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warren buffett

Why There Will Never Be Another Warren Buffett

August 20, 2010 By 17 Comments

There has been a lot of speculation over who will take over when Warren Buffett steps down.  Buffett is the creator, founder, and mastermind behind the success at Berkshire Hathaway. Berkshire Hathaway (BRK-A) is the highest valued stock in the stock market with a price of $116,305.00 per share. Buffett has turned early investors into multimillionaires through his shrewd investment moves.

Rumors have Li Lu taking over for the longtime Berkshire chairman when he finally does retire. Lu is a Columbia graduate and chairman of Himalaya Capital Management. Lu has made a number of smart investments including his deployment of capital in BYD Company Limited. Although Lu is a very successful investor, he will be placed in a situation where it will be impossible to duplicate the results of the investing legend.

Here are a few reasons why there will never be another Warren Buffett.

1) The stock market’s days of double digit growth are likely over.

There will always be potential in smaller stocks for double digit gains but the market as a whole will not be as robust as it once was. The 5 largest stakes in the Berkshire portfolio are Coca Cola, Wells Fargo, American Express, Proctor & Gamble, and Kraft Foods. These 5 large cap stocks represent nearly 70% of the entire $48 billion dollar public stock portfolio. These are all great companies but none are expected to grow at a double digit rate. A lot will depend on Buffett’s successor’s ability to make strategic acquisition to Berkshire Holdings. Buffett has a knack for knowing that GEICO and Dairy Queen would be great additions to the company’s holdings.

2.)  Buffett’s successor will be managing a multibillion dollar portfolio.

It will be impossible with a portfolio that large to come near the past successes of Warren Buffett. Buffett has been able to generate an average return of 20% annually for over 45 years. In his 2008 annual report Buffett himself stated that “Berkshire’s past record can’t be duplicated or even approached. Our base of assets and earnings is now far too large for us to make outsized gains in the future.” An informed investor actually has a better chance of outperforming Berkshire due to their ability to take advantage of new opportunities and remain nimble in the marketplace.

3) Investors buy shares of Berkshire Hathaway for one reason and one reason only, Warren Buffett.

Everyone wants to own what Buffett owns. The disclosure of his holdings each quarter drives fund managers and investors alike to acquire shares of Buffett’s newest acquisitions. I am convinced that investors trying to mimic the moves of Buffett plays some small part in the rising prices of Buffett’s investments. When Buffett is no longer at the helm, will investors pay up for shares of Berkshire and scramble to acquire the newest Berkshire acquisition?

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What Would Young Buffett Buy?

August 12, 2010 By 13 Comments

Everyone wants to invest like Warren Buffett. He is the 3rd richest man in the world and the namesake for this site. He has made a fortune over the past 50 years with his shrewd investment strategy. Buffett has always been a value investor looking for strong companies selling at a discount. Buffett’s top holdings are Coca Cola, Wells Fargo, American Express, Proctor & Gamble, and Kraft. Have you noticed a trend?

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Could Warren Buffett Succeed In Today’s Economy?

July 14, 2010 By Leave a Comment

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The One Big Bank That You Never Hear About

June 28, 2010 By Leave a Comment

While Bank of America (BAC), JPMorgan Chase (JPM), and Wells Fargo (WFC) dominate the headlines, there is one large bank that just slowly continues to grow away from the limelight. That bank is US Bancorp (USB). US Bank took TARP funds just like the other big banks but unlike the other big banks has been able to escape the public backlash.

US Bank has been a longtime Buffet holding because of the company’s great management team and conservative approach to lending. The company’s management is a big reason why the banking giant’s loan portfolio has been outperforming that of its banking peers. It’s non performing loans percentage is much lower than Citigroup and Bank of America. US Bank is the 5th largest bank in the US based on asset size and US Bank has been quietly increasing its size by buying up failed banks over the past year. There have been continuous rumors that US Bancorp may acquire a larger regional bank to expand its operations.

US Bancorp has reported nearly two consecutive years of profitability. Last quarter’s earnings were very solid. USB had earnings of $648 million dollars and an EPS of 34 cents per share. Profitability increased 55% and total deposits increased almost 14%. The encouraging news was that consumer loan delinquency was decelerating even as the bank was increasing its reserves for loan losses. Investors should pay attention to the July 21st earnings release to see how US Bancorp’s sizeable commercial loan portfolio is holding up.

US Bank pays out a much higher dividend than its banking competitors. Shares of US Bancorp are not expensive but are not particularly cheap either at $23. Shares trade at 11 times forward earnings and 1.8 times book value.

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Warren Buffett’s Big Bets Continue To Pay Off

April 22, 2010 By 1 Comment

Warren Buffett’s Smart Investments

Any list of great CEO’s would not be complete without Warren Buffett. Buffett is the head of Berkshire Hathaway and the namesake for this blog. Berkshire Hathaway is the holding company for Geico, Dairy Queen, Nebraska Furniture Mart, Burlington Northern, and a number of subsidiaries.

The Oracle of Omaha is still one of the greatest investors around. With so many pundits claiming the demise of Buffett’s investment prowess; Buffett just continues to make shrewd investments. How about his investment in Goldman Sachs (GS) when the investment bank was desperate for capital? His $5 billion dollar investment looks pretty smart now even with Goldman’s government problems. How about his $3 billion dollar stake in General Electric (GE) during the financial crisis? While the warrants are still underwater, the 10% dividend on preferred shares has paid off nicely.

