Short Answer - Pricing Power
From Bloomberg:
Warren Buffett, the billionaire chief executive officer of Berkshire Hathaway Inc., said he rates businesses on their ability to raise prices and sometimes doesn't even consider the people in charge.
"The single most important decision in evaluating a business is pricing power," Buffett told the Financial Crisis Inquiry Commission in an interview released by the panel last week. "If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you've got a terrible business."
Buffett, 80, accumulated the world's third-largest personal fortune through a career of stock picks and takeovers. He has bought companies such as railroads and electricity producers, whose pricing power stems from a dearth of competitive options available to clients. Buffett has also built stakes in firms like Coca-Cola Co. and Kraft Foods Inc., which rely on the appeal of their brands to attract and keep customers.
"The extraordinary business does not require good management," Buffett said in the interview, which was conducted on May 26 in Omaha, Nebraska.
The FCIC investigators focused on Buffett's investment in Moody's Corp., the bond-ratings firm blamed by lawmakers for handing out inflated credit grades during the housing boom. Buffett said he held stock in Moody's because the company's leading market share, along with that of rival Standard & Poor's, a subsidiary of McGraw-Hill Cos., gave the two firms flexibility in setting prices.
Pricing Power
"I knew nothing about the management of Moody's," said Buffett. "If you own the only newspaper in town, up until the last five years or so, you had pricing power and you didn't have to go to the office."
A dominant position can't prevent a bad manager from destroying a company over time, said Benjamin E. Hermalin, a professor of economics at the University of California, Berkeley's Haas School of Business.
"If you have a really dominant position you can survive for quite a long time with bad management but eventually it will catch up to you," said Hermalin. "In the short run I would agree with Buffett but in the longer-run perspective there is something to be said for having a good manager."
Burlington Northern Santa Fe, the railroad Buffett bought last year for $26.5 billion, owns more than 30,000 miles of track across the U.S. West connecting producers and distributors of coal, grain and consumer goods. Omaha-based Berkshire's power company, MidAmerican Energy Holdings Co., sells electricity to homes in the Great Plains and transports natural gas from Wyoming to California.
Praise From Buffett
Buffett routinely singles out and praises managers from Berkshire's more than 70 operating companies. MidAmerican Chairman David Sokol and Gregory Abel, the unit's CEO, are "two terrific managers," Buffett said last year in his letter to shareholders. The acquisition of Burlington Northern had the "additional virtue" of bringing the railroad's CEO, Matthew Rose, to Berkshire, Buffett said.
Buffett criticized Kraft Chief Executive Officer Irene Rosenfeld last year for her takeover of Cadbury Plc and the sale of the foodmaker's pizza brands. "Both deals were dumb," Buffett told Berkshire investors in May. Berkshire is the biggest shareholder of Kraft with a stake valued at $3.3 billion at the end of December.
"In the short run, good management can make a stock pop but I follow what Warren's saying, especially because his point of view looks at the fundamentals," said Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco, and a former managing director at Salomon Brothers. "Good management can't do anything with a bad case."
To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Dakin Campbell in San Francisco at dcampbell27@bloomberg.net.
To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Rick Green at rgreen18@bloomberg.net.
Showing posts with label Warren Buffett. Show all posts
Showing posts with label Warren Buffett. Show all posts
Friday, February 18, 2011
Friday, June 18, 2010
Buffett Predicts the Next Crisis
Probably right.....stay away from this "asset"
Buffett Predicts the Next Crisis (BRK-B)
Buffett Predicts the Next Crisis (BRK-B)
Thursday, April 1, 2010
Traders are Losers
Journal of Finance study concluded "Trading is hazardous to your wealth."
Rates of trades return were about 6.5% less than the overall market. This is due to transaction cost, higher risk, poor money management, stop losses, and position sizing. Furthermore, individuals compete against large investment bankers, and other investors. One stat that is often quoted is that 90% of traders lose. In addition, they are spending lots of time and effort on an unrewarding venture.
