http://www.cnbc.com/id/28800287/
Thursday, 22 Jan 2009
Warren Buffett "Not Opposed" to Berkshire Hathaway Stock Buyback: The Complete PBS Interview Transcript
Posted By: Alex Crippen
Topics:Stock Buybacks Investment Strategy Stock Market Bernard Madoff Barack Obama Inflation Economy (U.S.) Mergers & Acquisitions Warren Buffett
Companies:Dow Chemical Co Wm Wrigley Jr Co Constellation Energy Group Inc Goldman Sachs Group Inc General Electric Berkshire Hathaway Inc.
Warren Buffett, in a taped interview with Susie Gharib of National Business Report on PBS
Warren Buffett sat down recently for a taped interview with Susie Gharib of Nightly Business Report to mark the PBS program's 30th anniverary tonight.
In the conversation, Buffett says the credit crunch is easing but business conditions are getting worse. He also hints Berkshire Hathaway might buy back some of its stock since it has fallen so sharply from its highs.
WARREN BUFFETT TO PBS: CREDIT CRUNCH "GETTING A LITTLE BETTER" BUT BUSINESS IS GETTING WORSE
Buffett and Gharib cover a number of other subjects, including how much advice he's giving President Obama, the government's attempts to stimulate the economy, and the Bernard Madoff scandal.
Portions of their conversation will be shown on NBR tonight (Thursday) and tomorrow (Friday.)
Video of the complete 24-minute conversation has been posted on the program's website.
This is a transcript of that entire interview, as provided to us by NBR. CNBC.com has added links and done some light editing. It is also available as a PDF download.
SUSIE GHARIB, ANCHOR, NIGHTLY BUSINESS REPORT: Are we overly optimistic about what President Obama can do?
WARREN BUFFETT, CHAIRMAN, BERKSHIRE HATHAWAY: Well, I think if you think that he can turn things around in a month or three months or six months and there’s going to be some magical transformation since he took office on the 20th, that can’t happen and wouldn’t happen. So you don’t want to get into Superman-type expectations. On the other hand, I don’t think there’s anybody better than you could have had, have in the presidency than Barack Obama at this time. He understands economics. He’s a very smart guy. He’s a cool rational-type thinker. He will work with the right kind of people. So you’ve got the right person in the operating room, but it doesn’t mean the patient is going to leave the hospital tomorrow.
GHARIB: Mr. Buffett, I know that you’re close to President Obama. What are you advising him? BUFFETT: Well, I’m not advising him really, but if I were I wouldn’t be able to talk about it. I am available any time. But he’s got all kinds of talent right back there with him in Washington. Plus he’s a talent himself so if I never contributed anything for him, fine.
GHARIB: But I know that during the election that you were one of his economic advisors, what were you telling him?
BUFFETT: I was telling him business was going to be awful during the election, period, and that we were coming up in November to a terrible economic scene which would be even worse probably when he got inaugurated. So far I’ve been either lucky or right on that. But he’s got the right ideas. He believes in the same things I believe in. America’s best days are ahead and that we’ve got a great economic machine, it's sputtering now. And he believes there could be a more equitable job done in distributing the rewards of this great machine. But he doesn’t need my advice on anything.
GHARIB: How often do you talk to him?
BUFFETT: Not often, not often, no, no, and it will be less often now that he’s in the office. He’s got a lot of talent around him.
GHARIB: What’s the most important thing you think he needs to fix?
BUFFETT: Well the most important thing to fix right now is the economy. We have a business slowdown, particularly after October 1st, it was sort of on a glide path downward up til roughly October 1st, and then it went into a real nosedive. In fact, in September I said we were in an economic Pearl Harbor and I’ve never used that phrase before. So he really has a tough economic situation and that’s his number one job. Now his number one job always is to keep America safe. That goes without saying.
GHARIB: But when you look at the economy, what do you think is the most important thing he needs to fix in the economy?
BUFFETT: Well, we’ve had to get the credit system partially fixed in order for the economy to have a chance of starting to turn around. But there’s no magic bullet on this. They’re going to throw everything from the government they can in. As I said, the Treasury is going all in, the Fed, and they have to, and that isn’t necessarily going to produce anything dramatic in the short-term at all. Over time, the American economy is going to work fine.
GHARIB: There is considerable debate, as you know, about whether President Obama is taking the right steps so we don’t get in this kind of economic mess again. Where do you stand on that debate?
BUFFETT: Well, I don’t think the worry right now should be about the next one. The worry should be about the present one. Let’s get this fire out and then we’ll figure out fire prevention for the future. But really, the important thing to do now is to figure out how we get the American economy restarted and that’s not going to be easy and it's not going to be soon, but it's going to get done.
GHARIB: But there is debate about whether there should be fiscal stimulus, whether tax cuts work or not. There is all of this academic debate among economists. What do you think? Is that the right way to go with stimulus and tax cuts?
BUFFETT: The answer is nobody knows. The economists don’t know. All you know is you throw everything at it and whether it’s more effective if you’re fighting a fire to be concentrating the water flow on this part or that part. You’re going to use every weapon you have in fighting it. And people, they do not know exactly what the effects are. Economists like to talk about it, but in the end they’ve been very, very wrong and most of them in recent years on this. We don’t know the perfect answers on it. What we do know is to stand by and do nothing is a terrible mistake or to follow Hoover-like policies would be a mistake and we don’t know how effective, in the short-run, we don’t know how effective this will be and how quickly things will right themselves. We do know over time the American machine works wonderfully and it will work wonderfully again.
GHARIB: But are we creating new problems?
BUFFETT: Always.
GHARIB: How worried are you about these multi-trillion dollar deficits?
BUFFETT: You can’t just do one thing in economics. Anytime somebody says 'I'm going to do this', you have to say, 'And then what?' And there is no free lunch, so if you pour money at this problem, you do have aftereffects. You create certain problems. I mean you are giving a medicine dosage to the patient on a scale that we haven’t seen in this country. And there will be aftereffects and they can’t be predicted exactly. But certainly the potential is there for inflationary consequences that would be significant.
GHARIB: We all know that in the long-run everything is going to work out, but as you analyze President Obama’s economic plan, what do you think are the trade-offs? What are the consequences?
BUFFETT: Well, the trade-off, the trade-off basically is that you risk setting in motion forces that will be very hard to stop in terms of inflation down the road and you are creating an imbalance between revenues and expenses in the government that is a lot easier to create than it will be to correct later on. But those are problems worth taking on, but you don’t get a free lunch.
GHARIB: What about the regulatory system? Is it a matter of making new rules or simply doing a better job at enforcing the rules we already have?
BUFFETT: Well, there are probably some new rules needed, but the regulatory system, I don’t think, could have stopped this. Once you get the bubble going, once the American public, the U.S. Congress, all the commentators, the media, everybody else, started thinking house prices could go nothing but up, you were creating a bubble that would have huge consequences because the asset class was so big. I mean, you had 22 trillion dollars, probably, worth of homes. It was the biggest asset of most American families and you let them borrow 100% of, in many cases, of the price of those and you let them refi up to where they kept taking out more and more and treating it as an ATM machine. The bubble was going to happen.
GHARIB: But everybody is talking about, OK, we need more rules, we have to enforce them, we need to go after every institution, every financial market. Do you think that new rules will do the trick or do we have enough rules, we just have to police better?
BUFFETT: Well, you can have a rule, for example, to prevent another real estate bubble. You just require that anybody bought a house to put 20% down and make sure that the payments were not more than a third of their income. Now we would not have a big bust ever in real estate again, but we also would have people screaming that you’re denying home ownership to all these people, that you got a home yourself and now you’re saying a guy with a 5% down payment shouldn’t get one. So I think it’s very tough to put rules out. I mean, I can design rules that will prevent it but it will have other consequences. It’s like I say, in economics you can’t just do one thing. And where the balance is struck on that, will be a political question. My guess is that it won’t be struck particularly well, but that’s just the nature of politics.
GHARIB: You’ve said that we’re in an economic Pearl Harbor, so how bad are things really?
BUFFETT: They’re bad, they’re bad. The credit situation is getting a little better now. Things have loosened up from a month ago in the corporate debt market. But the rate of business descent is at a pretty alarming pace. I mean, there is no question things have really slowed down. Peoples’ buying habits have changed. Fear has taken over and fear is a tough thing to fight because you can’t go on television and say don’t be afraid, that doesn’t work. People will get over it. They got greedy and they got over being greedy. But it took a while to get over being greedy and now the pendulum has swung way over to the fear side. They’ll get over that and we just hope that they don’t go too far back to the greed side.
GHARIB: What’s your view on the recession? How much longer is it going to last?
BUFFETT: I don’t know. I don’t know. I don’t know the answer to these things. The only thing is I know that I don’t know. Maybe other people think they know, but I have no idea.
GHARIB: The last time we talked, you said back in the spring, you said the recession is not going to be a short-haul thing. What is your feel for it right now?
BUFFETT: It isn’t going to be short, but I just don’t know, Susie. If I knew that. There’s no way of knowing.
GHARIB: Berkshire Hathaway is in a lot of businesses that are economically sensitive, like furniture, paint, bricks. Do you see any signs of a pick-up?
BUFFETT: No. No. The businesses that are either construction or housing-related, or that are just plain consumer businesses, they’re doing very, very poorly. The American consumer has stepped back, big time, and it’s contagious and there’s a feedback mechanism because once you hear about this then you get fearful and then don’t do things at all. And that will end at a point, but it hasn’t ended at this point. Now fortunately our two biggest businesses are not really tied that way - in insurance and in our utility business we don’t feel that, of course, those are different things. But everything that’s consumer related feels it big time.
GHARIB: My question to you is, do you think that the psyche of the American consumer has changed, becoming more savers than spenders?
BUFFETT: Well, it certainly has at this point and my guess is that continues for quite a while. What it will be five years from now, I have no idea. I mean the American consumer when they’re confident they spend and they’re not confident now, and they’ve cut it back. But who knows whether.. I doubt that that’s a permanent reset of behavior, but I think it’s more than a one-day or one-week or one-month wonder in that case.
