3 ms·

> when you sell youre moving your safe assets to risky assets That's not exactly what he is saying nor what he means. Both are risky assets. A 100% owned busin

> when you sell youre moving your safe assets to risky assets That's not exactly what he is saying nor what he means. Both are risky assets. A 100% owned business you deeply understand is still a very risky asset. On its own. I agree with aeden's comment that diversification is one of the main reasons to sell. The other good reason to sell...you get cash! Sure some of the cash will "probably" go to a diversified stock portfolio but some of it will be spent on cool stuff. You can't use stocks to buy your dream vacation home or donate money to charity for it to be spent on medical research. Cash is also the reason to sell. Lastly, people die. A business founder must sell the business or give it to someone else at some point in one way or another or it will be done for him or her.

ChefDenominator 10y ago
That last part, death, is important, especially to Buffet. He supports the death tax because it strongly encourages business owners to sell to some outside investor. My understanding is that many businesses cannot support providing the Government with amount of cash necessary pay the tax, or the net reduction in income makes running the business not worthwhile. Note how the letter is worded to carefully state that the family members will still have some ownership and management will be maintained. While this is certainly wise acquisition tactic, it is also very appealing to a seller who is on the margin and primarily selling to avoid the death tax. (If you are thinking, "but the inheritor will still have to pay the tax on the cash," you are correct, but paying tax on cash still provides immediate payback with what is left over, whereas running or even just owning a business or any investment asset for 10+ years and getting zero or close to zero is not going to be desirable to a great many people.)
- valuearb 10y ago
  Buffett doesn't support estate taxes because of self interest, that would be silly as it's just a tiny factor in Berkshire Hathaway's business. He just doesn't believe the concentration of wealth and power is healthy for a democracy. That's a big reason why 99% of his wealth is going to charity instead of his kids. Now I think he's wrong about this. Rockefeller had a roughly ten times greater share of our nations wealth as Gates or Buffett ever had. And somehow our democracy survived and flourished, because inheritances typically get split up among children, grand-children and eventually hundreds of great-grand kids and great-great grand kids, and predominantly those descendants dissipate the wealth because they don't have the same drive or abilities as the wealth creator. And lots of that money ends up in charities before it's all gone.
  - ChefDenominator 10y ago
    Non-profit entity is not the same as "charity". Most of the large non-profits operate on a percentage of the interest earned on a large endowment. It's essentially a scam for the very rich and the banks. If the purpose of the entity were truly to benefit the needy, then they would operate directly on donations and not withhold so much funding from those in need. I specifically discussed sellers who are on the margin. While it can be difficult to know exactly how many of these are, I'm willing to bet this would result in a very real and measurable reduction in investment opportunity for Berkshire. If it were 10 businesses in a year at Buffet's stated minimum of $10 million annual net profit, then that would represent $80 million in annual revenue for Berkshire. In the world of big business, famous personalities, and politics, my position is to assume the worst case scenario, which is that the only reason someone like Buffet supports the death tax is because he profits from it. In this case, it is not a coincidence.
    - tim333 10y ago
      >my position is to assume the worst case scenario If you always assume some extreme in the absence of evidence your assumptions are probably not going to be very accurate. There's a bunch of evidence Buffett is not like that.
      - ChefDenominator 10y ago
        I like how you removed all of my prerequisites so as to completely change my position.
    - valuearb 10y ago
      You sure make lots of questionable assumptions. First, Buffett's minimum pretax profit hurdle for potential acquisitions is $75M a year, not $10M. Those people tend to have the best legal help possible to avoid/minimize estate tax. Your opinions on mon-profit entities is anecdotal at best, all that matters for the purpose of the question at hand is how Buffets charitable contributions work and you haven't spent an iota of time learning about them, not that it stops your pontificating. I disagree with Buffett on estate tax, but that doesn't make me blindly question his motives. There is a whole world out there full of people who may surprise you if you take off your political blinders.

ChefDenominator 10y ago

That last part, death, is important, especially to Buffet. He supports the death tax because it strongly encourages business owners to sell to some outside investor. My understanding is that many businesses cannot support providing the Government with amount of cash necessary pay the tax, or the net reduction in income makes running the business not worthwhile. Note how the letter is worded to carefully state that the family members will still have some ownership and management will be maintained. While this is certainly wise acquisition tactic, it is also very appealing to a seller who is on the margin and primarily selling to avoid the death tax. (If you are thinking, "but the inheritor will still have to pay the tax on the cash," you are correct, but paying tax on cash still provides immediate payback with what is left over, whereas running or even just owning a business or any investment asset for 10+ years and getting zero or close to zero is not going to be desirable to a great many people.)

valuearb 10y ago
Buffett doesn't support estate taxes because of self interest, that would be silly as it's just a tiny factor in Berkshire Hathaway's business. He just doesn't believe the concentration of wealth and power is healthy for a democracy. That's a big reason why 99% of his wealth is going to charity instead of his kids. Now I think he's wrong about this. Rockefeller had a roughly ten times greater share of our nations wealth as Gates or Buffett ever had. And somehow our democracy survived and flourished, because inheritances typically get split up among children, grand-children and eventually hundreds of great-grand kids and great-great grand kids, and predominantly those descendants dissipate the wealth because they don't have the same drive or abilities as the wealth creator. And lots of that money ends up in charities before it's all gone.
- ChefDenominator 10y ago
  Non-profit entity is not the same as "charity". Most of the large non-profits operate on a percentage of the interest earned on a large endowment. It's essentially a scam for the very rich and the banks. If the purpose of the entity were truly to benefit the needy, then they would operate directly on donations and not withhold so much funding from those in need. I specifically discussed sellers who are on the margin. While it can be difficult to know exactly how many of these are, I'm willing to bet this would result in a very real and measurable reduction in investment opportunity for Berkshire. If it were 10 businesses in a year at Buffet's stated minimum of $10 million annual net profit, then that would represent $80 million in annual revenue for Berkshire. In the world of big business, famous personalities, and politics, my position is to assume the worst case scenario, which is that the only reason someone like Buffet supports the death tax is because he profits from it. In this case, it is not a coincidence.
  - tim333 10y ago
    >my position is to assume the worst case scenario If you always assume some extreme in the absence of evidence your assumptions are probably not going to be very accurate. There's a bunch of evidence Buffett is not like that.
    - ChefDenominator 10y ago
      I like how you removed all of my prerequisites so as to completely change my position.
  - valuearb 10y ago
    You sure make lots of questionable assumptions. First, Buffett's minimum pretax profit hurdle for potential acquisitions is $75M a year, not $10M. Those people tend to have the best legal help possible to avoid/minimize estate tax. Your opinions on mon-profit entities is anecdotal at best, all that matters for the purpose of the question at hand is how Buffets charitable contributions work and you haven't spent an iota of time learning about them, not that it stops your pontificating. I disagree with Buffett on estate tax, but that doesn't make me blindly question his motives. There is a whole world out there full of people who may surprise you if you take off your political blinders.