There is a better way.
Jim Roger, has been successful on investing, and here is what he says you should do to be successful:
Take your money, put it in Treasury bills or a money-market fund. Just sit back, go to the beach, go to the movies, play checkers, do whatever you want to.
Then something will come along where you know it's right. Take all your money out of the money-market fund, put it in whatever it happens to be and stay with it for three or four or five or 10 years, whatever it is.
You'll know when to sell again, because you'll know more about it than anybody else. Take your money out, put it back in the money-market fund, and wait for the next thing to come along. When it does, you'll make a whole lot of money.
Another successful investor is Warren Buffett. What does he say?
Your default position should always be short-term instruments. And whenever you see anything intelligent to do, you should do it.
It is well known that Buffett follows his own advise and that in Berkshire Hathaway they are sitting on cash and equivalents of more than $46 billion, which is about 27% of the company's current market value.
Now the issue is being patient, waiting for the right opportunity, recognizing it and then acting on it, and again being patient. Like what Buffett has said, you should be investing base on buying a business.
Friday, December 11, 2009
Friday, March 13, 2009
Berkshire Hathaway losses its AAA credit
SINGAPORE — — Warren Buffett's Berkshire Hathaway was stripped of its AAA credit rating by Fitch, barely hours after S&P cut General Electric Co.'s top-tier rating, as the global financial crisis pummels America's corporate titans.
Citing concerns about Berkshire's equity and derivatives investments, as well as Mr. Buffett's tight grip on the company, ratings agency Fitch cut the insurance and investment company's issuer default rating by one notch to AA+.
The downgrade is another setback to Mr. Buffett, 78, coming a day after the billionaire lost his position as the world's richest man to Microsoft Inc. founder Bill Gates, according to Forbes' annual list. Mr. Buffett's net worth plunged to $37-billion (U.S.) from $62-billion last year, the list said.
"Fitch views the company's potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the AAA level," the ratings agency said in its statement on Berkshire.
Those exposures include Berkshire's equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.
Fitch is the first major credit agency to cut Berkshire's AAA rating.
Known as the Sage of Omaha for his long history of successful investments, Mr. Buffett was caught out by the global financial crisis.
Berkshire's net worth tumbled $10.9-billion in the final quarter of 2008 and profits fell 96 per cent, due mostly to losses on derivatives contracts tied to the stock market. Berkshire had $4.65-billion of net investment and derivative losses in 2008.
Mr. Buffett has defended his use of the derivatives, which helped drive Berkshire's annual profit to a six-year low.
Investors should distinguish Berkshire's derivatives from others that dramatically increased financial leverage, made banks "almost impossible for investors to understand," and threatened the collapse of companies such as investment bank Bear Stearns Cos. and mortgage financiers Fannie Mae and Freddie Mac, Mr. Buffett said in his annual letter to Berkshire shareholders.
Fitch also noted Berkshire remains too closely linked to Mr. Buffett to merit a AAA rating.
"Fitch views this risk as unrelated to Mr. Buffet's age, but rather Fitch's belief that BRK's record of outstanding long-term investment results and the company's ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett," it said, referring to Berkshire.
Berkshire generates about half its results from insurance, including auto insurer Geico Corp., but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.
Fitch lowered Berkshire's senior unsecured ratings by two notches to AA. However, it affirmed its AAA insurer financial strength ratings on the company's insurance and reinsurance subsidiaries. The AAA ratings of the insurance subsidiaries "continue to reflect their strong capitalization and competitive positions, and underlying underwriting results," Fitch said.
The outlook for all of Berkshire's entities is negative.
Fitch said the current ratings on Berkshire assume that the company will continue to aggressively deploy its cash and capital as companies look for investors with strong balance sheets.
Berkshire invested $3-billion last year in GE, buying preferred shares with the option of acquiring another $3-billion in common stock at $22.25 per share.
Berkshire has also agreed to make a 3 billion Swiss franc investment in Swiss Re and has bought $5-billion worth of preferred shares of Goldman Sachs.