GHARIB: Is that a bad thing?
BUFFETT: Well, it just depends who the consumer is. I mean, consumer debt within reason makes sense. It makes sense to take out a mortgage and own a home, particularly if you aren’t buying during a bubble. You are normally going to see house price appreciation if you don’t buy during a time when people are all excited about it. So I don’t have any moral feelings about debt as to how people should.. I think people should only take on what they can handle though and that gets to their income level.
GHARIB: Let me ask it this way, Americans saving more may be good for consumers, but is that bad for business?
BUFFETT: Well, it’s certainly bad for business in the short-term. Now whether it’s better for business over a 10 or 20 year period... If the American public gets itself in better shape financially that presumably is good for business down the road, but while they’re getting themselves in better shape, it isn't much fun for the merchant on Main Street.
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GHARIB: One thing that Americans aren’t buying these days are stocks. Should they be buying? BUFFETT: Well, just as many people buy a stock everyday as sell one so there are people buying stocks everyday and we’re buying stocks as we go along. If they’re buying into a business they understand at a sensible price they should be buying them. That’s true at any time. There are a lot more things selling at sensible prices now than there were two years ago. So clearly it’s a better time to buying stocks than a couple of years ago. Is it better than tomorrow? I have no idea.
GHARIB: This financial crisis has been extraordinary in so many ways. How has it changed your approach to investing?
BUFFETT: Doesn’t change my approach at all. My approach to investing I learned in 1949 or ‘50 from a book by Ben Graham and it’s never changed.
GHARIB: So many people I have talked to this past year say this was unprecedented, the unthinkable happened. And that hasn’t at all impacted your philosophy on this?
BUFFETT: No, and if I were buying a farm, I wouldn’t change my ideas about how to buy a farm or an apartment house or a business, and that’s all a stock is, it’s part of a business. So if I were going to buy stock in a private business here in Omaha, I’d look at it just like I would have looked at it two years ago and I’ll look at it the same way two years from now. I look at how much I am getting for my money, how good the management is, how the competitive position of that business compares to others, how durable it is and just fundamental questions. The stock market is, you can forget about that. Any stock I buy I will be happy owning it if they close the stock market for five years tomorrow. In other words I am buying a business. I’m not buying a stock. I’m buying a little piece of a business, just like I buy a farm. And that doesn’t change. And all the newspaper headlines of the world don’t change that. It doesn’t mean you can’t buy it cheaper tomorrow. It may turn out that way. But the real question is did I get my money’s worth when I bought it?
GHARIB: One of your famous investing principles is, “Be fearful when others are greedy and greedy when others are fearful.” So is this the time to be greedy, right?
BUFFETT: Yeah. My greed quotient has risen as stocks have gone down. There’s no question about that. The cheaper something gets that you’re going to buy, the happier you feel, right? You’re going to buy groceries the rest of your life; you want grocery prices to go up or down? You want them to go down. And if they go down you don’t think, gee, I got those groceries sitting in my cabinet at home and I’ve lost money on those. You think I am buying my groceries cheaper, I am going to keep buying groceries. Now if you’re a seller, net, obviously you like prices higher. But most people listening to this program, certainly I, myself, and Berkshire Hathaway, we’re going to be buying businesses over time. We like the idea of businesses getting cheaper.
GHARIB: So where do you see the opportunities in the stock market right now?
BUFFETT: That one I wouldn’t tell you about.
GHARIB: Let me throw out some sectors and you just tell me quickly how you feel about these sectors.
BUFFETT: Susie, I am not going to recommend anything.
GHARIB: Even in general? For example, a lot of people now are looking at infrastructure companies. Is that a sector that you find attractive?
BUFFETT: I wouldn’t have any comment. What they ought to do is look at businesses that they understand, they‘d be happy owning for years if there was never a quote on the stock. Just like they buy in privately into a business in their hometown, they ought to forget all about what somebody says is going to be hot next year or the year after, whatever. Because what’s going to be hot, you may be paying twice as much for as something that’s not going to be hot. You don’t want to think in terms of what’s going to be good next year, you want to think in terms of what’s a good business to be in and then buy it at an attractive price. And then you can’t lose.
GHARIB: Do you see more opportunities in the U.S. compared to overseas?
BUFFETT: Well, I am more familiar with the U.S. We have such a big market. I see lots of opportunities here and I see lots of opportunities around the world.
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GHARIB: Let me ask you a little bit about investor confidence. Investor confidence was so shattered last year. What do you think it's going to take to restore confidence?
BUFFETT: If people were dependent on the stock market going up to be confident, they’re in the wrong business. They ought to be confident because they look at a business and they think, I got my money’s worth. They ought to be confident if they buy a farm, not on whether they get a quote the next day on the farm, but they ought to look at what the farm produces, how many bushels an acre do they get out of their corn or soybeans and what prices do they bring. So they ought to look to the business as to whether to be confident compared to the price that they paid and they ought to forget about what anybody is saying, including me on television, or what they’re reading in the paper. That’s got nothing to do with whether they made a good decision or not. What’s got to do with whether they made a good decision is what kind of business they bought and what they paid for it.
Bernard Madoff
GHARIB: People are reeling from this whole Bernie Madoff scandal. What would you say to people who have lost trust in the financial system?
BUFFETT: They shouldn’t have lost, you don’t need to lose trust in the American system. If you decide to buy a farm and you pay the right price for it, you don’t need to lose faith in American agriculture, you know, because the prices of farms go down.
GHARIB: But you know what I’m saying. This was on top of everything else. People lost money last year in companies that they thought were rock solid. As I said, the unthinkable happened, and then on top of it, this whole Bernie Madoff scandal. It has undermined people’s sense of well-being about our system. So what do you say to people who have lost trust?
BUFFETT: Well, they may be better off not being in equities. If they’re really depending on somebody else and they don’t know anything about the somebody else, they’ve got a problem. They shouldn’t do that. I mean there are going to be crooks out there and this guy was a crook on a scale that we’ve never seen before. But you ought to know who you’re dealing with. But if you’re going to buy a stock in some business that’s been around for a 100 years and will be around for 100 more years and it’s not a leveraged company and it sells some important product and it’s got a strong competitive position and you buy it at a reasonable multiple of earnings, you don’t have to worry about crooks, you’re going to do fine.
GHARIB: Is there any take away lessons from the Bernie Madoff story?
BUFFETT: Well, he was a special case. I mean here is a guy who had a good reputation for 30 years or something, and the trust of a lot of people around him. So it’s very easy to draw assurances from the fact that if fifty other people that are prominent and intelligent trust the guy, that maybe you should trust him too. But I wouldn’t put my trust in a single individual like that. I would put my trust in a very good business. I would want a business that was so good that if a so-so guy was running it, it would still certainly do well and there are plenty of businesses that are like that.
GHARIB: So, are you saying that investing has gotten so complicated that investors should stick to what they know? Is that the take-away lesson?
BUFFETT: You should always stick to what you know. I say the 'know-nothing investor' and there’s nothing wrong with being a 'know-nothing investor.' I mean, I spend 60 hours a week thinking about investments, and most people have got jobs and other things to do. They can buy index funds. And they’re not going to do better than an index fund if they go around and trust some guy that's promising them very high returns. If you buy a cross section of American business and you don’t buy it during a period when everybody is all enthused about stock, you’re going to do fine over 10 or 20 years. If you buy something with the idea that you’re going to do fine over 10 months, you may or may not. I do not know what stock is going be up 10 months from now, and I never will.
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GHARIB: What about Berkshire Hathaway stock? Were you surprised that it took such a hit last year, given that Berkshire shareholders are such buy and hold investors?
BUFFETT: Well, most of them are. But in the end, our price is figured relative to everything else. So the whole stock market goes down 50 percent, we ought to go down a lot because you can buy other things cheaper. I‘ve had three times in my lifetime, since I took over Berkshire, when Berkshire stock’s gone down 50 percent. In 1974, it went from $90 to $40. Did I feel badly? No, I loved it. I bought more stock. So, I don’t judge how Berkshire is doing by its market price, I judge it by how our businesses are doing.
GHARIB: Is there a price at which you would buy back shares of Berkshire? $85,000? $80,000?
BUFFETT: (Laughs.) I wouldn’t name a number. If I ever name a number, I’ll name it publicly. I mean, if we ever get to the point where we’re contemplating doing it, I would make a public announcement.
GHARIB: But would you ever be interested, are you in favor of buying back shares?
BUFFETT: I think if your stock is undervalued, significantly undervalued, that a management should look at that as an alternative to every other activity. That used to be the way people bought back stocks, but in recent years, companies have bought back stocks at high prices. They’ve done it because they like supporting the stock. They don't ever say it.
GHARIB: In your case, with Berkshire. I mean, it's down a lot. It was up to 147-thousand last year. Would you ever be opposed to buying back stock?
BUFFETT: I’m not opposed to buying back stock.
GHARIB: OK, I'm going to move on. Everyone wants to know your plans. What you’re going to do with all of Berkshire Hathaway’s cash, some 30 billion dollars? Is this now the right time to do a big acquisition?
BUFFETT: Well, we’ve spent a lot of money in the last four months. We spent five billion on Goldman Sachs, three billion on GE, 6.6 billion on Wrigley, we’ve got three billion committed on Dow. We’ve spent a lot of money. We’ve got money left, but I love spending money. Cash makes me very unhappy. I like to always have enough and never way more than enough, but I always want to have enough. So we would never go below $10 billion of cash at Berkshire. We’re in the insurance business - we got a lot of things. We’re never going to depend on the kindness of strangers. But anything excess in that, I love the idea of buying things and the cheaper they get, the better I like it.
GHARIB: You’ve been talking about doing a big acquisition for a while now. What are you waiting for?
BUFFETT: Well, we’ve spent 20 billion dollars. (Laughs.) That might not be ..
GHARIB: I mean in terms of a company, buying …
BUFFETT: Well, we’ll wait for the right deal. We had a deal to buy Constellation for roughly five billion and then events with the French coming in meant that we didn’t do it. But I was delighted to commit for that five billion dollars for Constellation Energy. And it could happen tomorrow. That one happened on a Tuesday afternoon. I mean, it happened like that. Constellation was in big trouble and we flew back that day, the people at (Berkshire Hathaway subsidiary) MidAmerican, met on Tuesday and made them an offer that night.
