie Dimon with respect to health care is aimed at cutting costs without reducing quality.
(14) The airline industry is more competitive than railroads. “I would not rule out owning an airline”. Berkshire owns up to 10% of the four major airlines (American, Delta, Southwest, and United).
(15) The 10 year U.S. Treasury has recently gone from a yield of 2.4% to 2.9%. However, businesses are earning a return on equity of 12%.
(16) Over time we want more international trade.
(17) Buffett recommends the earned income tax credit (EITC).