Berkshire Class A shares closed on Thursday at $87,500 on the New York Stock Exchange. They have fallen 34 per cent over the past year, while the Standard & Poor's 500 has dropped 43 per cent.
Citing concerns about Berkshire's equity and derivatives investments, as well as Mr. Buffett's tight grip on the company, ratings agency Fitch cut the insurance and investment company's issuer default rating by one notch to AA+.
The downgrade is another setback to Mr. Buffett, 78, coming a day after the billionaire lost his position as the world's richest man to Microsoft Inc. founder Bill Gates, according to Forbes' annual list. Mr. Buffett's net worth plunged to $37-billion (U.S.) from $62-billion last year, the list said.
"Fitch views the company's potential earnings and capital volatility derived from its large, unhedged market exposures as inconsistent with the stability required at the AAA level," the ratings agency said in its statement on Berkshire.
Those exposures include Berkshire's equity investments, as well as its holdings of derivative contracts tied to equity and credit markets, Fitch said.
Fitch is the first major credit agency to cut Berkshire's AAA rating.
Known as the Sage of Omaha for his long history of successful investments, Mr. Buffett was caught out by the global financial crisis.
Berkshire's net worth tumbled $10.9-billion in the final quarter of 2008 and profits fell 96 per cent, due mostly to losses on derivatives contracts tied to the stock market. Berkshire had $4.65-billion of net investment and derivative losses in 2008.
Mr. Buffett has defended his use of the derivatives, which helped drive Berkshire's annual profit to a six-year low.
Investors should distinguish Berkshire's derivatives from others that dramatically increased financial leverage, made banks "almost impossible for investors to understand," and threatened the collapse of companies such as investment bank Bear Stearns Cos. and mortgage financiers Fannie Mae and Freddie Mac, Mr. Buffett said in his annual letter to Berkshire shareholders.
Fitch also noted Berkshire remains too closely linked to Mr. Buffett to merit a AAA rating.
"Fitch views this risk as unrelated to Mr. Buffet's age, but rather Fitch's belief that BRK's record of outstanding long-term investment results and the company's ability to identify and purchase attractive operating companies is intimately tied to Mr. Buffett," it said, referring to Berkshire.
Berkshire generates about half its results from insurance, including auto insurer Geico Corp., but operates more than 70 businesses that offer such things as carpeting, ice cream, paint, real estate services and underwear.
Fitch lowered Berkshire's senior unsecured ratings by two notches to AA. However, it affirmed its AAA insurer financial strength ratings on the company's insurance and reinsurance subsidiaries. The AAA ratings of the insurance subsidiaries "continue to reflect their strong capitalization and competitive positions, and underlying underwriting results," Fitch said.
The outlook for all of Berkshire's entities is negative.
Fitch said the current ratings on Berkshire assume that the company will continue to aggressively deploy its cash and capital as companies look for investors with strong balance sheets.
Berkshire invested $3-billion last year in GE, buying preferred shares with the option of acquiring another $3-billion in common stock at $22.25 per share.
Berkshire has also agreed to make a 3 billion Swiss franc investment in Swiss Re and has bought $5-billion worth of preferred shares of Goldman Sachs.
Berkshire Class A shares closed on Thursday at $87,500 on the New York Stock Exchange. They have fallen 34 per cent over the past year, while the Standard & Poor's 500 has dropped 43 per cent.
Thursday, March 12, 2009
Quotes...
You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat" --investor and Obama supporter Warren Buffett
We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." --American hunter, frontiersman, soldier and politician Davy Crockett (1786-1836)
We have rights, as individuals, to give as much of our own money as we please to charity; but as members of Congress we have no right so to appropriate a dollar of public money." --American hunter, frontiersman, soldier and politician Davy Crockett (1786-1836)
Monday, March 9, 2009
Buffett says economy fell off a cliff
Warren is stating the obvious! The economy is hurting. The is the debt bubble unwinding.