His company, Berkshire Hathaway (BRK.A) has made millionaires out of many investors over the past 25 years. Shares have skyrocketed from $7,100 in 1990 to over $118,280 in 2010. The stock has performed well in recent years also. Berkshire Hathaway has returned 98.12% to shareholders over the past decade. Buffett’s shareholder meetings are legendary with investors trekking to Nebraska annually to hear the financial wisdom of Buffett. While insurance companies like AIG needed government bailouts to stay afloat; Berkshire Hathaway has not needed one dime from the government. This is because Buffett has managed to properly manage risk. The firm has made some poor bets on derivatives in the past but did not allow these bets to jeopardize the underlying businesses.

This outstanding performance comes at a cheap price. The world’s third richest man is arguably the most underpaid CEO of any major company. Buffett takes home just $100,000 annually in salary. Buffett’s salary has been the same for the past 25 years. His total compensation comes in at just over half a million a year with over $300,000 being spent on personal security to protect Buffett. Buffett is generous with both his time and money. He has pledged to donate 85% of his wealth to charitable causes and shares his insights with young investors.

I do own shares of Berkshire Hathaway Class B stock.

 

Photo by: Ethan Bloch

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A New Number 1

March 11, 2010 By Leave a Comment

1. There is a new richest man in the world. Ladies and Gentleman meet Carlos Slim Helu. The Mexican telecom mogul knocked Bill Gates off as the world’s wealthiest man with a net worth of $53.5 billion dollars. 80% of his net worth lies in 5 Mexican telecom stocks. His net worth jumped $18.5 billion last year vaulting him from third to first place.

2. Bill Gates finished at number 2 with a net worth of $53 billion dollars. Gates would no doubt still be the richest man in the world if he had not retired from his daily duties at Microsoft in 2008. Only $500,000 separates Gates and Slim. His net worth increased $13 billion dollars over the past year.

3. Warren Buffett, for whom Buy Like Buffett is named, came in at number 3 with a net worth of $47 billion dollars. Buffett’s net worth grew $12 billion dollars in 2009. I wouldn’t feel too bad for Buffett. I am sure he isn’t losing too much sleep over just being the 3rd richest man in the world.

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CNBC Special on Warren Buffett

June 2, 2009 By Leave a Comment

CNBC will be airing a special on Warren Buffett at 10pm called Warren Buffett: The Billionaire Next Door.

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It’s Time To Buy

February 7, 2009 By Leave a Comment

Great article from Fortune Magazine by Carol Loomis.

Is it time to buy U.S. stocks?

According to both this 85-year chart and famed investor Warren Buffett, it just might be. The point of the chart is that there should be a rational relationship between the total market value of U.S. stocks and the output of the U.S. economy – its GNP.

Fortune first ran a version of this chart in late 2001. Stocks had by that time retreated sharply from the manic levels of the Internet bubble. But they were still very high, with stock values at 133% of GNP. That level certainly did not suggest to Buffett that it was time to buy stocks.

But he visualized a moment when purchases might make sense, saying, “If the percentage relationship falls to the 70% to 80% area, buying stocks is likely to work very well for you.”

Well, that’s where stocks were in late January, when the ratio was 75%. Nothing about that reversion to sanity surprises Buffett, who told Fortune that the shift in the ratio reminds him of investor Ben Graham’s statement about the stock market: “In the short run it’s a voting machine, but in the long run it’s a weighing machine.”

Not just liking the chart’s message in theory, Buffett also put himself on record in an Oct. 17 New York Times op-ed piece, saying that he was personally buying U.S. stocks after a long period of owning nothing outside of Berkshire Hathaway stock but U.S. government bonds.

He said that if prices kept falling, he expected to soon have 100% of his net worth in U.S. equities. Prices did keep falling – the Dow Jones industrials have dropped by about 10% since Oct. 17 – so presumably Buffett kept buying. Alas for all curious investors, he isn’t saying what he bought.

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Buffett Buys A Harley

February 3, 2009 By Leave a Comment

Warren Buffett invested 300 million dollars in 5 year bonds of Harley Davidson. The investment came at a steep price for Harley which is in the form of 15% interest. The 5% increase over earlier deals with General Electric and Goldman Sachs illustrates just how difficult it is to obtain capital right now. Buffett’s investment in Harley could not have come at a better time for the company. Harley  was facing a liquidity crisis as its cash position had dwindled to 600 million. Buffett’s vote of confidence in the company has sparked a 17.5% rise in Harley’s stock to $14. Harley Davidson is selling an additional 300 million in bonds to raise capital.

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Buffett & Economic Pearl Harbor

January 20, 2009 By 2 Comments

Below are excerpts from an interview with Warren Buffett on the US economy. I found this on Bloomberg. The link can be found at the bottom of the page.

The U.S. is facing an “economic Pearl Harbor” that has spread fear throughout the country, billionaire investor Warren Buffett told Tom Brokaw in an interview broadcast yesterday on Dateline NBC.

“We have a negative feedback cycle going on right now,” Buffett said, according to a transcript of the interview on CNBC’s Web site. “We have fear which leads to people not wanting to spend, and not wanting to make investments. And that leads to more fear.”

Buffett, the chairman of Berkshire Hathaway Inc., said Barack Obama is “the absolute right commander in chief” to guide the country through the financial crisis. Obama, 47, will be sworn in as the 44th U.S. president tomorrow in Washington.

He can “convey to the American people what needs to be done, not to expect miracles, that it’s going to take time,” Buffett, 78, said in the interview.

Buffett declined to predict how long the economy will remain under duress, except to say that he doesn’t expect a recovery to take five years. He contrasted the current economic crisis with the period “three or four years ago,” when “everybody lent you more and more on a house that kept going up, and you could keep spending money you didn’t have.”

Buffett said the economic slump is the worst since World War II, though not as severe as the Great Depression. He said “it’s never paid to bet against America,” and that the country would come through the crisis. “But it’s not always a smooth ride.”

Photo and Article by Bloomberg

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