“Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children
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Posts tagged #Buffett
Guru Speak !
“Unless you can watch your stock holding decline by 50% without becoming panic stricken , you should not be in the stock market !!!”
Profound wisdom favoring Long Term Equity Investing !
All those who invest in the stock market should remember & understand these lines -
In the 20th century, the United States endured
- two world wars and
- other traumatic and expensive military conflicts;
- the Depression;
- a dozen or so recessions and financial panics;
- oil shocks;
- a flu epidemic;
- and the resignation of a disgraced president.
Yet the Dow rose from 66 to 11,497.
Warren Buffett
and is 15,300 as i write this post ....
If anyone comes around and gives you another Doomsday forecast ...plenty ...just tell them to take a hike .....
Of course the story is being STOCK SELECTIVE instead of a general rise which we experienced earlier due to structural adjustments ..so you need to work hard for that ..but nothing comes easy ....not as easy as the pink papers want it to sound !
there still will be phases of a general rise ...of course but for superior returns you will have to work harder !
cheers !
Warren Buffett Hopes shares of his investment IBM Languish And Underperform For The Next 5 Years
Strange are the ways of Warren Buffett.....hoping for an underperformance that too for 5 years ...
Indians would say satheya gaya ...NOT REALLY !
This past year, Warren Buffett made a rare foray into tech investing, with a substantial purchase of IBM shares.
He explains .....
This discussion of repurchases offers me the chance to address the irrational reaction of many investors to changes in stock prices.
When Berkshire buys stock in a company that is repurchasing shares, we hope for two events: First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come;
and second, we also hope that the stock underperforms in the market for a long time as well.
Let’s use IBM as an example. As all business observers know, CEOs Lou Gerstner and Sam Palmisano did a superb job in moving IBM from near-bankruptcy twenty years ago to its prominence today.
Their operational accomplishments were truly extraordinary. But their financial management was equally brilliant, particularly in recent years as the company’s financial flexibility improved. Indeed, I can think of no major company that has had better financial management, a skill that has materially increased the gains enjoyed by IBM shareholders. The company has used debt wisely, made value-adding acquisitions almost exclusively for cash and aggressively repurchased its own stock.
Today, IBM has 1.16 billion shares outstanding, of which we own about 63.9 million or 5.5%. Naturally, what happens to the company’s earnings over the next five years is of enormous importance to us.
Beyond that, the company will likely spend $50 billion or so in those years to repurchase shares.
Our quiz for the day: What should a long-term shareholder, such as Berkshire, cheer for during that period?
I won’t keep you in suspense. We should wish for IBM’s stock price to languish throughout the five years.
Let’s do the math. If IBM’s stock price averages, say, $200 during the period, the company will acquire 250 million shares for its $50 billion. There would consequently be 910 million shares outstanding, and we would own about 7% of the company. If the stock conversely sells for an average of $300 during the five-year period, IBM will acquire only 167 million shares. That would leave about 990 million shares outstanding after five years, of which we would own 6.5%.
If IBM were to earn, say, $20 billion in the fifth year, our share of those earnings would be a full $100 million greater under the “disappointing” scenario of a lower stock price than they would have been at the higher price. At some later point our shares would be worth perhaps $1 1⁄ 2 billion more than if the “high-price” repurchase scenario had taken place
The logic is simple: If you are going to be a net buyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise.
You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day’s supply.
Charlie and I don’t expect to win many of you over to our way of thinking – we’ve observed enough human behavior to know the futility of that – but we do want you to be aware of our personal calculus.
And here a confession is in order: In my early days I, too, rejoiced when the market rose. In the end, the success of our IBM investment will be determined primarily by its future earnings.
But an important secondary factor will be how many shares the company purchases with the substantial sums it is likely to devote to this activity. And if repurchases ever reduce the IBM shares outstanding to 63.9 million, I will abandon my famed frugality and give Berkshire employees a paid holiday.
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ps : this post isnt original, rightly so, as i am using what Warren said to highlight a long term strategy but incisive & highly educative , so reproduced for its educative value !
Value Investing at its very best - Purchase of Burlington National by Berkshire Hathway
Warren Buffet, the Guru has done it again. This time round its increasing his stake in the Railways.
He took a stake earlier (22%) and now completely bought over Burlington Northern Santa Fe, the second-largest railroad company in US for $34 Billion @ $100 per share, at 30% premium on Monday’s closing price.
He bet on the future of Railways earlier when he took stake in Burlington – 22%, Union Pacific 2%, Norfolk Southern – less than 1%. Now with the biggest ever purchase by Berkshire Hathaway, he has gone the whole hog. ( Before this, the biggest acquisition was the $16 billion purchase of General Re in 1998).
Salient Features of the investment -
# It’s a major wager on the health, strength and future of the US economy.
# It’s a stake in the industry which hauls everything big & small, commodities to consumer products to heavy machines. Growth will mean more haulage both for export of crop produce, imports from all over, Coal for energy etc.
# The railways make economic sense and thus are being increasingly preferred, as the prices of oil remain firm given its limited availability. To put into context , one train roughly hauls 280 odd trucks.
# Captive consumption – Berkshire already owns major utilities which rely on coal.
# Moat – After consolidation the current rail road industry in US is a virtual monopoly with major deterrents for new entrants, so a perfect Buffet moat.
# Proxy investment into Coal & energy - Rather than buying expensive coal mines, he bought into the Coal logistics as the Coal fired plants grow so will the use of railroad for its supplies. Nine new plants have been approved & 25 are under const. for a total 15,000 MW.
# Why Burlington – Another Buffet principal , always go for companies having strong managements. It has a strong management team which deployed technology, consistently improved efficiency and cut costs to make it more profitable.
# Timing and Price - The investment was made at almost the bottom when the company reported much lower volumes consequent 30% drop in profits. The things are not going to get any worse.
Summing up, current fundamentals may look weak and shares fully priced but when one peeps into the future both near & distant, this will turn out to be one great investment.