GHARIB: It seems that you’re pretty optimistic about the long-term future of the American economy and stock market, but a little pessimistic about the short term. Is that a fair assessment of where your head is right now?
BUFFETT: I am unquestionably optimistic about the long-term. I’m more than a little pessimistic about the short-term, but that doesn’t mean I am pessimistic about the stock market. We bought stocks today. If you tell me the economy is going to be terrible for 12 months, pick a number, and then if I find something that is attractive today, I am going to buy it today. I am not going to wait and hope that it sells cheaper six months from now. Because who knows when stocks will hit a low or a high? Nobody knows that. All you know is whether you’re getting enough for your money or not.
GHARIB: All right, I want to move on to our 30th anniversary and wrap-up some of your reflections and thoughts on that. As you know, it’s the 30th anniversary of Nightly Business Report. As you look back on the past three decades, what would you say is the most important lesson that you’ve learned about investing?
BUFFETT: Well, I’ve learned my lessons before that. I read a book, what is it, almost 60 years ago, roughly, called The Intelligent Investor, and I really learned all I needed to know about investing from that book, and particularly chapters 8 and 20. So I haven’t changed anything since. I see different ..
GHARIB: Graham and Dodd?
BUFFETT: Well, that was Ben Graham’s book The Intelligent Investor. Graham and Dodd goes back even before that, which was important, very important. But, you know, you don’t change your philosophy, assuming you think have a sound one. And I picked up, I didn’t figure it out myself, I learned it from Ben Graham. But I got a framework for investing which I put in place back in 1950, roughly, and that framework is the framework I use now. I see different ways to apply it from time to time, but that is the framework.
GHARIB: Can you describe what it is? I mean, what is your most important investment lesson?
BUFFETT: The most important investment lesson is to look at a stock as a piece of a business, not as some little thing that jiggles up and down, or that people recommend, or people talk about earnings being up next quarter, something like that. But to look at it as a business and evaluate it as a business. If you don’t know enough to evaluate it as a business, you don’t know enough to buy it. And if you do know enough to evaluate it as a business and it's selling cheap, you buy it and you don’t worry about what it does next week, next month, or next year.
GHARIB: So if we asked for your investment advice back in 1979, back when Nightly Business Report first got started, would it be any different than what you would say today?
BUFFETT: Not at all. If you’d ask the same questions, you’d have gotten the same answers.
GHARIB: Thank you so much Mr. Buffett. Thank you so much, always a pleasure talking to you.
BUFFETT: Thank you, been a real pleasure.
Also read:
Warren Buffett to PBS: Credit Crunch "Getting a Little Better" But Business Is Getting Worse (January 22)
Warren Buffett Buys Over Four Million More Burlington Northern Shares As Price Plunges (January 20)
Warren Buffett On Barack Obama: Download the Complete Transcript (January 20)
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 2) - January 19
Warren Buffett's Dateline Interview with NBC's Tom Brokaw: The Complete Transcript (Part 1) - January 19
Warren Buffett: Barack Obama Will Help the Economy, But Don't Expect Short-Term Miracles (January 18)
Saturday, 21 February 2009
Warren Buffett Metric Signals It's "Time to Buy" Stocks
Wednesday, 4 Feb 2009
Fortune's Loomis: Warren Buffett Metric Signals It's "Time to Buy" Stocks
Posted By: Alex Crippen
Topics:Investment Strategy Economy (U.S.) Stock Market Warren Buffett
Companies:Berkshire Hathaway Inc.
Fortune Magazine's Carol Loomis, a journalist with especially strong ties to Warren Buffett, writes that a metric favored by the Omaha billionaire is now signaling it's time to buy stocks.
In today's Fortune Investor Daily on the magazine's web site, Loomis and Doris Burke point to an 85-year chart showing the the total market value of U.S. stocks as a percent of Gross National Product, a measure of economic output.
The idea is "there should be a rational relationship" between the two measures.
In a 2001 Fortune Magazine essay written by Buffett with Loomis, he says if the ratio "falls to the 70% to 80% area, buying stocks is likely to work very well for you." When it is substantially higher, "you're playing with fire." (The essay goes into extensive detail on his reasoning.)
As of late January, according to Fortune's chart, the metric had dropped to 75 percent, after hitting a peak of 190 percent in March of 2000.
She notes that last October, Buffett wrote in the New York Times that he was personally buying U.S. stocks and would continue to do so if prices kept falling, which they have.
Anything Loomis writes about Buffett gets extra attention, due to her closeness to him over the years. She helps write his annual letters to Berkshire Hathaway shareholders and has worked with Buffett on several Fortune articles, including his decision to give away the bulk of his personal wealth in the future.
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Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
http://www.cnbc.com/id/29016198/
Fortune's Loomis: Warren Buffett Metric Signals It's "Time to Buy" Stocks
Posted By: Alex Crippen
Topics:Investment Strategy Economy (U.S.) Stock Market Warren Buffett
Companies:Berkshire Hathaway Inc.
Fortune Magazine's Carol Loomis, a journalist with especially strong ties to Warren Buffett, writes that a metric favored by the Omaha billionaire is now signaling it's time to buy stocks.
In today's Fortune Investor Daily on the magazine's web site, Loomis and Doris Burke point to an 85-year chart showing the the total market value of U.S. stocks as a percent of Gross National Product, a measure of economic output.
The idea is "there should be a rational relationship" between the two measures.
In a 2001 Fortune Magazine essay written by Buffett with Loomis, he says if the ratio "falls to the 70% to 80% area, buying stocks is likely to work very well for you." When it is substantially higher, "you're playing with fire." (The essay goes into extensive detail on his reasoning.)
As of late January, according to Fortune's chart, the metric had dropped to 75 percent, after hitting a peak of 190 percent in March of 2000.
She notes that last October, Buffett wrote in the New York Times that he was personally buying U.S. stocks and would continue to do so if prices kept falling, which they have.
Anything Loomis writes about Buffett gets extra attention, due to her closeness to him over the years. She helps write his annual letters to Berkshire Hathaway shareholders and has worked with Buffett on several Fortune articles, including his decision to give away the bulk of his personal wealth in the future.
---
Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
http://www.cnbc.com/id/29016198/
Buffett Watch: Holdings Getting Hammered
Buffett Watch: Holdings Getting Hammered
02/20/09 - 12:39 PM EST
More on BRK.A
Opinion: Obama Subsidizes the Wrong People
Financial Winners & Losers: BofA
Top Ten Most Searched Stocks on TheStreet.com
Cramer: Nationalization Would Crush America
The 25 Strongest Auto Insurers
Oscar Sponsors Set Example for Small Firms
Opinion: 'Absurd' Understates Obama Plan
Buffett Watch: Berkshire Slide Adds to Insults
Top 10 Most-Searched Stocks: Bank of America
Top Takes From RealMoney
Market Activity
American Express Company AXP
Berkshire Hathaway Incorporated Class A BRK.A
Berkshire Hathaway Class B BRK.B
The Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) investment debacle continues apace.
Berkshire lost another $500 million in American Express (AXP Quote - Cramer on AXP - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) in the first 15 minutes of trading today, and this came on the heels of losing nearly $350 million in the two names around the lunch hour yesterday.
Moreover, the mark on Berkshire's $30 billion-plus derivative short put trade on the S&P 500 probably now exceeds $10 billion.
A billion here a billion there, and soon it's real money!
Finally, it is interesting to note that normally non-volatile stocks, such as Kraft (KFT Quote - Cramer on KFT - Stock Picks) and Constellation Energy Group (CEG Quote - Cramer on CEG - Stock Picks) are under pressure today.
The reason might be that they are large Berkshire Hathaway holdings and short sellers could be smelling blood.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com.
http://www.thestreet.com/story/10465204/1/buffett-watch-holdings-getting-hammered.html
02/20/09 - 12:39 PM EST
More on BRK.A
Opinion: Obama Subsidizes the Wrong People
Financial Winners & Losers: BofA
Top Ten Most Searched Stocks on TheStreet.com
Cramer: Nationalization Would Crush America
The 25 Strongest Auto Insurers
Oscar Sponsors Set Example for Small Firms
Opinion: 'Absurd' Understates Obama Plan
Buffett Watch: Berkshire Slide Adds to Insults
Top 10 Most-Searched Stocks: Bank of America
Top Takes From RealMoney
Market Activity
American Express Company AXP
Berkshire Hathaway Incorporated Class A BRK.A
Berkshire Hathaway Class B BRK.B
The Berkshire Hathaway (BRK.A Quote - Cramer on BRK.A - Stock Picks) investment debacle continues apace.
Berkshire lost another $500 million in American Express (AXP Quote - Cramer on AXP - Stock Picks) and Wells Fargo (WFC Quote - Cramer on WFC - Stock Picks) in the first 15 minutes of trading today, and this came on the heels of losing nearly $350 million in the two names around the lunch hour yesterday.
Moreover, the mark on Berkshire's $30 billion-plus derivative short put trade on the S&P 500 probably now exceeds $10 billion.
A billion here a billion there, and soon it's real money!
Finally, it is interesting to note that normally non-volatile stocks, such as Kraft (KFT Quote - Cramer on KFT - Stock Picks) and Constellation Energy Group (CEG Quote - Cramer on CEG - Stock Picks) are under pressure today.
The reason might be that they are large Berkshire Hathaway holdings and short sellers could be smelling blood.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com.
http://www.thestreet.com/story/10465204/1/buffett-watch-holdings-getting-hammered.html
Doug Kass Sees The "End" of Warren Buffett
Tuesday, 27 Jan 2009
Doug Kass Sees The "End" of Warren Buffett
Posted By: Alex Crippen
Topics:Banking Stock Market Investment Strategy Warren Buffett
Companies:US Bancorp Conocophillips Burlington Northern Santa Fe Corp Coca Cola Co American Express Co Wells Fargo and Co Berkshire Hathaway Inc.