High risks in future is the restart of inflation.
LR
**************
Jonathan Stempel
Monday, March 09, 2009
NEW YORK — Warren Buffett said Monday that the U.S. economy had “fallen off a cliff” and eventually would recover, although a rebound could rekindle inflation worse than experienced in the late 1970s.
Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc. went bankrupt and insurer American International Group Inc. got its first bailout. “The world almost did come to a stop,” he said.
Mr. Buffett also called on banks to “get back to banking” and said an overwhelmingly number would “earn their way out” of the recession, even if stockholders don't go along for the ride.
“A bank that's going to go broke should be allowed to go broke,” but customers should not worry about their insured deposits, he said. Mr. Buffett said there was a “paralysis of confidence” in banks, which he called “silly” because of safeguards such as deposit insurance.
Mr. Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc. that the economy was in a “shambles” likely to persist beyond 2009.
On Monday, Mr. Buffett said the economy was experiencing “close to the worst-case” scenario, with business activity declining and unemployment rising, and that the economy “can't turn around on a dime.”
He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.
“It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either,” Mr. Buffett said.
Maintaining his long-term optimism, Mr. Buffett said that “five years from now, I can guarantee you that the machine will be running fine,” although he hoped it would not take that long.
“We do have the greatest economic machine that man has ever created,” he said.
But he said an economic rebound could trigger higher inflation once demand rebounds. “In economics there is no free lunch,” he said. “We are going to attempt to have a lunch that to some extent we're going to pay for later.”
Mr. Buffett also urged Democrats and Republicans in Washington to work better together, and to communicate bipartisan efforts to fix the economy to voters. “You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat,” he said.
Mr. Buffett also said the ailing Citigroup Inc., which Berkshire does not own, would probably keep shrinking, but that depositors should not be worried.
High risks in future is the restart of inflation.
LR
**************
Jonathan Stempel
Monday, March 09, 2009
NEW YORK — Warren Buffett said Monday that the U.S. economy had “fallen off a cliff” and eventually would recover, although a rebound could rekindle inflation worse than experienced in the late 1970s.
Speaking on CNBC television, the 78-year-old billionaire also said the economy was mere hours away from collapse in September, when credit markets seized up, Lehman Brothers Holdings Inc. went bankrupt and insurer American International Group Inc. got its first bailout. “The world almost did come to a stop,” he said.
Mr. Buffett also called on banks to “get back to banking” and said an overwhelmingly number would “earn their way out” of the recession, even if stockholders don't go along for the ride.
“A bank that's going to go broke should be allowed to go broke,” but customers should not worry about their insured deposits, he said. Mr. Buffett said there was a “paralysis of confidence” in banks, which he called “silly” because of safeguards such as deposit insurance.
Mr. Buffett spoke nine days after telling shareholders of his Omaha, Nebraska-based insurance and investment company Berkshire Hathaway Inc. that the economy was in a “shambles” likely to persist beyond 2009.
On Monday, Mr. Buffett said the economy was experiencing “close to the worst-case” scenario, with business activity declining and unemployment rising, and that the economy “can't turn around on a dime.”
He said Americans, including himself, did not predict the severity of the decline in the housing prices, which then led to problems with securitizations, complex debt and other instruments whose value depended on home prices continuing to rise, or at least not plummet.
“It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either,” Mr. Buffett said.
Maintaining his long-term optimism, Mr. Buffett said that “five years from now, I can guarantee you that the machine will be running fine,” although he hoped it would not take that long.
“We do have the greatest economic machine that man has ever created,” he said.
But he said an economic rebound could trigger higher inflation once demand rebounds. “In economics there is no free lunch,” he said. “We are going to attempt to have a lunch that to some extent we're going to pay for later.”
Mr. Buffett also urged Democrats and Republicans in Washington to work better together, and to communicate bipartisan efforts to fix the economy to voters. “You can't expect people to unite behind you if you're trying to jam a whole bunch of things down their throat,” he said.