Topics:Banking Stock Market Investment Strategy Warren Buffett
Companies:US Bancorp Conocophillips Burlington Northern Santa Fe Corp Coca Cola Co American Express Co Wells Fargo and Co Berkshire Hathaway Inc.
Just days after renewing his public criticism of Warren Buffett's current investment strategy and situation, the well-known short seller Doug Kass is out with a very bearish outlook for Berkshire Hathaway shares.
And this time he's not just making a short-term prediction as he did last year when he bet against Berkshire's stock for several months and then covered that bet at a profit.
Today on TheStreet.com, Kass asks, "Is This the End of Warren Buffett?"
His post includes words like "tentative" and "seems," so it is not a definitive obituary. But Kass does answer his headline's question with a strong 'yes.'
Kass calculates that the market value for six of Berkshire's major stock holdings has dropped a total of $16 billion dollars since the end of September. This, he argues, "is more than just a bump in the road."
Based on reported Berkshire holdings as of September 30, and the stock moves since then, Kass estimates:
Wells Fargo: $6.3 billion lost on 290 million shares
American Express: $2.9 billion lost on 151 million shares
Coca-Cola: $2.1 billion lost on 200 million shares
Burlington Northern Santa Fe: $1.8 billion lost on 63 million shares
ConocoPhillips: $1.5 billion lost on 60 million shares
U.S. Bancorp: $1.5 billion on 73 million shares
Kass cites his own previously expressed concerns about Buffett's "investment style drift into derivatives," Buffett's "refusal to sell," and "his apparent lack of recognition that investment moats no longer exist in some of his largest investments," especially banking.
In his conclusion, Kass makes it clear he's not predicting a Berkshire downturn to be followed by a rebound once the economy and stock market improve.
"I now feel that Berkshire's valuation will steadily suffer, despite the long-term allegiance of its investors who are geared toward evaluating the company over decades, not years."
While Kass acknowledges that he has "worshipped" at Buffett's "investing altar" in the past, now, "From my perch, Buffett's salad days seem to be over; the only question that remains is the timing and to what degree investors will abandon the Oracle of Omaha."
Kass's bottom line: "All good things, it seems, in markets and life, must come to an end."
Based on the overwhelming email response this blog received in December when we asked, "Are you losing faith in Warren Buffett?" .. many of you don't agree.
For more Buffett Watch updates follow alexcrippen on Twitter.
Also read: Kass: Is This the End of Warren Buffett?
Warren Buffett Cancels Annual Event Hosted By His Biographer
Tuesday, 3 Feb 2009
Warren Buffett Cancels Annual Event Hosted By His Biographer
Posted By: Alex Crippen
Topics:Publishing Warren Buffett
Companies:Berkshire Hathaway Inc.
Marion Ettlinger
Alice Schroeder, author of Bantam Dell's The Snowball: Warren Buffett and the Business of Life
Warren Buffett's authorized biographer will not be hosting a "sage advice" dinner featuring the Omaha billionaire at this year's Berkshire Hathaway annual meeting in May, bringing a decade-long tradition to an end.
Since 1998, Snowball author Alice Schroeder has invited up to several hundred guests to hear Buffett answer questions questions in an informal, off-the-record, event.
The New York Times reports that Buffett has canceled this year's dinner, "apparently because of his displeasure with some aspects" of Schroeder's book.
The newspaper cites "two people with knowledge of the situation who declined to be identified by name."
According to the Times, "there has been a cooling of relations" but not a "total falling out" between Buffett and Schroeder. "Those who are aware of Mr. Buffett's reaction to the book said that seeing his complicated personal life laid out in black and white left him with mixed feelings, particularly over the portrayal of his late wife, Susan."
Over five years of researching and writing, Schroeder spent thousands of hours with Buffett and had access to his personal records. She first met him in the late '90s when she was a Wall Street analyst.
She tells the Times, "We're still in touch with each other. But now that the book is finished, it is not as frequent as before. You can conjecture what you want from that. I will not stop the conjecture."
The Omaha World-Herald quotes Schroeder as saying, "All good things come to an end. It wasn't going to go on forever. It was great."
Buffett's office tells the Times, "Mr. Buffett likes Alice, likes her book and has received a number of glowing letters from friends about it." Even so, "at some point, like the charity golf outing he once hosted, an event runs its course."
Has Warren Buffett Been "Buying American"?
Tuesday, 17 Feb 2009
Has Warren Buffett Been "Buying American" for Berkshire Hathaway? We Find Out Today
Posted By: Alex Crippen
Topics:Investment Strategy Stock Market Warren Buffett
Companies:Conocophillips Tiffany and Co Harley Davidson Inc Goldman Sachs Group Inc General Electric Berkshire Hathaway Inc.
Exactly four months ago today, on October 17, Warren Buffett wrote an op-ed piece for the New York Times with one of his rare, specific market calls for investors: "Buy American. I Am."
He explained how falling stock prices had prompted him to pick up U.S. stocks at bargain prices .. for his personal account.
At that time he said, "If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities."
If anything, prices became even more attractive after Buffett's op-ed. The S&P closed at 940.55 on October 17. Just over one month later, on November 20, it had fallen another 20 percent to its current bear-market closing low of 752.44.
http://www.cnbc.com/id/29235437
Also read:
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Why Warren Buffett Isn't a Hypocrite
Jim Cramer is laying out his case against Warren Buffett's recent stock moves.
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Tuesday, 17 Feb 2009
Warren Buffett's Berkshire Hathaway Cuts Johnson & Johnson Stake By Half
Posted By: Alex Crippen
Topics:Warren Buffett
Companies:Wesco Financial Corp Wellpoint Inc Washington Post Company Wal-Mart Stores Inc United Parcel Service Inc Union Pacific Corp USG Corporation Torchmark Corp Suntrust Preferred Capital I Sanofi-Aventis SA Norfolk Southern Corp Nike Inc Moody's Corp M & T Bank Corp Lowe's Companies Inc Kraft Foods Inc. Iron Mountain Incorporated Home Depot Inc General Electric Gannett Inc Costco Wholesale Corporation Comcast Corp Coca Cola Co Bank of America Corp American Express Co Wells Fargo and Co Unitedhealth Group Inc Burlington Northern Santa Fe Corp NRG Energy, Inc. Ingersoll-Rand Co Ltd Eaton Corp US Bancorp Procter & Gamble Co CARMAX INC Conocophillips Nalco Holding Company Johnson and Johnson Berkshire Hathaway Inc.
Warren Buffett's Berkshire Hathaway has just released its fourth quarter stock portfolio snapshot.
Instead of asking what Buffett has been buying, we should have been wondering what Buffett has been selling.
Most notably, Berkshire slashed its holdings in Johnson and Johnson to just 28.6 million shares as of December 31. That's a drop of almost 54 percent. It had reported holding 61.8 million shares as of the end of the third quarter on September 30.
That brings Berkshire's stake in J&J down to just under 4 percent from almost 8 percent.
RELATED LINKS
Cramer: Buffett 'Selling America'
Cramer: Don't Follow Buffett this Time
Market Tips: Defensive Plays are Passé, Expensive
Cramer: Buffett 'Selling America'
Cramer: Don't Follow Buffett this Time
Market Tips: Defensive Plays are Passé, Expensive
Johnson and Johnson's shares price fell almost 18 percent during the fourth quarter. We don't know whether Buffett avoided any or all of that drop since the filing doesn't say when the shares were sold. We do know that the stock is down another 6.4 percent year-to-date, a drop that Berkshire has avoided on the 33.2 million shares sold. Based on their December 31 close, those 33 million shares were worth about $2 billion.
Berkshire also made a sizable cut in its holdings of another healthcare company, Procter & Gamble [PG 50.25 -0.88 (-1.72%) ]. That stake fell 9 percent to 96.3 million shares from 105.8 million.
Berkshire's smaller cuts in Q4:
ConocoPhillips [COP 39.44 -2.35 (-5.62%) ] fell 4.8 percent to 79.9 million shares
CarMax [KMX 8.73 0.10 (+1.16%) ] dropped 4.4 percent to 17.6 million shares
US Bancorp [USB 10.58 -0.30 (-2.76%) ] reduced by 7.4 percent to 67.6 million shares
Buffett wasn't just selling in the fourth quarter. Berkshire increased these holdings:
NRG Energy [IR 15.83 -0.22 (-1.37%) ] soared 44 percent to 7.2 million shares
NRG Energy [IR 15.83 -0.22 (-1.37%) ] soared 44 percent to 7.2 million shares
Ingersoll-Rand [IR 15.83 -0.22 (-1.37%) ] increased by 38.1 percent to 7.8 million shares
Eaton [ETN 40.28 -0.44 (-1.08%) ] jumped by 10 percent to 3.2 million shares
And there's one new stake: about 8.7 million shares of Nalco Holding. [NLC 11.31 -0.29 (-2.5%) ]
On its web site, the company describes itself as "the leading integrated water treatment and process improvement company in the world."
At today's closing price of $11.06, the Nalco stake is worth just $96 million. (The stock is getting a 6 percent boost in after-hours trading.)
And Buffett is holding tight on his big financial holdings, including stakes in American Express [AXP 12.97 0.10 (+0.78%) ] and Wells Fargo [WFC 10.91 -1.10 (-9.16%) ].
Overall, the dollar value of Berkshire's disclosed stock portfolio fell 25.8 percent to just under $52 billion as of December 31, down from almost $70 billion on September 30.
Our Berkshire Hathaway Portfolio Tracker shows the portfolio holdings as of December 31 are worth $41.4 billion, using today's closing prices
Overall, the dollar value of Berkshire's disclosed stock portfolio fell 25.8 percent to just under $52 billion as of December 31, down from almost $70 billion on September 30.
Our Berkshire Hathaway Portfolio Tracker shows the portfolio holdings as of December 31 are worth $41.4 billion, using today's closing prices
He said then he was buying domestic equities for his personal account. Apparently he felt Berkshire's money could be put to better use elsewhere. One alternative we know about are Berkshire high-interest rate loans to well-known companies facing tough times, such as Tiffany, Swiss Re, Harley-Davidson, Goldman Sachs, and General Electric.