Mr. Buffett also said the ailing Citigroup Inc., which Berkshire does not own, would probably keep shrinking, but that depositors should not be worried.
Saturday, February 28, 2009
Berkshire Hathaway....Not Doing Great Either
Berkshire Hathaway has worst year in company's history, results show
By Alistair Barr, MarketWatch
Chairman Warren Buffett told shareholders Saturday that the economy would remain in "shambles" during 2009 and beyond, offering no prediction about the future may hold for U.S. stocks.
In his annual letter to shareholders -- eagerly anticipated by investors for the insights it may hold into his thinking -- Buffett said neither he nor Charlie Munger, his long-time partner in running Omaha-based Berkshire (BRKBBerkshire Hathaway Inc can predict winning and losing years in advance -- and no one else can either.
"We're certain, for example, that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond -- but that conclusion does not tell us whether the stock market will rise or fall," Buffett wrote.
Buffett, known as the "Oracle of Omaha," admitted to mistakes last year. "During 2008 I did some dumb things in investments," he said. One such error, he said, was the purchase of a large amount of Conoco Phillips Inc. stock when oil and gas prices were nearing peak levels.
"I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year," he said. "I still believe the odds are good that oil sells far higher in the future than the current $40-to-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."
Buffett also said his acquisition of shares in two Irish banks have turned out badly -- with losses of more than 89%.
On the positive side, the investor is pleased with buys totaling $14.5 million in fixed-income securities issued by General Electric Co.
We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus."
The per-share book value of both Class A and Class B shares of Berkshire fell 9.6%, Buffett said.
The company's net income fell to $4.99 billion from $13.21 billion in 2007.
The 78-year-old billionaire said that although the market value of bonds and stocks the company still holds have dropped dramatically along with the broader market, Berkshire is not bothered by those decreases. "Indeed, we enjoy such price declines if we have funds available to increase our positions. ... Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
On the lookout for inflation 'Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.'
— Warren Buffett
Commenting on the federal government's actions to resolve the economic crisis, Buffett said: "Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects."
Inflation is likely to be one such effect, Buffett said.
"Moreover, major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won't leave willingly."
By Alistair Barr, MarketWatch
Chairman Warren Buffett told shareholders Saturday that the economy would remain in "shambles" during 2009 and beyond, offering no prediction about the future may hold for U.S. stocks.
In his annual letter to shareholders -- eagerly anticipated by investors for the insights it may hold into his thinking -- Buffett said neither he nor Charlie Munger, his long-time partner in running Omaha-based Berkshire (BRKBBerkshire Hathaway Inc can predict winning and losing years in advance -- and no one else can either.
"We're certain, for example, that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond -- but that conclusion does not tell us whether the stock market will rise or fall," Buffett wrote.
Buffett, known as the "Oracle of Omaha," admitted to mistakes last year. "During 2008 I did some dumb things in investments," he said. One such error, he said, was the purchase of a large amount of Conoco Phillips Inc. stock when oil and gas prices were nearing peak levels.
"I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year," he said. "I still believe the odds are good that oil sells far higher in the future than the current $40-to-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."
Buffett also said his acquisition of shares in two Irish banks have turned out badly -- with losses of more than 89%.
On the positive side, the investor is pleased with buys totaling $14.5 million in fixed-income securities issued by General Electric Co.
We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus."
The per-share book value of both Class A and Class B shares of Berkshire fell 9.6%, Buffett said.
The company's net income fell to $4.99 billion from $13.21 billion in 2007.
The 78-year-old billionaire said that although the market value of bonds and stocks the company still holds have dropped dramatically along with the broader market, Berkshire is not bothered by those decreases. "Indeed, we enjoy such price declines if we have funds available to increase our positions. ... Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
On the lookout for inflation 'Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.'
— Warren Buffett
Commenting on the federal government's actions to resolve the economic crisis, Buffett said: "Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects."
Inflation is likely to be one such effect, Buffett said.
"Moreover, major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won't leave willingly."
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