Bloomberg quotes Buffett-style investor Mohnish Pabrai as saying before the portfolio filing, "Buffett has shown a preference over the past couple years toward buying whole companies, the debt markets or other private deals."
That's certainly evident in today's filing.
Here are the details from tonight's Berkshire Hathaway portfolio snapshot as of December 31, compared to the filing for September 30.
That's certainly evident in today's filing.
Here are the details from tonight's Berkshire Hathaway portfolio snapshot as of December 31, compared to the filing for September 30.
ADDED STAKES
Constellation Energy added at 19,894,322 shares. Berkshire obtained these shares in mid-December as part of its break-up fee after Constellation agreed to be acquired by Électricitié de France and canceled its tentative deal with Berkshire's MidAmerican Energy Holdings. Subsequent filings show that Berkshire sold over five million shares in January and early February, bringing its holdings down to 14,831,107 shares as of February 6.
[CEG 21.60 -1.22 (-5.35%) ]
Nalco Holding added at 8,739,100 shares.
[NLC 11.31 -0.29 (-2.5%) ]
INCREASED STAKES
Burlington Northern increased 9.9% to 70,089,829 shares from 63,785,418 shares.
(Berkshire reported holding 76,777,029 shares as of January 30.)
[BNI 61.84 0.07 (+0.11%) ]
Eaton Corp. stake increased 10.0% to 3,200,000 shares from 2,908,700 shares. Eaton was a new holding as of the end of the third quarter.
[ETN 40.28 -0.44 (-1.08%) ]
Ingersoll-Rand stake increased 38.1% to 7,782,600 shares from 5,636,600 shares.
[IR 15.83 -0.22 (-1.37%) ]
NRG Energy stake increased 44.0% to 7,200,000 shares from 5,000,000 shares. The stake was also up in the third quarter, increasing by 54.4%.
[NRG 19.80 -0.12 (-0.6%) ]
DECREASED STAKES
Carmax stake decreased 4.4% to 17,636,500 shares from 18,444,100 shares from 21,300,000 shares.
[KMX 8.73 0.10 (+1.16%) ]
ConocoPhillips stake decreased 4.8% to 79,896,273 shares from 59,688,000 shares.
[COP 39.44 -2.35 (-5.62%) ]
Johnson & Johnson stake decreased 53.7% to 28,611,591 shares from 61,754,448 shares.
[JNJ 54.65 -1.28 (-2.29%) ]
Procter & Gamble stake decreased 9.0% to 9,530,990 shares from 105,847,000 shares.
[PG 50.25 -0.88 (-1.72%) ]
US Bancorp stake decreased 7.4% to 67,551,426 shares from 72,937,126 shares. [USB 10.58 -0.30 (-2.76%) ]
UnitedHealth Group stake decreased 1.3% to 6,300,000 shares from 6,379,900 shares. [UNH 27.98 -0.67 (-2.34%) ]
Wells Fargo stake decreased 0.1% to 290,244,868 shares from 290,407,668 shares. [WFC 10.91 -1.10 (-9.16%) ]
UNCHANGED STAKES
American Express unchanged at 151,610,700 shares.
[AXP 12.97 0.10 (+0.78%) ]
Bank of America unchanged at 5,000,000 shares. The stake had dropped 45.1% in the third quarter.
[BAC 3.79 -0.14 (-3.56%) ]
Coca-Cola unchanged at 200,000,000 shares.
[KO 42.84 -0.46 (-1.06%) ]
Comcast unchanged at 12,000,000 shares.
[CMCSA 12.84 -0.15 (-1.15%) ]
Comdisco unchanged at 1,538,377 shares.
[CDCO 7.60 0.10 (+1.33%) ]
Costco Wholesale unchanged at 5,254,000 shares.
[COST 42.76 0.14 (+0.33%) ]
Gannett unchanged at 3,447,600 shares.
[GCI 3.70 -0.16 (-4.15%) ]
General Electric unchanged at 7,777,900 shares.
[GE 9.38 -0.68 (-6.76%) ]
GlaxoSmithKline unchanged at 1,510,500 shares.
[GSK 32.55 -0.77 (-2.31%) ]
Home Depot unchanged at 3,700,000 shares.
[HD 19.46 -0.70 (-3.47%) ]
Iron Mountain unchanged at 3,372,200 shares.
[IRM 19.89 0.07 (+0.35%) ]
Kraft Foods unchanged at 138,272,500 shares.
[KFT 23.51 -0.82 (-3.37%) ]
Lowes Companies unchanged at 6,500,000 shares.
[LOW 15.86 -1.12 (-6.6%) ]
M&T Bank unchanged at 6,715,060 shares.
[MTB 35.10 1.80 (+5.41%) ]
Moody's unchanged at 48,000,000 shares.
[MCO 19.16 -2.91 (-13.19%) ]
Nike unchanged at 7,641,000 shares.
[NKE 42.93 0.12 (+0.28%) ]
Norfolk Southern unchanged at 1,933,000 shares.
[NSC 33.97 -0.07 (-0.21%) ]
Sanofi Aventis unchanged at 3,903,933 shares.
[SNY 28.25 -0.58 (-2.01%) ]
SunTrust Banks unchanged at 3,204,600 shares.
[STI 7.35 0.65 (+9.7%) ]
Torchmark unchanged at 2,823,879 shares.
[TMK 22.07 -2.86 (-11.47%) ]
USG unchanged at 17,072,192 shares.
[USG 5.63 -0.25 (-4.25%) ]
Union Pacific unchanged at 8,906,000 shares.
[UNP 40.03 0.80 (+2.04%) ]
United Parcel Service unchanged at 1,429,200 shares.
[UPS 42.80 -0.13 (-0.3%) ]
Wabco Holdings unchanged at 2,700,000 shares.
[WBC 10.66 -0.21 (-1.93%) ]
Wal-Mart Stores unchanged at 19,944,300 shares.
[WMT 50.02 -0.43 (-0.85%) ]
Washington Post unchanged at 1,727,765 shares.
[WPO 390.30 -1.20 (-0.31%) ]
Wellpoint stake unchanged at 4,777,300 shares.
[WLP 41.45 0.19 (+0.46%) ]
Wesco Financial unchanged at 5,703,087 shares.
[WSC 265.00 -5.00 (-1.85%) ]
Current Berkshire stock prices:
Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
Why Warren Buffett Isn't a Hypocrite
Thursday, 19 Feb 2009
Why Warren Buffett Isn't a Hypocrite
Posted By: Alex Crippen
Topics:Investment Strategy Warren Buffett
Companies:Goldman Sachs Group Inc General Electric Procter & Gamble Co Johnson and Johnson Berkshire Hathaway Inc.
Warren Buffett is getting some heat from CNBC's Jim Cramer for Berkshire Hathaway's sales of big chunks of stock last fall, including billions of dollars worth of Johnson & Johnson.
On a CNBC Special Report Tuesday, Cramer advised investors not to follow Buffett's lead this time around.
Then Cramer wrote on his site, TheStreet.com, that Buffett was "selling America" even as he was writing an op-ed piece titled Buy American. I Am. for the New York Times.
Last night, on his Mad Money program, Cramer revisited Buffett as he listed what he sees as the 10 biggest myths and misperceptions in the market today.
Cramer is not only accusing Buffett of making bad decisions, he's implying that Buffett has been hypocritically ignoring his own public call in the Times to buy U.S. stocks, misleading all those investors who 'copy' Berkshire's buys and sells.
But there is another way of looking at it.
Buffett was clear in his Times piece that he was buying U.S. stocks for his personal account. For himself, and for many investors, he saw cheap equities as the best way to put cash to work.
But Berkshire has other opportunities to make money that simply aren't available to everyone else. Most notably it can become a lender of last resort to solid companies going through a difficult time, and it can collect a very hefty interest rate for those loans.
Last fall, Buffett wasn't "buying American" for Berkshire, but he was "loaning American." A total of eight billion dollars went to General Electric and Goldman Sachs. Those loans pay 10 percent a year, guaranteed. The major risk is a collapse of these enormous icons of American business, a risk small enough for Buffett to accept.
And those billions of dollars of loans may very well have come from stock sales. After all, Buffett always wants to have a base level of cash on hand and resists borrowing money to finance investments.
Even if Buffett thought Johnson & Johnson would ultimately generate a solid return, it seems unlikely to expect that return would be 10 percent a year.
Buffett is not just looking for good investments for Berkshire, he's looking for the best investments he can find, that carry as little risk as possible.
Loaning billions to GE and Goldman at 10 percent over a few years could easily be a better use of that money than letting it ride in the stock market. (It does imply that he saw the stocks he sold as less likely to move higher than other equities in the portfolio.)
Buffett does not encourage anyone to replicate his Berkshire investments. He wasn't necessarily trying to send a "sell" signal on J&J and P&G, or U.S. stocks in general.
He was probably raising money to take advantage of GE and Goldman's need for quick cash, an opportunity unique to Berkshire Hathaway.
Current stock prices:
Berkshire Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Berkshire Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
Johnson & Johnson: [JNJ 54.65 -1.28 (-2.29%) ]
Procter & Gamble:[PG 50.25 -0.88 (-1.72%) ]
General Electric:[GE 9.38 -0.68 (-6.76%) ]
Goldman Sachs:[GS 84.59 -1.42 (-1.65%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
Questions? Comments? Email me at buffettwatch@cnbc.com
Jim Cramer is laying out his case against Warren Buffett's recent stock moves.
Wednesday, 18 Feb 2009
Jim Cramer "Struggles" With Warren Buffett's Stock Moves Because He's "Selling America"
Posted By: Alex Crippen
Topics:Investment Strategy Warren Buffett
Companies:US Bancorp Conocophillips Procter & Gamble Co Johnson and Johnson Berkshire Hathaway Inc.
CNBC's Mad Money host Jim Cramer is laying out his case against Warren Buffett's recent stock moves.
Last night (Tuesday), after Berkshire Hathaway's fourth quarter portfolio snapshot, Cramer warned on CNBC that investors should not follow Buffett's lead because they will not profit "within the time frame they care about." (Transcript and video clip are in the WBW post Jim Cramer Warns Investors: Don't Follow Warren Buffett This Time.)
This morning, on his TheStreet.com site, Cramer goes into greater detail, explaining why he's "struggling with some of the things that Warren Buffett is doing with his cash these days."
Cramer's prime complaint: Warren Buffett was "selling America" last fall when Berkshire reduced its stakes in Johnson & Johnson, Procter & Gamble, ConocoPhillips, and U.S. Bancorp. "What's more American than these stocks?" he asks. (The post notes that Cramer is currently long Johnson & Johnson and ConocoPhillips.)
Cramer draws a contrast with Buffett's "now-fated" October 16 New York Times op-ed piece that argued it was time to buy American stocks. Since then, the major market indexes have continued to plunge, so "those who bought America that day are feeling ... well, downright un-American. Or at least they're feeling poorer."
Cramer says that he is "sensitive" to that Times piece because at the same time he was advising an exit from stocks if investors needed to keep their money safe for a major purchase in the next year.
And he argues that while rich people can afford to buy for the long term as Buffett advises, everyone else can't.
"As long as Buffett was buying and not selling, or as long as he was at least holding, you couldn't knock him. But now it turns out he's putting a terminal value on something we thought we were to hold forever."
While Buffett is "obviously a tremendous investor" and "doesn't have to answer for anything," Cramer continues, "It is fair to say that many, many people relied on his judgment to buy stocks just like the quintessential American names of Procter & Gamble and Johnson & Johnson. To them, what can I say? 'Don't worry about it.'"
Cramer concludes that Buffett's "actions should be scrutinized just like anyone else's," so TheStreet.com is starting its own Buffett Watch. (He cites his friend Doug Kass, "who has been on this case for months now" and who has his own questions today about Berkshire's portfolio.)
"We need to know what's happening. Buffett's firm is too big, and he is too important to ignore. We need to know daily and some institution has to have the guts to do it. Glad it's us."
Current stock prices:
Berkshire Class A: [US;BRK.A 77000.0 -1600.00 (-2.04%) ]
Berkshire Class B: [US;BRK.B 2387.0 -129.50 (-5.15%) ]
Johnson & Johnson:[JNJ 54.65 -1.28 (-2.29%) ]
Procter & Gamble: [PG 50.25 -0.88 (-1.72%) ]
ConocoPhillips: [COP 39.44 -2.35 (-5.62%) ]
U.S. Bancorp: [USB 10.58 -0.30 (-2.76%) ]
For more Buffett Watch updates follow alexcrippen on Twitter.
http://www.cnbc.com/id/29258337/site/14081545
Comment:
Sounds familiar. Cramer vs Buffett, Moolah vs Teng Boo :)
When Will The Next Bull Market Begin?
DOW JONES INDU AVER...(.DJIA)
7365.67 -100.28 (-1.34%%)
Dow
Thursday, 19 Feb 2009
When Will The Next Bull Market Begin?
Posted By: Lee Brodie
When Will The Next Bull Market Begin?
Posted By: Lee Brodie
When will the next bull market begin? Celebrated investor Doug Kass reveals his prediction to Fast Money -- and what he says just might surprise you!
As you might know Doug Kass is one of the Street's gloomier market prognosticators. But what you might not know is that in an article Kass penned for TheStreet.com called Fear and Loathing on Wall Street Kass wrote, “although it will likely take time for our country to turn around…..there are some early signs of stability/revival.”
That’s right, big bear Doug Kass thinks we might be in the earliest stages of recovery. We found the premise so intriguing that we invited him to join us on Fast Money to expand on his thesis.
Essentially he tells us that there's so much pessimism in the market that you should feel hopeful. Kass says, “as we move into the midway point of the second month of 2009, market participants generally now have the opposite point of view of 14 months ago.”
In other words bearish sentiment is widespread.
“It's so bad out there that some are questioning whether the world's economies will ever recover from the current mess. In doing so, they seem to be ignoring not only an emerging valuation opportunity but a number of events that should conspire to bring us out of the abyss.”
He thinks investors aren’t giving proper weight to the stimulus, the TARP, the foreclosure plan and whatever else the government may do to assuage the crisis. Typically we spend our way out of a recession and these spending initiatives are unprecedented. If the fundamentals of finance hold true, these programs should work.
“My sense is that we don't have to wait (too much longer) for a resumption of a new bull market as policy is going to be aggressive and immediate."
In a nutshell Kass thinks the economy could turn around as early as next year. “I expect (the recession), which began in November/December 2007, to end in early 2010, or about 12 months from now.”
Considering he’s a celebrated bear – and considering some of the dire predictions that are out there – that's not so bad. In fact, that's not so bad at all!
What’s the trade?
“I think you still have to tread carefully,” he tells us. But he also says he’s optimistic about growth in China. As a result he tells the traders to take a hard look at materials and oil services stocks such as Transocean [RIG 59.52 -0.10 (-0.17%) ] and Freeport McMoran [FCX 28.78 0.51 (+1.8%) ].
http://www.cnbc.com/id/29284507
As you might know Doug Kass is one of the Street's gloomier market prognosticators. But what you might not know is that in an article Kass penned for TheStreet.com called Fear and Loathing on Wall Street Kass wrote, “although it will likely take time for our country to turn around…..there are some early signs of stability/revival.”
That’s right, big bear Doug Kass thinks we might be in the earliest stages of recovery. We found the premise so intriguing that we invited him to join us on Fast Money to expand on his thesis.
Essentially he tells us that there's so much pessimism in the market that you should feel hopeful. Kass says, “as we move into the midway point of the second month of 2009, market participants generally now have the opposite point of view of 14 months ago.”
In other words bearish sentiment is widespread.
“It's so bad out there that some are questioning whether the world's economies will ever recover from the current mess. In doing so, they seem to be ignoring not only an emerging valuation opportunity but a number of events that should conspire to bring us out of the abyss.”
He thinks investors aren’t giving proper weight to the stimulus, the TARP, the foreclosure plan and whatever else the government may do to assuage the crisis. Typically we spend our way out of a recession and these spending initiatives are unprecedented. If the fundamentals of finance hold true, these programs should work.
“My sense is that we don't have to wait (too much longer) for a resumption of a new bull market as policy is going to be aggressive and immediate."
In a nutshell Kass thinks the economy could turn around as early as next year. “I expect (the recession), which began in November/December 2007, to end in early 2010, or about 12 months from now.”
Considering he’s a celebrated bear – and considering some of the dire predictions that are out there – that's not so bad. In fact, that's not so bad at all!
What’s the trade?
“I think you still have to tread carefully,” he tells us. But he also says he’s optimistic about growth in China. As a result he tells the traders to take a hard look at materials and oil services stocks such as Transocean [RIG 59.52 -0.10 (-0.17%) ] and Freeport McMoran [FCX 28.78 0.51 (+1.8%) ].
http://www.cnbc.com/id/29284507
Is Indonesia the country in the best shape in 2009?
Is Indonesia the country in the best shape in 2009?
Indonesia's friendly response to the visit by US Secretary of State Hillary Clinton is the country's latest piece of good news.
By Martin Hutchinson, breakingviews.com
Last Updated: 11:02AM GMT 20 Feb 2009
With GDP growth expected to be 3.5pc in 2009, Indonesia is also suffering only mildly from the downturn.
Elections this year seem likely to result in the continuation of current policies. Islamic, impoverished and with 238m people, Indonesia is surprisingly stable and successful: as its foreign minister said, a "good partner" for the US in the Muslim world.
Indonesia is close to self-sufficiency in oil, but no longer exports it, so it has escaped most of the buffeting from the rise and collapse in petroleum prices. Since its 1998 crisis, it has depended little on foreign direct investment, which peaked at only 2pc of GDP in 2007.
Hence the collapse of global investment flows has also affected it little.
Nevertheless as Indonesia has a GDP per capita of only $3,900, there's a lot that could go wrong. The fact that it hasn't, and that Indonesia seems poised to follow five years of roughly 6pc growth with another year of 3.5pc growth in the worst global recession since the 1930s is a tribute to the political and economic management of President Susilo Bambang Yudhoyono and his long-serving finance minister, Sri Mulyani Indrawati.
Sri Mulyani has proposed a stimulus package, in line with the popular global trend, but of only 1.4pc of GDP, which should not significantly upset Indonesia's budget balance. Legislative and presidential elections this year offer Indonesians the chance to reward the government's competence and polls suggest they are likely to do so.
As its foreign minister, Hassan Wirajuda, told Clinton, Indonesia, as a huge moderate Muslim country, can help the US greatly in reaching out to the Islamic world. It is a large, moderately capitalist country. And it has done well without enormous help from foreign investment, outside policy advice or raw material exports. Indonesia is also a fine economic example to its Islamic neighbours and others.
"Happy is the country that has no history," said Montesquieu. Happier still is the country that has no world-shaking news, other than Clinton's visit.
For more agenda-setting financial insight, visit www.breakingviews.com
http://www.telegraph.co.uk/finance/breakingviewscom/4732842/Is-Indonesia-the-country-in-the-best-shape-in-2009.html
Indonesia's friendly response to the visit by US Secretary of State Hillary Clinton is the country's latest piece of good news.
By Martin Hutchinson, breakingviews.com
Last Updated: 11:02AM GMT 20 Feb 2009
With GDP growth expected to be 3.5pc in 2009, Indonesia is also suffering only mildly from the downturn.
Elections this year seem likely to result in the continuation of current policies. Islamic, impoverished and with 238m people, Indonesia is surprisingly stable and successful: as its foreign minister said, a "good partner" for the US in the Muslim world.
Indonesia is close to self-sufficiency in oil, but no longer exports it, so it has escaped most of the buffeting from the rise and collapse in petroleum prices. Since its 1998 crisis, it has depended little on foreign direct investment, which peaked at only 2pc of GDP in 2007.
Hence the collapse of global investment flows has also affected it little.
Nevertheless as Indonesia has a GDP per capita of only $3,900, there's a lot that could go wrong. The fact that it hasn't, and that Indonesia seems poised to follow five years of roughly 6pc growth with another year of 3.5pc growth in the worst global recession since the 1930s is a tribute to the political and economic management of President Susilo Bambang Yudhoyono and his long-serving finance minister, Sri Mulyani Indrawati.
Sri Mulyani has proposed a stimulus package, in line with the popular global trend, but of only 1.4pc of GDP, which should not significantly upset Indonesia's budget balance. Legislative and presidential elections this year offer Indonesians the chance to reward the government's competence and polls suggest they are likely to do so.
As its foreign minister, Hassan Wirajuda, told Clinton, Indonesia, as a huge moderate Muslim country, can help the US greatly in reaching out to the Islamic world. It is a large, moderately capitalist country. And it has done well without enormous help from foreign investment, outside policy advice or raw material exports. Indonesia is also a fine economic example to its Islamic neighbours and others.
"Happy is the country that has no history," said Montesquieu. Happier still is the country that has no world-shaking news, other than Clinton's visit.
For more agenda-setting financial insight, visit www.breakingviews.com
http://www.telegraph.co.uk/finance/breakingviewscom/4732842/Is-Indonesia-the-country-in-the-best-shape-in-2009.html
Nowhere Near End of Crisis: Dr. Doom
Nowhere Near End of Crisis: Dr. Doom
By: Reuters 20 Feb 2009
Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, Friday said the United States is nowhere near the end of the banking and credit crisis.
"We are still in the third and fourth innings," Roubini told Reuters in an interview, using a baseball analogy to drive home his view that the current cycle is only nearing its midpoint.
"And it's getting worse," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm.
On Feb. 10, Treasury Secretary Timothy Geithner unveiled his newest bailout plan for banks, including the government's so-called "stress tests" involving all banks with more than $100 billion in capital. Regulators will analyze the banks' books far more closely than previously to see if they have the capital to endure worsening conditions.
"It is the step to form an objective way to decide which banks are illiquid and which ones are insolvent and to take over the insolvent bank," Roubini said. "We have to take over some banks."
Bank of America [BAC 3.79 -0.14 (-3.56%) ] and Citigroup [C 1.95 -0.56 (-22.31%) ] shares plummeted for a sixth straight day Friday, hammered by fears that the U.S. government could nationalize the banks, wiping out shareholders.
Nationalization or receivership of a bank need not be a permanent issue, Roubini added.
"I think of it being a temporary measure -- take them over and clean them up and sell them back to the private sector," Roubini said. "No one is in favor of long-term government ownership of the banking system."
For example, IndyMac was bankrupt and taken over in July.
"Less than six months later the very same group of private investors was willing to buy back the assets and the deposits," he said.
"So it doesn't have to be under government control for years and years. You can do it actually relatively quickly."
All told, Roubini said he sees negative economic growth throughout 2009, predicting that the unemployment rate could reach roughly 10 percent in the next year.
http://www.cnbc.com/id/29301301
By: Reuters 20 Feb 2009
Nouriel Roubini, one of the few economists who foretold much of the current financial turmoil, Friday said the United States is nowhere near the end of the banking and credit crisis.
"We are still in the third and fourth innings," Roubini told Reuters in an interview, using a baseball analogy to drive home his view that the current cycle is only nearing its midpoint.
"And it's getting worse," said Roubini, a professor at New York University's Stern School of Business and chairman of RGE Monitor, an independent economic research firm.
On Feb. 10, Treasury Secretary Timothy Geithner unveiled his newest bailout plan for banks, including the government's so-called "stress tests" involving all banks with more than $100 billion in capital. Regulators will analyze the banks' books far more closely than previously to see if they have the capital to endure worsening conditions.
"It is the step to form an objective way to decide which banks are illiquid and which ones are insolvent and to take over the insolvent bank," Roubini said. "We have to take over some banks."
Bank of America [BAC 3.79 -0.14 (-3.56%) ] and Citigroup [C 1.95 -0.56 (-22.31%) ] shares plummeted for a sixth straight day Friday, hammered by fears that the U.S. government could nationalize the banks, wiping out shareholders.
Nationalization or receivership of a bank need not be a permanent issue, Roubini added.
"I think of it being a temporary measure -- take them over and clean them up and sell them back to the private sector," Roubini said. "No one is in favor of long-term government ownership of the banking system."
For example, IndyMac was bankrupt and taken over in July.
"Less than six months later the very same group of private investors was willing to buy back the assets and the deposits," he said.
"So it doesn't have to be under government control for years and years. You can do it actually relatively quickly."
All told, Roubini said he sees negative economic growth throughout 2009, predicting that the unemployment rate could reach roughly 10 percent in the next year.
http://www.cnbc.com/id/29301301
Friday, 20 February 2009
Some Insights from Berkshire's Latest 13-F Filing
Morningstar.com
Some Insights from Berkshire's Latest 13-F Filing
Thursday February 19, 1:00 pm ET
By Bill Bergman
Berkshire Hathaway (brk.b.B) (brk.a.B) recently filed its quarterly 13-F statement with the Securities and Exchange Commission. The filing revealed few significant changes in the composition of the firm's equity portfolio in the fourth quarter of 2008. The overall market value of the portfolio deteriorated sharply (about 25%) from the third quarter to the fourth quarter, which is not a surprise in light of market conditions. Together with estimated losses from Berkshire's equity put option positions (see the Stock Strategist article "Our Take on Berkshire's Equity Put Option Positions"), the firm's equity portfolio performance will likely contribute significant losses in the firm's upcoming report on fourth-quarter earnings. From a longer-term perspective, however, we see the recent and possible near-term future weakness in Berkshire's shares as a compelling investment opportunity.
Warren Buffett penned an op-ed piece in October 2008 in The New York Times titled "Buy American. I Am." One might question why Berkshire didn't pursue greater buying activity in the fourth quarter in light of that article, at least on the face of the 13-F filing. But it's worth noting that the firm has been quite active in taking senior equity positions in long-successful companies that have been hit relatively hard by the financial and economic crises. These large transactions required the application of much of Berkshire's previously massive cash position, and included stakes in preferred shares in Goldman Sachs (NYSE:GS - News), General Electric (NYSE:GE - News), and Harley Davidson (NYSE:HOG - News). These multibillion-dollar purchases fall outside of Berkshire's 13-F filing, and they also fall outside the realm of opportunities available to most ordinary investors. Berkshire managers continue to work for their shareholders as the firm applies valuable capital to attractive investment opportunities.
Some of Berkshire's largest common-stock position changes in the fourth quarter were actually sales, including two of the firm's better-performing holdings. Berkshire sold half of its stake in Johnson & Johnson (NYSE:JNJ - News), the best-performing stock in the past few years among its largest seven holdings. Berkshire also shaved about 10% of its position in Proctor & Gamble (NYSE:PG - News). Berkshire still has a substantial position in both of these firms, however, and Morningstar analysts currently have each of these wide-moat stocks rated at 5 stars (Consider Buying). On the buying side, Berkshire added to its holdings in Burlington Northern (NYSE:BNI - News) and Ingersoll Rand (NYSE:IR - News), and established a new position in Nalco (NYSE:NLC - News). We currently have Burlington Northern, Ingersoll Rand, and Nalco rated at 5 stars.
Rather than focusing too closely on short-term changes in the composition of Berkshire's common stock portfolio, we are using the latest 13-F filing to briefly review Berkshire's record from a longer-term perspective. It has clearly been a tough external environment recently; in fact, the market downturn has been so severe that it has cut significantly into longer-term performance records for many managers.
From December 1998 to December 2008, a volatile 10-year period whose endpoints generated a 25% decline in the S&P 500 (even in nominal terms, before inflation), Berkshire Hathaway's equity investments rose from $39.8 billion to more than $60 billion. The growth in Berkshire's aggregate portfolio reflects the allocation of cash flow arising from insurance and other businesses, of course, as well as stock performance. But Berkshire's effective stock selection also played a role--one that has continued to display itself recently, on average, among the firm's largest holdings.
Since Jan. 1, 2008, the S&P 500 has fallen almost 45%, with most of those losses arising since midyear 2008. But Berkshire's seven largest holdings at the outset of 2008 (which made up about 75% of the portfolio market capitalization) have outperformed the S&P 500 significantly, on either a simple or weighted-average basis. This despite the fact that Berkshire is relatively heavily weighted in financial stocks, and its Wells Fargo (NYSE:WFC - News) and American Express (NYSE:AXP - News) holdings have been significant drags. We currently have both of those firms rated at 5 stars as well. For that matter, one doesn't have to look very hard to find stocks in Berkshire's portfolio that we recommend these days, given the market's swoon. (A complete list of Berkshire's latest 13-F holdings and our ratings on those stocks is at the bottom of this article.)
Berkshire's investment record highlights a broader and very interesting investment issue. Last year, we had one of the roughest years for equity ownership since World War II. How have insurance companies whose investment portfolios carry a relatively large allocation to stock holdings (relative to government debt, corporate bonds, and other fixed-maturity investments) stacked up against other insurance companies? One would think those insurers who were invested relatively heavily in equities did worse in the stock market. But that isn't the case, in general or at Berkshire Hathaway.
We've taken a close look at the investment portfolios of 80 insurance companies that we follow here at Morningstar. For that group as a whole, as well as a subset of about 20 larger property & casualty insurance and reinsurance companies, the share of equity in a firm's investment portfolio last year was not significantly associated with the firm's performance in the stock market. The two things that do seem to matter are, first, the share of mortgage and other asset-backed securities in total investments, as well as the amount of capital backing the total investment portfolio. The higher the weighting of investments in mortgage and asset-backed securities, the worse the firm did in the stock market, and the higher the level of capital relative to investments, the better the firm did in the stock market. Berkshire is a relatively heavy investor in equities, but it also has a high level of capital relative to its investment portfolio, and it avoided much of the mess in structured finance that ensnared other insurers.
In some important and underappreciated ways, the equity markets have actually been performing relatively well in the past year or so. At a time when markets for a lot of fancy structured debt vehicles were frozen up, liquidity could easily be had by selling stocks last year. Stock markets performed well from a liquidity standpoint for institutional and mutual fund companies being pressed to raise cash. This can help explain how stock prices have fallen so significantly and pervasively below the fair value estimates we have developed using longer-term assumptions here at Morningstar.
We do not view Berkshire's latest 13-F filing or its equity portfolio with a great deal of alarm. Berkshire's stock has fallen so far as to approximate its book value at the end of the third quarter, a rare thing. Fourth-quarter losses may cut into Berkshire's book value significantly, but getting Buffett et al. anywhere near book seems like a bargain.
To see the table associated with this article, click here:http://news.morningstar.com/articlenet/article.aspx?id=280571
http://biz.yahoo.com/ms/090219/280571.html?.v=1
Some Insights from Berkshire's Latest 13-F Filing
Thursday February 19, 1:00 pm ET
By Bill Bergman
Berkshire Hathaway (brk.b.B) (brk.a.B) recently filed its quarterly 13-F statement with the Securities and Exchange Commission. The filing revealed few significant changes in the composition of the firm's equity portfolio in the fourth quarter of 2008. The overall market value of the portfolio deteriorated sharply (about 25%) from the third quarter to the fourth quarter, which is not a surprise in light of market conditions. Together with estimated losses from Berkshire's equity put option positions (see the Stock Strategist article "Our Take on Berkshire's Equity Put Option Positions"), the firm's equity portfolio performance will likely contribute significant losses in the firm's upcoming report on fourth-quarter earnings. From a longer-term perspective, however, we see the recent and possible near-term future weakness in Berkshire's shares as a compelling investment opportunity.
Warren Buffett penned an op-ed piece in October 2008 in The New York Times titled "Buy American. I Am." One might question why Berkshire didn't pursue greater buying activity in the fourth quarter in light of that article, at least on the face of the 13-F filing. But it's worth noting that the firm has been quite active in taking senior equity positions in long-successful companies that have been hit relatively hard by the financial and economic crises. These large transactions required the application of much of Berkshire's previously massive cash position, and included stakes in preferred shares in Goldman Sachs (NYSE:GS - News), General Electric (NYSE:GE - News), and Harley Davidson (NYSE:HOG - News). These multibillion-dollar purchases fall outside of Berkshire's 13-F filing, and they also fall outside the realm of opportunities available to most ordinary investors. Berkshire managers continue to work for their shareholders as the firm applies valuable capital to attractive investment opportunities.
Some of Berkshire's largest common-stock position changes in the fourth quarter were actually sales, including two of the firm's better-performing holdings. Berkshire sold half of its stake in Johnson & Johnson (NYSE:JNJ - News), the best-performing stock in the past few years among its largest seven holdings. Berkshire also shaved about 10% of its position in Proctor & Gamble (NYSE:PG - News). Berkshire still has a substantial position in both of these firms, however, and Morningstar analysts currently have each of these wide-moat stocks rated at 5 stars (Consider Buying). On the buying side, Berkshire added to its holdings in Burlington Northern (NYSE:BNI - News) and Ingersoll Rand (NYSE:IR - News), and established a new position in Nalco (NYSE:NLC - News). We currently have Burlington Northern, Ingersoll Rand, and Nalco rated at 5 stars.
Rather than focusing too closely on short-term changes in the composition of Berkshire's common stock portfolio, we are using the latest 13-F filing to briefly review Berkshire's record from a longer-term perspective. It has clearly been a tough external environment recently; in fact, the market downturn has been so severe that it has cut significantly into longer-term performance records for many managers.
From December 1998 to December 2008, a volatile 10-year period whose endpoints generated a 25% decline in the S&P 500 (even in nominal terms, before inflation), Berkshire Hathaway's equity investments rose from $39.8 billion to more than $60 billion. The growth in Berkshire's aggregate portfolio reflects the allocation of cash flow arising from insurance and other businesses, of course, as well as stock performance. But Berkshire's effective stock selection also played a role--one that has continued to display itself recently, on average, among the firm's largest holdings.
Since Jan. 1, 2008, the S&P 500 has fallen almost 45%, with most of those losses arising since midyear 2008. But Berkshire's seven largest holdings at the outset of 2008 (which made up about 75% of the portfolio market capitalization) have outperformed the S&P 500 significantly, on either a simple or weighted-average basis. This despite the fact that Berkshire is relatively heavily weighted in financial stocks, and its Wells Fargo (NYSE:WFC - News) and American Express (NYSE:AXP - News) holdings have been significant drags. We currently have both of those firms rated at 5 stars as well. For that matter, one doesn't have to look very hard to find stocks in Berkshire's portfolio that we recommend these days, given the market's swoon. (A complete list of Berkshire's latest 13-F holdings and our ratings on those stocks is at the bottom of this article.)
Berkshire's investment record highlights a broader and very interesting investment issue. Last year, we had one of the roughest years for equity ownership since World War II. How have insurance companies whose investment portfolios carry a relatively large allocation to stock holdings (relative to government debt, corporate bonds, and other fixed-maturity investments) stacked up against other insurance companies? One would think those insurers who were invested relatively heavily in equities did worse in the stock market. But that isn't the case, in general or at Berkshire Hathaway.
We've taken a close look at the investment portfolios of 80 insurance companies that we follow here at Morningstar. For that group as a whole, as well as a subset of about 20 larger property & casualty insurance and reinsurance companies, the share of equity in a firm's investment portfolio last year was not significantly associated with the firm's performance in the stock market. The two things that do seem to matter are, first, the share of mortgage and other asset-backed securities in total investments, as well as the amount of capital backing the total investment portfolio. The higher the weighting of investments in mortgage and asset-backed securities, the worse the firm did in the stock market, and the higher the level of capital relative to investments, the better the firm did in the stock market. Berkshire is a relatively heavy investor in equities, but it also has a high level of capital relative to its investment portfolio, and it avoided much of the mess in structured finance that ensnared other insurers.
In some important and underappreciated ways, the equity markets have actually been performing relatively well in the past year or so. At a time when markets for a lot of fancy structured debt vehicles were frozen up, liquidity could easily be had by selling stocks last year. Stock markets performed well from a liquidity standpoint for institutional and mutual fund companies being pressed to raise cash. This can help explain how stock prices have fallen so significantly and pervasively below the fair value estimates we have developed using longer-term assumptions here at Morningstar.
We do not view Berkshire's latest 13-F filing or its equity portfolio with a great deal of alarm. Berkshire's stock has fallen so far as to approximate its book value at the end of the third quarter, a rare thing. Fourth-quarter losses may cut into Berkshire's book value significantly, but getting Buffett et al. anywhere near book seems like a bargain.
To see the table associated with this article, click here:http://news.morningstar.com/articlenet/article.aspx?id=280571
http://biz.yahoo.com/ms/090219/280571.html?.v=1
Ken Rogoff says Fed needs to set inflation target of 6pc to help ease crisis
Ken Rogoff says Fed needs to set inflation target of 6pc to help ease crisis
A leading US economist has called on the Federal Reserve to target an inflation rate of 5pc to 6pc over the next two years to erode the debt burden and slow the pace of job losses.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 6:04AM GMT 20 Feb 2009
Professor Kenneth Rogoff, former chief economist of the International Monetary Fund, said the threat of debt deflation called for revolutionary measures as an insurance policy.
"Excess inflation right now would help ameliorate the problem. For that reason, it would be far better to have 5pc to 6pc inflation for a couple of years than to have 2pc to 3pc deflation," he told the Central Banking Journal. The Fed has shifted tentatively to an inflation target, but one anchored nearer "stability".
A number of economists have begun to make similar calls for a radical shift to deliberate monetary debasement, although few have gone as far as suggesting 6pc.
Such proposals cause a furious political reaction because they amount to a forced shift in wealth from savers to debtors.
Prof Rogoff – one of the few economists who recognised the gravity of this crisis early on – admits that his policy is fraught with danger because it could lead to an overshoot down the road, "ending up with 200pc inflation". But there may be no choice at a time when the financial system is "melting down". The Bank of Japan failed to act fast enough in the 1990s because it was "paralysed by fear" that aggressive monetary stimulus would get out of hand.
Prof Rogoff said big fiscal packages have a role to play in backing up a zero interest rate policy and ensuring that consumption does not collapse as house prices plummet, but the key is "determined monetary policy".
There are no good options at this late stage after years of errors. Standard monetary relationships have broken down. "Policy is in effect flying blind," he said.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4701569/Ken-Rogoff-says-Fed-needs-to-set-inflation-target-of-6pc-to-help-ease-crisis.html
A leading US economist has called on the Federal Reserve to target an inflation rate of 5pc to 6pc over the next two years to erode the debt burden and slow the pace of job losses.
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 6:04AM GMT 20 Feb 2009
Professor Kenneth Rogoff, former chief economist of the International Monetary Fund, said the threat of debt deflation called for revolutionary measures as an insurance policy.
"Excess inflation right now would help ameliorate the problem. For that reason, it would be far better to have 5pc to 6pc inflation for a couple of years than to have 2pc to 3pc deflation," he told the Central Banking Journal. The Fed has shifted tentatively to an inflation target, but one anchored nearer "stability".
A number of economists have begun to make similar calls for a radical shift to deliberate monetary debasement, although few have gone as far as suggesting 6pc.
Such proposals cause a furious political reaction because they amount to a forced shift in wealth from savers to debtors.
Prof Rogoff – one of the few economists who recognised the gravity of this crisis early on – admits that his policy is fraught with danger because it could lead to an overshoot down the road, "ending up with 200pc inflation". But there may be no choice at a time when the financial system is "melting down". The Bank of Japan failed to act fast enough in the 1990s because it was "paralysed by fear" that aggressive monetary stimulus would get out of hand.
Prof Rogoff said big fiscal packages have a role to play in backing up a zero interest rate policy and ensuring that consumption does not collapse as house prices plummet, but the key is "determined monetary policy".
There are no good options at this late stage after years of errors. Standard monetary relationships have broken down. "Policy is in effect flying blind," he said.
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4701569/Ken-Rogoff-says-Fed-needs-to-set-inflation-target-of-6pc-to-help-ease-crisis.html
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